This topic is an ‘oldie but a goodie’ for us. We’ve long suspected that ‘software eating the world’ doesn’t or shouldn't mean more software companies. AI is accelerating that conversation…
If you've built software that truly changes a sector's economics, selling the software is often the slowest, most expensive path to the smallest outcome.
Being a pure software company can be the right answer. Just not nearly as often as founders and VCs assume.
Most sectors that haven't adopted software don't have a product problem. Plenty of people have tried "better software." What they have is an adoption problem.
Sometimes adoption fails because incentives are backwards. The people who'd need to use your product would lose power, status, or even their jobs. Sometimes it's sunk cost—they've already paid for a system and can't justify starting over. Often it's risk tolerance—thin-margin businesses can't afford to bet on unproven tools, even when long-term ROI is obvious.
Product quality isn't the constraint. Adoption is.
So if your software actually works—if it creates real economic leverage—the real question becomes: what should you become in order to capture that value?
The Framework
Three questions get you most of the way there:
Is the customer base fragmented or an oligopoly?
Do they already spend money solving this problem?
How large is the economic impact you create?
The answers point to three paths.
Path 1: Sell software
Democratic market, existing budget, good economic lift.
They already pay for solutions. You're just better. Adoption is friction, not structure. Sell software.
Path 2: Sell "business in a box"
Democratic market, no budget, good economic lift.
They don't have budget for software, but your software could run a business. So sell them the whole business—software included. Help them start or operate what they couldn't before.
Path 3: Own the customer or become the customer
No budget, massive economic lift.
No budget means you're creating a category anyway. The question is whether you acquire existing businesses or build the competitor from scratch. That depends on how fragmented the market is, customer acquisition dynamics, and how much your software transforms existing operations. Either way, you're not selling software—you're using it as an operational advantage.
The Pattern
The goal is maximizing value capture relative to equity required. Sometimes that means selling software. Often it doesn't.
Most founders default to "we're a software company" because that's what’s expected from people who build software. But often the economics of other models are better.
The question isn't what you are today. It's what captures the most value for the equity you'll need to spend.