This article is Part 1 in a short series of blog posts where I will lay out my business and investing strategies at a bird’s-eye level. The Rich Dad books talk about focusing on what you’re good at, but diversifying in terms of the type of asset you own (as opposed to diversifying across industries within one asset class). I’ve taken that concept and applied it to my own passions, as well as the knowledge I’ve gained from all of the reading and research I’ve done over the past couple of years, to determine just what business and investing vehicles I plan to use and how I plan to leverage them.
This article talks about how I plan to augment my investing portfolio in the “BUSINESS” asset class by building businesses around software products.
I’ve wanted to be an entrepreneur since I was very little. I would always see how my dad, a successful business owner himself, was able to set his own schedule and work when he wanted. He was able to make time for my sisters and me when we were younger, even taking weeks at a time to go to the beach or to take some other vacation. By the time I was in college, he was playing golf during the day while everyone else was working – several times per week!
So I decided that I want to do the same thing. Wouldn’t you?
The Place in My Portfolio
Everyone has their passions and areas of expertise. If you enjoy fixing up houses, then maybe the core of your portfolio should be real estate. If you’re more of an accountant-type and you enjoy running the numbers, you might have an advantage in the stock market. As a software developer and aspiring entrepreneur, I’m excited about building software applications to solve real needs, building a business around them, and selling them to people to meet those needs. Building software businesses just sounds fun to me. Thus, it makes sense that this would be the core of my portfolio — that I would spend most of my time working to accumulate and grow my software businesses, and then funnel the extra cashflow from those businesses into other, more conservative investments in order to round out my portfolio, stabilize my wealth, and hedge against the risk associated with building businesses (after all, even the best of them can still fail!). My businesses will make me rich – the other investments will just be used to complement and increase this wealth.
Since I’m a software developer, it makes the most sense to leverage my skills and build businesses around software applications as products. That is probably what I will talk about in this blog more often than other topics. It doesn’t matter what your product is, though; just find your passion and go for it!
I used to think that, in order to build a successful business, I’d need some grand idea – I would need to come up with the next Google or Facebook. It’s also a big reason why many people are afraid and think that starting a business is so risky. I think that’s what most people consider a “successful business” to be. The truth is, as I learned later on, that you can make a very luxurious living as a bootstrapper building a lifestyle business and pursuing cashflow. The business may not be worth billions, but it can afford you a very comfortable lifestyle in complete freedom. In fact, without investors behind you pushing for that big buyout, you’ll probably have even more freedom!
Today, the barrier to entry into building a business is much lower than ever before. Previously, you needed a lot of capital – your products were physical and had to be manufactured, your customers were all over the place and the product needed to get to them, and all of this needed to be done manually, so you had to hire workers. Today, however, you can start up a business with a laptop, an internet connection, and some time and effort spent building the product and executing the marketing strategy.
I came up with my plan in 2013 while I was planning on building a freelancing and consulting business. I thought that, as I worked with clients, I could see what problems they were running into consistently, and then build the tools that could solve those problems. Once I had the tools, I could sell them online. Over time, I could accumulate more of these products, building out a portfolio. During this time, I read The Four Hour Work Week by Tim Ferriss, and later discovered Startups for the Rest of Us by Rob Walling and Mike Taber. While I already had a vague notion of how to go about my plans, these guys had already done it, and were able to not only describe the plan I was pursuing very succinctly, they had actionable advice on how to achieve my goals!
What Kinds of Products?
The great thing about software products is that they’re so diverse. You can literally build an app for almost anything – healthcare exchanges, streamlining sales processes, data analytics. It can also be any complexity you choose. You can start by simply building a blog with the intention of gaining commission on affiliate sales or making money as an “expert” on a niche topic. There are several people, like Pat Flynn on Smart Passive Income, who have amassed a ton of passive cashflow by building a portfolio of simple websites like this with little to no programming skill necessary.
You can also build a large, complex SaaS app like The Benefit X-Change. This takes a lot more effort, and as such it can be a higher risk scenario, but also has a huge potential for return if done right. In episode 102 of Startups for the Rest of Us, Rob describes four tiers of web apps. He explains that he started at the lowest tier and, as he mastered the skills needed to be successful with those kinds of apps, he would push himself to build something bigger on the next tier, forcing himself to learn something new while at the same time building something that could be far more profitable. I would tend to agree that this is a good strategy – in fact, the reason I’m focusing on a bigger, higher-tiered app for my first business (as opposed to a simpler, lower-tiered app) is because of my mentor and partner — my father — and the ability to learn a lot more about business working with him than I believe I would working on my own.
The Steps to Building Software Businesses
Building a business sounds complicated (and it is!). The purpose of this blog is to talk about how to accomplish that task. Simplifying the steps makes it sound a lot easier than it is, but for the sake of this post, I’m going to do it anyways.
At a very high level, the steps to building a software business are:
- Find a Problem to Solve. Building a business is a market-focused activity, not a product-focused activity. Your business is not actually looking to build a product – it’s looking to solve potential customers’ needs in a profitable way. So you must first do some market research to discover a problem you can solve.
- Build or Acquire the Product. Once you know you have an opportunity in front of you – that your idea will actually solve problems for people and that they will actually pay for it – you then set out to build the product or buy an existing app to renovate or enhance. For big software apps, this can take a very long time. The guys on Startups for the Rest of Us harp on trying to launch your MVP (minimum viable product) within 6 months, or else you’ll burn out and it may never get completed. Most other sources agree – you should really focus on building an MVP. You can always add new features later, but if your idea doesn’t succeed then building those features up-front was just a waste of time.
- Do a Ton of Marketing. I’ve read that if you don’t start executing your marketing strategy before you’ve written a line of code you’re doing it wrong. This could include getting salespeople ready or it could mean building up a blog and mailing list of interested potential customers.
- Iterate and Automate. A successful product launch doesn’t mean you’re done, but it does mean you get to see whether you’re successful and, hopefully, you get to start making money. Congratulations, if you get to this point, you’re a real business now! If you want to keep being successful, you have to continue to work for a bit, though. Support emails will start rolling in, marketing and sales are still necessary, and new features must be added. It can take up to 2 years (sometimes longer, depending on the entrepreneur and business) to get all features implemented while automating all of the above processes. Of course, the business should continue to grow during this time, and it should get exponentially easier as time goes on, since the business is now profitable and you can simply outsource much of the work, leaving you with more time to automate more stuff, which brings you back to the start of the automation cycle.
Again, there’s a lot more involved in each of these steps. But that’s what this blog is for! In future posts I’ll expand on these concepts (and more).
Get to It!
I plan to build a small empire of businesses as the core of my portfolio. My passion is software, so my products will be software apps and tools, but as I hinted at above, these tips and tricks are mostly applicable to any kind of product at a high level – just replace “software” with whatever you’re hoping to build and sell!
And so, I’ve laid out my plans for starting businesses. You have to ask yourself – what are yours?
This is just Part 1 of the Getting Rich Through…. series.