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?