Relentless Simplicity

The philosophical side of me woke up a bit disgruntled this morning. It had processed that last blog post during my 6 hours of rest, and it concluded that what I had written ultimately spelled the unraveling of capitalism as we know it. “For you see,” says philosophical side, “if a company’s profit represents only the gap between the contributions of its workers and their actual pay, then any company that isn’t losing money is operating unjustly. And any company that is losing money won’t be operating for long.” Ah, guilty as charged. So how’s about I speak more precisely?

The root of that equation remains true. A company’s profit still represents the difference between the contributions of its workers and their pay. The crucial detail here is that in this definition, a company’s “workers” also includes its top brass — the people making the deals (the other crucial detail is that some of that profit is mitigated by taxes, risk, etc. boring!). In a perfectly just company, the gap between workers’ contributions and compensation represents the value that the company’s principal shareholders bring, because they are ultimately the ones that will reap that profit.

What had induced me to carelessly paint profit as an illustration that high performers were not fairly compensated was that it’s usually true. But only of high performers. This axiom can be witnessed at most any company, but it is perhaps easiest to illustrate at technology companies, if only because that’s where I’ve witnessed it. The gap in productivity between a company’s most productive programmer and least productive programmer is usually around 10x (This is not an exaggeration; if anything, it is an understatement. Unless they are damn good at hiring, a gap of 10x is usually observable by the time a company reaches 20 or so programmers. See Paul Graham’s earlier linked articles for some exlanation of how this is possible).

The gap in salary between a company’s most productive programmer and least productive programmer? Perhaps 2x, at most 3x. Blame methods of evaluation, blame economies of scale, blame the rain, but the reality is that a programmer who is 10x better than another programmer who makes $40,000 is not getting paid $400,000. They’re probably getting paid $70,000, and hopefully, working with a boss who lavishly praises their contributions on a regular basis.

But the bottom line is that $330,000 of that programmer’s productivity is being manifest as profit for the company (or $330,000 of that programmer’s productivity is paying for the 8 overcompensated crappy programmers, if you prefer). This is not a “good deal” for the highly talented individual. But I admittedly mispoke in attributing all profit to inequity. In actuality, some profit is absorbed by future investment, some by past and future risk, and some by the shareholders who will take that profit. The rest? That is inequity.

I still need a bona fide “second in command”-type partner.

How much time to invest on this search and how to go about in on a day-to-day basis? I’ve gotten some interesting opinions on this from different people I’ve asked. When I started a thread about it on Biznik yesterday, I got one opinion (from the esteemed Mr. Pierre Leonard) that I should become a more active presence in community boards to make the people come to me, and one opinion (from the esteemed Mr. Kelly Hobkirk) that I’d be better off to just focus on building the business. Of course, both of these opinions were coming from people who don’t have an intimate knowledge of the business or its current state of affairs. But independently of my situation, they make excellent points to be weighed in the overall argument of how much time to invest, and where to invest it.

However, my prevailing opinion remains that, despite the small army of helpful consultants and rad programmers and able web designers that are already contributing to this project, having an equally-contributing, self-motivated co-founder is a critical path requirement to get where we’re going at the rate I want to get there.

The next frontier of exploration was actually proposed to me by none other than my girlfriend, the lovely KT. And it’s a damn good idea: students. Yeah, they aren’t going to step in with years of experience or a rolodex of industry contacts. But as I’ve found, those assets tend to go hand-in-hand with financial responsibilities and monetary expectations. I think there’s a reason that young co-founders flock together (Bill Gates and Paul Allen, anyone? Or their arch-nemeses, Sergey and Larry?): it’s that they’ve got fire and they’ve got freedom. Of course, more seasoned co-founders can make something work if they’ve got a cache of money and cred piled up between them, but whuppersnappers on step 29 of 800 don’t have such frivolities (observe: blog sarcasm) at hand.

In the next couple days, I’ll post a link on here to my newest student job listing. But in a nutshell, my pitch to students will be the same as my pitch to every bright person employed by a company they don’t have a share in: why do you think you’re getting paid? So few smart people seem to “get” that their salary is inherently less than their value. If their salary equalled their value, then “profit” for their company would not exist. I find it ironic that when most people hear their company is profitable they will rejoice in this fact, perhaps boasting about it to their friends; when in fact, this profit represents the difference between what the sum of the employees are earning and what the company is reaping from those efforts. The bigger the profit, the bigger the discrepancy in what people earn vs. what they produce (and in a perfect world, would be entitled to). So my pitch, quite simply, is that join us and you can be the benefactor of your excellence.

It’s the pitch that ultimately persuaded me to stop thinking like an employee.