As chairperson of the Workforce Development, Jobs, and Human Capital Subcommittee of the Economic Development Transition Team assembled by our new Mayor, Bill Peduto, I had the opportunity to meet with some of the high-level leaders driving workforce development in Pittsburgh and Allegheny County. While our short time frame prevented me from interviewing all the persons of interest, executives at UPMC, the Allegheny Conference, TechShop, the Urban League of Greater Pittsburgh, the Coro Center for Civic Leadership, the Workforce Investment Board, the Youth Policy Council, the Small Business Development Center at Pitt, the New App for Making it in America, and others were able to make time to meet with members of our sub-committee on extremely short notice. Beyond the executive level input we received from the community, our subcommittee was highly qualified to make recommendations to the administration on the merit of our own qualifications. We were made up of small business owners, consultants, labor union executives, student researchers, and native Pittsburghers. From my experiences interacting with this collection of experts, three segments of workforce development opportunities emerged that are dominating the market today and into Pittsburgh’s future. Continue reading “Makers, Starters, and Youngsters – The Evolution of Pittsburgh’s Workforce Development”
This is not exactly a “Number Behind the News” as we have traditionally used it in this series, but it should be. 2,764 is the number of immigrant investors admitted to the U.S. in 2011. In 2002 that number was 51, so we have seen an incredible increase in these “job creators.” Much of the boost is a result of the EB-5 Immigrant Investor program. Fourth Economy has been very excited by the prospect of this new tool for development and the potential it has to inject both new capital and new energy into regional development activities.
No one will deny that the American and global economies have been in an extended slump. The question is what will lead us out of the doldrums? Right now the big argument seems to be between advocates of clean energy (solar, wind, biomass) and legacy energy (especially coal, oil and natural gas). In certain parts of the country, legacy energy is having an immediate impact, while clean energy remains for the time being a potential boon for some future economy.
Facebook has moved forward with an IPO that could be among the largest in the U.S. and at the least will dwarf Google’s 2004 IPO. Facebook was launched only six months before Google’s August 2004 IPO. The pessimistic outlook suggests that Facebook would hit a market value of $75 billion, which would make it the 35th largest company, but if it breaches the $100 billion barrier it could move ahead of Merck for the 25th spot. Some analysts expected to see revenues around $4.3 billion and were disappointed in the $3.71 billion sales figures released in the IPO.
Some other notable numbers from the IPO:
- $1 billion profit (fails make the top 50)
- 845 million users worldwide (would be the world’s 3rd largest if it were a nation)
- 250 million photos are shared per day (a printed stack of these photos would more than 27 miles high)
- $114 million spent on R&D (would be the 123rd largest research university in the U.S.)
In an period where we seem to have forgotten how we all got here, Dayton has decided to swim against the stream of anti-immigrant fervor. Tough new laws in Alabama and Georgia are proving effective in driving away undocumented immigrants and even more effective at slashing agricultural production. Even though all those juicy farm worker jobs are there for the picking (sorry), American workers have not picked up the slack and these states are turning to ex-cons and chain gangs to pick the produce before it rots on the vine.
We have traded a group of workers we have labeled criminal because of their overwhelming desire to be in this country for a group of workers that became criminals despite their status as full-fledged American citizens. It is ironic, but I am sure the humor is lost on both groups.
In this climate, Dayton has decided to go another way. They are embracing immigration and even the immigrants that are a necessary part of it. The Welcome Dayton plan hopes to use the economic and entrepreneurial energy of immigrants to grow its economy. They have developed a comprehensive plan that covers business development, the justice system, culture, education, health and social services. It is a model for other cities that want to return to America’s fundamental roots as a melting pot of people and ideas.
In the economic development system, agencies live and die by economic impact and it is about to get a lot tougher to measure this impact.
We were talking with a young entreprenuer recently (let’s call her Katie) living and working outside of New Orleans. Her small firm has grown to 12 employees in just over two-years and grossed over 1.1 million in sales last year. She works out of a small 150 square foot office on a side street providing strategic business solutions for more than 25 clients globally. Her “employees” work and reside in 4 different states. Katie’s customer data and business records are stored in Colorado with redudant storage in Georgia. She is not a member of the local Chamber. She has never taken incentives from the state or local agencies (she does not qualify for the programs). She chose her location for its overall quality of place, green space and amenities. There were no ribbon cuttings for her expansion, no politicians thumping chests for her success, and little economic impact for her immediate locale beyond her own buying power (which is increasing exponentially by the way). Katie is, we submit, a “Cloud-Based Business.” Let us explain how this is changing economic development.
We work with numerous economic development agencies and we know it is difficult for them to measure performance and impact. They are charged with attracting new investment for their respective regions or states and have very few tools and outcomes they can directly control in that cause. They spend their time attempting to influence the behavior of others, namely potential investors, businesses, workforce agencies, city councils and elected or appointed officials to do something that results in or creates the environment for new investment to occur. And while attempting to do this effectively, they have many masters such as politicians, board members, constituents and executive committees asking them to quantify their results, impact and relevance on a regular basis.
In the good old days – way back in the mid-2000’s – the vision of a job, a business, and its location was one commonly shared by most people. A business was located in a specific geography and building, defined by a political district. It created a certain number of jobs which influenced a spending chain, creating new wealth for the immediate community. Ribbons were cut for new businesses and annual reports were filled with its statistical economic impacts. Economic development programs, services and their impact were reflective of this vision.
The Cloud has formed over this reality. The Cloud is the gravitation of all things PC based such as software, communication applications and data storage, to networked web-based solutions. The Cloud allows information to be safely shared and stored on the web at real-time speeds. It has been building on the horizon for several years as technology improved, telecom bandwidth expanded, and most importantly, people’s acceptance of web-based applications grew to the point where the Cloud simply made more sense to the user than the clunky old “buy it,” “load it,” “update it,” and “ditch it” method for IT solutions. And it is about to be ramped up. This month, HP and Microsoft have joined forces to make the Cloud stronger, faster, better.
While the Cloud has impacted all industry sectors to some degree and will continue to do so, we beleive its largest influence will be on entrepreneurial start-ups of all types. We can speculate that while Cloud start-ups will likely remain small, there will be more of them. They will be more open to collaborate with other like firms to augment service capabilities. They will employ more sub-contractors (formerly known as employees) and form networks with those contractors based on the changing client demand. They will use less space. They will demand maximum telecom bandwidth. They will do business globally. They will need less debt financing.
We’ve known for a long time that more and more job creation is happening in small firms (thanks to David Birch and others) and in very small increments. Economic Development has adapted to working with small firms and entrepreneurs, but only in so far as they are looking to get in on the ground floor of the next big thing. They are helping small firms that they hope will one day be big firms. So how do economic development agencies and states ensure their programs, services and associated impact measures are aligned for a potentially growing number of Cloud-based Businesses that will most likely never get big in the traditional sense? Here are a few thoughts…
- Program eligibility and impact will need to be based less on geography (zones or buildings) and job creation in favor of revenue increases, wealth creation, and overall growth trends.
- The use of sub-contractors or remote employees should be included in a job impact formula and weighted to some degree for program eligibility.
- Business development and technical assistance programs should recognize the Cloud Business model addressing aspects such as social networking tactics and cooperative marketing initiatives.
- Infrastructure development programs should place less emphasis on new roads, expansive business parks and sewer extensions, in favor of a balanced approach which also includes “Place-based” improvements such as parks, transit, housing and recreation and activating the linkages between these and work centers.
- Public funding or tax credit programs may encourage the development and/or use of common collaboration space with video conference services.
- Educating the agency board, respective residency base and elected officials of the implications the Cloud is bringing to development programs and the definition of economic impact is critical.
The cloud will continue to grow. It is enabling more Katies to take an idea to market, engage assistance across the country and service clients globally. It will create new wealth. We will check back in with her in the coming months and attempt to determine what her Cloud Impact may be.
Rob May recently moved his startup, Backupify, to Boston. We’ve heard this story in Pittsburgh before, only this time the startup left Louisville, not Pittsburgh. We often get caught up in the “one that got away” — the idea of big city investors poaching our startups because they don’t like to travel, or small town entrepreneurs lured to the bright lights of big city opportunity.
This is not just another story of the small town losing a hard-earned startup to the big City. Actually, that is the story, but the lesson of Backupify and the insights from May are more important for the future of entrepreneurship in so-called second- and third- tier cities.
The Backupify story goes to the heart of whether you can launch a successful startup outside a major urban center. May says you can, but it’s not as easy and it sometimes depends on the type of startup. What really matters is the type of startup, how it gets financed, and what markets you play in. If you are playing in markets where your customer is the average American, and you need little capital, or can grow slowly, or can use customer capital, then you can build a company anywhere you want to be. But building companies that need a lot of capital, grow extremely quickly (and thus need a lot of employees), or are very high-tech is extremely difficult outside of major or minor startup hubs. (To see full story: Why I Moved Backupify To Boston.)
It’s difficult to track this startup-relocation theory. A few data sources track companies moving but not what happens in that preliminary space before a firm is legally incorporated. It’s clear, however, that trying to stop the churn (entry, exit, birth, and death) is a losing strategy. Dynamic, growing regions have lots of churn in terms of people and firms moving in and moving out. Bob Gradeck’s research on migration demonstrated that Pittsburgh’s population loss is attributable to our inability to attract new residents to replace those who left.
Careful studies of firm relocations in the region are few and far between, but a few comparisons can help to show whether our region is suffering from a startup drain. In percentage terms, Pittsburgh trails cities like Austin, Boston, and even Cleveland on the relocation balance sheet, but mighty startup capital San Jose is suffering from an even more severe startup drain. While the latest data show Pittsburgh is losing jobs from companies leaving the area, this amounts to only 13 out of every 10,000 jobs. Pittsburgh lost 13,910 jobs from firms moving out and added 12,128 jobs from firms moving into the region, resulting in a net loss of only 1,782 jobs from these relocations. See graph below.
One might conclude that smaller regions can only be startup hubs for small-market players and lifestyle firms that provide a comfortable living for the founders but never grow significantly. Startup guru Andy Grove, former CEO of Intel, says too much emphasis is put on startups when what we really need are companies that can transition from prototype to mass production. The scaling process is broken, in part, because the U.S. offshores so much production.
Consequently, smaller regions face a double-barreled threat. Even if you manage to keep the startup, you may lose the production jobs that provide employment for more people. This reality is another classic chicken and egg problem, except that it is a little easier to figure out. If we don’t keep the startups, we have little chance of winning the production jobs. Relocation is not the major culprit for direct job losses, but it could play a big role in foregone supply chains jobs.
Is there little hope for smaller regions, forever doomed to fall farther and farther behind? Not exactly. Look at once small cow-town like Austin or swampy backwater Raleigh-Durham, now major players. In fact, regions have always been able to leapfrog established competitors, whenever those competitors are too inwardly focused or too tightly bound by aging technology and outdated structures. These aren’t easy, of course and they take time.
The Pittsburgh region is becoming more innovative and more entrepreneurial. Entrepreneurs will say we don’t have enough risk capital, while investors complain we don’t have enough good deals to fund. Both agree on this: we need a deeper pool of talented entrepreneurs and executives.
In the 1990s, venture investment in the Pittsburgh region didn’t top $100 million until 1998-1999, approaching $900 million in 2000 before falling back to Earth. Excluding the single boom year of 2000, venture investment has averaged nearly $200 million annually over the past decade.
During the 1990s there were 379 new firms for every dollar of annual venture investment; now there are only 27 firms competing for each dollar. Excluding the boom years of 1999 and 2000, we average slightly fewer startups today than we did in the early 1990s and the average annual investment today is twice the level it was in the 1990s. By these measures, access to capital has improved dramatically but the complaints about the lack of capital haven’t abated. See graph below.
Does size really matter?
Research on cities, growth, and innovation have shown that larger cities have distinct advantages. Researchers at the Santa Fe Institute reveal a direct correlation between city size and innovation; larger cities are more innovative, even on a per capita basis. Part of the advantage larger cities have is more creative and innovative people. If this advantage were based on size alone, large organizations would always be more innovative, but that is not the case. More is not always better except that you have a greater chance of having more smart people from which to choose, who get smarter because they are networked with other smart people with whom they can share their ideas and make better.
What might appear to be an advantage associated with size is really an advantage associated with connectivity. Steven Johnson describes how the combination of different people and ideas is important not just for individual products and companies, but for cities and regions as well. An environment that fosters connecting people and ideas expands the potential for increasingly powerful combinations. An innovation that may have been a failure or only mildly successful in one application can be transformative when applied differently. Johnson uses the analogy of spare parts — the more spare parts (ideas) you can gather, the greater the ability to create useful ideas and products.
Even if a region is small it can increase its capacity for growth if the environment is conducive to new combinations. It’s also important to have a diversity of spare parts and ideas. Richard Florida had it right when he talked about tolerance and creativity but was sidetracked by the proxies he used to measure tolerance, diversity, and openness. Openness to experiments and new possibilities is essential. Environments that block new combinations will stifle innovation. If we put our economy in a box, it will surely suffocate.
The next installment will explore the ecosystem for innovation and entrepreneurship in the region. Tim Hindes is helping develop a visualization of the variety of spare parts we have in the region and how they fit together.
This article originally appeared in PopCity on 01.26.11.
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.
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:
- 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.
- 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 startups like FORE Systems, Spinnaker and FreeMarkets even as they fade away.
- 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.
This article originally appeared in PopCity on 11.03.10.