Why Even The Smartest Teams End Up Selling Info

a look at the numbers, and an incentive analysis

The viral app CAL AI

There’s a viral app that’s been making a lot of waves lately.

It’s called Cal AI. It is basically like MyFitnessPal except powered by an AI Camera. You use it by taking a picture of whatever you’re eating and it’ll use an AI model to infer what’s in the picture, estimate quantity, ingredients, and arrive at a total calorie estimate.

The idea is that it makes it really easy to calorie count and help you on your weight loss/ gain process.

They’ve been claiming around $3.6 Million / month in revenue, and I do believe them. I like to think people have no reason to lie usually. It’s not always true, but I’d simply rather have that belief than the opposite one. So let’s keep the working assumption that they indeed make $3.6M/month in revenue.

That’s impressive! They’re also a bunch of young 20 somethings, a few of them are just freshman, and one of the four founders is actually at the University of Miami, my alma matter!

What’s all the talk about?

But here’s the thing— yesterday, they announced that they will be launching a course teaching other people how to build similar apps as they have. Ostensibly I have no issue with this personally. I believe everything in the world comes at a cost, and so you either pay with money or you pay with time. You simply must decide for every “purchase” which currency you’d like to use. I prefer to spend money on things that I don’t want to spend time on— I think everyone does. I also see courses as a similar situation: I prefer to spend $1,000 on a course that will teach me exactly how 4 young guys in their 20s built a set of apps that gets them $3.6M/month. To me, I could probably figure that out on my own too but it’ll probably take me a decent few months of trial and error. And sure, I’ve learned a lot of things through trial and error but one of those things was also that the only thing that matters most is getting the job done, and not all time expenditures are worth the same as others. So personally, I’d gladly cough up $1k for their course, rapidly implement and I’d probably see a return on my investment pretty quickly. If I really wanted I’d calculate the Internal Rate of Return (IRR) of the venture and determine if it beats the returns I get from JANUS or other ventures, or even the medical path.

But I’m not going to do any of that because I am entering a season of “no”. I want to say “no” to a lot more things than I say “yes” to. I think I’ve said yes to so many things over the past years that I have developed a very, very unique skillset. I feel it is about time I focus intensely on momentum, and every “no” is an active decision to preserve momentum. Every “yes” is an expenditure of said momentum. So, that being said, I will not be purchasing this course, because app development is not a priority for me right now.

If it is for you, feel free to check it out: https://appmafia.com/

First, let’s look at the numbers

Now, that all being said, what I also wanted to do in this newsletter piece is address a very common misconception I see in many people, and I see us business folks take advantage of this far too often. The honest ones will usually point out the difference but the one’s that benefit from optics will usually not, and you’ll be left with a wrapped sense of reality and you’ll make poor decisions. I want to prevent you from making poor decisions as best as I can determine them to be poor.

• So, App Mafia, the team behind Cal AI claims to make $3.6M/month revenue. As mentioned, let’s assume this is true. Regardless, since it is all App Store driven sales, Apple takes a cut of 30% on every transaction.

• That leaves them with $2.52M/month.

• Now, they probably spend around 80% of that to get the sales and attention in the first place. This is almost always a combination of Meta Ads, UGC, paid acquisition.

• That leaves them with: $0.5M/month.

• Of this, there’s around a 40% federal tax rate on them.

• So that leaves them with $0.3M/month.

• Now since it’s a team of 4 young guys, that net’s them each $75,000/month.

That is a great amount! It’s certainly more money than most people will know what to do with, and at that young of an age, they’re doing well for themselves. If that’s what you’re thinking right now, I’m not here to argue with you— I don’t even disagree!

Where the circles I’m in are taking interest in this story however is that it is interesting to see how quickly $3.4 MILLION gets diluted down to $75k.

That’s a 2% net margin on their viral business.

It’s worse than the average 6-10% net margins of a restaurant. It’s way worse than the 50-75% net margins I have running JANUS. It’s even more worse than the 90% net margins of selling courses.

What does this tell us about their incentives?

And this is my final point. This is why, allegedly someone who is making $3.6/month will take time out of their business hours to instead start recording content for a course business. The only reason that makes business sense for them is because they finally looked at their numbers and realized that their business, is in fact, quite sh**.

They work far more than most, for far less margins. It’s also a business they can never sell because there is absolutely no inherent MOAT, so there isn’t really an exit path either. So, of course these guys figured it’s time to cash out by selling a course.

That’s not to say it’s a bad thing at all— they clearly know what they are doing and its not like their results aren’t real. It is however important that folks understand THEIR incentive and reason for this. The business model they want to sell you on does make money, it made them $75k/month for around a year, but they themselves eventually found something else to be worth more, and they are exiting it by teaching you the model.

Lot’s of cases like these around. This is also probably why course gurus get attacked for being scammy.

I like to never lay judgement on people. There is no point in judging other’s actions since given enough crossover between their life and yours, you’d probably make the same decisions.

I, instead, prefer to assess motivations, strategies, and intent.

I hope this read was somewhat educational for you, and helps you get a better snap judgement of the numbers you see people plaster online.

Have a good upcoming week.

Cheers,

Ali