Why is it difficult to achieve a FAANG-level salary while self-employed?

If you consider the work output of an engineer to be a proxy for value, then working for a machine that has extensive and significant capability for distributing value will result in more value creation (for you and them) than working for yourself would. If what you are building impacts 1B people who are paying in some way for what is being created, the value creation is way higher. The same applies to anything, more distribution power means more potential value creation and more value created. In a sense, you're more useful to a FAANG than you are alone.

One reason is leverage. Large company engineers are able to focus more on the work they do and let the rest of the company deal with the other stuff. Also, bigger companies have lots more work to do so the engineers can focus on only a few things.

Think about it in these terms; a custom car maker can only make a few cars but a factory can make so many more at a lower cost and higher total profit simply because of the number of cars they can make.

> it is easy to earn $200k to $300k with just a few years of experience

I think this part shows that whether it's easier to make more as an employee or self-employed is highly regional. In large, competitive tech centers, where FAANG companies are, the demand and competition for talent is high and fierce, driving salaries significantly higher than what you might normally expect. The cost of living in such places also tends to be astronomical.

In other places, say medium-sized cities that are not known as tech centers, that dynamic doesn't exist. In my experience, this means that the income you can achieve as a self-employed (and often remote) software engineer far exceeds the general salary "ceiling" of that local region (and I'm talking about North America here, not far-off places). So you may not quite achieve FAANG level compensation (although I'm sure some do), but relative to the cost-of-living you're doing quite well if not better.

I think your assumption is wrong.

Making $200-300k as a self-employed software engineer requires a completely different skillset than getting and maintaining a job at a FAANG. The roles have very little carry over.

I made ~$400k last year (in cash) as a self-employed engineer. I work maybe 20 hours a week. I would hardly say that getting here was non trivial, but I'd hardly say it's trivial to get a job at a FAANG either.

    My assumption would be that a company always has to pay engineers
    less than the value they generate.

For FAANG companies, I'd guess that a nonzero amount of that value is "keep this person from contributing at our competitors".

Great points being made. There are other considerations though too.

One example, that there are only so many engineers at that skill level and employee churn is high at FAANG companies - so paying a premium for talent makes sense since money isn't an issue and the engineers leave to go elsewhere after a brief stint getting FAANG on their resume. Higher salaries keep the recruiting funnels full, and allow FAANG companies to keep a high level of talent

Another important aspect is competition. Sometimes its not just important to get talent, but also important that your competition doesn't get talent.

In addition to all the other good answers here.

Economies of scale:

https://www.investopedia.com/terms/e/economiesofscale.asp

Because alone you can't leverage a network effect. If you decided to start a new venture and persuaded 9 colleagues to join you, you'd probably make more than 10x the income.

It’s not.

It just depends on who your clients are. Are your clients FAANG-level companies or SMBs?

Economies of scale due to monopolistic domination of markets.

The question is how to fix this