Inspired by my participation in a panel at SXSW, this post is one in a series of posts regarding the building and operation of web application startups. Many of the questions posed to the panel were about expectations; this post endeavours to ground expectations of aspiring entrepreneurs in reality, by highlighting the stories behind a handful of successful web apps.

When you start anything new – like a business - you need to set expectations. It`s my belief that this is one of the most important steps in determining your success – set your expectations too high and you`ll think you have a failure when you might just have a winner – set your expectations too low and you might squander a great opportunity.

In this context I`d like to talk about building web apps. A lot of people are building them these days – many in their spare time - and I get the sense many are starting off with a false set of expectations.

Over the past few years there have been a handful of companies that by all accounts have been very successful. There is YouTube, Flickr, 37signals and Writely to name a few. Many would-be web application developers have seen these successes and figure they can replicate these successes and it will be easy. In my books this optimism is great - so long as those entrepreneurs set their expectations correctly.

In almost all of the cases outlined above, the companies had something going for them when they launched. 37signals had a loyal audience of readers at their truly excellent Signals vs Noise blog – so their audience took care of marketing their Basecamp project collaboration service when they released. That`s not to say their product wasn`t great and they aren`t very very sharp. I am only saying they had a asset most companies don`t have when they launched – an audience. Writely is another great example. Here`s the back-story on them. Basically they were document management veterans. I could go on but I won`t.

These successes caught the imagination of the press and others - but the point I am trying to make is they did not come out of thin air. So if you are building a web app, don`t expect yours to. We did not have a paying client for almost two months at FreshBooks – by many accounts that constitutes a failure. But we’ve hung in for over three years. We kept improving our product, refining our pricing and spending money marketing a product we always believed in. I like to think our expectations and our faith were well placed when we started – despite the initial lack of results. But we had an asset too. We were able use the revenues from my web design and development consultancy to sustain us as we gradually transitioned all our team from that company to FreshBooks. That revenue generating company and an unwavering belief in ourselves have been our assets…those things, and what I would call reasonable expectations.

Here is a little feature that we’ve been working on that’s coming out in the next release of FreshBooks.  It allows you to easily add a line to an invoice wherever you like… a slight improvement to the current functionality which only allows you to add a line to the bottom. This is all done in Javascript so it is quick and seamless without reloading the page.

I finally broke down and bought a BlackBerry. So far I have to say it’s been amazing. I bought a BlackBerry 8700, but the reason I was inspired to post is sort of unusual. I decided to post because I dropped my brand new BlackBerry 8700 three times in the first 24 hours I had it… two times on a hard tile floor, once on pavement… while I was running. All three times the device fell hard. It ought to have broken… seriously, but it’s barely got a scratch, which totally blows me away.

Having my expectations exceeded made me figure it was worthwhile to post. Truly an excellent product from a colossal success in Waterloo, Ontario.

When considering whether we should build the integration of FreshBooks with Basecamp, there were a few questions all of us here wanted answered before proceeding:

1. How would our small business customers use Basecamp and FreshBooks together?
2. Would any integration we build bring enough benefit to our users for it to be worthwhile?
3. Does anyone even really use Basecamp that often?

I think we were able to answer questions one and two with some effective design sessions, user interviews, and experimentation. We came up with what I think are two great options on using FreshBooks and Basecamp together. It clearly doesn’t cover all the possibilities, but judging from the feedback we have received and usage to date, I think we have covered off 80% of the use cases that provide the most benefit.

Number three was a toss up. 37signals is clearly a darling of the Web 2.0 world and one of its first real success stories, so there is no doubt they have a lot of people using Basecamp. We didn’t know for sure how many businesses were using Basecamp and certainly had no idea how many would use it with FreshBooks. But in true Web 2.0 style, we just built it anyway. As it turns out, there are a lot of businesses that use Basecamp.

As of today, over 6% of the businesses that actively use FreshBooks have enabled access to their Basecamp accounts. Considering this was released less than a month ago, I would consider that a very high percentage and an indicator of just how many businesses use Basecamp.

We don’t really have any other service that we can compare this to, since Basecamp was the first project management service we have integrated with. However, we do have a number of businesses using online payment gateways. The most popular is PayPal. 39% of the businesses who actively use FreshBooks have enabled a PayPal account. That is impressive, but I’m guessing Basecamp will catch up to PayPal as time goes on.