It's the Employment Thing

It’s been widely reported that metro Pittsburgh generated a paltry 2,000 jobs in the latest Quarter and its unemployment rate shot up a full percentage point from the mid-sixes to the mid-sevens.  Even with the caveat that unemployment rates for specific metro areas are less exact than national numbers [is the phrase “even less exact” a better characterization?] this is still a disturbing trend.

Is Pittsburgh back to status of first-into-recession/last-out?  Well, maybe, sort of.

Things are not as good anywhere as reported and, I personally believe, getting worse over in the entire US economy. But what explains Pittsburgh’s next to last ranking among large metro areas when it comes to job creation?

Is it the tax climate? What about Minneapolis or Boston - they're worse than Pittsburgh. Is it the weather climate? Oh c'mon, can't use that excuse given growth in other cities with far worse weather. And besides, one man’s “bad weather” is another’s “outdoor recreation opportunity”. Is it an "inside the center/outside the center" thing? By that I mean Allegheny and much of Washington and Butler counties have people that could be from anywhere else in the country, New York to L.A. But travel to the more outlying counties and we too often find, as but one example, lower educational levels.  Having traveled throughout that territory I can personally attest that the attitude of locals is too often less than welcoming to outside interests. You’ve got to want economic development before outsiders will look at you.  But I digress.

Is it reporting problems? How can Pittsburgh be SO far behind after being at the forefront recently? I mean PNC is growing, Dick's Sporting Goods is growing, I see new hotels and stores everywhere, just look at South Hills Village and Ross Park. But the retail hiring took a huge hit in the numbers I saw. So what is it?  I don’t have answers but the questions need asked.

If Pittsburgh and the central counties need to bear the burden of metro economic development then that’s just the way it is.  Here’s one thought.  In previous posts I’ve fingered CMU, as important as they are to Pittsburgh, for what I see as mediocre commitment to local economic development. From what I can tell, Cohon’s administration has not done enough to bring development into Pittsburgh. Currently, CMU exports most of its talent to the Silicon Valley. I pray the new President Suresh, from MIT with its enviable development record in Boston, will be different. Have you been to Cambridge recently? It's already living 2050 in terms of what is being researched there, especially around MIT. Oakland needs that. Redo Panther Hollow as a Silicon Hollow I say!

 

One win. One loss.

The new Pittsburgh Dataworks consortium announced last week is the start of what can be a big win. Of all the good things happening in Pittsburgh economically, this has the potential to be the biggest. Yes, bigger than gas extraction from the Marcellus shale.

Big data is where it's going. It's moving very fast however and Pittsburgh is merely "on trend", maybe even behind the curve. The Bay Area and Boston are years ahead. But it’s very important here that IBM is involved. That's huge given the history of what happens when IBM stakes a claim.

Consider the Silicon Valley. Admittedly it was first a plucky company called Fairchild Semiconductor that basically "started" the Silicon Valley. But when IBM put down roots a few years later and eventually transferred some hundred engineers from New York, the Valley really took off. That was now over 50 years ago.  A more recent example is Austin. IBM established its engineering group for PCs, in conjunction with the Micro Chip Consortium [MCC] in the late 70s, taking off in the early 80s. IBM is still in Austin with a massive campus just north of town. The rest is history, as they say. That was approximately 30 years ago.  Big [bang] economic development takes time, but it's gotta start somewhere.

It will take some time for Pittsburgh’s efforts and technology has a much shorter "half life" these days. That does concern me. But big data probably isn't going away. And the folks that work in big data are geniuses; PhDs in mathematics mostly. Big data people make big money. They supply high value add and are rewarded as such.  This is a big win.

 

A big loss was recorded this week when Texas A&M University with Texas Gov. Rick Perry announced GlaxoSmithKline, headquartered in Pennsylvania by the way, will partner with A&M to build a $91million flu vaccine facility.  Seems to me that Pitt and UPMC had been exploring a drug development and testing facility in Pittsburgh but gave up saying there wasn’t enough government subsidy for the project.

I am sure there were differences in the proposals and maybe even the configuration of the two facilities.  I remember that Pitt’s facility was estimated to cost well north of $100 million.  But was private sector involvement by a pharmaceutical firm ever considered? Note too that MD Anderson Cancer Center is also involved in the Texas site.  I believe UPMC’s Cancer Center is ranked top 10 in the US but MD Anderson is usually considered number one.  OK, but, putting the pieces together to make this happen is a huge boost for biomedical jobs in Houston [the big city close to A&M at College Station] but also central Texas as well.  Both places are already enjoying the nation’s best economic growth rates.

The oil and gas sector won’t grow forever.  But healthcare and pharmaceuticals will always be a part of human existence.  Pitt and UPMC should have worked harder for something like this facility.  I suspect however there is great need for others.  Pittsburgh should make sure it’s next up to the plate.

 

Easy Pickin's

A story this week in the “Austin Business Journal” features Silverton Partners and their recent success with moving Pittsburgh incubated start ups down to Austin. Hey, that’s the great thing about America and the capitalist system: mobility as a component of economic advancement.  But by using “Pittsburgh” as a stand-in punching bag for its self promotion, the ABJ got me thinking: why does Silverton have multiple successes luring Pittsburgh bred high tech to central Texas?

To level set, as best I can tell, Silverton has done this twice.  Once with a company named BlackLocus and another with Insurance Zebra.  Let’s acknowledge that two data points make a line but not a long term trend.  Silverton has had a couple winners this way and being smart they are making public relations hay with the story.

Both companies came through Pittsburgh’s South Side-based Alpha Labs organization.  Obviously Alpha Labs is in business to nurture and grow technology centric companies.  But according to their own Web site, helping the Pittsburgh region grow the number of those companies is also a goal.  This from the Web site:

“Do we have to stay in Pittsburgh after the program ends?

Companies are expected to remain in the Pittsburgh region after the end of their program. Our goal is to help you build a successful technology company while adding to the critical mass of flourishing tech companies in the region.

We believe that Pittsburgh is a great place to build a company and after your experience at AlphaLab, we're confident you'll agree.”

Hmmmm, seems like Alpha Labs track record is spotty.

I’ve got a couple of concerns.  First I have to question Alpha Labs work.  C’mon, Silverton wasn’t the only smart guys in the room when the “beauty contests” were being staged in front of VCs.  [Both BlackLocus and Insurance Zebra presented their business plans at nationally recognized conferences for venture capitalists.]  I have a hard time believing that folks at Alpha Labs didn’t know they had a couple of startups in their midst with good prospects for “events” such as a sale or a public offering.  Where’s the vision at one of Pittsburgh’s top incubators?

But I also have to question the work done by one of Alpha Labs sponsors, Carnegie Mellon University.  I have a dog in this hunt for a lot of reasons.  CMU is a bedrock of Pittsburgh’s growing innovation reputation.  My baby brother, as well as his wife, are CMU grads.  And I contribute annually to CMU’s gift giving campaign.  [For full disclosure, I’m a Pitt alum and it is the love of my life.]  So it pains me to see that CMU has done a less than stellar job of not only keeping its talent in Pittsburgh, it also has not pulled its weight in term of local economic development, in my humble opinion.  Stanford doesn’t let their incubated companies stray too far from the Bay Area.  Heck even the University of Texas has been wildly successful in retaining startups in Austin.  But CMU?  They’ve practically acknowledged defeat in Pittsburgh with their new Silicon Valley campus.  From the looks of it, that West Coast beachead is a one way street out of Panther Hollow for the sunny shores of San Francisco Bay.  [Albeit next to the 101.]

There’s a good piece in a recent CNN online edition written by a Harvard MBA student telling Boston powers-that-be why so much Boston area talent heads to New York or Silicon Valley upon graduation.  Dated March 18, 2013, authored by Jon Lai, and featured on CNN.com or “Fortune” magazine’s Web site, the piece could be a list of issues any American city faces, other than New York, San Francisco and to a lesser extent, Austin with its currently high “cool” factor.  Retaining talent and their output is not easy.  But Pittsburgh needs to get better at it.  BlackLocus is but one example of what happens when it goes right.  By the way, they were bought early on by the Home Depot Corporation.  They are now a software development center for Home Depot.  That development center could have located anywhere.  It should have been Pittsburgh.  It’s now another feather in Austin’s cap.  Don’t make the pickins so easy next time.

Access to Talent

Progress is often made at the margins and in small ways.  Today’s “Pittsburgh Business Times” reports that a New Jersey company, Ness Technologies, is opening a development center in Southpointe, Washington County.  I believe the key phrase in their announcement is the following:

”In a news release, Ness said it was drawn to the Pittsburgh region by its proximity to the region's colleges and associated talent pool.”

This is what we want to hear: a talent pool associated with local universities.  It’s the phrase you read over and over in places like Denver, Boston, Seattle and Austin.  Those of us working in high tech know that the San Francisco Bay Area has an overabundance of both talent and higher educational institutions pumping out that talent; that’s uncontested.

But the wagon Pittsburgh should hitch to is the one where operations from higher cost locales look to lower cost areas where the quality of life and the brainpower provides a natural place to co-locate and grow.  Obviously I believe Pittsburgh has offered that for a long time.  There’s always need for more efforts to get the word out because there are unlimited opportunities to tap into that need.

That Vision Thing

 

I was in Park City this last weekend and was thinking how small that town is to host fifty thousand film people. [The locals told me it is horrible during Sundance.] That may be why hundreds of condos have spouted up in the hills just within the two years since last I visited, even in this economic climate. There's money to be made hosting visitors, even if only for a couple weeks a year.

My baby sister was with me and she and I agreed on an observation: when you look at Park City you realize it really is just a redone mining town in a narrow hollow. Admittedly it’s a mining town with 8,000 ft peaks surrounding it, all subject to “the greatest snow on earth”.  But except for the well tended houses painted in fashionable colors, it could be any old mining town in western PA. My sister's comment was interesting.  She noted that while Elrama, Elizabeth or Monesson [and we hale from that part of the world so I'm not picking on those towns] are not going to sprout 5-star resorts any time soon, maybe a "little vision" is what some of these places need.

Ya, that vision thing.  You have to imagine it, dream it, before you can make it into reality.  Many small towns in the South and Texas [two different places and perspectives for those who don’t know] seemingly overreach when it comes to Chamber of Commerce boasting.  On many drives through the South you will note billboards advertising “charming shops and restaurants” or “antiquing galore”, when the reality is a local diner and some used furniture or second hand stores.  But that’s OK; they're trying.

And sometimes they succeed, even mightily.  For example, glossy upscale travel journals have touted places like Fredericksburg and Salado, Texas.  These towns really are nice places to spend a long day or a weekend.  They have both developed points of historical interest, very good restaurants, charming B&B’s and “boutique” [sort of] inns.  A main street with one or two dozen shops for the well heeled can provide jobs and enough cash flow to fix up the overall look. And that's often enough to make the most hardened factory or field worker come to expect a great cup of coffee in the morning or a decent restaurant meal on the weekend.  It raises everyone’s standards and expectations, even if it doesn’t and is not meant to, change their overall lifestyle.  It’s hard work to grow income organically [that’s what big city ecosystems are for].  It’s a lot easier to attract and capture income that’s been generated somewhere else.

But ya gotta have the vision first.  You have to have the desire to bring others into your world.  I hope it’s coming for many places in western PA.

Hotels and Hospitality

I believe hotels and lodging are a hole in Pittsburgh’s economy waiting to be filled.  What got me thinking on this topic, just when I was afraid that after two blog postings I had run out of ideas for thinkingPittsbugh?  A stroll across downtown Austin headed to a friend’s condominium in the W Hotel inspired me.   No it’s not the W Hotel that has me thinking – in my opinion the W chain is simply a limited amenity/high price point product that if you want something “hip” better to stay at the local Aloft.  Most of the time W hotels are only marginally comfortable and oddly styled.  If Pittsburgh never sees that marque on its skyline it will validate the City’s reputation for integrity.

 

No, I was passing the gaping block long crater on Congress  Avenue that will become the Austin JW Marriott.  JW Marriott is relatively upscale and sized large for convention business.  This is the big hole in Pittsburgh’s hospitality offering and one that many in City Hall, the Convention and Visitor’s Bureau, and more than a couple developers have been trying to fill for decades.  More certainly since Pittsburgh’s shiny, acclaimed LEED Platinum convention center opened up.  So why is Austin, with a convention center half the size of Pittsburgh’s, not to mention a smaller airport and overall population, getting this 1,000+ room monster as well as a new Westin and Fairmont downtown?  “Hospitality” is my theory.

 

A knowledgeable friend who manages real estate investments for wealthy foreign investors tells me that his clients basically trust three markets in the world: London, New York and San Francisco; and mostly just the first two.  So with that as background he takes a very skeptical view of supposed tier one markets in the US, Austin being one of those along with Boston, DC, and Los Angeles, among others, and tier two and below markets, where Pittsburgh lies.  Right now he says it is almost impossible to obtain financing for large hotels on either the construction loan phase or the long term take out that commercial investors provide.  Obviously up front equity is key to getting a project out of the ground.  But what determines the environment where deep pocketed equity partners fund a large hotel project?

 

Turns out it’s more apparent than one would think.  The city where a project gets built needs to have a reputation, a culture, a history of hospitality.  Think New York, New Orleans and San Francisco.  Places that welcome visitors as well as have attractions that people want to see.  How did Austin get on that list having only been around for some 100 plus years and with maybe a live music and a restaurant scene a little different than most other places?  Well, that’s exactly how it got on that list.  That and hard work by folks who believe they have reasons people will spend travel dollars to access a concentration of live music, a whole bunch of Tex-Mex restaurants, and a college town atmosphere where bar hopping in fewer than the usual amount of clothing is not considered anything to be remarked upon.

 

They put that together and came up with what I call The Big Three: South by Southwest Music Festival [expanded to Interactive Media, Film, and Education festival weeks], ACL Music Festival [about to go to two separate weekends], and now, Formula One racing on the only dedicated F1 track in America [strategically situated driving distance from Mexico and a short flight from the rest of Latin America].  I won’t go into the economic details of these three events.  Let it stand that all three bring in visitors for at least a week, with SXSW accounting for over two and a half weeks of activities.  Each event brings in over 100,000 visitors who are ready to spend money on a good time.  And with SXSW, where corporate sponsors and attendees use it as essentially a marketing event, the money spent on local hospitality is astounding.  Hotels are filled for literally 70 miles in all directions.

 

The economic benefits are many and varied but to the point of this post, it’s how three events can really generate the business to sustain both hospitality and general development in hundreds of millions of dollars and adding thousands of jobs.  My aforementioned real estate investor friend confirmed to me a while back that the economics for hotel owners is simple.  During the total six weeks these events represent annually, the room revenue is high enough [sometimes triple and always at least double rack rates for the rest of the year] that the hotel operators make their base line revenue within these weeks.  The rest of the year is gravy.  And those new condo towers in downtown Austin with prices that few locals can afford?  Well, local reports note that eight condos valued over $500K each were sold in one building as a result of F1 weekend.

 

Pittsburgh is a city of “real men” who “build things”.  That’s engrained in its collective DNA; its mental image of itself.  Whether the resident is actually male or female, it’s the internal perception that creates a big part of the reality.  The most common factor spoken by local economic development officials whenever the Pittsburgh area scores a development win: XYZ Company came here due to the “work ethic” of local residents.  There is little room for partying in Pittsburgh, nosireebob.  Jobs related to hospitality and entertainment are somehow second rate.  The question needs to be asked, “Really?”  When good hospitality jobs pay more than average salaries in most other business sectors, when an outsider’s perception of a city as being enjoyable can lead to future investments, and when a welcoming environment yields overall benefits to the quality of life, can anyone still say a city, Pittsburgh or any city, doesn’t need more party?  Laissez les bon temps roulez!   Government officials, third-party economic development agencies, and energetic local boosters of all stripes need to encourage “hospitality”.  Entertainment events involving collective activities centered on enjoyment, that is.  The City has examples already of how the Steelers and Penguins generate economic vitality downtown whenever they are playing.  Fun should not be only related to sitting in a seat watching a sporting event.  It’s time to get creative on the fun factor, Pittsburgh.

Of Friendly, Welcoming and Growing

I’ve been thinking lately of similarities and differences between my current hometown, Austin, TX [yes I’ve just outed myself on that one] and former hometown, Pittsburgh.  At some future point I’ll detail why in my opinion Austin and Pittsburgh are so uniquely similar, and similar in unique ways.  But for this posting I draw on conversations over the years of living in each place.  I believe I have now reached a point where I have lived in Austin for as many years as I lived in Pittsburgh.  OK, for clarification, I grew up and resided through college in “the Pittsburgh area”.  The City line was about five miles up the road from my burg.  To Pittsburghers, that’s an important distinction.  Michael Chabon, another nominee in my pantheon of Pittsburgh saints [even though he currently writes from “Bizerkeley”, CA] lectured one night at Southwestern University in Georgetown, TX about 15 miles north of Austin and I was fortunate to have attended.  He began the lecture by explaining to the gathered Texans that even though he loved Pittsburgh, and wrote lovingly of it, AND considered himself a Pittsburgher, to “native” Pittsburghers he would never be one.  He noted that Pittsburgh’s a place where, close to quoting him here, if you were born just a step outside the City line, and the moment you could take a breath you were whisked across that line into Pittsburgh, you would not be considered a “Pittsburgher” by the City’s natives.  I believe the audience shared the joke partially because Texans resemble that remark.

But this leads me into my comment for this post.  Years back I had lunch at the Holiday Inn in Pittsburgh’s Oakland section with a “mover and shaker” who directed a joint effort between CMU and Pitt to incubate technology companies from the universities’ academic pursuits.  He said something that I have carried with me ever since: “Pittsburghers are friendly but not welcoming”.  And he meant it as an indictment resulting in an impediment to growth.  He said that enterprises found it easier than one might think bringing talent into Pittsburgh as their initial impressions were usually good and they found the social climate “friendly”.  [I seem to remember local TV station KDKA in the 70s used the moniker “The Friendly City”.]  The problem was that those new transplants too often left after a relatively short amount of time.   In leaving, they took ideas, training and often whole enterprises with them.  And where did they go?  Places like Austin, but also other places either more socially welcoming like North Carolina and Atlanta or places more economically wide open like Seattle and the Silicon Valley.  The mover and shaker believed that along with more developed sources of capital funding, a more welcoming social net would equalize in and out migrations to something consistent with economically dynamic cities.

Think of why you shop at a particular hardware store, frequent your preferred airline, or settle in a certain neighborhood.  I’d be willing to bet these and dozens of similar decisions are made due to social bonds.  People who welcome us into their lives get a hold on us that makes all the other things around us fade to the background; one example being your neighborhood.  You love your ‘hood.  You grill with neighbors and share the picnic.  You gossip over a glass of your preferred refresher.  You worry about someone up the street who you haven’t seen in while.   Sure, in the midst of all that you don’t like the paint color on a neighbor’s house.  Or worse, the crying need for fresh paint, whatever the color.  Maybe there appears a wall with graffiti a couple blocks over nearer the highway.  Or you’ve reached the end with a neighbor’s dog using your front yard as their latrine.  But overall, the social network keeps you grounded to your neighborhood.  And as a result, you’re reluctant to leave for another part of town, or part of the country.  For newcomers, THAT’S what was missing in Pittsburgh, I’ve been told.

I contrast that view with Austin.  Back in the 90s when I first moved here there was a guy in my startup company who was originally from Cleveland, OH.  He even graduated from UT’s football rival Ohio State.  He told me the reason he settled in Austin was that after motorbike touring the country during his vacations, he never encountered a place as “welcoming” [his words] as Austin.  I hear that same comment all the time in the local Austin media.  After big events such as ACL Fest and SXSW you’ll hear and read of entertainers, business people or just participant fans say they decided to look for work or housing and move here because so many people open their homes, hearts and attitudes to them.

Pittsburgh has come so far economically in the last 20-plus years so it’s now seeing higher in-migration.  And often Pittsburghers will ask newcomers, sometimes sheepishly fearing a veiled put-down I suppose, “Why did you move here?”    By contrast, I interact daily with Texans who are not only natives, they are fifth and sixth and beyond generation natives.  And their attitude to me is always “What took you so long to get here?”  So I end this piece with a question.  Or lots of questions.  What attitudes need to change?  Can you change the character of a city quickly enough to keep up with the pace of global economic change?  Can you rely on an initial core group of newcomers, perhaps themselves more open to other newcomers, to form the basis of social and economic progress?