One of the unfortunate parts of starting your own business is that from the “inside” you often lack the necessary perspective to succeed.  In other words, you see all the good and not enough of the bad.  And the place you are most likely to only see the good and not see the bad is with yourself.  It’s hard to know your own limitations, but I’d encourage figuring out what they are and addressing them immediately.

Granted, being an eternal pessimist is not much fun, and building a business should at least be a little fun, but the longer you act like everything is rainbows and unicorns, the worse it’s going to be when you finally understand the reality of the business world.

Once upon a time, I embarked on starting a business that was essentially building a better mousetrap.  We were going to offer a software solution to a niche market.  We were sure our success was imminent based on the idea that what we had built was a significantly upgraded version of what already existed in the market.  Yea!  Confetti!  Champagne!  We’re going to succeed!

We were further assured of our eventual success by spending countless hours over a number of months doing product and market research, talking with potential customers, consulting with similar businesses in other industries, etc. and finding that our ideas and execution were so impressive that folks simply couldn’t wait to cancel their accounts with our competitors and use our service.

And of course we believed every bit of it, walking around with our heads held high.  We were impressed with ourselves for being so brilliant as to envision a product that would put the competition to shame.  What we didn’t properly take in to account was our own limitations.  Our limitations as programmers, designers, salespeople, managers, accountants, etc.  We thought that building an awesome product would carry the day.  I even recall saying a number of times when facing a problem, “LIsten…if we start getting some money coming through sales of (Awesome Product), these little problems will work themselves out.”  What we didn’t realize, what I didn’t realize, is that the only way your product is going to ever get off the ground - much less experience stratospheric success - is if you are organized. diligent, and responsible.  And the only way to be those things is to be honest with yourself.

My latest venture, by far my most successful to date, has two partners that lack the financial organization to by a cup of coffee with a dollar bill.  So, to keep payments from getting lost and credit terms from being breached and tax payments from being late, we brought in a partner who is strong in these areas.  The two disorganized partners focus on their strengths and the financial person handles the books.  Everyone wins.

This seems obvious, yes?  Well then why is your company still counting on non-experts to do critical things?  Why is your design process in some amateur’s hands?  Why is your database being worked on by a B grade engineer?  Why are you maintaining your Quickbooks at midnight after an 18 hour coding session?

Get organized.  Be responsible.  Recognize your limitations.  Because if you don’t see them now, the market will point them out to you eventually and it will probably be too late to do anything about it.

This is a pretty simple lesson but one that is often overlooked by over-eager entrepreneurs.  In the event you have any money in the bank, either through venture money or revenue or whatever, the last check you should write is to yourself.  I mean, the LAST check.  If you are in this for the long haul the smartest thing you can do is to continue living on bread and water for as long as possible while your company grows and stabilizes.  Go get a second job if needbe to pay your own bills rather then rely on your company for income for as long as possible.

Any cash you have on hand should obviously be used to pay current obligations (i.e. rent, utilities) and then should be plowed back in to your company.  Money reinvested - in other talented people, in assets, in technology - will only serve to grow your company AND make it more stable.  Writing yourself a paycheck, much less a BIG paycheck as a reward for all of your hard work is a downright stupid idea.

Put the company’s money in to the company.  Your time will come.

Ugh. Sorry for the lack of posts, but I can’t impart much wisdom upon the masses when I feel like an idiot myself. You see, since I last posted regularly, the company that I fought for for almost 4 years went out of business. And the greatest lesson learned in that is the one that I put off learning until the last minute.

Lesson of the day: It’s all personal.

Try as you may, there is no way to dissociate your personal feelings from the business you are trying to build. Maybe one day you’ll have a billion dollars and you’ll throw some money at a little startup that fails and it won’t bother you. But when it’s your sweat, your money, your time going in to a project, there are two possible results: the unparalleled jubilation that comes with success, or the indescribable heartbreak that comes with failure.

And rest assured that just as the elation that comes with “hey this might actually work!” will leave you joyfully numb for days, the devastation that comes with finally conceding failure will hit you like a piano dropped on your head from five stories up. Nothing you do will prepare you for either feeling, but you would do well to remember that sooner or later, you’re going to experience an indescribable emotion of some sort.

There are entrepreneurs out there who experience neither emotion, none of the glee, none of the misery. They would have you believe they are able to separate business from emotion. They might convince you that this is “old hat” to them, grizzled veterans of the startup world that they are.

Don’t be fooled: they’re either (1) lying to you or (2) not tying very hard to make the business succeed.

I have met a lot of these people (and thankfully not been involved in businesses with many of them) and it strikes me as sad: at the first sign of difficulty, they usually shrug their shoulders and move on to something else. In the event they stick around, they’ll shift the blame somewhere else to absolve themselves of the guilt and shame that comes with failure. They’ll take credit for even the most minimal crumb of success and dislocate their shoulders patting themselves on the back. But they’ll be finger-pointing at someone else when it’s time to admit failure. Take great pains to not have these people on your team. As the sports parlance goes, you want people who “leave it all on the field.” If you and your team - all of your team - aren’t fighting tooth and nail for your company’s success, then you will fail.

And you will deserve it.

And it will hurt.

Friggin’ Paypal.  So I bought some stuff on eBay and added a new credit card to pay for it.  I selected the credit card.  I clicked “pay.”  Something didn’t take.  And since Paypal doesn’t give ANY HINT WHATSOEVER as to what payment method on file they used to process the transaction, I assumed everything had gone off…well….like I thought it should using the payment method I had chosen.

But that would be too easy.  Instead, Paypal used my bank account, and since it takes 2 days to post a payment from Paypal, I’m now 11 transactions overdrawn and there’s nothing they can/will do to help.  To make matters worse, the dipshit on the customer service line assured me that I’m a moron since their software is infallible and error-free so the mistake must have been mine.

Who loves technology?

Ho.  Lee.  Cow.

 _____________________________

January 31, 2008

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per share consideration of $31 based on Microsoft’s closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, non-controlled assets and cash. By whatever financial measure you use - EBITDA, free cash flow, operating cash flow, net income, or analyst target prices - this proposal represents a compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!’s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft’s share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside given the continued solid growth in our core businesses, the recent launch of Windows Vista, and other strategic initiatives.

Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.” According to that letter, the principal reason for this view was the Yahoo! Board’s confidence in the “potential upside” if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.

Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities. You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines.

We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals. We look forward to discussing this with you, and both our internal legal team and outside counsel are available to meet with your counsel at their earliest convenience.

Our proposal is subject to the negotiation of a definitive merger agreement and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of Microsoft common stock, we would provide Yahoo! the opportunity to conduct appropriate limited due diligence with respect to Microsoft. We are prepared to deliver a draft merger agreement to you and begin discussions immediately.

In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal. My leadership team and I would be happy to make ourselves available to meet with you and your Board at your earliest convenience. Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

We believe this proposal represents a unique opportunity to create significant value for Yahoo!’s shareholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to users and advertisers. We hope that you and your Board share our enthusiasm, and we look forward to a prompt and favorable reply.

Sincerely yours,

/s/ Steven A. Ballmer

Steven A. Ballmer

Chief Executive Officer

Microsoft Corporation

Every morning, before I put my feet on the floor, before I even open my eyes, I ask myself the same two questions:

“Is today the day you give up?” And I always answer “no.” Today is not the day I give up on trying to do better and achieve more through my work, my projects, my family, my future. I make a conscious decision every morning that, no, today is not the day I quit and fall in to the pattern.

Then I ask myself, “Why not?” Why isn’t today the day you quit? Why not back off a bit and take the pedal off the floor. There is nothing wrong with settling in to the comfort and normalcy that is available. Millions upon millions of people have wonderful, fulfilling lives by waking up every morning, doing their best, going through their routine, and then repeating the episode the next day. “Why not?” is me asking myself what it is that makes me feel like I’m different and what it is that I’m prepared to do that day to further the cause.

You see, everyone has a dream or two along the way. An idea or invention or belief that they can be a movie star or walk on the moon or cure a disease or teach English in China. And most people set those dreams aside at some juncture, at first because life seems too complicated to pursue those dreams (”Let me get my college loans paid off with a regular job and I’ll come back to it”) and then life becomes too comfortable to pursue those dreams (”I have it great, and I have too many responsibilities that I’m committed to right now to go after my dream”). Fair enough, no harm in that.

But I’m not one of those people, and I suspect if you’re reading this neither are you. At present, (among other things) I have one full-time job, two other jobs that require around 20 hours a week to fulfill, two web projects I’m trying to develop, and this here lonely blog that I’m trying to update regularly.   There never seem to be enough hours in the day.  But I wouldn’t have it any other way because this is how I keep pushing forward to get to the elusive “something more” that everyone chases, at least for a while. The easy argumet to make would be that I’m missing so much around me by trying so hard. That’s a fair criticism indeed. But some people are hard-wired to go after something and stay the course as long as it takes. As my father in law says, “You will likely find that the key to success in life comes down to one thing: persistence.”

Tomorrow morning, my alarm will go off and I’ll yawn and ask myself, “Is today the day? Why not?” And when I’ve provided myself a satisfactory answer, I’ll roll out of bed and keep pushing. Try it, you may find it helps you remember each and every day not to give up, to keep trying, to put your nose to the stone and push yourself to be everything you were meant to be. Because if you aren’t constantly reaffirming to yourself that no, today is not that day, you might eventually wake up and realize that you quit a long time ago and never even noticed.

Serious question. Are you building software or a web-based business? The differences are clear, but many entrepreneurs view themselves as the next Digg or the next YouTube or the next Facebook that they fail to realize what they are actually building.

The big difference, broadly speaking, is that when you build software, it can scale (more users, more page views, more subscribers) proportionally to the work required to keep it running. For example, a web service with proper architecture can go from 1,000 users to 10,000 users pretty easily. Maybe a few more servers, a bit more bandwidth, presto.

A web-based business, however, scales in reverse. For example, an online news site that caters to Texas sports fans could be started by a couple folks with a few extra minutes a day to submit stories and moderate some forums. But then some Oklahoma fans want in, and the original folks have to add someone to handle the extra work. So on and so forth until they’re running around looking for VC funding to pay the 75 people that are posting stories all day on 100 different things. And it will never end. The more viewers their site gets, the more people it’s going to require on the back-end to keep it up and running.

So, what’s the point? There are a few, but two that I’d like to mention specifically:

• If you are building a web-based business that scales linearly like the second example, get a rock solid monetization plan in place early on. I can say with absolute certainty that Google Ads aren’t going to keep an office of 15 eating steak for long. And if you get some VC money, great. But you’re only putting off the inevitable. Businesses that scale linearly end up with one of three possible endings: they run out of money, they have to decide not to grow anymore, or they work round the clock and never seem to get anywhere. Who wants to do that?

I moderate and write for n extremely popular Fantasy Football site.  We have a staff of about 30 and someone has to be involved 24/7 to keep it afloat.  But the core product is a subscription service for high-quality football information.  A way to make money was laid out early so that when it came time to add staff or add servers or create high-traffic features, the site’s owners were able to do so in a way that scaled the system proportionally to the money invested.

• Although you’d never admit it, part of you is building your business with the hope that some big company is going to acquire you for an absurd amount of money. I think you’d have better luck sailing a rubber-dingy across the Atlantic, but whatever. With that being the case, you need to know this: NO ONE IS GOING TO PAY FOR AN APPLICATION THAT SCALES LINEARLY. Period. No ifs, ands, or buts. If the only way you can grow is to expand headcount, you won’t sell. If your system lacks the technology to have a proportional return on investment for whoever is sniffing around for acquisition, then they won’t be sniffing around for long.

Not every application is ready for a million users right out of the gate. Frankly, very few are. Furthermore, it’s a waste of time to worry about supporting the millionth user when you don’t even have the first user. But you absolutely have to know that your technology - the code, the framework - can scale effectively if needed. Otherwise, your business may grow but you’ll never feel like you’re getting ahead.

As I’ve trumpeted before, the 37Signals blog “Signal vs. Noise” is one to read. There are equal parts design, strategy, development, and business all rolled in to an easy to read form. Even better, the guys writing it have some real experience and real success. Anyway, they had a great post (linked Here ) that is well worth reading.   Some of the highlights…

•  The longer a product takes to develop, the less likely it will launch. Long projects zap morale. Things get in the way. Life changes. Your time demands shift. Opportunity costs mount.
• Your initial assumptions about how critical a specific feature is often wrong. You don’t want to spend all the extra time up front on something that may or may not be the deciding factor. You’re better off executing the basics at a very high level and then adding on from there. What you thought was essential may surprise you.

It seems to have been a while since I last wrote anything. Apologies for that, sort of. I have realized that a lot of the lessons I’ve learned seem small in comparison to the lessons I am currently learning, so I’ve been less then enthusiastic on writing them. However, that isn’t really the point of the blog; I’m supposed to be sharing the lessons that might seem simple in hindsight so that you don’t run in to them yourself. I’ll get back fighting the good fight soon.

In the meantime, I recommend reading (or re-reading) the following posts.

Your little startup adventure is probably going to ruin your life.

There are 4 species of computer programers.

These are two of my favorites, and they seem more topical now then ever before. I promise to be back relatively soon with some fresh new posts.

Holy hot dogs. I’ve been spending the last few weeks trying to source a specific kind of medical software for my employer and EVERY vendor I’ve talked to would have been better served to save us both a bunch of trouble and hang up on me from the word “go.” I’m a reasonably intelligent individual, but for no amount of charts and graphs and screenshots is making any of this make any sense.

My experience with these folks is like this: I tell them what we do. I tell them what we need in the software. I tell them what I want to pay. They nod politely, then forget everything I just said and proceed to pitch their product, wasting my valuable time and theirs.

Not every person out there is a potential customer. Not every person who is interested in your product or service is going to like it. This is a good thing. Yes, you need customers. But what you don’t need is a bunch of round holes that you sold a square solution. Selling people what is “wrong” for them just because you are all about closing deals will make you want to jump off of a cliff. Their support needs will increase while their satisfaction decreases, which is the business equivalent of buying a Yugo.

The success of your business once isn’t about customers finding you to be the right solution for them. It’s also about you finding that they are the right customers for you. On the long street of selling, traffic needs to run both ways for people to get anywhere.