GUEST POST from Arlen Meyers
Pitch fests happen almost every week somewhere in the US, They happen in primary schools, high schools, institutions of higher learning , incubators and accelerators. In addition, the spring and the fall are B school business plan competition season, so look for tweets about who won and pictures of those smiling millennial faces holding big cardboard checks.
These competitions serve many purposes, but, fundamentally the objective is 1) to practice your presentation skils, 2) to get feedback, 3) to find money
I have participated on both sides of the check, as both pitcher and catcher (judge) and have always found the format wanting.
Carl Schramm describes the problem:
If you look at all our older major corporations — U.S. Steel, General Electric, IBM, American Airlines — and then you look at our newer companies like Amazon, Apple, Facebook, Microsoft, none of these companies ever had a business plan before they got started. Empirically, it appears as if you don’t need a business plan.
Second, the business planning process is largely generated as a preview for venture capital. As I show in my book, from empirical studies, much less than 1% of all new startups ever see a venture capitalist. Much less than 1% of all new companies every year have venture backing of any kind. So, I largely view the creation of a business plan as something of a waste of time.
The third problem is that it seems to make starting a business somewhat like a cookbook. If you do this, and then you do this, and then you do this, the cake will come out okay. And that’s really not how it happens.
I think it is time to rethink these events, and, it seems, so do some investors who are moving towards data-driven investing.
EQT Ventures in Europe takes data-driven investing to a new extreme. The 2-year-old VC firm, which is part of private equity group EQT, uses an AI-driven data platform called Motherbrain to help it make investment decisions. The firm’s €566 million fund backs companies at all stages—except seed—with €3 million to €75 million checks. So far, the firm has invested in 22 startups.
Analytics partner and former VP of analytics at Spotify, Henrik Landgren, said Motherbrain could’ve identified Spotify and Uber as unicorns in the companies’ early days. He believes letting software play a key role in crafting one’s portfolio is “the next evolution of VC.”
Conditional on getting to the stage of submitting a business plan, the judges’ scores have almost no predictive power in determining which entrepreneurs will succeed.
1. The whole notion of writing a business plan v a business model canvas has been called into question given the reality that no battle plan survives the first shot. A colleague suggested “Wild Ass Guess” competition as another way to brand them.
2. Pitches should be limited to no more than m5inutes. Who, in this day and age, watches anything for more than 3 minutes before moving to the next You Tube? Like the hangman’s noose, it focuses the mind. Taking it one step further, idea pitches should last no more than 1 minute.
3. The award money has to be spent on the business, not be used to finance a trip to Europe this summer
4. Winners must commit to passing it forward. There should be an expectation that they will contribute money, effort, time , mentorship or other things to future events and applicants
5. We should publish rates of startups, success rates, exits and the contributions made to the local, regional and national economy
6. We should require that applicants participate in a pre-submission bootcamp to get their presentations ready for prime time in an effort to not waste the time of volunteers who were hesitant to help in the first place. Here are the skills we want participants to practice:
The professionalism of the technical parts and the presentation itself
Was the presentation appropriate for the audience?
Did you talk about the why or the how of your idea and why did you choose to do that?
Did you tell a story and did it have a biginning, a middle and an end with heros and villains?
Could someone with a fifth grade reading level understand it?
Did you props and other media?
Did you end with a strong call to action?
Did you pitch to the heart or the head of your audience
Did this look like your first rodeo or did you practice?
Was your presentation scripted, look like you “winged it” or did you appear more confident and relaxed?
7. Spend most of the time in front of judges “defending their thesis”. They should be required to think on their feet, answering “what ifs” , since that’s what they will have to do the moment they walk out of the award ceremony.
8. Awardees should be required to participate in iTeams to develop and further test and validate their ideas. They should be encourged to resubmit their business ideas in Phase 2 to apply for money to scale their validated models, similar to the SBIR process. Call it the Scalerator Competition.
9. Awardees must agree to submit testimonials, what the Disney Corporation calls Magical Moments, telling their stories not just about success, but how they overcame adversity and failure.
10. Awardees should spend some time in a real startup, perhaps with the sponsors who put up the bucks to help pay for the event, as an experiential learning opportunity
11. The winner take all format leads to churn and discourages further participation by those who are not the winners
12. Judges come with biases they apply to their decisions whether they use instinct or analysis. There are many false negatives (passing on ideas that are eventually successful) and false positives (getting on ultimate failures).Since we don’t really track long term outcomes of these events, we don’t know many there are.
13. Picking one winner or loser is different than picking a number of companies as part of a risk portfolio. Picking winners in a calm market is something first-timers do just as well as old hands, but avoiding losers is where skill and experience matters.
14. Customers are the ultimate arbiters of success or failure. Rewards should go those teams who have demonstrated they have created them.
15. Here’s another way to launch entrepreneurs and their ideas.
Another issue is the lack of consistency, criteria and implicit bias judging business plans. Business plan judging software has made things more consistent, but as long as humans are applying subjective criteria, there will be some variation. For example, here are some do’s and don’ts from one HBS judge.
Business plan competitions , to some, are a waste of time. Instead, maybe we should have Business Model or just idea competitions.
Encouraging students to submit pie in the sky plans that have little or no validity, judging them using vague and unproven methodologies, awarding them money that they don’t even have to spend on their business ideas and cutting them loose afterwards means the biggest winner is the B school building brand equity. For doctors, scientists and engineers, pressing them to write a business plan before using a validation method is like writing a scientific paper and then doing experiments to find the data you used to justify the conclusions.
Can you imagine pitching at a Quantum Business Plan competition?
We need to stop reality TV B school business plan competitions and pitch fest reward structures and get real about business model and idea competitions.
Image Credit: Pexels
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