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

Summary

• Starting a software company may seem appealing to e-course and service providers, but it's usually not a good idea unless you're deeply versed in the software industry.
• Good software, not just any software, is what makes a service sticky. Many try to develop software to enhance their business but often fail due to lack of expertise.
• Trying to achieve a high sale multiple for your company by adding software is a misconception; tech companies get high multiples due to growth and low churn, not just because they're tech.
• A successful software business requires significant capital, time, and specific market knowledge. Offshoring development carries risks and often results in a product that doesn't meet expectations.
• The likelihood of succeeding in software is low, and by dividing focus, you risk damaging both your original business and your software venture.
• Adding a software component to your service business won't automatically increase its value. Investors look for companies with predictable, long-term revenue streams.
• Rather than starting a software company, enhance your current service company to make it more valuable. Improve customer retention, upsell, cross-sell, and grow your total available market.
• If you want to collaborate with a software provider, consider setting up an affiliate partnership instead. This can be more profitable while avoiding the costs and complications of running a software business.
• Avoid rushing into software development thinking it will be an easy add-on that multiplies your company's value. Instead, focus on making your existing business stronger and more reliable.

Video

How To Take Action

I would suggest focusing on making your current service more valuable instead of jumping into developing software. Many people think creating software will automatically make their business worth more, but that's not true. It's really tough to make good software, and if you're not an expert, you might waste a lot of money and hurt your business.

Here's what you can do instead:

1. Work on keeping your customers happy so they stay longer with your service. Happy customers mean stable money for your business.
2. Try to sell more things to your current customers or sell them bigger packages. They already like what you offer, so they might want more.
3. Look for more people who might want to buy what you're selling. The more people you can help, the better for your business.
4. If you really want to work with software, find a good software company you can partner with. You can earn money by pointing your customers to them without the trouble of running a software business yourself.

Adding software to your business won't magically make it better. Keep your eye on what you're good at, do it well, and your business can grow big and strong without the extra software.

Remember, people who have a lot of money to buy businesses aren't silly. They won't pay a lot just because you have some software tacked on. They pay for businesses that are actually doing well and will continue to do well. Make your service so awesome that people keep coming back and tell their friends, and your business will thrive. It takes time and effort, but it's worth it.

Quotes by Alex Hormozi

"Software is not sticky; really good software is sticky"

– Alex Hormozi

"Making the right bets is how they got the money because they earned it"

– Alex Hormozi

"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"

– Alex Hormozi

"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"

– Alex Hormozi

"You have to be really good at software and really know a lot about the business"

– Alex Hormozi

Full Transcript

about why starting a software company as an information and service marketer e-course guru etc is a terrible [ __ ] idea if you don't know who i am my name is alex ramose 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 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's sticky no 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 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 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'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 gonna market it and it's just like a course and then people are just gonna have to stick with it because i introduce 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 gonna 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 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 i put all this time and i said it publicly my ego is now attached to it etc then you want it 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 churns 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 turn metrics 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 up front because sometimes 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 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 in each client continues to spend more with you over time you're gonna 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 is it that i that either of those scenarios occur 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 and you have more people that you could sell 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 have paid you know some dude in bangladesh 50 grand to put together and think that they're all of a second to take their 2 million profit business and get a 20 x top line multiple on it it's horse [ __ ] 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 because they're not [ __ ] dumb think about that they got the money because they earned it they're not stupid right they get it by making the right bets and i mean i i heard this one the other day so what i'm gonna do is i'm gonna get people to subscribe to my software for my 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 it's not software that people are using 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 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 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 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 names 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 outbounds you can get more customers figure out ways you can serve more customers 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 just want to say this again they're not stupid think about the people that you know who can stroke a hundred million dollar 500 million dollar check they didn't get there by being morons so why would you expect them to to buy your [ __ ] software that you tacked on onto your service business to automate one thing be like well i'm tech enabled certain no you're not you're either service or you're tech period 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 obviously i love competing it's 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 gonna i'll wrap it up in a second people here that you can get 10 times top line 20 times top 50 times top line right for software but that's not the vast majority of software's in general that gets sold not only that most offers don't get sold at all most software's 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 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 the people are they hit product market fit which by the way is by use 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 software or 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 relations 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 this tends to happen right around that like i want to say like one to threeish million dollar mark is when people think they're gonna get cute they're gonna get fancy they're gonna be like i'm smarter than the space i'm smarter than these people i'm really trying to get away from from all this guru [ __ ] all this all this servicing these customers who don't understand my value it's not that good that's why they're not saying like that's 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 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 mother nation love you guys keep being awesome i'll see you guys next one