The week before last on our way to Austin, Texas for SXSW (checkout Mike’s panel), Michael and I had the pleasure of driving down to San Antonio to visit our managed hosting provider Rackspace. To say they were gracious hosts (excuse the pun), would be a gross understatement. We were literally treated like royalty, and from what I gather, we weren’t given any special treatment at all. I think they treat all of their customers who come for a visit as well as they treated us.

Both Michael and I had high expectations before the visit since we are long time Rackspace customers and have always been impressed with the professionalism and great service that they provide. We also had read a little bit about them in a recent Fortune Small Business article that made us think their office atmosphere would be a little unconventional. Actually it was more the pictures of the office than what was in the article that caught our eye. It’s too bad I don’t have a picture, but it showed two Rackspace employees playing a racquet game back and forth in their desks. This picture didn’t really put me at ease considering this is the company that our business is dependant on to provide our customers with premium server security and uptime. However, after our day long tour of the office and a data centre, I am now 100% confident that our servers are being hosted by a true leader in the industry.

I’d like to take you through our whole day, because there is a lot to tell, but instead I’ll give you some highlights through a top ten list. Top ten reasons Mike and I loved our tour of Rackspace:

1. The People
Everyone we met…and I mean everyone…bent over backwards to make us feel welcome and special. Relatively speaking, we are a very small Rackspace customer, but the Racker’s sure made us feel like we were their most important customer.

2. The Attitude
Okay, this is really a subset of number one (the People), but Mike and I couldn’t get over the certain “je ne sais quois” that every “Racker” had. Walking around their massive office, everyone was “jazzed” and seemed super happy to be working at Rackspace. We saw a little goofing off, a lot of smiling faces and at the same time we knew they were all working hard.

3. The Datacenter
We had a tour of one of their smaller data centers near head office in San Antonio and we were thoroughly impressed with the level of redundancy and security. Rusty, the long time Racker that gave us the tour, was another example of a Rackspace employee who truly loves his job and shows it with his enthusiasm and knowledge.

4. The Management
We had the pleasure of meeting the head of support, the CEO, and the head of business development. Each one of these manager’s had a jump in their step (actually the CEO was literally kicking up his heels as he ran by us in the hallways) and its obvious how Rackspace has managed to grow so quickly and retain their mojo across the entire company.

5. Harris
Our BDC account rep literally blocked off his whole day to spend it with us. Mike and I certainly weren’t expecting this, but it was much appreciated.

6. Our Support Team
We spent about an hour getting to know our daytime support team. Although we have bounced around between teams a little bit over the last year, the manager of support mentioned they are working to reduce that in the future. I was particularly impressed that one of our team used to be a small business Rackspace customer, when he shut down his business he decided he liked Rackspace so much he went to work there. He was also a Fresh Thinking blog reader…nice!

7. The Training
Although we didn’t have enough time to sit down with the people in charge of Rackspace University, we caught the end of one training session. Apparently they had small groups that did a skit at the end of their three weeks of training. I didn’t catch the whole skit, but I did see an Elvis outfit and a cape…need I say more. Rackspace has been adding around 90 people every month, so to maintain their level of support, they are heavily reliant on good training.

8. The Tex Mex
Pretty much goes without saying that the Tex Mex is phenomenal everywhere in Texas, San Antonio is no exception. Toronto has some great restaurants, but when it comes to Tex Mex, there is no comparison.

9. The Inspiration
FreshBooks has no plans or intentions of growing as large as Rackspace as our business is much more capital efficient, but we were certainly inspired by how they have handled their growth and maintained their level of support and quality of their service. Any small business looking to scale upwards can learn from Rackspace.

10. The People
Did I mention the people already? The “Rackers” as they like to call themselves are a pretty cool bunch. I must say that I am truly inspired.

A while back I wrote about our need to rename our blog because people assumed the content was only about FreshBooks, when in reality we write about a range of things that we hope will help guide and inspire small business owners and web professionals. Today we’ve gone and done it: we are pleased to announce you are now reading Fresh Thinking. Written by the team at FreshBooks, Fresh Thinking is a blog about our thoughts on entrepreneurship, small business values, our services, team work, the web, design and anything else that we are inspired by.

Here is a graph of FreshBooks RSS readership over the last year or so…truthfully we only started blogging in earnest last April. We hope you enjoy the time and energy we invest in maintaining Fresh Thinking, and judging from this graph of our growing readership, we can only imagine that you do. Thanks for reading!

We just got a bunch of new machines. (3 computers, 1 laptop with Vista, all Dells). Daniel and Jeff are like kids in a candy store.

Anyway, we’re retiring Jeff’s machine. It had a really loud hard drive. When he turned it off at night, we would all let out a sigh of relief. What we have noticed though, is his new machine is almost silent…and now the office is almost painfully quiet…people feel nearby, and while we really do like each other, it is almost creepy how much smaller the place feels.

So…if you want a bigger office, maybe add some white noise. My aunt used to listen to cassette tapes to put her to sleep, so I know they are out there to buy.

My dad says to succeed as a lawyer, you have to be two of three things: you have to be a finder (someone who finds new clients), a grinder (someone who just works hard everyday), or a minder (someone who excels at servicing their clients and keeping them happy). This is true of pretty much anyone who offers service to clients. By nature, I’d say the team and I at FreshBooks are grinders and minders, and after working at it for three years, the finder part is starting to take care of itself.

So…when you are building a business, online or off - you need to think along the same lines as a lawyer. Figure out which two you are (it’s pretty rare that anyone is all three, but an organization can be all three) and get on with things, the rest will take care of itself.

In our Barenaked Apps Panel at SXSW, Ryan Carson advised anyone starting a web app to plan for 3 potential outcomes: success, limited success and failure. He’s right - you need to think those outcomes through and determine how you will respond to each scenario. I’d like to add something to this though. There are many people out there with big dreams that are building web apps in their spare time these days - it’s exciting. Unfortunately I think a lot of them are building with false expectations (a post on false expectations to follow soon). They think if their app does not take right off, they should pack it in. My thinking is - don’t.

If you have a measure of success when you launch, I bet you’ve got something. What’s the measure of success? It could be almost anything, like how many visitors from to your site or how many people trial your service. How about getting someone you don’t know to pay for your service? If a person you don’t know signs up and pays out of no where - even one person - then there is a good chance you are on to something.

If you’re on to something it’s time to hunker down and get to work. Launching does not mean you’ve arrived at easy street and you can sit back and relax - it’s your introduction to the grind. The beauty is that web businesses are a ton of fun to run, so the grind can be really enjoyable.

Not buying any of this? Maybe you will find this inspiring. When FreshBooks launched, we were called 2ndSite (we’ve since rebranded) and we did not have our first paying user until month two, but we believed in what we were doing - that fuelled us - and saw trials everyday which was exciting. So we hunkered down and that graph at the top of this post is what our growth has looked like over the past 30 months (we’ve been at it for 33, but I could not get info for the first three months).

Work hard, take care of your customers, innovate and the rest will take care of itself.

This is the second in a series of posts (here is the first) I’ll be doing over the next few days about starting a web business. If you liked this one, subscribe to our feed and stick around.

I am going to make a series of posts in the coming weeks about running a business, with some special nuggets for people running internet-based businesses.

I’ve wanted to do this for a long time, but the “Bare Naked Apps” panel I was on at SXSW tipped me over the edge. So, as a precursor to that, here is something I wrote and posted in November 2005 which seems to be standing the test of time. (It’s quite long, stick with it if you can.) I’ll follow up with more posts over the next few days.

+++ From the Web 2.0 Trenches: How to Build Real Businesses +++

Introduction

There is a lot of buzz and discussion about Web 2.0: what it is and what it means. The debate over its importance and/or relevance has been fuelled by thought leaders such as Tim O’Reilly and Nicholas Carr, but what appears to be getting lost is how viable businesses can be built, and how entrepreneurs can succeed in this changing landscape.

Context - What is Web 2.0 To Me?

To be blunt, Web 2.0 is not a revolution nor, for that matter, much of an evolution. It is just a new name for age-old business practices. O’Reilly and others use terms like “perpetual beta” to describe concepts that were hot in the 1980s. “Customer focus”, one of the pillars of Total Quality Management (TQM), was the mantra of the 1980s auto industry. To me, Web 2.0 is about one very simple thing: helping people do more online with services that are easy to use.

Since the barriers to creating a Web service are so low, countless would-be entrepreneurs are jumping in. As venture capitalist Peter Ripp has pointed out, an “entrepreneurial bubble” is forming because new and cool ideas can easily be created and distributed – often with little venture capital. But for successful Web 2.0 businesses to be built, entrepreneurs must focus much more on traditional business practices than what appears to be happening today. The idea of building a cool service on a part-time basis while still maintaining your day job has little to do with creating a viable business. Viable businesses are what true entrepreneurs want to build. Viable businesses are what will survive Web 2.0, so let’s look at how to build them.

How Can Entrepreneurs Survive Web 2.0?

There are two routes:

Route #1 - Solve a Big Problem

This is the one that VCs should be focused on because this is where the biggest opportunities exist. Skype is a great example of a Web 2.0 company that solved a complex problem – VoIP – while cutting big players out of the loop (read: Telcos). Skype succeeded by developing a disruptive technology that was easy to use and freely distributed. They marketed the product very effectively and acquired a huge user base. Then, they focused on converting a small percentage of that user base to subscription-based customers by adding the next level of premium services such as SkypeOut and SkypeIn, which are expected to let the company generate sales of $200 million next year. At the same time, Skype encouraged third-party developers to create their own fee-based services. This helped to establish a business ecosystem in which everyone is focused on the same goal: offering useful, revenue-generating services.

Like the founders of Skype, entrepreneurs looking to tackle big problems will need:

• A first-rate management team

• A large addressable market

• Innovative developers

• And, oh yeah, SERIOUS FINANCING

What’s new about this? Nothing. It’s the same old, same old.

Route #2 - Solve a Small Problem

The other Web 2.0 route is creating something “better” than the status quo. For smart entrepreneurs, there will be opportunities to build tools customized to meet the needs of countless niches. These entrepreneurs will need to:

• Focus 100% of their time on their business because the market will be less forgiving than the geeks who rave about Web 2.0 today will tell you

• Base their business on a valid business model and make sure it can make

• Not count on Web 2.0 buzz to satisfy their marketing needs

• Not rely on positive feedback to pay the bills

This second route – solving a smaller problem more effectively – is closer to my heart. Over the past two and a half years, I’ve built a business with Joe Sawada and Levi Cooperman called FreshBooks (formerly 2ndSite), which offers an online invoicing service. Sure, there is plenty of competition – some great competition like Blinksale – but FreshBooks is growing because our service is useful and a snap to use.

We now have more than 135,00 users, which keeps the lights on and the servers running. As important, we’re in a position few Web 2.0 companies are in: if need be, we can scale back on business development and be profitable. While our company offers a free “lite” service to encourage people to try it, our focus is on building relationships that will attract users who will become paying clients that generate recurring revenue.

Beyond Simplicity, What Else Matters to the Market?

If the mass market comes online and starts to consume online services as enthusiastically as expected, it will be consumers – rather than the geeks who are all hot and bothered about Web 2.0 today – who will drive the market. At that point in time, tried and true business practices will prevail over cool apps thrown together during spare time. At FreshBooks, we believe consumers want to deal with REAL people. In fact, customer support is something we have focused on since day one. We are a Web 2.0 company but when people call (at least between 9 a.m. to 6 p.m. EST), they get a person or we call them back within two hours – that’s our policy. Why is it important? We get good old-fashioned word of mouth referrals, which are invaluable.

What About the Big Guys?

So where do major players such as AOL, Yahoo, Google, eBay and Microsoft fit in the Web 2.0 ecosystem? What does it mean for entrepreneurs?

Big companies (and small ones) will fail (or at least their progress will be hampered) if they:

• Don’t trust their users

• Try to own their users’ data

• Don’t listen accurately to user feedback

• Do not move/develop the right changes fast enough

• Restrict play between their network and those of their competitors (see Yahoo/AOL and SMS)

• Put their stamp on acquisitions too soon. Users like the little guy “novelty”. Yahoo, for example, has done a great job of not re-branding Flickr

So far, the Big Guys have adopted a two-pronged approach for their Web 2.0 strategies: acquisitions (Yahoo-Flickr, AOL-Weblogs, eBay-Skype) and beta programs (Gmail, Froogle, Okrut, etc.) I believe the Big Guys should continue to buy rather than build because it makes more sense to let the entrepreneurs and VCs suffer through the growing pains. There is still plenty of time to be a fast follower and still dominate. Just look at News Corp.’s Rupert Murdoch. Over the last eight months, he has started to make his Internet plays after staying away from the market during the dot-com boom.

Want another good reason? Look at the competition between blog searching services: Ice Rocket, Technorati and the latest entrant, Sphere. It’s too early to tell who will come out on top and there is no dominant solution. In fact, new – perhaps better – entrants are still likely to emerge. With the landscape changing this quickly, buying early is likely buying badly.

What About the Little Guys?

Will there be room within Web 2.0 for little guys? Definitely. Why? The key will be user feedback. Entrepreneurs are usually intimate with their customers – managers at Fortune 500 companies are not. Notice how most Web 2.0 companies are proud of coming out of a consultancy? I know we are at FreshBooks. We came from Anicon.ca. While running that consultancy, we discovered a point of pain for small business – invoicing. We built the solution we wanted. It turns out thousands of other businesses want it too. This intimacy with the “pain” is what makes development decisions easier in the Web 2.0 world where user feedback is continuous. The fact that we are and have been a small business matters. Big guys will have a hard time trying to “guess” at the real pain. That’s why they should let the entrepreneurs build the apps/services and battle for position. Big guys can swoop in later and take their pick of the litter.

Another reason little companies will succeed in Web 2.0 is that when the big guys do come into the market, it may not matter too much because they are going to offer only one product in the market space. It is not going to serve everyone perfectly. While they may achieve a large market share, entrepreneurs will still be able to build businesses around offerings from larger more established players by providing “better fit” solutions for highly targeted markets. A good example is Google Maps, which has spawned a growing eco-system of related applications from entrepreneurs pursuing fertile niches. While it is unlikely Google will go after these opportunities themselves, the eco-system’s growth is positive for Google Maps because it enhances the value of the “core” service.

A third reason little companies will succeed in Web 2.0 is brand bias. There are millions of consumers out there who do NOT want to buy their goods from established brands. Take Microsoft for example. There are millions of consumers who will do virtually anything to avoid purchasing Microsoft products. Perhaps they have had a bad experience; perhaps they detest hugely successful companies and want to diffuse their personal purchasing power and support the little guy. Their motives do not really matter. If 1% of the market does not want to buy from established players, that is a huge audience in many markets.

What Will the Web Service Markets Look Like?

So with all this jostling, where are we headed and what will the competitive landscape look like? I’ll tell you – cluttered at the low end.

It’s become so easy to create Web services that thousands of entrepreneurs are jumping into it. The trouble is virtually all this activity is happening in the low end of the market. Let me speak about the invoicing space. Before Web 2.0 got a full head of steam in 2005, there were only three real players in the low end (of which FreshBooks was one). Since invoicing is a common point of pain, many other little guys are now entering the space. Most of this activity, however, is happening in the low end, but virtually none in the middle or upper ends. This is no surprise because it takes real businesses with real development teams to build applications that solve larger problems for the upper and middle markets.

Fuelling this frenzy at the low end are prominent voices evangelizing software without “feature bloat”. While this strategy will work for early entrants, the downside is these are the applications with the least sustainable competitive advantage and the barriers to entry for these low-end services are so low that the space will be crowded. As a result, just about everyone in the low end is likely to starve.

What Will Keep My Business From Starving?

Features, service, and solving customer pains are how applications will distinguish themselves. Any single application will be ideal for a relatively smaller market (translation: niches within niches). FreshBooks is lucky because we are now pulling up out of the bottom end of the market. At the same time, we’re starting to get calls from people who have tried low-end services who are telling us “you can’t DO anything with them”. Web 2.0 is about DOING. In the clamour to build Web services, there are many services being built that don’t DO enough. Since Web 2.0 is also about not trying to be everything to everybody, developers need to know where they fit in the market and figure out how to thrive there.

Web 2.0 – It’s All About Leverage

The Web 2.0 is about applications that are simple to use and help users leverage the Internet more effectively. Although it has been a decade since the Internet moved into the mainstream and five years since the dot-com bubble, we have finally learned what it takes to make things really work online. This is what I believe Tim O’Reilly is addressing in his “practices and principles”, which are merely guidelines that help reduce friction for the user so they can get more out of the Internet.

For entrepreneurs who have good ideas and solid business plans, Web 2.0 is ripe with opportunity because there are millions of consumers with lots of online experience and enthusiasm who now want to do more. The challenge for entrepreneurs will be to cater to their niche above all else. They must make decisions that are right for their users by drawing on their knowledge of their users’ pain. They must also run their companies like any other successful business. If they can do all of this, like Web services, they will be here to stay.

Thanks for making it this far. Like I said I’ve been busy, but there are more posts on building web businesses coming over the next few days - stay tuned.

Here is a little trick which can be used to add a little life to the links or buttons on your website.  It involves using a little CSS and a .gif image with some transparency.  I recently used this technique on our new Basecamp integration screens in our application.  See the example below:

Before:  I had a link stylized using CSS to look more like a button, complete with a hover state.

After:  I gave it a little something extra by adding a notch on the bottom of the button.

Creating the image
I simply create a transparent .gif with a layer that is all white except for the shape of the notch (I use white because that is the background colour of the page). Using CSS, this image is then used to sit on top of the background color allowing the background colour to show through and giving it the effect I want.  Here is a zoomed in example of the image I used:

The code
Here is the CSS:

a {
     background-color: #DCEEFF;
     background-image: url(trans-notch.gif);
     background-repeat: no-repeat;
     background-position: bottom center;
     text-decoration: none;
     text-align: center;
     width: 150px;
     padding: 5px 0 30px 0;
     display: block;
}
a:hover {
     background-color: #9FD1FF;
}

I gave the link some padding just to help position the text.  Also note that I align the background image to the bottom and in the center.  Finally I change the background colour for the hover state to give it a nice rollover effect.  You may also want to preload your image using javascript just so the image is ready to be displayed when the user opens the page.

That’s it!  You can use this technique to customize your links in your own way but thanks to using CSS they are more dynamic and you can change colours by editing one line of code.  See a working example of this or you sign up for FreshBooks, login and see it in action yourself.

This is the fourth edition of Ripe Data. The monthly series that includes an assortment of metrics collected here at FreshBooks. My comments are written below in italics. Please note, Ripe Data does not include the valuable industry benchmarks active FreshBooks users will have access to soon. Get it while its ripe!

For companies who accept online payments:
- In January, 17.0% of payments were accepted online
- In February, 17.9% of payments were accepted online

Almost a one percent increase is a significant uptake in online payment. I expect this trend will continue as it is indicative of the number of calls we get from small businesses who want to start collecting payments online.

Payment Methods:
- Visa: 15.5% in January, and 16.0% in February
- Mastercard: 7.6% in January, and 7.8% February
- Amex: 4.19% in January, and 4.3% in February
- Paypal: 6.5% in January, and 6.5% in February
- Other (including check, cash, account credit, etc.): 66.3% in January, and 65.5% in February

AMEX and VISA gained some ground in February, and as a whole, credit cards are slowly growing in popularity for small service-based business collections.

For companies that send invoices by both email and by ground mail:
- In January 95.9% of invoices were sent by email and 4.1% were sent by ground mail
- In February 96.2% were email, and 3.8% were ground mail

February was a big growth month for FreshBooks, so it is hard to say if the decrease in ground mail is the start of a trend, or more of an anomaly.

Browser Usage:
- Internet Explorer 7 - January 20.40%, February 22.59%
- IE 6 - January 37.28%, February 34.36%
- FireFox 2.0 - January 25.4%, February 28.92%
- FF 1.5 - January 12.56%, February 10.03%

If you combine the different versions of each browser, this month allegiances appear to be holding steady with neither IE or Firefox gaining ground.

Operating System Usage:
-Windows - January 88.85%, February 88.92%
-Macintosh - January 9.04%, February 8.55%
-Linux - January 1.54%, February 2.01%
-Unix - January 0.07%, February 0.00%

The mass marketing machine behind Vista could be a large contributor to the increase in the Windows usage.

We at FreshBooks take our facial hair very seriously. Imagine how excited we were when we read this, from the Mustache Hall of Fame:

One of the most important events on any good mustache man’s calendar should be ‘Cinco de Mustache,’ the fifth day of March. For three weeks prior to Cinco de Mustache, a man grows out all his facial hair, into a large wooly beard.

If the participant cannot grow significant facial hair, it is important to remember that there is glory in the attempt. After the beard has been grown out, said man shaves off all but the mustache on the fifth, giving a lasting impression to his friends, family and colleagues that he is, indeed, a mustache man.

Please witness Joe’s devastating results:

Even some of our friends participated:

Mike, however, declined to shave his beard, a very wise decision, given this cold winter we’re having.

Also wise, Levi, who can “grow a beard faster than Superman can leap a building in a single bound” is abstaining from any facial hair growth until the ring is firmly on his betrothed’s finger this June.

As for Jeff, Daniel and me — like the man said, the glory is in the attempt.

Levi and I are headed to SXSW - I’m speaking on a panel titled, “Barenaked App: The Figures Behind the Top Web Apps“. I’ve heard nothing but good things about the conference for a couple years now, and I’m honoured to be able to contribute to Ryan Carson’s panel. If you are going to be in Austin and want to hook up, send me a note and make it happen.