Spin-offable companies in the Burgh?

Friday’s post about the role of large companies in creating a local start-up has generated some interesting responses, in the comments, in email, and in other blogs. I asked: What established technology companies are here that can attract and retain the pool of talent needed to seed a spin-off culture? This is not a rhetorical question. I really don’t know the answer, though I did have a couple of in mind. An anonymous commenter was kind enough to suggest several others. The collected suggestions are below.

(In no particular order)

I admit that I don’t know much about some of these companies, though others (e.g. Westinghouse) are clearly nothing to sneeze at. The same commenter also rightly mentions UPMC as source of spinoffs through their SBI arm. UPMC is not a for-profit corporation, but its role is undeniable. To UPMC, I would add some other university-related entities, giving us:

I’m sure readers will think of other companies and “companies” that seem to fit, feel free to suggest them in the comments.

Meanwhile, it might be worthwhile to try to identify the qualities that an established company needs in order to contribute to a start-up culture. In the previous post I argued that the contribution of these companies is to give jobs to local science and engineering graduates, as well as recruiting scientists and engineers nationally and internationally, to counter the natural outflow of local grads. To achieve this, I think a company needs at least two qualities:

  1. The company needs to employ scientists and engineers in creative roles where they contribute real innovations.
  2. The company should be big enough to be hiring in these roles continuously. [Preferably they should be big enough to run their own in-house hiring operation, with a “careers” link on their website that always contains listings for engineers and scientists.]

Quality (1) gets at the notion that not all tech jobs are created equal. E.g. system administration and IT are not the same as software design (sorry, it’s true). Likewise, chemical technicians are not the same as chemical engineers or chemists. Jobs fall on a continuum, and I admit that the creative requirements of a job are difficult to quantify, but you know it when you see it. Correlated with this criterion is the notion that companies should have a culture that attracts creative people — also difficult to quantify, but a Google-like culture is at one end of the spectrum, while a Dilbertesque culture of pointy-haired bosses is at the other.

Quality (2) tries to encode the notion that part of the role of these companies is to change the direction of brain drain/gain in favor of Pittsburgh. To do that, the city needs to be hiring brains constantly. In other words, the goal is to create the “perpetual motion machine” mentioned in the previous post. The local tech economy needs to both attract new talent, and readily re-absorb talent from failed startups.

I don’t know to what extent the companies listed above fit any of these criteria, and I’m certain that some readers will find the criteria themselves debatable. That’s great; it’s a debate we should be having.

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3 Responses to “Spin-offable companies in the Burgh?”

  1. Also need for a tech startup culture: reliable electricity « The Q Function Says:

    […] Filed under: Pittsburgh, Technology — Jefferson @ 12:08 am So here I am, trying to start a conversation about a missing component for creating/improving a technology start-up […]

  2. Anonymous Says:

    I’m not sure your first quality will be effective. If you apply it backwards in Pittsburgh time, you would expect the startup culture to have formed from the large R&D centers of corporate giants like U.S. Steel, Alcoa, Westinghouse, Gulf Oil, PPG, Heinz and I’m probably forgetting a few others. They had tons of such well-paid scientists/engineers/innovators, hired continuously from the best universities and across the world. I don’t think we have had many successful startups – tech or non-tech – from these companies, although I may simply not be well informed.

    In my opinion the startup culture comes from companies with 2 characteristics:

    1) Companies that create lots of wealth for their employees, not just their founders. Wealth that is above and beyond high salaries/bonuses. Wealth that allows you to take riskier bets to start a company, join a startup, or invest in one. Wealth that makes a leap of difference.

    2) Companies that grow so rapidly that they have to look outside the region to fill their hiring needs – particularly in key positions – technical, creative and management – and to compete to win in their markets. They bring lots of people with experience/skills who hit the ground running, rather than grow into the position. It’s their knowledge that gets socialized within their companies and then other companies where they land later. Some may tire of the corporate scene eventually and decide to go on their own. Some of the founders/employees serve as entrepreneurial role models and inspiration.

    For example, Fore Systems, FreeMarkets and Legent (Duquesne Systems in the 80’s/early 90’s) were like that. Each grew so fast, they hired many key people from outside of Pittsburgh. Each created huge wealth for their employees such that some of their employees started their own companies, funds, etc. in the region. Fore Systems created the most wealth, through their IPO, and then by their massive exit valuation. FreeMarkets had two such wealth creating opportunities, too, with an outstanding IPO and a good exit on acquisition (but their employees’ options might have been under water.) I don’t recall if Duquense Systems/Legent went public, but they reached a 1/2B in revenue before Computer Associates acquired them – a major wealth generating event for their employees. (Westinghouse may have had fast growth in market cap in the 60’s and 70’s – I’m not old enough to know – but I do remember how they used to religiously recruit and relocate managers and engineers from across the country. I’m not familiar with any spin-offs from ex-Westinghouse employees other than Vocollect. But, they did spin-out large companies from their business like WESCO.)

    Amazon and Microsoft in Seattle created significant wealth for their employees, and they had to recruit many people into their region.

    Notice that we don’t have many startups from Respironics, Medrad and ANSYS. I don’t believe they created enough wealth for their employees. They have tons of creative, innovative engineers and scientists; probably the best in their fields. (Perhaps, I’m wrong that employees didn’t gain significant wealth from these companies…)

    Someone told me once, that Pittsburgh’s startup challenge today is that we didn’t have enough people become millionaires during the dot.com bubble years…I agree.

    The lack of significant wealth creation for the employees is what will minimize the regional impact of the recent exit of Renal Solutions. I’m not saying it’s not a good deal or not good for the region’s growing life sciences sector – it’s a great thing. I’m just saying it’s not likely to have the nearly same impact as the exits of FreeMarkets, Fore Systems and Legent did. We need more of the latter.

    For UPMC, it’s not just the SBI that is important. They hired and continue to hire the world’s best in various medical fields. The Post-Gazette had an excellent series about UPMC over a year ago that gave insights into Jeffrey Romoff’s approach – recruit/retain the intellectual giants…they spawned everything else. It’s no wonder that 12 startups are in SBI, and that other promising companies like Knopp Neurosciences, Cohera Medical and others that are now on the scene.

    So…maybe a 3rd criteria should be “recruit the best talent available for engineering, science and business roles.”

    I’m doubting that the startup culture is tied to “large and established” companies…

  3. Jefferson Says:

    I don’t disagree that risk-tolerant, tech-friendly capital is needed for a start-up culture, and newly minted tech millionaires are a great source of that capital, but that is not an argument against the need for big tech companies of the sort I’ve described.

    The role of big companies is not to provide funding, either directly or indirectly, but to act as a pool of talent from which startups can draw both founders and early-stage employees, and into which the founders and employees of imploded startups can safely return. That’s why the companies need to be big enough to be hiring continuously, and also why they need to have a culture into which an employee from a failed startup would be willing to return.

    The big companies aren’t fuel for the start-up engine, they’re the flywheel that keeps it running smoothly.


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