Love/Hate Business Plan Competitions

I love business plan competitions.

I hate business plan competitions.

I Love Business Plan Competitions
I had a breakfast with a friend who has founded a few companies in Thailand and started the New Ventures Program at one of their universities. He was visiting Stanford and mentioned how proud he was that several of his Thai students were here in the States for a business plan competition. 74HGZA3MZ6SV

For those of you who don’t know, business plan competitions are held by universities who get their students to enter and compete to see who has the best business idea. Local venture investors and/or companies offer cash prizes for the winners.  In exchange, these VCs/companies get early looks at new deal flow and offer aspiring entrepreneurs feedback and advice on their business plan.

These competitions started in the early 1980‘s at the University of Texas and have sprouted like mushrooms in the last 10 years.  Just Google the term and you’ll be amazed.  Almost every university, region and car wash now has a business plan competition; the rules, who can participate, how large the prizes and who are the judges vary by school.

Over scrambled eggs and diet coke, I listened to this seasoned startup veteran describe the excitement of his students who came to the U.S. to compete. I finally understood how valuable these contests can be for students in cities or countries without a venture capital or entrepreneurial infrastructure.  At a university business plan competition, for the first time they can swim in the sea of expertise that we/I take for granted in the middle of Silicon Valley.  Win, lose or draw, these students have a life changing experience where they can network and get smarter as they see what good startup thinking looks like.

I love business plan competitions (and with my valley-centric bias, I think Berkeley and Stanford have two of the best.) If you are outside of Silicon Valley, you ought to jump into them with both feet.  You’ll learn a lot.

I Hate Business Plan Competitions
Yet this same conversation reminded me why every time students at Berkeley or Stanford tell me they’ve entered a technology business plan competition, I question whether they are wasting their time.

For all the reasons why business plan competitions are wonderful for students from outside the U.S., or even outside of Silicon Valley, I am left speechless when a student in a 50-mile radius of Sand Hill Road (who tells me they’re serious about starting a company) thinks their time is better spent entering one.

I have seen students spend well over a year refining a business plan competition pitch when they have could have gotten the same advice within a month by literally stepping out the door and aggressively pursuing it.  And with the other 11 months, they could have been well into actually building a company.

In the real world, most business plans don’t survive the first few months of customer contact.

And even if they did – customers don’t ask to see your business plan.

Here’s a simple heuristic: if you are one of the lucky few who are within one- or two-degrees of separation of venture capital and startup resources (law firms, patent attorneys, etc.) and you are chasing a technical business plan competition, you are signaling that you really don’t want to start a company.  (And that may be fine with you. Just don’t confuse the time you’re spending with actual progress in building a company.)

I hate business plan competitions – when they encourage students to write a “winning plan” rather than teaching them how to get out of the building and use locally available resources to start a company.

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There’s a Pattern Here

After my eighth and likely final startup, E.piphany, sitting in a ski cabin, it became clear that there is a better a way to manage startups. Joseph Campbell’s insight of the repeatable patterns in mythology is equally applicable to building a successful startup. All startups (whether a new division inside a larger corporation or in the canonical garage) follow similar patterns—a series of steps which, when followed, can eliminate a lot of the early wandering in the dark. Looking back on startups that have thrived reflect this pattern again and again and again.

So what is it that makes some startups successful and leaves others selling off their furniture? Simply this: startups are not small versions of large companies.  Yet the processes that early-stage companies were using were identical to that of large corporations. In hindsight it appeared clear that startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community. Through trial and error, hiring and firing, successful startups all invented a parallel process to product development. In particular, the winners invent and live by a process of customer learning and discovery. It’s a process that doesn’t exist in large companies with existing customers and markets.  But it is life and death for a new venture.

I call this process “Customer Development,” a sibling to “Product Development,” and each and every startup that succeeds recapitulates it, knowingly or not.

The “Customer Development” model is a paradox because it is followed by successful startups, yet articulated by no one.  Its basic propositions are the antithesis of common wisdom yet they are followed by those who succeed.

It is the path that is hidden in plain sight.

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