Software as a Competitive Advantage

One of the best podcast interviews that I’ve listened to in a while is Tim Ferriss’ interview with Stripe founder and CEO Patrick Collison. Around minute 35 they discuss something that I find fascinating. Patrick says:

We surveyed companies fairly broadly across multiple industries. And we just asked them what’s holding them back. And that’s a very imperfect methodology, of course, because it’s hard to know what the candidate answers there should be. And maybe those questions are – do they all interpret it the same way? And so on. But the very high-level thing that came back was that companies across the board report availability of software engineers and just ability to do things with software as being as big or even bigger a constraint on their progress as access to capital. And that’s just such an amazing fact in that economics for its history, basically, has been a science of, in some sense, access to and distribution of capital.

And we just had this moment of transformation where on some level, you can exchange capital for software, talent, and output, and so on. But it’s actually really hard to do. And I think companies globally are really struggling with figuring out how to make that happen.

And then later on:

I think young companies – well, one of the just really strange facts about the world – and I don’t fully understand why this is the case – is how hard it is for organizations to build good software. And I know that sounds strange in that lots of organizations build some software. But it is just really weird. If you think about what a really good website or iOS application or whatever is and feels like, it’s really strange.

It’s not easy to build a really good website or iOS app or whatever. But it’s not rocket science. And given that it’s not rocket science, why are there so few of them? Just think of any big, major company and think of their website or app? It’s probably pretty bad. It’s janky. It looks old. The animations don’t really work right. It’s laggy. All this stuff. But that’s weird. They probably have a nice building, a nice headquarters. There are many things they can decide to do and just do it pretty competently. They can turn their capital advantage into an advantage in some other area. If they want to have a great fleet of cars, they can very reliably turn capital into a great fleet of cars. But for some reason, they can’t seem to turn – and, in fact, they can probably even turn capital into a cool advertising campaign. There are enough good agencies. But for whatever reason, they can’t turn capital into good software.

And it would be immensely valuable for them if they could. But they can’t. Or at least, they don’t. And I don’t think it’s for lack of trying or lack of realizing this. And so I think actually, small companies don’t realize how much of an upper hand they have here where if they can create a product that is so much better than the status quo that they start to get organic traction, once you attach a real sales and marketing engine to that, it’s going to be really freaking hard for a big company to effectively compete because, again, this organizational transformation into being good at software is just so profoundly hard.

Think about that for a second. Large companies cannot turn capital into good software. Unlike almost every other aspect of their business. One really good developer, or a very small team of good developers, will often build something that’s better than a team with unlimited capital. As a developer, I find this incredibly motivating. Software is one of the few ways that us small guys can compete with and defeat companies of any size (customer service being the one other way that comes to mind).

4 comments on Software as a Competitive Advantage

  1. Dale Ting says:

    Great points Adam! Love talking about how small businesses have advantages and how we can leverage them. I thought about the customer service one but hadn’t thought about the software one. Great timing as I foray into my first software project with automating Confidence pool from spreadsheets to a database!

    And yes still got you on my rss feed after all these years.

    • Adam McFarland says:

      Glad you’re still reading Dale! When you have your site ready shoot me a link, I’d love to check it out.

  2. Tim says:

    This is brilliant insight! I have witnessed first hand how the enterprise can strip the soul from a developer or team of developers. I have a number of notions why this is, but that would make for a very long comment. Without a doubt the ability to think fresh, without too many chefs in the kitchen, and the end user in mind you can dance circles around the big guys. The short version as to why I think this happens is small companies focus on their consumers, big companies focus on themselves. When your brand or your team objectives are more important than the consumer, David will come knocking on Goliath’s door.

    On a side note, I’ve talked with John Collison a few times, Patricks brother and co-founder of Stripe, and he’s not only wicked smart/sharp, but also incredibly kind. Shows you don’t have to be a major dickhead to make it to the big leagues!

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