5 Painful Lessons on Business Model & Market Selection


Table of Contents

In school, I started a company that rented out gear for different experiences.

- High complexity
- High stress
- Low profit

Now I own software companies.

- Low complexity
- Low stress
- High profit

Here's what I wish I knew about business model & market selection.

Lesson #1: Good businesses have margin

Back then, each sale had a low markup & made little money.

With software, every sale is almost pure profit.

Good businesses have margin for profits, growth, & life.

Careful wandering into businesses without it.

You will feel it daily.

Lesson #2: Low complexity -> High-quality life

Back then I had to deal with employees and inventory issues. Theft, breakage, accidents.

Software has few moving parts by comparison.

High complexity means high risk and high stress.

Avoid it for a better life.

Lesson #3: Recurring revenue is magic

Back then every sale was one-off. We had to find new customers every day.

With software, customers return every month. Much easier.

Keeping customers is easier than finding new ones.

Lesson #4: Can't shake a bad market

Back then it was a cool idea. Sounded great in a pitch.

But it was a tough market. Young people without money.

Now we sell to businesses with plenty of money. They are happy to
pay more as we deliver more value.

The market always wins.

Lesson #5: Asset light growth

Back then, growth meant buying a bunch more inventory. Have to go city-by-city.

Now software growth prospects are great. We serve customers worldwide.

100 or 100,000 customers isn't that different.

We can grow 30+% annually forever if clever.

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

- Warren Buffett

TL;DR - 5 lessons I learned moving from a bad business model to a good one.

- Good businesses have margin
- Low complexity -> high-quality life
- Recurring revenue is magic
- Can't shake a bad market
- Asset light growth

If you are interested in buying, growing, and selling small companies, check out my course & community on it at IndiePE.com.

Continued Reading: