
Patio11's Law: The software economy is bigger than you think - secondbreakfast
https://secondbreakfast.co/patio11-s-law
======
_bxg1
I remember reading this article about SAP a few months ago, and it just blew
my mind: [https://retool.com/blog/erp-for-
engineers/](https://retool.com/blog/erp-for-engineers/)

Here was an entire market segment I'd never heard of, and _just the market
leader_ is worth _$163B_. And on top of that, the technology is so totally
alien to anything I'd ever heard of before. It's like an alternate-history
kind of thing. Like if we discovered a continent somewhere in the Pacific that
had never been in contact with our civilization and had steam-powered airships
or some crap.

And I'm sure this is just one of many such industries, even just within the
umbrella of software.

~~~
cambalache
Want your mind to be blown even more? I worked for a multinational company, I
would not be surpised that this company is among the top 10 SAP customers
worldwide. Well, everybody hated hated hated SAP, it was a huge hindrance
instead of any help.Any use beyond of a "dumb" database was a huge PITA, and I
am not fully convinced that all in all it helped more than damaged the
business. It was clunky, unintutive, slow, ugly, archaic and a long etc. There
were these guys, that were trained as "experts" but they frankly behave more
like witch doctors. SAP is coasting just by its name and legacy but from my
POV is ripe for the taking. It is not easy though, ERP systems are hard, and
changing them ever harder, but in my fantasy world I would like to develop
some program and would be very happy to skim 0.00001% of their income.

~~~
lenkite
SAP's ugly green, old style-UI screens are wonderfully optimised for data-
entry. You can be _ultra-fast_. It's like VIM. It's like driving at 300 mph.

Its all the new fangled dumbed-down, web-ui's that is sheer crap and leaves
your head scratching.

Well..the old UI's were coded by old-school, C programmers who started their
career in the 70s and 80s. They even wrote a multi-process Erlang style kernel
to back the application programming. Performance came naturally from their
gut.

Nowadays, we get Electron and congratulate ourselves.

~~~
huffmsa
Saw a big write-up somewhere about this. It's easy to learn the muscle
memories for various patterns on a text only UI, and you can become extremely
fast.

But almost no one is fast with a mouse based GUI

~~~
willhslade
Excel.

Indeed.

------
tlb
The metal economy is huge. Almost every product requires metal. But
metallurgists don't take home a big fraction of it.

What's special about the software economy is that people who write the
software take home a large fraction of it. Maybe more than half, depending how
you count. Which is unprecedented.

It's not just because software can be zero marginal cost. Musicians don't take
home half of music revenue. In most creative industries, the creatives take
home less than 1/10th.

Enjoy it while it lasts.

~~~
MattGaiser
Metal economy is huge, but there are inputs. Software engineers have no inputs
into our projects besides our work and some hardware and electricity. A
developer is 99% of the cost of a piece of software.

~~~
underdeserver
In other words, your value-added as a software engineer is significantly
higher, as a fraction of the money in a transaction, than the metalworker's.

This is because of leverage. Implement software that speeds up a process by
20% once, and every time that process is used from then on the speedup adds
value.

We're lucky to be working in a field that enables us to add a lot of value,
for relatively little capital costs, and pocket a good share of the
difference.

------
franciscop
Having read patio11/kalzumeus a lot (excelent blog posts and talks!), I'd say
if he has a law named after him, it should be "charge more" or some fancier
title like "you are not charging enough".

~~~
jriordan42
Or maybe a rule or such for general peeps that doesn't necessarily involve
some special coffee-drinking in trendy Oregon? And what the heck is a "bed-
and-breakfast type coffee tray"?

Or, Patio's Law, rephrsased: "Look at the very significant things you
encounter with fresh eyes. You already know how to get to the crux of issues.
When you get there, FRESH EYES!".

~~~
dspig
> And what the heck is a "bed-and-breakfast type coffee tray"?

A tray loaded with tea and coffee making equipment and supplies, like you get
in hotel rooms. Not a tray for carrying things around.

------
peterlk
A friend has described these to me as "dark matter companies". They are
everywhere, and they permeate industries, but you never see them. They work in
small, unmarked offices outside of the standard tech hubs. Some of these
companies make billions, but you've never heard of them, and they'd like to
keep it that way.

In other cases, they're small companies that own a market that's too small for
a large competitor to go after. $10m/yr will not make VCs happy. But it will
certainly pay nicely to a team of 12.

~~~
Rzor
It reminds me of Hidden Champions.

>Hidden champions are relatively small but highly successful companies that
are concealed behind a curtain of inconspicuousness, invisibility, and
sometimes secrecy.

[https://en.m.wikipedia.org/wiki/Hidden_champions](https://en.m.wikipedia.org/wiki/Hidden_champions)

------
MattGaiser
I’ve had four jobs in my life and have always been stunned by what is still
done by hand. Every company had a task which could be heavily automated but
was instead consuming 4-30 people.

So if you think the software market is large, consider all the stuff software
never reached.

~~~
cosmodisk
I wrote a piece of code last year in probably no more than a few hours.Showed
it to a few guys in my team.Instead of sharing my excitement,they were like
"if you run this,what are we going to do then?". She was right,if I'd do it,
the size of the team would be reduced by half.But then,what I'd get? Do I get
a bonus the size of those employee's salary for 6 month? No.I'd get a grand or
two and instead and a pat on a shoulder,while those guys won't find a job for
momths.So what's the point?

~~~
MattGaiser
Within the company, there is often no point. You want to be the guy selling it
outside the company. You can easily claim tens of thousands for the same work
then.

~~~
bob33212
Management has to be ok with reducing headcount. You would think that all
managers would be incentivized to made their groups more efficient but there
is a high correlation between headcount and political power within an
organization and people don't like to give that up for free.

------
meddlepal
This does not just apply to software..., tons of small and medium sized
businesses and opportunities out there. For engineers you will most likely
never notice them if you're caught up in the Silicon Valley / VC thing.

Of course it requires getting out of your comfort zone... a lot of dev's just
want to exchange labor for cash and grind out code because it is comfortable
and cozy (right now).

There are tons of small towns and cities with their own economies. And a lot
of these places it means a lot if the people purchasing your product or
service can get on a phone and talk with someone 20 or 30 minutes away max.

~~~
chadash
I spoke to a guy recently who works for a company doing $300 million
revenue/year as a wholesale distributor of internet networking equipment
(think finger optic cables and equipment for housing them underground). Their
customers are the ISPs.

The company is privately owned and not venture backed so you'll never hear of
them unless you are in that business.

~~~
hnick
> The company is privately owned and not venture backed so you'll never hear
> of them unless you are in that business.

Is the implication that venture backing needs growth so they get heavily
involved in the media circus? I suppose that makes sense. I've always liked
these "shadow industries", I've run into a few personally looking for things
like special cut metal or wholesale pie crust or curtain rails.

~~~
chadash
Venture capitalists are often looking for billion dollar companies. If you
found a company and grow it organically to where it's worth $25 million, then
sure, you are no Bezos, but you are fairly successful (financially) by any
standard. But venture capital doesn't care about $25 million companies,
because their business model involves investing in so many companies that fail
that a $25m success doesn't really move the needle for them. They want to see
B's not M's in their companies' valuations.

Meanwhile, the media doesn't have much to work with when reporting on
privately held, non-venture backed companies. There's no official valuation
unless the company sells (sure, once you get to be the size of Cargill or
Bloomberg, reporters will try to calculate some sort of valuation, but very
few companies fall in this category), and the owners typically have no good
reason to want publicity from the media, especially if they are selling B2B.

------
Kinrany
This thread seems to suggest that there are heaps of 20$ bills lying all over
the world and accessible to any software engineer.

That they are not being picked up suggests that there's some other constraint.
Either extracting this value is not really worth one's time, or the bottleneck
is not the ability to automate things but some other rare skill.

~~~
RickS
For software people, the missing link is knowledge of a domain. Not domain
_expertise_ , the rare part is merely knowing that domains even _exist_ to be
searched for $20 bills.

The article mentions actuarial software for funeral homes. In retrospect, of
course that's a thing, but asked to name low-hanging domains for lifestyle
software businesses, few of us would _ever_ arrive at that answer, let alone
in the first 500 guesses. And is it sexy enough that we'd stake our livelihood
on it?

I'm reminded of this XKCD comic:
[https://xkcd.com/1425/](https://xkcd.com/1425/)

People in these small niches can't easily tell the difference between things
that are too hard to be worth the money vs things that are solved by a for
loop in an afternoon, and they don't talk about their work in a way that makes
it obvious that there's gold in the hills.

This is one reason that user research is an entire field that gets paid almost
like engineering: framing the problem can be just as hard as the problem
itself.

~~~
czechdeveloper
It's also funny how nowadays such bird detection would possibly be just
another few hours.

------
irrational
I work for a Fortune 150 manufacturing company. When I started working here
there was no IT group at all (it was all outsourced). The CEO and President
said many times that we were not a software/technology company and that would
never be a core focus. Nearly 2 decades later, technology is now listed as
number 2 of our top 5 core focus. We are working on converting all contractors
into full time employees. The IT group is no longer outsourced and takes up
20-30 buildings, out of 80 buildings on campus. We are still a manufacturing
company, but software (websites) has become a huge part of the company with
thousands of employees working on it.

~~~
vbordo
What kind of manufacturing applications does IT manage?

~~~
irrational
Mostly sales websites and design applications, not manufacturing applications.

------
imgabe
Not just software, but everything. Look around you. Everything around you was
made somewhere. The example I like to use is shower curtain rings. Those
plastic or metal things that hold your shower curtain onto the rod. Somewhere,
there's a factory that makes those. The person who owns that factory is
probably rich.

My first job out of college was working for a company that makes tilt-tray
sorter systems. These are giant machines that go in warehouses and sort
packages into, for example, different bays to go on to trucks to different
places. It's like a little roller coaster for boxes. It was something that I
had never even considered the existence of before I worked there. But someone
has to make it.

~~~
anonytrary
When I have kids, I'm gonna play a game with them where we look at random
stuff and try to make up how it got there, and then compare that to how it
really got there. I bet if you did this consistently with kids during their
formative years, it would be a great way to teach them about the world and the
economy. My parents just had a huge book room with encyclopedias that I was
expected to pick up and read.

~~~
loosetypes
How would figure out how it really got there though?

That you can, for the most part, peel back layers and trace steps back to an
origin is one of my favorite things about code.

But for a heterogeneous system of opaque supply chains in the physical world?

For any given random stuff, I don’t know that I could make reliable progress
in that endeavor.

~~~
regularfry
Sending someone at <wherever> an email saying "I'm working on a school
project. Can you tell me about X, please?" probably has a higher success-rate
than you'd think.

------
ivalm
This is somewhat true. However, unlike a regional coffee/fruit cutting
business software still has fewer geographic barriers. This means winners will
take (relatively) more of the market compared to more traditional businesses
(and thus small software business is somewhat less stable).

------
dpcan
I keep running into organizations or industries that don't spend money on
tech. They don't put it in the budget, or they choose to continue to use
volunteers to accomplish tasks that really should be done with software.

I am in situation after situation where I want to create software to make
someone's life easier, but I know that in doing so, I won't make any money and
it will make my life harder.

I wish there was a way to make money creating software that could really help
organizations that won't pay for the tech they need.

~~~
MattGaiser
A lot of it really comes down to explaining that labor cost is equally a cash
cost compared to spending on software.

~~~
AstralStorm
For some bigger companies it's not, software being capital expenses and labor
being operational expenses. They're taxed and budgeted separately.

------
bsder
That's because this stuff isn't valuable because it's software, it's valuable
because of "business value" and expensive because of "customer support".

Seriously. I can list tons of things that are reasonably profitable, but I,
personally, don't want to do the hard work of customer support so I won't even
start.

~~~
MattGaiser
> Seriously. I can list tons of things that are reasonably profitable, but I,
> personally, don't want to do the hard work of customer support so I won't
> even start.

This in itself is a business idea. We need an Uber for Sales Support Staff
that entrepreneurs can just rent by the hour.

~~~
rorykoehler
I'd never use that because support is mostly dealing with company specific
problems.

------
bob33212
"Thousands of people are making millions in software and they do not work for
any of the tech companies you have heard about in the news" may be a better
title.

------
blhack
I’ve been saying this for years. There are THOUSANDS of small businesses out
there who are mostly being ignored.

Many, many, many companies still see shared excel spreadsheets on a windows
shared drive as a technical innovation.

~~~
MattGaiser
> Many, many, many companies still see shared excel spreadsheets on a windows
> shared drive as a technical innovation.

Not just small ones...

------
eb0la
There are hidden "unicorns" everywhere. Sometime ago I heard Germany had a lot
of "small" companies that are leaders in their market niche but you don't have
it in the radar.

For instance: Hohner (the Harmonica manufacturer), or Flexi (dog leashes)

Every country has some of this hidden unicorns; but it is easier to spot them
from the distance.

~~~
heipei
For what it's worth, those German Mittelstand companies are the exact opposite
of what's usually referred to as a unicorn. They are small to medium-size,
multi-generational family-run and family-owned businesses that focus on a very
narrow set of products, such as just making gears for automative applications,
or ball bearings, or blades. The people working there often work there their
whole life, with the understanding that the company doesn't take any gambles
and will do its utmost to not lay them off even in recessions such as right
now.

~~~
rorykoehler
Doesn't unicorn just mean $1B+ valuation?

~~~
luckylion
I think it has to be a startup, i.e. recently founded, hyper growth, usually
VC-funded.

A company worth a lot of money that has existed for 80 years isn't a unicorn,
it's just a company worth $1B+.

~~~
rorykoehler
When is a startup not a startup anymore. Are Facebook and Google still
startups?

~~~
kirubakaran
I like Steve Blank's definition of a start-up: "a temporary organization used
to search for a repeatable and scalable business model"

Once you're executing on a scalable business model, you're a regular business.

------
jacques_chester
This is because of a few factors, mostly availability bias. We find it easy to
think of high-profile examples of tech companies, so we assume they _are_ the
industry.

Previous comment with fancier wording:
[https://news.ycombinator.com/item?id=17994976](https://news.ycombinator.com/item?id=17994976)

------
29athrowaway
> “Wait until you find out about the $100 million company that chops all the
> pre-cut fruit you buy in supermarkets,” he said.

Imagine you harvest 1 fruit, chop it and package it, and then duplicate the
result millions of times. Then each time you sell your chopped fruit, it's
somehow teletransported directly to the customer.

That's software.

------
matt_s
This is why things like "most used languages" coming out of places like
StackOverflow are laughable to think they represent the entire software
industry.

------
_bxg1
I have to think there are lots and lots of industries ripe for disruption or
even for their first taste of software, and it's just that they're outside the
radar of the vast majority of engineers. Industries you never _ever_ hear
about unless you're an insider. Maybe we need some mechanism for cross-
pollinating people from "deep industry" with entrepreneurs. Many of the
"visible" ones have already been saturated to death with startups, and it's
just because those are what software people happen to be aware of.

~~~
pragmatic
maybe they don't want software people f#cking up their lives?

I know it's hard for the avg hackernews to understand but software isn't
always a blessing but many times a curse bestowed upon workers by someone in
the mngmt chain who has been sold on a solution.

------
quickthrower2
Yes I agree with this, but it's not that surprising. I never thought that
Σ(companies mentioned in TechCrunch articles) = whole software economy, or
even 1% of it.

------
patio11
This is similar to Gell-Mann amnesia in that I had relatively little to do
with writing this law ;) (For what it's worth, I think it's likely
descriptively accurate, but not sure it's an observation worth the namespace.)

~~~
BerislavLopac
It's a shame it wasn't called "McKenzie's Law". Has a much more serious ring
to it. ;)

------
tim333
Motivation to maybe get off my arse and actually build something useful.

------
moron4hire
Jesus Christ, it's almost like the US economy is mostly ran by small
businesses, what the fuck.

~~~
tonyedgecombe
Actually the trend is in the opposite direction, towards more enterprise size
businesses.

~~~
richardwhiuk
Both are probably true - it's probably true that most of the US economy is
SMEs, and that over time enterprises become a larger factor of the economy

------
whateveracct
I googled where IHOP gets their coffee since it's so pleasant. Royal Cup!

~~~
secondbreakfast
Wow! Very cool. They are a fantastic company.

------
rukuu001
Admin software for schools - ran into an ex teacher making an absolute killing
selling some admin software to schools. And he’s one guy selling to schools in
one state!

------
ignoramous
More patio11 laws:
[https://threadreaderapp.com/thread/936615043126370306.html](https://threadreaderapp.com/thread/936615043126370306.html)

A variant of the current law also makes an appearance:

"The amount of money flowing through capitalism would astound you. The number
and variety of firms participating in the economy would astound you."

My picks are:

"Startups are (by necessity) filled with generalists; big companies are filled
with specialists. People underestimate how effective a generalist can be at
things which are done by specialists. People underestimate how deep
specialties can run. These are simultaneously true."

"You radically underestimate both a) how much you know that other people do
not and b) the instrumental benefits to you of publishing it."

~~~
secondbreakfast
> a) how much you know that other people do not

this is a particularly confounding problem, and i haven't figured out a way to
combat it.

it's so bad, that i'll often learn something new when scrolling twitter or
clicking through wikipedia, and then immediately assume that 1) i'm the last
person to the party, everybody else already knows, and 2) forget what it was
like not-knowing this fact mere seconds before.

------
miki123211
Basecamp is a famous example of this.

It's a pretty popular project management software, 56 employees at this point
if I remember correctly, probably millions in revenue. It's a tiny,
bootstrapped company, no investors breathing down their necks, no IPOs,
nothing. And they're one of the few companies who actually have principles,
are committed to privacy etc.

~~~
nojito
Because it’s almost impossible to switch out of Basecamp and use a competitor.

The vast majority of companies like this have perfected the lock-in strategy
to ensure that their customers can never leave.

~~~
brentm
I do recall Basecamp from day one allowed you to export your data which not
many other people did. What you do with that and how you get it into something
else is another story but also not really their problem.

~~~
daemin
I remember this too, but the second point is the crux of the usability and
lock in. It kind of relies on another product having an importer to ingest it
to another product/service. Or you have to pay a consultant to do this for you
(write a converter and run it to do the import). Either way it does introduce
some friction to leaving and using another service.

There's also the idea that if you provide an easy way to exit the service then
people are much more likely to buy the service. Since they know they can
easily get out of it if they don't like it.

------
bluedino
>> software companies he’s never heard of in Oklahoma pocketing $10m/year in
profit

Every industry seems to be full of these. The last place I worked is using
timeclock software that doesn't look like it's been updated since the Windows
3.1 days. They probably paid someone $50k at the time to develop it, and the
minimum installation of it costs $25k.

------
noch
When talking about the size of an economy, it's more useful to give actual
statistical calculations indicating hypothesised/alluded size than to offer
anecdotes. Has anyone actually studied this and mathematised their thinking?
One can't/shouldn't make business decisions based on anecdotes or bromides.

------
hadlock
I was surprised to find out one of my coworkers had been maintaining the point
of sale (POS) machines for a local chain of comic book shops, running
hypercard (yes, that hypercard) since the 1990s. The POS machines would sync
their databases via write ahead logs over dialup

------
BerislavLopac
Nice to see HN considered "mainstream tech coverage"...

------
luord
And yet I have no ideas. Maybe I should talk to my parents, they might have
seen something in their old jobs that could have used automation.

------
Kye
Corollary: the most popular hot-in-SV language has nothing on C++, Java, or
even C#. They're used widely inside the dark matter.

------
0898
I call these companies RHBs: rich, huge and boring.

------
asamant
The statement reminds me of GEB:

"Hofstadter's Law: It always takes longer than you expect, even when you take
into account Hofstadter's Law."

[https://en.wikipedia.org/wiki/Hofstadter%27s_law](https://en.wikipedia.org/wiki/Hofstadter%27s_law)

------
chvid
Therefore it follows: everything is software and we are all living in a
simulation.

------
nathanbarry
Thanks for mentioning ConvertKit! We're happily building our niche product for
creators and growing quickly.

Just a couple corrections, at the end of 2019 we were just under $20M ARR (Not
$24M). Today we are at $22M ARR and 30,000 customers.

You can see all our numbers (updated in realtime) here on Baremetrics:
[http://convertkit.baremetrics.com](http://convertkit.baremetrics.com)

I'm happy to answer any questions.

~~~
hnick
Very surprised he hadn't heard of ConvertKit. It's usually in the running
whenever I google for email marketing/automation software. Price seems
reasonable too (but not for us, we're more newsletter-based rather than
conversion-based so it doesn't really work out).

~~~
jonathanbull
Can I throw my hat into the ring? I run an email marketing platform
([https://emailoctopus.com](https://emailoctopus.com)) that’s affordable and
aimed at entrepreneurs/makers with newsletters. Shoot me an email if you’d
like a discount.

~~~
hnick
Sure no problem, I have heard of it before, there are just a lot of options
out there and it takes time to dig into each one when I only help out part
time. Having a "start for free" option is definite a good idea and I probably
will check it out soon.

------
DarthGhandi
This is hilariously self indulgent to the point of being cringeworthy.

Along with the comments about basic products being worth billions to sell.

Industries are deeper and wider than we assume, supposedly this is revelation
for some?

Is there a name for laws that gratuitously reference themselves?

------
patwillson22
I dunno man, sounds like bullshit to me. Some big brained engineers spent
decades programming fizz buzz in brain fuck. This is temple OS for the We Work
Generation.

~~~
anonytrary
What gets you infinite upvotes on Reddit doesn't necessarily work here.

