I consider myself something of an expert on business plan competitions. I ran one myself for several years, I’ve judged several dozen including several of the most prestigious, my company sponsors more than a dozen a year, I’ve had students in my undergrad business classes competing in them, I’m an investor member of an angel investor group that holds an annual contest, and perhaps most important, I enjoy them.
So when the National Association for Community College Entrepreneurship (NACCE) asked me to do a webinar on business plan competitions, I said yes. That’s going to happen August 18 at 1 pm PDT (and you can click here to register). And it also got me thinking about what’s right and what’s wrong with most of the business plan competitions I see. Which led to this post, about a problem I can’t solve. While it might come up in that webinar, it’s not going to be the main topic. But I do want to write about it here.
The problem is that business plan contests almost all undervalue bootstrapping. While the vast majority of startups are bootstrapped, meaning they start without venture capital or angel investment, the vast majority of business plan competitions award the best investment, not the best company.
And I’ve seen many a good-looking plan, and good-looking business, that should have been winning something but wasn’t a great investment for outsiders. It hurts to not find a prize for the startups that look really good for the owners and operators, long term, without an obvious exit, which makes them a good business but a bad investment. Why don’t they get a prize?
However, this is a hard problem to fix. How do you decide what’s a good business? High risk, low risk, change the world, maybe? It depends a lot on who you are.
Back in the late 1990s I judged some intercollegiate MBA-level contests that left the criteria for winning up to the judges. Most of the judges were investors so they leaned naturally towards awarding the top awards to the startups that seemed to offer the best investment.
I still remember a conversation we had in the judges room in 1998. One of the best businesses we’d seen said outright that they could do it without outside investment. They were there for the cash prize. They had a strong team, a good product, and a believable plan for financing themselves using early sales. Several of us thought that the best possible businesses grow themselves that way, bootstrapped; and a good shot at a $5 million business owned by its founders was, to us, a better business than a 1-in-100 shot at a $25 million business owned by investors who put in $2 million. Several others thought that a business plan competition prize should go to the best investment opportunity.
How do you compare the relatively low risk cool bootstrapped startup to the high risk, high-profile startup that might change the world? Sure, we all say the risk and return ratio, and the MBA world offers technical analyses like internal rate of return, but, as they look into the future, it’s all very subjective. It involves guesses about the future cash flows and the discount rate. There’s a lot of unequal comparisons.
But the classic business plan for investment, and the investment process, and the investment filter, are also what’s generally taught at the MBA level, a lot more than bootstrapping.
A few years ago half a dozen or so of the leaders of MBA-level business plan contests got together and, trying to solve this problem, agreed on some general standards. At that time – or so I was told; I wasn’t there – they standardized on using “the best investment” as the main criterion for determining a winner. I do sympathize. Although even this one is a complex and difficult standard to follow, it gets way worse when you drop it in favor of something even more vague.
Most of the major competitions go along with that standard. Some of them have added special channels for social entrepreneurship, with different criteria. And for the angel investment competitions, like our Willamette Angel Conference, it’s not a problem at all because we’re actually investing, so of course we want the best investment.
But in the meantime, the bootstrappers are still left out; and that’s a shame. I think it’s a problem we can’t solve easily. And it might come up in my webinar, but I won’t have a solution. What do you think?
Tim, is there a place for two different kinds of business plan competitions? Can these not offer awards, prizes and benefits *besides* investment? Of course, there would always be inequities, but I think it could be better than ignoring or penalizing the best bootstrap businesses.
Becky, yes, I think that — your suggestion about two kinds of business plan competitions — would be a good thing. the bootstrap business plan contests would work just as well, actually, and it would be fairly simple to do. Similar content, presentations, but make the criteria focusing on growth potential and staying power and factors like those, instead of exit potential for outside investors. I can’t think of any good reason why not. Thanks for the comment. Tim
Hi Tim,
I’ve been a fan of Palo Alto Software from the early days.
Your thoughts on competitions is correct – yet the nature of the competition is to organize the prizes based on goals of those who created the contest.
If you ran a contest for the best plan utilizing BPlan Pro – you wouldn’t award anything to someone who entered a plan using a different format or software.
Many contest are designed to encourage business plans which result in economic impact measurements – such as capitalization, jobs, sales, loans etc. The contests are usually not designed for the impact on the owners life. How a business owner designs a plan to consider potential changes in lifestyle, family and employee impact is a very valuable.
One way to set up boundaries for competitions is to have different submission areas – such as – Owner Managed, Professional Managed, Partnerships – or even plans that are written for potential success rather than needs (ie. investment requests)
So – as the government funds programs to encourage their agenda – you might want Palo Alto Software to consider sponsorships for competitions that focus on multiple causes – and not just numbers.
Cheers,
Blake Escudier
Blake, thanks, yes. Just like the competitions have found ways to make channels for social enterprise (to cite the most common example), they could find ways to make channels like you suggest. You make good points here. Tim.
Hi Tim,
Thanks for your insightful article. I’m looking forward to attending your webinar next month.
As a bootstrapper myself, I’m thinking the problem of exclusion may work both ways. Yes, most business-plan competitions are investment-focused and will devalue the plan that does not seek outside capital. But for other reasons, most bootstrappers are less inclined to enter competitions. By definition these entrepreneurs are self-reliant and their businesses do not depend on the prizes or funding connections offered by such competitions. They may believe–and who could argue?–that their time is better devoted to building their businesses than by competing against others in a contest.
I believe it should be up to the local and regional economic development agencies to design and host competitions that pull in the bootstrappers. And I’m happy to see that now happening in many places.
Joe Hurley
Founder, Savingforcollege.com
Co-founder, Bizplancompetitions.com
Joe, thanks, you make two good points there, and I’m grateful for the additions. Congrats on bizplancompetitions.com, by the way, that’s a very useful site. And you’re completely right about the bootstrappers not wanting to play, but I’ve seen several good-business-bad-investment entries even in the contests this year, so it does happen. What they get from entering is a lot of feedback, a chance to pitch, and local awareness.
I’m interested in your noting that local development agencies are starting to sponsor competitions more interesting to local bootstrappers. I’d like to see more of that. So I guess I’ll have to stay closer to your site.
Tim
I’ve helped organize several collegiate competitions and this has been a challenge..especially when “bootstrappers” are competing vs. “IP-driven” plans…doesn’t seem like a level playing field.
One way I have been trying to address this is to add a feasibility component to the judging criteria. Ask the judges to evaluate which business has the best chance to move forward in the very near future…sometimes that gives “bootstrappers” a few more points. No perfect though
I have been following the conversation closely, I will tell you that I am one of the ones who is searching for some way into funding, and really keep hitting the wall. I am not rich enough to support my plan (a small family comedy theatre in jersey) my salary is good, but it pays the bills, and that is that. I am a teacher, and have some retirement in a 401K, but you can’t be reckless and go chopping that up when you have a family to worry about in the future. I am not poor enough to qualify as a women in need. I am not non-profit, and i almost feel awful saying that–it is not that I have delusions of making millions, it is just the type of business (you’d have to read my BP) I am doing does not work well in the hands of committtee.
Recently, I have also discovered the BP contests, and intitially was excited that perhaps here was a place where merit, and hard work might be able to pay off. But, with every contest guideline i read, the bad news comes–I am not a student, I am not a member of something, I don’t live in NY, I am not affiliated with etc. etc.–
Although it seems like some of us are just in it for the cash, we are also in it for something else. The first time you think about starting a business, you don’t really get the whole BP thingy. But as you write it, and rewrite it, and rewrite and get feedback from everyone, including your mail carrier 🙂 you begin to see why it is so important, and if at the end of your drafts, you still feel strong about your plan, you want the feedback, but you want it from people who KNOW. And let’s face it, rewarding someone who you believe has the best plan, one that can’t seem to fail, is good. It means you believe in them and may actually be directly affecting the percentage of business doomed to failure that now might have “pause” and say hey–maybe this didn’t win for a reason. I really wish there were more of these, something someone like me was eligible for and could use as a path to startup–maybe it is not so much that there should be more or less competitions, but as someone earlier mentioned, that there were more for those of use shut out of other categories, (big sigh from NJ) :)–but a good convo nonetheless