Raining on the Entrepreneuship Parade

Two recent news items suggest that the local entrepreneurial picture could use some re-balancing:

The Institute for Entrepreneurial Excellence at Pitt announced (here is the full press release):
Pittsburgh, Pennsylvania- February 23, 2009 - While corporations look for handouts and major firms around the globe teeter on the edge of collapse, the entrepreneurial firms of Western Pennsylvania are proving that businesses can thrive in a difficult economy with the help of innovative strategies, flexible strategic plans, and organizations like the University of Pittsburgh Institute for Entrepreneurial Excellence (IEE). In 2008, the Institute helped the region’s entrepreneurial business community raise more than $44 million in loans and investments. ...

The IEE is dedicated to leading economic growth and revitalization in our region, one business or entrepreneur at a time. For every dollar invested in the IEE, it raises approximately $49.11 in loans and investments for Western Pennsylvania businesses. The IEE’s efforts reach thousands of businesses that provide more than 50,000 jobs and $9.5 billion in annual revenue.

I don't want to single out the IEE. A current profile of Innovation Works by Pop City notes:
Since 2000, Innovation Works has invested about $40 million in start-ups, which have used that financing to leverage $550 million in additional capital. IW portfolio companies have created nearly 5,000 jobs, positions that typically pay roughly double the average wage in Pennsylvania. Most significantly, of all the local companies that received venture financing in 2008, about 70 percent were in the IW portfolio.

Notes on these things:

One, I think of myself as a friend to the local entrepreneurial community and at times, even a cheerleader. But that doesn't mean that skepticism isn't warranted sometimes. And this is a moment for some skepticism.

Two, statements touting millions of dollars and thousands of jobs created (or "reached") should be recognized for the PR puffery that it is. The IEE "reaches" 50,000 jobs? IW companies have created 5,000 jobs? As if the IEE and IW are responsible. These organizations have their role, but they are investors and counselors; they aren't running these companies themselves.

Three, what's more, the PR focus on job creation may understate and even undermine the real role that these organizations (and others in that space, such as PLSG and Idea Foundry) can play in the local economy. They focus on job creation because they get money from state and federal governments, and state and federal legislators want to see results -- especially employment-related results. What that means is that the organizations do retail economic development: A small company comes in, gets some support (strategic advice, a little money), then goes on to be a larger company and, in a perfect world, hires a bunch of people.

Jobs are essential, and they are getting more essential by the day. But politics of state financing aside, it's an error for new company brokers and advisors like IW and IEE to focus their efforts primarily on job creation. A better role for them would be wholesale economic development, creating platforms or environments where local supply can meet -- and grow -- local demand, and vice versa. Here's an example from last year: The Pens partnering with the Tech Council last year to help to "future-proof" the new arena via technologies under development in the region:
The Penguins and the Pittsburgh Technology Council kicked off the initiative last month [this is Spring 2008] when the team discussed the types of innovations it was looking for as part of a Web-cast. More than 400 companies viewed the presentation, and about 70 submitted 200-word descriptions detailing ways their company could provide the kind of technology the team wanted.

That's balancing retail economic development with wholesale economic development.


2 Responses to "Raining on the Entrepreneuship Parade"

Anonymous said... 3/26/2009 5:40 PM

It is interesting to note the comments and possible hidden agendas that arise from blogs that do not have a name attached. As the Founder of the IEE and a board member of IW I can assure these unknown bloggers that both of these organizations have incredible dedicated people who care about our region- every day- all day.
These organizations have excellent tracking systems that capture the client, the work that was done for them as well as their demographic data such as number of jobs etc.
I am incredibly proud of the hard work that our team did in 2008 - helping western Pa companies receive over $44 million in new funding from a host of sources. The IEE- MIS system details every interaction with the client and provides a trail of what happened capturing the demographic data as well such as reported job counts In fact, I invite the authors of these blogs to call me directly and I will arrange for their visit to analyze these numbers, record what is retail or not. Please call me, Ann Dugan at 412.648.1727. The fact that anyone believes that these are retail jobs is sadly lacking in knowledge about the local market. A small percentage of entrepreneurs/firms we work with are in the retail sector and in the last few years this sector has had declining job creation and retention.
The most important item for these unknown bloggers to realize is that the entrepreneurial sector of Western Pa deserves and should expect high level quality assistance from those of us in economic development not backroom sniping about whether life sciences are more important than manufacturing or distribution or yes even retail. All jobs are important in these troubled times. I look forward to hearing from you. Ann Dugan

Mike Madison said... 3/27/2009 10:38 PM

Blogs with no names attached and hidden agendas can speak here to defend themselves; my name and my lack of agenda (I have no money to invest, no grants to obtain, and no clients to counsel!) is here for all to see! :-)

It appears that Ann has mis-read the content of the post as well as the nature of the blog.

It's clear from the post that my use of the word "retail" does *not* refer to the kinds of jobs or the kinds of enterprises that IW and the IEE support and grow. "Retail" describes the style of economic development that the organizations generally undertake: one to one counseling of specific clients or specific companies. "Wholesale" is the contrasting metaphor, and in the post I used it to refer to a style of economic development efforts -- creating an environment in which the sum of economic development efforts that simultaneously involve a number of companies can produce results that are, again metaphorically speaking, greater than the sum of their parts.

Both approaches have value. Jobs are precious in general, and the post does not disagree on that point. As an economic development strategy, however, the emphasis on jobs means that potential long-term structural progress -- building an infrastructure for continued and diverse growth -- may be sacrified for short-term employment gains.

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Pittsblog 2.0 was written by Mike Madison, a law professor at the University of Pittsburgh, from January 2004 through December 2011.

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