Subject: Re: Successful FSBs
From: "Stephen J. Turnbull" <>
Date: Fri, 20 Sep 2002 19:19:01 +0900

>>>>> "Lynn" == Lynn Winebarger <> writes:

    Lynn> On Thursday 19 September 2002 19:10, Brian J. Fox wrote:
    >> It's my belief that we on this list are looking for business
    >> models that are sustainable, scalable, and easy to understand.
    >> Being "VC Fundable" is one marker that these goals have been
    >> achieved.

    Lynn>     I don't know why "scalable" would be a requirement.
    Lynn> Doesn't the list maintainer run a "lifestyle business"?

Because investors want to be able to reinvest in a known success.  The
business doesn't have to be scalable.  The _model_ does.  [We need to
talk investors if we want to talk self-sustaining growth; life-style
businesses by definition are eating the owners' wealth (at least
potential wealth).]  If it's clear how to hive off one more "just as
profitable as this one" (even if that just means "finding someone like
Russ to do the same thing Russ does, in a different territory"), then
the model can scale though the business does not.  McDonald's works
that way; it's neither impossible nor an MLM fraud, though the latter
is much more common than franchises like McD's.

However, even with that, it's much cheaper and safer to grow
exponentially with an exponentially growing success than it is to find
an exponentially growing number of fixed-size successes.  I don't see
a way to impose McD-style quality control on a myriad of small devel
businesses, though.

    Lynn>     If anything, why not orient towards how you convince
    Lynn> large businesses to deal with small-scale operations (like
    Lynn> Russell's government contract problem a while back)?  I
    Lynn> mean, if we were going get exclusionary of certain types of
    Lynn> FSBs.

The antagonistic reply is "big clients are like big investors: they
want their clients to grow with their needs."

The supportive reply is "hmm ... you've got something there: it may be
a small piece of software (# KLOC) but if it integrates well into the
client's operations, it's as big as the client is (# workstations)".

I don't know if that latter translates into beancounting logic, but I
don't see any a priori reason why not.  However, it seems more likely
to me that a big company would buy out the owners and employ them (or
even make them partners) rather than maintain a VC-type relationship.

>>>>> "KS" == (Kragen Sitaker) writes:

    KS> Maybe some businesses can't plausibly grow beyond three or
    KS> four people (again, without changing their business model),
    KS> simply because they don't sell products or services with a
    KS> large market.  Is that what you mean by a "lifestyle
    KS> business", Larry?

It's surely not size or market share.

I would define a "life-style business" as one where the owners eschew
a profitable (in money terms) opportunity because the tradeoff against
other values that they can most effectively achieve through their
business is unfavorable.

By this definition I think the great majority of pure FS development
plays have to be classed as "lifestyle".

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

Good point, but I wouldn't rely on it.  This argument is mostly about
development.  The other services that firms provide their customers
are generally not going to be nearly as drastically affected by open
source, I think, and if OSS development is in fact a loss center, the
distribution may very well be bimodal with many many tiny lifestyle
businesses chewing into their owners' net worth, and a bunch of
relatively large firms that can fold the costs of OSS into overhead.

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