[carlcoryell]

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).

[th3byrdm4n]

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.

[remus]

> I have a fully staffed team it’s not 5m a year. For a company twice his size.

I don't think the numbers OP chose really matter. The point is to do the exercise. Try and work out some numbers on how much the current software is costing, how much room there is for improvement and how much investment it will take to get there. Add a big margin to account for all the uncertainty with building something out.

If the numbers still work out significantly in favour of writing your own software then it may be a project worth considering.

[t-writescode]

What does on-call look like for you?

[gbalduzzi]

Most business do not require on call for their internal tools

[flqn]

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]

At my company, downtime is approximately $50k/hr in a 24/7 environment for manufacturing and logistics. We're ALL on call.

[th3byrdm4n]

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]

Sure; but eventually you've got a bus number problem and a "I want to be able to take a vacation and I want my coworkers to be able to take a vacation" problem, and that requires more people.

At least that's how I feel about team sizes.

[ethbr1]

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.

[davedx]

$5M/year? In the US maybe.

A team of 5 senior freelancers in Europe will cost about 150-200k per person.

[hiddencost]

For compensation. The carrying cost of an employee is usually twice their total compensation.

[ahtihn]

He said freelancers.

Median compensation for senior engineers in Europe is nowhere near 150k. Even in Switzerland.

[nobunaga]

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]

Freelancers.

[nobunaga]

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]

My freelancer estimate is based on 100/hour, that’s actually quite high for Europe

[HereBeBeasties]

Employer tax contributions

Office space

Hardware and software, SaaS licensing, cloud costs, etc.

Hiring costs (recruitment, recruiters, time lost in selection and hiring)

Secondary cost to rest of the business to change processes, retrain, integrate, help the dev team understand requirements, effectively build and iterate, etc.

Quite possibly a bunch of compliance, security, audit, pen testing, and other regulatory costs depending on the demands their clients have, etc.

Running a team != hiring a bunch of freelancers as a one-off.

[davedx]

Do you know what a freelancer is?

You don’t make tax contributions for them. They bring their own hardware and usually software unless otherwise agreed.

The rest of the stuff is just a laundry list you made up to try and blow costs way past what they actually could be if you’re prudent. Come on

[nobunaga]

Stop giving the guy horrible advice. IF you think throwing some freelance devs with no business support/product/UX support is going to help him, you are so mistaken. Trying to rebuild an existing complex software system that handles hundreds of millions in revenue is not going to be an easy task. You are going to put the man into a corner and ruin him. Jesus.

[davedx]

He has his own brain, some advice based on actual experience is not going to ruin him. Please don’t be so dramatic

[ghiculescu]

The point is still valid even at that price.

[sulandor]

seems like a good ballpark number with some leeway for unexpected things

[xandrius]

To me this sounds like an ad.

[pinkmuffinere]

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]

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]

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

[carlcoryell]

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.

[AmericanChopper]

Yeah, I mean the easy to spot ones are usually the first ever post on a few days old account. Actually…

[nrivoli]

Yeah, ad like, but he is not wrong.

$5m is a solid number to ballpark any new initiative from scratch.

[xandrius]

I get that but the suggestion would work even without dropping any company name.

[te_chris]

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

[wordofx]

> 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.

[StackRanker3000]

> Do people just pull random numbers out of their ass with no actual experience?

That’s a weird question to ask someone who stated their relevant experience in the first sentence of their comment. I just looked him up on LinkedIn and it checks out, you can do the same.

If you have substantive objections to what he wrote, perhaps it’s better to state them explicitly? You seem to say that the figure he suggested is based on developers being based in a very expensive location, and therefore not generalizable.

What numbers have you come up with that contradict his?

[wordofx]

His prices are so wild that I would be surprised if anyone agrees with him.

[carlcoryell]

~10 FTEs, US, 75% percentile salaries, fully loaded, 1.5-3M. Figure that team salaries is probably about 50% of the total software cost (hosting, support, tooling, on call, management overhead, recruiting, training etc)$3-$5M. Rounded to the nearest 0.5 for convenience. We got about ~4 bits of data from the OP, so I didn’t put too much work into making my estimate precise. I prefer to get the ‘software is fucking expensive and terrible’ experience on the front end and go from there, if people are still into it.

[wordofx]

Lol

Avg salary in the U.S. is 105k. Better to go on average as you’re not going to high 10 seniors. That would be dumb. Hell getting 10 for an in house app is just as dumb. Hosting? On an in house app. If they spend more than 100k in the first year that’s dumb too. Support for an in house app? That’s part of the dev team. Tooling? For what? Some IDEs and few dev tools like slack etc. Let’s bundle it with their equipment. 100k for some computers and software.

I don’t understand how HN has to always look at the extreme pessimistic side to everything. The type of people here are the ones who go into a business and spend insane amounts of money building junk software wanting to pull in 5 different databases, 3 caches, elastic search and host their 10 years on 25 “microservices” hosted in docker that falls over multiple times a day when 95% of the software people on HN build could be hosted on a couple of load balancer servers with a single db instance. Spend way too much money trying to solve non existent problems.

[rty32]

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]

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]

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.

[wordofx]

So you’ve barely added anything to the cost on top of salary. Depending on where you live in the world there is no extra costs on insurance or other benefits. Cloud resources on a brand new app in development? Let’s be generous and say 100k/yr for the first year. (If they were using more than that I would fire them as they clearly have no idea what they are doing)

But let’s say they have a 5 man team for in-house development. 1.5m/yr would be a stretch to spend.