Brad Hargreaves | Building Things

Brad Hargreaves on entrepreneurship, community and life

The Long Game

with 8 comments

I was having drinks with a few entrepreneurs last week, and the topic of business plan competitions came up. I ran Yale’s competition for a year while I was a student there — a sobering experience. Ostensibly, the winners of the contest were the best potential entrepreneurs. In reality, the top awards were often swept by Yale MBA candidates who spent the entire year perfecting a 30-40 page business plan with little intention of starting a real business. They’d take the award money alongside their McKinsey or Goldman signing bonus.

Most experienced entrepreneurs — or at least most of us around the table that night — agree that business plan competitions suck. But is there a way to improve them? One CEO in attendance suggested that business plan competitions be revised to focus on the real tools of a VC pitch — that is, a slide deck and in-person presentation. It’s certainly a better basis than a business plan, but I don’t think it solves the problem. Rather, it still perpetuates a false and harmful archetype of how venture money is raised.

In reality, raising capital is a long game — a process to be measured across years and companies, not weeks and pitches. The people who “win” the real venture capital game are those entrepreneurs who spend years — if not decades — building their reputation and their relationships with investors. This doesn’t mean that first-time entrepreneurs can’t raise money, but that they’re far better off spending their time setting metrics-driven goals and hitting those goals in order to build trust in the investor community than writing a business plan or shopping a deck.

Business plan competitions can’t build a comparable experience, so they’ve created a generation of first-time entrepreneurs who falsely believe that money is raised in front of a Powerpoint rather than series of coffees and beers.

If you made me redesign the business plan competition, I’d do something pretty nontraditional: a unit economics competition. The contest would be in-person and just takes five minutes per contestant: explain your business concept in 1-2 minutes and walk through one Excel worksheet presenting the unit economics in the next 2-3 minutes. No long-form writing or slides, just the basic math that explains the core cost and revenue drivers and assumptions of your company. And no 3-5 year projections, either. While it might be beneficial for entrepreneurs to fully think through their company by spending 150 hours writing a business plan, modeling out your unit economics will provide 90% of the value at a fraction of the time.

Furthermore, the winners of a unit economics contest would be more likely to build successful companies. Unlike a business plan, with a 3-5 year projection at its core, a unit economic model tends to focus the entrepreneur on the near-term opportunities with the highest likelihood of success: the kind of things that will create grounded and focused businesses rather than speculative, multi-threaded companies. And if you’re a broke student hoping to start a business straight out of a university-sponsored competition, which would you rather have?

Written by Brad Hargreaves

February 12th, 2011 at 3:19 pm

  • jonathanjaeger

    A lot of this hinges on what people do in school, that is go through a process. Throughout the school years from elementary through college, students complain about busy work. Sometimes “process” is more about spending a ton of time on something rather than getting the most utility out of that time spent.

    Edit: And that’s not always a good thing.

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  • Trevor Owens

    I wrote a response to this on my blog!

    Thanks Brad for starting this discussion, been thinking about this for a while.

  • Mark Birch

    Problem is that most people that go to MBA programs are not looking for start-ups because of the exorbitant costs and large loans taken out. Furthermore, the programs themselves are not geared for helping students 1) prepare for entrepreneurship and 2) find worthwhile start-up opportunities.

    Ultimately, the type of people that win business plan competitions and the type that build start-ups are two very different profiles. If colleges really want to encourage entrepreneurship, they should offer students the opportunity to dedicate one whole year to build a business. They get mentorship (from actual entrepreneurs), fast track seminars on business basics and product development, and full support of the university resources. If the businesses is an abject failure, they need to take another year to gain required credits to graduate, but if it is success, then they get a full year’s worth of degree credit plus scholarship money to pay off loans.

    As for the business schools, let them continue to produce the next generation of consultants, bankers and middle managers.

  • shanereiser

    Hear, Hear!

    I place a strictly educational value on the average business plan competition. Unless the current model is changed, they will remain a good learning exercise for the business students that choose to participate – but that’s about it.

    Unfortunately, average-quality business plan competitions are experiencing massive growth right now. I don’t foresee them slowing down any time soon. There are just too many invested parties, the majority of which are resistant to change.

    I think the format you’ve outlined above is pretty much a pitch contest, except with more time allocated to explaining unit economics. At the conclusion of a Startup Weekend, teams are given five minutes to present what they built. We typically recommend they spend just one minute on the economics. But as a biz guy, I’m always left wanting more. I think bumping that allocation up to two minutes would be appropriate in many cases. But I would cap it there. Going into too many details during any pitch/demo/contest is a good way to lose your audience. Just hit the main points (variable costs, overhead, marginal revenue, economies of scale, etc) to demonstrate that you understand the economics, but spend the majority of your time on the other stuff that investors care about, like the competitive landscape, your differential advantage, your go-to-market strategy, your team’s background, bla bla.

  • Anonymous

    Phineas Barnes wrote a good post on the MVPFund ( I set up at HBS this year. (I wish I was as clever to think of it) but Phineas points out that the difference in this “competition” is that it is action vs planning. We need more contests and programs that spur people towards action!

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