The Entrepreneurial City: Pittsburgh?

As we struggle with the lingering effects of the recession, it's hard to see the silver lining in our economic forecast.  Despite the statistical end to the recession, many economists don't believe that we will recover to 2007 employment levels for another two to three years.  The big question is: where will this growth come from?

The short answer? Entrepreneurs.  A recent study by the Kauffman Foundation found that the rate of business startups is very stable from year to year, varying between 3% to 6%.  Entrepreneurship is resilient to both economic booms and busts which is good news for policymakers interested in a sustainable growth strategy that doesn't suffer from cyclical downturns. 

What does this mean for Pittsburgh?  We have tremendous research enterprises – both in our universities and a growing base of innovative firms.  The City of Pittsburgh – led by Oakland – is the region's seedbed of innovation, accounting for more than one-third of the patents, more than two-thirds of the SBIR awards in the region, and three-fourths of the venture investment. 

But to rely on entrepreneurship to drive growth in the region, we have some work to do.  Pennsylvania competes for last place among states for new business creation. The Pittsburgh region ranks in the bottom fifth of the nation's metropolitan areas on the same indicators.  We have produced some notable entrepreneurial successes, but on the whole, we are the tip of the tail of entrepreneurship.   

Why?

It's not taxes.  Massachusetts and California both had higher taxes than we did and still grew faster. A true entrepreneur is a change-maker driven to overcome obstacles.  They don't look at the wall and say, "If it were two feet lower, I might try to climb it.'  Similarly, an entrepreneur with a disruptive business opportunity is not likely to be scared away by the tax rates.  

In a study on why places have different levels of entrepreneurship,  Edward Glaeser and William Kerr found that the number of smaller suppliers and pool of qualified workers. within an industry can promote the creation of new firms in that industry. In response to the crisis of the 1980s, our mantra was diversification.  Our success in diversifying the economy has now hurt us in this area of creating enough depth for new industries to prosper.

IT as Bright Spot
One success in our region is the information technology sector.  It's taken more than twenty years, but we have developed a talent pool of technical and management talent with varying experience levels. Three regional startups: Transarc, FORE Systems and Carnegie Group - have spawned a dozen startup firms that are seeding future generations of entrepreneurs.

For the first time since its start in 1983, Innovation Works has more good deals than they can fund.  We can now say that we are approaching a critical mass of second and third generation entrepreneurs and we may be only a few years from seeing that the tangible economic impact.   

We have often explained our lagging entrepreneurship as a cultural residue of our industrial past, blaming the old steel mentality and being adverse to risk.  A 2002 study found that firms in the region were less likely to share information than in other regions.  But this may be fading, due to three trends:

1.    Regional entrepreneurs have progressed on the learning curve, creating not just 2nd and 3rd generation entrepreneurs but a whole new crop of innovators like Joshua Dziabiak of ShowClix – one of Inc.com's top 30 under 30 Entrepreneurs. 

2.    Mainstreaming of entrepreneurial achievement—think Microsoft, Apple, Google, Facebook and even the movie, The Social Network--has improved understanding of how we benefit from local startup s like FORE Systems, Spinnaker and FreeMarkets even as they fade away.

3.    The return of Boomerang Entrepreneurs.  We lamented every time a firm was recruited away in the 1990s but we are seeing those entrepreneurs return, bringing with them the expertise and networks from other regions. One example: Nick Manolis who went to Boston with Internet Securities but has now returned as CEO of TrueCommerce, an Innovation Works portfolio company.  

Moving forward, we must avoid the temptation to pick the "one approach that works best."  The reality is, you have to do a lot of things well. One of the strengths of Pittsburgh is that we have not put all of our eggs in one basket.  The  failed efforts to consolidate economic development has left us with a dynamic and flexible eco-system akin to a cloud-sourcing network for entrepreneurial support. 

The notion of a One Stop, One Size Fits All approach is not suited to the diverse needs of a vibrant entrepreneurial climate.  It takes some effort to navigate, but the resources in Pittsburgh allow an entrepreneur to select the services and programs that best fit their needs.   
While there is no silver bullet to promoting growth or entrepreneurship, whichever path you choose you have to be able to do many things well to enjoy sustainable growth and prosperity.

Jerry Paytas is vice president of research and analytics at Fourth Economy.

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Photographs copyright Brian Cohen