After 30 Years, Has Pittsburgh Entrepreneurship Turned the Corner?

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The future of entrepreneurship in Pittsburgh might be found in the jumble of company names on the whiteboard in the back of Project Olympus offices near the Carnegie Mellon campus. At least Mark Santo hopes so.

The principal at Renaissance Partners, a Pittsburgh investment banking firm that matches entrepreneurs and venture capitalists, has stopped by the incubator to check on the nascent firms, which are grouped by column according to progress.

It’s unknown if any of the companies in the incubator will ever succeed or need his services, but if there are any winners here, he wants to spot them early. “I’m scouting the minors,” he says.

Thirty years ago, Pittsburgh didn’t have a minor league of entrepreneurs. It didn’t even have a major league. Santo’s visit to the cramped basement incubator for CMU students is testament to how far things have evolved. Once regarded as a Fortune 500 kind of town, Pittsburgh now teems with small tech and biosciences entrepreneurs: 1,600 information and IT firms and 500 biotech companies.

From out of the ashes

It took a disaster to bring about that diversification. When the domestic steel industry collapsed in the 1970s and 1980s, southwestern Pennsylvania lost tens of thousands of jobs in the mills as well as at the railroads and mines that supported them.

White-collar jobs disappeared when Pittsburgh-based corporations such as Rockwell International (1989) and Westinghouse (1996) left. The city hit bottom in 1985 when Gulf Oil merged with Standard Oil of California to form Chevron. Virtually overnight, close to 1,500 research and white-collar jobs were moved to California or cut, and a payroll of $54 million vanished from Pittsburgh’s economy.

Out of necessity, Pittsburgh’s economy in the 1980s began shifting from heavy industry to technology, healthcare, material sciences and banking. Today, there is no steel manufactured in the city, and the largest employers are the University of Pittsburgh Medical Center and West Penn Allegheny Health Systems.

The recent boom in hydraulic fracturing to produce natural gas already is producing blue-collar jobs and spurring energy research.

That sort of diversification is good, said Catherine Mott, CEO and founder of BlueTree Allied Angel Investors, a consortium of angel investors.

“What I like here in Pittsburgh is that we have things that are healthcare-related, that are material science-related, IT, computer security-related. We like this environment because it is diverse enough. You don’t want to be in any one industry. Think about what happened to telecom several years ago. I like the fact that we have such a great foundation to create a diverse portfolio of companies,” she said.

Universities at the heart

With the steel mills gone, the city needed new economic engines. Its major universities – Carnegie Mellon, Pitt and Duquesne -- stepped up, placing new emphasis on research, boosting entrepreneurship and commercializing discoveries.

The universities, particularly CMU and Pitt, are the beating heart of entrepreneurship in the city. CMU graduates so many talented IT students that Google opened an office nearby to snap them up. Pitt’s strength is in life sciences and engineering. Both universities attract millions in federal research dollars and regularly spin off startup firms.

Local foundations, many of which were started by the industrial giants who built the city, provide much of the funding for incubators and other programs fostering entrepreneurship.

The universities, local foundations, and state and local governments have created an extensive support network for entrepreneurs, including mentoring, seed money, space to work, networking and more. Startups with a good idea and a strong work ethic rarely fail for lack of help.

Five necessary ingredients

So where does Pittsburgh stand? Dennis Yablonsky, CEO of the Allegheny Conference on Community Development, the region’s leading economic development organization, said a thriving entrepreneurial ecosystem has five elements: research, programs to commercialize research findings, ample investment capital, a deep and talented workforce and, lastly, a climate that encourages startups.

He gives the city top marks for research and tech transfer, good grades for workforce and climate, but only a passing score for venture capital.

“Pittsburgh has one of the more mature innovational ecosystems in the country. It’s not complete, but one of the more mature. I say that based on the rapid increase in the number of startups,” said the former Pennsylvania Secretary of Community and Economic Development.

For all its growth, the Pittsburgh entrepreneurial community is still small and tightly knit. The degree of separation is two at best.

Small can be good. Ty Morse, founder of marketing firm Songwhale, notes that the familiarity and business ties keep entrepreneurs on their best behavior: “It’s a small big city so everybody knows everybody, which means everyone has to have integrity because as soon as you lose your reputation you’re toast.”

License to fail

The downside to small is that everyone knows it if something goes wrong.

Renaissance Partners Principal William Westberg said a thriving entrepreneurial ecosystem allows entrepreneurs to fall short and try again without being branded a failure.

“In Silicon Valley, failure is a badge of honor. Here in Pittsburgh you don’t see that as much. It’s a closed community, everyone knows each other,” he said.

Pittsburgh leaders are aware that most entrepreneurs can start companies anywhere and they hope its relatively low cost of living, the amenities that place it at the top of “Most Liveable Cities” rankings and the entrepreneurial support network keep the startups in town.

As the effort to diversify and rebuild Pittsburgh’s economy enters its fourth decade, business leaders are optimistic that the entrepreneurial culture has become self-sustaining and that the city’s entrepreneurial ecosystem - majors and minors - will continue to grow. 

 

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