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I used to run the Singapore and Seattle offices for Pivotal Labs and helped a couple of companies build in-house teams to do exactly this. My first question is

I used to run the Singapore and Seattle offices for Pivotal Labs and helped a couple of companies build in-house teams to do exactly this. My first question is to check the basic economics: $2-300M in annual revenue, ~15% margins, you’re probably looking at earnings/profits around $30-45M. Building and running your own software team is probably around $5M/year, which feels like it could be a substantial hit to your margins. Is there a clear story for how this software will allow you grow to $300-500M in revenue or more? I like to have a credible story for 5-10x ROI on software development because the costs end up being so variable and uncertain. Then the trick is figuring out how to hire, train, and establish a productive environment for the team. My customers approach was to hire a vendor [Pivotal Labs] to ship a first release and help hire in-house staff to replace vendor roles until the team was fully in-house. The customer got rapid feedback that the team and concept worked; we shipped working software. The new hire landed into a productive context, and could see that the company had an effective approach to software development (because it was already shipping working software).

xandrius 2y ago
To me this sounds like an ad.
- nrivoli 2y ago
  Yeah, ad like, but he is not wrong. $5m is a solid number to ballpark any new initiative from scratch.
  - xandrius 2y ago
    I get that but the suggestion would work even without dropping any company name.
- pinkmuffinere 2y ago
  The original question was the perfect setup for an ad, more or less asking “have you ever done this before?”, “What should I be concerned about?”, and “How do I even start this?”. This response may seem ads-y, but it also answers the questions and provides interesting original thoughts (e.g., to start with a cost/benefit analysis). Even if it’s an ad, imo it’s a useful one
  - AmericanChopper 2y ago
    I saw a presentation on e-commerce back in the 90s, and this was an astroturfing strategy that was pitched even back then. Don't post a thread about your company, post a question on one account, and then on another account post that your company is the answer. Really it's a strategy that's been around for a lot longer than the internet. Not saying that this is astroturfing, just that this format has been around forever.
    - pinkmuffinere 2y ago
      Ya, if it’s two accounts controlled by the same person I agree it’s disingenuous. I think (hope?) that’s not the case here though
      - AmericanChopper 2y ago
        Yeah, I mean the easy to spot ones are usually the first ever post on a few days old account. Actually…
      - carlcoryell 2y ago
        For the record, I have no connection to the original poster, and I’m not in the business of doing this anymore. I wanted to respond because I didn’t see any other threads pushing the OP to think about the basic economics and do some basic fermi estimations of the business case.
th3byrdm4n 2y ago
I have a fully staffed team it’s not 5m a year. For a company twice his size. These are very generous consultant pitch #s not reality. We doubled running 1-$200k/guy … 2x full stack devs (me) 2x data guys 1x MSP for IT. That team was awesome and did serious buzz saw damage because we shipped solutions that made the company better every day. Didn’t have to be huge. Just help someone do something better.
- t-writescode 2y ago
  What does on-call look like for you?
  - gbalduzzi 2y ago
    Most business do not require on call for their internal tools
    - flqn 2y ago
      Depending on the area of logistics OP is in, it's not unlikely that he'd need on-call engineers for his logistics management system. Blockages in supply chain can be extremely expensive.
      - FuriouslyAdrift 2y ago
        At my company, downtime is approximately $50k/hr in a 24/7 environment for manufacturing and logistics. We're ALL on call.
  - th3byrdm4n 2y ago
    It was brutal, but the mentality was - it's brutal now but you have the power to fix it, so engineering hours went into fixing broken windows. That adopted mentality pays off tech debt fast.
    - t-writescode 2y ago
wordofx 2y ago
> Building and running your own software team is probably around $5M/year Do people just pull random numbers out of their ass with no actual experience? 99% of developers do not live in Silicon Valley on 1m salaries.
- rty32 2y ago
  Cost is not just salary. To begin with, health insurance and other benefits. And they'll need dev environments, they may need additional cloud resources depending on how the project goes, and there will be additional overhead when the team interacts with other departments.
  - tauntz 2y ago
    OP is in Europe - no idea in which country but just as an anecdotal example, building a world-class dev team in Estonia is ~100k per senior engineer (total cost, including health insurance etc). Of course there are auxiliary costs in addition to the team itself but not anywhere close to 4.5 mil/year for a 5 person team. And to be honest, I'm not convinced a moderately complex in-house crud app would really require 5 senior developers but impossible to have a strong opinion on that based on the details that OP provided. It might be a one man job, it might take a team of 10..
    - jon-wood 2y ago
      I agree that the cost seems overblown but having worked on several very small teams I'd be hesitant to start anything new with fewer than four people. It is possible to get things done with a one or two person team, it's just a lot harder because the moment someone gets sick or goes on holiday everything grinds to a halt. If what the team is working on is on the critical path for doing business it effectively becomes impossible for anyone to have a real holiday, if something breaks then they're going to get roped in to fix it regardless. If you have a four person team you drastically reduce the bus factor. It also means you can have people routinely pairing on things which can be hugely impactful when working on new software in a new domain like this.
  - 2y ago
te_chris 2y ago
"Pivotal Labs". That's the first issue with the basic economics.
davedx 2y ago
$5M/year? In the US maybe. A team of 5 senior freelancers in Europe will cost about 150-200k per person.
- ghiculescu 2y ago
  The point is still valid even at that price.
- hiddencost 2y ago
  For compensation. The carrying cost of an employee is usually twice their total compensation.
  - davedx 2y ago
    Freelancers.
    - nobunaga 2y ago
      Any sensible freelancer will have an hourly rate nearly double that of a fulltime employee for obvious reasons. Please stop telling him just to hire a bunch of dev freelancers. Projects like this require UX and business domain understanding. Devs are not going to be doing that. This thread is full of amateurs parading as experienced CTOs.
      - davedx 2y ago
        My freelancer estimate is based on 100/hour, that’s actually quite high for Europe
  - ahtihn 2y ago
    He said freelancers. Median compensation for senior engineers in Europe is nowhere near 150k. Even in Switzerland.
    - nobunaga 2y ago
ethbr1 2y ago
With a company OP's size, I'd definitely look at it from this perspective. Funding (and related longevity) are key drivers of technical debt. If a team has to constantly pivot projects to politically justify their existence, bad technical things happen. So figure out a budget model that works, is sustainable, is justified on ROI (as logistics dev will be compared to capex alternative investments). As a "halfway" solution, you could find 1-2 senior inhouse architect type people (ideally, who have reasons to stick around like quality of life) and pair them with project-based freelance/outsourced development teams. (Hard to find good small dev firms, but they exist) That way, if dev screws up the project because they're incompetent, you have more options. But you retain the core institutional knowledge and some dev ability inhouse. And it maximizes budget flexibility and gives you time to find the right people for the inhouse team. I would caution... the goal of this arrangement should always be to grow the inhouse team until it's big enough to ship projects on its own. But it's easier to slowly grow a good team than to hire one all at once.

xandrius 2y ago

To me this sounds like an ad.

nrivoli 2y ago
Yeah, ad like, but he is not wrong. $5m is a solid number to ballpark any new initiative from scratch.
- xandrius 2y ago
  I get that but the suggestion would work even without dropping any company name.
pinkmuffinere 2y ago
The original question was the perfect setup for an ad, more or less asking “have you ever done this before?”, “What should I be concerned about?”, and “How do I even start this?”. This response may seem ads-y, but it also answers the questions and provides interesting original thoughts (e.g., to start with a cost/benefit analysis). Even if it’s an ad, imo it’s a useful one
- AmericanChopper 2y ago
  I saw a presentation on e-commerce back in the 90s, and this was an astroturfing strategy that was pitched even back then. Don't post a thread about your company, post a question on one account, and then on another account post that your company is the answer. Really it's a strategy that's been around for a lot longer than the internet. Not saying that this is astroturfing, just that this format has been around forever.
  - pinkmuffinere 2y ago
    Ya, if it’s two accounts controlled by the same person I agree it’s disingenuous. I think (hope?) that’s not the case here though
    - AmericanChopper 2y ago
      Yeah, I mean the easy to spot ones are usually the first ever post on a few days old account. Actually…
    - carlcoryell 2y ago
      For the record, I have no connection to the original poster, and I’m not in the business of doing this anymore. I wanted to respond because I didn’t see any other threads pushing the OP to think about the basic economics and do some basic fermi estimations of the business case.

th3byrdm4n 2y ago

I have a fully staffed team it’s not 5m a year. For a company twice his size. These are very generous consultant pitch #s not reality. We doubled running 1-$200k/guy … 2x full stack devs (me) 2x data guys 1x MSP for IT. That team was awesome and did serious buzz saw damage because we shipped solutions that made the company better every day. Didn’t have to be huge. Just help someone do something better.

t-writescode 2y ago
What does on-call look like for you?
- gbalduzzi 2y ago
  Most business do not require on call for their internal tools
  - flqn 2y ago
    Depending on the area of logistics OP is in, it's not unlikely that he'd need on-call engineers for his logistics management system. Blockages in supply chain can be extremely expensive.
    - FuriouslyAdrift 2y ago
      At my company, downtime is approximately $50k/hr in a 24/7 environment for manufacturing and logistics. We're ALL on call.
- th3byrdm4n 2y ago
  It was brutal, but the mentality was - it's brutal now but you have the power to fix it, so engineering hours went into fixing broken windows. That adopted mentality pays off tech debt fast.
  - t-writescode 2y ago

wordofx 2y ago

> Building and running your own software team is probably around $5M/year Do people just pull random numbers out of their ass with no actual experience? 99% of developers do not live in Silicon Valley on 1m salaries.

rty32 2y ago
Cost is not just salary. To begin with, health insurance and other benefits. And they'll need dev environments, they may need additional cloud resources depending on how the project goes, and there will be additional overhead when the team interacts with other departments.
- tauntz 2y ago
  OP is in Europe - no idea in which country but just as an anecdotal example, building a world-class dev team in Estonia is ~100k per senior engineer (total cost, including health insurance etc). Of course there are auxiliary costs in addition to the team itself but not anywhere close to 4.5 mil/year for a 5 person team. And to be honest, I'm not convinced a moderately complex in-house crud app would really require 5 senior developers but impossible to have a strong opinion on that based on the details that OP provided. It might be a one man job, it might take a team of 10..
  - jon-wood 2y ago
    I agree that the cost seems overblown but having worked on several very small teams I'd be hesitant to start anything new with fewer than four people. It is possible to get things done with a one or two person team, it's just a lot harder because the moment someone gets sick or goes on holiday everything grinds to a halt. If what the team is working on is on the critical path for doing business it effectively becomes impossible for anyone to have a real holiday, if something breaks then they're going to get roped in to fix it regardless. If you have a four person team you drastically reduce the bus factor. It also means you can have people routinely pairing on things which can be hugely impactful when working on new software in a new domain like this.
- 2y ago

te_chris 2y ago

"Pivotal Labs". That's the first issue with the basic economics.

davedx 2y ago

$5M/year? In the US maybe. A team of 5 senior freelancers in Europe will cost about 150-200k per person.

ghiculescu 2y ago
The point is still valid even at that price.
hiddencost 2y ago
For compensation. The carrying cost of an employee is usually twice their total compensation.
- davedx 2y ago
  Freelancers.
  - nobunaga 2y ago
    Any sensible freelancer will have an hourly rate nearly double that of a fulltime employee for obvious reasons. Please stop telling him just to hire a bunch of dev freelancers. Projects like this require UX and business domain understanding. Devs are not going to be doing that. This thread is full of amateurs parading as experienced CTOs.
    - davedx 2y ago
      My freelancer estimate is based on 100/hour, that’s actually quite high for Europe
- ahtihn 2y ago
  He said freelancers. Median compensation for senior engineers in Europe is nowhere near 150k. Even in Switzerland.
  - nobunaga 2y ago

ethbr1 2y ago

With a company OP's size, I'd definitely look at it from this perspective. Funding (and related longevity) are key drivers of technical debt. If a team has to constantly pivot projects to politically justify their existence, bad technical things happen. So figure out a budget model that works, is sustainable, is justified on ROI (as logistics dev will be compared to capex alternative investments). As a "halfway" solution, you could find 1-2 senior inhouse architect type people (ideally, who have reasons to stick around like quality of life) and pair them with project-based freelance/outsourced development teams. (Hard to find good small dev firms, but they exist) That way, if dev screws up the project because they're incompetent, you have more options. But you retain the core institutional knowledge and some dev ability inhouse. And it maximizes budget flexibility and gives you time to find the right people for the inhouse team. I would caution... the goal of this arrangement should always be to grow the inhouse team until it's big enough to ship projects on its own. But it's easier to slowly grow a good team than to hire one all at once.