Competing for competition’s sake

I don’t agree with Vivek Wadhwa that losing a business plan competition is better than winning it. However, I do think that business plan competitions force many teams to aim for the wrong target. Here is the comment I left on the TechCrunch post:

I’ve judged the MIT 100K for many years and am currently an EIR at the MIT E-Center. The biggest problem with business plan competitions is that they skew incentives. An entrepreneur’s incentive should be to build a winning business, not win a business competition. Conversely, good business plan competitions should aim to help build great companies.

The benefit of business plan competitions is that they pace a team and force it to deliver on a schedule. Many teams benefit from that process and from the feedback they receive along the way.

The biggest problem I’ve experienced as a judge is that there is no diligence process. Judges are supposed to pick winners based on the claims of the entrepreneurs alone (and a bit of face-to-face time). Without diligence, the teams have an incentive to exaggerate as there is no penalty for slight exaggeration. Judges can only react to gross exaggerations. Teams that are in touch with reality, customers and that understand the challenges involved in building successful businesses have a higher likelihood of being subtly penalized during judging when reviewed alongside folks more likely to over-promise. No, it’s not easy for judges to correct for this.

The solution is to introduce diligence as an integral part of business plan competitions. The suggestion I made to the 100K was to organize a diligence team that runs alongside teams participating in the competition. The goal of the diligence team is not to poke holes at the entrepreneurs’ dreams. It is to make the teams and the companies they want to build stronger and more likely to survive in the real world. And, yes, in the end, hopefully more deserving companies would win and there will be a higher correlation over time between companies that win and companies that succeed. Wouldn’t that be nice?

Alas, the student-organized MIT 100K competition is finding little interest inside the MIT and Sloan student bodies to participate in the diligence process.

In the end, it is the entrepreneurs that lose.

About Simeon Simeonov

I'm an entrepreneur, hacker, angel investor and reformed VC. I am currently Founder & CTO of Swoop, a search advertising platform. Through FastIgnite I invest in and work with a few great startups to get more done with less. Learn more, follow @simeons on Twitter and connect with me on LinkedIn.
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15 Responses to Competing for competition’s sake

  1. Some excellent points here. The most important point you make is that judges have no time for diligence. This certainly skews a business plan competition to the areas that judges are comfortable and many times, group think plays out.

  2. Ben Rubin says:

    i posted a reply on Techcrunch:
    “This makes a great deal of sense. I co-founded Zeo (we make a home sleep monitor and coach) and we competed in a number of business plan competitions while we were students. At the Brown business plan competition we were the first place losers – the winner was a company called Firefly that was building an electronic pricing system for supermarkets. About 2 weeks after winning the competition a trip to a local grocery store revealed a new set of electronic pricing tags with the same bundle of features and benefits – already deployed!
    Some basic diligence would have revealed this. If this diligence was done alongside the Firefly team (ie. before the business plan competition) the feedback could have been integrated and a variant or new idea could have been generated that might have won in the real world.
    Sim – you mention the student body of MIT/Sloan as a diligence team – and their being little interest. Wouldn’t a diligence team of successful entrepreneurs and industry experts be more valuable to the teams? Not sure if there would be interest from that community but I would certainly help if asked.

    Ben”

    • Ben, you are right–a diligence team of experienced entrepreneurs/execs/VCs will be better but it’s hard for me to imagine how one can aggregate the time commitment and schedule flexibility required to support/challenge the teams when they needed most.

      Thanks for volunteering, though. If there is an opportunity, I’ll follow up.

  3. Pingback: Winners = losers in business plan competitions? « Mass High Tech Blog

  4. Theo V says:

    Good points out here and good comment by Darren. I would also disagree that “loosing is better than winning” . At the Chicago GSB two companies that won “Grubhub” and “PrepMe” are now doing quite well.

    I personally believe in the Y-combinator model. I think b-schools should look into doing that rather than the traditional bus. plan competition.

    • Theo, thanks for joining the conversation.

      Having been a TechStars mentor, I think a Y-Combinator/TechStars model is a great idea for B-Schools. It does require more intensity, though, so I’m not sure how it can be integrated into the programs. It also requires more doers than thinkers.

  5. Sim/all,

    What if instead of using a volunteer judging panel to determine winners based on rushed/inadequate diligence, we ran a massive competition that integrated the investment community and let the resulting investments dictate the ultimate winners?

    That is essentially the MassChallenge model that we are launching next year in Massachusetts (www.masschallenge.org). In many ways, we are combining the 100K model and the Techstars model. Note that we do intend to provide grants based on the selection of a judging panel, but the real benefits will be provided via investments and other resources leveraged out of the surrounding ecosystem, and those are the key metrics against which we will judge our success.

    – John

  6. Zommaallock says:

    Thankz for the news!

  7. Anna Palmer says:

    Hi Simeon,

    I thought your post was really interesting. As a Harvard Law student entering the business plan competition, I found a great deal of my time was taken up by diligence as I wanted to ensure our company knew the market and potential problems well. Reading your post sparked an idea: since there is not much interest at MIT for diligence work, what about partnering with Harvard Law? Since many of us worked on diligence for corporate acquisitions over the summer, and we have a requirement of fulfilling 40 hours of pro-bono service, we both have the skill set and the motivation to become involved. It could be a fantastic win-win partnership where MIT is provided research to help round out the judging process, and Harvard Law students interested in mergers and acquisitions, private equity, or venture capital would learn real world skills.

    If you are interested in the idea, I would be happy to speak with you about it and bring the idea to Harvard Law for you.

    Great post!
    Anna Palmer
    JD Candidate 2011
    afreidinger@jd10.law.harvard.edu

    • Anna, great idea. Do you know the MIT 100K organizers?

      • Anna Palmer says:

        I know one of them. I will email her about it tomorrow. I think it would be a fantastic partnership. If you happen to have connections with the organizers as well, feel free to spread the word. I would be happy to talk to our Harvard Law Entrepreneurship group about it as well.

  8. Pingback: Are We Actually Creating Startups Through Business Plan Competitions? « Robert Shedd

  9. I know this if off topic but I’m looking into starting my own blog and was wondering what all is needed to get set up? I’m assuming having a blog like yours would cost a pretty penny? I’m not very web savvy so I’m not 100% certain. Any recommendations or advice would be greatly appreciated. Thanks

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