My sister-in-law is due for some very specialized heart surgery. She has to travel from Hawaii to Los Angeles for the procedure.

For several weeks she was emailing the surgeon’s office, trying to confirm the day and time of her procedure, pre-op appointments, preparatory instructions and the like. Irritatingly, the surgeon’s office never replied.

Finally, out of desperation, my sister-in-law called the surgeon’s office and was transferred to the Patient Contact Coordinator. When she told the Coordinator that she’d been emailing for weeks but had received no answer, the coordinator replied, “Oh, your emails went to the SPAM folder and were deleted. If you’re not in my Contacts List, emails are automatically listed as SPAM and deleted.”

“So, can I confirm my appointments and get my pre-op information?” asked sister-in-law.

“Sure. Just send me an email,” replied Patient Contact Coordinator.

Pause. Wait. Wait for it.

“Soooooo, do you want my email address to add to your Contacts List?” finally inquired exasperated sister-in-law.

“Huh?” responded the quick-on-the-uptake Coordinator.

“So that the email you just asked me to send you doesn’t get automatically sent to SPAM and deleted ….. again?”

“Uh … Oh … Yeah, I guess.”

To quote a sage, contemporary American icon: “D’oh!”

How does this surgeon ever stay in business if they never get new patients because new patient emails are summarily deleted because they are not in the Coordinator’s current patient Contacts List?

This office, or at least this Patient Contact Coordinator, could benefit from the advanced email management features of Email Center Pro.

Steve Lange
Senior Editor (Ret.)
Palo Alto Software

I like the following line in “Love Minus Zero/No Limit,” by Bob Dylan.

She knows there’s no success like failure. And that failure’s no success at all.

Here’s a good look through the window of things going wrong or, at the very least, not as planned.  I happened upon it yesterday morning while drinking my coffee, absorbing the early-morning web on a sunny summer morning in Oregon. It’s called BabbleSoft looking for a new home.

I’m sure it was a hard decision to write about; but I’ll bet it was even an even harder one to make. Posting in entrepreMusings, Babblesoft co-founder Aruni Gunasegaram said she came to the decision during a beach vacation. It’s typical, isn’t it, how things like this percolate in the background and come out when there’s time to reflect? She writes:

Babble Soft, an idea that I started tinkering around with after my first baby was born in 2003 (our first beta web app release was in 2007 and iPhone app in 2009), has reached a point where my partner Nicole Johnson and I can’t do it justice and build it to the company it could be.  We just don’t have the monetary and time resources that a consumer web- and mobile- (iPhone) based product Baby Insights and Baby Say Cheese require to become a household name.  I’ve been working on Babble Soft part time while balancing kids, the house, etc. for most of the company’s life.  I spent a few months full time on it just before I took a day job about a year ago, and now the time has come to find a new home for it.  Nicole has been working on this part time, after hours, as well.

We are both discovering that Building A Web Business After Hours is hard to do with two small kids around.  And doubly hard when two ventures are trying to get off the ground in one household: My husband is starting the pre-K to 2nd grade Magellan School that’s scheduled to open this fall and our resources are also being tied up with that and our kids will be attending the school.

That’s a hard moment in business. Still, much better to recognize it and deal with it than to let it linger on, unsaid, forever. And presumably, there is still hope; she doesn’t say closing down. She’s hoping to find it a home.

You’ll notice, I hope, in the quote above how she has a couple of other things going on as well. And oh, by the way, she’s also director of the Austin Technology Incubator and teaches entrepreneurship at the University of Texas.

I knew a man who let a borderline failing business hang around his neck like an albatross for years, even though he knew he should close it down. Arune Gunasegaram has a lesson for all of us in this brief, and somewhat sad, blog post.

Desire alone, or passion and persistence alone, don’t make a business. Sometimes you have to take a step backward. And go on to something else.

I’m sure almost everyone is familiar with the story that Thomas Edison discovered 99 ways to NOT make a light bulb. That’s 99 no to reach 1 yes. The point here is that a negative result, proving something didn’t work or was not so, is just as valuable as a positive result. Sadly, scientific research has become so expensive, and so heavily subsidized/sponsored by corporations, that it has become the expected norm that every result must be a commercially marketable yes result.

That “always yes” attitude has come to shade the development and use of business plans as well. It’s gotten to where people think that every business plan has to show exorbitant profits and wild success. And to reach that end, all that they need to do is overestimate the financial tables a bit, or a lot, until the Profit and Loss and Balance Sheet show the desired results. This is a bad and dangerous tack, in my opinion.

For instance, we saw one plan for a tennis club with indoor court rentals. The financial tables looked good until we divided the rate per hour into the sales forecast. Seems those courts were rented continually, 28 hours a day, every day, 365 days a year. Not possible I’m afraid.

Or the mobile auto oil change business in a large mid-western city. Again, closer inspection of the sales forecast showed that the one worker was changing the oil in a car every 45 minutes, with no travel time between jobs, in all weather, every month of the year. Now, I’ve tried to change my oil in Illinois in January, outdoors, lying on my back in the snow and below-freezing temperatures. Let me tell you from experience that 45 minutes is painfully unrealistic.

Final example: there was the apartment rental company with five vice-presidents but no employees in the personnel forecast, and they never showed how or when they paid for the buildings they said they purchased.

These business plans all said YES in the financials — if you didn’t look too closely.

Now, I say that NO is an acceptable result from a business plan. A business plan for a start-up company that shows huge losses, or negative cash flow is an OK result. It tells you that the business as planned will fail. It tells you that some of your basic assumptions are wrong. It tells you that you are missing something immensely important.

And this is better than OK! Rather than starting up with unrealistic expectations and then hitting bottom in an excruciating crash, you can stop right now and reassess, before you make a financial commitment. Don’t ‘embellish’ the financials by boosting the sales forecast. Look at your market, your competition, your expenses, and everything about your plan and be realistic.

Honest reflection may tell you that this isn’t the business to start right now. Or, you might revise the plan and discover if you put some of those vice-presidents out on the production line, it reduces your costs of goods to a point where you really can make a modest profit on steady sales, without hockey-stick growth. After your revisions, you still might not make a profit until year three. But in going through this process, you may become convinced that the business is viable with adequate start-up funding and second-round investment.

NO is an acceptable result for a business plan if the plan exposed the flaws and showed the way to a realistic YES.

Steve Lange
Senior Editor
Palo Alto Software

Interesting piece on The NY Times‘ tech blogs today, Web 2.0 meets Darwin, pointing out, unfortunately, that what goes up (some Web 2.0 ventures) can also go down.

Watching the stock market this morning has been like attending a bungee jumpers convention. (“Does his cord look like it’s a little frayed?”) Meanwhile, it doesn’t matter whether the Dow is 9000, 8000 or 7000 for tech companies to realize they need to pull away from the cliff as fast as they can. Signs of turmoil abound.

Author Saul Hansell cites several fire sales and failures, and adds:

The stream of negative news is just starting. Radical cutbacks. Fraud discovered. For every company we hear about now, there are many more that realize they are on very thin ice and are trying to figure out if they can avoid a very cold bath.

Further on he cites Rafe Needleman’s list of 11 companies in trouble . . .

Rafe Needleman takes his shot at picking this generation’s biggest losers. It is a gallery of those nifty little Web 2.0 companies that figured they would get big fast and worry about revenue later: Twitter, Meebo, Zillow and so on. He also wonders about some first-generation survivors that may not be able to make it through a second ice age, like Skype and Ask.com. I don’t agree with his analysis. MySpace may no longer be hot with a bullet, but it has revenue of $800 million a year and tens of millions of users. We should all have that kind of trouble. In any case, the dead pool is a game to play in between watching the Dow gyrate and the presidential candidates hurl mud.

Lots of bad news here, but Hansell has a point: Revenue of $800 million and tens of millions of users aren’t really that bad. “We should all have that kind of trouble.”

People used to say you couldn’t be too thin or too rich, and I think we know now that both points are sometimes wrong. Too thin isn’t my problem, so let that one go; but too rich is a problem for some startups. Not when too rich refers to your own money, perhaps, but with startups it’s almost always investor money that creates a problem–meaning: not your money, but their money.

Taking their investment is your promise to deliver. And the more investment you take in, the more return you’re promising to deliver. So if you got more money in than you can spend productively, you’re in trouble.

I once heard a person suggest that he wanted more investment than his plan said he needed for “peace of mind.” Bad idea. You won’t get peace of mind by having somebody else’s money in your bank account gathering the implied promise of delivering something.

What you get sometimes is people wasting money on bad marketing spends because they can’t find good spends, and they have to spend the money before they face the investors. This explains a lot of very unproductive Super Bowl ads during the dot-com madness.

I picked up on that over the weekend reading Roger Ehrenberg’s “Monitor 110: a Post Mortem” on his Information Arbitrage blog.

We rarely get a chance to look backward as well or as openly as Ehrenberg does in this post. Calling his involvement with Monitor 110 “one of the most interesting and informative experiences of my life,” he offers us a view into the heart of it, well organized into a simple list of seven points:

1. The lack of a single, “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the company and with the board

Those are good points, and the post expands on them well. It was “too much money” that caught my eye first because I’ve seen that problem in the past, but I think it’s not one a lot of people think of. Roger adds:

Too much money is like too much time; work expands to fill the time allotted, and ways to spend money multiply when abundant financial resources are available. By being simply too good at raising money, it enabled us to perpetuate poor organizational structure and suboptimal strategic decisions.

I also liked the reference to too much PR too early. I see that happening, too, and he puts it into a very understandable, concrete context:

[some] bad behaviors were reinforced by an unplanned event that sharply impacted our psyche: being on the front page of the Financial Times. It is hard to call it a mistake since we didn’t seek to get such exposure, but I put it down as Mistake #3. To be honest, this single fact was a very meaningful factor in our failure. It raised the level of expectations so high that it made us reluctant to release anything that wasn’t earth-shattering.

Both of these points are reminders that the hunt for financing is not just a simple quest for money. It’s about finding good partners, the right partners, and building long-term relationships and healthy businesses.

Information Arbitrage: Monitor110: A Post Mortem

At the Princeton business plan contest earlier this month, David Johnson, advisor to VCs and a VC fundraiser, was asked whether being involved in a failed effort would rule out an entrepreneur from future funding. His answer:

“Failure is not a problem. It’s a good thing to know what that feels like.”

At a venture competition some years ago, in the judges’ meeting before it started, the judges went around the room introducing themselves. We talked about our companies and our successes. Ty Pettit, an entrepreneur and fellow judge from Portland, Oregon, opened his introduction with the following (paraphrased):

“Probably my best qualification to judge this competition is that I’ve just finished mopping up a company I ran into bankruptcy and had to close.”

Can we talk about startups without contemplating failure?

I think it’s important to understand that failures happen. With good planning you minimize the chance of failure by doing some counting ahead, knowing what’s required and what’s at stake. But don’t ever bet what you can’t afford to lose.