Of our five fundamentally flawed business plans, this one is perhaps the most difficult to spot. The archetype is the failed Internet business Pets.com, which offered pet supplies via the Internet. Simply put, the economics of delivering large, heavy bags of dog food one at a time could not compete with the economics of putting pallet-loads of the same bags of dog food on supermarket or discount-store shelves and letting the customers do the delivery. Such business plans often contain detailed spreadsheets showing why the numbers would work. That’s why these kinds of plans are difficult to spot the numbers look like they work. As one entrepreneur told me, “With a couple of beers and an Excel spreadsheet, you can make a lot of money in no time,” or so it will seem. While consumers certainly liked the idea of having Fido’s dog food delivered, they were not prepared to pay a price that would enable the economics to work. Savvy investors not only tear apart the spreadsheets but ask fundamental questions. Does the revenue model depend on making a large number of small transactions (think Amazon.com) or a small number of large ones (automobile manufacturing)? Do its profit margins depend on high gross margins to cover high product-development costs (think Microsoft), or lower margins to cover slimmer operating costs (Costco)? Is a large investment in development or other fixed assets required (a manufacturing facility, for example)? Is the working capital cycle favorable or unfavorable (do you expect to be paid in advance), or will you have to carry inventory and receivables that can tie up scarce cash (manufacturing and distribution businesses)? Some combinations of these factors are clearly attractive. Others are obviously flawed from the start.