Home >  Business

Tuesday, April 09, 2002

By Stephanie Franken, Post-Gazette Staff Writer

A s entrepreneurs, Nick Csendes and his brother, Zoltan Cendes, seemed to be a perfect pair.

Nick Csendes, who was making trips to Pittsburgh from Houston during the late 1980s to help his brother start a new company, had 15 years' training in the investment business, on top of experience launching companies in Boston and Houston.

	Zoltan Cendes, left, and Nick Csendes had a vision in the late 1980s to create a company whose software would aid in the design of small electronic devices, in anticipation of what they viewed as a coming boom in desktop computers -- and in cellular phones and other consumer electronics. Together, the pair founded Ansoft.

Zoltan Cendes was a Carnegie Mellon University professor and a leader in electromagnetics.

The immigrants' new firm would capitalize on research done by Cendes, who dropped an 's' from his surname. The company's software would aid in the design of small electronic devices, in anticipation of what they viewed as a coming boom in desktop computers -- and in cellular phones and other consumer electronics.

When Csendes began seeking funds, however, he discovered Pittsburgh bankers shared none of his enthusiasm.

"I talked to every banker in town," Csendes said. Potential lenders were hesitant because the company's business was unfamiliar to them. Plus, as a software company, its assets were intangible.

"I know that if I had a steel plant, they would have lent me money. But because I was in software, I couldn't get a penny."

Csendes today is president and chief executive officer and his brother is chairman and chief technology officer of Ansoft Corp. -- ranked No. 3 in the Growth category of today's Top 50 businesses of 2001.

The need for change

In recent years, Pittsburgh has fallen into a new love affair with entrepreneurship, and aid in starting companies is becoming more plentiful.

New initiatives, university- and state-sponsored innovation centers, funding sources and technology-transfer offices have sprung up in the past 10 years, reflecting a desire to breed more local entrepreneurs -- and greater appreciation for the role they play in building a stronger and more diversified economy.

Pittsburgh's fledgling preoccupation with all things entrepreneurial is far from unusual. Indeed, a century ago, the region was a hotbed for entrepreneurs and venture capital, a potent mix that gave rise to U.S. Steel, Alcoa, PPG Industries, Westinghouse Electric and other stalwarts of the Industrial Age. More recently, this renewed local preoccupation with start-ups and research and development reflects a shift in the global economy, a move away from industrialism and toward a knowledge-based economy that lives and dies on innovation.

In spite of its enthusiasm, however, Pittsburgh is playing catch-up with many other U.S. cities.

Tools that measure a region's "innovation output" suggest that Pittsburgh trails other cities. According to data compiled by Harvard economist Michael Porter, Pittsburgh falls behind the national average in areas such as the growth rate of local patents, venture-capital funding per worker, initial public offerings, and finally, the rate of new-business establishment.

According to local entrepreneurs and business leaders, a main culprit is a business culture that has become risk-averse.

When Csendes was getting to know Pittsburgh, for instance, he came to believe it was characterized in part by a culture of timidity.

"Houston has much more of a can-do attitude. You do it and it either works or it doesn't, and life goes on. In Pittsburgh, that sense is more constrained."

Still, Csendes said, that may not matter much. Success for a start-up doesn't depend on the business environment, the cultural milieu or even the presence or absence of loans and venture-funding.

"I'm a firm believer that the definition of entrepreneurship is that you have to figure it out and do it yourself."

Csendes' outlook reflects that of the majority of 12 local entrepreneurs and those who work closely with them, who were interviewed by the Post-Gazette about Pittsburgh's business culture and the role it plays in the success or failure of entrepreneurs. Some said they believed external factors such as a risk-averse culture hamper the region's overall success. Still, many argued, the success of each start-up firm doesn't require ideal external conditions.

It's much more personal than that.

If a new wave of entrepreneurial activity takes hold in Pittsburgh -- and some say it is happening now -- it will be a consequence of the will and determination of a few individuals, rather than the removal of all obstacles in the community. As Marlee Myers, a lawyer who grew the local office of Morgan Lewis & Bockius and who helped such local high-tech hotshots as Fore Systems and FreeMarkets get their starts, said, "It's not the community that is risk-averse or risk-taking. It's the individual."

Pittsburgh's problem

"Pittsburgh, I think, has a huge community weakness," said Joe Blattner, chairman and chief executive officer of Downtown ad agency Blattner Brunner. "Pittsburghers are risk-averse. They are so afraid to do something they haven't done before.

"Our success over the years has come from the fact that we have been able to take risks, and we've been aggressive about it," he said of the company he co-founded.

Seagate Technologies LLC, the nation's largest maker of disk drives, got a taste of that part of local culture when it brought a research facility to Pittsburgh. Seagate came to Western Pennsylvania because of Mark Kryder. Though he's not a native, Kryder told Seagate that, if it wanted to hire him, it would need to build an office here.

Today, a new Seagate facility in the Strip District is nearly complete.

Until it is finished, however, Seagate has been operating out of a temporary research space and offices on the South Side.

Finding that temporary space was a challenge.

The company needed to build a "clean room" -- a pristine, climate-controlled space suitable for building microscopic devices or conducting research on them. Although he tried to explain that a multimillion dollar clean room could add value to a building, Pittsburgh landlords weren't interested.

They'd never dealt with something like a "clean room." How did they know it would add value? As a result, landlords said Seagate could rent space only if it agreed to tear out the clean room once its lease expired. Boston or San Francisco landlords would have gotten it, he said.

Although venture capitalists nationwide grew hesitant after the technology boom went bust, the Pittsburgh venture community is almost "silent" right now, said Francois Bitz, a founder of Fore Systems, which was purchased by Britain's Marconi PLC in the late 1990s.

"You have a lot of people who've been burned by young kids," Bitz said. So they've stopped investing.

Pittsburgh also has thinner ranks of experienced entrepreneurs and managers --role models to younger generations of would-be entrepreneurs, said Steve Zylstra, president of the Pittsburgh Technology Council.

Bitz remembers that problem well. When the founders of Fore Systems started hiring, "It took us like six months to find one guy! It was impossible."

The local entrepreneurs, however, agreed that the picture was improving. Peter Johnson, CEO of TissueInformatics, a South Side biotech service firm, hopes success will help to reverse a self-perpetuating cycle of doubt and missed opportunities.

"There's a lot of this 'question thyself' mentality that has to go away," Johnson said. "Otherwise what'll happen is, we'll get into a circular firing squad: Nobody will believe anybody else is anywhere near good enough, and they'll just rotate the shots and that'll be the end of it."

How it happens

No one in Raelin Sawka Musuraca's family had started a business.

She'd been jobless for 10 months when a thought occurred to her: The biggest risk might be not taking a chance at all.

	Once colleagues at Blattner Brunner and dot.com MarchFirst, members of 8 Sharp work in February to forge a business plan for their new marketing and design firm. The founders are, clockwise from upper left, Raelin Sawka Musuraca, Keri Conley, Michele Howard, Christopher Nicholson and Bella Rockwell. (Robin Rombach, Post-Gazette)

She lost her job last April after dot.com consultant MarchFirst went bankrupt.

As one of the last to leave, Musuraca never got her severance. She had a new baby and a spouse working part time.

"That scared me enough to say that you can't rely on anybody," the Pittsburgh native said.

"I come from a family of workers. We always worked for somebody else. I don't think I want that for my family."

Musuraca and a handful of former colleagues from Blattner Brunner and MarchFirst decided to start a marketing, new media and design firm.

Within days, they saw a lawyer about incorporating and quickly realized it wouldn't be simple.

"The lawyer scared us," Musuraca said. The legal complications daunted them. And the $500 each planned to put up wasn't enough.

They nearly quit. But after a few days, they pulled together a new plan: a limited liability partnership. It was cheaper and better suited their needs.

On a long, misty Sunday in February, the group forged a business plan and marketing strategy in Michele Howard's basement.

The firm would be called 8 Sharp, and it would compete against the city's biggest ad agencies by offering agency-quality work for less.

That Sunday, Musuraca looked no different than she had a year ago, when she was unemployed and struggling. But she had changed. She had become an entrepreneur.

"It doesn't seem like such a big deal. But when people hear I've started a business, they say, 'Wow! That is so impressive. That must have been really hard.' "

For Blattner, the group's onetime boss and now their competitor, Musuraca and the others had the right idea.

"We're in the kind of business you can carry on your back," he said. "So my advice is, carry it on your back and go into business for yourself."

It's always hard

Regardless of why they started or the money available, most entrepreneurs said they dealt with months or years of hardship and uncertainty.

Pittsburgh's best chance to get ahead as a center of innovation, they said, will not stem from "the region" erasing all obstacles but from the ability of individual people taking risks and solving problems.

To FreeMarkets founder Glen Meakem, that is -- and always has been -- the only way to go. An entrepreneur who fails cannot blame a lack of venture-capital funding or the absence of mentors or a business culture that doesn't embrace change.

He can blame only himself.

Success never happens in ideal conditions. It happens in spite of numerous problems. And Meakem, for one, selected Pittsburgh as the best place to start his company back in 1994. As he said, "There's nothing wrong with the water in Pittsburgh."

What it takes

To Meakem, there aren't many people who are equipped with all of the right attributes to found and grow companies.

People who are successful at starting companies come from all walks of life, he said, but, "It's a very, very special few who have the risk tolerance and the gumption to start a business. That's just a mathematical fact. There's some combination of confidence, intelligence and an absolute need to win. Absolute determination."

However, even brilliant entrepreneurs usually team up with people who have strengths where they are weak.

And while starting a company is grueling, that doesn't mean only near-perfect individuals can make it work.

"Not only is it harder to do than you think it is -- it's maybe 10 times harder than you think it is -- but the process of taking a risk and declaring that you're going to do it gets you 80 percent of the way there," TissueInformatics' Johnson said.

He is optimistic that, if more people hear that message, more Pittsburghers will try their hands.

Consultant Mark DeSantis sees signs that the city is on its way. "Even in this down market, this less-rosy time, there are entrepreneurs.

"People who made it through the downturn are smarter, tougher, more ambitious and wiser. These people are not running with their tails between their legs.

"This is great news for Pittsburgh -- and Pittsburgh is due -- it's earning its chance to have a boom economy for the first time in 50 years."