Top 10 Ways to Win a Business Plan Competition
I’m a judge in a local university’s business plan competition. Over the past few years I’ve been involved in different ways in the UC Irvine, Paul Merage School of Business, Business Plan Competition. Last year I was invited by a mentor to critique his team’s PowerPoint presentation. They came in 2nd place. This year I’m mentoring a team all my own and enjoying it very much. However, the ideas here come from my role as a competition judge. There’s a large field of 15 finalists and I’m a judge for the 4 software sector finalists, so there’s no overlap, no conflict with the team I’ve mentored. Over the past week I’ve had to review these 4 business plans and fill out an evaluation form. In the process I’ve found myself lamenting several consistent issues, so I’m going to wrap them all up here in these ten ways to game, I mean win the competition.
#1 Be kind to the judges. You haven’t met them, you won’t know who they are until judgment day, but take it from me, they’re all busy. They’ve committed a day to act as judge, plus a chunk of their weekend has been given up to critique your plan. How to be kind? Make your plan readable. Take a little time to add some eye candy to your submission. For example, a full page of blocky paragraphs fatigues me before I even settle my eyes upon it. Can you break it up with a few graphs, or a sidebar panel with a couple of bullets to accent some of your major points? Put a little background color into that sidebar, shrink the font size a bit, adding a little variety to the page, so my eye is tantalized. Give me some sizzle!
#2 The first part is the Executive Summary, so let’s get off to a good start, please. Don’t beat around the bush, don’t begin by telling the history of the personal computer, or as one unfortunate team did, a litany of medical afflictions affecting the human race. Yikes! Get right to the point. Don’t start with a Mission Statement. Tell me in no uncertain terms what you do, who you do it for and how you’re gonna make money. Come on, let me get on board right away! Then I can start tracking you, I’ll be more patient as you later describe the history of the personal computer or the medical woes facing humanity.
#3 It would be nice if you could see the evaluation form I’m using here at the finish line. It asks me to critique you on 7 different sections of your plan, score you on a scale of 1 to 5 for each and make overall comments, too. Unfortunately, most of the plans I’m reading don’t match up so well to the categories I’m scoring. Yes, it’s subtle and I’m sure it’s all there, but if your section headers don’t line up with the evaluation form then I’ve got to go interpreting; this does not lead to higher scores.
#4 I wanted to push this further down the list, but I just bristle at this: the revenue forecast. These are so detached from reality. My 4 plans get increasingly more incredible, ranging from $50M, $60M, $70M to $161M in year 5! This does not happen in the real world. Remember my day job, I’m past Chairman of the Tech Coast Angels and I see a lot of pitches with revenue forecasts. So get real. Your investors will be thrilled if you can get to $10M in some reasonable time frame. More likely, you’ll be back for more money in less than 2 years, saying what everyone says: “it’s taking longer than we thought”. Investors won’t believe your numbers anyway, so your over-sized hockey stick betrays your naivete.
#5 Don’t be too specific. Truncate those big numbers and use a legend, like ($000), then round (down would be fine, see #4). Avoid specificity. Numbers like $14,820,647 don’t make a stronger case.
#6 This is business. Someone on your advisory board is a passionate member of a local Christian mega-church? That’s nice, but keep it the hell out of your business plan. This is a great way to alienate a judge. What if I’m an atheist? How do you think I’m scoring you on this? You better pray I don’t score you the way I’m feeling on this issue…
#7 Valuations. Brought to you by the same financial wizard who’s crafted your hockey stick (see #4) your plan goes on to brag that once you hit $5M in revenue that that justifies a $29,191,183 valuation (see #5). There’s only one formula for determining a valuation: what the market will bear. You have no idea what investors or acquirers will feel makes good business sense 3 years from now, so drop the whole idea. As an investor I can get some idea what your valuation might be by looking at your revenue, so let’s omit valuations from the business plan.
#8 The raise. What can you do with $100k? By definition, these are all seed stage businesses. No one’s going to front you $1.6M or $2.4M on unproven technology. In this economy you’ll find it challenging to raise $100 or $200K for a prototype. So pay attention to what’s going on in the marketplace and put together a plan that credibly steps you through a seed stage round of financing.
#9 Likely returns. What makes a good invest-able company? “Never discount greed,” but a 7,510% return? This is a business plan not private placement memorandum, not your slide deck, so keep the “want to buy a watch?” tone out. I can tell by your credible revenue forecast that I’ll get a good return on my investment. The off-the-chart ROIs smack of a presentation to dentists, to dumb money, not to the professional investor. The business plan would not suffer if you omitted these pie-in-the-sky ROI claims.
#10 Save some equity. You can’t sell 72% of your company in the first 2 rounds, you’ll need more for management and the option pool. Without enough incentive your key hires will eventually walk away.
#11 You’re young; have some fun. Any opportunity to add a little humor to your entry would be well received. When I’m winding it down at the end of the day, sharing a few memorable moments with my family, it’s the funny little things I’m inclined to share. Lighten up and give me a funny story to share.
Thursday, May 20th 2010 at 5:16 pm |
As always you stick to your view of what leads to success and ignore other successful models; which would be great if your track record was better. Why do you insist on making it more difficult then necessary for potential deal leads?
You wrote “No one’s going to front you $1.6M or $2.4M on unproven technology.” But you have had someone on your show recently that does that and another guest that gave an example of such a venture. In both cases the product was unproven in the market and in another the design that can be mass produced hasn’t been proven which means they didn’t what the final costs, price, and profit will be. But they felt they could figure it out.
You said you are judging software. We know software is proven. So you must be referring to their ability to write working code as unproven and or the market for what their software does.
I know you’re fond of saying that patents don’t matter and that hockey sticks are not possible and you apply that as an absolute rule to every situation. But the truth is patents do matter and there are some business categories where it’s a hockey stick or nothing.
Look at the hockey stick growth of the iPod. The market wasn’t flooded with clones and Apple settled the lawsuit filed against them by Creative Technology Ltd for the click wheel. History is filled with user interface examples in many industries that achieved hockey stick growth. Creative Technology went from zero revenue on that patent to over $200 million paid by Apple, not bad for the cost of a patent.
You keep preaching to your fellow members that patents don’t matter even though Stanford says they make over $200million on 50 patents, not including what they made from the Google patents. When someone licenses a Stanford patent, they still put a lot of money into product development and marketing. Why do you insist on influencing others to not follow this successful model? These students you complain about are probably being taught real world examples that include their own university’s efforts.
I understand your frustration over the other things but Angels and VCs have themselves to blame for that. There are many Angels and VCs claiming to have just as much or more credibility than you, and the reason you see those things you don’t like is because of the advice they give.
These students are also able to go online and see what garbage got funding or won various competitions in the past, including the recent past. What do you think these students are going to believe, results or your opinion?
Every year it’s a new batch of students. You’re wasting your time and the time of your fellow Angels fighting a never ending battle that has nothing to do with determining the potential for a successful exit. This is not where your fellow members should be spending their time to improve their exits.
You’ve recently spent a lot of time saying the business plan doesn’t matter and now you want people to put more time and thought into it. You’re probably confusing the students. They probably don’t know if you want them to care or not.
You’re also pissing into the wind against the way they are taught to write and do presentations. Students take a lot of classes that tell them to write and present in specific ways and give them valid reasons for doing so. Those classes include; English, science, communication, history, and so on.
You want to be entertained but then you complain that you got the relevant story at the beginning instead of the end. They probably just didn’t want you to have to reread their points after you learned or were reminded why they matter. They are taught that that approach is efficient and allows thoughts to flow in the mind more easily. You’re not likely to be the first person they presented to.
You lose credibility as an Angel and a Judge by insisting on humor. You don’t say how it affects your decision. If it doesn’t than why waste the time of all judges, some of whom may not find it funny or just don’t want it; and if it does affect your decision, what does that say about the merits of the competition? What if you don’t find the joke funny, then you’ll be complaining about that too.
What’s the lesson here? Angels make great advisors for startups but you have to tell them jokes?
Someone else is sure to be telling them to leave out the jokes; and someone else is sure to be telling them to put in that one of their directors is also a director at such and such church, perhaps as a way of emphasizing their work ethics. You’re coming across as too picky and every little thing has to be your way. Your real battle is against others who are advising the students and not the students. Those other credible people are always going to be there.
The real problem is that like a lot of Angels and VCs, you’re an Arm Chair General that wants to influence the battle but not take responsibility for the bad outcome. It’s always the bozo entrepreneur’s fault.
The pitches and business plans that you don’t like are just a symptom of the real problem. Other symptoms of the same problem include the difficulty in finding deal leads and a large number of members who refused to renew their membership. All of these are directly related.
Think about all the work and effort both deal leads and active investors have to go through. On top of that they have to put up with Arm Chair Generals that are going to complain that they weren’t entertained during the pitch, they don’t like the font size, not enough pictures, they wanted to hear specific buzz words, patents don’t matter, they want humor, they want to be revved up into an excited state, and so on. What deal lead is going to have the patience for all that whining?
These Arm Chair Generals are too vocal for their own good and for the good of their fellow members. They’ve chased away members and potential deal leads with their superstitions on how to pick a winner.
We know that a pool of NASDAQ companies outperforms Venture Capital over the long haul. We know that these same superstitions on how to pick a winner is not being applied within those NASDAQ companies. Do you think any of the CEOs of those companies that are outperforming venture capital are demanding humor from their product development teams?
Do you want to invest in a great product? Do you want to win in the market? No man is an island. By demanding one spends their time and energy on humoring you, you take away from their ability to focus their efforts where they are most needed. You are robbing Peter to pay Paul.
In just the last few shows there have been so many contradictions between the advice given to succeed and what actually leads to success that I have lost count. So many contradictions that it has become disheartening to tune in; and none of the contradictions are acknowledged.
Frank, do yourself a favor and stop giving Arm Chair Generals a voice. Only interview deal leads and investors who take an active role. The less influence the Arm Chair Generals have the happier you and TCA will be with your portfolios.
As a computer programmer you know the saying ‘garbage in garbage out’. Stop letting the Arm Chair Generals put garbage in. You probably also know the old saying; lead, follow, or get out of the way. If you want someone to be a deal lead, the least you could do is get out of his way and keep other people out of his way.
If you want humor go to a comedy club. Don’t start telling your deal leads that they have to go this extra mile for you and coach entrepreneurs on how to tell a joke. You even once sent me an email stating the importance of the entertainment factor.
Garbage in garbage out. There is a lot of garbage in this post. The outcome is going to be that you are going to continue to have all the same complaints and maybe even complain more often.
The people that refuse to be deal lead and the people that have quit TCA recognize that it is a never ending battle, but unlike Arm Chair Generals, they don’t see the bozo entrepreneur as the problem, they recognize that the problem is their fellow members. The bozo entrepreneurs don’t have influence, but the whining members do. The deal lead can drop the entrepreneur at any time during due diligence, but he is stuck with his whining fellow members. Therefore only the members are to blame.
Richard Sudek is quoted in xconomy.com as saying TCA funded 17 follow on rounds and 7 new deals in 2009 and names three of the new ones. All three ventures existed prior to 2009. One was launched nine years ago in 2001 and TCA was a new investor for it last year but it was the third round of funding for that venture. Another received its series A funding of $1.8million from a venture fund back in early 2008. The third issued a press release back in 2008 that it received funding from TCA. When TCA new deals are actually someone else’s old deals, it does indicate a lack of interest in being a deal lead bringing new deals to TCA. According to the examples supplied by Sudek, the best way to get funded by TCA is get funded somewhere else first.
Another superstition that deal leads have to contend with is the belief that there is no shortage of good ideas. There are actually economic and statistical laws that say otherwise and the statistics of successful exits also say otherwise. But members are quick to criticize anything they don’t understand and refuse to take the time to educate themselves because they wrongly believe it doesn’t matter since another great opportunity will always come along. If asked what makes a good investment, we often hear they know it when they see it, but their track records say otherwise, yet they still get in the way of others.
Show your potential deal leads that you are going to support them, back them up, and help them out. That doesn’t mean you have to support the deal. But don’t throw out your superstitions to impede them either. Don’t be disgruntled because they choose to follow another successful model rather than the one you prefer.
Your time is much better spent debating successful business models rather than font size, humor, and the number of pictures. When successful business models are ingrained in your brain, you will be very excited when you are reading one even if it doesn’t have any pictures. Why do we have to dumb things down to kindergarten level with pictures and jokes? Do you think Stanford paid for the Google patents because the students that created the technology knew how to tell a joke?