Back to Pittsburgh's Entrepreneurial Future

I am traveling too much these days to blog here regularly, so it is weirdly reassuring to note that while I'm away, not much changes in Pittsburgh. I started this blog back in 2003 because I was puzzled by the region's inability to capitalize on what I - as a relative newcomer and outsider - regarded as some extraordinary financial and technological (R&D) resources. Guess what? I've been away for good, long stretches this Summer, yet despite a lot of interesting and productive activity since then, people around here are *still* scratching their heads.

Among recent media notes, the Post-Gazette and Pop City both ran stories about two weeks ago that focused on the cultivation of small tech companies in the region. Pop City profiled Project Olympus, the CMU-based brainchild of Lenore Blum (a remarkable and world-leading computer scientist), which is designed to bring academic CS research out of the lab and into the purview of investors. So long to the sluggish and inefficient world of university tech transfer offices? Not so fast. The PG had a different take.

Pop City, being Pop City, was ebullient about the whole thing:

[S]ince its inception in 2007, Project Olympus has already spun off 23 start-up companies in the Pittsburgh area. In a knowledge based economy it is all about the talent; the talent of every age group. Project Olympus is proving itself a model of the cross generational collaboration that will be necessary for not only Pittsburgh, but for the United States overall, to compete in a global knowledge economy.

The Post-Gazette's glass was half-empty, with a perspective that would have been right at home in the Pittsburgh media circa 2003. Or 1999:

While Pittsburgh has proven good at giving birth to small tech firms, the city's effort to be an alternative to tech heaven Silicon Valley has been hurt by its difficulties in helping those young companies to mature. The recession has worsened the problem.

Lenore Blum spun the PG story more positively in a letter to the editor, but the long-term truth is inescapable.

There are two things at work here, neither of which is really addressed either in the media or, so far as I can tell, in the local business community itself.

One is the story. The Pittsburgh business/tech community won't get traction nationally and internationally -- it won't support local moves from startup to mid-size company or acquisition target -- unless and until that community can tell a story of passion and local resources that doesn't just make Pittsburgh attractive but that makes investors and managers elsewhere want to get in on Pittsburgh's action. Maybe that involves making Pittsburgh cool. Maybe it involves making Pittsburgh hot. "Lifestyle" media have attracted a lot of investment over the last few years, most of it wasted, in my opinion. Pittsburgh now has umpteen glossy, mostly useless magazines dedicated to making middle-class Pittsburghers envious of wealthy Pittsburghers, and making wealthy Pittsburghers feel good about themselves. Modestly better was the Imagine Pittsburgh campaign, but Imagine Pittsburgh was/is corporate milquetoast, as befits something coming out of the ACCD. The region needs something more powerful -- it needs the stories, lots of stories, of people who are here and who are not just making this place better, but who are here doing amazing things. Changing people's lives. And who can create opportunities for others to do the same.

Pittsburgh needs to create the sense that there is something happening here that other people can get in on only by coming here themselves. As one local VC put it in the PG, "Contrasted with Silicon Valley, the number of spin-offs from public companies didn't really happen here .... "No one is jonesing for Pittsburgh companies."

Does Google's plan to expand in Pittsburgh help on this score? Somewhat, but not as much as some local boosters might hope. Google's facility in Pittsburgh will give a professional home to some talented folks who might otherwise have relocated to Mountain View, but Google itself won't do much for Pittsburgh's wow-factor unless those talented folks start leaving Google in their own spin-offs -- and staying and succeeding here. Google isn't a solution for Pittsburgh. Google can be a platform for others' solutions.

Two is the ongoing lack of an effective infrastructure for nurturing start-ups from "tiny" to "mid-size." It has never been enough to put smart people with new ideas in the same room as investors, though both Pop City and the PG (in good faith) leave that impression. Pittsburgh has had lots of smart people over the last decade; Pittsburgh has a growing pool of investor capital. What Pittsburgh still does not have in sufficient quantity is

(i) reasonably priced legal help, for dealing with employment, tax, corporate, capital formation, immigration, and occasional IP issues in a one-stop, one-shop format, from the perspective of "we're here to partner with you and share in your success" rather than "we're here to bill you by the hour." If you read through Pittsblog archives, you'll see that this has been a long-standing theme for me. Pittsburgh has somewhat more of this activity than in the past, but still, it has not nearly enough.

(ii) other professional services/sectors that are oriented to small and emerging tech companies: real estate, tax and accounting, insurance, regulatory compliance. Special note here about regulatory compliance. Compliance needs are massive for firms that want to compete in biomedical, bioscience, and med-tech sectors.

(iii) management. Most of the attention to R&D in Pittsburgh gets focused on the universities. CMU and Pitt (and don't forget UPMC - as well as research and entrepreneurship coming out of Pittsburgh's other universities) are pretty healthy generators of new small companies. But university faculty are notoriously and understandably bad at building companies. (Raul Valdes-Perez, until last summer the CEO of Vivisimo and now its Executive Chairman, is the exception who proves the rule.) Few small companies can grow to mid-size without transitioning away from the technologist/founder and toward professional management. Investors won't sign on without faith that business people are in charge of the business. Pittsburgh has plenty of management talent, but it doesn't have enough senior and mid-level management talent with experience growing small companies. Why not? Chicken-and-egg: To build a deep bench of these people, you need a healthy diet of these companies coming (into existence) and going (onward and upward to greater success, or out of business). When one opportunity ends - fails, or succeeds - these people need something new to do. In the Silicon Valley (though not only in the Silicon Valley), historically it's been pretty easy to jump from job one to job two, if only because the volume of opportunities was so large. In Pittsburgh?

Quick: Set aside the two dozen spinoffs of Project Olympus and the graduates of AlphaLab. Name a dozen Pittsburgh companies that are currently in growth mode, aiming for $50m in annual revenues and an exit/acquisition strategy in five years, give or take. If you can do that, fantastic; Pittsburgh is making more progress than I thought. If you can't -- if you can come up with, say, six of those companies -- then Pittsburgh is going to continue to struggle to attract talented leadership for those opportunities. And VCs are going to continue to move the better companies out of the region, to places where it is easier to attract leadership and monitor the companies' performance.

I'm on the road again shortly. Meanwhile, I am waiting for the next shoe to drop at Aldo Coffee in Mt. Lebanon before posting about the imperative to innovate. Not every small business challenge in Pittsburgh is a start-up tech company trying to figure out how to go public or get acquired.