Brooks's Law quantified. Adding people to a late project makes it later - here's the math.
Adding an engineer to a team of N creates N new communication channels. Going from 5→6 engineers adds 5 new channels. The overhead: 15-30 minutes per channel per week. At 10 engineers, you lose ~2 full engineering days per week to coordination.
Optimal team sizes: 3-5 for startups, 5-7 for product teams, 8-10 maximum for any single team. Above 10, split into two teams. The coordination cost exceeds the additional capacity.
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8 minBreaking down where engineering money actually goes - and where it should go.
10 minUnderstanding ASC 350-40 and how software development costs flow through your P&L.
11 minThe compounding gross margin penalty incurred when variable LLM inference query costs scale faster than subscription revenue, shifting server hosting into variable Cost of Goods Sold (COGS).
Read Concept →The systemic financial risk created when high-velocity AI code generation produces massive volumes of un-audited, low-trust technical debt that inflates ongoing maintenance OpEx beyond marginal value creation.
Read Concept →The engineering debt accumulated when developers accept AI-generated code based on superficial execution ("vibes") without understanding underlying architectural assumptions or edge cases.
Read Concept →The financial discipline of managing, projecting, and optimizing the per query token costs associated with running large language models in production.
Read Concept →The critical threshold where the operational cost of maintaining a codebase and resolving technical debt exceeds the engineering capacity available for new feature development.
Read Concept →The non-linear increase in communication overhead, alignment meetings, and process friction that occurs when scaling engineering organizations, ultimately degrading per-capita execution capacity.
Read Concept →The systemic masking of growing software maintenance liabilities (OpEx) behind inflated velocity metrics and new feature launches, creating a fragile engineering economy that requires constant new capital to sustain.
Read Concept →The systemic erosion of traditional SaaS gross margins caused by the integration of generative AI features, as variable compute and API costs scale linearly or exponentially with user engagement, fundamentally altering software unit economics.
Read Concept →The principle that heavily AI-augmented teams of ten elite engineers can now achieve execution parity with traditional enterprise engineering organizations of over one hundred, fundamentally altering the economics of software creation.
Read Concept →Zombie Code refers to deprecated or unused features that continue to run in production, consuming maintenance budget, compute resources, and engineering focus. The Sunset Protocol is the structured mechanism for financial remediation through systematic deletion.
Read Concept →The analytical process of converting standard engineering performance metrics (Deployment Frequency, Lead Time, MTTR, Change Failure Rate) into direct financial liabilities and capitalization impacts on the P&L statement.
Read Concept →The Software Phase Transition models the structural breakdown of traditional product management as the marginal cost of writing software approaches zero. In the pre-AI era, developer bandwidth was scarce and expensive. Organizations operated in the Solid state: managing 2-week sprints, grooming backlogs, and writing exhaustive PRDs to ration engineering hours. As tooling improved, organizations transitioned into the Liquid state of adaptive teams with fluid prototyping. With generative AI and autonomous agent pipelines, code generation costs collapse toward zero, propelling organizations into the Gas state. In the Gas state, developer capacity is no longer the rate-limiting constraint. Unbounded code generation creates exponential organizational complexity, coordination tax, and margin collapse. This forces a fundamental leadership evolution: product leaders must transition from managing feature velocity to becoming Product Economists who govern capital, system architecture efficiency, and uncertainty.
Read Definition →The Cost of Predictivity measures the variable cost of AI accuracy. Unlike traditional software with near-zero marginal costs, AI features have significant variable costs that scale with both usage AND accuracy requirements. As AI correctness increases, cost scales exponentially - not linearly. This is the fundamental economic challenge of AI products. Traditional software follows a simple cost model: high fixed development cost, near-zero marginal cost per user. Build the feature once, serve it to millions for pennies. AI products break this model entirely. Every AI query costs compute. Every inference requires GPU cycles. Every improvement in accuracy requires either more sophisticated prompts (more tokens = more cost), retrieval-augmented generation (vector DB queries + embedding generation), or fine-tuned models (massive training costs amortized over queries). The cost structure looks more like a manufacturing business than a software business. The exponential curve is the killer. Moving from 80% accuracy to 90% accuracy might cost 2x. Moving from 90% to 95% might cost 5x. Moving from 95% to 99% often costs 10-20x. This is because the easy cases are solved by the base model, and each additional percentage point of accuracy requires increasingly sophisticated (and expensive) techniques to handle edge cases. This creates what Richard Ewing calls the AI Margin Collapse Point: the usage volume at which AI feature costs exceed the revenue they generate. Many AI features that work beautifully in prototype (low volume, don't need high accuracy) become economically devastating in production (high volume, users demand high accuracy). The AI Unit Economics Benchmark (AUEB) calculator at richardewing.io/tools/aueb helps companies calculate their Cost of Predictivity and identify their specific margin collapse point before it hits their P&L.
Read Definition →The AI Economist - Quantifying engineering economics for technology leaders, PE firms, and boards.
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Richard Ewing: AI Economist & Capital Auditor