Winning Business Plan Competitions is Not a Business Model
Is it me or are there business plan competitions on every street corner in every town these days? I am getting pounded with requests from startups that want coaching and mentoring in support of their efforts in business plan competitions. What is suddenly making them so popular?
I have to believe that the expected value of being in these competitions is not very high. While there’s nothing wrong with getting a lot of non-dilutive prize money and some excellent exposure, wouldn’t one’s time be better spent focusing on more important activities?
Here’s the concern: Two of the companies that contacted me had forecasted business plan competition prize money as part of their revenue model.
Companies should be focused on building their businesses and engaging customers, not trying to impress judges at business plan competitions. Some startups win business plan competitions yet still can’t raise money. There are outliers, of course, but on balance I’m stuck with my belief that this is not how entrepreneurs should be spending their time.
I have lived the pain of trying to get companies off the ground. And I know the agony of keeping companies alive once you have rent to pay and mouths to feed. I’ve known many companies—I’ve run several—that chase federal grants and SBIRs much like companies pursue prize money in business plan competitions. My hunch is that while there may be a correlation, winning a business plan competition does not mean that one has a good business.
My sense of “this doesn’t feel right” was validated when I read Steve Blank’s excellent post called “Fund Raising is a Means, Not an End”. Steve and I must be of like mind because the first sentence of his post is, “For many entrepreneurs “raising money” has replaced “building a sustainable business” as their goal. That’s a big mistake.” Are there any studies that relate outcomes in business plan competitions to outcomes of the business?
Tell me I’m crazy. Point to a company that was propelled forward by winning a business plan competition and use that as evidence against me. Maybe these competitions are just masqueraded ways of awarding grant money. The effort that goes into these things is misplaced time and energy that could be spent on more important value-creating activities.