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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | APRIL 22, 2003 VENTURE CAPITAL By Bradley T. Zimmer The Value of Business-Plan Competitions A guest columnist took a dim view of entrepreneurial talent quests. Now, one of the people behind Duke University's competition replies
In response to a popular misconception, let me be clear: As a means of attracting venture capital, business plan competitions are less than ideal. These competitions were never intended as a primary path to or a substitute for venture-capital financing. Rather, they are a vehicle to inspire innovative thinking about the potential of new ideas. SURVEYING THE FIELD. At Duke University, we view that as a positive -- while helping build successful, sustainable enterprises is one of our competition's goals, we are equally focused on providing entrepreneurial education and developing the type of culture that fosters entrepreneurial thought. While business-plan competitions got their start well over a decade ago, the numbers rapidly expanded during the Internet boom. Universities saw them as a chance to attract students interested in starting technology companies and simultaneously accelerate the commercialization of technology in their research labs. Some venture capitalists even got involved, turning their seed-capital investment process into formal competitions. Today, with venture-funding channels running dry and most privately run seed-capital contests having gone the way of dot-com investments, the competitions are as relevant as ever. Presently there are over 80 held annually across the globe, the large majority hosted by universities. Awards range from $15,000 at San Diego State to Duke University's $125,000, with the median over past years of around $40,000 to $50,000. REALISTIC APPRAISALS. Why a Business Plan? At the heart of these competitions, startups are judged primarily on the basis of their business plans. The plan itself consists of thoughts on paper, and no venture-capital fund would invest in a company solely on those grounds – at least not these days. Then why is the business plan so important to competitions? In short, it forces the management team to think through all aspects of its business – strengths, weaknesses, competitors, likely customers, and so on. Just as a traveler would not begin a journey without a map, an entrepreneur who writes a business plan has documented what it takes to get to success. Certainly the business plan itself is no guarantee: A strong management team is necessary to execute it and adapt it to the market's constant change. But the business plan should indicate that success is at least a strong possibility. Furthermore, a business plan provides competition judges and venture capitalists alike with a starting point for discussion with the management team and a means of preliminary evaluation. Though recent Small Business contributor David Gumpert's informal survey of venture capitalists (see BW Online, 4/9/03, "The Problem with Business-Plan Contests") indicated only 36% regarded a business plan as being very important in helping them decide whether or not to invest in a company, chances are almost all would find the business plan at least somewhat important. Nothing can replace a business plan's simplicity in summarizing what a company does, where it wants to go, and how it aims to get there. It remains up to the judge or investor to determine the accuracy of the plan's guidance. CREATIVITY'S CATALYSTS. Thousands of budding entrepreneurs will participate in business-plan competitions this year, but only a small handful will win and receive funding. For all the rest, the value of participating is the skill set provided as an adjunct to the traditional classroom and case-study based education. Competitors typically have a conventional business instruction -- classes on managerial effectiveness, marketing, and the like. Yet nothing can replicate the education of experience, and even failure can end up being one of the best lessons. For the researchers and scientists who participate, the competitions provide a unique incentive to think creatively about the commercial possibilities of their work. Many of them view competitions as a way to join up with those with more business savvy, legal expertise, and additional proficiencies crucial to a start-up.
 Zimmer is co-chair of Duke University's Duke Start-Up Challenge. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | APRIL |
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