7 ms·

I lived in Pittsburgh for 17 years. I bootstrapped a company out of CMU, grew it to $25M/year in revenue and sold it to IBM. Pittsburgh is a great place to star

I lived in Pittsburgh for 17 years. I bootstrapped a company out of CMU, grew it to $25M/year in revenue and sold it to IBM. Pittsburgh is a great place to start a company, lots of tech talent, lots of support and exposure in the community, cheap rent. And it is today a much more enjoyable place to live than 20 years ago (great restaurant scene, bike paths, revitalized downtown). There are two big drawbacks: finding experienced non-technical talent (our C-suite ended up in DC) and raising significant funds. It's just really hard to get serious VCs to pay attention to Pittsburgh.

nugget 9y ago
> It's just really hard to get serious VCs to pay attention to Pittsburgh. I'm an angel investor in a few dozen tech startups, about half in the Bay Area and half spread elsewhere around the country. The biggest problem with those outside of the Bay Area is that for lack of a better term "they don't think big enough". A lot of the promising ones turn into lifestyle-type businesses (e.g. a focus on services revenue instead of software revenue) when, in my opinion, they could have achieved much greater exits. Whether justified or not, I know many other investors with a similar bias based on similar experiences.
- draw_down 9y ago
  On balance, maybe not such a bad thing.
- pesenti 9y ago
  It's a good point, I have noticed that as well. But it's both a cause and consequence of the lack of easy access to capital. Early stage big ideas that require a lot of initial capital just won't get funded in a place like Pittsburgh. Once they pick up, then they have a chance (see Duolingo for example). But by that time most have had to make ends meet...
- tarr11 9y ago
  Interesting, can you expand on services business being lifestyle vs product being venture? I had never heard of that distinction before and usually just thought of lifestyle businesses as slower growing vs faster.
  - nugget 9y ago
    Sure, here's an example - a small startup which occupies an attractive niche, definite market need, product-market fit, and decent traction. The founder developed a software platform in response to market need, but the market also told her that there were opportunities to sell extensive services. Now that the software platform is done and there is a small services team in place, the founder can choose to sell either: a) the software platform, which might make $20k/year, but you can sell thousands of them without much incremental overhead needed; once integrated, it's also extremely sticky; low customer churn and high customer satisfaction b) a services package, which might make $50k/year, but for every 3-4 you sell, you need to hire a new employee @ $75k/year fully-loaded overhead cost Before you say "sell both!" - unfortunately the nature of things is such that, more or less, the founder needs to prioritize selling one or the other. Consciously or not, she is prioritizing the services revenue, and as a result about 90% of new sales are services contracts. I (and the other investors) would prefer that she prioritize software. Even if it makes them unprofitable, it would make for a much better risk-adjusted bet. And this isn't like "it's a much better bet for the investors, because they can diversify risk out in a portfolio, but the poor founder would probably be left with nothing". She understands both sides and says she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible. This is a classic case of where a smaller PE firm will come in and buy it out for a few million, purposefully cut the services revenue, go hog wild selling software, and flip it a few years later for 10-20x what they paid.
    - tarr11 9y ago
      This article from 2011 is relevant: https://techcrunch.com/2011/04/24/what-should-you-do-with-your-crappy-little-services-business/ https://techcrunch.com/2011/04/24/what-should-you-do-with-yo...
    - reneherse 9y ago
      Thank you; it's very interesting to hear the details on this. One question: >she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible Do you mean the existing company culture, e.g. employees only having service-oriented skills, or the southeastern city culture, somehow being inhospitable for developing software? I'm curious because I currently live in a southeastern city (Nashville), am about to move to another (Atlanta), and am in the beginning stages of building a B2B SAAS startup.
- Hydraulix989 9y ago
  Which is more of an issue with those VCs than the founders; there are a number of self-driving car startups here and they have a unique advantage: they aren't biased by the immaculate freeways and roads in California -- Pittsburgh has a much wider variety of challenging driving situations, weather, and conditions than California so it is a great test bed for developing autonomous vehicles (indeed, CMU won 1st place in the DARPA Grand Urban challenge, readily beating the likes of Stanford and Berkeley). Some California VCs are mistakenly under the impression that anywhere outside the Bay Area must be Siberia. It's going to eventually bite them in terms of missed future opportunities and ROI on their funds.
  - thearn4 9y ago
    It's an interesting point that robust autonomous systems may be more likely to emerge in organizations from places that have distinct seasons (including a perennial 'orange construction barrel' season).
  - whopa 9y ago
    > they aren't biased by the immaculate freeways and roads in California -- Pittsburgh has a much wider variety of challenging driving situations, weather, and conditions than California so it is a great test bed for developing autonomous vehicles Careful, don't compare Pittsburgh to an entire state. Pennsylvania doesn't have any real mountains, whereas California does. Google tests their self driving vehicles in the Lake Tahoe area, which in the winter can be much more challenging than anywhere in within 500 miles of Pittsburgh. Navigating serious grade changes, both uphill and downhill, presents more of a challenge for trucks too, even for humans right now. The only places to really test that in the US are pretty much west of Denver.
    - Hydraulix989 9y ago
      As an SF transplant, my only thoughts after seeing California drivers struggling with the artificial snow and hills at Tahoe were "these people have never been to Pittsburgh." Also, eastern Pennsylvania has the Appalachian mountains, and last time I checked, they were "real."
- Avshalom 9y ago
  >> lifestyle-type businesses e.g. profitable.
  - Avshalom 9y ago
    Also parallelism aside pretty sure we both mean i.e. not e.g.
  - closeparen 9y ago
    Which is great for the people living off that income, and not great for investors unless it's also valuable. VCs would need to take fewer, smaller risks if they're expecting smaller rewards per success story.
    - Avshalom 9y ago
      I feel like it's a pretty recent development that investors don't expect their investments to turn a profit.
      - closeparen 9y ago
        The investment needs to turn a profit for the investor by appreciating in value, which is different from turning a profit in general.
      - pjlegato 9y ago
        VCs by definition are looking for the Next Big Thing, not to finance someone's lifestyle business. The returns are too low to justify the huge risk. There are many other lower risk ways to get lifestyle-business sized returns for an investor. VC limited partners invest because it has low correlation to other investments and the potential for 100% returns. If they're just getting a potential 7% (or whatever), they can buy stocks or real estate etc. at much lower risk.
- ssharp 9y ago
  It seems like the midwest much prefers B2B software and health industry-focused startups. I'm assuming because they become profitable much faster and don't need the explosive growth and capital needs of moonshot SV companies. Fewer unicorn exits drops the EV of an investment, so you can't take as many risky bets. I'd guess the medical startups are largely because of Cleveland Clinic and UPMC.
- joehosteny 9y ago
  I understand your position, but I think these companies do exist here. I know, because I've been at a few of them (Avere Systems and Bossa Nova Robotics, for example). I think our biggest challenge is getting sufficient capital in the region. The airport situation has been a serious impediment - great airport, few direct flights to the west coast - but that is changing.
theYipster 9y ago
I've long found a third drawback, which may be linked to the access to capital issue, is Pittsburgh's geographical isolation compared to the Bay Area and other tech hot spots. There's no major international air hub (anymore) and flights even to nearby cities such as NY, DC, and Philly are relatively pricey with limited schedules. There's no meaningful international service either anymore. This is in comparison to SFO, which has direct international service to many cities in Asia and Europe and fancy flat-bed planes (on the hour) to NYC... Austin has direct service to London and Frankfurt and flights every 30 minutes to mega hubs in Dallas and Houston, and well, New York is New York. Even by car, the closest nearest city at a two hours without traffic is ... Cleveland, and while Philly, DC, and NYC are drivable, you're looking at 4-5 hours without traffic to Philly or DC and 6-7 hours to NYC if you're lucky. And it's not the easiest of drives either with the winding and truck-filled PA Turnpike. Even within the metro area, there isn't much outside the downtown core. A few nice suburbs to the north, south, and east, but there isn't anything to the scale of the Bay Area, even with it's housing crunch, nor the Pacific Northwest, nor even Austin / San-Antonio. In short, it's hard to get to and out of, and while there's an exciting transformation going on, at the end of the day unless someone revives PIT as a major transit hub, it's still going to be a relatively isolated post-industrial mid-western rust-belt city.
- Hydraulix989 9y ago
  I totally agree. I wrote to the mayor about this, and we could definitely use more help raising awareness to the city about this very pressing issue (@billpeduto on Twitter if you're also affected)... I've never had an SFO<->PIT flight without layovers. Also, we ask everyone here to please continue to refrain from using the pejorative "rust-belt" to describe our beloved hometown and emerging tech center. It is a very unwelcoming word. Thank you!
  - dasil003 9y ago
    I'm doing that this week and I had to choose a 6:30am flight to get a layover less than 6 hours and a price less than $1000.
  - rbsmith 9y ago
762236 9y ago
A drawback for us engineers: no moonlighting law. When you work for a tech company in Pittsburgh, they own everything you think and produce, even in your off hours when you're trying to bootstrap that startup. Pittsburgh can never turn into a Silicon Valley with this limitation.
- jjawssd 9y ago
  What policy is this a consequence of?
  - Hydraulix989 9y ago
    It's more of a consequence of an absence of policy (like with net neutrality -- nothing stopping ISPs from traffic-shaping and restricting content without "regulation" of some sort) than the presence of one. Employers are free to impose whatever restrictions on "moonlighting" they want on their employment contracts (and tech's routinely non-unionized workers are put in a position where they have no choice but to accept them) California actually has laws in place that make it illegal for employers to do things like add non-compete clauses to their employment contracts (and these laws also render said clauses to be unenforceable).

nugget 9y ago

> It's just really hard to get serious VCs to pay attention to Pittsburgh. I'm an angel investor in a few dozen tech startups, about half in the Bay Area and half spread elsewhere around the country. The biggest problem with those outside of the Bay Area is that for lack of a better term "they don't think big enough". A lot of the promising ones turn into lifestyle-type businesses (e.g. a focus on services revenue instead of software revenue) when, in my opinion, they could have achieved much greater exits. Whether justified or not, I know many other investors with a similar bias based on similar experiences.

draw_down 9y ago
On balance, maybe not such a bad thing.
pesenti 9y ago
It's a good point, I have noticed that as well. But it's both a cause and consequence of the lack of easy access to capital. Early stage big ideas that require a lot of initial capital just won't get funded in a place like Pittsburgh. Once they pick up, then they have a chance (see Duolingo for example). But by that time most have had to make ends meet...
tarr11 9y ago
Interesting, can you expand on services business being lifestyle vs product being venture? I had never heard of that distinction before and usually just thought of lifestyle businesses as slower growing vs faster.
- nugget 9y ago
  Sure, here's an example - a small startup which occupies an attractive niche, definite market need, product-market fit, and decent traction. The founder developed a software platform in response to market need, but the market also told her that there were opportunities to sell extensive services. Now that the software platform is done and there is a small services team in place, the founder can choose to sell either: a) the software platform, which might make $20k/year, but you can sell thousands of them without much incremental overhead needed; once integrated, it's also extremely sticky; low customer churn and high customer satisfaction b) a services package, which might make $50k/year, but for every 3-4 you sell, you need to hire a new employee @ $75k/year fully-loaded overhead cost Before you say "sell both!" - unfortunately the nature of things is such that, more or less, the founder needs to prioritize selling one or the other. Consciously or not, she is prioritizing the services revenue, and as a result about 90% of new sales are services contracts. I (and the other investors) would prefer that she prioritize software. Even if it makes them unprofitable, it would make for a much better risk-adjusted bet. And this isn't like "it's a much better bet for the investors, because they can diversify risk out in a portfolio, but the poor founder would probably be left with nothing". She understands both sides and says she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible. This is a classic case of where a smaller PE firm will come in and buy it out for a few million, purposefully cut the services revenue, go hog wild selling software, and flip it a few years later for 10-20x what they paid.
  - tarr11 9y ago
    This article from 2011 is relevant: https://techcrunch.com/2011/04/24/what-should-you-do-with-your-crappy-little-services-business/ https://techcrunch.com/2011/04/24/what-should-you-do-with-yo...
  - reneherse 9y ago
    Thank you; it's very interesting to hear the details on this. One question: >she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible Do you mean the existing company culture, e.g. employees only having service-oriented skills, or the southeastern city culture, somehow being inhospitable for developing software? I'm curious because I currently live in a southeastern city (Nashville), am about to move to another (Atlanta), and am in the beginning stages of building a B2B SAAS startup.
Hydraulix989 9y ago
Which is more of an issue with those VCs than the founders; there are a number of self-driving car startups here and they have a unique advantage: they aren't biased by the immaculate freeways and roads in California -- Pittsburgh has a much wider variety of challenging driving situations, weather, and conditions than California so it is a great test bed for developing autonomous vehicles (indeed, CMU won 1st place in the DARPA Grand Urban challenge, readily beating the likes of Stanford and Berkeley). Some California VCs are mistakenly under the impression that anywhere outside the Bay Area must be Siberia. It's going to eventually bite them in terms of missed future opportunities and ROI on their funds.
- thearn4 9y ago
  It's an interesting point that robust autonomous systems may be more likely to emerge in organizations from places that have distinct seasons (including a perennial 'orange construction barrel' season).
- whopa 9y ago
  > they aren't biased by the immaculate freeways and roads in California -- Pittsburgh has a much wider variety of challenging driving situations, weather, and conditions than California so it is a great test bed for developing autonomous vehicles Careful, don't compare Pittsburgh to an entire state. Pennsylvania doesn't have any real mountains, whereas California does. Google tests their self driving vehicles in the Lake Tahoe area, which in the winter can be much more challenging than anywhere in within 500 miles of Pittsburgh. Navigating serious grade changes, both uphill and downhill, presents more of a challenge for trucks too, even for humans right now. The only places to really test that in the US are pretty much west of Denver.
  - Hydraulix989 9y ago
    As an SF transplant, my only thoughts after seeing California drivers struggling with the artificial snow and hills at Tahoe were "these people have never been to Pittsburgh." Also, eastern Pennsylvania has the Appalachian mountains, and last time I checked, they were "real."
Avshalom 9y ago
>> lifestyle-type businesses e.g. profitable.
- Avshalom 9y ago
  Also parallelism aside pretty sure we both mean i.e. not e.g.
- closeparen 9y ago
  Which is great for the people living off that income, and not great for investors unless it's also valuable. VCs would need to take fewer, smaller risks if they're expecting smaller rewards per success story.
  - Avshalom 9y ago
    I feel like it's a pretty recent development that investors don't expect their investments to turn a profit.
    - closeparen 9y ago
      The investment needs to turn a profit for the investor by appreciating in value, which is different from turning a profit in general.
    - pjlegato 9y ago
      VCs by definition are looking for the Next Big Thing, not to finance someone's lifestyle business. The returns are too low to justify the huge risk. There are many other lower risk ways to get lifestyle-business sized returns for an investor. VC limited partners invest because it has low correlation to other investments and the potential for 100% returns. If they're just getting a potential 7% (or whatever), they can buy stocks or real estate etc. at much lower risk.
ssharp 9y ago
It seems like the midwest much prefers B2B software and health industry-focused startups. I'm assuming because they become profitable much faster and don't need the explosive growth and capital needs of moonshot SV companies. Fewer unicorn exits drops the EV of an investment, so you can't take as many risky bets. I'd guess the medical startups are largely because of Cleveland Clinic and UPMC.
joehosteny 9y ago
I understand your position, but I think these companies do exist here. I know, because I've been at a few of them (Avere Systems and Bossa Nova Robotics, for example). I think our biggest challenge is getting sufficient capital in the region. The airport situation has been a serious impediment - great airport, few direct flights to the west coast - but that is changing.

theYipster 9y ago

I've long found a third drawback, which may be linked to the access to capital issue, is Pittsburgh's geographical isolation compared to the Bay Area and other tech hot spots. There's no major international air hub (anymore) and flights even to nearby cities such as NY, DC, and Philly are relatively pricey with limited schedules. There's no meaningful international service either anymore. This is in comparison to SFO, which has direct international service to many cities in Asia and Europe and fancy flat-bed planes (on the hour) to NYC... Austin has direct service to London and Frankfurt and flights every 30 minutes to mega hubs in Dallas and Houston, and well, New York is New York. Even by car, the closest nearest city at a two hours without traffic is ... Cleveland, and while Philly, DC, and NYC are drivable, you're looking at 4-5 hours without traffic to Philly or DC and 6-7 hours to NYC if you're lucky. And it's not the easiest of drives either with the winding and truck-filled PA Turnpike. Even within the metro area, there isn't much outside the downtown core. A few nice suburbs to the north, south, and east, but there isn't anything to the scale of the Bay Area, even with it's housing crunch, nor the Pacific Northwest, nor even Austin / San-Antonio. In short, it's hard to get to and out of, and while there's an exciting transformation going on, at the end of the day unless someone revives PIT as a major transit hub, it's still going to be a relatively isolated post-industrial mid-western rust-belt city.

Hydraulix989 9y ago
I totally agree. I wrote to the mayor about this, and we could definitely use more help raising awareness to the city about this very pressing issue (@billpeduto on Twitter if you're also affected)... I've never had an SFO<->PIT flight without layovers. Also, we ask everyone here to please continue to refrain from using the pejorative "rust-belt" to describe our beloved hometown and emerging tech center. It is a very unwelcoming word. Thank you!
- dasil003 9y ago
  I'm doing that this week and I had to choose a 6:30am flight to get a layover less than 6 hours and a price less than $1000.
- rbsmith 9y ago

762236 9y ago

A drawback for us engineers: no moonlighting law. When you work for a tech company in Pittsburgh, they own everything you think and produce, even in your off hours when you're trying to bootstrap that startup. Pittsburgh can never turn into a Silicon Valley with this limitation.

jjawssd 9y ago
What policy is this a consequence of?
- Hydraulix989 9y ago
  It's more of a consequence of an absence of policy (like with net neutrality -- nothing stopping ISPs from traffic-shaping and restricting content without "regulation" of some sort) than the presence of one. Employers are free to impose whatever restrictions on "moonlighting" they want on their employment contracts (and tech's routinely non-unionized workers are put in a position where they have no choice but to accept them) California actually has laws in place that make it illegal for employers to do things like add non-compete clauses to their employment contracts (and these laws also render said clauses to be unenforceable).