Patio11’s Law
@mmcgrana: Patio11’s Law: The software economy is bigger than you think, even when you take into account Patio11’s Law.1
A few years ago, I woke up in Sunriver, OR, and went to make coffee. The house had one of those bed-and-breakfast-type coffee trays. Drip machine. A stack of filters. Three bags of French roast coffee.
I picked up one of the bags of grounds and dumped it in the machine. Power on. As I trashed the wrapper, I noticed “Royal Cup Coffee” printed on the front.
Royal Cup is a family-owned business based in my hometown. I always thought it was a regional company. It made me smile that they had processed, roasted, packaged, serviced, sold, and delivered packets of coffee to this little house in the Pacific Northwest.
Then I googled them. I told my uncle how big they’d gotten. “Wait until you find out about the $100 million company that chops all the pre-cut fruit you buy in supermarkets,” he said.
There’s a thrill in finding quiet companies, operating in the background, cashing checks. Software has exploded the number of these businesses. Ten people working remotely can make millions of dollars a year.
No giant warehouses required.
My favorite example is ConvertKit. None of my friends have heard of ConvertKit. They ended 2019 with $20 million in ARR. Revenue is growing 30% year-over-year. They have 48 employees.2
Back to Patio11’s Law.
Austen Allred shared how, when matching Lambda graduates to jobs, he’ll discover software companies he’s never heard of in Oklahoma pocketing $10m/year in profit. Doing things like “making actuarial software for funeral homes.”3
It’s not surprising. Of the 3,000+ software companies acquired over the last three years, only 7% got TechCrunch, Recode, HN, or other mainstream tech coverage.4
7%.
Most software businesses are silently marching along in the background. The best ones won’t be acquired any time soon. Why would you get rid of a $10 million/year annuity?
Patio11’s Law: The software economy is bigger than you think, even when you take into account Patio11’s Law.
Note: Patrick McKenzie did not name this “law.” His blog is gold.
"patio11's Law": The software economy is bigger than you think, even when you take into account patio11's Law. https://t.co/8WA7e65UzT
— Mark McGranaghan (@mmcgrana) May 12, 2020
One of the most interesting things about Lambda School is running into all the little software companies you’ve never heard of quietly pulling in $10m/yr in profit with a team of 25 in some city in Oklahoma you’ve never heard of
— Austen Allred (@Austen) May 12, 2020
I actually have numbers on this: I found > 3000 software firm acquisitions over 3 years, and then looked at how many got a “mainstream tech” outlet mention (eg TrchCrunch, ReCode, HN, etc): ~7%
— Einar Vollset (@einarvollset) May 12, 2020