The Software Millionaire Next Door
journal.dedasys.com
journal.dedasys.com
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.
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?
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.
* 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.
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.
Most corporates are still in Java/.NET.
SaaS companies are typically either smaller (hence don't have large budgets) or prefer full-time software engineers.
Would you mind, if you have time, to extrapolate why these companies prefer consultant/contractor or even a shop?
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.
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.
"The people on those threads often sound like they can't wait to get away from their customers."
Great point obviously. Some people are bad business people plain and simple.
A good business person is totally separate from a good programmer or a good anything.
A good business person knows how to make a buck and most certainly knows how to treat a customer (or a lead, see below) and how to encourage more business.
An actual email from a contractor we found (who paid adsense for the lead this was for a joomla upgrade we were looking into as a favor) after a back and forth string of similar conversations:
--------- "Honestly, their site is completely outdated. Whoever built it put no love into the project. For what they do and the audience they are trying to target, they need a more professional image. Additionally, their content is NOT content. It is images that Google cannot detect. No one can find them on the net if they were looking for such a company because Google can't read images of text. Their security is at risk as well. We found at least two weak areas that were patched with the upgraded versions.
Tell them we would do the complete rebuild/design for $10,000 if they provide all content in text format." ----------
We weren't the people who did the site and we weren't the people who embedded graphics and while the points are valid the tone and the approach is way off. I mean how did this person know that the person writing to them wasn't the fuck up? Ooops.
Who are these companies hiring Pivotal or whoever less famous?
Believe me, the demand is huge. I can't name my company's clients, but we have consulted for a good deal of very big names.
I mean, it seems like if someone went to their employer and said, "I'm going to stop working for you, but if you pay me more than you are now, I will sell you software," they would say, "No thanks."
This apart from the fact that transforming an employee to a contractor is often a net financial win for a company. Not just because of benefits, but also because when the contractor finishes, you don't have to find a way to fire them.
Another thing that contractors are good for is mopping up the unspent money allocated to various line items. Most places with a union/enterprise bargain contract don't allow the employer to a project without a full time equivalent wage attached somewhere in the budget. So when there's a few thousand left, it might be difficult to spend.
Enter, stage right, the contractor, to whom no such rules apply.
I am developing a niche tool for business at the moment. To get my initial customers I expect I will go visit them in their offices, ask questions and show them the prototype. Old fashioned, but I've picked an area where improving performance by a few percent can mean millions of dollars difference in outcomes.
Instead what happens is:
someone went to their employer and said, "I'm going to stop working for you, sorry, but I'm quitting to set up my own buisiness. I know about the business, I know about the technology. I know you and know what you're like to work for. You know me, and know what I'm like to work with. You know that I will know what you mean when you say 'The featured image for this works for a promoter, but not a sales client'. You don't have to take the time & effort to find someone new who might not work out, We can have a productive and mutually benefitial business relationship."
The paycheck might be higher, but the company doesn't have to pay hidden costs like tax, pension, schedule maternity/paternity leave, sick days or pay holidays.
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.
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.
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.
He had to "come out" against his wish recently though.
It seems to be fair to say that they were not that visible for quite a period.
And for a long time, they, particularly Bill Gates, was severely underestimated. That was the parlor game of the day for journalists--underestimating Bill Gates.