Why should you make money only if you’re in software?

James Dong
Nov 16, 2016 · 3 min read

I remember learning, at multiple points in grade school, the difference between communism and capitalism. The example was the value of chain from lumberjack to furniture maker to retail shop (and to modernize it a bit, to the e-commerce platform). In this simplistic example, the books taught that in a communist world, people along the value chain would receive equitable compensation in acknowledgment that without any one step the entire market collapses. In the capitalist world, the closer you are to the end customer, the more of the margin you take.

This manifests as a prejudice against asset-holding businesses. Even if you are customer-facing, you will never be as directly customer-facing in a technology centric world as the software provider (even if it’s the app or site builder, since that’s often a customer’s first introduction to your brand). It’s not that I don’t understand why this bias exists. If you have a killer e-commerce platform for small businesses, and you work with 100,000 small businesses around the world, you have far diversified risk while greatly improving revenue. But at the same time, I wonder if the bias has gone too far.

Several times, I will get a pitch from someone who wants to work with Last Minute Gear on the tech side. You might say, why is that bad? You, James, are not a developer, but you seem to be doing well at logistics and operations. Why not outsource the software component and work with someone else to provide your tech needs? Law of comparative advantage, no?

Yes, except that in many cases, when I peeked under the covers, the pitch felt less about collaboration and partnership and more about a B2B software sale… which in one instance, culminated in a “generous” offer to allow me to keep 50% of my own revenue. Which is what got me thinking about the communist and capitalist thing. In a business that’s 80% operations and 20% tech, why should I be entitled to only 50%? That’s like OpenTable asking restaurants for a 50% cut (disclaimer: I don’t know what OpenTable’s cut actually is)! Moreover, because the bias to software is so strong, I feel too often the solutions I’m being pitched have been hastily scrapped together as a result of a perceived market opportunity, rather than carefully designed to meet a real need. Often the software providers have no experience with rental businesses, and their solutions are terribly lacking. Perhaps more telling, they often have no desire to gain the experience necessary to build a better solution. They’ll just pitch it to someone else.

Maybe I’m more communist than I thought, but the deal just doesn’t seem fair. And for a company built on fair, I just can’t say yes.

I blog about life & work on my entrepreneurial journey. My business rents you camping, backpacking, snowsports gear up to 1 hour before your trip at pay-what-you-want prices — check out Last Minute Gear!

James Dong

Written by

Rent camping gear & snowsports apparel up to 1 hour before your trip! (https://www.lastmingear.com ). Formerly @BainandCompany & @Cal

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