Starting a software company is a TERRIBLE F@#$ING IDEA... [TRIGGER WARNING]

In this video, I'm going to talk to you about why starting a software company as an information and service marketer, ecourse guru, etc. is a terrible [ __ ] idea. If you don't know who I am, my name is Alex Shamos on acquisition. com. It's a portfolio of companies that now does over $100 million a year. In this video, I'm just here to trigger a handful of you um and hopefully give a warning, a strong warning to those of you who want to do it. Now, the question you might ask is why would somebody want to start a software company when they have an e-learning core, service, etc. Well, I'll tell you why. It's because they think that one, it's going to make their service company stickier because they're like, "Ah, software is sticky. " No, no, no. Software is not sticky. Really good software is sticky. Your software will not be sticky and will just cost you a lot of money. But let's just say that's number one reason that they want to do it. The second it, and this is the even shittier one, is that they think it's going to give them a really good multiple upon exit. All right, when they sell their company in the future. Now, let's start breaking down why this is such [ __ ] terrible advice and idea in general. Now, if you even look at the entire info guru, etc. space that it's out there, how many of them have had big successful software exits? I'll wait. Right. There's only one guy who may have an exit and that's Alex Becker and it's because he made the flip from being a guru and selling courses and things like that to a true software entrepreneur. The problem is 99% of people want to continue to run their info business and then drive it to a software company in which case they do both kind of shitty and never actually get a the exit b sticky software and so they end up just having a kind of shitty mix in between because there's another person who's trying to solve the exact same problem and doing it better than them because all they focus on is the software, right? And if you're getting into the software game and you think they're like, "Oh, I'm just going to market it and it's just like a course and then people are just going to have to stick with it because I introduced them to it. " It's not true. that's not going to happen. You have to be really good at software and really know a lot about the business. And not only that, software is one of the hardest businesses to get into for a variety of reasons. Number one, it costs money to develop stuff. Now, you're like, "Oh, I'm going to have an offshore team. " Has its own risks, right? And making sure that the product is actually what you want. But let's just assume that you, you know, have figured all that out, right? You have the cost of development. That's number one. Number two, the people you're competing against now are software people and they are much smarter in general than I would say the guru world is at large. And that's because there's real money to be made there. But it is a high stakes game. And if you look at like the VC world, venture capital angel, things like that, the reason that their portfolio theory works is because they make a hundred bets knowing that two of them are going to carry the entire portfolio. The thing is that when you are one of those hundred, the likely that yours succeeds is very, very low. And so what you do is you take your eye off the main game and then play the one in 50 game likelihood of succeeding. And then you end up basically destroying both and wondering. And then what happens is sunk cost fallacy kicks in. You're like, well, I put all this money in. and I've put all this time in. I said it publicly. My ego is now attached to it, etc. Then you wanted to be like, I'm a smart cookie. I'm going to move above the space. But you're not. And they're not going to give you the multiple that you think you they are. And here's why. It's not that tech gets great multiples. So, hear me out on this. The future value of a company is based on a discount applied to future sales between now and the day that the company dies. And so the number of sales that they think they could potentially generate in terms of how big the market could potentially be and the likelihood that those sales occur. Okay. Now, if you have a software that turnurns people out, and mind you in software world, they measure churn annually, not monthly, annually. And so if you have less than or above 10% annual churn on your software, you're [ __ ] You're just a service business, right? And so you probably don't have those types of turnmetrics, which is probably why your software sucks. And so unless you're a hardcore true god, you know, balls to bones software entrepreneur and you know everything about that world and you're willing to risk it to go all in on this, which is why a lot of these guys use funding upfront because sometimes in a lot of software companies need to have funding in order to get the initial stuff off the ground so they can get market share and then they can start upselling people later, right? It's a much more competitive space. I just see so many people trying to do this and it's just not what you think it is, right? Like it's just based on how likely the sales you have in your business are to occur in the future. Okay, so insurance for example gets good multiples but all and it's because the likely that people continue to stay and use the same insurance insurer is high. It's not because tech is magic or insurance is magic or whatever is magic. If you have a service business that never loses anyone and each client continues to spend more with you over time, you're going to have a very valuable business period, you'll get a much higher multiple, right? Because all they care about is how likely what's my risk and then what's my upside, right? Like that's what they're looking at. And then how likely is it that I that either of those scenarios occur and that's called riskadjusted return. And so if you have something that people never stop paying for and they continue to buy more of it and you have more

people that you could sell it to in the future, that's a very attractive business. Software is just a vehicle to get there. People think that they're just going to slap, you know, some [ __ ] software that they paid, you know, some dude in Bangladesh 50 grand to put together and think that they're all of a sudden going to take their 2 million profit business and get a 20x topline multiple on it. It's horshit. You're not going to get that. Like the people who are going to give you the money are smarter than you. They're smarter than me. They're smarter than all of us. And the reason they have $100 million to give you is cuz they're not [ __ ] dumb. Think about that. They got the money cuz they earned it. They're not stupid, right? They get it by making the right bets. And I mean, I heard this one the other day. So, what I'm going to do is I'm going to get people to subscribe to my software for my mastermind and then I'm going to classify it as a level of the software. They're not [ __ ] idiots. They know it's not software that people are using cuz they're going to look at time on screen. daily users and look at how much each of the elements according to where they want to drive value for whatever they're buying it for. They might be buying it to plug it in. They might buy it because they think they can expand it. They might buy it for a variety of reasons, right? But the real is that most of them never get bought. And it's because they're actually [ __ ] software made by people who don't understand software and think that they're going to decrease their turn or somehow make their business more valuable. And neither of those things are true. And what ends up really happening the vast majority of the time is that the product you make is not the best one on the market. You start pitching it to your customers and they start complaining and they will tell you that it's not the best one. And then you feel like you're losing integrity because there is a better person on the marketplace that is better for the solving the specific problem. And if you do have a real competitor in that place who really does play the software game, they'll just look at your [ __ ] and copy it in two seconds because software is a competitive space. And then they'll have all your stuff plus theirs and a better user experience than you have and probably for less. And so all of a sudden you're hawking something that just has a worse value proposition, but you feel invested because you spent all this time and effort and you feel like your identity is tied to it and you and then all of a sudden your bravado kicks in because you don't want to be seen as a failure publicly. And so recipe for failure instead. Alex's recommendation is stick to your game. If you have a service company, just make your service stickier. Make it more likely that people will stay with you. That will increase the value of your company. Buy other companies that have similar n similar that are have similar characteristics and then roll them in if you so choose. Or find affiliate partners or get more referrals or run more paid ads or do more outbound so you can get more customers. Figure out ways you can serve more customers so you can expand your TAM. You can just make the company you have more valuable rather than trying to think that you're going to trick some potential acquirer. Like they're not dumb. I'm just going to say this again. They're not stupid. Think about the people that you know who can stroke a $100 million, $500 million check. They didn't get there by being morons. So why would you expect them to buy your [ __ ] software that you tacked on to your service business to automate one thing and be like, "Well, I'm tech enabled. " No, you're not. You're either service or you're tech. Period. And if you are a tech company, then you will know you're a true tech company because you wouldn't be watching this video because you'll be like, "Oh, no. I obviously I love competing against these other guys who try and make [ __ ] software, right? And if you're not a tech guy and that's not your world, then play the game you're best at where you have a competitive advantage, right? This is what happens and I'm going to I'll wrap it up in a second. People hear that you can get 10 times topline, 20 times top, 50 times topline, right, for software. But that's not the vast majority of softwares in general that get sold. Not only that, most softwares don't get sold at all. Most softwares fail, like I've mentioned earlier in the VC Angel example, but of the softwares that sell, most of them don't sell for much. They sell for parts. And then of the very very small examples of the ones that hit those crazy multiples, it's because they have tremendous growth. They're not losing users. They're getting people off of word of mouth. people are they hit product market fit which by the way is buy used tell. If the way that you get people into your software is that you sell them your service and then you tell them to use the software. It's not a good software. People need to buy it so that we know that the problem that we are solving is valuable to them. They need to use it regularly on their own and they need to tell other people specifically about the software. Until those three things occur, the software is not valuable. Think about it. If you're just blowing people through your software vehicle and people cancel when they cancel your service, it's just service and you just added some weird tech thing that's completely nonsensical to the service offering that you have rather than just making a probably smarter affiliate relationship with someone and getting probably more profit from that relationship because you don't have the cost of everything running the business. And if you send a serious amount of traffic to somebody, you can probably negotiate 20 30 sometimes 40 50% affiliate relationship depending on you know the type of software etc. And so I say this to say as a big warning to the vast majority of the people that are out there. And this tends to happen right around that like I want to say like1 to threeish million dollar mark is when people think they're going to get cute, fancy, they're going to be like I'm smarter in the space. I'm smarter than these people. I'm really trying to get away from all this guru [ __ ] all this servicing these customers who don't understand my value. You're just not that good. It's why they're not staying. Like that's the real like you look at yourself in the mirror and be like they're not staying because we are not fulfilling our promises. And then that is where you actually start to make real money and

build something that's sellable and has value. And I promise you that when you actually solve the problem, you're not going to want to sell because you're going to love the business because customers come highly recommended. You have a great reputation. People get more than they pay for. They bring their friends. You sleep well at night because your employees enjoy servicing the customers that you have segmented as your ideal avatar. And those people are connected and send more people your way. And because people aren't turning out the back door left and right, you know that next month your month is going to be bigger than it was this month, even if you do nothing. That's how a good business runs. And it takes time to get there. And people get impatient. And so they try and think that there's a shortcut. And there isn't. There just isn't. You just have to be better. And better takes work. And work takes time. It's all I got. Mozen Nation. Love you guys. Keep being awesome. I'll see you guys in the next one.