Last I checked, the profit margins for my single-player SaaS business were somewhere around 90%. And the interesting thing about that isn't even the number. It's that SaaS is so profitable that you don't even have to calculate your margins. To an order-of magnitude, every dollar a customer pays for the service can be considered profit.
Real Businesses have expensive office or retail space. We have "wherever we happen to be living at the moment".
Real Businesses have employee salaries. We have an industry where a single person can plausibly run every aspect of the business from writing the code to marketing to racking servers to high-touch Enterprise sales. That single "employee" can have his "salary" set to (Total Profit) / 1.
Real Businesses have equipment and other recurring costs. We have those too, but they're tiny compared to other types of business. Like, single-digit-thousands per year tiny. All in, for servers, software, dev hardware, etc.
It's almost unfair, how Software wins in pretty much every category against pretty much everything else.
Nobody tell anybody!
Online startups are infinitely scalable, meaning something which is just barely worse than the best probably doesn't survive (see 90%/9%/1% rule), but if it does, it hits big. Neither is true for a restaurant.
Every thing I've ever built, in a very tangible way, becomes a stepping stone for me with software. Be it businesses I create or people I work for. Also I can start multiple concerns in parallel and traditional business cant.
Most people, even if they are good at something, cannot start a business of it. That still includes software. There are so many things about running a business that don't directly reflect being good or not. That's excluding people that just aren't any good.
Wanting to be the owner of a business you designed yourself is a crazy persons dream. Software seems to make it more accessible because you can fuck off and get to death much quicker without the same cost, but I bet if you averaged it, what comes out in the wash is the same. A balance of having enough delusion, skill, stickiness, and luck.
I've got a mentor who subletted me some office space for a small thing I had once that I needed a few desks for. Recently he told me how close he was at the time to losing everything and us being there was a desperately needed life raft. Until he told me that, I always thought he was doing me a favor. His business is now at the top of his field. I still can't see the difference. Everything is bullshit until it's real and nothing that is real is permanent. Is success a marker of an IPO or a thing that allows you to take your children on neat vacations and affords time to paint? People only call it a failure when you exclaim you quit or someone else certifies that you've been removed.
I can test ideas with zero risk and inventory and make that a mediation to build out my business. Pivoting, changing, blending operations. I'm not as successful as he is by any means, but I can't imagine myself having to shoulder that burden to get where I want to go.
Dude maintains a fleet of trucks. Physically, like with the wrenches.
The work is hard, physical, requires precision and attention to all sorts of details while being creative and getting up really early in the morning.
Just to give you an example of how not automatable it is. $37,000,000 home that the entire building is clad in a bespoke red aluminum paneling that the architect designed. It doesn't fit in a repeatable pattern and each panel is between 3x4 and 12x7 feet. They need to be hung with a tolerance of less than an eighth of an inch on a cantilevered split level structure with some odd pitched faces. Any drift in the assembly will mean a later piece will not fit correctly and you might not find out until the end. If say a single piece got maybe dropped or run over by a work truck it will have to be custom replaced at a huge cost because the panels were made in batch, also this would effect the overall timeline of completion. The contracts you take with a job like this sometimes come with bonuses for finishing early and penalties for delays. The process to even get to build them is highly competitive as well.
Just to get this on the wall involves coordination to make sure everything is true and to spec as it gets to the skinning. Every variance effects your adjustments for hanging the clad. Sometimes with your own guys involved in the internals and sometimes you depend on workers you have nearly no control over. Either way you have to deal with and adjust.
All of this has to be done without trampling the feeder roots just under the soil of the 250 year old oak tree in the middle of the job site because it's irreplaceable and a couple desire paths can kill it inside a year after the job is over, cutting off 80% of the work area you have access to.
I'm not saying you can't automate a job like this, but we are so far away from being able to. It is possibly on an infinite horizon in skilled human labor.
I would agree that the finish work, cladding, drywall, etc are definitely the hardest part of the construction automation problem. And maybe they never get solved entirely, especially things like the red aluminum panel example. In some sense, the uniqueness of the project is central to its value as an architectural statement. And uniqueness doesn't jibe well with our current approach to robotic automation.
There are a few intermediate tasks that may be doable with autonomous machines. Framing and concrete come to mind because they are tasks where lots of heavy stuff has to go to the right place in a repetitive arrangement.
So maybe a highly bespoke job like a multi-million-dollar house doesn't have any tractable tasks for automation. But a skyscraper might. Or at least, I'd like to think so.
Thanks for taking the time to share your perspective and awareness of the topic with such a substantive and vivid example.
If you make that tool though, it just becomes another hammer and the guys like my friend will still sit at the same risk level to use the new hammer in ways people haven't seen. He definitely wants your automation, but only so they can increase dynamism. I suspect that his job will always hold a static high risk and I find that kind of awe inspiring as a bit jockey.
Some bored person could probably find this building and report the contractor to the authorities.
The "house" I described is an amalgamation of several.
I guess I would say to that "bored" person, go fuck yourself. There are plenty of other people to track down, harass, and get your target completely wrong on the internet. /b/ is thattaway.
This is the thing that so boggles everyone in "normal" business. They can't understand how I make any financial plans or decisions like investing resources in new capabilities or hiring consultants. I've got stable, long-term customers on annual maintenance contracts. Draw down substantially slower than it fills up. Done.
It's trivially easy IFF you can control yourself. I want to stay in business, so I do.
Bookkeeping is a similar non-event. Pay for everything on one separate credit card and blip the CSV of the annual statement to my accountant. Done.
Edit > Reading through the comments here reminds me of the hyper-importance of finding a viable niche, then occupying, preserving and defending it (_barriers to entry_), plus the high value of: a) "good" versus "wacko" clientele, b) loyal repeat customers that you can move to auto-renewing maintenance contracts, and d) frugality.
But then, as you say, software is easy to write. Businesses are less easy to duplicate.
Is the kid who saw your Show HN and cloned your thing "in a weekend" going to stick out the years of work it will take to build a business off of it? Is Google really going to decide to focus on executing in the "Hook Twilio into a Calendar Scheduler and have it automatically robocall people so they remember to be home when the plumber arrives" space so that they can smoosh your little $10k MRR business?
I hear your fear expressed a lot from people cautioning against building software businesses. But I'm skeptical that we should really be scared of it.
I have worked on about 20 projects between $100,000 and $3,000,000 where the primary stakeholders felt that writing a check was enough to run a software company. Like somehow buying bespoke software creation was like buying a used Honda and the key will just start it later if you ever get it out of the garage. A buddy of mine describes the trap as "It's easy to imagine, so I imagine it's easy."
By contrast I've seen non-technical guys with $30,000 take an interest in the work and not just listen to the creators, but inspire creativity, turning that to millions.
I've seen some developers deploy a beloved idea how like OP sold $20 chicken and are surprised when no one gives a shit. If you polish your turd like Duke Nukem Forever or Chinese Democracy, you might not get the response you want and it misses the utility we have in software to engage quickly while correcting course to get the thing on it's feet.
You worry about Google, Microsoft, etc when you're building a $50M business. Below that, it won't probably even register on their radar.
But I don't want to be pessimistic. Because there is no excuse for not having tried to build that business.
One advantage that local businesses have is a proximity lock-in. A restaurant in Portland just needs to be good enough relative to other restaurants in its neightborhood to survive. A SaaS headquartered in Portland needs to be globally good enough.
Personally I think a skilled plumber/electrician/tradesman would have an easier time starting a successful business than a software developer would. It's hard to generate demand for software, but those skilled trades are things that everyone definitely needs.
Me, I'd think I was going about it wrong if that turned out to be the case.
There are 150,000 convenience stores in the US.
How many successful online auction sites are there? At least dozens!
How many CRM companies that successfully compete with Oracle and Salesforce? At least several!
How many successful competitors to Slack? A couple!
How many successful competitors to Github? At least a few!
Your odds of building just a million dollar sales business in online services or software, is extraordinary small. And if you're in a successful niche, your niche is either likely to disappear entirely in a short amount of time, or otherwise be consumed into a larger company's product.
Meanwhile every single McDonald's ($2.5m avg) location does over a million in sales. Most Burger King ($1.3m avg) and Wendy's locations do as well. That's 27,000 franchise locations in the US just between those three.
I know of at least four successful businesses that started as S3stat clones. No idea why they chose my particular niche either, as there are tons of better things to build.
You don't need to build a Slack. You can live quite nicely on the profits of "Basecamp for X", for hundreds of as-yet unaddressed X's.
- Developing can take a lot of time, especially in a market where a lot of players are already active and have had years to come where they are (time unpaid, without guarantees), and
- When growing past what one person can do, your margins will decrease, because you'll need office space and employees.
Thos are not 'profit margins' - not even remotely.
Maybe you mean 'gross margins'.
But even then, software is an inherently IP-based business, it's about as appropriate as saying: "Hey, this $25 book only costs $1 to make".
That 'software' is open to anyone, anywhere, means it's just that much more competitive, and margins are not 90%, on average they are probably negative.
Twitter has yet to make a dime. They are a few billion in the hole still. I think the same with Square.
Has Uber turned a dime in profit yet?
It's only a very hardened and entrenched few that get into solid, positive margin space.
It's still Income minus Expense, right? For a single founder, it's exactly as though the $25 book costs $1 to make, because you are the printing press, binder, paper supplier, ink supplier, distributor and author.
Yes, you can arbitrarily drop that number by having the business pay you a "salary". But the end result is the same. The money going out the door (to people other than you) is a tiny fraction of that going in.
In software, usually 'gross margins' are meaningless - it's a term used in most other industries and from classical economics wherein most of costs were actually COGS.
"Yes, you can arbitrarily drop that number by having the business pay you a "salary"."
No, it's not 'arbitrary' at all salaries and operating costs are the relevant costs to the business.
Software (and books) are IP businesses - the 'cost to make the book' or to 'run a website' are not useful in terms of understanding the business or profitability.
FYI - for most 'software businesses', net margins (i.e. after 'salaries and operating costs') are negative.
I understand the point you're trying to make, but it's still a bit silly to suggest that my business is not profitable because I may eventually spend some of the money it makes.
But yes, if you manage to find a profitable niche, understand the problems in that niche and execute well, you're set for life.
Apple is the biggest taxpayer in the USA at $15.8 billion for income taxes on $59 billion in operating income according to https://www.forbes.com/sites/christopherhelman/2017/04/18/wh....
The USA has the highest corporate tax rate in the world and there is an argument to be made in lowering it.
Our tax and financial system has incredible benefits for landowners, at the expense of everyone who actually does useful work.
However; I would say this is a hard goods / software thing, but apple somehow does it with iphones.