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Ask YC: A different kind of scaling question...why don't web dev shops scale?
In a recent submission, I asked if any freelance developers would be willing to share office space. I thought it would be a great environment working around other good coders to share our knowledge and leverage our contacts. With the right group of people and projects, we could develop a better professional reputation than any of us could by ourselves.
But that got me thinking: why aren't there any large web development shops? (Or are there?) The largest I've seen is around 6-8 guys. I know developing software for other people isn't as sexy as working on your own startup, but I enjoy it and it pays well. I've worked with smaller shops in various states, and they have developed local reputations as doing good work, but never talked of big expansion plans.
I've got a few theories...
- It's hard to expand and keep your average talent level high. Great coders want to work for a startup or write internal software for Microsoft/Google, not for some car dealership with an $3,000 budget.
- If you do have a group of good coders, it's much more profitable to develop your own software/websites and sell/license them than to continually solicit gigs.
- Service-based businesses are inherently harder to scale. The CEO of a product-based business knows each of his stores have a low standard deviation in terms of customer experience. Not so for programmers, carpenters, lawyers, etc. That's why there's no country-wide lawyer firm with a good reputation and thousands of franchises. However, a counter-example is large accounting firms. How do they scale?
- I've run into several really good freelancers who work by themselves and bill multiples per-hour of what I can charge. For them, they have no incentive to partner with anyone.
Coders are disparaging of headhunters because of the large percentage they scrape off the top, but many still use them to get work. It seems large companies are more willing to deal with a firm because of their reputation and the feeling of safety. If they can bill at $200/hour and pay the coders $60/hour, more power to them - that's why I love capitalism. But why isn't there a coalition of programmers with a great reputation that can do the same thing? They can guarantee the work of their members, buy insurance against data loss or programmer theft, and do all those things which make companies willing to pay $200/hour.
One absolute requirement of a setup like this is to only work on large and well-funded projects. No good web developer wants to make brochure-ware or to spend 5 hours on a inventory app for a local flower shop, that's bulls*. I'm talking about competing with CyberCoders, Robert Half, MATRIX Resources. Not right off the bat, of course, but eventually...
What's your thoughts?
- deleted 18y ago[deleted]
- lsemel 18y ago1. Each project is generally a one-off, custom solution, rather than a reusable technology. You will spend a lot of time building features specific to one customer, in exact way that customer demands, rather than building generally applicable solutions. You can't say "No, that's a feature only 1% of the public will use!" because they're paying you to implement it, no matter how ridiculous the request is. 2. It is hard to win projects. There is a long, complex, competitive process that requires account people to find leads, make presentations, and respond to RFPs. This is a fulltime job for several people. 3. Companies want to work with firms of similar size. You'll get asked about the number of employees, yearly revenue, and other details, and if they don't match up with what the client is looking for, they will not work with you. 4. Because each solution is customized, you can't specialize in one skill area. Let's say you are the expert in developing Rails apps. Most web dev projects are big integrations where your Rails expertise is just one piece of the puzzle. You may have to integrate with some legacy custom system, or 3rd party software for e-commerce, CRM, email marketing, accounting, etc. You will almost always have to scramble to learn something new or find a consultant who does. This is very nonscalable as you are always forced to pick up non-core skills or spend your time as a virtual HR department and find people that do. 5. The custom nature of the work results in a lack of focus. You are spending all your time serving your clients' needs, being dragged along by their requests, instead of implementing a focused vision to a specific problem. 6. You may think that you can turn your consulting business into a product business. You can, if it is small enough, say, 2-4 people. Once you get addicted to the upfront revenue of projects, it becomes nearly impossible to make the investment to build a product, as this both costs money and detracts from your client work. You will not put in the 6-12 months of no-revenue work needed to create a new product from scratch. 7. Web dev shops don't just do development. The biggest are basically full-service marketing agencies.. You need to have a full complement of professionals, not just developers. These include web strategiests, information architects, designers, HTML coders, project managers, account managers, salespeople, usability experts, branding experts, etc. 8. Your recurring revenue comes from running operations and maintenance on existing websites. This can be a good source of revenue but it is exceptionally boring work that no good developer wants to work on. 9. The true leaders of a service biz like this are sales and account managers. To win projects you have to spend your time building relationships, not technology. The key skills in a consulting business are soft skills such as sales, hiring, marketing, and project management. Tech people are a cost center in a consulting business, not a revenue generator. 10. In a consulting business, you almost always charge by the hour. Even huge, multi-million dollar projects are broken down into line items by man-hours, and savvy clients will insist on seeing the breakdown to make sure you're not "making too much". But hours != value. In a product business, you can charge whatever the market will bear regardless of how long something took you to do, but in a service business, if something takes you an hour to do and you charge $200 an hour, then you're getting only $200, even if it might generate $10,000 in value. This results in a disincentive for people to work efficiently, exercise judgement as to the use of their time, and engage in out-of-the-box problem solving. 11. Unlike a startup, money cannot scale a consulting firm. With a startup, more money can be used to hire more developers to build your product, which will hopefully gain traction in the marketplace, resulting in growth that is faster than linear. In a consulting firm, the most you can do with extra money is hire additional sales people. They then need to scare up some projects, and repeat this indefinitely. This is a slow, linear growth path. 12. In consulting, projects are self-contained You can't build A and then build B on top of A that will take you to the next level of profitability, then build C on top of B You're just building A, followed by A, and A, A, A, indefinitely. The most that you can take from project to project is general domain expertise, contacts, and reputation.