One of the great things about starting a business today is the number of smaller consulting firms that can help you. These outsourced partners can serve as an integral resource for your team at an early stage but there is a catch.

You can’t do it all so that’s why you hire the experts. This is what we do at Acceleration Partners and along with other service providers who excel in the marketing, legal and financial aspects of helping to start a business, we are able to help fill the “seats on the bus” for the founder or founding team. This gives an early stage company the level of expertise it needs without the need for long term commitments or having to make permanent hires at an early stage without a real sense for what resources and skills will be needed in the long term. It’s the equivalent of renting an apartment in a new town if you aren’t sure which neighborhood you want to live in.

Consultants or interim resources are a great “extension’ to you team, but you should not look to others to provide the inspiration or overall direction for your company. Someone on your team needs to wake up each and everyday wondering what it is going to take to make the business a success and have that be their sole objective. Using Jim Collins’ bus analogy again, it’s fine to ask for directions or move the seats around and it’s even okay to ask others to hold onto the steering wheel for a few seconds. However, it’s never a good idea to ask a consultant or outsourced partner to drive the bus. The only exception is if you are planning on grooming them to take over as the permanent driver sometime soon.

The bottom line is that you simply can’t outsource the passion for your idea and every successful new business needs someone who is passionate and driven by what the company does. Consultants tend to be functional experts, while founders tend to be subject matter experts. Consultants can help you ground, improve, guide and direct your business, but they often don’t have the same passion for your industry or have the purpose driven ambition that caused you to start your business in the first place

So my advice is to fill the bus with good people, but always keep your own two hands on the wheel. Once you hit the highway and you have momentum, you can always look to getting a more qualified manager to take your place, but make sure they are as invested as you are in the outcome of the business.

So I am reading the lead Wall Street Journal article this morning about the failed performance of the Sprint/Nextel merger. The author goes into all the ways that Sprint has botched the integration, from diluting the Nextel brand to failing to integrate the two networks. He also talks about how the company has had massive turnover and has lost customers at a time when other carriers are growing. However, none of this information prepared me for the quote I was about to read from the Sprint CEO which follows.

“Mr. Foresee concedes that Sprint has stumbled in the short term,” though he says it’s well positioned long-term growth. “We’ve got one more box left to check and that’s to execute,” he said in a recent interview.

While many people might simply glaze over this quote, the last piece stopped me dead in my tracks. Is this guy really suggesting that when all else fails, then it’s time to turn to execution? The absurdity of this statement is almost difficult to comprehend and is very typical of big business. General George Patton once said “A good plan violently executed now is better than a perfect plan next week.” Similarly, General H. Norman Schwarzkopf stated, “The truth of the matter is that you always know the right thing to do. The hard part is doing it.”

Let’s bring this concept back to small businesses for a second. In my career, I have probably read over 2000 business plans from entrepreneurs seeking their first round of investment capital. I tend to cringe (as do all venture investors) a little bit when folks ask me for an NDA simply to hear their idea. As a general rule, I believe the entrepreneurs who are taking this approach have been given bad advice and often tend to be putting too much focus on the idea itself. They are often hunkered down holding onto the belief that their idea is proprietary, when in reality, what will make them successful is their ability to execute on that idea. This has more to do with the team, key business relationships, intellectual property, etc. An NDA is really more appropriate if you are trying to protect specific information such as a trade secret, real financials (i.e. historical), etc. or to protect your core information as part of a formal relationship with a service provider. However, if you ask for an NDA just for someone to hear your pitch, you may creative a negative first impression. Very few repeat or serial entrepreneurs will ever ask for an NDA as a prerequisite to hearing their idea, mostly because they know that their competitive advantage lies in their execution capabilities.

The advice I always give to entrepreneurs is to tell everyone what they are doing, because it can lead to important discoveries, new resources and/or learning about a well financed competitor who has a significant head start. I can promise that it’s better to know this information before making the decision to quit your day job. If you are starting a new business, resign yourself to the fact that someone has the same idea and instead focus your time on how you can win the execution game. As a prominent venture capitalist once said at a conference I attended “We don’t consider ideas proprietary, we consider execution proprietary.” While it may be too late for Sprint and its misguided CEO, make sure that you focus your business on the “how we do” as much as the “what we do”.

We swore we’d learn from the meltdown of 2000, but we haven’t. In many ways it’s almost worse this time, because we know how the story ends. Here are my Top 5 reasons for believing we’re in a Web 2.0 bubble.

5. Too Much Money
While it is a bit harder to get financial backing these days, the companies that do get funded often get over funded. Venture firms today have a lot of money to put to work and they are handing out cash even to companies that shouldn’t need much capital or that lack an established business model. Web 2.0 companies should have relatively few major capital expenses. In fact, the most popular Web 2.0 sites raised their money after their user bases outgrew their capacity and infrastructure. When companies get over funded, they are forced to get big fast—often at the expense of profitability. If you raise $10M, you need to become at least a $30-$50M company for the common shareholder’s equity (i.e. founders and management) to be meaningful. When growing your top line becomes your primary objective, often at the expense of a viable business model, you are starting to gamble with your business.

4. One-way Exit
The IPO market is virtually dead. Companies are being built to sell at auction courtesy of Google, Yahoo and Microsoft. However, if these acquisitions don’t pan out and the open checkbooks start to close, a business model with a lot of users and no way to make money will suddenly seem a lot less attractive.

3. Web 2.0 for X
It’s hard to meet someone these days who’s not starting a Web 2.0 company for toddlers, grannies, people who love red shoes, etc. Haven’t we seen this one before as well—the Portal for X fever of the late 1990s? After most Web 2.0 presentations that I have seen, someone has to ask the question “So what’s your revenue/business model?” The answer, if any, always seems to be targeted advertising. But how many individualized communities can we each join before our economy goes into the toilet? If all these companies get the users they claim, no one in this country will be working. Our appetite for communities has limits; the hours in a day

2. We Can’t Charge for Our Product
Okay, this is really an extension of Number 3, but I am not a fan of companies that plan to support their product or service offering with advertising. Why not charge for it? If you have something of value, people will pay for it. If you can’t charge for it, people just don’t value it that much. Advertising is a great revenue mechanism for content, but if the only people who will pay for your company’s products are advertisers, you have a problem. Among other things, the consumers of ad-supported products can expect pretty poor customer support. After all, they aren’t the real customers, the advertisers are (see Web 1.0 & NetZero).

1. Portals for Web 2.0
If there is one telltale sign of a Web 2.0 bubble, it’s that websites are popping up to track or index Web 2.0 companies. (I have learned of about six in the last few months). A portal war for Web 2.0 is almost too good to be true—it combines two bubbles into one. In every unrecognized bubble, there is always a sign that tells me we are at or near the top. For Web 1.0, it was the E*Trade Super Bowl commercial that made fun of having just wasted $2M on the dancing monkey ad. For real estate, it came two years ago when I saw home-loan carts next to jewelry carts in a mall in San Francisco. Mark my words, Web 2.0 portals are the beginning of the downturn.

In Conclusion
To be fair, there are many things that I love about Web 2.0, and I do work with many of these companies in my consulting business. However, what I really love about Web 2.0 is that companies can bootstrap and develop profitable niches at the expense of larger, more established players. These companies are successful because they are able to find an unmet need and reach customers in a cost-effective manner using the web; they don’t necessarily have the best features. Features and user interface design are important, but they do not make a business successful. Compare any two companies. If one has millions of users and a clunky UI (see Myspace) and the other has a very fancy AJAX interface, but hardly any users, I would always bet on the former. It’s a lot easier to hire designers than it is to find millions of users.

I have been following the residential housing market closely for many now years and have tried over and over to make the case to friends, colleagues and family members that reduced lending standards were the primary driver behind skyrocketing real estate prices over the past five years; not the economy, not interest rates and certainly not immigrants, which is a favorite fallback rationale for the mortgage industry and the real estate trade groups. As I now watch the sub-prime lending market disintegrate in front of my eyes, I am reminded by a letter I wrote in 2002 in response to a Boston Globe article on the residential real estate market, which addresses this point head on:

Professor Segel,

Something has to give. If the banks get gun-shy or Freddie Mac and Fannie Mae come under a lot of public pressure, we could quickly find that their aren’t enough chairs to go around when the music stops. I just read an article in which the author overlaid the last stock market crash against the last real estate crash. The real estate crash did not come until a few years later, after many people had blindly invested in real estate as a knee jerk reaction to having been burned in the stock market. If you listen around the water cooler these days, it is the same phenomenon, even in the face of the worst job market in 10 years. People don’t believe that real estate can go down, which is why it probably will. Rates won’t stay at 40 year lows forever and as they move up to fight off deflation and strengthen the dollar, I think some people are in for a world of hurt. And it affects us all, because in 20-30 years, the government will be picking up the tab with Medicare and Social Security because many individuals will not be able to save for their retirement due to most of their income going towards their home.

Many small businesses get the majority of their new business though referrals, yet they don’t view or manage these referrals as they would a traditional marketing campaign. If you want to learn more about referral marketing and how it can lower your customer acquisition costs, you may want to read the latest newsletter from Referral Monitor