Can you make “big money” in software?
What is “big money” and can you make it as a software engineer without becoming a vice president, director, or entrepreneur?
I researched GlassDoor trying to find answers. The summary:
If you want a guaranteed 6 figure salary, you might need to change careers. On the other hand, your income will be at least 3X the poverty line.
Below I’ve aggregated 5 lessons I learned along the way.
- Go for the companies at the top of the industry. They pay 2-3X better than average.
- Consider becoming a manager
- Work for a top company, even outside of Silicon Valley.
- Choose your startup carefully.
- It’s best to be in the top 1% of the top 10%.
How do you know if software development is a good career? Should you pay attention to the averages?
The data is conflicting. According to GlassDoor, the national average for a “computer programmer” is only $64,537. A “web developer” does minimally better at $67,097. But then a “software developer” averages $86,226 and a “software engineer” makes $90,374. I always thought these were the same job. But apparently not.
Apparently you should be calling yourself a “software engineer.”
Next, let’s say you’re educated and ambitious. What can you expect to make a few years into your job?
Most engineers will hit “senior” 5 to 10 years into their careers. According to GlassDoor, the national average for a “senior software engineer” is $106,575. Not bad. But what if you spent that time going to law or medical school instead? A physician’s median base pay is $185,700, and a lawyer’s is $113,530. (http://www1.salary.com/Physician-Generalist-salary.html and http://www.bls.gov/ooh/legal/lawyers.htm).
So if you’re looking for more money, would it make sense to stay in school?
Unfortunately, school takes money, time, and work. Most of my friends in medical school would not do it again.
Plus, if you work for a top 10% company, things look much better.
Let’s look at some of the current “best” engineering companies.
1) Go for the companies at the top of the industry
It pays to be at the top.
Compared to the national average of $106,575, salaries at Apple, Google, and Facebook run 1.5-2.5 times that. Google leads the pack with total compensation of $252,095.
Why are salaries at the top companies so much greater than the rest of the industry?
1) Cost of living in California.
All of the salaries above were taken from around San Jose where Google, Apple, and Facebook are headquartered. Because California income taxes are 10%, salaries in San Jose lose an immediate 10% when compared to those in say, Seattle.
Housing is also hugely expensive because of the influx of engineers.
Still, even adjusting for these things, engineers at the top companies make more than their peers elsewhere.
2) Talent War.
Facebook, Google and Apple are battling for engineers. They all offer similar prestige, and similar benefits, so it’s no wonder that workers are willing to jump ship.
When I was at Google, engineers were handed huge sums of stock for not leaving. Then in 2010, everyone got a raise.
Don’t forget these companies were also colluding to keep wages low. That issue has since gone to trial, so maybe it no longer happens.
2) Consider becoming a Manager.
Most of us engineers dread management. We became programmers because it was fun and because we enjoyed playing with technology.
In contrast, managers spend each day dealing with bureaucratic crap and sitting through meetings.
But being a manager pays.
Assuming you jump from senior software engineer to engineering manager, you double your pay at Apple and Facebook.
Google managers don’t do as well, but Google has always been known as an engineering driven company, and light on management. During his first reign as CEO, Larry Page fired all the managers. (He re-hired them when he realized his mistake.)
3) Try to work for a “hot” company, even outside of Silicon Valley.
Let’s look at another tech market: Boulder, Colorado.
I couldn’t find many salaries for several of the companies in the area, but I included the data anyway.
The data is clear. The folks over at Google and Microsoft make double of everyone else.
For one, Google and Microsoft pay better in general. But also many of their engineers move from elsewhere, starting at higher salaries in those locations. When you move offices, the company won’t dock your pay just because the market is less competitive. It would be horrible for your morale.
So, it’s a great deal to work for a big name company outside of Silicon Valley. You get a west coast salary without the west coast expenses. The disadvantage is that your career may hit a ceiling. Headquarters have more projects and more influential people.
4) Choose your startup carefully.
Working for a startup is a dream for most software engineers. The stories of Google, Microsoft, Apple, and Facebook are legends. Plus who doesn’t want to strike it rich?
But what are the odds of actually making a killing as a regular employee at a startup?
To examine this question, I looked at some of the current hottest startups in silicon valley.
Again, data was difficult to come by. Apparently most startup engineers don’t use GlassDoor. I made two graphs, one for “regular” software engineers and another for “senior.” Few data points existed for the latter, probably because most startups don’t have official titles.
Square and Uber were the only companies listing “senior software engineers”.
Even including senior engineers, startup salaries top out at ~$150K in the Bay Area.
Assuming a senior person has an offer from both Google and the hot startup, she’s looking at 100k less per year to work for the startup.
Now let’s do some startup math.
Startups are like feudal society, and the founders are the lords.
The founders own the lion’s share. Mark Zuckerberg owned 28.2% of Facebook when it went public (http://venturebeat.com/2012/02/01/facebook-s-1-zuckerberg-ownership/). Larry and Sergey each owned ~15.6% of Google when it went public in 2004 (http://www.quora.com/How-did-Larry-Sergey-manage-to-preserve-50-ownership-stake-in-Google-when-they-raised-so-much-venture-capital). And Bill Gates owned a whopping 49.2% of Microsoft at its IPO (http://www.quora.com/How-much-equity-in-Microsoft-did-Paul-Allen-have-compared-to-Bill-Gates).
VPs own significantly less equity than founders, and regular employees fare even worse. The 20th engineer would be lucky to own .1% of the company at IPO time. Join earlier, and you risk taking no salary, meaning your opportunity cost is greater.
Are these risks worth it? If you’re working for the next Microsoft, Google, Facebook, or WhatsApp, yes.
Even if you owned 1/50th of 1% of Google when it IPO’ed, you would have walked away with 5 million dollars. (Google had a market cap of 23 billion at the time of its IPO http://techcrunch.com/2012/02/05/facebook-pre-ipo-google/.)
Facebook was even better.
But how many Facebooks and Googles are there every decade? Not many. You can count them on your fingers.
Furthermore, most startups are worse than the ones I plotted. Uber, Square, and AirBnb are the best of breed in 2015. They’re several years old, with tons of funding and huge valuations.
If you joined these startups today, you’d be lucky to get 1/50th of a percent in equity, and odds are, their IPOs won’t be as big as Google or Facebook.
If you were to join a brand new company today, that company is most likely either going to go broke or be sold for 10 million in 5+ years.
As an employee, that’s 5 years of reduced wages, 5 years of long hours, and 5 years of sub-standard benefits, all for maybe an extra $50-100K at the end of it all. Or nothing if the company goes broke.
So unless you choose carefully, it’s probably not worth it.
If you’re going to play with startups, why not be a founder? In a risky game, it’s best to start as a lord, even if you have no idea what you’re doing.
5) It’s Best to be in the Top 1% of the top 10%
What surprised me most during this study was finding engineers who drastically out earned their peers.
Here are a few companies, spread across the Bay Area and Seattle:
Wow, several people are making $1 million per year writing code! Cool!
A couple of possible explanations:
- Someone made up their data when entering it in GlassDoor. I doubt this; I heard stories of engineers making this much when I worked for Google.
- An engineer is in the middle of an “earn out” after a StartUp was acquired.
- A key engineer threatened to go to a competitor, and the company threw money at her.
All I know is that these salaries are 2-4X larger than the averages for similar engineers at the same companies.
Too bad we don’t know who they are; we could learn much from them.
How do you feel about the financial future of software? Leave me a comment below.
Photo Credit: Nick Ares