Sumolabs

If you have not bookmarked it yet, the Startups wiki "Ask YCombinator Archive" is a great resource for everything entrepreneurial.

I have pulled out some of the most insightful, entertaining and resourceful discussions and highlighted them for you here.

Is acquisition a valid exit strategy?

One of the best quotes in this discussion is "You should never be in a position where you depend on getting bought." by mojuba. Like David Heinemeier Hansson said at Startup School 08:

Great Application
+ Earnings
= Profit

He is biased towards a pay-for-subscription approach but the takeway is: as long as your revenue (advertising or subscriptions fees) covers your costs (and then some) you are on your way to building a real business.

Making acquisition your corporate strategy is basically admitting you have a product that can't survive on its own. That's a problem - why can't it work without acquisition?
Source: http://davidpiccione.com/

This is true enough. There are so many startups out there who are completely dependant on being lucky enough to be aquired by the big dogs (Google, Microsoft, Yahoo, Ebay, Amazon et al).

Clearly building a valued, usable and profitable company is critical before you even consider aquisition.

But what if your company has satisfied these requirements and really does want to get acquired by one of the big aforementioned web godfathers? What should you bear in mind?

Tony Wright from RescueTime offers this advice:

Give some thought to WHAT [they want] when they buy a company

1) A profit center... Profitable businesses are easy to sell. 2) A team of innovators. Hiring is expensive. 3) A feature-set they don't offer and couldn't develop as quickly. 4) A user-base that they can integrate with their own, making their collection of services more "sticky" (Yahoo does this a lot-- they want the @yahoo login to be hard to give up). 5) A targeted user-base that advertisers love... Having a service that caters to 10,000 male CEOs is better than having a service that caters to 50,000 people you know nothing about. 6) An appearing of "coolness". Corp dev guys LIKE BUYING STUFF. It's their job, it gets the company PR, etc. If you are a service that is loved by a particular audience, you might get bought to acquire that goodwill. While it's not the only reason, I think this is part of the MS Facebook investment... To appear slightly less lame on the web front.

How does funding actually work?

Angels? VCs? A Series? B Series? Friend and family? This discussions provides you with the insight to make sense of it all.

One of the best introductions to this topic is Paul Grahams Start up funding article that covers Angel Investors, Seed Funding Firms, Venture Capital Funds, and the various seed rounds that occur during the funding process. Venturehacks.com's Cheat sheet to funding is also a superb and highly recommended resource that walks you through Pitching, Negotiation, assembling The Board of Directors, Valuation, Vesting, Convertible Debt, Lawyers and many other juicy tidbits.

tstegart from www.theopenentrepreneur.com brings some very valuable papers into the equation for those interested in deep diving into VC deals.

One of my professors in law school wrote some great papers about the structure of venture capital deals. What each party is searching for, how they structure the legal documents to protect them, etc. The answer to your question about what to expect is that you negotiate the deal, so you get what you can, and give up what you have to.

His papers deal with the nitty gritty, and are kind of nerdy, but you'll learn a ton of how things actually work. You can download them here.

I recommend the first two in the list, The Exit Structure of Venture Capital, and How Early Stage Entrepreneurs Evaluate Venture Capitalists.

That said, while that's how funding actually works, the work of getting funding all takes place before an agreement is signed.

For Angel investing, my friend Allen Manser recently sent me a very valuable link: http://www.angelblog.net

Last but not least -- don't forget about bootstrapping your business idea or startup. Seth Godin's 'The Bootstrapper's Bible' is a great FREE read on how to bootstrap your company. Guy Kawasaki's The Art of the Start is also an excellent read into the world of funding, pitching and bootstrapping. It is well worth the bucks. Or alternatively try the free manifesto version of the book.

Does anyone know or have any resources they like to reference when writing up business plans?

A good starting point is Sequoia Capital's page on Writing A
Business Plan.

A highly recommended book is "Business Plans that Win $$$":

If you want a book, the best one I've read (and over time, I've read more than my fair share) is "Business Plans that Win $$$".

It looks old and outdated and cheesy. But while it is from 1987, the differentiating principles are the same ones that you hear echoed by pg, 37signals, Sequoia, etc. Sound business principles (the kind that an investor who has not drunk of the kool-aid, yet, should possess and be looking for) have not changed in those years. The book pushes you to answer the same hard questions that a good investor will, and position your plan in the best possible light.

Some people, especially those in the fast moving web 2.0 space don't seem to think a fully fleshed out business plan is necessary.

What do you expect to gain from a business plan?

Keep working on your product, get a user base, and worry later about verbalizing the specifics of your projected market share and what day exactly you plan to go cash flow positive.

Sure, a business plan will force you to really question what your value proposition is, and how you plan to differentiate your product, but that can all be done by creating a brief outline.

Others (like Alex Krupp) disagree.

"Investors don't typically look at business plans."

That's only going to be true if you're making something like a website where the market and the monetization strategy are limited to a few well-understood choices. If your business is something like, for example, selling handicapped-accessible home swimming pools to parents of children with disabilities then a business plan is key.

Additional notable knowledge is also available through Garage.com's Resources Portal (One great article is 'Critical Factors for Obtaining Venture Funding').

How did you come up with you startup idea?

Mixmax shoots out the gate summarizing some creativity best practices:

The keys to getting the good ideas are:

1) have lots of them - my ideas are no better that anyone else's, I just have a lot. Statistically a good one will pop up every now and then.

2) When you encounter a problem think through all the possible ways of resolving it. Don't mind if some of them are outrageous, just be sure to discard them when you have checked that they don't work. A friend [of] mine and I once actually thought that according to the laws of physics a certain combination of magnets and superconductors should make a perpetual motion machine. We set up an experiment, and of course it didn't work. We tried it and discarded it, and we weren't afraid of trying something crazy.

3) Know about different disciplines, and have broad knowledge. Innovation often comes from crossbreeding different disciplines. If you put a physicist and a web designer in a room you will get more innovation than if you put two physicists in a room.

It is true that time and time again researches have demonstrated that creativity is a skill that can be developed and enhanced, as is not something people 'are born with'. Check out Choreographer Twyla Tharp talking about Creativity Step By Step at the Havard Business Review.

Finding an idea you believe in is equally important. Trying to solve a problem that affects you personally has a greater chance of helping others solve problems. Don't get caught in the trap of a solution looking for a problem.

I've been working on various start up ideas for the past several years, trying to find something that really grabbed and inspired me to work on it full time. Nothing was doing that, even though I had worked on several different things.

So, I took a step back and looked at my life and the ideas I was working with to try to find out why I kept getting bored with them. Finally, I realized it was because I didn't personally care about what I was doing. Many of them were great ideas that had a real market willing to pay for the software, but I kept fizzling out because I didn't care one way or another if the product ever made it to market. Sure, the potential money provided some motivation, but not enough on its own. I needed the end product to have an influence on my life.

Lately, I've been looking at problems that affect me personally, and I'm much more inspired to follow through with them. Granted, I still have several things on my burner at once, so I need to narrow down to a single one and just get it done, but so far, working on something I care about is much more productive and inspiring for me.

Source: kingnothing

There are a suite of frameworks and methodologies for finding ideas. Some examples provided are Lateral Marketing, assumption reversals, Observational Research, and New connections techniques.

Great books for creative thinking include Thinkertoys: A Handbook of Creative-Thinking Techniques (2nd Edition) (don't forget the Thinkpak: A Brainstorming Card Deck). Six Thinking Hats is also a great book. It has the most bold opening statement I think I have ever read:

"The Six Thinking Hats method may well be the most important change in human thinking for the past twenty-three hundred years."

Other than Google Adwords, what is the best form of paid advertising?

Google Adwords is the de facto web marketing choice for advertisers. However, that doesn't mean it is the best nor does it mean it is the most effective.

Suggestions include Rightmedia, Lookery, Adbrite.com, StumbleUpon advertising, or creating your own affiliate program (e.g. via linkshare).

How do I find a name for my startup?

Naming a startup can sometimes seem a little crazy. Web 2.0 startups typically have predictable, occasionally memorable names that can be created with a tool like the web 2.0 company name generator (http://www.lightsphere.com/dev/web20.html).

Other great tools include:
http://www.domify.com (good for brainstorming)
http://www.nameboy.com
https://www.tdnam.com/trphome.aspx (expiring domain names)

Remember the earlier in the alphabet the first letter of your domain is, the higher you will show up in alphabetical listings, directories, etc.

1. List 100 things about your company and what you want it to represent.

2. Throw that into an application with custom rename logic (i.e. remove vowels, flip words, replace similar sounding letters, etc)

3. Run the list against taken domains

4. Code in some random simple removal logic based on the letters

5. Comb through remaining by hand.

Source: misterbwong

What to do when the competition surfaces?

Phew. This is a tough question and many people chimed in.

Most YC people will echo Paul Graham's advice: Release early and release often. However -- sometimes you can release too early for one of many reasons.

The first is not fully understanding your customer. A second is trying to match features that your product doesn't actually need.

Rob Sheldon put it best:

It's fine to keep an eye on what your competitors are doing, but you want to use that as a source of ideas and inspiration, not as a way to defeat yourself before you're even out of the gate. The competitors may not be able to release as early or often. Everything might fall through for them. Or, maybe, they'll be successful, and you'll be successful, because there's room in the market for more than one company.

You shouldn't be afraid of competition, you should embrace it as an opportunity to be challenged to produce an even better product than you would have.

So, I say just focus on your product. Make it the best, most mold-shattering product you can. If you can do that, and keep on doing that, then at the very least your potential competitors are going to have to spend a lot of energy just trying to keep up with you.

adammichaelc provides some great insight as well, but points out those sites requiring a network effect must get out of the gate first (to acquire the crowd).

Who cares? That's my first thought. If you don't have competitors, then your idea probably wasn't that good.

That being said, if your idea depends on a network effect (like Amazon), then you've got a bunch of other problems and you should read this: http://www.changethis.com/8.StrategyLetter.

If you're building a company where you charge a price and bring in revenues directly from your customers, and you don't have the need of a network effect, then you will have competition throughout your life. But don't worry, they will just keep you on your toes and help you to produce the best thing possible.

Our biggest mistake with Gimme20.com, was getting intimidated by the launch of traineo.com. We panicked and did everything we could to get out the door as quick as possible. This hurt us in many ways: proper usability assessment was not done, alpha did not last long enough (to listen to our users), we included features that weren't part of our original strategy, and the marketing was rushed. If I could do it all over again, I would have polished the product for another two months and then used traineo as part of the marketing campaign ('New traineo competitor Gimme20.com').

Responding to competition will always be a bit subjective, but it boils down to ensuring that your users are receiving utility from your product or service.

Some great tools for monitoring your competition include http://www.rivalmap.com/ and http://www.competitious.com/ (Same vendor, competitious is free).