Pittsburgh's road to tech success wasn't the smoothest
Richard Lunak, left, president and CEO of Innovation Works, and Henry Thorne, chief technical officer at 4Moms, show their mamaRoo vibrating seat for children. Innovation Works is a program of the Ben Franklin Technology Partners program.
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Transforming Western Pennsylvania's economic mindset from steel to silicon during the turbulent 1980s was no easy sell. Legislators tackling staggering unemployment were focused on generating jobs of the moment, and idle blue-collar workers weren't interested in jobs of the future.
However, nearly 30 years after creation of the tech-driven Ben Franklin Technology Partners program, stakeholders say the state might never have recognized one of its greatest assets if the economy hadn't forced legislators to take a leap into the unfamiliar.
"By that time, our unemployment rate hovered around 15 percent. We were in desperate straits and we had to try something different," said former Pennsylvania Gov. Dick Thornburgh, who held office from 1979 until 1987.
A TIDE OF CHANGE
Sixth in a series on how our economy has transformed since bottoming out a generation ago.
Our regional economy barely resembles the one from 30 years ago. A full generation has passed since January 1983, when the southwestern Pennsylvania economy was at its nadir and unemployment was at its all-time peak.
Today: In the 1980s, investing in technology didn't seem like a way to replace the region's lost jobs. Also, a Latrobe family practice sees a future in an old-fashioned medical care model even as the industry has changed.
Saturday: Of the top 25 retail banks in the seven-county Pittsburgh region in the 1980s, just nine are in business today. Although they survived the 1983 collapse, they couldn't survive regulatory changes and the most recent financial meltdown.
Created in 1983, Ben Franklin Technology Partners was the nation's first state-sponsored economic development initiative geared toward technology. The program is part of the state Department of Community and Economic Development and is funded through the Ben Franklin Technology Development Authority. BFTP operates regional headquarters at South Oakland-based Innovation Works, in Philadelphia, in the Lehigh Valley and in State College.
Mr. Thornburgh said the idea came from a 1982 report commissioned to examine which economic development programs would provide the most benefit for the state. Among the report's findings was that hundreds of new technologies were being created at universities throughout the state, but they rarely translated into new businesses and jobs for Pennsylvanians.
The plan, said Mr. Thornburgh, was to create something that would link the brain trust in academia with entrepreneurial and investment communities that were also struggling to find their way in the new economy.
"The point was to draw in the business and academic communities for a joint effort to capitalize off of research and development to create new and future oriented jobs," he said.
Part start-up incubator, part commercialization engine and part sales agent, today's BFTP has come a long way from a start that some weren't sure would go too far beyond its first years.
"It was an experiment," explained Fred Beste, managing partner at Bethlehem-based Mid-Atlantic Ventures who has been on the board for the Northeastern PA BFT development authority since 1986.
"I think there was skepticism in part because it was a state-funded and -run program, relying on grant funds and nonprofit organizations' support of choices, none of which gave reason to believe this was going to be an effective, leading-edge economic development program," he said.
Misgivings only grew as the program, which started off with $1 million in funding, dispersed grants to excitable entrepreneurs with less-than-solid business plans.
The state was taking 3 percent on sales of products that had received grant funding, but many business owners weren't selling enough to get a fraction of the grant money back. What was designed to be the answer to the state's economic woes was becoming more of a punchline than anything else, according to Mr. Beste.
"Ben Franklin was very much a Rodney Dangerfield in the early years," he said. "It was getting no respect and really, it didn't deserve any."
But like most experiments, legislators were able to learn from early mistakes to create what has become a national model for economic development through technology.
First the program hired venture capitalists, serial entrepreneurs and others well-versed in tech investments to lead regional centers and restructure operations. Innovation Works President Rich Lunak was himself an entrepreneur funded through BFTP before coming on to the organization in 2005.
Then the program shifted from dispersing grants to a model that gives BFTP a 3 percent stake in the company being funded. Funding jumped from the initial $1 million to around $28 million per year until the most recent recession.
Fast forward a few decades and the program now provides a 3.5-to-1 return on investment for every state dollar it receives. As for BFTP startups, Innovation Works has invested over $60 million in more than 350 companies since 1999. These companies have generated more than $1.3 billion in follow-on funding and represent some of the region's fastest growing firms. According to Mr. Lunak, about three quarters of the region's startups that received venture funding over the last five years came from Innovation Works' seed fund portfolio.
Helping entrepreneurs through the startup phase has been critical, but Innovation Works is also committed to seeing its portfolio companies become anchors for talent in the region, said Mr. Lunak.
He noted 4Moms, a Strip-District based juvenile products company, as one rising star that could lead the charge. 4Moms, widely known for high-tech strollers used by the likes of actress Natalie Portman and other celebrities, has more than doubled employment over the last two years and received $20 million from Bain Capital Ventures in August.
Cofounder Henry Thorley said he came to the region from Flint, Mich., in 1991 because Innovation Works funded his first robotics company but stayed because he felt at home in the atmosphere the program had fostered. Innovation Works has provided startup funding for three of Mr. Thorley's companies -- Probotics, Aethon Industries and 4Moms -- for approximately $1.5 million.
"In Flint, I was a weirdo as an entrepreneur. Here there was a network of incubators ... lots of serious people that would give you real advice and help to start a business."
With plans to focus on advanced manufacturing, a federal grant to establish an accelerator program for hardware and certification as a community development financial institute, Mr. Lunak said the organization has only begun to reach its full potential.
After 30 years of survival through Republican and Democratic administrations alike, Mr. Thornburgh couldn't ask for much more.
"It's become a permanent economic development agenda," he said proudly. "It's changed somewhat in character, but is basically the same framework -- a true partnership between government, business and our great research universities."
First Published December 28, 2012 12:00 am