Why Losing A Biz Plan Competition Is Better Than Winning | Hacker News Reader

Why Losing A Biz Plan Competition Is Better Than Winning

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38 pointsedw51921 comments

In general, prizes awarded by judges in contests are not a very good predictor.

Judges are usually busy people. They're not going to work that hard to figure out who's the best. They'll tend to be fooled by superficial polish.

I was a judge at TechCrunch 50 this fall. A few weeks later we had YC interviews. I don't think I was any more slack than the other TC50 judges, but there was no comparison between how hard I worked to pick the best startups in the two cases. Not only was I going to have to put money into the YC startups, whoever we picked was going to become part of the YC community from then on.

In fact, after having interviewed so many startups under conditions where getting the right answer really mattered, I found I had to consciously suppress my tendency to ask probing questions. Even so I think I seemed unduly harsh compared to the other judges.

I watched the sessions where you judged. Some people thought you were harsh, but you were asking legitimate questions. Seatgeek was one, where you were asking about their algorithm. That's important stuff, especially when judging a startup. Some might feel startups on the stage there should not be put under the gun, but that's silly. If these are truly 50 of the best startups out there, they should be prepared for questions like this.

Aren't they two entirely different formats? In one, you're asking probing questions but it's a small group setting and with your longtime partners. In the other you're in front of an audience and judging with folks you may or may not know. You've also screened the applicants for YC for ideas you'll want to probe deeply whereas the contest seems more about general business models and fit to markets. You'll invest your money just based on one meeting whereas the contests seem more like a chance to simply get a second meeting. It's the difference between rational dissections in YC versus blink assessments in the competitions. I don't see very many parallels, actually.

In general, prizes awarded by judges in contests are not a very good predictor.

Do you know of specific data here or is this your general impression? Some contest winners and close losers have seemed very impressive to me. And that's not just at TC50 but also from the DFJ and MIT competitions too.

They're definitely different formats. That's why I toned down my questions for TC50. But it's interesting that both took about the same amount of time. That means we could have dug a lot deeper at TC50 if that had been the point of the event.

You mean the actual "interview", right? As a judge were you also expected to review and filter applications?

I did four B-Plan competitions (had success in all four) in the spring of 2008 and the experience was useful. I would HIGHLY recommend and HN'ers in the Boston area sign up for this years event, which is going on now.

The good things:

1. Great networking: The MIT 100K competition has a lot of support in the Boston area. It is a great way to open a door to almost any company that has any affiliation with MIT.

2. Business issues: I know the prevailing ethos here is build something people want and the rest will take care of itself, but these competitions do force you to think about how you will sell you product, the importance of barriers to entry etc. As PG said he is even rethinking the mentoring aspect of YC to more richly incorporate this kind of info.

3. Money - These competitions are serious cash cows. 35 team at MIT get $1k, 7 get $10K, and at least 2 get $100K. In addition there are special prizes for mobile and other areas. If you have a half decent idea it is a way to get YC caliber money with no dilution. All you need to do is find a student at MIT to participate, which is trivially easy.

The downsides of these competitions (in addition to what the author said):

1. Wrong teams: Often the teams are comprised entirely of MBA's. Even though many were former hackers, they were at school to become managers not makers. I'm not anti-MBA, but the big problem is the fact that by the time you win a competition the MBA is a month from graduating and is on the hook for $200K in debt which dampens the entrepreneurial enthusiasm.

In any case I think the process is well worth it.

Other possible interpretations of the data:

- People who have the patience to court a jury with a business plan, perfecting their pitch, etc. at such an early stage – while they could be working on their product – don't make the best entrepeneurs.

- The judges are teachers who've been entrenched in the academic world for too long to pass valuable judgement on a startup's viability; Their judgement is either counterindicative of success overall, or they may simply weigh factors that are only important for a more mature business too heavily for the judgement to have anything to do with startup success.

- Most startups fail, including those that come forth from these competitions, there's no measurable correlation.

Take your pick ;)

Any judgement of a startup's possible success that's based upon business plans rather than founders' personalities misses its goal because it does not account for the amount of change to the plans that is required for success, but which will only happen if the founders have sufficiently flexible minds.

A final point then: Does hearing a respected jury tell you your plans are the bee's knees make you more hesistant to change them or throw them overboard when things aren't taking off?

Good points. But I wanted to respond to the last:

> A final point then: Does hearing a respected jury tell you >your plans are the bee's knees make you more hesistant to >change them or throw them overboard when things aren't >taking off?

Maybe, maybe not. But having that same jury tell you your plans are bad and why they are bad is extremely useful. So I wouldn't write off these competitions entirely.

Dave and I (along with a classmate Dom) won the Chicago Booth (MBA) business plan competition for Bump before entering YC. It was good because we were in school and got credit for spending time thinking about and working on Bump (rather than taking a class that was wholly distracting this one was only partially distracting), met some alumni that have become valuable advisors, and greatly improved our presentation skills (which helped a lot when we were raising money). It was bad because we knew had to work on two things in parallel 1) the real business and 2) the "business plan" business (if we had said what we really wanted to say we would not have won that competition, which at the end of the day is what it was). Overall it was net positive for us I think because priority #1 was the real business and we made instead of planned (we started on Bump 7 months before the competition and launched before it started). In fact, the top 2 companies were the only two that had product in market at the finals. When my Booth ex-colleagues ask me for advice in the business plan competition I tell them to build a product and get in in customers hands, otherwise you are spending too much time guessing what customers will think.

There are plenty of companies that came out of business plan competitions that have done really well. One of my favorites is SunEdison that won the HBS business plan competition. A few years after winning they were just bought for $200M. Not bad...

I've participated in 3 pitching competitions at Edinburgh University. I won one of them and lost at the other two. The value I gained from them came in 3 categories:

1.) Networking 2.) Awareness among local startup scene 3.) MacBook Air ;P

Seriously though, the contacts I've made at these events have been infinitely more valuable than the cash and assortment of juicy Apple products that I've won.

The biz plan competition at our school is very clear on this: it is just about the business plan. They do not care about execution. In fact, they recommend that the prize money be distributed equally between the team members as opposed to being used for the company. I am having a hard time digesting this, nonetheless I appreciate their clarity.

Also, Jon Burgstone came in second place for the HBS business plan competition with his idea for SupplierMarket and then started and sold the company for over a billion dollars within a year. Now, he and his former co-founder offer a special (and larger) cash prize to other 2nd place participants of the same contest.

Good point. Business plan competitions are good indicators of who can succeed in cashing out during dot-com bubbles. Essentially, you presenting a business to group of clueless individuals. If they buy your pitch, you are more likely to be able to either con a clueless internet-bubble company's board into buying your company or fool collectively clueless merchant investors into buying into your IPO.

I was co-lead organizer of the MIT Clean Energy Prize last year, a national biz plan competition with a $200k cash grand prize (and partner to the MIT 100K). We never thought ourselves capable of designing a competition where the winner was in any way assured of “making it”- the free market is the only force capable of determining that. But that wasn’t the point; the post is correct that the perceived ancillary benefits of forming a strong team, making deadlines, and meeting/facing potential customers and investors turn out to be what make the whole thing worth it (and not necessarily for the success of the business being pitched but for the skills built by the students). As pg implies, the judging is not "for real" since it's with OPM, but compare that to the usual indicators given at universities (grades) and it doesn't look so bad.

The vast majority of the teams realize this too, and the ones who don’t are not the ones who go far. Winning the grand prize is basically a bonus for the the team who gets it...

Is a b.p. competition for everyone? Probably not. I’d definitely prefer being a part of YC before winning the 100k (dreaming up a web app); YC community >> 80k. But they are not mutually exclusive and the b.p. application is only 2 pages and 10 slides.

And a big success who actually won such a competition? How about EnerNOC, a $600M public co that won the Dartmouth competition in 2002. They do load balancing for electric utilities (big customers go low-power during peak demand). Probably doing more good for the world then all the apps in the app store.

I'm a student at NC State right now and we have one of these coming up in the spring. I will say that both the companies and the judges are somewhat in the dark for ideas that are even remotely complex with niche markets; however, it doesn't take away from the fact that there is cash involved that we're after and we're gonna give it a decent shot. I'm a graduating senior and I'm staying as far away from jobs as possible. Money from our business plan competition could keep me afloat for another 6-months or so while I bootstrap my idea.

I like that the author pointed out that no home-run companies have won business plan competitions, but it's not to say it won't happen. My observation is that it's going to need to be in a sexy category. The three winners from our competition last year were tuberculosis testing, biodiesel from trap grease, and college admissions...surprise surprise. The teams were good, I have to admit, but I would bet that an equally good team with a sub-trillion-dollar market wouldn't have had a chance. Akamai could have had an awesome business plan with great market research, it probably just didn't excite the judges.

I have participated in several business plan competitions, not so much to win the competition, but to have a reason to finish writing the darn thing under pressure. My biggest success didn't win any prices (but we participated with it) and the business plan/idea which did win a price I shelved immideatly after, as it wasn't that interesting to me and it was too niche to make a really big impact, from my point of view.

I have to ask, I know ideas aren't worth anything until you execute, but doesn't throwing your idea in front of a large audience of other entrepreneurs and industry leaders potentially lead to a lot of extra competition? This sounds really cool to me, but I'm a bit hesitant. I like getting feedback, but usually from people I can trust (which I know is a biased sample).

The whole idea of a business plan contest is screwy. Ideas are a dime a dozen, it's all about execution. If I were to start another startup tomorrow, I'd just scrape TC for the newest and hottest set of startups for an idea, tweak with my own twist and attack head first.

The business plan contains more than the idea, it should contain the planned execution. For instance, how will you promote your product? Partnerships? Media campaigns?

Of course, the business plan is just a stack of paper. You may have brilliant execution on paper, but who knows if you will be able to pull it off.

Insert mandatory quote about military planning being necessary but not surviving the first contact with the enemy

How's that old quote go? Something about winning by not playing?

In 20 years, there is going to be a wave of concern that we aren't praising our kids enough.

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