Read the following phrase and think about whether or not you practice it.

You must retain faith that you can prevail to greatness in the end, while retaining the discipline to confront the brutal facts of your current reality.

This is known as The Stockdale Paradox and was publicized by Jim Collins several years ago in his book Good to Great.  I stumbled upon it again in Collins’ monograph titled Good to Great and the Social Sectors.  When paired with one of my favorite Atlas Shrugged quotes – “Nobody stays here by faking reality in any manner whatever” – it’s a powerful thought.

I see so many people avoid confronting reality, especially in difficult situations.  The more difficult the situation, the more important it is to confront reality.  It’s especially dangerous for an entrepreneur or a leader to avoid confronting reality, since his reality often translates into everyone else’s reality. 

Whenever I’ve been in tough spots or facing impending doom, I start by confronting reality and then work to figure out what I want to accomplish in the context of my current reality.  While failure is occasionally inevitable – or I simply can’t overcome the barrier of whatever reality I am faced with (and subsequently have to chose a new path) – I’ve found that fear and uncertainty evaporates when you confront reality.

While Stockdale never became our vice president, he taught us a powerful lesson.

Tom Evslin has a super post up today titled Daily Key to Success.  In it, he talks about his obsession with all sorts of daily business metrics as one of his keys to success as an entrepreneur.  I completely agree and share his obsession with daily metrics of all kinds, going back to my very first company where we had a program called FT-BIL that I used to see how much we billed out clients each day – by consultant. 

Tom also highlights one metric that he recommends you not obsess over – your stock price (if you are a public company.)  Having spent entirely too much time clicking refresh throughout the day on MyYahoo during 1999 – 2002, I second his recommendation.  Taleb’s Fooled By Randomness also has some great insights into this particularly self-destructive phenomenon.

Matt McCall – my fellow board member / investor at FeedBurner – has a helpful post up titled Bootcamp: Show Me the Money.  Matt does a nice job of describing the “Yes, But” type of startup, how VCs typically react, and offers some suggestions.

Peter Rip of Leapfrog Ventures has a what I think should become a classic entrepreneur post on business models.  He gives some context about the term (and why it’s often annoying, as in “what’s your business model’ – c’mon – can’t you think of a deeper question?)  He then decomposes the way he thinks about it, ending with a superb chart (that Peter acknowledges it likely incomplete.)  While you might not think about this the same way Peter does, it should stimulate you to “think about how to think about” your business model.

I talk and email with a lot of “random” people.  I’ve blogged about my random meeting policy in the past – whenever I reflect on it I realize that it has served me well.  I never have any specific expectations for these meetings and almost always enjoy the people that I meet.  I have the same approach with email – I try to respond to everything I get (that’s not spam), even if it’s a short “sorry – I can’t be helpful” or “this isn’t interesting to me – good luck with things” type of message.  I’m sure I occasionally miss someone / something, but I try. 

I often get email thank you notes for helping folks out.  Since I started blogging, I get more of these that are random and unsolicited.  Often they turn into an email relationship; occasionally even a friendship or a working relationship.

One of these random meetings – which started out via email – was with John Minnihan, the creator of Freepository.  I poked around on the site, was interested in what he was up to, and offered to get together with him on a random day.  We had a good first meeting, I gave him some feedback, introduced him to a few other people in Boulder that I thought there was potential for him / Freepository to collaborate with, and we stayed in touch.  We’ve continued to email back and forth and had another call last week that resulted in some specific potential activity that could be helpful to his business.

A few days later I got a note from him that thanked me and told me he’d arranged for a gift certificate for me at the Homestead Restaurant.  This was completely unexpected and – in addition – required a little effort on John’s part since the Homestead is one of the nice restaurants up here in Homer.  To figure that out, he had to do a little bit of research on the web, pick up the phone, talk to the folks at the Homestead, and arrange for the gift certificate.

We took our neighbors The Schallock’s out to a delightful dinner at the Homestead on Friday.  Lo and behold there was the gift certificate waiting for us from John.  After the meal, when I settled the bill, we all thanked John for contributing to underwriting the dinner.  Now that’s class – not just the gift, but the effort to figure out an interesting and memorable one.  Thanks John.

Will Herman has (yet another) great post up about failure in his first startup.  His company – DataWare Logic – looked like it was on a path to success – until it ran out of money and – in Will’s words – “… didn’t have time to get new customers while supporting my existing ones and my company virtually augered itself into the planet in an instant.” 

I was pondering the early days of Feld Technologies tonight, thinking about what mistakes we made (and boy did we make a lot of mistakes.)  I wound the clock all the way back to the beginning (sometime in 1987) and tried to figure out what the first major mistake we made that could have killed the company.

Both Dave Jilk and I started working full time on Feld Technologies in the summer of 1987.  I had just gotten my undergraduate degree from MIT and Dave had recently quit Viewlogic to help start Feld Technologies.  We decided to rent an office across the street from our fraternity (the fourth floor of 875 Main Street) and go for it.

We rented 1600 sq. ft.  We borrowed someone’s pickup truck and went and bought some shitty used furniture somewhere for a couple of hundred dollars.  We went to Service Merchandise (I think that’s what it was called) and bought a few phones.  We called Nynex and got some phone lines.  Dave brought his old college half refrigerator into the office.  We “borrowed” a plant or two from somewhere.

We then hired about a half dozen people.  I remember all of them – Pat (who was already working for me and had worked for me the previous summer on our one major client – Bellflower Dental Group), Mike (a friend from Petcom who lived in Texas but moved to Cambridge for the summer to work on our first product – DOSBox – a bunch of DOS API calls), Mike (a frat brother who was usually stoned, but was an outstanding programmer), Dan (another frat brother who was also frequently stoned, but was an equally amazing programmer), and Rob (I can’t remember where we met Rob.)

We had some business – beyond Bellflower – but not much.  I think we broke even for a month or two but then lost $10,000 in August when we had an office full of people but no business.  Ever the optimistic entrepreneurs, we didn’t panic.  We figured we’d find some business somewhere.  We lost $5,000 or so the next month (I’m making the numbers up – these are the approximate ones.)  Our “team” went back to school (including me – I was doing the second year of my masters degree) so we rationalized our costs would be lower because people wouldn’t be working as much.  True – but they also didn’t produce anything and since we were doing everything on a fixed price basis, we kept losing money.  On Monday October 19th, 1987 the stock market lost 22.6% of its value.  I remember sitting around in Dave’s office listening to the radio.  I took the T home that night, wondering if the world was going to come to an end.  I didn’t have any stocks of significance, so this didn’t really impact me, but this was my first real awareness of financial panic.

We realized we couldn’t keep losing money because we had none (duh).  We also realized that we (Dave and I) were doing all the work, but paying everyone else.  Now – they were good guys – but they were going to school and our clients and our business weren’t their top priority.

We fired everyone a few days later.  We somehow got out of our lease, put almost all the crap we had bought (except a few desks and phones) into storage in Somerville, and moved our offices into the spare bedrooms in our respective apartments (we both lived in One Devonshire Place in downtown Boston.)  We started paying $50 / month for an office share in Faneuil Hall Marketplace so we could have a real business address (6 Faneuil Hall Marketplace.)  We had no overhead (I think we used the same desks and phones for a couple of years.)  It took us another year before we hired our “next first” employee (Shawn).  By that time, we were making a profit of $10,000 / month after paying ourselves decent salaries.

Hiring too early almost killed us.

As the stock market continues to flounder around (mostly the wrong direction) and some people in the middle east continue to try to destroy each other, I woke up this morning pondering failure.  I thought of another “classical entrepreneurial lesson” that we made at Martingale Software – lack of focus.

When we started Martingale Software in 1984, our original vision was “to write software for the new Apple Macintosh.”  That was pretty broad, so as we sat around in a classroom somewhere at MIT (because it had a nice big blackboard that we could scribble on, plus it made us feel grown up), we decided to narrow our focus.  After many hours (or was it minutes?) of discussion, we decided we would write “graphics software for the new Apple Macintosh.”  Once we landed on this, we immediately started designing stuff, well before we had our Apple Lisa (a requirement for writing software for the first Macs.)

We quickly got distracted.  One of my early mentors – Gene Scott (who also happened to be our investor – he put up the initial $10,000 for Martingale) – was the founder and chairman of Scott Instruments – a voice recognition software company in Denton, Texas.  Scott Instruments created the VET/2 (Voice Entry Terminal for the Apple II) – one of the first functional speech recognition systems (Gene’s son David was a research pioneer in this area.)  Scott Instruments asked us to write an application for the VET/2 for the Macintosh – we couldn’t resist so we had our first contract.

Of course, this had nothing to do with our vision for Martingale.  I’m sure we rationalized this by thinking something like “we’ve got to eat”, but since we lived in a fraternity and food was regularly available, this was a hollow rationalization.

Several months later, through some random introduction, we met a local investment management company (probably the 1980’s equivalent of a small hedge fund – I want to say they were called Harbor Capital, but the particular neurons that would remember that have been destroyed.)  They wanted us to do some spreadsheet / graphics stuff for them.  Ok – graphics – a little closer.  But – they used PCs.  So – we rationalized again, went out and bought a Compaq Luggable, and did some more consulting work.

Between school, our “extra curricular activities”, and our two contracts, we never wrote much graphics software for the Mac.  While we eventually figured out how to get a program on the Lisa written, compiled, built, saved on a floppy disk, and running on the Mac, our “graphics software” was never much more than a very simple window / menu system.  We never shipped it.

The contracts enabled us to “be in business” for a while, but they had nothing to do with the business we set out to create.  While the work enabled “survival”, our complete lack of focus (among many other things) contributed to our ultimate demise.  Now – we could have repositioned Martingale as a customer software company – or any number of other things – but we continued to hang on to the idea that we were going to build a graphics software company. 

While survival was nice (and fun for a while), at some point you have to decide what you are going to focus on.  If you don’t, as a Brazilian friend of mine once said – pounding his fist into his palm – “our lack of focus will fuck us” (say that three times fast with a Brazilian accent.)

Josh Kopelman has a great post up about Sales Forecasting, along with a sample model of a “Waterfall Forecast.”