
Ask HN: Is an Autonomy Fund a viable business model? - michaelochurch
Here’s a software business model that helps engineers to retain control of their companies and aim for excellence, instead of having everything they build get hijacked by MBAs. It encourages engineers to build profitable companies rather than “get big or go home” (VC).<p>It’ll encourage mid-growth companies. See: bit.ly/16guxvy. I want this thing to generate some Real Technology, and focus on hard problems instead of social media bullshit optimized for instant results. It’s for the mid-risk 10-40%/year growth range that’s underserved by existing finance.<p>An Autonomy Fund’s like so: engineers get a base salary (say $125k) and the investors get a percentage (say 37.5%) of any profits they make. What do they work on? Whatever they want. Their own projects. Consulting. Startups. The fund owns part of it, but they have full autonomy over what they do.<p>One idea here is self-organization. If two teams decide to work together and pool resources, they can. Since they're collectives of autonomous individuals, they don't need to worry about the (morale-killing) processes of merging HR structures and org charts. They just pull together and work.<p>Who’d fund it? I think local governments might. (Am I right? Or off the mark?) It creates jobs, supports local businesses, and may build the next Facebook.<p>I see this as the ultimate symbiosis between cities and tech. They want to make their cities tech hubs instead of having all the action go to star cities. We’d vet programmers, something a non-programmer can't (cf. Design Paradox).<p>I'd aim for top-5% “10Xers”, with initial class size ~28 and a 2-year initial runway ($7 million). If the pilot succeeded, then similar funds could be launched all over the world, and there might be a business in setting cities up with their own Autonomy Funds.<p>Is this something that:<p>(a) local governments would support, and<p>(b) a substantial number of top-5% people would join, even if it meant moving to a small city (~50-250k inhabitants)?
======
S4M
It's a nice idea, but focusing of technical excellence for its own sake is
dubious according to me. If I were offered to put my own money in that project
and get paid in dividends after couple of years (we want long term investors),
I would probably refuse, as there is _no_ business plan at all. Whoever has
money to invest will focus first on the product, and then on the technical
quality. What you want is rather:

1\. write good code

2\. ???

3\. profits

Also, you will need to attract _non coders_ , such as domain experts or
marketing. They will also want their shares of the cake, and you will need to
pick good ones, which will not be trivial for you as a developer. I am sure
there are many other flaws, and I'd rather suggest that you use your technical
excellence to "scratch your own itch" and live from it.

~~~
michaelochurch
Very good points. Thanks so much. I welcome disagreement because, without it,
my ideas would stay in a raw crappy form. So... here are my thoughts.

My end goal is for this to congeal into something like an open-allocation
environment, but one that exists across companies to some extent. I feel like
if we bring OA to the external market, we'll force the hands of employers who
will have to improve conditions if they want to compete for talent. So, the
trans-corporate open allocation (because each person carries an income that
follows her whereever she goes) is the ultimate end goal. That may be
completely insane, but isn't that what the open-source gift economy is--
trans-corporate collaboration?

Getting designers, marketers and domain experts will be hard. I grant you
that. Strong designers and marketers I can spot; domain expertise I would not
be able to tell, unless I had it myself and, of course, for most domains I
won't. I think that to get a domain expert, you'd have to hire her into a
company already formed through this process, because you're right that there's
no way we can build up a competent selection process for every domain we might
care about.

~~~
S4M
I am not sure I get your second paragraph, but it seems to me that you want to
build some kind of consulting company owned by top coders. Your offer would be
to offer programming services, that only very competent programmers could do.
My guess for such services would be: ultra scalable web apps, or creation of
DSLs - it has to be something very advanced in order not to compete with the
numerous consulting companies that are already existing, most of them doing
mediocre stuff.

And I can see this taking off. Obviously not fast because most of your
potential customers wouldn't even know yet they need your services, but that
should be able to slowly bootstrap. And I suppose once you would have built a
strong team and gotten some notoriety, you would be able to bootstrap your
technological edge into some concrete product.

Having said that, I still have some doubts, mainly because I think we are in a
coding bubble, and the future belongs less to the programmers than to the
engineers who will build the new space rockets or the technology to exploit
green energies from example, while with the standardization of functional
programming and the development of various libraries it will be easy for a non
programmer to start creating software components that are currently requiring
programmers (IMHO there will be less "pure" programmers and more "X's who can
program" as you once said here on HN).

Nevertheless I wish you can succeed with your idea, even though I don't think
I'll be able to work in your company as I am _not_ a top programmer.

~~~
alexjeffrey
I think you might be barking up the wrong tree here - OP's plan is to create
an investment fund that focusses on long-term investment in talented people,
rather than the VC approach of investing in "whatever facebook/twitter/google
might buy to acquihire the founders".

------
codewright
The problem is that most local governments that want a tech hub are either
focusing on tech already and will think they don't need this, or are on the
other end of the spectrum and simply don't care.

The key is to find a city on the cusp of making a serious decision to pursue
becoming a tech hub. Google Fiber could be an incentive, or it might make them
complacent, who knows? Maybe Provo? You can't really aim too small, small
towns have serious conservative budgets and for good reason.

Austin would be nice, I'm not sure how insecure they feel about their status
as a tech city compared to NYC and SF. What I can tell you for sure is that
they are seriously affordable. You can trivially get a house for less than
$200k in a decent neighborhood. That they're already competing for the tech
city thing is a bonus.

Google Fiber in Austin could end up bringing in some fresh blood, even if it
doesn't make that much of a difference on its own.

Austin has a $3.1 billion budget, which makes this more feasible for them than
a sub-$1bn budget city. $25mm planning and development budget.

[https://assets.austintexas.gov/budget/12-13/downloads/Vol_I_...](https://assets.austintexas.gov/budget/12-13/downloads/Vol_I_Combined.pdf)

See here to see their job development efforts.

Anything involving as much money as this does is going to have be sold as a
job development play. I don't know if that argument can be made yet or not,
I'd need to discuss it.

Disclaimer: I'm headed to Austin as soon as I'm freed up in my consulting work
to do a startup.

~~~
michaelochurch
Getting Austin to sign up for that would be a huge coup. I don't think you'd
have any trouble getting great engineers to move out there, given how many
strong tech companies are already there. That would be ideal. But I'd also
want to talk to other municipalities and see what terms they'd have to offer.

It's definitely a job development play. These engineers are going to be
founding companies that, if successful, are going to employ large numbers of
people.

~~~
zwegner
This sort of idea is really interesting to me, and the thought of it happening
in Austin is quite tantalizing (I wouldn't have to move!).

I find it pretty hard to function in typical management structures, though I
work better with teams/some sort of external visibility (my personal projects
tend to gather dust too easily, though I'm working on improving this). The
concept of an incubator-like environment for collaborating on ideas without
the extreme focus on growth would be a perfect fit for people like me.

------
mahyarm
Copying my comment from here: <https://news.ycombinator.com/item?id=5578223>

\---

How about Las Vegas? I've never been there but:

1) Cheap airfare, international destination

2) A Party Town, probably helps the gender balance in one aspect, people would
like to visit you.

3) No Income Tax

4) Still close to the SF Bay Area

5) Never cold, barely rains (good or bad depending on your preferences)

6) Really cheap real estate. Buy a townhouse for under $100k!

7) Many tech conventions are hosted there

8) Driving from one corner to another takes only 30 minutes according to
google maps.

~~~
otoburb
Vegas also has the distinction of being Tony Hsieh's experiment to revitalize
the LV downtown core[1].

Autonomy Fund on the surface looks like a great fit with Tony's
DowntownProject vision[2].

[1]
[http://www.forbes.com/sites/evankirkpatrick/2013/02/13/lesso...](http://www.forbes.com/sites/evankirkpatrick/2013/02/13/lessons-
learned-from-tony-hsiehs-350mm-downtown-project-in-las-vegas/)

[2] <http://downtownproject.com/>

------
epenn
I would love to see something like this. I think this shouldn't just be
limited to one city or industry though. Assuming that this is successfully
attempted in one city, it might be a good idea to try it in other cities while
focusing on various industries that speak to the existing core competencies of
that city. So for example, a Detroit version of the Autonomy Fund could focus
on funding autonomous individuals within the automotive industry.

As for choice of initial tech hub, my vote goes to Pittsburgh. The population
size is [roughly] what you're going for at ~300K. The housing market here is
great. It already has a tech-friendly local government. Plus Carnegie Mellon
is here, ready to feed top young CS talent directly into the autonomous
positions.

For what it's worth Pittsburgh was also voted as the most livable city in the
U.S. a couple years ago [1]. I might be biased since I live/work in Pittsburgh
and take CS classes at CMU, but by that same token it also means I'm speaking
with first-hand experience.

[1] [http://www.marketplace.org/topics/life/news-brief/its-
offici...](http://www.marketplace.org/topics/life/news-brief/its-official-
pittsburgh-most-liveable-city-us)

~~~
codewright
I don't think Pittsburgh has the funding to do it. You're looking at a budget
of ~$450mm.

I think the funding, rather than the locale, is the blocker here.

~~~
michaelochurch
How much money do you think it'll take? I'm thinking single-digit millions per
year. First class would be about 28 people. So that's $3.5 million per year.

Salary plus tech budget is $125,000. That's half-decent but not great, and by
design. I'm looking for entrepreneurs, not salarymen (who'd command $150-250k
at the level I'm looking to hire). It's not the extreme low salary of
bootstrapping (negative including business expenses) but it's not cozy either.
That's sort of what I'm aiming for: a middle path between might-fuck-up-your-
family-life-bootstrapping and not-really-an-entrepreneur-VC-funded-salaryman.

I'm also thinking that it would be useful to find private investment with 1:1
matching. So local governments would only have to kick in half the initial
funding requirement

~~~
mblakele
But doesn't it cost more than $125k to pay a $125k salary? I've been told that
it's about 1:1 if typical benefits are involved. So a $125k salary costs
$250k.

~~~
codewright
Not sure why you'd think benefits are involved here. And a $125k salary does
_not_ cost $250k.

~~~
otoburb
It would be great if an HR director could weigh in on how much a $125K salary
might cost in total compensation with a "standard benefit package" range for a
technologist/programmer/engineer role.

The only other data point is from the Bureau of Labor Statistics Employer
Costs for Employee Compensation (BLS ECEC) where it shows at the bottom that
benefits accounted for around 30% of total compensation and 70% going to wages
& salary[1]. On average, this means that a $125K salary would cost a company
$179K overall.

[1] <http://www.bls.gov/news.release/ecec.nr0.htm>

~~~
codewright
It doesn't cost that much either. [1]

[1] Ex-CTO

Those ratios are for average salaries, not $125k salaries.

------
TheCoelacanth
I think the hardest part would be getting the people funding it to agree to
it. The plan, as you've stated it, gives them very little control of how their
funds are used. I don't think it will be easy to convince the investors to
trust the engineers not to just take the salary while producing nothing
useful. If you can find a way around that problem, you might be on to
something.

~~~
michaelochurch
Maybe I'm naive here, but I think most software engineers (especially good
ones) are careerist enough to _want_ to produce something useful. That doesn't
mean that there won't be some good-faith failures, but I think most engineers
are already naturally aligned toward wanting to add value.

Top engineers aren't that way when a company takes 100% of the proceeds and a
boss takes all the credit; but this is still allowing engineers to get a 62.5%
cut.

~~~
TheCoelacanth
I think with proper vetting you would be able to find engineers who would put
in an honest effort in those circumstances. I just don't think it will be easy
to convince investors of that.

~~~
michaelochurch
Ah yes, Theory X and Theory Y. I would like to believe that defection rates
will be low. Are people going to abuse the system? Occasionally, yes. My
feeling is that the defection rate will be low enough not to compromise the
project. If someone uses the fund to build his career, then goes off to the
Valley, good for him. "Alumnus Bob is now VP/Eng at Facebook" is part of our
pitch.

The trust issue is why local governments might be the best place to start:

(a) they know they're not technologists and can't evaluate 10x programmers. I
can. I think I can either (i) establish that I can, or (ii) bring someone more
established and better than I am to do the vetting.

(b) even if they fail, much of the money goes back into the city, which means
it's not totally spilled on the floor. Fail case: those tech bozos made fools
of themselves, but they ate at local restaurants for a couple years.

It wouldn't only be local investors. I don't want short-term investors in
this, though. I'd take a Buffett-esque approach of having the share price
around $50,000. Value investors only, because talent takes time to ripen.

------
lacker
Two thoughts.

(a) It will be hard to get $7 million for an untested investment model like
this. It would be easier to start with something more like $150k, like the
first YC class.

(b) It's hard to advise people on something you haven't done yourself. If you
first started a successful mid-growth company, you'd find it a lot easier to
raise money for this plan.

------
kohanz
Let's see: government funds for projects that have little to no regulation,
oversight, or concrete goals. Yeah... good luck with that. I mean, is there
any precedent for this?

And I actually like the idea!

~~~
michaelochurch
Ctrl+F "teaching".

If we set up a "20/20" plan where the entrepreneurs spend 15-20 hours teaching
(as in, the public) while they draw a salary, then it might work.

The only danger is that it pisses off the teacher's unions. It'd have to be a
free after-school program.

------
carterschonwald
Your return structure is wrong :-)

A successful growing business is never profitable, most / all the profit is
reinvested in the business. There will per se be no investor return relatively
speaking.

I recently saw an article this past week that suggests a better structure: the
investment is a loan that is forgiven if the business folds.

This is actually better for both sides: the investor gets their money back
with some fixed return if the biz succeeds, and the business doesn't have to
pay it back if it fails.

Then it becomes a small tech business entrepreneurship Loan/ investment
vehicle. In which case the pitch to the city is the their investing in
furthering local biz growth in a way that has potential to have a
multiplicative return for local industrial base.

Tl;dr no small privately held biz is ever truely profitable, structure it as a
forgivable loan upon biz failure.

~~~
usea
In my company, profit sharing is 1/3 employees, 1/3 owners, 1/3 goes directly
back into the company for investment. However, sometimes the company needs
money to repair some equipment or whatever, and that comes out of the revenue
(before profits). So the business needs come first obviously, but when times
are good the employees are treated very well. This works best in companies
where the employees can have a direct affect on short-term profits.

~~~
carterschonwald
Yes I agree with that. But profit sharing with employees is per se taken from
revenue left over after operating costs and such, profits are what you
distribute to share holders.

I agree with what you're saying, I'm mainly quibbling with the language of the
structure of the proposed investment instrument. It would be very easy to do
some Hollywood style accounting so that the business owner and employees all
get a fraction of gross revenue after costs, but any investor would get zilch
for all time.

I know little of accounting, but I know that much :-)

(This is of course orthogonal to the ethical / moral dimensions)

~~~
usea
That's a good point, which I hadn't thought of.

------
htormey
Michaelochurch, I've read a bunch of your blog posts concerning alternatives
to VC funded startups and I have a question for you. Why raise any funding at
all? Instead why not save a year or so's living expenses, pick a niche market,
do contracting in that area and then try to OpenSource and productize a common
problem that a bunch of your clients have. This approach is very similar to
what 37 signals does and seems to work for some of my friends.

<http://37signals.com/about>

Software Engineering, done this way, does not require a lot of capital. What
are your thoughts on this model?

------
activus
Great idea. I'd actually submit Rochester, NY as a candidate (I'm from there,
but live in Seattle now). The property taxes are high, but the cost of living
is very low, power is very cheap, land is cheap and there is RIT and
University of Rochester right there pumping out fantastic engineers (an hour
away is University of Buffalo, not quite as good, but has a few gems). I know
a few people doing startups there (it's tough because of funding, but these
guys self fund). It's also not too far from Boston / NYC if you needed to grab
people from there.

------
clbrook
I wonder if the Kauffman foundation would be interested in partnering.
<http://www.kauffman.org/>

------
pekk
It's an interesting idea, but I don't think local governments have room to pay
lots of engineer salaries for no specific reason. Startups are risky and this
will smell even riskier since it scans politically as a boondoggle. $125,000
is 5 working-class jobs. I don't see cities directly 'creating' jobs by just
paying people to do things.

So, maybe don't depend on local governments.

~~~
michaelochurch
Or, here's an idea (that might be politically explosive, or really cool): the
funding is contingent upon teaching local school students (at various grade
levels) programming (which is still not part of the curriculum in most public
schools)-- a 10-15 hour per week commitment. This does mean that we must
select for people willing to teach, but as far as I'm concerned, if you're not
a good teacher, you're not a good leader and I'm not interested in funding
you.

Now, public school students are getting after-school coursework with "Silicon
[V]alley technology entrepreneurs". These aren't techies getting thrown a
bunch of local money to build their careers; they're getting thrown local
money to build businesses _and_ teaching students how programming works in
"the real world"

So then, there's a great service provided that is of use to the community even
if the startups flop.

~~~
julespitt
I don't think cities or towns have either the money to invest nor the knowhow
to administer such a thing. I think it would likely have to be investor-led,
preferably wealthy technologists, who would then shop it around to local
governments.

~~~
michaelochurch
Hmm. That may be right. But I think something real is here, especially now
that I've added in the teaching factor.

Do you know anyone who'd be able to look at this idea as a potential
principal? My email is michael.o.church at gmail.

~~~
otoburb
Tony Hsieh might be a good fit given his vision with Downtown Project
(<http://downtownproject.com/>).

------
alexjeffrey
I love this idea but the idea of tying it to your locality seems a little
exclusionary for no reason. Granted, I am biased as I am based in the UK, but
I can't think of any major problems with organising this through
teleconferences?

