The Rise of Developeronomics

Tuesday, January 31st, 2012

Venkatesh Rao describes his notion of developeronomics:

It is interesting to note that “investing in people” is so much the default mental model in the software industry that outliers such as Sequoia Capital, who consciously buck the trend, have to take pains to point out that they invest in markets and trends, not people or teams. In any other industry, this would go without saying. It is fairly clear, for instance, that the energy industry invests in promising energy markets and alternative-energy technology trends, not in energy experts. In other industries, investing in people is the exceptional strategy (such as Zappos in the shoe industry or Southwest in the airline industry).

One reason this is the case is that software development talent is incredibly hard to assess upfront, and its value can be highly situation-dependent, which means intake volumes and intra-industry churn have to be high (since a potential star may not flourish in your environment). People risks are high enough that developing capabilities to deal with it becomes central to success. Traditional front-end mechanisms, such as universities, are not particularly good at creating or even spotting and nurturing star developer talent.  To the point that industry luminaries like Peter Thiel are, rather mischievously, offering to pay truly talented developers to drop out of college and go the startup route instead.

Another reason is that software skills are the most portable high-end skills on the planet. Spotting and temporarily attracting talent doesn’t mean you get to keep it.  Stock option-slavery and golden handcuffs for talent from acquired companies aside, there’s not much you can do to combat social and economic mobility. Not only can software developers switch industries easily, they can even survive on their own much more easily. A nuclear engineer really cannot do much without nuclear reactors or bombs to work with. A biochemist needs a lab and a phalanx of lawyers who know how to deal with the FDA.

A software developer on the other hand, can float free on the Internet, making money in mercenary ways, with no deep loyalties, if he/she so desires. Until the Internet shuts down, no other profession comes close in terms of the mobility it grants to those skilled in it.

But the most important reason is the 10x phenomenon.

The thing is, software talent is extraordinarily nonlinear. It even has a name: the 10x engineer (the colloquial idea, originally due to Frederick Brooks, that a good programmer isn’t just marginally more productive than an average one, but an order of magnitude more productive). In software, leverage increases exponentially with expertise due to the very nature of the technology.

While other domains exhibit 10x dynamics, nowhere is it as dominant as in software. What’s more, while other industries have come up with systems to (say) systematically use mediocre chemists or accountants in highly leveraged ways, the software industry hasn’t. It’s still a kind of black magic.

One big reason is that other industries turn x’ers into 10xers primarily using software tools (a mechanical engineer equipped with CAD software suddenly becomes a 10x mechanical engineer). While the world is full of tools that software engineers have built for themselves, the 10x phenomenon, and the industry’s reliance on it, doesn’t seem to get engineered or managed away. Because the 10xers keep inventing new tools for themselves to stay 10xers.

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