Does Pittsburgh have a Spin-Off Culture?

There’s always a lot of talk in Pittsburgh blogosphere (and elsewhere) about the need to develop a Burgh start-up culture, with ample capital and a high tolerance for risk, as the way to economic revitalization. While I agree with the need for start-ups, I’ve always felt that the discussion seems to emphasize too heavily the need for small startups, while ignoring the role of large, not-necessarily-homegrown corporations in seeding the talent for the start-ups in the first place. So I was intrigued by today’s New York Times article: Seattle Taps Its Inner Silicon Valley, about the rise of a start-up culture, or rather, a spin-off culture, in Seattle. In addition to the usual notions about developing a mobile work culture where failure is seen as “a badge of honor, not shame,” the article contains these interesting quotes:

Microsoft offshoots, sometimes called Baby Bills, after Bill Gates of Microsoft, are being joined by Amazon progeny called Baby Jeffs, for Amazon’s Jeffrey P. Bezos. Baby Sergeys — those formed by veterans of Google, which is based in Mountain View, Calif., and was co-founded by Sergey Brin — are opening here, too, ….

“Now tons of companies are spinning off people,” said Ed Lazowska, a computer scientist who holds the Bill and Melinda Gates Chair at the University of Washington. Veterans from Amazon, Microsoft, RealNetworks and other established companies are leaving to form start-ups and venture funds, he said. “We’re finally at the stage of becoming a perpetual-motion machine.”

People often ask why Pittsburgh, with it’s great universities, isn’t seeding more startups. Maybe it’s because an essential missing component is a large pool of large tech companies to employ university engineers and scientists after graduation, until the stars align properly for them to start their own ventures.

Big, well established companies play a big role in seeding the talent need to create startups. Before it was called Silicon Valley, the San Francisco Bay area was already home to big defense contractors who employed lots of engineers. Boston has for 300 years been a center of not just intellectual activity, but also commerce. Austin, in addition to Dell and National Instruments, has such non-local tech players as IBM, Intel, Freescale, Sun, Apple, Samsung, and many others.

In addition to providing jobs to local tech grads, these companies also recruit (inter-)nationally drawing to their cities engineers and scientists from around the country and world. Such recruiting counters the natural forces that cause a large fraction of local grads from any university to take employment in some other city.

Recently Mike Madison at Pittsblog asked who are the up-and-coming startups in Pittsburgh, and got some answers. I have a different question: What established technology companies are here that can attract and retain the pool of talent needed to seed a spin-off culture?

Update:  Several companies have been suggested in the comments.  I’ve collected them into a list in a separate post, along with my thoughts about the qualities an established company should have to fit into a spin-off culture.

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8 Responses to “Does Pittsburgh have a Spin-Off Culture?”

  1. Anonymous Says:

    I agree that the region needs big successful tech companies as well as startups. But, you can just buy one and put it here. They need to grow from here or get assembled from here.

    Your post inspired me to start gathering some facts. It seems to me that we have many of the same ingredients as Seattle – including the weather – except for tech companies the size of Seattle’s big 2.

    In Seattle, you mention Microsoft, Amazon.com and RealNetworks. Microsoft is an exception for ANY region. But, notice that only now is there talk about a “perpetual motion machine” in Seattle of startups and spinouts. Microsoft had been huge for years, and even that wasn’t enough to get to the perpetual machine state.

    Amazon.com’s had 10.7B revenues and 17,000 employees. RealNetworks had 395M revenues and 1600 employees. The Pittsburgh region doesn’t have any tech company that compares with Amazon, but they are a distributor – which is very different than a company that creates products. However, the Pittsburgh region has several companies that compare well or better than RealNetworks. Respironics had $1.3B revenue and 5300 employees. ANSYS was estimating 370M revenue in 2007 with 1400 employees, and Medrad had 345M revenue and 1169 employees. It was a little more difficult to find recent data for another local company – McKesson Automation – but they had employees from 600 to 800 and, a few years ago, revenues over 200M. I don’t know where that number is today. Could an argument be made that Education Management Corporation is a ‘tech company’ with its increasing online learning programs?

    But Pittsburgh does have a very large non-tech company spinning out tech companies – UPMC. Through their SBI/innovation arm, they have claimed to have invested $120M, and they list 12 startup companies on their site. One, Stentor, was sold a few years ago at 280M.

    When I look around the region, I see many more, stronger startups than 5-10 years ago. We have had some spinouts that trace their roots to companies that went public including Fore Systems, Legent, and Carnegie Group. I’m seeing people who were with Respironics and FreeMarkets start companies. The founder of FreeMarkets started a VC fund. The founder of Medrad started a few more companies. I’m not aware of other spinouts from other successes like ANSYS, Transarc, or even Lycos. ex-Westinghouse employees started Vocollect and Lucas Systems; there probably are more. Management talent from all of these companies have spread through the region, too. And, I’m seeing the cross-polination of talent across tech sectors.

    I didn’t try to find the number of tech startups in Pittsburgh versus Seattle. It would be interesting to compare this on a per-capita and per-capita income basis.

    According to this article Seattle also had a period where they were “risk averse” with high risk capital. In my view, we’re following a path that Seattle has taken, and the San Francisco bay area did many years ago. It’s just too hard to see with all of the larger negative trends going on.

    The question that I ask is what does it take to get one of those “big tech” companies that Seattle has and SV has in bunches? (In my opinion, we need many startups that are going after the very big consumer market …and ‘hope’ that one makes it…we haven’t had a noticeable, serious run at one since Lycos… It would also help to have a visionary leader and visionary orgs here in Pittsburgh who are able to build the buzz about the path the region is on with its tech community. (The buzz certainly radiates from Seattle, Silicon Valley, Austin and Boston!)

  2. Jefferson Says:

    I agree with most of what you said. My question was not rhetorical; I wanted genuine answers, and you gave some. I wasn’t trying to argue that big tech companies are the only thing needed to construct a start-up economy, but rather that they are an important component, along with universities, capital, and a risk-tolerant culture. Nor was I trying to assert definitively that no such companies exist in Pittsburgh, but rather that more such companies are needed.

    I do disagree somewhat with your first paragraph. I assume that you meant to say, “you can’t just buy one and put it here. They need to grow from here or get assembled from here.”

    Big tech companies certainly do not need grow or be assembled locally. Austin is an excellent example. As I mentioned above, Austin has IBM, Intel, Apple, AMD, Sun Microsystems, Samsung, Tokyo Electron, Motorola, Freescale, etc, all employing engineers and scientists. These are not local companies. Furthermore, I believe that you can indeed go out and buy the companies, sort of. Austin has been very successful in using incentives of various sorts to attract tech facilities there. Their aggressive use of subsidies goes back at least to the wooing of MCC in the early 80’s and continues to the recent $250M package for Samsung’s enormous new chip fabrication facility. Pittsburghers seem congenitally opposed to such use of subsidies, but that doesn’t mean that they don’t work. I’d certainly rather have seen the $270M of public money for the Pens’ arena spent on wooing a big tech employer here.

  3. Jefferson Says:

    ps – @Anon.1 — I don’t get your comment about Amazon not “creating products”. In what way is that relevant? They don’t create the books and other stuff that they sell, but they hire tons of computer scientists to create their awesome online store. That store is an incredibly innovative artifact in its own right.

  4. Anonymous Says:

    You’re correct – I meant to type “you can’t” just buy one and put it here. Also, as you state, apparently, you can subsidize it – I was wrong. I guess a region needs a will and the money to do so.

    amazon.com is certainly an innovation, run by a lot of technology and has many technologists. They’re certainly relevant to their region. I guess I didn’t know what your definition of tech company was. If you include Amazon.com in the definition of a tech company, then for comparison, Pittsburgh needs to do the same. The only tech company that is a distributor in the Pittsburgh area that I know of right now is Black Box. If you expand it further, Pittsburgh has iGate and the Solutions Consulting arm of Perot Systems in Canonsburg which provide tech services. Does Westinghouse count as a tech company, they’re hiring lots of engineers for its nuclear work? Should Mylan Labs be included? How about Fiserv’s SourceOne center – the last time I checked they had about 700 employees here.

    Perhaps, there are others that will lead to the spin-off culture you wrote about.

  5. Jefferson Says:

    Re: Amazon, Black Box, etc. I think the issue is not the company’s business model, but whom they hire. Particularly, do they hire the kind of creative workforce that could contribute to spinoffs? Are they hiring lots of engineers and scientists from Pitt and CMU as well as around the country?

    An interesting exercise would be to go through the lists of up-and-coming companies on Pittsblog and Pop City, and see what the founders were doing before.

  6. Jonathan Potts Says:

    There’s an economist at Carnegie Mellon, Steven Klepper, whose research backs up a lot of what you say. Most entrepreneurs start out working for an established company within their industry, and many go into business for themselves reluctantly. Klepper also has found that a lot of innovation comes out of large, established companies that can afford to bankroll risk.

  7. Anonymous Says:

    Here is a start. Some of this is by memory; some from various web sites. It’s limited to Pop City’s list – I can’t find the other list you mentioned.

    – Akustica – CEO/co-founder Jim Rock was exec or partner with internet consulting firm Zefer Communications and Cambridge Technology Partners; spent time at early Pgh tech success Carnegie Group. Co-founder/CTO Ken Gabriel was at CMU.

    – BPL Global
    Co-founder Andres Wydler previously worked for a consulting firm and founded their US office; in his past he was a member of a new venture for Silicon Graphics and exec with various silicon valley firms.
    Cofounder/President Keith Schaefer was a partner at the same consulting firm, an exec with Viacom, Paramount and Atari, and president of Pitt Alumni Association.

    -Knopp Neurosciences
    Their site lists Prof. Robert Bowser, associate professor of pathology at the University of Pittsburgh School of Medicine as one of its founders.

    – Landslide
    CEO/Founder Razi Imam was a VP with CoManage, and manager at Fore Systems.

    – Plextronics
    Co-founder Andy Hannah was Adjunct Professor of Entrepreneurship at CMU, a director with a venture firm for large companies creating new ventures for their IP, and exec with a tech startup called Storm. Co-founder Eric Boughner was with Draper Triangle Ventures and a founding member of the Emerging Markets business unit at BNP Capital Markets.

    – Medrad
    Founded many years ago; founder not believed to be involved anymore.

    – A Meakem Becker Venture Capital “stealth” company
    ???

    – Redpack Logistics
    President Ralph Goetz spent 34 years at UPS. Founder/CEO Juan Sotolongo spent 20 years at UPS, then founded 2 companies bfeore starting Redpack.

    – Renal Solutions
    Pete deComo was an exec with Olsten Health Services and with 3 startups prior to that.

    – Talkshoe
    CEO/founder Dave Nelsen started/founded CoManage after leaving Fore Systems; Previously with AT&T.

    – Tiversa
    I believe co-founders Robert Boback and Sam Hopkins were with Fore Systems/Marconi.

    – Vivisimo
    CEO Raul Valdez Perez was a professor at CMU.

  8. Spin-offable companies in the Burgh? « The Q Function Says:

    […] companies in the Burgh? Filed under: Pittsburgh, Technology — Jefferson @ 11:42 pm Friday’s post about the role of large companies in creating a local start-up has generated some interesting […]


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