https://www.youtube.com/watch?v=pw1PcHfYP2w

1 00:00:00.000 --\> 00:01:00.000 in this video i'm going to talk to you
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 remozy on acquisition.com it's a portfolio
of companies that now does over 100 million a year and i have nothing to
sell you 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

2 00:01:00.000 --\> 00:02:00.000 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
be 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 that 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
introduced them to it it's not true that's not gonna happen you have to
be really good at software and really know

3 00:02:00.000 --\> 00:03:00.000 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 set 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

4 00:03:00.000 --\> 00:04:00.000 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

5 00:04:00.000 --\> 00:05:00.000 which is why a lot of these guys use
funding up front 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 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

6 00:05:00.000 --\> 00:06:00.000 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 gonna 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
dollars 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 going to do is i'm gonna get people to subscribe
to my software for my for my mastermind and then i'm gonna 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 gonna look
at time on screen they're gonna 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

7 00:06:00.000 --\> 00:07:00.000 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 spend 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

8 00:07:00.000 --\> 00:08:00.000 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
enroll 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'm just going to say this again they're not
stupid think about the people that you know who can stroke 100 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 onto your service business to automate one thing be like well i'm
tech enabled cert 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 i obviously i love competing against these other
guys who try and

9 00:08:00.000 --\> 00:09:00.000 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 hear 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 software's itself 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 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 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

10 00:09:00.000 --\> 00:10:00.000 those three things occur the software
is not valuable 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 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 three ish 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
shed 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 yourself in the mirror and be like they're
not staying because we are not fulfilling our promises and then that is

11 00:10:00.000 --\> 00:11:00.000 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 work takes time that's all
i got mother nation love you guys keep being awesome i'll see you guys
next one
