Sunday, January 13, 2008

Want More Jobs? Attract More Entrepreneurs

As 2007 drew to a close, three of the largest life sciences companies in the region made significant transitions. Respironics was sold to the Dutch conglomerate Royal Philips Electronics; Renal Solutions was sold to the German firm Fresenius Medical Care; and Precision Therapeutics announced a merger with a subsidiary of Greenwich, Conn.-based Oracle Healthcare Acquisition Corp.

These announcements are good news for the region in many ways. All three firms will remain here. All three will get access to significant capital and marketing resources from the acquiring firms, helping them grow and create new jobs here. The investors in all three companies will get a significant return, some of which they will hopefully re-invest in other local firms.

And all three companies demonstrate the impact of entrepreneurship. Respironics was created here in 1976 by Gerald McGinnis, and has grown to become the 11th largest manufacturing firm in southwestern Pennsylvania, with over 1,600 employees in the region. Precision Therapeutics was founded here in 1995 and has grown to over 60 employees under the leadership of Sean McDonald. (McDonald’s previous startup company, now called McKesson Automation, is 15 years old and employs over 1,000 people.) Renal Solutions was moved here 5 years ago by its founder, southwestern Pennsylvania native Peter DeComo, and now employs 38 people in the region.

In fact, young, entrepreneurial companies like these represent a significant portion of the economy in most regions. In regions like Charlotte, Denver, Kansas City, and Minneapolis, more than 1 out of every 6 workers (17-18%) is employed by a locally-owned firm 10 years old or younger. In Silicon Valley, more than 1 out of every 5 workers (22.3%) is employed in a firm that young. But in the Pittsburgh region, only about 1 in every 7 workers (14.3%) is employed by a locally-owned firm 10 years old or younger.

It’s not surprising that Pittsburgh would have fewer young firms in sectors like retail and personal services, given the population losses we’ve been experiencing. But even in manufacturing, Pittsburgh has the third lowest percentage of jobs in young firms among 16 benchmark regions. Only 16.6% of the manufacturing jobs in Pittsburgh are in firms 10 years old or younger, compared to more than 20% in Boston, Detroit, Kansas City, Milwaukee, and St. Louis, and 28% in Silicon Valley.

Fewer young firms means fewer jobs, both today and in the future. If Pittsburgh had the same percentage of jobs in young manufacturing firms as other regions, it would have at least 5,000 more manufacturing jobs today. And some of those young manufacturing firms would go on to become the Respironics, Medrads, and U.S. Steels of the future.

Why do we have fewer young firms than other regions? It’s not because young firms can’t succeed here. The survival rate for young firms is actually higher in Pittsburgh than other regions, both in manufacturing and in other sectors.

The reason is that fewer entrepreneurs start firms here. The Pittsburgh region has the third lowest rate of startup businesses in manufacturing of any of the top 40 regions, and the lowest startup rate in every other sector, from retail to finance. (The startup and survival rates by industry are available through the Pittsburgh Regional Indicators Project, at http://www.pittsburghtoday.org/. The startup rates are there now, and the survival rates will be posted there in the near future.) Because of that, Pittsburgh ranked 48th out of 50 large cities on Entrepreneur magazine’s “2006 Hot Cities for Entrepreneurs” list.

What can we do to encourage more entrepreneurship? Capital and customers are essential. Precision Therapeutics and Renal Solutions benefited from early-stage investments by Innovation Works and the Life Sciences Greenhouse. Existing businesses can provide a major boost to startup firms by becoming their first customers.

Our region made the Top 10 on many lists in 2007. Let’s make a New Year’s Resolution for 2008 to also become one of the Top 10 regions in the country in attracting and supporting entrepreneurs.

4 Comments:

Blogger Larry said...

Harold,

I don't know where your business and leisure journeys take you in the Pittsburgh region, but mine take me to places where I meet on a regular basis dozens of entrepreneurs, partners in virtual firms from law to business concierge to anything you might think. I know or meet established attorneys who have also launched side ventures in professions or industries far removed from the practice of law.

The number of people in the Pittsburgh region who operate successful entrepreneurial firms from home offices and share ideas through hundreds of professional and trade organizations would evidently surprise you. These are the same people who don't simply work alone but team up with fellow business owners in fields across a wide spectrum to complete a project or answer an RFP.

Nor are these entrepreneurial qualities confined to single-person firms or to people who have somewhat safely opened businesses on the side which, if they failed, would leave their "day jobs" intact. Just about any company, foundation or nonprofit in the region that you'd care to name has adopted all or some of the key entrepreneurial traits across the board; in specific business units; or within their senior management teams.

And as to whether or not these entrepreneurial individuals and firms are young or not, does it matter in the long run so long as those firms prosper and generate more revenue and more jobs? But more to the point, perhaps you're just not looking in the right places for young entrepreneurs and young entrepreneurial companies.

For myself, I'm surrounded by both in the professional and trade groups to which I belong, among the members of the arts/cultural nonprofits I support and frankly, just about any club or restaurant in the region where I decide to eat lunch or dinner.

Bottom line, I couldn't avoid entrepreneurs and entrepreneurial firms if I wanted to, which I don't! Apparently you have discovered ways to do so.

Best regards, Larry

12:48 PM  
Blogger Harold D. Miller said...

I know lots of entrepreneurs, and I'm glad you do, too. As the post said, 1 out of every 7 jobs in the Pittsburgh region is in a young firm, so we clearly have lots of entrepreneurs who are creating those jobs. The purpose of the analysis was to compare us to other regions of the country, and that shows that we have fewer young companies than in many other similar regions.

7:45 PM  
Blogger Larry said...

Specifically which metros were used in comparison to Pittsburgh in this study?

Don't you find it interesting that the very people or organizations supposedly afire with the gospel of what a wonderful region we have are often the same people or organizations generating studies that largely tell us what we lack or how far behind some other metro we are? Clearly facts are facts and we may well not have as many young companies as, say, Cleveland or Richmond or San Antonio.

And yet Twain famously noted that in descending order of perversity were "lies, damned lies and statistics." What you're giving us in this study is yet another stick with which to beat ourselves. "We don't have as many X as metro Y." "It will take Pittsburgh A years to be on par with metros B, C and D."

Now that Richard Florida has shaken the provincial dust of Pittsburgh from his shoes, we have Harold Miller, John Craig and any number of pundits of what our region doesn't have. Luckily, far more of the area's residents are frequently too busy starting companies, creating jobs, working on projects for clients, etc. to brood over what the region may - or may not - have. Most of the people I know, including me, fall into that latter category.

Regards, Larry

11:58 PM  
Anonymous Anonymous said...

Unfortunately you do not see the risks that are in play now -- from the acquisitions of these local enterprises by larger, global conglomerates. Philips was hurting prior to the acquisition of Respironics, and in no way planned to channel marketing support to Respironics. It's the other way around. Respironics acquisition helped the bottom line of the large conglomerate. Expect the mother company to squeeze the margins from Respironics. There's also the possible risk that they will leave Pittsburgh if Philips continues to hurt.

6:56 AM  

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