The Business Plan Competition Deconstructed

Nowadays, nearly every school runs one. Last week I judged the NYU Business Plan competition with Fred Wilson, Dave Tisch, David Aronoff and Geoff Smith. It was an exciting event packed with four great finalists. Having sat on both sides of such competitions, I think their purpose is often misunderstood.

Business plan competitions are imperfect and artificial. By their very nature, they are academic exercises.  Sure, the goal is ultimately to start a business but the reality is that this is the exception not the rule. In my experience, at Brontes, we started a business after coming in second at the MIT $50K, however, it was based on a completely different business plan.

The competitions are great forcing mechanisms for bringing teams together around a business thesis. They place deadlines in submitting executive summaries, slide decks and, still, the nearly extinct longform business plan. Most entrepreneurial teams need some amount of structure, and for this, the competitions are useful. They encourage the team to debate ideas like which market to focus on, whom will be named CEO, CTO and how to finance the business. These are worthwhile conversations and are educational whether or not the company is founded.

The competitions are a great way for a team to build its network. Most competitions attract a fairly prominent set of faculty, industry folks and venture capitalists (myself excluded!). The feedback I heard on the panel at NYU last week was constructive and simulated the entrepreneur’s experience pitching his/her business to a VC. The savvy entrepreneur will keep track of the judges as a way back in the door for future conversations.

Despite these benefits, many participants have unreasonable expectations about the competition. The prize money may woo some, frequently academic-minded teams, in the way that government grants are viewed as easy money (but isn’t really). None of these competitions provide enough prize money to fund a venture at any level. Additionally, often the prizes have strings attached. For example, many offer free legal services for a period of time. In those cases the services are great, until the founding team feels locked into a firm or partner they don’t like.

Most importantly, the winners of the competition are not branded as future IPOs in the minds of investors. Similarly, those that don’t win are not destined to fail. My experience at both Brontes and Sample6 is that the results of a competition never come up in any VC discussions.

The most valuable part is getting the team together, practicing the pitch and getting feedback from judges. The competition is a low risk practice run for crafting a business pitch. Used for this purpose, it’s a valuable exercise.