The things a city like Pittsburgh should do to become a tech hub are things the city should be doing anyway, since they will all make it a nicer place to live.
By Ryan McGreal
Published April 15, 2016
It is impossible to read the new essay by Paul Graham on how to make Pittsburgh a startup hub and not think about Hamilton.
Paul Graham is a famous (at least in tech circles) programmer, entrepreneur, venture capitalist and writer. He made his first fortune in the 1990s with a company called Viaweb, which allowed other companies to open online stores. After that, he developed a cottage industry writing oft-cited essays about functional programming, software development, business startups, the web and more.
In 2005, Graham and a small group of cofounders decided to test their insights about business development by establishing a startup-incubator. Y Combinator is an investment and training company that provides startup founders with a small amount of seed money and then works closely with the founders to develop their business over ten weeks and helps them deal with investors. In exchange for $120,000 in seed money, Y Combinator takes 7 percent of equity in the company.
Their approach has been to pick startups based more on the strength of the founders than the idea, since ideas can - indeed, will - always change in response to the market. A major quality they look for in founders is a "hacker" mentality - the desire to understand how systems work in order to make them work for you. Hackers are people who like to think around corners, seeing untapped opportunities to do things differently, and Graham and company have been betting that this same ability makes for more successful businesses.
Y Combinator is constantly evaluating what works and what doesn't, comparing their initial assessments of startup pitches against subsequent performance and refining their business model - even when the data are painfully counter-intuitive. More than a decade on, Y Combinator has amassed an astonishing record of success through their innovative, relentlessly data-driven approach.
You might have heard of some of the companies they funded: social link-sharing behemoth reddit (one of the first YC companies), rental market Airbnb, file-hosting service Dropbox, online payment processing company Stripe, distributed application platform Docker, HR-as-a-service provdier Zenefits, business analytics service Mixpanel, groceries-as-a-service provider Instacart and livestreaming video platform Twitch.
The total market capitalization of YC companies is over $65 billion, including several companies valued at over $1 billion. In total, they have funded over 1,000 startups and counting - their model is both repeatable and progressively more successful.
So when Paul Graham talks about what a city needs to do to become a good place for business startups, it's worth paying attention. Traditionally, he has emphasized the centrality of Silicon Valley as the centre of the tech startup universe. In the classic way that cities increasingly concentrate resources and multiply value, Silicon Valley enjoys a particularly strong virtuous feedback loop of talent attracting talent, investment attracting investment and ideas attracting ideas.
Yet even Silicon Valley, the famously suburban band of office parks that sparked the revolution in American computing business, has been shifting with the tide of new urbanism among young people. As Graham puts it in his talk on Pittsburgh:
When I was a kid, [Pittsburgh] was a place young people left. Now it's a place that attracts them. What does that have to do with startups? Because startups are made of people, and the average age of the people in a typical startup is right in that 25 to 29 bracket.
I've seen how powerful it is for a city to have those people. Five years ago they shifted the center of gravity of Silicon Valley from the peninsula to San Francisco. Google and Facebook are on the peninsula, but the next generation of big winners are all in SF. The reason the center of gravity shifted was the talent war, for programmers especially. Most 25 to 29 year olds want to live in the city, not down in the boring suburbs.
So whether they like it or not, founders know they have to be in the city. I know multiple founders who would have preferred to live down in the Valley proper, but who made themselves move to SF because they knew otherwise they'd lose the talent war.
Graham believes it bodes well for Pittsburgh that young people want to live in the city again. His first recommendation is to tap into and encourage the "food boom" among new independent restaurants in Pittsburgh.
What could the city do? Treat the people starting these little restaurants and cafes as your users, and go ask them what they want. I can guess at least one thing they might want: a fast permit process. San Francisco has left you a huge amount of room to beat them in that department.
Like Hamilton, Pittsburgh is known for having cheap housing. But also, like Hamilton, the cheap housing isn't just cheap housing: it's "a cheap place you'd actually want to live." He credits that to the fact that Pittsburgh's cheap housing stock is old buildings that were built well at a time when the city was wealthy.
So here is another piece of advice for becoming a startup hub: don't destroy the buildings that are bringing people here. When cities are on the way back up, like Pittsburgh is now, developers race to tear down the old buildings. Don't let that happen. Focus on historic preservation.
As the City of Hamilton considers a new proposal to demolish most of 18-28 King Street East and only save the facade of 18-22, Graham's next point bears careful consideration:
Big real estate development projects are not what's bringing the twenty-somethings here. They're the opposite of the new restaurants and cafes; they subtract personality from the city.
With a downtown already marred by a tremendous excess of vacant and low-value parking lots, there is no reason to demolish existing buildings in order to add new developments.
Aerial view of surface parking in downtown Hamilton (Image Credit: Anita Thomas)
As Graham puts it:
The empirical evidence suggests you cannot be too strict about historic preservation. The tougher cities are about it, the better they seem to do.
So much for the common trollish complaint that historic preservation is somehow anti-business.
Next, Graham scales his attention up from individual buildings to the neighbourhoods that house them. He notes that downtown Pittsburgh - like downtown Hamilton - is a pre-car city that was designed to be walkable by default. This, of course, appeals to the 25- to 29-year-olds Graham is concerned with, since they famously don't like to drive nearly as much as previous generations did.
But Graham doesn't just argue that a walking- and cycling-friendly city is more appealing to a specific demographic. He argues that it's objectively better that a city that forces people to drive for most trips.
And this is not just a fad that the twenty-somethings have adopted. In this respect they have discovered a better way to live. The beards will go, but not the bikes. Cities where you can get around without driving are just better period.
Graham thinks Pittsburgh should go all-in on making the downtown as bicycle- and pedestrian-friendly as possible. He injects some badly-needed common sense into the too-often-acrimonious debate over bike lanes: "Can you imagine a headline 'City ruined by becoming too bicycle-friendly?' It just doesn't happen."
But even if Pittsburgh focuses on encouraging the growth of independent business, preserving its heritage and building out a great network of bike lanes, that puts it in a similar category to Portland, Oregon. What differentiates Pittsburgh is that it also has Carnegie-Mellon University, a first-rate research university downtown.
Interestingly, Graham argues that the university should not focus on creating "innovation" or "entrepreneurship" programs, but rather on simply being the best research university it can be and attracting the best talent.
These kind of things almost always turn out to be disappointments. They're pursuing the wrong targets. The way to get innovation is not to aim for innovation but to aim for something more specific, like better batteries or better 3D printing.
Beyond bringing founders together, Graham writes, "the best thing they can do is get out of the way." This includes letting faculty and students own their intellectual property - which the University of Waterloo does, and which helped pave the way for Waterloo to develop a thriving local tech economy.
Hamilton, of course, has a world-class research institution in McMaster University, but it's worth noting that McMaster's intellectual property policy is not quite as liberal as Waterloo's.
Another factor Pittsburgh has going for it is that it is socially liberal. Cultures that are more liberal tend to be more open to new ideas and more generally tolerant of strangeness.
A city has to tolerate strangeness to be a home for startups, because startups are so strange. And you can't choose to allow just the forms of strangeness that will turn into big startups, because they're all intermingled. You have to tolerate all strangeness.
Graham suspects some of Pittsburgh's historic liberalism comes from its history as an immigrant melting pot: when everyone comes from somewhere else, you have no choice but to get along and accept each other's differences.
He notes that Pittsburgh actually was a hotbed of innovation and business development a century ago, so a shift to urbane weirdness today would be "a conservative choice: it's a return to the city's roots."
Of course, one of the most essential features of the Silicon Valley economy is the presence of a large, broad group of investors, including angels and venture capitalists. Silicon Valley has a healthy pool of investors after half a century cultivating it alongside the pool of entrepreneurs and innovators whose efforts the investors finance, and who in turn reinvest their fortunes into financing the next generation of innovators.
A city like New York can quickly develop a well-funded local startup community because there are already lots of wealthy New Yorkers with money to invest and a desire to be tech venture capitalists.
However, a city like Pittsburgh does not (and neither does a city like Hamilton). Graham's advice here is sobering:
If an investor community grows up here, it will happen the same way it did in Silicon Valley: slowly and organically. So I would not bet on having a big investor community in the short term.
But there are a few saving graces. First, it has become a lot cheaper to start a business. Second, the market for startup capital has become more diverse and flexible, including new crowdfunding services like Kickstarter and Indiegogo. Third, three months with innovative seed investors like Y Combinator can provide a new company with a sound footing, after which the company can return to home to build and grow the business.
Graham has written rather dismally in the past about how difficult it is for a city to become another Silicon Valley, due to the self-reinforcing effect of there already being a Silicon Valley where the most ambitious people go to make their fortunes.
There's a sense in Graham's talk about Pittsburgh that he's maybe being a bit charitable, at least in terms of Pittsburgh's chances relative to Silicon Valley's. Yet he doesn't mince his words, and he notes that Pittsburgh's transition from where it is today to a future in which it has a more thriving startup culture will be slow and organic.
He also points out that the things he thinks Pittsburgh should do to become a tech hub are things Pittsburgh should be doing anyway, since they will all make it a nicer place to live.
Think about what I've suggested you should do. Encourage local restaurants, save old buildings, take advantage of density, make CMU the best, promote tolerance. These are the things that make Pittsburgh good to live in now. All I'm saying is that you should do even more of them.
If nothing else, that is also exactly why Hamilton should be trying to do the same things - they are the universal things that all great cities do.
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