I've only just skimmed this -- won't have time to fully read & listen to it until much later today. But I wanted to bring up something that I didn't see mentioned anywhere in there.
You have to charge more. Aside from all of the arguments in terms of value and avoiding pathological customers and so on, there's one more really good reason to charge more: you need the money if you want to be awesome.
I've been running a small business for a while now that helps a lot of people that need help but can't afford it. That's all fulfilling, heart-warming work, but it's also put me into a very difficult position. Right now, I need to hire more people, but I can't afford anyone that's good. That's directly hurting my customers. Our turnaround times are really hurting as a result. I've got an opportunity to hire on a brilliant old friend of mine, but I'm not sure yet if I can swing it, because the bank account really doesn't have enough in it to afford him, and I don't know if I can work long enough hours to get that kind of money in there.
I've resisted every other justification for charging more. Vacations? I don't need more than just a few days off once in a while. Toys? Don't need those either. Avoiding pathological customers? But those people need help too, and I want to help them.
But not being able to build a strong business with lots of talent under my current model? That's pretty hard to ignore.
You can afford to hire people who are good. You just can't afford to do it the same way Square can, or with exactly the same candidate pool Square works from. Ping me sometime. The most important part of my job for the past 2 years has been this problem.
I think you're trying to do both business and charity at the same time, and that doesn't really work I think. If you run a great business and make lots of money (by providing even more value to customers) you can then put that into any pet projects you may have. It will even go much faster.
You can now commit to help 10% of all your customers for free, for now into the future, and charge a sensible rate to everybody else. Your business will do better and it will grow more quickly. The 10% portion you help for free will soon be much larger than your total customer base now.
This is the only viable model for free. The balance depends on the cost of free and the benefit of not free. The cost of free (or cheap) should include the cost of support of bad clients.
The market will, indeed, tend to allocate scarce resources (like the time of skilled engineers) onto the projects which get the highest return from utilizing those scarce resources.
(I'm not saying this to nosetweak: despite this being one of the most important ideas of the last several hundred years -- a reproducible technique for ameliorating scarcity, holy cow -- it's either buried under the mechanics of demand/supply curves or presented as a political statement alongside others which sound like "scarcity: kinda groovy, particularly when you can steal scarce stuff.")
That's a little tautological, and kinda glib for me given the dilemma he describes.
As you surely know, you're using "returns" in a technical sense. I'm awfully fond of free enterprise as well, but it is important to note that there are a lot of kinds of scarcity it doesn't fix, and many sorts of returns that it ignores or can't handle well.
Infant mortality, for example, isn't well served by market mechanisms; babies have no money. So we solve it through other mechanisms. I don't know what particular sort of good this fellow is doing, but I feel for him.
Infant mortality, for example, isn't well served by market mechanisms
I disagree more with this statement than any other statement ever made in good faith on Hacker News. Kids not dying is an outcome we urgently desire, right? There are a variety of products which support this outcome. One is "soap." Soap scarcity is a real phenomenon: some rooms that children are born in have no soap. Those rooms kill lots of children. Soap scarcity was a quite common phenomenon until very recently, historically speaking. The reason that I keep having to mention that soap scarcity is a thing at all is that market mechanisms are so effective at allocating resources to production and distribution of soap that educated Westerners could be forgiven for not knowing that it doesn't come from the same magical fountains supplying the infinite, free, clean drinking water often found co-located with infinite, free, effective soap.
In the real world, some kids will die this year for want of soap. Some people believe this is because the market has taken the soap from their rooms. These people are fools, because the natural state of nature is "no soap." Children die because, almost universally, someone has strangled the market that would otherwise be allocating soap towards their rooms.
There are more complicated reasons for child morality than lack of soap, but to the extent that they involve scarcity of resources, they largely reduce to the soap case.
I think one thing people often miss about markets is that they tend to allocate resources efficiently ... over time. Sometimes over lots of time! As someone recently reminded us all, the market can stay irrational longer than an individual can stay solvent.
There are definitely things markets don't allocate efficiently - but those are "public goods," and they rarely look like infant mortality.
Along these lines, I'd love to hear what you make of John Robb's argument that the concentration of wealth and influence in the hands of Goldman Sachs and their ilk amounts to a shift to central planning, with the predictably disastrous consequences.
> There are more complicated reasons for child morality than lack of soap
The most important one being a lack of information. Except in the poorest slums, where people can't afford soap.
If fact, they may be wasting their money on stuff which increases infant mortality. Infant formula may be marketed as being healthier than mother's milk, but without proper sanitation it's much worse.
> Children die because, almost universally, someone has strangled the market that would otherwise be allocating soap towards their rooms.
It's ridiculous to say that, unless you know of some place in the world where soap is insanely expensive. They'll die because their families were poor. The ultimate causes of poverty are complex, and probably relate to dysfunctional states which (among other things) don't create functional markets. But to say that the ultimate problem is "not enough markets" is silly. Would public education help? Does their government need to enforce anti-corruption laws?
You can't look at a government which does everything wrong, and say "the big problem is, they don't allow markets to flourish".
But some things (like immunization) can be done cheaply (if somewhat inefficiently) by something that's not a market.
Certainly there is a large contribution made by markets, but in the western world markets still failed to fully solve the problem, and it took government intervention in the mid 20th century to really push down the mortality numbers, which were still quite high despite the ready availability of soap. The biggest problem is that there were few doctors, hospitals, or vaccination facilities available in certain areas, especially rural areas and poor urban areas, where there wasn't enough money to attract such services. So there was a big push in the US, Canada, and Europe to subsidize healthcare penetration into such areas, by building rural clinics and posting doctors and nurses to such areas. That reduced rates of many previously endemic diseases, increased vaccination rates, and resulted in more children being born in hygienic settings with medical oversight.
A related problem, possibly just as big, was that there was very bad information available, especially again in rural areas; people just were not educated on best practices, and were wasting their money on snake oil while failing to take basic steps that actually work. The Canadian government started combatting that as early as the 1920s, by sending out public health nurses to give vaccines and help educate people in rural areas, and printing up pamphlets and books with information: http://www.archives.gov.on.ca/english/on-line-exhibits/healt...
> The biggest problem is that there were few doctors, hospitals, or vaccination facilities available in certain areas, especially rural areas and poor urban areas
A problem directly caused by earlier government intervention. Starting around 1910, the AMA managed to push through legislation in most states that solidified their cartel and gave them sole authority to license medical schools. As a result, half of existing medical schools were pushed out of business, and the supply of doctors contracted significantly.
A similar push forced most poorer (and predominantly black) hospitals to close, because regs were written so that only the wealthier hospitals could satisfy the requirements.
The motivation for all this was clear: it substantially increased the rates that doctors and hospitals could charge by restricting the supply. Naturally it was all done in the name of patient safety.
Since I already agreed that free enterprise is pretty awesome, I'm disappointed you felt obliged to given example where it works pretty well and ignored entirely the cases where it doesn't. I've seen you do better than picking one phrase to object to while ignoring the main point, and I wish you had done similarly here.
Parents can be the customer. Often they are, sometimes they aren't. Sometimes government is the customer. For some interventions, like public health education or vaccination campaigns, government is the only customer. Or perhaps a volunteer clinic. Or a concerned neighbor. Or...
In none of these cases is the baby the customer, which is my point: market mechanisms alone don't solve all problems. Which is why we have things like "parental love" and "public service". Markets are tools, not magic unicorns.
On a personal level, raising my rates has let me outsource lower value tasks I used to have to do myself. Or buy a better computer + scanner that let me do my work faster.
With all this extra time, I've been able to do more higher value consulting. It's a virtuous circle.
"I think you're trying to do both business and charity at the same time, and that doesn't really work I think."
You need to charge a certain set of clients more to afford to do the rest for free. Business and charity can exist side-by-side but they can't really be combined. Charge more for 75% of who you help, then be really picky about the remaining 25%. You'll have the same warm heart and be a lot more sane. Happy workers work better and that helps everyone.
That's a pretty interesting scenario, though it sounds difficult. Is there any possibility of hearing more about what specifically you are offering? I would ask because it sounds like there would potentially be an opportunity to get those who can afford to pay more to do so and then in a way use that to subsidize lower-paying customers. This all depends upon the nature of the business, of course.
I don't want to be a distraction here; this is a better time for people to get feedback from Patrick on the interview. So, very briefly: we solve (technology) problems for people. Probably my favorite story so far is that we successfully recovered all of the medical documents & pictures from a cancer survivor's failed hard drive. Total bill was $90. I'm open to talking about it further off-HN.
You're exactly right about subsidizing a set of customers, but there are all kinds of technical and psychological details that make it a tough problem to solve. I've really only just started thinking about it, so I don't have anything smart to say yet.
You have to charge more. Aside from all of the arguments in terms of value and avoiding pathological customers and so on, there's one more really good reason to charge more: you need the money if you want to be awesome.
I've been running a small business for a while now that helps a lot of people that need help but can't afford it. That's all fulfilling, heart-warming work, but it's also put me into a very difficult position. Right now, I need to hire more people, but I can't afford anyone that's good. That's directly hurting my customers. Our turnaround times are really hurting as a result. I've got an opportunity to hire on a brilliant old friend of mine, but I'm not sure yet if I can swing it, because the bank account really doesn't have enough in it to afford him, and I don't know if I can work long enough hours to get that kind of money in there.
I've resisted every other justification for charging more. Vacations? I don't need more than just a few days off once in a while. Toys? Don't need those either. Avoiding pathological customers? But those people need help too, and I want to help them.
But not being able to build a strong business with lots of talent under my current model? That's pretty hard to ignore.