Via Pop City, I learned this morning about yet another program in Pittsburgh that is going to talk about startup companies: How to start one, why Pittsburgh needs more of them, where you can find help, etc.

Startups are fun to talk about, even if there is sometimes more talk than action. Startups are sexy. People who come in to talk about successful startups and what successful startups "mean" are the lottery winners of the new economy. The pitch for these program is almost always, "come talk to the winners." This program, for example, is offered via the following tag line: "It's critical to our economy that we create an atmosphere that supports start up companies and fuels small business growth. Join us as we hear from those in Pittsburgh and elsewhere who have been successful in doing this."

Well, OK. But can you say, "selection bias"?

What I would love to see are additional programs that

-- feature people who bet the farm on a startup, and then crashed and burned. Instead of a panel on success, how about a panel on failure? Failure has causes; failure holds lessons. Many more new businesses fail than succeed. A robust environment for business tolerates failure; it doesn't just nurture success. How can Pittsburgh create *that* atmosphere?

-- feature people who came and and took over someone else's startup, then grew it from startup to stable company. These would be both investors and managers. Starting a company and growing a company require related but distinct sets of skills. There are a lot of brilliant researchers and faculty members around Oakland; many of them harbor dreams of taking their cool inventions and building successful companies around them. But the inventive skills that brought forth those inventions will not suit those people when it is time to solicit funding, hire a staff, and deal with the marketplace. If the going gets good, the founder will often get replaced. There are skilled and experienced managers out there who are *really good* at building companies; they simply need a product, or a service, to build that company around. Often, that transition is accompanied by heartbreak and tears and even lawsuits. It's also a transition that is often necessary if the company is going to escape the gravitational pull of the founder's ego. Who are the players in those transitions? What are the interests at stake? And how can Pittsburgh's business climate make those kinds of transitions successful?


7 Responses to "Growth"

MH said... 9/01/2010 12:52 PM

Instead of a panel on success, how about a panel on failure?

If the Pittsburgh School Board is not good enough for you, there's just no pleasing some people.

Mike Madison said... 9/01/2010 2:25 PM


jet said... 9/02/2010 12:50 AM

I spent ~12 years in the San Francisco bay area working for failed startups. What really amazed me was the number of execs who oversaw startup failures turning that into "experience" when anyone else would have said it was "incompetence".

Would you hire a defense attorney based on the number of cases they had lost or the number they had won? Using startup logic, the person who had lost more cases is smarter than the person who won more cases.

Jim Russell said... 9/02/2010 3:39 PM

If I'm handicapping lawyers using "start up logic", then I hire someone who lost some cases early in her career over someone who never lost.

Mike Madison said... 9/02/2010 3:52 PM

As a young lawyer, I was trained to think that advocates should never make only arguments that are clear winners. If you never try to push the envelope - never risk failing - you never know when you can break new ground.

Andrew said... 9/03/2010 10:49 PM


I'm curious to see what you think of the following post (covering the same issue you raise) by the founder of Redfin:

Mike Madison said... 9/04/2010 7:54 AM

That's an interesting post. Glenn Kelman, the CEO of Redfin (an online real estate brokerage), defends the founder-stays-put model, both empirically (more founders are staying and growing with their startups) and philosophically (and that's a good thing, too). He attributes the trend largely to demographics: the startup community is characterized by more experienced veterans than it was 20 years ago. Then, founders were young ignorant Turks. Today, those people are veterans - not retreads - and they are still cycling through the startup market.

I can't comment on the philosophy.

Empirically -- That's a blog post, filled with anecdotes, not a study of a market or a sector or a community. My own anecdotal observation is that there is indeed a slice of the startup market where pressure to replace the founder is far weaker than it once was. That slice is characterized by (i) online service plays (like Redfin) which (ii) can be scaled without substantial capital investment and (iii) are often built for a rapid exit rather than for growth into a mature company.

Moreover, "founder" means different things to different people in different contexts. Kelman seems to use it as synonym for "energetic and visionary business person who gets a company off the ground." Or, "founding manager." I tend to use it as a synonym for "researcher/inventor with a brilliant idea for a new thing." The marketplace has room for both definitions, of course, and your choice of definition is clearly going to influence the analysis of a startup's later needs. In practice, you see a spectrum of types, rather than a clear distinction between the two. Kelman is right that founders (whatever the model) are often characterized by passion and vision. He may understate the extent to which passion and vision are masks for ego. Steve Jobs is, of course, exhibit A on that score.

But strip away some surface differences, and I think that the point of my post convergess with the point of Kelman's: There is more to the startup economy than starting businesses. Strategizing the future of startup businesses is key -- and it's a different ball of wax. That future may be ensuring that the initial management team can grow its vision and skill set to deal with new challenges. That future may be anticipating and executing an early exit. That future may be transitioning to (revenue and employee) growth mode.

As a native of what is now the Silicon Valley, I know how much the Valley has prospered by bathing in revisionist history. Contemporary SV blogs enjoy perpetuating an onward-and-upward narrative, but the region has been characterized by massive and traumatic upheavals and wild swings in the fortunes of its many industrial sectors -- and I'm talking about the eras that preceded the dot-com crash of a decade ago. Unlike Pittsburgh, where we honor the disappeared (to excess, at times) and pay insufficient attention to the emerging successes, in the SV the reverse is true: yesterday's successes are disappeared; all that matters is today. How many SV CEOs can talk to you about the roles that Westinghouse and Ford played in the development of the mid-Peninsula economy?

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About Pittsblog

Updated September 2020:

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

Since then, Pittsburgh-themed essays have appeared from time to time at, on law and technology, and in some of Pittsburgh's classier professional media venues.

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