
Ask HN: Why can't I make as much as I make? - nopassrecover
In "How to Make Wealth" PG puts forward the following argument:<p>1. Assume a hacker can make a good wage working for someone else.<p>2. Assume a hacker can in turn be significantly more productive working for themselves.<p>3. All things being equal, a hacker should be able to make significantly more money by working for themselves (albeit at the cost of increased risk and stress).<p>The relevant quote: "If a fairly good hacker is worth $80,000 a year at a big company, then a smart hacker working very hard ... should be able to do work worth about $3 million a year."<p>My question to HN is as follows:<p>Excluding outliers such as Gates/Zuckerberg, is the inference that a good hacker can make more from the market directly actually valid?<p>If so, why does it seem most hackers struggle to capture even <i>half</i> their regular wage from the market directly?<p>All advice/experiences appreciated.
======
edw519
Actually, it's pretty simple: supply and demand.

In the B2B world, there is a stunning demand for good software everywhere I
go. Two and three year project queues are the norm. They have trouble finding
_anyone_ to get the work done, whether it's employees, contractors, or
vendors, either for services or products.

Perfect example right now: I know of two large companies whose customers are
demanding that they be able to enter their orders on the internet. Imagine, in
2011, large companies struggling to find people to get e-commerce working!

OTOH, I read about what other programmers are doing here on hn, and 90% of the
time, my first thought is, "Why? Who would pay for that?"

To make it on your own, you have to stop building what you think people will
pay for and start building what they actually will pay for. Huge difference.

Aside: I remember talking about something very simliar a few weeks ago here:

<http://news.ycombinator.com/item?id=2363723>

~~~
csomar
_To make it on your own, you have to stop building what you think people will
pay for and start building what they actually will pay for. Huge difference._

That's right. How hard is it to find such a niche? I'm looking for a niche
where I can make $5K/month only. Here are the criteria:

\- Be able to launch the SaaS in 3 months work.

\- A small customer base (200-300) with monthly subscription.

\- Requires 30 hours/week for support.

\- Doesn't require physical stuff, or lot of expenses.

Any one who can think of such a service? I'm looking to build one this summer.

~~~
edw519
That was a pretty good post, csomar, but I'm going to critique it anyway. (If
it was a crummy post, I wouldn't even bother.)

What I like about it: You're focused on building something that supplies an
actual demand. Good!

What concerns me about it: You're still too focused on yourself. Every one of
your bullets was about what _you_ want your business to look like.

I think you're focusing too much inward when you need to be focusing on your
prospective customer and how they will benefit from the value you provide
them.

Examples are everywhere, just a few off the top of my head:

    
    
      - salons that wants to optimize their scheduling
      - retailers that want to improve one on one communication
      - actors/artists that need better portfolios
      - shopkeepers who want to capture more POS info
      - teachers who want to play bingo in class (never mind)
    

Get out of your office and find people like this first. Ask them, not us, what
they want. Then figure out how to provide them with what they crave. (Once you
find one niche and get going, you'll be surprised how much fun it is and how
well it works out.)

The rest (your bullets) will take care of itself. The shape of your business
will be the byproduct of doing whatever you must to satisfy your customers'
needs.

One great resource that will probably help you:

[http://www.amazon.com/Start-Small-Stay-Developers-
Launching/...](http://www.amazon.com/Start-Small-Stay-Developers-
Launching/dp/0615373968/ref=sr_1_1?ie=UTF8&s=books&qid=1302537432&sr=8-1)

~~~
crasshopper
edw519, I think your advice is in the right spirit but (as you admit) naïve.

nopassrecover, edw is 100% on target about looking outward. However actors,
salons, and teachers are all good examples of people with little money to
spend, who would not capture significant extra margins by adding software.

In my estimation, nopassrecover, you would do better to think deeper in the
B2B value chain, particularly if you can flex relationships you've made in
previous industries you've worked in. Imagine how many more people you could
touch writing software that hooks into a shoe factory's shoe machines than
making a web store -- and how much less of a customer's attention that would
require.

Two consejos that I think are good (but not necessary) for entrepreneurs to
follow:

1\. Do a part-time job while you work on your own thing.

2\. Use knowledge & relationships from businesses you have worked in directly.

And (3) for hackers specifically: spend some time thinking about and
researching how the commercial world fits together. Who made the plastic
fibres in the salon's brush? How does the aesthetic layout of the salon enable
them to charge more? What other construction materials could they have used?
What catalogs are thrust in the face of new salon owners and how does that
affect the way they see their choices? What's the price history of the real
estate they own vis-à-vis the other places they could have set up shop? And
more generally: What companies in the world do the most revenue and why? What
companies have the most profits?

The salon scheduling example is particularly naïve, because scheduling
software would not add much value to either salon owners or customers.

But edw519, I very much agree with you about looking outward (both to meet
business minded people and to meet people who don't have iPhones).

~~~
dbuxton
> The salon scheduling example is particularly naïve, because scheduling
> software would not add much value to either salon owners or customers.

Interestingly, someone told me recently that his sister, who runs a salon,
spends a ridiculous amount of money on precisely this: scheduling software!
He's a hacker and couldn't quite work out why she would pay $thousands (sic)
for some crappy semi-customised calendar when Google Calendar works just fine:
in the end it came down to, "because all the other beauty salons use this
software".

Not that I'm recommending this particular niche, mind you...

~~~
crasshopper
As I understand it the dominant salon software is tied to product ordering and
upselling; scheduling is of secondary importance (or less).

------
thaumaturgy
> _Excluding outliers such as Gates/Zuckerberg, is the inference that a good
> hacker can make more from the market directly actually valid?_

No, it is not.

It makes a _huge_ number of assumptions without bothering to mention them:
that the hacker is equally skilled at public relations, marketing, business
management, financial management, and on and on. Running a business -- even a
relatively simple one -- requires much more than, "sit down and write great
code for 12 hours a day, six days a week."

As the business grows towards that $3 million / year figure, the number of
business-y things that have to be successfully managed also grows.

Yes, there _are_ stories of people who have done it (e.g., Minecraft) -- and
yet, on further investigation, you often find that there's a lot more to the
story than there appears to be (Angry Birds). Still, these are the exceptions,
the breakout successes, and it's as foolish to go into business for yourself
expecting this kind of outcome as it is to walk into a casino and expect to
walk out as the big winner of the month.

I think that trying to distill the entire process down into whether or not
you're a "good hacker" ignores all of the other talents and luck that are
required, and also really diminishes the perception that any business acumen
is required for that kind of success.

~~~
oemera
While I agree with you that not everyone can make a billion dollar business I
can't help but think that there ARE people they did it. That other people
already did it doesn't mean that you will do it the same way. These thinks
require a lot of luck and much more hard work.

BUT what I want to say is non of these people made a billion dollar business
because they want to make billion dollar business. No, they did it because
they found finally something they thought people on earth do need. Some of
them were wrong (like most of the weekend projects on HN will die because of
monthly costs ect.) but a few of them were right and did it.

If you want to play this coke game then you should it and you should do it
with a fun project, with a project you think the world needs, with a project
you would love and whole bunch people too.

BUT make sure that you know that you don't have to play this game. There is
also a way to make great money (not billions tough). If you want to go into
the million dollar business you could dig into cooperate e-business stuff.
These may not be fun and you can't program in Haskell but if do it big you
will get your money. There is a lot of room for smart people you just need to
say what they want you to say and make them happy. This will let you make so
much money you wouldn't have thought about.

Just find out what you want.

------
patio11
I think that is the most important essay pg ever wrote, honestly. Don't read
"hacker" as "programmer", read "hacker" as "maker of valuable things." Yes,
you can make astoundingly more than your day job salary by making valuable
things. Maybe not $3 million -- though that's less than what MicroGooFaceZon
will pay per hacker at a talent acquisition these days -- but certainly more
than the day job salary.

I'm 29 this week. The market wage for a 29 year old programmer in this region
is about $35k annualized, or under $12 an hour. I worked for that in 2010.
Also in 2010, after quitting, I did consulting work at a variety of price
points. One of those price points was $200 an hour. It was in the middle of
the pack, and I would need a non-monetary reason to work for $200 today, but
let's take that as a starting point.

The difference between $12 and $200 an hour was not a sudden quantum leap in
my programming skill. It wasn't all that spiffy to begin with -- many of you
are better programmers. The biggest single difference was that I moved from a
place where programming skill provides fairly little value at the margin --
writing CRUD apps to universities to e.g. print out the list of students in a
particular class -- to places where I can credibly sit down with a
decisionmaker and show him why N weeks of work stands to make the firm a few
million dollars. Often, this translates into the decisionmaker personally
making a million dollars. ("A 5% increase in conversion rates does _this_ to
the value of your stock options.") This is a nice place to be in negotiating.

Another thing which changed since I "negotiated" pay at $12 an hour: I started
negotiating seriously, based on the value I could reasonably be expected to
provide. The best single tactical suggestion was from Thomas (tptacek): rather
than compromising on rate, compromise on scope. If $20,000 is too dear for the
project budget, rather than offering to cut prices 25%, offer to cut scope
25%. OK then, no problem, we won't do that review of your email autoresponders
this time. Bam, $5,000 saved. (Of course, after the "how many millions this is
going to make you" discussion, price in thousands often becomes less than
material.)

Does this carry over directly to product businesses? Yes, though again, you're
not going to double your income because of a quantum leap in programming
ability. If you succeed, it will likely be a combination of ability to make
things (not to be underestimated: most people can't, after all) with a
plethora of soft skills which are very difficult to find in a single person or
small group of people. If you do it yourself, you get to keep the salary of
the employee/consultant a firm would have to hire to get the benefit.

Bingo cards, for example, is really, really no great shakes in the programming
department. The lion's share of my (modest) compensation for that isn't for
programming ability, it is for identifying and alleviating a huge unmet need
in the bingo cards publishing industry, which I use to sell a complement (my
software). I publish more bingo cards on more topics than every "real"
educational publisher worldwide combined.

And even then, BCC has many suboptimal choices about the business model. One
big takeaway from bootstrapping AR is that recurring revenue -- the SAAS model
-- really, really rocks. (More to come on that sometime when I get a day free
to blog.)

------
neild
_2\. Assume a hacker can in turn be significantly more productive working for
themselves._

I'm a hacker. I work at a company that employs sales people, marketers, and
support staff. The software I work on makes my company money--far more than my
salary. Without sales, marketing, and support, however, that software would
generate no revenue at all.

I could quit my job and go into business myself making the same software. Now
I need to do my own sales, marketing, and support, none of which I'm any good
at, and I have no time to work on development.

Working for a company makes me significantly _more_ productive than working
for myself, because I can specialize in the things I'm good at.

This doesn't mean that I might not do better financially by going into
business for myself. I absolutely, positively would not do better technical
work, since I'd be constantly distracted by non-technical tasks.

------
Emore
Reminds me of this article in the Economist: "Why do firms exist?":

"His central insight was that firms exist because going to the market all the
time can impose heavy transaction costs. You need to hire workers, negotiate
prices and enforce contracts, to name but three time-consuming activities. A
firm is essentially a device for creating long-term contracts when short-term
contracts are too bothersome."

EDIT: link: <http://www.economist.com/node/17730360>

~~~
crasshopper
Coase's 1991 Bank of Sweden Prize for ^:
[http://nobelprize.org/nobel_prizes/economics/laureates/1991/...](http://nobelprize.org/nobel_prizes/economics/laureates/1991/press.html)

Oliver Williamson's 2009 Bank of Sweden prize updated Coase's theories. Speed
read:
[http://nobelprize.org/nobel_prizes/economics/laureates/2009/...](http://nobelprize.org/nobel_prizes/economics/laureates/2009/speedread.html)

------
Maro
In my experience, it is NOT valid in general. If you simply go out on the
marketplace and say, "Hey, I'm a good hacker, give me a contract job!", then
clients will calculate your worth by taking the $80K figure. (Clients are much
better businessman than you are, much better negotiators, and usually need you
much less than you need the contract.) But, you won't have 8 hours worth of
work per day, so you'll go broke.

The trick is to be more than just a general-purpose "hacker". You have to be a
"Security expert" or an "iPhone SEO expert" or an "Oracle DBA"... The trick
is, you have to know a market segment, and have a good understanding of what
the business value of your skill/work is, and then you can charge based on
that.

And of course good networking, good people skills, good self-management
skills, etc. Stuff that "hackers" usually don't care about.

~~~
alalonde
This isn't quite correct. Contractors and freelancers (of which I am one)
charge substantially more than the clients' employees salary ($75-150/hr,
typically, vs 70-100k/year). This is accepted due to the cost savings of not
paying for insurance, 401k contributions, etc.

In my experience, I charge more (than I made when salaried), but only bill the
4-7 hours a day really, actually working. I'm much more productive, work less
hours, and make more money doing it.

Specialties are certainly a lucrative way to go, but not necessarily
essential. An all-rounder is more likely to have a long-term relationship with
a client (depending on the industry of course).

~~~
prawn
"This is accepted due to the cost savings of not paying for insurance, 401k
contributions, etc."

Probably more about the liquidity of the arrangement than those things. Not
always easy to hire and fire as needed whereas with a contractor/freelancer
you can take someone on board for a particular job and then not use them
again.

------
scotty79
"Money for valuable effort" - world does not work like that.

World is built of cash pipes and 99% people just tap into them (salary) or
builds their own thin pipes (lifestyle business?). 1% of clever people from
time to time manages to build new fat pipe but who and when it's almost due to
sheer luck. Experience and smarts don't help you win the lottery, they just
buy you a ticket.

When you work for yourself you make an attempt at building new pipe but all
you can usually do is build thin pipe and even if you are draining 100% of it
it's still less than what you could get if you just tapped to someone else's
fat pipe, even if your work doesn't do anything to make the pipe fatter or
even harms it. It's most apparent for people in financial sector but I believe
it's true for everybody.

That's why most people have salary and try to build something own after hours.
This way they are getting a shot at building own cash pipe while still not
passing on opportunity at draining someone else's fat pipe.

Oh and it's much easier to widen already fat pipe that to build your own as
fat as the amount of the widening. That's probably the answer to your
question.

------
crasshopper
1\. Salaried people demand very strict floors on their earnings. It's
completely unrealistic in business. Imagine saying you won't open a toy store
unless someone guarantees that you will make at least $XX,000 in the first
year (with guaranteed pay rises each year).

2\. Coming up with good business ideas is _hard_.

3\. Your wage in an office environment is strongly related to your ability to
harm the bottom line by leaving, your ability to play politics, and your
credentials. Your wage as an entrepeneur is entirely related to your ability
to get customers to pay you or to get investors to invest in you. In my
experience the two skill sets are negatively correlated.

4\. In addition to being exposed to and responsible for the entire risk
distribution, costs that a corporation spreads out over many people (incl.
health insurance) are focused narrowly on an entrepreneur. Remember how you
used to be able to make phone calls from the office and still be on the clock?

5\. Lastly, hackers' skills are often complementary to other parts of a
business but not sufficient to establish a new business with ≥ marginal value.
{Sales ⋃ hackers} > {sales} + {hackers}.

There are many good reasons to believe that hackers can make more money
freelancing than working for a single company. Starting a new company is a
totally different proposition.

------
mgkimsal
Interesting question, and a premise that was put together by someone on the
'other side' (someone who already made it). On paper it sounds valid, but it's
still much more difficult than it looks.

I do think part of it has to do with 'thinking small'. If you are shooting to
make $100k, you'll be looking for activities to engage in to make $8k/month.
But there's a lot of time and effort involved in getting anything started, and
as such, the net result of shooting for $8k/month may be significantly less.

Many people are looking to replace a wage rather than start a business, which
would almost necessarily entail growing beyond a one person org, even if only
by using freelance help as needed. The effort involved in creating
reproducible systems (market research, customer acquisition, product
development, support, etc), as oppposed to just hacking on code, is far
greater than most people realize. Not that it can't be done, of course.

~~~
mgkimsal
Following on...

That $3 million sounds random and high. The notion of wages and income and
such all relate to 'what value can I bring to someone else?'. Our income is
related to how much value we bring to others (and how much they value that
value). It's quite possible that in my brain there's info and skills worth $3
million to _someone_ (more likely many someones) but figuring out how to
deliver that value is a problem I'm still working on, I suspect others are too
- for themselves, not for me!

~~~
runako
$3 million is actually probably not high. For instance, here are the
revenue/employee of some tech firms:

[http://37signals.com/svn/posts/2283-ranking-tech-
companies-b...](http://37signals.com/svn/posts/2283-ranking-tech-companies-by-
revenue-per-employee)

Note that these figures include admins, HR, finance, warehouse staff, etc. and
not just hackers. Taking that into account, $3m annually per programmer isn't
outlandish according to these figures. Remember that each programmer is offset
by n support staff, who will often not contribute directly to revenue.

You can calculate the analogous numbers for any company that is publicly
traded in the US and some other exchanges that require employee counts to be
published. There are also other aggregates posted on the web.

So if you're aiming to create $60k of value for yourself, you're aiming at a
far lower number than anyone who would hire you.

~~~
Daishiman
I disagree. It is BECAUSE of the HR, finance, and warehouse staff that the
products that are being sold have that value proposition.

If you're 37 Signals you're providing a SaaS product, which means that people
are paying exactly because you have a level of support that goes beyond mere
development. Also, there is a certain "economies of scale" going on where by
adding less and less people you can make a product more useful to a larger
segment of the market (because you can include many of the little featurettes
that are deal-breakers for many businesses).

------
petervandijck
The company has a mix of activities which end up generating money.

(developing + x + y + z + brand + existing clients + ...) = $$$

If you leave that company, and develop 3 times more efficiently, you'll still
be missing those other activities and you might not make any money.

(developing x 3) = :(

Related is the observation that, in most large companies that I've observed, a
large amount of people do "work" that actually contributes almost nothing, and
if you take into account their salary, has a negative contribution. Still,
those companies are profitable.

(developing + x + y + z - a - b) = $$$

~~~
dangero
Excellent point, and I think that's the challenge for hackers starting a
business. You have to learn the other skills required and that can take time.
It took me 5 years running my own thing on the side to even feel like I know
what I'm doing at all in some of those other areas, but I've only just
scratched the surface. I'm amazed at how the ycombinator startups pull it off.
I think that's part of the reason the training they get from the program is
really valuable.

~~~
petervandijck
It's also quite hard to figure out what x, y and z actually are. Could be SEO.
Could be not. Could be sales. Could be not. etc.

------
devspade
I think one of the issues is sales/customer generation. Most hackers are good
at that - hacking. Not at selling themselves, their services or generating
leads and customers.

------
hung
The simple explanation does not factor in economies of scale. You might make a
good wage working for someone else because they have some kind of market
advantage. Would 100 mini-Googles that were 1/100th the size of Google make as
much money? No, because their advantage (at least in selling ads) has to do
with the fact that they have such a high percentage of the inventory.

I'm not saying some hackers can't make more than their salary's worth by going
alone, but the argument is way too simplified to account for the real world.

~~~
Hisoka
I agree. A huge corporation also has the structure in place in all levels that
makes a programmer profitable from the beginning.

When starting a startup, you need to build that structure from scratch - from
the marketing, to the sales process, to the scalability, support, hiring, etc.
The reason why most employees think they're more than they're worth is because
they don't see all the things that happened before they were hired, and all
the things that happens behind the scenes that makes their specific tasks
valuable to the company.

------
csomar
The question is: Is the hacker going to hack or run a business?

If he is going to hack only (considering he has found someone who is going to
pay based on his output), then he should be able to make what he actually
worths.

If he is going to start a business, then he is going to become an
Entrepreneur. And that means, he requires a hell lot more of skills like
Copywriting, Sales, Customer care, Networking, SEO... (just to name a few)

------
clueless123
IMHO, Hackers are usually very poor negotiators. (I assume because we are fact
based thinkers)

In life, you never get what you deserve, you get what you negotiate.

~~~
Revisor
Negotiating can be learned and trained, it's nothing innate and static.

This book helped me learn something about it; despite its name.
[http://www.amazon.com/Secrets-Power-Negotiating-Inside-
Negot...](http://www.amazon.com/Secrets-Power-Negotiating-Inside-
Negotiator/dp/1564143996/ref=cm_cr_dp_orig_subj)

------
jdavid
I think this is proven at companies like Google, and Nintendo.

If you divide total revenue of the company amongst all of its employees,
Google still makes say 1-2M per employee, and Nintendo has been reported to
earn in revenue 2-3M per employee during the heyday of the Wii.

The key to making this work though is being able to have a product market fit.
Or in the HN religion, 'make things people want'.

Secondly I think there are a great number of inefficiencies that can occur if
say a product could earn you $3M per engineer/ hacker and you are able to get
at-least $40k per engineer/ hacker, as you work to narrow that delta you will
refine your nitch, and craft.

If however the revenue does not scale, meaning, it's not easy enough to grab
something for your poor/ unskilled efforts, I think it's hard to wiggle your
way to the top and reach $3M per person.

I think this is why HN/ VCs tends to fund people in strong existing markets
which are begging for an update.

It's too expensive to educate someone on your value, and to build the market,
even though there are some entrepreneurs that are really good at that.

~~~
apl

      > your nitch
    

Pet peeve: It's "niche." In spite of how it's commonly pronounced.

~~~
bendtheblock
My peeve is the pronunciation 'nitch'. It's pronounced neesh, it's a French
word.

~~~
bostonpete
According to Merriam Webster, the primary pronunciation is "nich"...

<http://www.merriam-webster.com/dictionary/niche>

Just because a word has a French origin, doesn't mean the French pronunciation
is preferred in English.

~~~
dogonwheels
Since we're nitpicking, that should be (US) English. In the UK we say neesh.
Or at least, I do :)

~~~
bostonpete
Indeed. According to the Internet (which is always reliable): "There are two
common British pronunciations, [neesh] and [nitch], the first perhaps being
more highly regarded. The US pronunciation is always [nitch]."

Source:
[http://www.talktalk.co.uk/reference/dictionaries/english/dat...](http://www.talktalk.co.uk/reference/dictionaries/english/data/d0082473.html)

------
dabent
"working for themselves"

Maybe I'm reading too much into that, but if you're thinking of going it
alone, you might not get very far. Gates, Zuckerberg and most of the rest had
others they teamed with from the start. Pg is very big on co-founders for that
reason. Smart hackers have made 3 million a year (and up) by teaming with
other smart hackers.

There's a difference between a freelancer and a startup, and in the "How to
Make Wealth" I've always assumed pg is referring to small teams making things
many people want (startups), because that's the theme of so much of his
writing.

------
EwanToo
I think that's a pretty gross oversimplification of what Paul says, that quote
is from pretty much right at the top of the essay, and he then goes on to
spend several pages saying why it's not that simple.

He especially isn't talking about lone hackers working for themselves, but
ones working at startups - the very first line of the essay is "If you wanted
to get rich, how would you do it? I think your best bet would be to start or
join a startup".

The difference between a lone hacker working for a per-day rate and a startup
is the lone hacker doesn't have a value "multiplier", where 1 days work can be
resold many times, whether through product sales or something else.

And for the lone hacker who is building a product, well, most hackers are
really bad at doing a sales job...

------
brianbreslin
most hackers do the following (from my knowledge of my friends) \- devalue
their self-worth (I can't really charge $200 for 15min of my work right?) \-
waste their time on things they find intriguing (solving problems not many
have), that aren't ultimately profitable \- coast through easy non-challenging
jobs which leaves them w/less time to strike out on their own. \- lack of
business acumen (business acumen != tech acumen)

I have a brilliant friend who is helping his friends work on a potentially
dead end project because "I don't have anything else to work on" you also
forget these outliers have other factors helping them: solving common
problems, existing connections (gates + IBM connection), etc.

------
apaulsmith
The amount you can capture value in a 'big company' depends a lot on the
industry you are in.

If you are in the right niche, say finance then A.N Other Big Bank will pay
1,000 to 1,200 USD per day for _good_ programmers and more like 1,200 to 1,500
USD per day for _excellent_ programmers.

Now if you are capturing 300K USD per year for your programming skills jumping
into a start-up looks like a significantly higher risk proposition than at 80K
USD per year.

This is a point that I kind of feel is missed a lot on HN. One of the reasons
you see less start-ups in NYC, LDN, etc is simply because it's too easy to
make good enough money that the hunger simply doesn't exist.

------
richcollins
_Assume a hacker can in turn be significantly more productive working for
themselves_

You might be more productive working for yourself but that doesn't necessarily
translate to making more money/wealth. Companies are like big socialist states
where the productivity of the few is transferred to the rest. Most of the
wealth in companies was created when the early team figured out how to make
money. Figuring out how to make money is incredibly hard to do. It's probably
a better bet (financially) to siphon off this wealth than to try to go out and
create more yourself.

------
huetsch
That 3 million figure is operating under the assumption that the hacker
already has good market research (he is building something people want) and
distribution (he is able to get it to those people). Those are the costs you
are paying for when you work for a large company.

If the hacker does not have those two things, it is quite likely that he will
generate significantly less than 3 million dollars of value.

~~~
sabat
I suppose the missing factor here is what PG refers to as simply "hard work".
By that, he means all the other stuff you have to do to run a successful
business besides hacking. He's oversimplifying by putting it that way, IMHO.

------
thailandstartup
There's three factors I can think of -

Number one is that it is an uneven distribution. Some hackers might make
millions, some will make nothing.

Number two is that hackers may focus too much on doing the work they
understand and enjoy, when all parts of a business need attention (like sales
and networking).

Number three is that 3 million just sounds a bit on the high side.

------
peat
There are a few ways to look at this problem, but the fundamental skill set
for being independent isn't necessarily your hacking ability -- it's your
ability to find a market, and successfully sell your talents and/or a product.

I can speak from over ten years of freelancing and working for startups:
learning how to communicate effectively with non-technical people,
understanding how to sell your services and/or products, and figuring out what
market your skills are most valuable in ... that is the trick to making good
money.

I've picked up a few good habits, and it has significantly increased my
income, but fundamentally there are only 24 hours in a day, and one of me.

Here's my take: a highly skilled, professional, experienced, and independent
freelance software developer can bring home $150k in a good year. That's
nearly $200,000 before taxes, and represents an hourly rate of about $150 to
$200 per hour (there's a fair amount of of downtime for freelancers and
consultants).

You won't make $200 per hour selling your services as a developer to SMEs and
startups (the typical market for freelance developers). That kind of money is
usually reserved for solving significant problems for big businesses.

On the other hand, can make an equivalent amount at a lower rate by starting
starting your own development agency and hiring other developers ... and sales
people ... and administrative staff. But that means you're not really out on
your own, and your value is in successfully managing people -- not being a
"smart hacker working very hard."

The other way to make a significant amount of money is to build a product that
people love. This isn't an easy task. I'd venture that a significant number of
people on HN have actually tried building their own products.

There's a very good reason why hard working and smart software developers
aren't making $3 million each year -- it's because it's extremely hard to do,
requires a skill set that is far broader than simply writing good code, and
also involves a lot of luck (being the right person, at the right time, in the
right place). We happen to have a skill that is in demand and pays well, but
that does not make us brilliant business people.

All that aside: working for yourself can be an extremely rewarding experience
in and of itself, and over time you will make a good amount of money as you
hone your craft and business skills. I love what I do, and I strongly
encourage others to try it out if they're interested in the independent work-
and lifestyle.

tl;dr? Independent, smart, hard working hackers can make good money, but the
$3M / year figure is bullshit.

~~~
peat
Note: this is under the assumption that this scales down to the individual
level. The idea that a good developer can earn a company $3m isn't
unreasonable: it's the idea that the developer is doing it on their own that
is incorrect. There are many other people involved in magnifying the value of
what a software developer creates.

Conversely, it's also quite possible for a software developer to cause a
company to lose $3 million .. and again, it's a question of amplification. :)

------
wh-uws
I would also add that there are unfortunately alot of hackers that don't
understand a pretty central business rule.

Closed mouths don't get fed.

They never ask for or seek market wages. And the business people they seems to
fall into the hands of get wide eyed and/or start slick talking (because to
them they've found a sucker) and next thing you know they're working crazy
hours and taking a low wage because "they're just coding" "some else's" "big
idea (TM)"

Many say things like "I don't really care about money." or "I can wait a
couple of years."

And those things can be true but if they were a bit braver and spoke up or
found employment with a group who appreciates their talents they would get
paid better.

------
praptak
> 2\. Assume a hacker can in turn be significantly more productive working for
> themselves.

OK.

3\. All things being equal,

Here. All things are _not_ equal between a lone hacker and a company. You
won't get that lucrative contract your employer won.

------
nbuggia
I think the gap is not how much value the hacker generates, it is how much
value they get from the corporation.

If you are independent, than you loose out on all the value the corporation
provides above & beyond your salary. Things like: \- Taxes on revenue. The
corporation pays state/federal taxes on the income you help generate. You
would have to pay this on your own, and it can be expensive. \- Limited legal
liability. They have lawyers and deep pockets to dissuade lawsuits, and fight
them if necessary. Most corporations protect individual employees. You would
have to pay for this on your own. \- Sales force. Demand generation is very
expensive \- Healthcare. Yeah, very expensive. \- Office space. \- Training,
travel, budgets. \- Hardware, etc.

Basically, take everything captured under "General administrative expenses"
and divide that by the number of employees in the company. This is the amount
of value each hacker gets above & beyond their pay.

This gap isn't insurmountable, and you probably don't need _all_ the services,
but it explains much of the 'barrier to entry' for hackers going rouge.

------
revorad
_why does it seem most hackers struggle to capture even half their regular
wage from the market directly?_

Marketing and selling is hard. And programmers have varying degrees of build-
it-and-they-will-come syndrome.

I'm trying to help solve that problem with my new project. Please consider
signing up if you want to sell more - <http://laughingcomputer.com>.

------
natch
I guess he's just simplifying things, but the more complex truth is that a
hacker's worth to the company is unlikely to so neatly correspond to a salary
figure like that. (BTW that salary figure is about 10 years out of date;
hackers are making more like 130-150k now, if only salary is considered). I've
had years where my worth was 1x my salary, 10x my salary, and 100x my salary,
based on unique contributions where I took the initiative to do things that
most others would not have. I suspect most of us have good years like that,
but they partly happen because of the context in which you work. It would have
been unlikely for me to have such big contributions without being part of a
team that was also contributing a lot.

------
veyron
The rule of thumb is that the company expects to generate profits at least one
order of magnitude larger than your salary. Hence I would say the 80K hacker
should be able to do work worth about 1 M a year _to the company_.

This gets back to PG's second assumption: "Assume a hacker can in turn be
significantly more productive working for themselves."

Most hackers are not more productive working for themselves for a multitude of
reasons, some of which have been discussed (i.e. lack of marketing focus) but
I think that most hackers who work for someone else hone very specific skills
that are suited to the task at hand, which build value for the companies they
are working for, but those skills arent necessarily valued in the marketplace.

------
Vitaly
From my experience if you are any good you might get some income dive when you
go independent but it should sort itself out within a year or two. That being
said, working as a consultant requires different skill-set then just hacking
on some software for 'the man'. You can be super brilliant when doing tech
work but miserable when dealing with people, selling, managing your own time,
etc. In such situation you have only 2 options: a) change and learn to deal
with people, or b) work for a company that can utilize your skills while
"protecting" you from the outside world. some people choose (b), others choose
(a).

------
daimyoyo
"2. Assume a hacker can in turn be significantly more productive working for
themselves."

This premise is fundamentally flawed for one simple reason. When you are
working for someone else, you just come to work, sign in, and start coding.
The question of actually having work to do is solved long before you ever set
foot in the office. When you're working for yourself, a big portion of your
time has to be spent looking for work. And that's time you can't spend coding,
ergo you aren't making money for it. That's why people working independently
will generally earn less than people in a company, all other things being
equal.

------
querulous
Effort is multiplicative. While 50% of your effort might provide $500k of
value to a company, 100% of your effort might be worth nothing without the
structure and support provided by that company.

------
synnik
"should be able to do work worth about $3 million a year."

Note that he says you can DO work WORTH $3 million. That quote says nothing
about actually selling that work, or getting it in the first place.

------
erikb
You are quite smart and you guessed right. Start-ups are not a guarantee to
win the lottery. PG makes money with people being interested in start-ups, so
he tells you about as much of the advantages as possible. And it is not like
he's lying or hiding something. From all the facts he just emphasizes the ones
that he thinks favor his own situation most. Both "smart hacker" and "working
hard" can be interpreted in different ways. Not much of a surprise, isn't it?

------
mapster
I recently started asking my clients if I could interview them - so I could
learn about the sales process (they are sales reps - i provide a one off
service for them now). Sales people love to talk, so I spent on average 2 hrs
per interview x 10 interviews last month. Almost every person I spoke with
TOLD ME a product or service they need. They also described their sales
process from lead gen to close and support. If you have hacking chops, talk to
people.

------
jcampbell1
It is absurd that a smart hacker is 30x better than a mediocre hacker. I
consider myself slightly above average, and I look at the smartest hackers'
code on github, and it is not 30x better at delivering customer value than
mine. Maybe 2x at best. Many times the code delivers 1% of the value of my
code because it is full of architecture astronat garbage that I am not smart
enough to write.

~~~
T-hawk
> It is absurd that a smart hacker is 30x better than a mediocre hacker.

How maintainable, readable, understandable, and extendable is their code? It's
well within possibility that changes and enhancements could take 30x longer to
develop and test and deploy for a mediocre hacker on a disorganized platform
than for a smart hacker on a well-factored codebase. Architecture astronauting
is a valid and legitimate criticism, but it's also quite possible to make an
application extensible without going overboard.

------
antidaily
Network, network, network... because you're not a salesperson. Maybe you have
those traits but most hackers don't. So you must rely upon being good at what
you do and letting people who have work know you're reliable and available so
they will funnel you work.

If you're not interested in consulting or freelance, network anyway. You'll
need a list of contacts to tell about your startup.

------
mike_esspe
If you have non-programming skills like SEO, sales, PR (or eager to learn
them), than it's certainly true, that you can get a lot more, than your
current wage.

The problem for me with working on my own is laziness - sometimes i can work
for whole days without interruption, sometimes i skip months without any work.

------
teyc
I think pg's idea of a hacker is not a person who only hacks code, but it is
more like "Venture hacks", "marketing hacks". To hack is

a) the process of grokking through hacking

b) the process/mindset of circumventing apparent barriers in front of you.

Both are very hard, and require a great deal of street smarts.

------
bemmu
Because you start from scratch, instead of improving upon something already
big. You might make more money by making Google 0.01% more popular than by
making your smaller startup 1% more popular, while the effort could be
similar.

------
epynonymous
as a poor man, i've learned that there are no shortcuts in life. as an
optimistic poor man, i believe that 80k can indeed be re-valued to 3m, but not
overnight, and certainly there are barriers and heavy risks associated. so
this is where you really need to dig deep and figure out the truth behind all
of this--are you just looking for a shortcut or do you really enjoy the path
to potential enlightenment?

------
vlokshin
It's because most engineers stare at the feet of a client when talking to
them, and people with money (that don't understand tech) don't like that.

Simple as that.

Tech - Normal liaisons will (hopefully) be a growing market in coming times.
I'm being selfish in saying that :)

------
shahoo
"The whole is greater than the sum of its parts." — Aristotle

------
michaelochurch
First of all, a lot of software projects fail. A successful software project
is worth millions, but a failed one is worth zero or less, at least in terms
of value created for immediate capture. A well-organized and large company can
squeeze value (wisdom, code) out of the failed projects but small companies
(which are often single software projects) just go out of business.

Second, there's risk. Capitalist society always allocates most of the reward
to those who take the monetary risk, not those who do the work. From a
humanist perspective, it's unfair because _you_ are taking more risk with
every job you take-- you're risking your career and health, they're just
risking money, which they have in abundance-- but that's how the game works.
If you don't like it, become politically active and try to change it.

Third, "business people" are better at capturing surplus value. It's about
leverage, negotiation, and putting oneself in the right chair.

All that said, I don't think an unproven programmer is worth anything near $3
million per year, or even 1/20 of that. The worst programmers are not very
skilled and are a liability-- negatively productive. I would say that base
salaries are about right-- $50,000 for an unproven beginner, $80,000 for a top
beginner, $120,000 at the mid-range, and $200,000 for experts-- but that
companies should extend much, much more in the way of employee profit-sharing
and creative control. Where programmers get stiffed is not in their
compensation (which is quite fair) but in their lack of autonomy and "say" in
how they do their jobs; often they are held back and prevented from unlocking
their talents by meddling "executives" of mediocre intellect and vision.
_That_ is what should change, not base salaries _per se_.

~~~
maxharris
_Second, there's risk. Capitalist society always allocates most of the reward
to those who take the monetary risk, not those who do the work._

This assumes that having a paying job at all is not itself much of a reward,
and that the programmer's take-home pay constitutes no profit for the
programmer. But this is wrong, because the programmer would rather have the
money than his free time, so the transaction is highly profitable _to him_.
(It's also invalid to suppose that the main human motivation is only to make
so many dollars while ignoring all the other relevant context.) Who is it that
said "the maintenance of life and the pursuit of happiness are not separate
issues?"

Another problem with your way of looking at it is that it ignores non-
financial rewards. Doing a _good job_ causes an increase in self-esteem (the
real kind that results in the creation of value, not the fake thing we call by
the same name, where your teacher gives you and everyone else a gold star),
and _that_ is a reward. No one else can ever give you genuine self-esteem.

It doesn't bother me that there are other people out there with a great deal
of money, while I don't have very much at the moment. All I care about is
myself, and how I'm going to make the most of _my_ life. The only thing I
think about when I hear about people with lots of money is, "if they let them
keep their money, we're doing great as a society. If and when I earn lots of
money by creating and trading value voluntarily with other people, I'll be
able to _keep what I've earned_ by the same principle enjoyed by others who
have earned their wealth, and that's good for my flourishing life."

------
shareme
Its skewed by a certain economic bias..what bias?

You see software units once the first one created has zero cost of duplication
as far as producing that next unit to sell to someone..so that economic bias
is the assumption that the smart hacker is able to produce a desirable product
or service that one can monetize..

Let me give you an example:

The average right now for 2d games on android market is 20k in downloads over
3 months. At $1.99 that works out to about $10,000 net every 3 months from one
game. And that is recurring income. Most 2d games take one month to code, thus
realistically doing 5 games could net over $100,000 per year after taxes!

