Why small tech companies compete so well

Momo — Sat, 28 Oct 2006 13:09:00 +0000

It’s a general principle that small teams are more efficient than big ones.Teams with the minimum number of people to cover requirements are agile and can get good ideas realised faster.

This is true for software development as well as for other industries. But in software, there’s another reason why small companies compete well: they can choose better tools.

In some industries, tools are expensive, and so it’s hard for new companies to get into the market. You don’t see too many startup car companies making Volkswagen worry, because in the car industry you have to pay a lot of money for cutting-edge manufacturing kit. But you do see this kind of thing in software—a lot. That’s because in the software industry, it’s easier to use great tools if you’re small.

It doesn’t take much kit to develop software. A computer, a text editor, a programming language. The best programming languages are actually free. The only barriers to using them are what you’re already using (legacy), what your managers tell you to use, and, of course, learning how to use them.

Companies comprised of a few good programmers can use whatever tools they want. If they start fresh there’s no legacy, so they can pick their language freely. They have no bosses telling them what to use. And learning the new language isn’t a problem, because good programmers like learning interesting things. So small, new software companies can easily select tools that are better than what the established companies are using.

That explains why established software companies are constantly threatened by startups. It’s not money that buys quality tools in software—it’s freedom. And small companies have much more of that than big ones do.

But if small software companies can produce innovative products, who can use them? In the computer industry in general, it’s other small companies that use the most innovative technologies. A lot of the time, they don’t even realise the technology is innovative. As far as they’re concerned it’s just cheap. But in the computer industry, cheap often means innovative. The reason why minicomputers took over from mainframes isn’t because big enterprises threw out their mainframes and bought minicomputers instead. Small, young companies bought minicomputers because that’s all they could afford. As the small companies grew into larger ones, they never bought mainframes.

So the companies that threaten established software companies most are small, new ones selling software to other small, new companies. Those companies have the freedom to innovate, and indeed, they have the most need to, because they don’t have much money. They need technology that is not only cheap, but good—because young companies have neither money to waste on expensive kit, nor time to waste on technology that’s clunky.

I think that the more central computer technology becomes, the more other industries will resemble the computer industry. What if someone invents a way to build cars that costs a hundredth as much as what’s in use now? Then Volkswagen might start to worry as much as Microsoft does.

Plasmic Peach: Why small tech companies compete so well

Why small tech companies compete so well