Systems as an asset class

Since paid systems have underlying cash flows that reward their owners (makers and intellectual property owners), we can consider them to be financial assets.

By a system I mean know-how packed so that it runs: the steps, the checks and the tools that get a result. When I first wrote this in 2023, it was about info products like guides and courses. The argument holds even better for systems: a guide tells someone what to do, a system does it.

Now, a popular method of investing is to put your money into ETFs that follow the S&P 500, Nasdaq, Russell 2000 and other indexes that diversify risk for an amateur investor who has no time to dig into the financials of each company.

Such an approach is considered a relatively safe way to get 7% of annualized returns (on average and over a relatively long timeframe, given volatility, market conditions, etc). That means that your $1000 invested in such an ETF would return $70 over the course of a year. For an average person worldwide that would mean hundreds of thousands of dollars, if not millions, to cover the cost of living and to protect capital against inflation.

Now, as the creator of Xevol, I want to share how I think about systems and a relatively safe way of capturing value and “risking” your time making them.

Many makers set a goal of selling to thousands if not tens of thousands of customers and consider anything less to be a failure. Of course, it’s great to dream about these outcomes, as they would mean a quick path to retirement, financial freedom and all that ease of mind people are pursuing. However, that is not realistic without established distribution. It takes some time to get there, and as we all know, the first couple of months are when most people give up (if not the first few weeks).

What I want to offer here is an alternative way to think about investments, spreading risk and getting to that sweet asymmetric upside (meaning you bet $1 and get $10 or more).

Let’s say your hourly rate is $50 and you would need to spend 15-20 hours over the next few weekends (if you work full-time like most people, weekends and late nights are the only time slots for this really) — that would mean every system costs you around $1k to make. Realistically less, as most professionals cannot use 100% of their free time, but $1k is a good number to work with.

Now let’s say it took you 20 hours to turn something you know well into a system, which could be anything really:

• finding and qualifying leads in a niche you know

• drafting a website for a local trade from its Google listing

• tracking a market and sending a weekly report

• preparing a move abroad, step by step

You get the picture. Essentially you turn what is in your head into steps and checks, test it, and put a price tag of $9 on a run. A fair price? I don’t know, but that’s enough to calculate the metrics.

So now you have a system live with a “Buy” button that says “$9”. You can run it for your own clients, or let others run it themselves.

Back to the point at hand: after payment fees, a $9 run leaves you about $8. To cover the investment you would need about 125 paid runs. Is it a lot? I can’t tell, but it’s definitely possible.

A paid run every single day is probably not realistic for most, but one a week is realistic for a decent number of makers.

So let’s take ~50 paid runs per year with $8 from each. That’s $400 of revenue from a single system that required ~20 hours to make. That means that covering the initial investment would take 2.5 years. That’s a CAGR of 31.9% (higher than the greatest investors we all heard about). In simple terms, to achieve the same return your bank would have to offer you 31.9% per year instead of the measly 1-3% we see everywhere. And you would not actually spend $1000 making it. It only costs you time.

The great thing about this is that it does not stop once/if you return 100%. Chances are, if your system returned 100%, it’ll continue to sell and to return even more. And unlike a guide, a system gets better with every run, as you fix the steps where it went wrong.

Now, that’s an example of a single system in your portfolio. What if you had 3, 5 or 10? You see where I’m going with it. Once again, the more you put out, the higher the chance of something becoming popular.

In addition, $9 is not the ceiling. People pay for the result, not for reading. A system that finds clients, or saves someone a costly mistake in a niche like migration, education or investment, can be worth $90 or $500.

I hope these examples give a clear picture of what is possible when you treat systems as an alternative asset class, one that needs little upkeep and no insurance compared to other asset classes.

The great thing is that it also provides pleasure as a form of creative activity, builds up your reputation and makes you more knowledgeable about whatever you spent 20 hours researching and building.

Can’t think of a better activity for getting educated, established, and paid.

–Kuan