Life at Basecamp - six months in

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(Fortune Small Business) -- A word to the small-business wise: Thinking of getting all Webby and collaborative with your project-management tools? Don't expect one tool to do the entire job.

We have a fundamentally new animal here in the software jungle: the online business-process tool. You know that hip moniker "Web 2.0?" That's them. These Web-based offerings move common business software like word processing and customer-information management from your PC to the Internet. Want to create a letter, an invoice or a spreadsheet? You no longer need to buy and install Microsoft (MSFT, Fortune 500) Word.

Instead, open a browser, go online and use one of the literally dozens of productivity programs living in cyberspace. Heavies like Google (GOOG, Fortune 500), Microsoft and Intuit (INTU) have their own versions: Google Apps, Microsoft Office Live Small Business and QuickBase. Startups are also after the market: there's Zoho, as well as ShareMethod's ShareOffice, designed to integrate with Salesforce.com (CRM). Every day, new contenders show up to play. Earlier this month, Adobe (ADBE) released an online word-processing product called Buzzword.

Back in February, I began an in-depth test of one of the more popular online collaboration tools. I took my little digital world of roughly a dozen employees, contractors and partners to a Web-based project management tool called Basecamp.

The product, created by Chicago-based online collaboration shop 37Signals, debuted a few years back as a dead-easy way to organize and share files, messages and projects. It's gloriously cheap: plans are free to start and top out at $149 per month.

Basecamp now has more than 1 million users, the company says. Its fans range from the mainstream press (including me; I reviewed the product favorably in initial testing) to decentralized blogs like HomeOfficeWarrior. Thanks to some big-name investors - Jeff Bezos of Amazon.com (AMZN, Fortune 500) has placed a bet on the company - 37Signals has built on Basecamp and extended its product line to customer-relationship management tools called Highrise, chat tools called Campfire and calendaring functions called Backpack, among others.

Initially, I found that Basecamp lived up to its hype.

When I put my business on a single, Web-based communications system, lots of good things happened. Overnight, we created a common software environment that forced everybody to work in the same ways. Though it took a bit to get used to, and some procedures are slower - you're connecting to a Web page; lots of things can muck you up online - Basecamp brought a "best practices" rigor to my business. It gave us a common nomenclature for projects and allowed us to organize our content workflow into headings like Overview, Messages, To-Do's, Milestones and more, tied to each project.

Many of these features worked very well. For example, messages about a project pulled near-random e-mail chatter into organized threads. File revisions were clear and almost impossible to confuse, which was a major problem here in busy Blumworld.

Partially thanks to Basecamp, my business grew. Unfortunately, Basecamp did not.

Growing beyond the base

Like all entrepreneurs, I have ideas - so many that they distract me from what needs to get done. To keep the idea and projects corralled, I work with a half-dozen administrators, editors, researchers, and other managers - and to keep all of those people corralled, I recently hired a part-time operations manager, Linda.

When Linda came on board, Basecamp's new-age, Web 2.0 hip factor became an immediate liability. She pointed out that while, yes, Basecamp makes it is easy for everyone to chat and collaborate on a particular job, the program makes it very difficult to match that chatter to the company resources being spent on that job.

Basecamp does not provision easy access to standard accounting packages. It does not directly allow for quick exports of its data into a program like Excel that can slice-and-dice that information for planning or budgeting purposes - which makes auditing awkward. And then, even basic project management turned ugly in our complex new environment. Linda found it very difficult to create and track so-called "dependent relationships": what one person on one side of the business needs from a person on the other side of the business to get something done.

So as lovely as it was for me to give Jennifer, our research manager, an assignment on Basecamp to go deal with Westinghouse to order up a TV for review, the only way Linda could figure out what company resources Jennifer had spent digging up that sexy set was by guessing, based on the nature of our correspondence, or by pestering Jennifer and me directly for information about the transaction. Since Linda costs about three times what Jennifer costs - and my time is expensive as well - it suddenly took three of us to move on a basic detail like ordering a TV. Super-efficient, lean-and-mean Blumworld was in danger of spending more money tracking a job than the job itself would earn for the business. That's not good.

In Basecamp's defense, 37Signals never intended this product to be integrated with accounting software, or for it to support the type of detailed, dependant-data-flow that we sought. In fact, the company views its simplified approach as a strength, since many business-process programs, such as TeamCenter or Microsoft Project, are too complex for the typical small business.

"Basecamp isn't a billing or expense or accounting tool, so we don't offer those features," Jason Fried, president of 37Signals, wrote in an e-mail. He declined a phone conversation, but noted: "Basecamp is a new breed with an entirely different focus. It's not about control, it's about communication: Message boards, to-do lists, milestones, file sharing. If you're looking for a traditional project management toolset, there are other tools out there that will better meet your needs."

Fair enough. For basic business environments, I can still recommend Basecamp as a good starting point.

But as you grow, listen up: Expect to either make a major investment in developing your own financial and tracking software that works with Basecamp to make it do what you need (37Signals provides an open applications development toolset, so this is certainly possible), or budget for integrating another, more traditional, and more complex project-management system with Basecamp - or plan on abandoning the software entirely.

Either way, Basecamp and its Web 2.0 ilk can be valuable, affordable tools for your business. But they won't be a magic organizational bullet.