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Ask HN: Why can't I make as much as I make?
262 points by nopassrecover on April 11, 2011 | hide | past | favorite | 114 comments
In "How to Make Wealth" PG puts forward the following argument:

1. Assume a hacker can make a good wage working for someone else.

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

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).

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."

My question to HN is as follows:

Excluding outliers such as Gates/Zuckerberg, is the inference that a good hacker can make more from the market directly actually valid?

If so, why does it seem most hackers struggle to capture even half their regular wage from the market directly?

All advice/experiences appreciated.

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:


Actually, it's pretty simple: supply and demand.

My experience is that supply and demand only explains/models pricing when you have an efficient market. When there are information asymmetries or actors attempting to impose inefficiencies in a market, supply and demand breaks badly.

To quote one of Joel's best posts:

Software is priced three ways: free, cheap, and dear.

1. Free. Open source, etc. Not relevant to the current discussion. Nothing to see here. Move along.

2. Cheap. $10 - $1000, sold to a very large number of people at a low price without a salesforce. Most shrinkwrapped consumer and small business software falls into this category.

3. Dear. $75,000 - $1,000,000, sold to a handful of rich big companies using a team of slick salespeople that do six months of intense PowerPoint just to get one goddamn sale. The Oracle model.

All three methods work fine.

Notice the gap? There's no software priced between $1000 and $75,000. I'll tell you why. The minute you charge more than $1000 you need to get serious corporate signoffs. You need a line item in their budget. You need purchasing managers and CEO approval and competitive bids and paperwork. So you need to send a salesperson out to the customer to do PowerPoint, with his airfare, golf course memberships, and $19.95 porn movies at the Ritz Carlton. And with all this, the cost of making one successful sale is going to average about $50,000. If you're sending salespeople out to customers and charging less than $75,000, you're losing money.


With behaviour like that, supply and demand is absolutely the least important factor in making certain B2B sales. Doubling the supply of "dearly priced" software can't drive the price below $75,000 because it costs $50,000 to make a sale. What's interesting is the opportunity to innovate to make the jump from "dear" to "cheap." That's a business model problem, not a supply problem. In my uninformed and inexpert opinion.

Simples. Charge less than $1000 multiple times ;) aka, saas.

Another way. Start a relationship cheaply or for free, and then afterwards it's much cheaper to sell to your customers. No $50k salesperson then.

There are lots of other ways to do it. You just need to be inventive.

The typical initial deal price for licensing deals by my startup (x264 LLC) is around $5000-$10000. Per-unit royalties are extra (though the initial price includes a bunch of free units).

The vast majority of our deals fall smack in the "$1000-$75000" range.

no. you don't exist. Can't you see that? :-)

now tell me your birthday so I can explain to you that its another day entirely.

I just got asked about a database program for pawnshops - they charge 3500 for the package and 700 a year for support.

Two things:

  Please understand that I'm talking about large
  trends here, and therefore when I say things like
  "nobody" I really mean fewer than 10,000,000
  people," and so on and so forth.

Also, I explicitly said "certain" B2B sales. Joel's conjectures about pricing and purchasing behaviour do not apply to everyone, just to those organizations that have a certain behaviour around making purchasing decisions.

Agreed! The world of POS and other small business database software is HUGE. The last non-coding job I had was working in retail and the boss had just laid down something like $25,000 for the worst point of sale system conceivable. Most of that was support, training, and installation.

That highlights a big issue, though - anything in that market will necessarily be a very high-touch sales process and therefore very expensive, unless it's absurdly easy to use and install. If you can solve that issue (Square seems to be having a crack at it), you'll probably be extremely successful.

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.

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:


You make a great point about the egocentric nature of a developer.

It reminds me of the saying "Working for youself means you don't have a boss. It means you have customers, which are much less forgiving and demanding than a boss would be."

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).

> 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...

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

> 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.

You could also look at them as constraints that need to be satisfied for things to function: it needs to look like that if it's going to work for him. I think it's worth filtering things like that if you're aiming for a "lifestyle" business. You're correct that you also have to filter by "what can I do to help people", but you're going to have to run both filters sooner or later.

I agree completely about the Start Small Stay Small book. I think it's one of the better ones I've read in a while. There's nothing earth shattering, but it's full of concrete advice and is aimed at "the rest of us" who don't live in Silicon Valley and aren't aiming to "change the world".

This reminds of the PG/FW email chain a couple of weeks ago re: AirBnB. No mention of the things we talk about a lot on HN such as scaling, UI etc... just the potential market for the product. Obviously at that level the discussion is very strategic, but it's where we all should really start.

AirBnB solves a real economic problem with the www. Just like Craigslist, a good idea doesn't need to be complex or splendiferous.

You're still too focused on yourself. Every one of your bullets was about what you want your business to look like.

Indeed. In business, u comes before i.

Unfortunately, it's also BS from start to finish (heh heh). People still care about their own lives, even if they realize that it's useful to appear unreservedly dedicated to the customer's needs.

And the niche you choose does make quite a difference in what the resulting business will look like, what demands it makes on your time, what kinds of customers and partners you will be interacting with, etc..

Unfortunately, if you're looking for "a niche, any niche" that happens to meet criteria completely unrelated to what the need actually is, who the people actually are, etc., it seems unlikely to work out well.

I suppose this depends on personality, but... it's hard to build a business. If you find the perfect niche but you actually have no past domain experience, don't have any personal connection to the "pain" you're fixing, etc., what will carry you through? I imagine you'd be much more likely to throw in the towel when things got tough (and I suspect investors would worry about that as well).

Get out of your office and find people like this first. Ask them, not us, what they want.

You make it sound much easier than it is. Getting out of the office: easy enough. Finding the right people who can tell you the right things at the right time: difficult. Very difficult.

No one said it'd be easy. But if you listen to customers with money and problems, at least you have a shot at being successful. When you approach people as the potential solution to their biggest problems, it's surprising how easily people will open up to you. And if one person doesn't open up, improve your pitch and go onto the next.

You're presuming you can actually find the right people to begin with.

"Be able to launch the SaaS in 3 months work."

I don't see ANY mention of marketing in there. I can't tell you the number of SaaS-on-the-side startups that I've seen launch to nothing but crickets.

If you launch a SaaS offering, understand that you'll be competing in your on-the-side marketing efforts with people who are spending lots of time/money to grow their business. Going to try SEO? Your competition has going full steam with SEO-- how are you going to compete? Adwords? Most SMB SaaS can't afford adwords. Facebook ads? Bit of a minefield, but possible. Word of mouth? There's a lot of noise out there

In other words, have a customer acquisition plan and be prepared for that to be your fulltime job. 37Signals, with their early fame and following, took 12 months before they could afford to set aside consulting. It's a longer road than you think.

I'm working on just such a product for professional electronics engineers, though it's a $500M/year niche, so could scale way beyond $5K/month .

Personally my advice would be to quit your job and go and work in an existing industry you think you might be able to disrupt with software, it's the only way you'll learn the real problems.

I did this the other way around by working as a hardware engineer for 10 years then getting into web dev. I spent some time thinking I'd wasted the start of my career but now realise it's the best thing I ever did.

If anybody is looking for a problem to solve I've got one so get in touch. This isn't the next Twitter for Groupon, I'm working through some hard problems so please dont waste our time ;-)

I fell on this path by accident. I started hacking when I was young. I always loved tech and programming. Between 18-20 I went through two jobs as a software developer while still going to school but this was circa 2000 and the market tanked. I got into real estate because I didn't want to depend on someone else to give me a job. Along the way realized I hated doing real estate sales everyday and the technology really annoyed me so now I'm creating the software I always wish I had as an agent. If it weren't for the experience of being an agent I would have never understood the pain.

Yes. In the niche I work in (professional photography) I know of at least 3 different needs that meet your criteria (more or less). Many of our 6,000 customers and others in the industry have told us as much.

Like Ed said, companies large and small have pipelines of ideas and projects they can't get to.

Such as? What are the three different needs?

I'll give you an idea that I've done in the past consulting. Create a web-based reservation system for small tour operators. Part CMS, part inventory system, these operators need to create bookings for passengers, reduce inventory, generate invoices, update their website (that's the CMS part) with new inventory, sales, deals etc.

You'll make much more than $5K / month if you can pull that off. Heck, I'll send about 5 companies your way on Day 1.

I am interested and would like to contact you to learn more. How do I contact you?

ERP. Forget about being fully SaaS but be SaaS enough so that what you build to scale in the cloud can also scale out of the cloud. Edit: what I mean is that most companies interested in SaaS are actually more confident to host their own little version of your solution for their needs.

Spend time studying OpenERP because it's succesful and you'll have to compete against it. Their platform is a great case study: it's powerful and modular while being difficult to take over. Their code base is a mess and yet they have developer's traction. There's a huge market, no matter what you plan (a platform or a solution).

If you go for a platform, avoid small projects.

Good point about the distinctions between Saas vs ERP. Customers don't want to buy software or services; they want to buy a solution to their problem (and preferably a solution with a positive ROI).

I am building one. Would love to connect anyone wanting to join me.

If you have a day job, look for the problems that your day job has to solve. Undoubtedly, these problems will be echoed at other companies like yours (and maybe even not like yours), and you have an opportunity there. You might have even been able to work on solving the problem, so you already have a leg up when you generalize it for others by knowing what to expect.

I'm practicing this at the company I work for, and I have many ideas. Be cautious about legality, here, and don't get too specific with how your employer solved the problem, just use the tactic to identify the problems.

"I'm looking to build one this summer."

Build one this summer? And then what are your expectations? That it will be making $5000 a month from then forward with no further input?

If you want to make $60k a year by the end of next year, advertise $30/hr computer fixing services, advertise locally, and schedule 60 hrs a week of work. (The extra is to cover advertising overhead.)

If you want to build a product or service bringing in more than $100/month, you need to spend 5-10 years building it up to the quality where it can compete with the others who have spent that much time.

Anything you can throw together with "3 months work" that can bring in $60,000 indefinitely is going to be cloned right after release by 10 other people, all of whom will deliver a cheaper better product.

It's not really all that reasonable to expect to create something that will support you indefinitely with only 3 months work unless you are a blond bombshell that targets sick elderly men for marriage.

The only type of business that has a chance of doing that well in 3 months is in the web content business, or affiliate marketing, or creating some sort of new social network. For other types, especially building a SaaS, it'll take at least a year to get some sort of traction.

Use your social network, no-one's going to hand you a completed spec, you need to find the first few customer who will be willing to spend time with you to discuss their needs, and that generally means using your network (don't discount things like family friends, etc.)

Whenever you meet someone ask them what they hate about their job or what takes the most time at work. That can often give you a good idea on what areas have potential.

I've been working with B2B e-Commerce for about a decade, and it's a pretty sorry field to be sure. Past few years it's come to where I don't really want to recommend anyone any longer, since I know the chances of a good release coming out of it are near zero.

There are probably a fair amount of people here who work with less sexy things, that just don't really talk about it since integration with enterprise resource planners isn't as much fun to hear about as a 12-minute reddit clone getting millions in funding. I know I rarely post.

I wish you would post. I don't even really have a handle on what 'integration with enterprise resource planners' means, but it is interesting to me because I am interested in making money.

I am so curious to know who are those two companies. And I can imagine it is not easy to meet their requirements. I can imagine there are issues on authentication, security, access to data system, resolution conflict orders, consistent inventory accounting. Those topic are not rocking science but to do them well and make the system reliable (even just meet the requirements) is not a trivial task.

But entrepreneurs are dreamers - you have an idea that you think is awesome, even if it doesn't currently fit in with a normal person's day-to-day behavior. But you're convinced that if it does catch on, even the people who were at first skeptical will come to love it, and the lives of millions of middle-class, tech-savvy individuals (because let's face it, this is typically the market you're going for) around the world will be a little bit better for your idea.

Yes, most of these people never actually build successful companies. But if you're just working on another straightforward B2B e-commerce platform marketed at the 10% of companies left who don't yet have a web presence, although you might have a greater chance of getting rich, you're not chasing the dream. And the people who see nothing wrong with this never become entrepreneurs, they just avoid the risk altogether and make a good living working at a big company.

It obviously doesn't happen in all cases (and I certainly don't mean to imply that there is nothing interesting and game-changing to be done in B2B businesses), but I think this could be part of the reason why entrepreneurs are always building things they hope people will pay for rather than things people already do pay for.

entrepreneurs are dreamers

I think this is true of only a small subset of entrepreneurs. In my town I, the auto body shop guy, the boat trim guy, several bar & restaurant owners, the disposal business guy are just DOers - not dreamers. One of the guys who started a vinyard, a guy who bought a brewery, and the guy who bought a $1mm Titan waterjet might be classified as dreamers.

Walt Disney was much, much more than an entrepreneur. Do you think of Sam Walton as a dreamer?

> 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.

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.

In recent weeks/months there was some discussion over the connotations of the term "hustler." To be succesful, you have to put forth the effort (hustle) in every single area of a business.

The assumption made is that skill (and determination) alone can lead to success. It can, but you need the determination in all other areas outside of hacking alone.

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.)

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.

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

Coase's 1991 Bank of Sweden Prize for ^: http://nobelprize.org/nobel_prizes/economics/laureates/1991/...

Oliver Williamson's 2009 Bank of Sweden prize updated Coase's theories. Speed read: http://nobelprize.org/nobel_prizes/economics/laureates/2009/...

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.

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).

"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.

"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.

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.

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.

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!

Based on cost to the company the average hacker at a large company needs to creating over 200k / year in value or it's not worth paying and managing them. At the high end Google programmers generate closer to 1 million / year in value.

PS: An average programmer doing government consultant for for 40h/week at a large company can be billed at over 1,100$ / day and pull home ~80-100k / year.

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


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.

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).

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) = $$$

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.

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.

When I was a fresh out of college programmer, I used to think that many people at my first job didn't do real work. Now I'm more careful about it. Now I think, perhaps I'm just too dumb to see the value in their work, so I try to look harder to learn something about business. Not saying you're wrong, just saying...

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.

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.

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.

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)

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.

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...

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.

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

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

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


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

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

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...

Tell that to Home Depot or Notre Dame..

Your numbers for Google seem to be good, but I think it's more important to look at the profit, rather than the revenue.



Neither profit nor revenue is the number you want.

Revenue = total corporate income. Profit = revenue minus costs, with costs including compensation.

For the social justice analysis, focusing on "How much money is available for employees and shareholders?", you want revenue minus costs excluding compensation. Costs to buy materials (except in the rare case the company overpays because the vendor is the CEO's brother) are generally fixed and therefore not part of the analysis; overpaid executives are.

For the record, most of the criminality in corporate capitalism is not based on profit but on executive markup. If a company's only crime is making "too much" profit, then the solution is to buy their damn stock. (No, I'm not an HN libertarian. I'm a socialist, but also a realist.)

I thought I was a capitalist growing up, but these days I think my political affiliation is more likely just 'hacker'.

Anyways, as thought experiments, I have been toying with the idea of limiting company size to 150 people, based on dunbar's number, which would guarantee distributed ownership and accountability. By keeping group size small i think it's harder to cheat and waste social capitol.

And secondly, I have been thinking of requiring companies to distribute a certain percentage of revenue to employees for a tax break. Since 60+% of federal income is via earned income, it makes sense for the government to encourage this sort of income anyways. I also think this might align executive interest with their employees and help us make earned income more attractive. I am not really sure it's fair that capital income, like dividends and sale of property should be flat taxed at 15-20%, while hard working people are effectively taxed at 30-60%. ( don't forget about the employment/ SS tax which your employer pays, or in the case of a consultant they pay entirely. )

Per-employee earnings may make sense as an indicator of the health of a company but they do not mean much in this context because without the collective team, the earning per employee may be impossible to achieve.

"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.

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...

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.

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.

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.

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.

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.

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.

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.

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. :)

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.

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


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.

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.

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.

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.

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.

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).

"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.

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.

"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.

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?

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.

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.

> 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.

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.

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.

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.

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.

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?

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 :)

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

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.

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."

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!

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