Taking a cut of the economics of the transaction, just like giant software firms do.
For example, the seller is an HBS grad whose buddy is a PM at Microsoft with permission to pay vendors - the buyer. Seller can't program but he can find young people who can. He knows there's a $400k budget for a Sharepoint search plugin, he pays 3x young people $66k each, pays out $50k in one time deal expenses (legal, kickbacks i.e. "illegal"), and is left with about $150k in profit on that deal. Some of that profit is used to pay back losses on previous projects, so net that year, a $400k project may make about $80k (i.e. 20%) for the seller personally.
Net-of-50, maintenance, etc. - these are just narratives developed for the buyer's processes, to close the sale. You're in school, you should know that the way people come up with names for revenue is a narrative for investors and accountants, it's not a way to talk about economics (models). In this case the buyer has a lot of checkboxes and this shouldn't be conflated with a "model."
Anyway, doesn't scale and that's why custom software dev firms are rarely big.
When you look at stuff that does scale, like Pivotal or Accenture, there's something fishy with their economics. Or it's Red Hat, and they're actually not customizing much at all!
I've been in and around the custom software dev scene for a long time (on the sales side mostly) and your example of having kickbacks seems incredibly rare and is definitely not part of 99% of projects (also on a 400k project I doubt you're paying anywhere near 50k in legal costs unless you get sued after). Much more likely is that your buddy does you the favor for free because you're friends, because he trusts you to deliver because you have a relationship, and because it's not his money anyways.
Also, what exactly is fishy with Pivotal/Accenture? I mean they're services firms which is why their multiplier is relatively low but not sure what exactly is fishy?
> kickbacks seems incredibly rare and is definitely not part of 99% of projects
If kickbacks work, but are surreptitious, then the losing bidders might not be aware of kickbacks? I could easily imagine an ecology of vendors where some regularly use kickbacks/bribes for their bids, and some never do. Personally I haven’t seen kickbacks either: but I’m in NZ, and I haven’t been much involved with the sales process.
Yeah, it's possible for sure, but salespeople like to talk and there's lots of turnover between firms so I think there would just be more rumors floating around if there was a lot of bribery going on. That said, good point mentioning location, I'm in the US and have mainly worked in the US and W. EU, no context on bribery and the like outside of there. That said, I'd still be skeptical about someone from a big company based in the U.S. that could be hit by the U.S. govt by fines like Microsoft having a lot of bribery going on anywhere in its operations
Taking a cut of the economics of the transaction, just like giant software firms do.
For example, the seller is an HBS grad whose buddy is a PM at Microsoft with permission to pay vendors - the buyer. Seller can't program but he can find young people who can. He knows there's a $400k budget for a Sharepoint search plugin, he pays 3x young people $66k each, pays out $50k in one time deal expenses (legal, kickbacks i.e. "illegal"), and is left with about $150k in profit on that deal. Some of that profit is used to pay back losses on previous projects, so net that year, a $400k project may make about $80k (i.e. 20%) for the seller personally.
Net-of-50, maintenance, etc. - these are just narratives developed for the buyer's processes, to close the sale. You're in school, you should know that the way people come up with names for revenue is a narrative for investors and accountants, it's not a way to talk about economics (models). In this case the buyer has a lot of checkboxes and this shouldn't be conflated with a "model."
Anyway, doesn't scale and that's why custom software dev firms are rarely big.
When you look at stuff that does scale, like Pivotal or Accenture, there's something fishy with their economics. Or it's Red Hat, and they're actually not customizing much at all!