I’ve run business plan contests, been a finalist in business plan contests, and spent too much preparing for business plan contests. Given the choice, I would do it all again. That said, I agree with Chris Dixon and Steve Blank that while contests are a good start, they are not great. I’d like to preserve the quality discussed by Albert Wenger – that contests excite students – while at the same time making contests useful to those building a business.
Here are the negatives of business plan contests: The business plan contest focuses on the resume of the team. It suggests that market sizing and financial modeling are more important than learning from customers. It suggests that you should follow a single plan. It encourages you to spend time in Excel and Powerpoint, rather than getting outside the office.
Yet, there are many positive aspects of contests:
Contests Excite. On many college campuses, recruiters from big companies show up annually with trinkets in the Fall and job offers in the spring. They dangle pay checks. The business plan contest is just about the only exciting entrepreneurial event on campus. You get to hear about new ideas. See some classmates win a big check. Get some coverage in local papers. For a couple days, some students are actually talking about entrepreneurship
Contests Encourage. Though KartMe has reached the Finals of a couple contests, we’ve never won. That said, I met many entrepreneurs through the process who said “we lost too – and look at our company”. I got to hear stories about winners of contests who still had to meet with 50 investors before getting funding. Only by participating did I learn these war stories that give me encouragement.
Contests Connect. Through contests I’ve been able to meet classmates, entrepreneurs and investors who will be a part of my life for decades to come. Back in 2000 I met Geraldine Alias while she was running the business plan contest at Princeton and Anthony Marino when he was a judge. Both have generously lent helpful advice and connections throughout the years.
Contests Teach. Every contest includes a Q and A portion and also opportunities for judges to give feedback to teams. Through contests I learned to focus on things like the cost of customer acquisition, lifetime value of a customer, and business development pipeline. These metrics, which start-ups live and die by, are only cursorily passed over in business school and even most of the strategic and financial modeling I did before school as a Fortune 500 consultant and business analyst. Also, contests give you an opportunity to improve your presenting abilities – which are crucial for selling investors, customers and teammates.
Contests Legitimize. Every investor says they think independently. At the same time, investors talk to each other and look at trends in the market. Doing well in a contest provides a stamp of approval, or simply expose you to individuals who can provide that stamp of approval.
To improve, contests should focus on development of a business. The contest should encourage students to identify risks, execute tests, and refine. As Steve Blank suggests, judging should focus more on what students have done to develop their idea, and less on market sizing and cash flow analysis. To participate, contestants should have:
- Developed a business idea
- Identified major risks to their business (e.g., customer adoption, customer acquisition cost, technology development)
- Implemented cheap tests to assess those risks (e.g., built an alpha, tried to sell an LOI)
- Assessed results
- Iterated the business idea and repeated steps 1-4
The winner will have proven the ability to learn the most and make the best changes cheaply and quickly. Judges will score:
- Did the contestant identify and test the biggest risks to the success of the business?
- Did the contestant execute tests that produced measurable, actionable results?
- Did the team make appropriate changes and conduct new tests?
- Is the team substantially closer to having a viable business model?
While participating in contests, I wish I could have focused more on testing, learning and refining, instead of top down market sizing or building a cash flow statement. It would have been a lot more useful to the success of the business, and more similar to what I do today.
What do you think? Should business plan contests evolve to focus more on business creation?