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For what it is worth, I tried this business model, IE: consulting focused on startups. Problem was, startups by and large are grossly undercapitalized, have huge business swings, and often you are dealing with first-time entrepreneurs who have no idea what things cost or how long they will take, but also aren't willing to be educated (because they are scared and there is a lot of risk). Point being - it's hard to sell services successfully to that kind of customer.

I should point out too that many investors want to see a team of employees, because they are investing in the strength of the personnel. So they didn't like this idea of a startup built using contract / outside talents.

FWIW, I had basically this exact experience and met exactly these difficulties. It can be done, but the market is just a lot smaller than "all startups".

I'm not saying this is a bad idea, but, I'll try to argue the other side for a moment:

BEGIN THEORY

Startups hire in-house devs because, basically, management does not know exactly:

A. what to build

B. what's possible to build

C. how the real world will react to the initial product/service offering and how the company will need to adjust

So, they bring devs in close, as high availability, high dedication employees, people who are in the center of the decision making. These intimately involved, trustworthy, motivated devs will then be more likely to come up with features and products that workaround management's deficits. And the company will benefit from that quickly and the company will own those features and products.

END THEORY

But, if this were contracted out to an outside stable of roaming rockstar developers, all highly talented but still less motivated and more in need of detailed direction from management -- how much insanely great startup flash-magic would really happen?

Is "possible homelessness" a required motivation to ensure you have motivated employees? Note that I don't suggest your entire company would be employed by YC, but that you might fill some roles with people who YC has worked with before and considers of high quality. I would argue in terms of trustworthiness, it is likely "someone YC provides" is more trustworthy than "someone you found on the street". Presumably YC would only retain such employees they found were good at getting fully involved in the companies they put them with, so you'd get the same.

Also, consider that not only could someone be contracted to you in a high availability/all hours arrangement, but that this would potentially also allow YC companies to benefit from roles they couldn't afford to full-time.

This is a very good idea and is something that venture builders and value add accelerators do.

For example (here in the UK) Founders Factory and Forward Partners both maintain large stables of designers, developers and other specialist executors that they assign to their portfolio companies.

This is an interesting idea. We've talked about ways that we could help create more job stability for people joining a YC company.

When I was a consultant, I liked two things about my company. I was paid by the hour, which kept my company honest.

I was paid when I was "on the beach"(bench), but I was expected to train and get tech certifications

Interestingly, I strongly prefer not being paid by the hour.

I find time-clocking incredibly irritating, as I may be inspired to a solution or want to fix something outside of hours, which is pretty common for me. And similarly, I don't want to feel bad about if I am doing something wrong or not the most efficiently, but still charging full price for that time. Possibly the most irritating thing for me in times I was on hourly was arriving at work a few minutes too early to clock in and having to twiddle my thumbs, or having to determine whether or not something I wanted to remote in and do met the official terms for being paid in after hours time.

My personal feeling leans towards paying for "a job well done", and leaving it on the idea that if you're doing your job well, I'd like to believe nobody will question how you spent the hours you were doing it.

Being paid while on the bench makes a lot of sense if they feel you're valuable enough to retain, and time to actually spend training is pretty nice when you can fit it in, and obviously works to their benefit.

I didn't have to clock in I just needed to enter my billable hours.

"And similarly, I don't want to feel bad about if I am doing something wrong or not the most efficiently, but still charging full price for that time."

- A lot of people at the company would feel guilty and put in free hours to the client. (They would usually also get rewarded with excellent customer feedback.)

The occasional lack of efficiency/productivity should be reflected in your billable rate, that is, the rate should reflect your level of (relevant) skill, any specialized knowledge, and mean productivity, not max.

Then there is no problem with just billing the spent hours without any fudging one way or the other.

Might want to rephrase the 2nd bit, if you're trying to conceal which BigConsultingCo you worked for.

YC would be competitive by providing health care and maybe some shares in YC if work at some YC companies. Seems doable.

Super interesting idea. One of the cons could be that having your employees not personally invested in the outcome of your venture could make them less likely to be "fully committed" (i.e. long hours, going above and beyond). You might be worried about higher levels of apathy -- "if this doesn't work I still have a job".

If the business works, I'm thinking the transition from the fund swat team to "real" employees might be difficult as well, probably at a time when you need to be firing on all cylinders.

> "fully committed" (i.e. long hours, going above and beyond).

Regular comp does that if the company can afford it. Startup equity is there so companies that can't, can offer early hires the "maybe money". Pay 200k and you'll get fully committed employees.

My thought on the "if the business works" case is that such employees should have a clean path to either transition to the company they helped make a success, or get reassigned by YC. Either one is a win for YC in this scenario: An employee which helped a startup succeed is a hot commodity they'd love to reuse, but they also own a portion of the successful startup, so having it continue to succeed is also a big win.

The idea here would not be for YC to have a constantly growing outsourcing team, but to ensure they didn't lose the good employees because a startup failed. In a given failed startup, there are likely some rockstar employees that definitely weren't why it failed, and it's in YC's best interest, presumably, to hang onto those great employees and get them placed with other investments of theirs, should the opportunity arise.

This is exactly how overseas outsourcing works. The vast majority of the foreign people I work with are under arrangements just like you describe.

This is also similar to how a lot of small software development firms work; they develop web sites and mobile apps for companies on contract.

There were some US companies that did this as well before the dot bomb. One of the selling points would be you get "bench time," which meant paid in-between assignments. I think large companies that make a lot with consulting fees use this model as well, but I'm not sure which ones.

I know of at least one successful entrepreneur/investor who does exactly this with his incubator: incubator/umbrella company hires FT employees who get contracted to the startups and receive stock in the startups proportional to the time spent on each.

I really like this idea, and I think something similar is done with high-level managers in the private equity world. You build your career across the portfolio of companies, and your interests are aligned to the portfolio itself, not the specific company.

That obviously creates a risk of perverse incentives, but from the PE folks' perspective it seems to work.

IIRC that's also how Berkshire Hathaway does it: builds managers for Berkshire Hathaway companies, and whether they're managing at GEICO[0] or Fruit of the Loom[1] depends on where they're needed and not whom they work for.

I don't know anything about how technical employees benefit (or not) from that setup but I suspect there is some amount of informal sharing of tech talent across portfolios.

It'd be really great to see something like that for tech people. Maybe YC can start and everyone else will follow. :-)

[0]: https://www.geico.com/about/corporate/at-a-glance/

[1]: https://en.wikipedia.org/wiki/Fruit_of_the_Loom

Currently it's not hard for a software developer to find a job, especially those that YC startups would want to hire.

So I don't think stability is much of an issue in the current economy, developers are not afraid to lose their job because they know they'll have dozen of opportunities just by activating their network.

Even with that being the case finding a new job is a hassle and means you have an interruption in pay and insurance. Gives me a lot of incentive to just work at BigCo and not worry about it until -I- want to worry about it.

These positions do exist. The VC maintains an engineering team that gets lent out to the businesses they're invested in.

This is great, because it essentially puts the employee in the same position as a VC with amortized risk. We know that startups succeed and fail according to some known distribution, but the odds that this particular venture will succeed or fail are largely unknowable.

Yes, this works, and there are tons of companies that do it, referred to as "bodyshoppers".

Competing with Wipro and other body shops? Good luck with that.

Presumably the difference between this and a "body shop" is that YC, having significant investment in the success of a business, would be less interested in "supplying bodies" than ensuring the business' success.

Whereas a outsourcing company would benefit by providing as many staff members as possible, if YC or the like were to do it, they'd likely want to zero out the "profit" on supplying employees: To keep it affordable for a startup, and to not break the incentive for YC: To push companies to success via whatever resources they can offer.

Particularly if YC's "cut" was solely in the form of share of the business, they'd have no benefit to over-pushing poor quality labor on their own companies: It'd just doom them.