Subject: lifestyle businesses
From: kragen@pobox.com (Kragen Sitaker)
Date: Thu, 19 Sep 2002 22:30:15 -0400 (EDT)

Surely any business can only grow to some maximum size without
changing its business model; a soap manufacturer can probably only
sell bars of soap at $5 apiece at most, to at most six billion people,
at most once a month, and so it can't plausibly grow beyond gross
receipts of $360 billion without starting to make something besides
soap; so it can't plausibly employ more than 3.6 million programmers
or people being paid similar rates.  Realistically, the "at mosts"
here multiply out to about two or three orders of magnitude beyond
reality, and P&G only makes $39 billion a year, selling soap and a few
other things.  (According to http://www.fortune.com/lists/F500/.)

Maybe some businesses can't plausibly grow beyond three or four people
(again, without changing their business model), simply because they
don't sell products or services with a large market.  Is that what you
mean by a "lifestyle business", Larry?  Your original post seemed to
say that a "lifestyle business" is one that has reached at least 10%
of its maximum possible size, but that doesn't seem like a plausible
interpretation.

I think Cyclic had only a tiny part of the CVS-support "market";
companies typically got their CVS support from their employees rather
than from Cyclic.  Cyclic probably didn't have a good chance of
capturing more of that market, though.  Do you consider Cyclic a
"lifestyle business"?  I do.

On time and materials contracts: there are several
software-development firms in the US (of which I know Keane best, but
I could also name EDS and IBM Global Services) with several hundred
million to several billion dollars of yearly revenues from time and
materials contracts.  I wouldn't want to work at any of them --- you
don't make millions on T&M by maximizing programmer productivity ---
but they demonstrate that T&M scales to large businesses well.  These
companies might well be more profitable as FSBs.  (At least IBM seems
to see this, but I don't know if Global Services writes the free
software itself.)

I'm sure running a T&M business takes a lot more work than it would
appear; Brian, did it take a lot more work than other businesses
you've run?

Larry Augustin wrote:
> I'd like to see the discussion focus on non-lifestyle FSBs because I
> think those are harder to build but ultimately more interesting because
> they can employ a significantly larger number of people creating free
> software.

I'd like to see some supporting arguments for that assertion.  Some
counterarguments (to what I think you meant) follow.

How can a hundred free-software authors selling into the same market
optimally organize themselves?  Perhaps the optimal number of
companies for a hundred programmers lies between the extremes of one
and one hundred.  It surely depends on the authors and the market.

I think software freedom drastically reduces the transaction costs of
cross-company cooperation, but doesn't reduce the coordination costs
within companies much.  Coase's "Nature of the Firm" therefore
predicts free-software firms will employ fewer people each than
proprietary-software firms.

For example, Cyclic had two employees, but CVS had perhaps half a
dozen other developers; this kind of small-scale cross-company
collaboration simply doesn't happen with proprietary software
projects.

Consequently, free-software developers can leverage the advantages of
several collaborators without paying the efficiency costs imposed by
working in a larger company under a single manager.

Perhaps, then, very small FSBs can ultimately employ many more
free-software hackers than medium or large FSBs.

Brian Behlendorf wrote:
> FSB, Class A: companies (or divisions of companies) whose services are
> entirely or mostly focused on (perhaps privately branded) open source
> software; this includes support, custom engineering, consulting, etc.
> 
> . . . 
> 
> The hierarchy implied is intentional - I'd have a lot of respect for
> someone who could build a large Class A company.  Perhaps there's some way
> for a Class A company to not be a "lifestyle business" as Larry describes;
> that would be interesting.  I don't know, though.

Do you consider Cygnus, pre-V.C., a "lifestyle business"?  Or not a
member of Class A?  Why?  They seem to me like they should belong.

On dual-licensing: even RMS has no objection to the kind of
dual-licensing TrollTech and Aladdin/Artifex do; even though they sell
proprietary licenses to their free software, they write no proprietary
software.  I vote we honor them as FSBs.

-- 
<kragen@pobox.com>       Kragen Sitaker     <http://www.pobox.com/~kragen/>
Edsger Wybe Dijkstra died in August of 2002.  The world has lost a great
man.  See http://advogato.org/person/raph/diary.html?start=252 and
http://www.kode-fu.com/geek/2002_08_04_archive.shtml for details.