Thursday, July 20, 2006

Creating an Entrepreneurial Culture in the Pittsburgh Region

There are two key ingredients in the recipe for growing a region's economy in the future: innovation and entrepreneurship. Pittsburgh has the first ingredient -- indeed, our region is one of the world's leaders in innovation capacity -- but we trail the rest of the country in the second. How can the Pittsburgh Region create a more entrepreneurial culture?

This is a question that many regions and countries around the world are struggling with. A June 27 USA Today article describes the efforts that countries ranging from Australia, China, and Singapore to Denmark, Ireland, and Israel are making to boost entrepreneurship. Are there any lessons for the Pittsburgh Region?

First of all, a major factor is the community's attitudes toward failure. Entrepreneurs, by definition, are taking a risk, and that means that many successful entrepreneurs will fail at least once before succeeding. The USA Today article quotes a California venture capitalist who previously worked in Denmark and Germany as saying "the stigma of failure in Denmark or Germany is extreme...It's almost like your kids won't talk to you anymore." No wonder the rate of entrepreneurship in Europe is only 1/3 that of the U.S. The same issue exists in China -- failing in business means losing face, shaming the entrepreneur and his or her family.

The same problem has existed in the Pittsburgh Region for some time. Too often, the attitude here is that a successful entrepreneur is OK, but if an entrepreneur's company has failed (even after having a previous success), they are branded (sometimes permanently) as a failure. This is something that every individual in the region can help address, simply by treating entrepreneurs, including ones who have failed, as economic engines rather than as crackpots or incompetents.

A second key factor is venture capital. The USA Today article notes that while Israel has been successful in creating new companies, they either move to the USA or are sold to other companies abroad due to a lack of local venture capital. That reduces the number of local success stories that can encourage additional people to become entrepreneurs. Similarly, startup firms in China have been forced to raise money from outside the country because there is so little domestic venture capital.

Here again, a similar problem exists in the Pittsburgh Region, particularly in terms of a lack of angel investors. Some Pittsburgh entrepreneurs have failed or been forced to move to other regions because of the difficulty of getting seed or venture capital. There are some efforts underway to address this, but success will depend on the willingness of individuals and institutions in the region to take a financial risk on local entrepreneurs.

A third factor is the talent pool. As noted in the USA Today article, a region needs to get a cycle of entrepreneurship underway, so that successful entrepreneurs can start new companies and inspire the next generation of entrepreneurs to follow them. As the entrepreneurial "gene pool" grows, the rate of success and the number of jobs from startup companies will grow, thereby continuing to fuel the cycle. The Pittsburgh Region needs to prime the pump now in order to create a pipeline of even better deals down the road. For example, encouraging the most entrepreneurial students at local colleges and universities to stay here, helping entrepreneurial immigrants to relocate here, and taking a little extra risk by making a positive financing decision about an entrepreneur with an innovative idea, are all ways to help make the Pittsburgh Region be seen as a place that wants more entrepreneurs. And entrepreneurs are more likely to come and stay where they are wanted.

These kinds of factors can't be addressed by a program or two in a couple of economic development agencies. They need to be a central part of the region's overall economic development strategy. Every civic and economic development agency needs to see this as a priority. Progress needs to be measured, and efforts redoubled if improvements aren't being made.

Countries around the world are focusing on entrepreneurship because they recognize it as critical to their future. The Pittsburgh Region needs to, too.


Blogger Hooman said...

The problem is that people in Pittsburgh need to embrace failure as a learning opportunity. People are so afraid to fail that, instead, they do nothing but talk about how things could change. Action is needed, Harold - action. Keep fighting the good fight my friend. Cheers.

6:45 PM  

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