Pittsburgh region’s low startup ranking a bitter pill for local stakeholders
Entrepreneurial activity here lags in national index
June 4, 2015 12:00 AM
Pennsylvania’s numbers mirrored Pittsburgh’s. The state ranks 48th for startup activity.
By Deborah M. Todd / Pittsburgh Post-Gazette
Pittsburgh’s tech economy may be on the rise, but the higher tide hasn’t been enough to lift the overall startup ecosystem.
For the second year in a row, the region ranked dead last among the nation’s 40 largest metropolitan areas in terms of startup activity, according to the 2015 Kauffman Index. In addition, the city finished 39th in producing new entrepreneurs, with an average of 150 of every 100,000 adults taking the plunge every month compared to 550 per 100,000 in top-ranked Austin, Texas.
The results represented bitter pills for area stakeholders to swallow.
“In certain ways, I was disappointed,” said Robert Stein, director of the University of Pittsburgh’s Institute for Entrepreneurial Excellence. “This is what I invest 100 percent of my life and my staff invests 100 percent of their lives in, so the results were a little disappointing.”
The city’s “opportunity share of new entrepreneurs” — defined by Kansas City, Mo.-based Kauffman Foundation as the number of entrepreneurs who did not start businesses due to unemployment — ranked 39th with approximately 6 out of 10 fitting the criteria. That compares to 9 out of 10 in the third-ranked San Jose/Silicon Valley area.
Startup density also came in at 39th, with 98.3 startups founded less than a year ago for every 100,000 adults in the region. In second-ranked Miami, 247.6 startups were founded for every 100,000 adults during the same period.
Pennsylvania’s numbers mirrored Pittsburgh’s. The state ranks 48th for startup activity and tied with Wisconsin for last place for the rate of creating new entrepreneurs, with 170 of every 100,000 adults launching startups per month.
The report had some good news about the national scene.
Eighteen of the 40 metro areas included on the index and 32 states saw a rise in startup activity. That’s a reversal of a five-year downward spiral sparked by the Great Recession, said Kauffman Foundation research analyst Arnobio Morelix.
With Cleveland, Detroit, Minneapolis, St. Louis and Milwaukee also at the bottom — in addition to Pittsburgh — Mr. Morelix said the findings are partially the story of Rust Belt cities working their way toward new economies.
Another possible factor in the rankings that left Pittsburgh and Pennsylvania at the bottom of the heap was that many top-performing regions were found within states that experienced significant economic growth over the course of a year. In 2013, Pennsylvania saw a 0.7 percent growth in GDP, compared to 3 percent GDP growth in Montana, which was ranked at the top in startup activity, and 9.7 percent GDP growth in third-ranked North Dakota.
“Entrepreneurship is closely associated with economic growth, so it shouldn’t be a surprise that states experiencing high economic activity are also seeing higher rates of startup activity,” said Mr. Morelix.
In defense of the city’s progress, Tim McNulty, spokesman for Pittsburgh Mayor Bill Peduto, noted that in 2014, venture capitalists invested $333 million into 39 Pittsburgh companies — a 168 percent increase in dollars invested and a 26 percent increase in the number of deals from the previous year.
Carnegie Mellon University, he noted, has created 300 spinoff companies in the last 15 years; and since 1996, Pitt has spun off 104 companies.
Using this week’s AlphaLab and AlphaLab Gear’s Demo Day — a coming-out party for companies graduating from the programs that support tech hardware and software startups — as an example, Mr. McNulty said the Kauffman report’s broad focus blurred the bigger picture of what’s happening regionally.
“The city’s startup story is a tremendous one. There is a reason national and local developers are flocking here to build space to accommodate our business expansion activity,” he said in an emailed statement. “The dollars don’t lie: the announcement by Faros two weeks [ago] that they were turning a North Side mall into a tech hub is only the latest example.”
Leaning on tech to save the day might not be the most effective strategy.
Economic diversity beyond a single business sector is one of four indicators that Mr. Morelix said the Kauffman Foundation uses to measure “entrepreneurial ecosystem vibrancy.” The other three factors are: density of new and young firms; fluidity, or movement in and out of a city; and connectivity between programs designed to assist entrepreneurs and between entrepreneurs themselves.
Rejecting the notions that Pittsburgh’s startup support systems and economic diversity are lacking, Mr. Stein said the report also failed to acknowledge cities helping their startups grow beyond their first year.
“Year one is great, but how are they going to get to year three or year five?” he said.
Adding that Pitt’s Institute for Entrepreneurial Excellence helped to launch 74 startups and supported more than 1,000 existing startups last year, Mr. Stein said he’s proud of the organization’s efforts.
Still, he acknowledged there was much work ahead to make a dent in the rankings.
“While I think we’re doing a great job, we still have to do better. And it’s going to take more than organizations like ours. It’s going to take support from the city and state. It’s going to take a group effort to get the trend turned around,” he said.
Deborah M. Todd: email@example.com or 412-263-1652. Twitter: @deborahtodd.
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