I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.
My impression is that traders mainly have a much easier time quantifying their value. When you can say "look, I literally made $10,000 today and $8,000 yesterday", it's easy to negotiate for a significant chunk of that in compensation. Your leaving would have a very direct effect on the bottom line.
As a software developer, the value you provide is not quantifiable like that. Everyone works on the product, sure, but everyone is insulated from the actual money being made. Who is to make how much? It's a difficult question, and it also lets companies get away with paying quite a lot less--especially to the top performers. This also makes salaries (and, more importantly, bonuses) far less variable in software.
So it seems you are better off working in a profession with a very clear quantifiable performance metrics. Software development is not one of them unless you work for your own company. I am curious about making a list of professions that have quantifiable performance metrics.
You can use software development to achieve very quantifiable results for companies. If you do, there are a variety of ways to turn that into what you want out of life. One avenue of many is hanging out your shingle as a consultant and charging what your empirical results suggest you can get away with. (I've been beating this drum on HN for a few years. The PG essay on wealth, linked in a sibling comment, is probably the single most instrumentally useful thing I've ever read on HN.)
Sales: the highest paid people at an enterprise software company, excluding people who joined really early and have stock grants to match, are the commissioned sales force. I met a gentleman who doesn't speak Japanese who nonetheless was I Can't Believe He's Not Tony Stark's #2 sales rep in Japan. Let me throw out a number for sales picked out of the ether: $50 million in a year. Let me throw out a second number, picked from the industry: 6% commission rate.
SEO: Most of the really good ones work for themselves rather than working at an agency or an in-house SEO team. I am friends with a couple of them. One once lamented his lack of programming skill, said that I was the most talented marketer among people with programming skill he knew, and made me this proposition: "You would be a very, very effective black hat. I'll stake you with a million. You pay me half of what you make." (I didn't take him up on it.)
Bloggers: The overwhelming majority make nothing. Then again, most are not running businesses. There are some businesses which have a blog as one portion of the business which are Quite Lucrative Indeed. One I'm aware of has revenue roughly equivalent to an enterprise software company with a few dozen employees. (Again, though, the blog is a small portion of that business, even though readers might not know that.)
>>You can use software development to achieve very quantifiable results for companies.
Can you direct me to books / resources to understand more in depth what you are talking about here. I have read what you are saying many times but never quite get it. I am struggling to understand why would someone want to pay me % of their profit when they can hire some programmer for $50/hour. Is it about how you present yourself to the client s or types of clients you go after ? I am working as a freelancer and all I am getting is very budget sensitive clients who doesn't want to pay more than their cleaning maid.
Far be it from me to speak for Patrick, but generally the sales pitch for this sort of arrangement does not sound like "Hi, I'm a programmer. I'll build anything you want if you pay me 2% of your company's profits this year." It's more like "Hi, I'm a business consultant. I possess a specific set of skills which involve using software to increase profits for businesses such as yours, often by as much as 5%. My services cost an amount which is comparable to 2% of your current annual profits." (The numbers in that example were picked at random, but obviously the return needs to be higher than the investment for things to work.)
In other words, it's pretty uncommon (and generally ill-advised, IMO) to ask for a "% of profit". What you are doing is anchoring your price tag against the value you can create, instead of the time you spend. (This is somewhat muddled by the fact that consulting engagements are generally billed by multiplying a dollar rate with the amount of time over which the engagement took place, but the only number that matters to the client is the one at the bottom of the invoice. It is the consultant's responsibility to find clients for which that last sentence is true, and to make sure that they are able to consistently generate positive ROIs for those clients most of the time.)
Like Napoleon mentions in a sibling comment, you're typically not asking for a percent of profit directly, but rather for a weekly rate which is at a substantial premium to $50 an hour. (I've billed at $30k for a week before and pitched successfully at $50k.) A $60k engagement for my typical client wouldn't represent 1% of their profits -- many of them spend more on sandwiches in any given year. (If lunch as a perk costs $3k per employee per year and you have 40 employees... yep.)
Yes, it is extremely important that you're pitching the right sort of clients and that you're proposing to do something which meaningfully impacts their business. My typical client towards the end of my career was a B2B SaaS company with $10 to $50 million in annual sales. Bringing me on was generally not their #1 activity in any given year -- after all, they all have dozens of full-time employees, so they can do lots of things in any given year -- but it was generally for an initiative with a fair amount of strategic importance on, typically, a product which everybody knew would make serious bank if the initiative worked out.
If you had come up to me and said "We're building an app and need an extra Rails programmer" I'd have said "Cool, I keep a list of folks I like. Let me hook you up with someone." rather than attempting to get that business. Like everybody else who is Good With Computers, I occasionally get pitched on "Hey my aunt has a catering business, maybe you should make her a website?" That will never, ever happen. By comparison, if you'd recently experimented with A/B testing a bit on your $X million a year SaaS product and had increased sales by 5%, I would be very, very interested in helping you find the next 5 to 15%.
If you're continuing to find very budget-sensitive clients, how are you prospecting for them? How are you qualifying them? How are you pitching them?
There are many ways to prospect for clients which will get you lots of crappy leads, like e.g. looking for gigs on Craigslist.
Qualifying clients is an art. You don't have to proceed directly to the "prying" questions like explicitly asking what the budget for a project is. Just ask basic getting-to-know-you questions like what their core line of business is and how many employees they have. If their core line of business is retailing Beanie Babies and they have two part-time employees it is unlikely they can afford professional services. If, on the other hand, they have two dozen engineers on staff, they probably can write any check you can currently envision asking for.
What are you selling them on? If you're selling them things that can get delivered by any other freelancer who speaks your language, stop doing that. Start only going after engagements which, assuming project success, meaningfully increase the revenues of their company. Get case studies about how you've done that previously. Make it mandatory that you build in metrics tracking into all your projects, so that your clients know the ROI you are getting (and so you can quote, in broad terms depending on the specifics of your relationship and legal commitments, the sort of ROI your projects have recently generated.)
This is gold. It will take me some time to digest it and actually turn into actionable items but Thank you for taking time and writing this. Much appreciated. I wish there was a training course for this :)
The trivial conclusion is that starting your own company is how to be accurately rewarded for your work. But that assumes there's no way to better measure employee performance. It seems like measuring it for engineers and programmers is an impossibly hard problem (At least, that's implied from all of the well-run organizations that have given up or failed miserably on quantizing performance over the years.). However, I would like to see some creative attempts at making teams better at this.
We're talking about risk/reward tradeoffs a lot in this thread. Doing a startup vs. working as an employee is one of these tradeoffs. If you do a startup you'll get paid closer to what you're actually worth, but maybe you don't generate any real wealth and go bust and get paid zero. If you're an employee, you get to hedge that risk against taking a small fraction of the wealth you generate.
It does if you trade your own money, and I'm sure that's more lucrative than working as a trader, but it's easier to measure a trader's output I imagine.
It's not a hard problem at all. We just need a way to measure code against the money it generates/loses. This should actually be a relatively trivial problem to solve. We have static analyzers, funneling metrics and code coverage tools; this just seems like an extension of that.
I am sure if there was profit to be made from these kind of performance metrics for Programming, you would see entire industry spring up to solve that problem.
>>Are they so irreplaceable that they are offered so much salary and bonuses ?
They are doing it to us, as we do to many professions. This whole thing of 'Some professions just can't benefit from economics of scale' come to my mind. Just like how the guy flipping burgers makes minimal economic impact compared to you and I, we make a minimal financial impact compared to these guys.
But there are a lot of areas where you could disrupt this theme of work. Profitable side projects, start up's, bootstrapping and stuff like that can help us out here. But the point is most geeks and nerds are to a great extent very naive when it comes to money matters. We are poor in negotiating skills and we buy into this loyalty thing too easily.
I don't know of one single VP/exec/CEO who wouldn't leave their job for a bigger bonus/paycheck/options, yet if an engineer did it- You would have see these people shouting 'greed' from top of the buildings.
I have a brother high up in a quant lab that accounts for up to 5% of the daily volume on the NYSE. The short answer, from our experience, is definitely a no. The biggest differentiator that we've seen is that "quants" often have PHDs in fields loosely related to finance. However, at the end of the day, it's just about finding useful abstractions over a large set of structured data -- a skill that many programmers have in spades.
It should be very clear from a cursory walk through life that peoples' compensation is on the whole not directly correlated with their cerebral work or their physical labor. Compensation is tied more to the generation of "value," which is vague, and which can be generated using different types and amounts of effort. There are many types of value that can be produced using automation and skill instead of hard labor. This does not diminish the value.
So, don't feel bad asking for $XXX,000, especially if that is the range for your profession, in your geolocale. That's that the market has decided this labor is worth, because of the type of value it creates. Do the research on the job market, and if you have valuable skills, exploit them, for fair compensation.
Traders are not necessarily smarter than the average software engineer. (There are many very smart people in both fields) However, they are fairly irreplaceable. This is because to be good at finance you need to be both smart and experienced. The only way to get experience is to work in finance for several years, and as a result, the supply of traders is fairly limited. (compared to the demand) Generally, someone who starts finance will not make their firm any money for the first year, but after five years they will be earning their firm a lot of money. The supply of good traders is a lot smaller than the supply of smart people.
A second reason why they are compensated so highly is that they are working in a highly leveraged job where the labor cannot be easily be divided between multiple people. This is similar to how CEO's make a lot of money, because being a good CEO produces a lot of value for the company and the position cannot be split between multiple people. (I'm not trying to imply that traders produce as much value to society as CEO's do) Being a marginally better trader will make your firm millions more per year. Good hedge funds have 100-1000 million of assets under management per front-office employee. (For example, D.E. Shaw or Bridgewater Associates)
In my mind it's not so much that they're smarter but rather the value they add is more easily measurable. If the trades they make for a hedge fund creates a 10 millions dollars a year profit then it's easy to demand a million dollar bonus. The value of a startup engineer is much harder to determine in a year by year basis.
I heard some estimate that each software engineer adds $1 million (not necessarily to a start up). But there should be a way to reward based on quantitative performance than evaluation by a manager who have no clue about software development.
Thats because most startups don't have revenues, so they use that as a heuristics instead of a revenue figure. But since revenues are yearly, the value of a developer is implied to be yearly.
Probably. Certainly my employer encourages us to run our own ads (up to a certain monthly budget) so that we're using the product and can see what needs to be improved.
No, they're not. But that's the culture since the floor trading days. Even when most things are automated, traders still rake in huge bonuses. (Worked at a prop firm for 4 years).
Is there too much competition to be a trader or anyone can become one ? If so, its seems much better idea to toil away to make millions than toil away at a remote chance to make a million in a startup.
I think it's quite hard now. Lots of prop firms have closed down, regulation has increased significantly and is only getting worse. There's less easy money to be made. The majority of new traders are farmed from ivy league or top private engineering schools.
I've seen some people join as devs and swap into trading. Ironically in these cases they were terrible devs, but increased their salary several times by becoming traders.
A friend of mine works in a trading company. He said all the traders want to become devs, because it is the only skill that they've seen up close that translates outside of the mad-house of trading, and they (the traders) all know eventually their number will be up.
Perhaps, lack of understanding on my side, but what does "their number will be up" mean?
From what I've heard, it's most often the case that developers want to move into trading.
I agree with the point that traders can easily quantify their value, but there is a more fundamental reason at play here. First, trading is a very scalable profession. The more you can bet, the more you can win (or lose). The fact is that how much a trader can bet has been increasing in leaps and bounds, especially during the last 30 years. That's owed partly to changing structure of the global economy and partly to changes in rules and regulation.
Consider, for example, the the repeal of Glass-Steagall act. Just by repeal of this one regulation, the bankers were able to bet many times more money, dramatically increasing short-term profits at the expense of making the system more fragile.
Exactly. I am not even a drug abuser, never even smoked in my life :)
and why the trader's job is not outsourced to someone in indian and china yet ? looks like a very "protected" profession to me.
