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The programmer as (starving) artist

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A small company usually cannot compete with a big company. But many small companies on a cooperative can compete and even beat the large companies.

As an example. Lets say you have a small supermarket. How do you compete with Waltmart? You cannot buy the volume necessary to get the same prices as Waltmart gets from its providers. You just don't have the negotiation power with your suppliers.

Now imagine that a 100 supermarkets form a cooperative for the sake of buying goods. As the volume is much bigger, their negotiation power increases. Thus they can get goods at a lower price, making them able to compete with Waltmart.

The same goes for small software development companies. Their products are too small in volume to get a good deal. Thus the profit gets gobbled up by a middle man. (Electronic Arts, Microsoft, etc..)

But if enough small companies team together in form of a cooperative that takes care of the business part of the development. They can go directly to the retailers and thus get a better deal. Retailers, as any company, wants profit. One piece of software will not bring a business relation. But a whole line of software is software they can sell and continue selling all year long.

Notice I say cooperative and not corporation. On a cooperative, everyone has a vote on what's going on. On a corporation, the one that has most money is the one that decides. Thus, the others are irrelevant.

Truthfully, it's better not to compete.  Run your business on its own merits rather than trying to compete with the larger chain.  As long as you don't have to go *above* retail, and keep your expectations of your business potential in check and base your long term business plan on that, you have a chance to succeed even in a market with overlarge competitors.  I've seen it work before, and I've seen companies get screwed by trying to compete outside of their weight.

Going back for a moment to my earlier dismal observation about coders abusing coders, here's a recent TechCruch guest article by Redfin CEO Glen Kelman that addresses a closely related issue:

When we split the atom, Einstein remarked that everything changed but our way of thinking. You could make the same argument about acquisitions and option pools.

As Mark Suster recently noted, employees will never see a big payday at most startups unless the company shoots for the moon. This is probably why investors’ case for a company to sell early focuses exclusively on the founder: in most early-stage acquisitions, the liquidation preferences and deal-sweeteners only work for investors and founders.

Back when some companies sold at $50 million and others went public at $250 million, we could all agree that this was just how the cookie crumbled. But now that we live in a world where early-stage acquisitions are the only outcome to which most startups aspire, we have to re-allocate this smaller cookie.

The elephant in the room is that that founders and CEOs take almost all of it for themselves. I’ve looked at three or four deals recently as an adviser; in every case, the founder or CEO was taking more than half the company for himself, and leaving 10% for everyone else. Why aren’t we surprised when three months later that company can’t hire enough engineers?
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Note: I might disagree slightly with the last sentence in the quote above. I don't know what the technical pool is like where Glenn works; but around where I live, the job market is tight enough that I now know several talented individuals who have accepted fairly 'raw' employment deals just to keep a paycheck coming in.  And it doesn't look like this situation will be changing any time soon.



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