Finally: the Right Criteria for Judging Business Competitions

Finally! As more business venture competitions pop up, here’s the best take yet on determining a winner: Forbes.com’s Boost Your Business competition offers a $100K first place prize and — here’s where it gets interesting — asks the judges to choose a winner by determining which company can do the most with $100K.

I’ve been asked to judge that one. It should be fun. That makes my judging list for this year include Rice University, University of Oregon, University of Texas (Moot Corp), Princeton, and now Forbes.com. That gives me a good view on what’s going on at the top, some very good plans, some very strong teams. It’s a privilege that I appreciate.

Having done this judging thing for more than 10 years now, I will say that I’ve been disturbed for years by the ambiguity in the criteria for choosing the winners in business venture competitions.

For example, how do you decide between a solid, well-planned and believable business that doesn’t need outside investment but could grow fast (say, $5 million sales in the fifth year) regardless, on the one hand; and one that needs $10 million investment but has a very small chance of getting to sales of  hundreds of millions of dollars in five or 10 years, on the other?

True story moment: the semifinals judges (including me) had evaluated 20 plans in four channels, choosing a finalist from each channel. In the judges meeting at the end of the semifinals, somebody pointed out that the team that was going to cure cancer didn’t get into the finals. "Does that bother us," somebody asked.

A consortium of top venture competitions got together a few years ago and dealt with this problem by determining that judges should decide which is "the best investment opportunity."

That at least set the terms more clearly than before, when judges had to decide between the high-risk high-growth highly improbable cure for cancer and the low-risk highly likely to succeed smaller business with a great niche and no need for investment. That has bugged me for a while, because I like the second case a lot — I don’t sneer at lifestyle businesses like most professional investors do — but at least it kind of solved the problem.

Not that it isn’t still fraught with ambiguities. There are still major ambiguities in the "which is better" area, but at least these are also true in the world of investment at large, and there is some validity in assuming a relationship between risk and return.

So I think the Forbes contest does it better: the judges are supposed to decide which of the competing companies can make the best use of the $100,000 first prize. That’s still potentially ambiguous, but it does go a lot further than the "in which would you invest" question that drives most of these contests.

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