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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.

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Welcome to the game where we talk about how to get more customers, how to make more per customer and how to keep them longer in the many failures and lessons we have learned along the way. I hope you enjoy and subscribe.

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I'm going to talk you about why starting a software company as an information and service marketer, e-course, guru, et cetera is a terrible fucking idea.

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And if you don't know who I am, my name is Alex Moseon, acquisition.com. It's a portfolio of companies that now deserve a hundred million dollars a year.

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In this video, I'm just here to trigger a handful of you and hopefully give a warning, a strong warning to those of you who want to do it.

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Now, the question might ask is why would somebody want to start a software company when they have an e-learning, core service, et cetera? Well, I'll tell you why.

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It's because they think that one, it's going to make their service company stickier because they're like, oh, 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.

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Well, let's just say that's no one reason that they want to do it. The second reason that they want to do it, and this is the even shittier one, is that they think it's going to give them a really good multiple upon exit when they sell their company in the future.

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Now, let's start breaking down why this is such fucking terrible advice and idea in general.

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Now, if you even look at the entire info guru, et cetera space that's out there, how many of them have had big successful software exits?

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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.

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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 be sticky software.

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And so they end up just having a kind of shitty mix in between because there's another person is trying to solve the exact same problem and doing it better than them because all they focus on is the software.

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And if you're getting into the software game and you think that 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 to introduce them to it.

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It's not true. It's not going to happen.

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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.

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Number one, it costs money to develop stuff and you're like, oh, I'm going to have an offshore team has its own risks.

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And making sure that the product is actually what you want, but let's just assume that you have figured all that out.

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You have the cost of development. That's number one.

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Number two, the people you're competing is now are software people and they are much smarter in general than I would say the guru world is at large.

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And that's because there's real money to be made there, but it is a high stakes game.

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And if you look at like the VC world venture capital angel things like that.

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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.

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The thing is is that when you are one of those hundred, the likely that yours succeeds is very, very low.

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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.

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You're like, well, I put all this money in. I put all this time and I said it publicly. My ego is now attached to it, etc.

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Then you want it to be like, I'm a smart cookie. I'm going to move above the space, but you're not.

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And they're not going to give you the multiple that you think you they are. And here's why.

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It's not that tech gets great multiples. So hear me out on this.

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The future value of a company is based on a discount applied to future sales between now and the day that the company dies.

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And so the number of sales that they think they can potentially generate in terms of how big the market could potentially be.

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And the likelihood that those sales occur.

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Now, if you have a software that turns people out and mind you in software world, they measure turn annually, not monthly, annually.

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And so if you have less than or above 10% annual turn on your software, you're fucked. You're just a service business, right?

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And so you probably don't have those types of turn metrics, which is probably why your software sucks.

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And so unless you're a hardcore true God, you know, balls to bones, software entrepreneur, and you know everything about that world

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and you're willing to risk it to go all in on this, which is why a lot of these guys use funding up front because sometimes in a lot of software companies

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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 up selling people later, right?

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It's a much more competitive space. And so I just see so many people trying to do this. And it's just it's just not what you think it is, right?

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Like it's just based on how likely the sales you have in your business are to occur in the future.

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Okay. So insurance, for example, gets good multiples, but all and it's because the likelihood that people continue to stay and use the same insurance,

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insurance, insurer is high. It's not because tech is magic or insurance is magic or whatever is magic.

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If you have a service business that never loses anyone and each in each client continues to spend more with you over time,

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you're going to have a very valuable business period. You'll get a much higher multiple, right?

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Because all they care about is how likely was my risk and then what's my upside, right?

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Like that's what they're looking at. And then how likely is it that I that either of those scenarios occur?

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And that's called risk adjusted return. And so if you have something that people never stop paying for and they continue to buy more of it

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and you have more people that you could sell it to in the future, that's a very attractive business.

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Software is just a vehicle to get there. People think that they're just going to slap, you know, some bullshit software that they have paid, you know,

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some dude in Bangladesh 50 grand to put together and think that they're all the second to take their two million profit business and get a 20x top line multiple in it.

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It's horse shit. You're not going to get that. Like the people who are going to give you the money are smarter than you.

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They're smarter than me. They're smarter than all of us. And the reason they have a hundred million dollars to give you is because they're not fucking dumb.

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Think about that. They got the money because they earned it. They're not stupid, right? They get it by making the right bets.

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Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything.

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And so the only ask that I can ever have are you guys that you help me spread the word so we can not more entrepreneurs, make more money, feed their families, make better products,

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and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast.

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So the single thing that I have to do is you can just leave a review, but take 10 seconds or one type of the thumb.

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It means the absolute world to me and more importantly, it may change the world to someone else.

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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 for my mastermind, right?

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And then I'm going to classify it as a level of the software. They're not fucking idiots. They know it's not it's not software that people are using.

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Because they're going to look at time on screen. They're going to look at 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.

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They might be buying it to plug it in. They might buy because they think they can expand it. They might buy it for a variety of reasons, right?

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But the real real is that most of them never get bought. And it's because they're actually bullshit 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.

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And neither of those things are true. It ends up really happening. The vast majority of the time is that the product you make is not the best one on the market.

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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.

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And if you do have a real competitor in that place who really does play the software game, they'll just look at your shit and copy it in two seconds because software is a competitive space.

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And then they'll have all your stuff plus theirs and a better user experience than you had and probably for less.

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And so all of a sudden you're hawking something that just has a worse value proposition, but you feel invested because you spend all this time and effort and you feel like your identity is tied to it.

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And then all of a sudden your bravado kicks in because you don't want to be seen as a failure publicly, right?

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And so recipe for failure.

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And so instead, Alex's recommendation is stick to your game. If you have a service company, just make your service stickier.

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Make it more likely that people will stay with you. That will increase the value of your company by other companies that have similar needs, similar that have similar characteristics and then roll them in if you so choose.

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Or find affiliate partners or get more referrals or run more paid ads or do more out bounds so you can get more customers.

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Figure out ways you can serve more customers so you can expand your tab, right?

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Like you can just make the company have more valuable rather than trying to think that you're going to trick some potential acquireer.

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Like they're not dumb. I'm just going to say this again. They're not stupid.

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Think about the people that you know who can stroke a hundred million dollar, five hundred million dollar, check.

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They didn't get there by being more on. So why would you expect them to buy your bullshit software that you tacked on to your service business to automate one thing, be like, well, I'm tech enabled certain you're not you're either service or your tech period.

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And if you 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 you try and make bullshit software.

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And if you're not a tech guy and that's not your world, then play the game your best at where you have a competitive advantage.

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Right?

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This is what happens and I'm going to wrap it up in a second.

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People here that you can get ten times top line, twenty times top, fifty times top line, right, for software.

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But that's not the vast majority of softwares in general that gets sold not only that most offers don't get sold at all, most offers fail, like I've mentioned earlier in the VC angel example, but of the softwares that sell most of them don't suffer much.

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They sell for parts.

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And then of the very, very, very small examples of the ones that hit those crazy multiples. It's because they have tremendous growth.

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They're not, they're not losing users. They're getting people off of word of mouth. The people are, they hit product market fit, which by the way is by use tell.

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All right. So right now, if people are like, if the way that you get people in your software is that you sell them your service and then you tell them to use the software, it's not a good software.

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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.

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And they need to tell other people specifically about the software until those three things occur. The software is not about it.

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Think about it. If you're just blowing people through your software software vehicle and people cancel when they cancel your service, it's just service.

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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.

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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 the type of software, et cetera.

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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 like one to three is $3 million mark is when people think they're going to get cute.

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They're going to get fancy. They're going to be like, I'm smarter in this space. I'm smarter than these people. I'm really trying to get away from all this gear.

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All this servicing these customers who don't understand my value.

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You're not that good. It's why they're not saying like that's the real like you look at yourself in the air and be like, they're not staying because we are not fulfilling our promises.

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And then that is where you actually start to make real money and build something that's sellable and has value.

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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.

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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.

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And those people are connected and send more people your way. And because people aren't turning out the back door left and right.

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So that next month your month is going to be bigger than it was this month even if you do nothing.

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That's how good business runs and it takes time to get there and people get impatient.

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And so they try and think that there's a shortcut and there isn't.

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There just isn't. You just have to be better and better takes work and work takes time.

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It's all I got.

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Resonation. Love you guys. Keep being awesome. I'll see you guys next one.

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You