Money

Please, please, please get with the program. Checks are ancient pre industrial age relics that still hang around in a few places in the world. Unfortunately the worlds most dynamic economy the US is still addicted to checks. This makes this article extremely US centric, but it also affects non US readers who do business with US businesses.

I also want to say that I am not in anyway targeting any specific clients of mine here. This is a generic problem and based on conversations I have had with other US based freelancers. That said, with the exception of one client all my US clients have insisted on using checks.

I am targeting web 2.0 businesses here in particular. We are constantly asking other people to “think outside the box” and do things transparently and online. Paying people with checks is basically the least transparent and online thing we do as part of doing business. There are great alternatives that we can and should use.

What is so wrong with checks you might ask?

Everyone uses them? First the obvious:

• Snail mail is so 1980s
• I have better things to do than go stand in line at a bank (thats such an old fashioned activity)
• Relatively high risk for recipient
• Slow clearing. In particular for international payments.
• For international payments the recipient (and his bank) is likely to say “what is this thing you call a check?” (See Jarkko’s experience trying to deposit a US check in Finland)

Eran of OAuth fame has published his financial models for his previous business model for Nouncer.

I’d like to thank him for this as it’s something that people normally don’t publish, so you sometimes get a feeling that you’re working in the dark. He’s changed his business model considerably now so he’s happy to publish it.

The structure is surprisingly similar to what we have, with a few differences though. Anyway go check it out if you’re struggling with your own. It’s a great tool to have.

Sorry international readers, here is another US focused article.

HSA’s are the greatest thing in Health Care in the US since, well the inventions of Aspirin, Penicillin and Peptobismol. Unfortunately hardly anyone has even heard about them, which is a shame as they are ideally suited to people in startups and a fantastic deal.

I wont go into why HSA’s are so good as Auren wrote a great piece on Health Savings Accounts here. This was written in 2006, they are even better for 2007.

To sign up for a HSA you need to find a bank that offers them. I went ahead and signed up for a WellsFargo HSA account. It was recommended by my BlueCross High Deductable Health Plan and I so far like WellsFargo as a bank.

I would like to say thanks to everyone I met at Reboot 8 this year. Both the speakers and the people I met there were fun, interesting and inspirational.

I won’t make this a big shout out to everyone because I’ve gotten to know a lot of interesting cool people there (including a bunch of Danish/Swedish rails geeks, yeah!).

Both Jesper and Chris put up overviews of the Rails meetup. Between them I don’t think they have missed anything. Olle*3 also has a great roundup of the conference.

For many of us who work outside the Silicon Valley area it is a breath of fresh air to get to hang around other open minded entrepreneurial spirits. This was probably the most important aspect for me.

Jeff Cornwall who I do respect writes in his article Short-cut to Trouble. It is about the importance of revenue forecasting. (Via Ken )

Accurate revenue forecasting is one of the single most important steps an entrepreneur takes in planning for a new venture. And yet, we find that most entrepreneurs do not spend enough time determining how much revenue will come in their front doors. Although underestimating expenses is a common mistake in business planning, missing the mark on revenues can be catastrophic.

The article makes the classic mistake of thinking all start-ups follow the same industrial kind of model with VC’s and business plans etc. I think it is not at all relevant to web based start-ups. Where this is probably relevant are the kind of start-ups where you do need a huge upfront investment.

As all internet start-ups and sooner or later realize these revenue forecasts that you do are nothing more than a waste of time. See for example Guy Kawasaki’s Art of Business Plans :

7. Provide a one-page financial projection plus key metrics. Many business plans contain five year projections with a $100 million top line and such minute levels of detail that the budget for pencils is a line item. Everyone knows that you’re pulling numbers out of the air that you think are large enough to be interesting, but not so large as to render urine drug-testing unnecessary. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business—for example, the number of paying customers. These key metrics provide insight into your assumptions. For example, if you’re assuming that you’ll get twenty percent of the Fortune 500 to buy your product in the first year, I would suggest checking into a rehab program.

What you do need to do is understand is a financial version of your business model and explain it such a way that it becomes an instinctive in your head dynamic spreadsheet for you (and any team you might have).

How does this work? Well keep it as simple as this. I sell subscriptions for $10pm. My monthly expenses are $2000. Ergo I need 200 subscriptions. When you have some real historical data and a good understanding of the real market, you can finally do revenue projections. But until then focus on the magical amount of monthly sales you need to break even. This magic number should be a mantra to you. Once you reach this point you have a much better chance of catching a VC butterfly as well.

I have written about this before as my Bootstrapping Anti Pattern #3 – Focusing on an imaginary 3 year revenue goal .