Software entrepreneurs are different

In most service industry jobs and professions, especially if you work for a smaller business (rather than a large enterprise), there is a clear and well-trodden path to working for yourself.

First, you spend a few years learning your craft while working for somebody else. A doctor works as a resident, a lawyer works as a junior associate, or a tradesperson works as an apprentice. Next, once you are confident in your craft and decide you want to work for yourself you can start your own business.

You’ll now need to worry about acquiring customers, building a brand and a reputation, managing people, dealing with permits and paperwork and accounting and state filings - all manner of things you didn’t previously have to deal with in your employed life, and that is to be expected. The one thing, however, that you don’t have to deal with in most cases is inventing a new product.

In most cases, the thing that you are selling in your new business is fundamentally the same as what your previous employer sold. The surgeon is offering the same surgeries, the lawyer will still be fighting for you in the same court, the tradespeople will be constructing the same buildings. There is enough work to go around, it’s not winner takes all. There are lots of lawsuits in America, and each individual lawyer can only work so many hours. Lawyers also retire leaving good customers looking for new counsel. There are about 1.3 million lawyers in the country and over 400,000 distinct law firms. There’s simply not that much advantage to being a large law firm.

Businesses that sell infinitely scalable, or IP heavy things definitely do not follow this pattern. SaaS companies are an example of this. There are not hundreds of email providers even though we send trillions of emails a day, there are just a handful of very large companies. For anybody working for those companies, and wanting to start working for themselves - well, good luck trying to build a new email provider. Starting a new company building the same SaaS product leads you into direct competition with your ex-employer, and unlike in the lawyer case, this is winner takes all. Everybody uses the best email provider, there are no capacity issues. In order to become a SaaS entrepreneur, you MUST come up with a new product (alongside all the other things you need to do to start a business). This is somewhat unusual.

I think the key here is that software engineers at SaaS companies act in an R&D role rather than a direct service delivery role. The value of what is being built accrues directly to the company itself - if you fire the software engineer, the software still runs. In these cases the path to working for yourself is much less clear.

Interestingly for the software example, there is a more services style way to make money writing software, which is a software consultancy, where you just charge an hourly rate for your software services. Strangely this is not a more popular entrepreneurship path for software engineers - I guess there must be other factors at play.