The Software Millionaire Next Door

http://journal.dedasys.com/2013/01/04/the-software-millionaire-next-door

by davidw • 14 years ago

103 49 14 years ago

journal.dedasys.com

This helped catalyse a ranty blog post I've been meaning to write for a while: http://chester.id.au/2013/01/05/on-selling-to-consumers/

The tl;dr is that using Jobs, Gates et al as your business inspirations is just sample bias. Most of the money is in selling to businesses.

flipp• 14 years ago

Oh no way.

swombat• 14 years ago

Oh yes way.

martinced2• 14 years ago

"Most of the money is in selling to businesses"

It depends on what you call "businesses". Corporate is less than half of the economy worldwide and these typically have huge team in-house developing their own software or they're renting consultants from the big four.

But if you mean that PMEs, small mom&dad shop, independant workers etc. do "spend more money to make more money" than joe-six-pack who's only using the net for fun and not for work, then sure, there's more money there.

But to corporate? No way. It's a big niche. But it's a niche and it's very hard to get into.

It may have worked for you, but that's not where most of the money is.

patio11• 14 years ago

I mostly hang out with folks who run product businesses, but numerically, I'd bet on services businesses being substantially more numerous. There are probably tens of thousands of consulting firms in the US. Most of them produce bespoke software for businesses at five/six figures an engagement. The math works out such that the principals at this type of firm become modestly wealthy fairly quickly, with little execution risk.

Think of every Rails dev shop you've ever heard of: $8k monthly salary per dev, $12k in fully loaded costs. Each dev has 70% utilization (~35 weeks a year) at a chargeout rate of $6k to $8k per week for journeymen and $8k to $10k for partners.

You can do the math yourself, but the short version is that a consultancy that would fit around my dinner table makes all partners millionaires, with the approximate inevitability of gravity.

killahpriest• 14 years ago

Customers are not as inevitable as gravity. How do they find their customers?

new-world-order• 14 years ago

Yes, they are, if you're any good. Most business in the developed world nowadays are executed mostly in software. The demand for custom software far exceeds the supply of productive developers.

jacques_chester5• 14 years ago

Lots of people contract to a former employer. That's what I'm doing at the moment.

subsystem• 14 years ago

Networking. You often have one or more of the partners working on making new and sustaining old contacts. In the consulting business it pays to have someone with his ear to the ground, as it can change quite rapidly.

tptacek8• 14 years ago

A consultancy usually starts by nucleating around the contacts and first few engagements brought in by the principals. Given a few starting engagements for a few different customers, one of them is likely to turn into recurring revenue, and another is likely to provide a referral.

Then, if your delivery establishes any kind of track record at all and you're working in a "hot" area (Rails in 2008-2009, iOS in the last 3 years, &c) you can start picking up cold inbounds just by putting your name out there (on a website, with a blog, posting on message boards).

Things snowball after that.

Most small consultancies I'm acquainted with never advertise and don't have salespeople.

One thing you really need to understand is that successful consultancies don't treat clients the way HN tends to think about customers. If the process of extracting recurring engagements and referrals from customers is mysterious to you, it's because you're thinking too transactionally. You see this all the time on HN on threads about people's time tracking and invoicing techniques. The people on those threads often sound like they can't wait to get away from their customers. Of course they have trouble finding new ones. Their business processes are client-aversive.

mattbertulli• 14 years ago

You pretty much nailed it Patrick. I'm the principle at a small software consultancy (20 people) based in Toronto. Unlike you Patrick I mostly hang out with people who run/own services businesses. I live in a pretty big city, so my circle of friends who work at services businesses is big enough to have a lot of visibility into how the rest of their agencies work. Most of these guys do very well by any measure. Using money as the metric they do extremely well. Not Zuck-style well, but I don't hear any of them complaining about their lifestyle...

To other commenters:

There is lots about a service business that is difficult. Most posters on HN hit the big ones over and over again, i.e. - getting customers & scalability. As a services business guy, I look at product businesses and think there is quite a bit about them that seems ridiculously difficult too. Something for everyone I guess?

hello_moto4• 14 years ago

I really100x want to know who and where these specialty Rails shops are.

In short, I am calling out those numbers.

8k/month/dev in a Rails shop, which there are plenty of them around, including those in India, seem like way too much. Especially just for your regular web app dev (just because they can do Rails do not make them special and business care less about the framework).

I have been hearing these crazy numbers specifically from patio11 and amy hoy lately but I am not convinced.

pedalpete• 14 years ago

Those numbers seem conservatively right to me. I know of consulting devs making 30% more, so I assume there are also those making 30% less.

What off shore devs are making is not yet having a major effect on what western devs make. The skillset necessary is normally beyond just rails dev.

navyrain• 14 years ago

My anecdotal experience has been that those salaries are accurate, on a US national average. Lamentably, location plays a significant factor in it -- salaries are notably higher in tech centers like SF and Seattle. Conversely, I've heard of dismally low salaries for rails consultancies in less urban areas (Madison, Wisconsin, in my case). Also, European consultancies tend to compensate developers less than their American brethren.

Another easily overlooked factor here is how big and lucrative the B2B custom software market is. If a consultancy can establish a reliable track record, the limiting factor on their success becomes how many developers they're willing/able to hire to handle all the client work they choose to take.

davidw2• 14 years ago

I think the salary numbers are not unreasonable. The variables that are iffy are:

* Can you hire and retain quality people? It's not easy.

* Can you keep them occupied at those rates? That's not easy either.

These two factors must also march in lock-step: get too much work without the people, and quality (or at the very least quality of life) starts to slip. Get too many people without the work and costs start to mount.

I do think that 'medium sized consulting businesses' might be in my category #3 though, so it's another area where it'd be very interesting to have some real numbers.

Personally, I think that even consultancies should try and productize what they do to some degree, to avoid being spread too thin, but it's tough.

tptacek8• 14 years ago

For billable Rails consultants he is in the ballpark. Anonymous offshore developers are not 1:1 substitutable with boutique Rails consultants.

jseliger• 14 years ago

I'd bet on services businesses being substantially more numerous. There are probably tens of thousands of consulting firms in the US. Most of them produce bespoke software for businesses at five/six figures an engagement.

There are also lots of non-software consulting firms of various kinds; I'm part of one, and we do grant writing for nonprofit and public agencies (see www.seliger.com if you're curious). Small non-software consulting firms you've never heard of probably outnumbered software consulting firms.

Still, one thing I'll point out, which The Millionaire Next Door points out, is that it helps to play good offense (i.e. make a lot of money) and good defense (i.e. save a lot). Many of the high-income people I know are bad at the second. That's the force counteracting gravity for many people.

tluyben22• 14 years ago

Don't equate millionaires with billionaires; those 'in the spotlight' people (he names) are all billionaires, not millionaires. That's why they are automatically in the spotlight. What billionaire quietly toiled to make his money?

tptacek8• 14 years ago

Gonna go with Bill Gates and Warren Buffet on that one.

davidw2• 14 years ago

Bill Gates and Microsoft were reasonably visible since... a long time. I think it's not easy to make that kind of money and stay out of the spotlight. And since Microsoft was always fairly consumer oriented, they needed the publicity, too.

http://www.snopes.com/photos/people/gates.asp

jaxn• 14 years ago

Seems like quite a lot of the billionaires in the US are relatively unknown: http://www.forbes.com/forbes-400/list/#page:1_sort:0_directi...

sfall• 14 years ago

just because you have money doesn't mean your looking for press

tluyben22• 14 years ago

I was referring to the list the OP named in the article.

senthil_rajasek• 14 years ago

The 5-hour energy drink guy, Manoj Bhargava. http://en.m.wikipedia.org/wiki/Manoj_Bhargava

He had to "come out" against his wish recently though.

negamax• 14 years ago

Is this the top post because it has "millionaire" and "software" in the title? Everyone's aspiration here, I guess.

martinced2• 14 years ago

no, because otherwise you'd be having a fourth category: people who are professional software developer but who also inherited so much more money than they'd make during their entire programming career ; )

charlescearl• 14 years ago

A more interesting question still is whether high income or high cash-out (e.g. Google employee who cashed out options in excess of $1million after IPO) software professionals cluster around the Under Accumulator of Wealth (UAW) category? Is that hypothetical Google ex-employee likely to have moved into a Palo Alto, bought a new European performance vehicle, treated themselves to a plasma in every room? These would seem to be tell tale signs of the UAW mentality.

The Software Millionaire Next Door

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