Pittsburgh as a startup: what stage are we in?

This blog originally appeared on Midwest Startups’ Blog.

Several years ago, I wrote about how I viewed Pittsburgh as a startup and how that analogy guides my thinking and our strategies at Innovation Works. Over the past several years, we’ve seen continued growth and attention in the PGH tech ecosystem — ranging from greater startup activity and investment, increased corporate and investor interest, including the national attention from the Amazon HQ2 search and new local groups offering additional services. I’ve had numerous conversations about Pittsburgh with those wanting to learn more and with local ecosystem partners about the challenges and opportunities that we see for Pittsburgh to “get to the next level.” I keep coming back to the question I wanted to tackle next with my startup analogy — “If we view Pittsburgh as a startup, then what stage are we in?”

“If we view Pittsburgh as a startup, then what stage are we in?”

Defining our current stage is important because it helps us evolve our strategies and tactics as an ecosystem. Just as a startup has to make the transition through various stages of growth, Pittsburgh needs to do the same. For clarity, I am going to avoid labeling Pittsburgh as Seed, Series A, etc. because everyone has a different definition of what those stages mean. Instead, I’ll refer to four different phases for a startup, that require different approaches or priorities: Discovery, Validation, Repeatability, Scale.

Defining the Stages
At Innovation Works, we have worked with startups across these different stages and have built our programs and funding to accommodate the unique requirements in each. For example, we encourage founders in our AlphaLab accelerator to focus on getting initial customers, with less focus on doing it in a scalable manner as the priority is to get validation for their product/service. But in order for a company to get to the next level, it needs to begin acquiring customers in a more predictable, repeatable manner in order to demonstrate the scalability needed for growth.

In the first two phases, Discovery and Validation, the company is trying to identify its potential market (and initial segments) and then proving out the potential fit in that segment. I will start with the Validation phase as I assert that Pittsburgh has clearly passed the Discovery phase. As a region, we’ve already gotten recognition for our leadership in Robotics, technical expertise in AI, and capabilities in other fields including Medical/Life Sciences, Industrial, and Manufacturing. We can point to examples of successful companies in each of these areas which is an important indicator of Validation and where I’ll start my assessment.

Beyond Validation
For a startup company, in the Validation phase, it needs to demonstrate proof in important areas — typically this includes a working product (or prototype if it’s a deeper technology), customers using the product and getting value from it, and ideally, revenues from these customers. For a life sciences company, this validation may be showing promising in vitro or animal test results or receiving a regulatory opinion.

Similarly, for an ecosystem in Validation, it needs to show that it can create new startups, there are resources here to support these startups, and those startups can raise funding and grow. For years, Pittsburgh has pointed to such examples — entrepreneurship programs at the universities, nationally ranked accelerators, presence of co-working spaces, increasing entrepreneurial events and companies raising initial rounds or attracting capital from outside of Pittsburgh. In my State of Pittsburgh blog post from 2018, I highlighted these many examples of validation and concluded (even then) that building a “repeatable engine” was the next phase. So I would argue that we are past the Validation stage and are moving through Repeatability.

Building Repeatability
So if we’re in the Repeatability stage, what does that mean and how would we define it?

For a startup, Repeatability means that there is increasing consistency in its validation points which increases the likelihood that the company has the key elements in place for growth. It has demonstrated product-market fit, with the product delivering consistent (and often measurable) value to its target customer. There is a repeatable customer acquisition process where marketing and sales processes are better integrated so that key metrics like lead gen, MQL’s, SQL’s, conversion rates and sales cycles can be measured and tuned. From a talent standpoint, the company is building a team with experts in key functional areas, often with prior experience growing a company at this stage to complement the founders and early employees.

When I look at Pittsburgh, that’s where I think we’re at — building Repeatability to reach Scale. At the earliest startup stages, the aforementioned university programs, incubators, pre-accelerator programs and accelerators provide a continuum of support and funding for startup companies. There are many examples of companies who can point to early support from several of these organizations. What we’re seeing now are additional funds being raised locally (or from other regions where their investment thesis is investing outside of Silicon Valley or in the Midwest or Pittsburgh) to invest in companies at the next stage as they continue to grow, extending the continuum. More organizations are forming or locating offices here to help connect Pittsburgh companies to talent and funding in other regions. Repeat entrepreneurs starting their next company, especially in industry clusters such as autonomous systems and Robotics and while having a consumer unicorn (Duolingo) with its own SNL parody is by itself noteworthy, the greater impact is the creation of the next generation of startups created and funded by successful startup alumni.

So if we’re at least at the Repeatability stage, the next questions are how close are we to Scale and what do we need to do to get there?