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When my husband and I started our first business back in 1997 we had aspirations of getting millions of dollars in venture capital and starting a free Internet service provider (ISP). We were so excited by our idea – and remember, this was during the dot-com boom – that we quit our jobs and took out a loan to start our company.

We were young, enthusiastic… and highly deluded.

But as we spent the first few weeks pouring over our business plan and financial projections, I began to feel increasingly uneasy. We were speculating about sales in a business we didn’t even know would work!

Of course, that’s what most dotcoms did at that time… but it didn’t sit right with me. Somehow, I felt that spending weeks on pie-in-the-sky projections was not just misguided, but a colossal waste of time.

And then our dreams were shattered. I still remember it to this day. We had just finished the latest presentation to the investors who were considering funding our business. We had shown them a demo of our advertising-based-free-ISP idea and given them a copy of our 100 page or so business plan.

I think they asked us to go away and come up with further numbers but I read the subtext somewhat differently. It was quite clear: “your numbers don’t stack up and we’re not confident you have a real business here. We’re not giving you our money.”

Now, the sad truth is that many investors and venture capital firms that invested in dotcoms during the late 1990s never let such misgivings stop them from funding similar businesses. (One day I’ll tell you about the company I know that got $12 million in capital… never made any sales… and let all that money slip through its corporate fingers…)

After all, many VCs’ sole aim was to make money by selling their stake at an initial public offering (IPO), and the performance of IPOs at the time indicated that such an approach was quite lucrative (even if it wasn’t sustainable)!

In any case, the financiers we talked to seemed to be reluctant to invest in our idea at the time, which left us in a rather difficult situation. It was a harsh reality check: we had no jobs, no money, debt up to our eyeballs, and NO business.

It was, however, a reality check we needed. One which got us on the right track.

Funnily enough this ‘right track’ also got us into trouble. But I’m increasingly coming to the view that it’s the kind of trouble that most, if not all, successful startups almost ALWAYS go through…

I’ll reveal what that trouble was - and what the major take-out is for YOU - tomorrow. But for now, here’s today’s ‘lesson’:

Spending all your time on financial projections without knowing WHAT you can sell and IF you can sell it… is an exercise in self-delusion, as well as being a massive waste of time and opportunity.

I’m a big fan of planning… but after a certain point, planning and projecting into the future is just guesswork. The best kind of planning is based on reality and the faster you can experience reality, the more accurate and helpful your planning will be.

More on the trouble we got ourselves into tomorrow…

Recently, we’ve heard a lot about the economy. How banks have gone bust, people are buying less, tech companies are laying off people, how we’re in (or headed for) recession, and so on.

If you’re like me, you can see the opportunity in all this. I firmly believe that this is a time when the pretenders will fall away, and only the strongest will survive and thrive.

But what about another kind of economy that really does doom Internet marketers? In fact, it’s the kind of economy that dooms us in good times and in bad.

It’s the ‘false economy’ i.e. the circumstance where you aim to save in one area… without realizing that what you save actually COSTS YOU MUCH MORE overall.

A great example of this is someone who drives across town to find the cheapest gas station… but ends up paying MORE in fuel costs (not to mention time) based on driving the car to find the cheapest gas station!

Unfortunately, I see the same phenomenon among small businesses and, in particular, Internet marketers. Actually, I’ve been guilty of it myself.

There seems to be, for example, a common tendency to try to avoid anything - whether it’s information, software or traffic generation methods - that costs money.

Now, there’s NOTHING wrong with looking for low-cost or free ways to do things, but the question is: is there a false economy in doing so?

Will the time you spend trying to cobble together your own website really be time well spent? If it takes you 6 weeks of struggle as you try to learn how to put together a website… is that really cheaper than enrolling in a web design course and learning how to do it properly? Or than paying someone to design and develop the website for you?

Even if you ARE an accomplished web designer… is your time better spent designing all your websites, or doing something else that has much more value (such as marketing)?

Or if you insist on using only free traffic generation methods such as search engine optimization (SEO) or article marketing… are these really free?

Or is there a price to be paid in terms of the TIME you must spend on SEO and article marketing to generate meaningful results?

And could you have learned what does or does not work much FASTER and ultimately more cheaply had you invested a few hundred dollars in pay-per-click advertising?

In some cases, the choice to take the ‘free’ option may entirely sound. But, as the saying goes, nothing in life is free. There is always a price to pay, whether it’s in terms of time, money or both.

On that basis, I would urge you to consider the obvious and not-so obvious costs of everything you do… and decide, on that basis, which is actually a false economy… and which will genuinely be cost-effective overall.

As the co-owner of an Internet marketing services firm, you might think my answer would be “yes, you can and should outsource your marketing”. But I couldn’t disagree more: no entrepreneur should “outsource” their marketing. At least not the understanding or thinking behind it.

My definition of marketing is generating, converting, satisfying and re-selling customers. Which is really what any business, by definition, should do. On that basis, outsourcing your marketing would be like outsourcing your business.

Perfectly fine to do, but it would make you an investor, not an entrepreneur.

That does NOT mean you can’t or shouldn’t outsource a range of marketing activities to people or companies that specialize in those activities. But the thinking behind those activities should come from YOU.

YOU should ideally know the most about your target market, what they want, the best way to deliver it to them, and the marketing strategies and tactics to optimally generate, convert, satisfy and re-sell them. By all means engage coaches, consultants and other service providers to help you gain clarity over these issues.

But remember - advisers are there to advise, not to MAKE the decision. The decision making rests with you. And for very good reason… since the buck rests with you too!

Of course, I’m preaching to the converted: you wouldn’t be reading this newsletter unless you took an active interest in marketing. But let this serve as further reassurance that the time you spend learning about marketing is time very well spent.

There are two main schools of thought when it comes to whether or not you should build a business based on what you’re passionate about.

Some argue that if you pursue your passion the money will follow. Others say that you may not be able to build a sustainable or lucrative business based on your passion. You might be passionate about building things with toothpicks… but whether you can translate that into a business is another matter.

My view is this: just because you’re passionate about something doesn’t means you’ll be able to build a business around it.

HOWEVER you do need to be passionate about your business to be successful.

Depending on who you are, being passionate about the subject matter of your business may be optional. It’s not optional for me - I need to be passionate about what my business does in order to stay interested in it - but I’m well aware of successful business people who have nothing more than a passing interest in the products and services they sell.

What I don’t think is optional is a passion for your customers. Not if you’re going to start a business from scratch and build it into something GREAT. Equally, I don’t think being passionate about business itself is optional.

Unless you love the cut and thrust of building a business, it’s unlikely you’ll have the persistence, resilience or “opportunity radar” required to overcome the inevitable challenges and seize the opportunities that come your way.

Legendary Silicon Valley venture capitalist John Doerr, polled executives from the companies his firm, Kleiner Perkins, has funded, and came up with 10 tips for new and struggling tech startups in the current economic environment:

1. Act now and act fast, including, if possible, raising more capital.
2. Whatever tough decisions you make, be careful to preserve the vital core of the business.
3. Save or raise 18 months or more of cash.
4. Defer capital expenditures. For example, instead of buying more PCs or more software, use web-based applications.
5. Negotiate with suppliers and vendors to get more favorable (longer) payment terms.
6. Get everyone in the company selling - not just your products and services, but your ideas and the company itself. Focus on increasing revenues.
7. Replace cash-based bonuses with equity-based bonuses. Consider a voluntary salary deduction program to keep staff on.
8. Invest cash in a safe place e.g. Treasury bonds.
9. Monitor indicators of whether and the extent to which revenues are coming in. Ideally, you’ll want indicators that tell you whether you’ll be getting revenues or not 90 days in advance.
10. Regularly communicate with staff, investors, and customers.

Source: Jason Kincaid, “VCs Speak On The Economic Downturn: Batten Down the Hatches”, TechCrunch, October 29, 2008