Why software companies are rock bands and consulting firms are restaurants
@tristanhenry on Medium
Disclaimer
I worked in a worldwide consulting company (200k+ emp.) and a medium sized e-commerce agency (300+ emp.). I recently joined a software company (50k+ emp.). The following article is a personal point of view on these two types of companies.
The first euro
Earning the first euro (or dollar) could take years for a software company. It requires to deploy the first version of a software, and more importantly to offer a service that customers are willing to pay for. A rock band is very similar, it could take years to create the first album or EP, and even more time to make money from it.
On the other hand, getting the first revenue for a consulting firm can be much faster once the company gets its first client and its first project. It is similar to a restaurant, once open the restaurant will normally generate cash income with its first dish served.
Now imagine a three people rock band that starts to make money, and a three people restaurant that just opened. Which one could earn one million euros the fastest?
Exponential and linear scaling
Linear scaling is easy to substantiate. If you make a dish on your own for two people, it would require approximately 400 times more ingredients and manpower to do the same recipe for 800 guests.
On the other hand exponential scaling is hard to comprehend. The wheat and chessboard problem illustrates it well.
“It is a reference to the old story about the inventor of chess. As the story goes, when chess was presented to a great king, the king offered the inventor any reward that he wanted. The inventor asked that a single grain of rice be placed on the first square of the chessboard. Then two grains on the second square, four grains on the third, and so on. Doubling each time.
The king, baffled by such a small price for a wonderful game, immediately agreed, and ordered the treasurer to pay the agreed upon sum. A week later, the inventor went before the king and asked why he had not received his reward. The king, outraged that the treasurer had disobeyed him, immediately summoned him and demanded to know why the inventor had not been paid. The treasurer explained that the sum could not be paid — by the time you got even halfway through the chessboard, the amount of grain required was more than the entire kingdom possessed.” Source: The Seduction Of The Exponential Curve
Machine versus Employees
Scaling a software product relies on machines rather than human resources. The solution can be used by ten users on a daily basis, then suddenly scaled to hundreds of users the next fortnight, and thousands a few days later. Like a viral song a software can follow an exponential growth and reach worldwide audience with a limited effort. In 2017 it took less than a 100 days for Luis Fonsi to reach one billion views on Youtube with its song Despacito. It took two years for Whatsapp to reach 100 millions active users, and two additional years to reach 400 millions. Both examples followed an exponential growth.
Scaling a restaurant or a consulting company is limited by the human resources and the need to have physical settlement close to the client. Franchise, merging or acquisition could help the growth of such a company but it will likely follow a linear expansion.
Worldwide contest
Like creating a consulting company, opening a new restaurant is not an easy job. However companies would most assuredly use a local consultant to support their business, likewise people would certainly eat in a restaurant close to their neighborhood. Virtual environments create new opportunities to work with people physically distant but companies are not likely to offshore all their consulting to a country with a different timezone, culture and language.
On the other hand, a foreign and unknown rock band or software company can become an international leader in a very short period. The downside of this world wide potential is the fact that there is also a worldwide competition. There are plenty of young promising bands that will never reach any billboard nor all these promising startups will ever be used by millions of users daily.
Impact on the career path
When it comes to career choices, being in a company that has linear scaling means that you need to wait in line to escalate the corporate ladder, when being in a software company with an exponential growth offers you more possibilities.
Unlike a rock band, a software company is not limited to its number of members. Joining a software company could give you more career opportunities if the company is not crushed by international competition.
Final thoughts
A successful software company built to generate cash will likely generate one million in revenue before a brand new consulting firm. However software based companies are more likely to fail and never reach their potential compared to a human based consulting company.
Being in a company with linear expansion will provide more security but less opportunity while being in an exponential growth company is more risky but could be more rewarding.
