Want More Jobs? Attract More Entrepreneurs (by Harold Miller)

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 rates by industry are available here.  The survival rates will be posted 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.

This article first appeared in the Post-Gazette on 1/13/08.

Comments

[Gary Rosensteel]

The Help Startups organization has been working since our inception on changing attitudes in our region. Pittsburgh is the city it is BECAUSE OF entrepreneurs like Carnegie, Heinz, Westinghouse, Mellon and many others.

We want people to actively encourage entrepreneurs. For they are the ones who create new jobs, keep young people here, attract new people from other places and spin out even more new opportunities!