Death To “Honest Work”!
Last week, the Vancouver Sun reported on the precipitous drop in median earnings in BC, as well as in Quebec, over the past 5 years. The comments in the story’s online forum are anything but inspiring, oscillating wildly between downright embarrassing and borderline xenophobic. Some of the readers espouse disgust at the idea that “some people” have had the utter gall to figure out how to make money. And others suffer the delusion that their mere presence in the world bestows upon them the right to expect success, as if showing up should be its own reward.
Most shockingly, in my opinion, is the apparent unwillingness of British Columbians to recognize that news like this might just be our own damn fault.
I’ve learned over the years that there are only really two ways to make money: the right way, and the wrong way. A couple of years ago, I discovered both ways simultaneously when I tried my hand as an author for New Riders. For five months, I spent my evenings and weekends writing JXTA, a programming guide for a fairly obscure open source framework for writing peer-to-peer applications. On the surface, that might sound like a great resume-builder, but the true horror of becoming an author doesn’t reveal itself until you examine the underlying economics.
Industry standard author contracts give the author a 10% royalty on the cover price - for a $45 book, an author makes $4.50. That doesn’t sound bad, until you learn that in cases where the book is sold through a large distributor, such as Amazon.com, the royalty rate is effectively 5%. Upon discovering how little I would be making as an author, I quickly joined Amazon’s Affiliate Program. This program allowed me to place a link from my web site to my book on Amazon.com that paid me a referral fee for each visitor that clicked the link and subsequently bought my book. It was the least I could do to try to milk a little extra money out of my five months of effort.
Surprisingly, that amount turned out to be not so little. As an author, I made a paltry $2.25 on every copy of my book sold through Amazon.com; however, as a random dude on the Internet using an affiliate link to the exact same book on Amazon.com, I made $4.50. Read that last sentence again, and think about it for a second. That’s right, I made more money by helping Amazon.com make a sale than I earned as an author on the same sale. Twice as much, to be exact.
I’m willing to bet that many of the commenters on the Vancouver Sun article would find something dishonest about a system that skews its rewards in this fashion. British Columbians seem to pride themselves on “honest work”. Cutting down trees, that’s honest work. Building new houses, that’s honest work. Working for transit, that’s honest work. As near as I can tell, “honest work” is actually some kind of Socialist code for “hard labour” - and linking to a book on Amazon.com certainly doesn’t seem like hard labour at all.
Personally, I’m not interested in hard work. It’s not that I’m lazy, it’s just that given the choice, I’d rather get paid again and again for work I’ve already done. While you might think that being an author with a royalty rate counts as “lazy work”, the economics I outlined above show that getting paid to simply link to a book is far lazier. And being the publisher or distributor of a book? Well that’s the laziest job of all.
There’s a lesson here for BC: we’ve got to learn to be lazy.
The United States, and Silicon Valley in particular, is built on being determinedly lazy by leveraging the power of intellectual property to its fullest. Intellectual property is the ultimate enabler of lazy work - in extreme cases allowing you to make money without even having to hire employees, create a product, get it to market, and fend off the competitors. All that’s left is the good stuff - collecting a cheque.
In contrast, British Columbia seems to focus on industries that demand us to constantly work hard. Industries whose primary inputs are physical labour. Industries that require us to ship physical goods. Industries where we can only provide the service to a customer that is standing right in front of us. Industries where when you work for an hour, you get paid for an hour of work, period. In other words, industries with absolutely no leverage or upside.
It’s not simply the natural resources or tourism industries that fall prey to this problem - the technology sector in BC isn’t faring that much better. If you look at the big technology players in BC, all of them are dutifully helping someone else be lazy - just look at the video games industry. As many of the panelists at the last DemoCampVancouver attested, the video games industry in Vancouver spends its days working for other people: Electronic Arts’ head office is in LA (guess who gets the cheques on all those sports games?); and the plethora of scrappy local video game startups that build games for other companies don’t own their own IP.
The same is true throughout BC’s technology scene - ClubPenguin is owned by Disney, Crystal Decisions is owned by Business Objects is owned by SAP, Creo is owned by Kodak. If we really want to battle the decline in wages, we’ve got to stop acting like an author, doing all the work, and receiving a fraction of the benefit - we need to think how to become a publisher. We’ve got to start building companies that generate recurring revenues for BC, that scale to serve customers around the world, that make money while we sleep.
Hard work is easy. Lazy work, that takes real skill.
7 comments
Grant said on May 7, 2008 at 12:38 pm:
Sharp article Brendon, thanks.
jesse said on May 7, 2008 at 12:40 pm:
@Brendon, great post! So what are the reasons that companies set up their HQs away from BC? Tax? Geography? I’ve heard laments from companies that having HQs in larger business centres turns out to be more effective because of the proximity to investors/analysts/financing and a larger pool of financial and marketing talent required to run the company. Could it be that BC needs more of these conditions as well?
Brendon J. Wilson said on May 7, 2008 at 1:06 pm:
@Jesse: Thanks. There have been a number of valid reasons for companies to set up elsewhere: history, taxation, access to labour, access to capital, access to customers. In a global world, these are becoming less important, but still maintain enough relevance to warrant evaluation.
In recent years the BC government has slowly eroded many of core issues. The Premier’s Technology Council has done a good job of identifying them, but they’re starting to repeat themselves in their latest reports.
For example: taxation is often a major perceived issue with BC. However, if the PTC data is correct, BC is on par or below other comparable jurisdictions in the US and Canada.
However, there are still some tax issues that impede investment, which drives the development of technology companies. For example: Canada has no equivalent to the LLC (limited liability corporation), a form of legal entity that provides liability protection, but isn’t taxed itself. An LLC “flows through” its revenue to the owners of the LLC, and they are the ones who pay the tax. The lack of recognition for LLC’s is a known problem, and one that the feds are apparently working to address. Most venture firms use this form of entity to avoid the proceeds flowing from their investments getting taxed twice (once at the fund level, and another at the investor level).
But as I said in my last post, I don’t believe the real problem is money. Yes, money helps, but it’s not enough. You can’t sit on your hands and wait for the money to arrive - that’s not how it works. You have to prove yourself first, then the money shows up.
As for proximity to certain classes of services - I’m not sure that’s the critical issue. Certainly proximity to the deal-makers, customers, etc, helps, but if you look at Vancouver, it’s quite ideally positioned. It’s two hours or so by plane from San Francisco and Los Angeles, the two most important tech and media hubs in the world. It’s closer to Asia. It has a fairly diverse cross-section of people who are encouraged to maintain connections to their culture and countries of origin, connections which could be prove to be useful when taking companies global.
I truly believe that the challenge is one of intestinal fortitude. Talking to a friend about the video game industry, he noted that his friends had worked with Sony very closely on elements of the Playstation 3 rendering engine. At the completion of the work, they pitched Sony on a handful of game concepts (i.e. their own IP) - Sony countered with “hey, why don’t you work on this franchise of ours?” (i.e. Sony’s IP). These guys took the easy money from Sony, but lost the potential upside of building their own IP, which could have provided dividends long into the future, not only for them, but for BC as well.
They were lazy, yes, but the wrong kind of lazy.
Daniel Gibbons said on May 7, 2008 at 5:18 pm:
I should probably leave this one alone, since I seem to have stirred up enough trouble already. But Drupal seems to me the classic example of the Vancouver tech. community creating that “honest work” to which you’re referring. An entire community and framework built around enabling professional services shops to sell hours…
The lesson we need to learn is that it’s not about building tools to make the same old job you have today a bit easier, but ones that eliminate the same old job you have today!
Brendon J. Wilson said on May 7, 2008 at 5:47 pm:
@Daniel: Not only is your muckraking allowed, it’s encouraged!
Sure. You could craft a fairly accurate analogy to the forestry industry: Forest is public land = Drupal is open source. Logging activity = consulting services. But what would really be desirable is to package up that logging/customization expertise in the form of a product that doesn’t require you to spend your life logging/consulting.
Funny thing: on the forestry front, that’s exactly what Finland’s Husquvarna did for forestry.
jesse said on May 8, 2008 at 6:17 pm:
“They were lazy, yes, but the wrong kind of lazy.”
I always hear about companies being bought out. It’s a legitimate part of a business plan and a lot of the fish with the money are not in BC. It seems like a catch-22. Many of the companies that could have been much larger end up being eaten up before they get too big. Is it risk adversity or are the economics legitimately different? Put another way, companies with money are themselves “lazy” and can make offers that are very hard to refuse.
Brendon J. Wilson said on May 10, 2008 at 9:12 pm:
True enough - there is a legitimate challenge here in BC that the exit paths are all located at the borders of the province.
However, there is a difference between selling out once you’ve got a great ongoing business, one where you’re making a legitimate business decision to exit, and the example I mentioned. In those cases, they didn’t even start down the path - they sold out immediately. Not a great way to build a lot of value - you’re basically selling labour. There is very little upside in selling labour.
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