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>> try to get those done by freelancers, I would estimate the cost at 3-4X higher A lot of times you can get things done with a freelancer for cheaper. The co

>> try to get those done by freelancers, I would estimate the cost at 3-4X higher A lot of times you can get things done with a freelancer for cheaper. The cost comes A) when you want to change things and have to start over, potentially with someone who has never worked on your project before and B) you don't have someone thinking about your project design/code/product full time, so you are unable to push improvements or respond to issues continuously. To grow past a certain point, you need someone who has a financial incentive to put your project at the front of their mind - something employment is great at. For the Uber v. employee model - employees would give Uber better control over supply, independent contractors get more control over when they can work (hence the number of people I know who drive Uber/Lyft/Sidecar a few weekends a month just to pay their SF parking costs).

netcan 13y ago
That may be true in for a single founder at the bootstrap phase. For a company where the founder/boss doesn't directly make all the decisions finding, negotiating, getting approval and avoiding the many pitfalls of working with freelancers transaction costs are very high. Interestingly, very large firms can get to the point where inefficiencies from centralization exceed the cost of transactions. IE, armies of "graphic designers" producing a trickle substandard work at massive expense. I really do suggest you look at Coase' paper. To me, its a great example of what economics can do. It's very accessible. The logic goes: We know competitive markets are better than centralized ones at a national level. So, why are individual firms so large, centralized and horizontal? Wouldn't Microsoft or Walmart benefit from being many small independent units freely transacting with each other? Why do we even have firms? Why don't individuals just sell their service to each other? The answer is usually "economies of scale" which is a semi-tautological answer. Why does "scale" need to be achieved by a a firm. A market can have scale too. Horizontal scale (eg a company with its own IT department) actually prevents the usual examples of economies of scale from occurring. The paper argues (in my opinion very convincingly) that "transaction costs" are the main reason that firms exist. Transaction costs are responsible for horizontal companies. The enormous level of inefficiency caused by the centralization of firms (think East vs West Germany) needs to be offset by even more enormous transaction coss. One difference that happens when you internalize this point is that you can imagine a lot of slack existing ins systems like this. Hours worked is one example (but not the only one). It's possible that the deliver guy will earn more in fewer hours, Uber will earn more than the parcel deliver companies and parcel delivery will become cheaper and better all drawing from this pool of wasted potential. It's a very big pool.
- the_watcher 13y ago
  I think we agree substantially. I totally agree that to grow, freelancers are not the way to go. I was simply pointing out that there are some advantages to both (freelancers may be very situation dependent), and that both companies and workers should be free to choose which of the two models makes most sense to them.

netcan 13y ago

That may be true in for a single founder at the bootstrap phase. For a company where the founder/boss doesn't directly make all the decisions finding, negotiating, getting approval and avoiding the many pitfalls of working with freelancers transaction costs are very high. Interestingly, very large firms can get to the point where inefficiencies from centralization exceed the cost of transactions. IE, armies of "graphic designers" producing a trickle substandard work at massive expense. I really do suggest you look at Coase' paper. To me, its a great example of what economics can do. It's very accessible. The logic goes: We know competitive markets are better than centralized ones at a national level. So, why are individual firms so large, centralized and horizontal? Wouldn't Microsoft or Walmart benefit from being many small independent units freely transacting with each other? Why do we even have firms? Why don't individuals just sell their service to each other? The answer is usually "economies of scale" which is a semi-tautological answer. Why does "scale" need to be achieved by a a firm. A market can have scale too. Horizontal scale (eg a company with its own IT department) actually prevents the usual examples of economies of scale from occurring. The paper argues (in my opinion very convincingly) that "transaction costs" are the main reason that firms exist. Transaction costs are responsible for horizontal companies. The enormous level of inefficiency caused by the centralization of firms (think East vs West Germany) needs to be offset by even more enormous transaction coss. One difference that happens when you internalize this point is that you can imagine a lot of slack existing ins systems like this. Hours worked is one example (but not the only one). It's possible that the deliver guy will earn more in fewer hours, Uber will earn more than the parcel deliver companies and parcel delivery will become cheaper and better all drawing from this pool of wasted potential. It's a very big pool.

the_watcher 13y ago
I think we agree substantially. I totally agree that to grow, freelancers are not the way to go. I was simply pointing out that there are some advantages to both (freelancers may be very situation dependent), and that both companies and workers should be free to choose which of the two models makes most sense to them.