Planning, Startups, Stories

Finally: the Right Criteria for Judging Business Competitions

Finally! As more business venture competitions pop up, here's the best take yet on determining a winner: Forbes.com's Boost Your Business competition offers a $100K first place prize and -- here's where it gets interesting -- asks the judges to choose a winner by determining which company can do the most with $100K.

I've been asked to judge that one. It should be fun. That makes my judging list for this year include Rice University, University of Oregon, University of Texas (Moot Corp), Princeton, and now Forbes.com. That gives me a good view on what's going on at the top, some very good plans, some very strong teams. It's a privilege that I appreciate.

Having done this judging thing for more than 10 years now, I will say that I've been disturbed for years by the ambiguity in the criteria for choosing the winners in business venture competitions.

For example, how do you decide between a solid, well-planned and believable business that doesn't need outside investment but could grow fast (say, $5 million sales in the fifth year) regardless, on the one hand; and one that needs $10 million investment but has a very small chance of getting to sales of  hundreds of millions of dollars in five or 10 years, on the other?

True story moment: the semifinals judges (including me) had evaluated 20 plans in four channels, choosing a finalist from each channel. In the judges meeting at the end of the semifinals, somebody pointed out that the team that was going to cure cancer didn't get into the finals. "Does that bother us," somebody asked.

A consortium of top venture competitions got together a few years ago and dealt with this problem by determining that judges should decide which is "the best investment opportunity."

That at least set the terms more clearly than before, when judges had to decide between the high-risk high-growth highly improbable cure for cancer and the low-risk highly likely to succeed smaller business with a great niche and no need for investment. That has bugged me for a while, because I like the second case a lot -- I don't sneer at lifestyle businesses like most professional investors do -- but at least it kind of solved the problem.

Not that it isn't still fraught with ambiguities. There are still major ambiguities in the "which is better" area, but at least these are also true in the world of investment at large, and there is some validity in assuming a relationship between risk and return.

So I think the Forbes contest does it better: the judges are supposed to decide which of the competing companies can make the best use of the $100,000 first prize. That's still potentially ambiguous, but it does go a lot further than the "in which would you invest" question that drives most of these contests.

The Harder You Work, the Luckier You Get

I'm sorry, that's an old cliché, but the thing about clichés is that they so often become that because they hug the truth. Consider this quote, from Nate Alder of Klymit Technology. He's talking about how his team approached venture competitions.

In preparation for each event we would spend our nights at the hotel refining our presentation based off of practice round judges feedback and stay up rehearsing our presentation as opposed to going out late drinking with the rest of the students from other schools.

We have always treated this as a serious business from the beginning and not just an extracurricular activity we do for fun on the weekends but we have sacrificed a lot of personal time, social life, entertainment, grades, and even other job opportunities to make this company a success.

We just have so much fun with it that it makes up for all our other sacrifices. Before each event we always made sure we had gotten plenty of sleep, ate a health meal, always avoiding alcohol, tobacco, or any other substance that could impact our minds or bodies. All these things combined really helped us stay relaxed and focused to perform well and have a lot of fun doing so.   

Hmmm ... I think we've got something there. Work hard? Success? Correlation.

I saw Klymit three times last month in my month of judging venture contests. They took second place at Rice University, tied for first at the University of Oregon, and second place again at Moot Corp (University of Texas) in Austin. Klymit has innovative new technology that uses inert (as in complete harmless, already in the atmosphere) gases as insulation in ski jackets. The insulation is adjustable, so as the day warms, you can set your jacket to cool. The company has an impressive management team, and agreements already in place with major clothing vendors. It's an exciting new venture. The team, by the way, comes from Brigham Young University. And the business plan started (can't resist adding this) with Business Plan Pro.

Nate's quote is part of the behind-the-scenes detail of A conversation with Klymit Technology, in which he's interviewed by 'Chelle Parmele over at Business in General.

And the plot (or the cliché) thickens too, with the fact that NeuroBank, from Carnegie Mellon, won the Moot Corp in Austin. NeuroBank took third at Rice University in early April with a combination of a new technique to harvest brain stem cells from the spine (instead of drilling a hole in the head) and a cell bank storage offering borrowed from techniques used to store human eggs, etc. Between the Rice contest in the first week in April, and the Moot Corp in the first week of May, NeuroBank went out and developed a waiting list of people ready to subscribe as soon as the service is available.

So there's that same theme: work, luck, reward, and all that.

And the Winner Is...

At lunch on Saturday, in the judges' room, Jeff Mullin of Ropes and Gray, suggested I not rule out NeuroBank.

"They've done a lot since the Rice competition," he said. "They've got a waiting list now."

Jeff, however, is an alum of Carnegie Mellon. And NeuroBank was the entry from Carnegie Mellon. And NeuroBank finished third at the Rice University Business Plan Competition, behind Qcue and Klymit (I posted on that last month). And Klymit tied for first at the University of Oregon New Venture Championship, a week after Rice (I also posted on that last month).

And the event last week was what they call the superbowl of venture contests: Moot Corp, in Austin, at the University of Texas. Every year since 1984. This year, eight divisions, 38 teams, each one a winner in some other major contest.

And this time NeuroBank took the prize. Klymit was second, and Qcue third.

NeuroBank is built on two innovations: first, and most important, a better way to harvest brain stem cells, using a spinal tap instead of drilling into the brain. Developed and proven by a surgeon who is on the team. Second, less innovative perhaps, a system to save those brain stem cells so they can be used later. That's something that's being done with human eggs, sperm, other kinds of cells, but NeuroBank is the first to apply it to brain stem cells.

And I have to say that I have enjoyed this month of venture competitions immensely, judging first at Rice, then the University of Oregon, and last week at Moot Corp. Business plans have never looked better.

I've been judging venture contests for more than 10 years now, starting with the University of Oregon's in 1997. I've done them there, Rice, here in Austin, at USF, in Notre Dame, and in New York. This year's crop was the strongest I've seen.

I posted about Qcue last month after they won the contest at Rice University, in Houston. Fortune Small Business also covered that Qcue, from the University of Texas, complete with a video of their elevator speech. I also posted about Klymit, which is now calling its product "the holy grail of insulation." Looks like a great new idea in ski clothing. Klymit, from Brigham Young, came in second place at Rice, then tied for first at the University of Oregon contest.

The fourth finalist was OvaGuard, a patented natural egg coating technology developed in Thailand and developed into a venture plan by students at Thailand's Thammasat University. Disease outbreaks require the $177B egg industry to implement the washing and coating of eggs. OvaGuard offers breakthroughs in safety and performance.

There were some excellent ventures that didn't make it to the finals, but -- I'll bet -- will also make it to the real world. I judged semifinals, wildcard, and challenge round, and saw several other very interesting ventures:

TakeShape
University of Oregon
TakeShape will license a patented, 3D body scanner to sell to institutional sports teams and high-end fitness clubs. The scanner allows athletes to monitor important physical information and track progress towards fitness goals.

Orchid King
Thammasat University
Our OKlone micropropagation technology cultivates market dominating Phalaenopsis, growing these highly demanded orchids at 5,120% greater yield, while practically eliminating labor in this $1.5 billion segment.

ShellSwitching
London Business School
ShellSwitching is an online community that helps vacation home owners find trusted guests by filtering potential guests based on personal relationships, shared group affiliations and owner reviews.

MicroTransponder
University of Texas at Dallas
MicroTransponder is a medical device company commercializing wireless interfaces for the repair or enhancement of the nervous system.

AmWell
University of Utah
AmWell provides innovative vaginal drug delivery technologies to the pharmaceutical industry; products that empower women to protect themselves against sexually transmitted diseases.

PhotonWave Technologies
Indian School of Business
PhotonWave Technologies offers a Silicon Photonics & Nanotechnology-based patented innovation that will revolutionize fiber-optic communications through high performance, cost effective optic interconnects for FTTx/last-mile and high-performance computing markets.

AccelerEyes
Georgia Institute of Technology
AccelerEyes' solutions deliver up to 100x speed improvements for existing technical computing software by optimizing the software's use of desktop and laptop hardware.

ReTel Technologies
University of Chicago
ReTel's patent-pending solutions bring powerful online shopper analytics and dynamic pricing capabilities to offline retail environments.

X
University of Oxford
X is community-based sharing of Internet bandwidth via wireless medium. It's a really interesting idea; a community sharing project, something like Fon, but with some refinement.

An Awkward Moment. People Who Need Investors.

Things were going great until that moment. 

I was listening to a smart, articulate, and engaging MBA student at the Rice business plan competition last week, as he was presenting his pitch for a very intriguing science-based venture that would greatly enhance battery output from roughly the same materials input. 

He and his teammate had related scientific degrees, and patents, and a lot of credibility. And it doesn't take much to convince me that there's a market for enhanced battery output in all shapes and sizes. Whether that's more power per unit of cost, or more power per unit of weight, both are interesting. 

And then came the problem. He said they didn't actually need outside capital to make this go. They were going to go with it regardless. But with investment, he added, they could go faster. 

He showed a sales forecast that got close to $1 million in revenue in the second year and just under $2.5 million for the third year. With investment, he added, they could hit the third-year number in the second year. 

He lost me there. I tried to stay focused on the presentation but my thoughts wandered. Was he saying that because the rules of that particular business plan competition (and most others, by the way) required that all teams entered be seeking investment? So he and his teammates pragmatically established an investment offering to comply with the rules, hoping that they could with that change compete for prize money without needing the investment? Or was the team really undecided?

My problem was thinking how much better off these entrepreneurs would be if they could build that business as their own business, entirely owned by the teammates, without outside investment. As the song goes, God bless the child that's got its own. 

I do know that few businesses have the option that this one seems to think it has. Most businesses either fund themselves because there's no other option, or get funded or never start because the startup investment is inaccessible. But once the assertion was made, once they've said they can get to a million next year without investment, it's hard to put that out of my mind. Maybe they are simply naive. On the other hand, the technology side of it, the science, was very convincing. If you have a market, if you have something to sell, and defensible technology, that's a pretty good start. 

I did get a chance to have a talk with one of the teammates later. I told her about my reaction during the presentation. I hope that helps them in the future. I think that in general it's a good idea not to seek investment unless you need it, and if you do, not to say you don't.

People who need investors are not necessarily the luckiest people in the world.

10 Notes From a Venture Competition Judge

I spent last Friday and Saturday in Portland as a semi-finals judge at the University of Oregon New Venture Championship (NVC). That means spending all day Friday listening to four teams, choosing one to go to the finals, and then giving feedback to all four. I also listened to two of the five finalists on Saturday morning. And I attended the finals reception Saturday night.

1. Klymit, a venture built around new technology substituting adjustable gas insulation for what is now done with Thinsulate or goose down. This very intriguing new company has a strong management team, a strong technology-driven new business offering, and strong strategy. They did an excellent presentation. They also won the Palo Alto Software best written plan award, and another award for the trade show. They came in second the week before in the Rice University 2008 Business Plan Contest in Houston, just barely edged out by a very strong Qcue team from the University of Texas at Austin. Investors are jumping on board quickly. And the plan started with Business Plan Pro. 
2. A tie for first place. The finals judges took the $10,000 second prize and added it to the $50,000 first prize and gave $30,000 each to Klymit and TakeShape, from the University of Oregon. This is the first time I've ever seen that in a venture competition, so with Klymit doing as well as they have, I'm assuming TakeShape has to be very strong. I got the background information on this (confidential source): the five judges dug into their scoring schemes and did the numbers three different ways, and then again, and everything kept coming up so even that they gave up and called it a tie. 
3. An excellent luncheon talk by Dave Hersh of Jive Software. A brief entertaining story of a startup success, plus the entrepreneur as traditional iconic hero with the full cycle of challenge, achievement, sharing, and so on.  My botched summary doesn't do it justice. I hope to have more on this later. You so rarely get a morph of real startup wisdom and classic literature and mythology in the same luncheon talk.  Wow!
4. There's a problem with comparing prizes and winnings from different venture competitions. The University of Oregon gives money to winners, as in checks, which they can deposit in their bank accounts. Many of the other similar intercollegiate competitions give a mix of money with services, or investment. I ask you: how do you compare $30,000 in real money to services worth $100,000? And what about investment of $125,000 that also brings you conditions and partners? These are interesting questions.  
5. I'm still uncomfortable with contest rules that force all ventures to compete as investment opportunities. This is the rule for venture competitions in the U.S. today; judges are asked to choose the best investment. This devalues entries like Recon Recycling, from San Diego State, an excellent bootstrapped company but doesn't really need outside investment. Should a successful startup that shows a realistic plan to get past $10 million sales in a few years be ruled out because there's nothing there for investors? That bothers me. 
6. I'm still seeing plans promising completely unrealistic profit margins. Don't tell me you're going to make $27 million net profit on $42 million sales, please, it lowers your credibility and doesn't raise my interest. 
7. How about a team presenting with three young men, dressed in identical stylish dark suits with white shirts and identical stylish off-red ties. I didn't give them style points but it does show good planning and that they are really trying to optimize all the details. 
8. My cool business award for the week goes to Comuto, which owns the leading carpooling site in France. More than 80,000 users, great strategy, great media successes, and an excellent presentation by founder Frederic Mazella. Seems like a really good investment opportunity for somebody, particularly somebody located in France. 
9. I wish the University of Oregon would hold this event in Eugene, a great small city, and the site of the university, rather than in Portland. Facilities on campus did just fine with this event in the past, and since the competition moved to Portland they've inaugurated a $45 million new business school building on the campus in Eugene. When I do this for other schools and other competitions I always like the fact that they are held on campus. It's given me a chance to get to know Rice University and the University of Texas and I'm grateful. 
10. I like the idea of making the finals more inclusive by inviting the audience to judge. In Rice the finals were full to overflowing as something like 200 people were invited as judges. And David Miller mentioned in Campus Entrepreneurship last week how Boston University’s Institute for Technology Entrepreneurship and Commercialization (ITEC) competition allows real time voting for finalists by audience members.  Great idea.

True Venture Contest Story: the Fish Tacos

The board room had maybe 15 or 20 people in it, most of us judges, some of us faculty and organizers, for a lunch meeting just before the presentations and judging started. Outside the windows, the campus of the University of Notre Dame on a gorgeous late Spring day in Indiana. Inside, boxed lunches, shaking hands, getting started. It was just after noon, and the competition -- McCloskey Business Plan Competition at Notre Dame -- was due to start at 1 pm.

Teams were ready and waiting. They'd been carefully selected using a process that took several months to pare them down to a few finalist teams. They had done summaries, business plans, and they were about to do their pitch presentations for the judges.

"But did you want this to be a realistic experience?" One of the judges asked. Most of the judges were members of the Irish Angels, an angel investor group. A few (including me) had other affiliations. I'm not sure which judge asked that question.

"Yes, of course," was the answer. It probably seemed like an odd question.

"Well then, what's this about 20 minutes without interruptions to give the presentations? That's not realistic. I don't think I've ever heard an investor actually listen to a pitch without interrupting. If you want it to be realistic, let us ask our questions when they come up."

"But that's not what we told the teams would happen. That's not what they prepared for."

"Aha, even better," another of the judges answered.  "Let's give them a real experience then. That's what we want, right? Since when don't things change at the last minute."

"And we could keep the playing field level, make that the same for all the groups," added another.

So it was decided. The rules of the game were changed. The teams were notified.

About an hour later, a team was two minutes into a presentation about taking fish taco restaurants into Baton Rouge. At the time they were common, and successful, in San Diego, but unheard of in Baton Rouge. But one of the judges interrupted.

"But do you know whether or not they like fish tacos in Baton Rouge?"

The presenter, prepared to be interrupted, said that was one of their assumptions. If they liked them in San Diego, they'd like them in Baton Rouge. No?

"Not necessarily. Have you cooked up a batch, and given them to people in Baton Rouge?"

"Well no, not ..."

"Here's what you should do. Make three or four trays full of them and go to the busiest place in Baton Rouge at lunch time on a Saturday. Give them all away. See if people like them. Oh, and by the way, be sure to check what happens in the trash cans on either side of you."

It was a good learning experience. In fact, it was the start of a great program at the Notre Dame Gigot Center for Entrepreneurship, one that has flourished since, and reaches its annual final event late next week. I think this will be the eighth year.

Yesterday I had to decline an invitation to judge the Notre Dame contest (again) later next week. I'm not able to make it from Oregon to South Bend this year to be there, although I did help with the screening last November. If you are anywhere around that area next week, I envy you; it's an excellent event to attend. Business presentations from teams with the ideas can be fascinating. And Notre Dame does two venture contests in one: the McCloskey Business Plan Competition, for traditional entrepreneurial ventures; and the Sustainable Social Venture Competition, for ventures combining entrepreneurship with social purpose.

I wish I could be there again this year.

What? Scientists in Business? Rice Scores Big.

I encountered one surprise after another from all the scientists last Friday and Saturday in Houston, where I was one of more than 100 judges at the Rice University 2008 Business Plan Competition. Nobody seems to be matching stereotypes anymore.

Barry Kahn has a PhD degree in economics. If you had seen him like I did, on Friday, you would have seen a short, athletic, stylishly dressed, engaging entrepreneur totally dedicated to his new company. If you'd encountered him Saturday night, you would have been one of more than 700 people at a gala awards banquet dinner. You'd have seen him with a wine glass raised high at the big moment, at the podium, toasting his team's $325,000 combined first place winnings (which is a mix of cash, investment, and services).

It was just another surprise moment in a weekend of surprises. Normally the winners pose for the picture with the check and the sponsors, accept the applause, and bask in the moment. Barry took to the microphone to thank the audience instead. And, with his partners Andrew Mills and Jitendra Dalvi, led a toast to the competition.

Before I go on, congratulations to Brad Burke, managing director of the Rice alliance, for a program that worked extremely well in every detail. And also to Philana Diaz, Yanette Jimenez, and hundreds of others involved. The logistics worked down to the last detail, the competitors were excellent, the event came off as a huge success.

Scientists? Yes, definitely. Barry's already got the PhD and Andrew is finishing his PhD in Computer Science at the University of Texas, and did his first degree at Cal Tech. Their business, however, is clearly business first and science later. I had them in the semi-final round I judged and, after seeing them perform (a 15 minute presentation and 10 minutes of questions and answers) twice, I was glad to see them win the whole thing.

I'm on non-disclosure of course as a judge in a business plan contest, so I won't describe this company in my own words. Here's what the University of Texas Daily Texan said about Qcue last week:

In one year, the team has developed a program that will create an efficient resale market that box offices can control for entertainment tickets. Instead of buying tickets from second-party distributors like eBay, the team's software allows the original box office to mediate the resale process.
For example, instead of the box office showing that tickets are sold out, it would wait to distribute tickets until just before the event. That way, people who want to re-sell their tickets can do so through the original box office. This prevents ticket prices from skyrocketing in the back-alley resale market.
"Our product would protect everyone involved and make sure the correct people are getting the money," said Kahn, a former economics graduate student and the CEO of Qcue.
The software would allow the price of tickets to fluctuate according to popularity, so the price for extremely popular tickets would increase while slow-selling tickets would drop in price.
"This is a way to return profits to event promoters and better protect consumers," Kahn said.

Qcue was an excellent choice for first place in my opinion, but they were hardly the only scientists with excellent businesses. That seemed to be a theme.

I'm so used to saying that the ideas themselves don't make businesses that I have to take a step back from that general theme after watching a whole field of idea-driven businesses, and more than a dozen PhD-level scientists building very impressive business plans around their science. And lots of patents.

That was a clear theme in all three sub-events that I saw as a judge: the finals round Saturday afternoon, the wildcard Saturday morning, and a flight of six plans most of the day Friday. Patents, and PhDs. And medical doctors. Some of these are more public than others, but if you're interested, you could check out Klymit from BYU, a new technology for ski jackets, whose product development person has a PhD degree (hardly the only one I'd mention, but I was able to find their website quickly, and that means I don't have to worry about that non-disclosure).

Another theme was a high level of competition. All of the six teams that my group of judges saw in the semifinals had strong business plans. In the wildcard round, the six teams who finished second in their groups competed; I could have seen four of those six being chosen. In the finals, I could have seen three or even four of those teams winning, although the eventual winner, Qcue was a great choice.

One final note: during the awards banquet Brad put up a slide showing that 50% of past competitors in this contest were up and running as businesses. That's a very strong showing. But I expect something like 90% of the teams I saw this year will make it. 

Plan-as-you-go and Venture Contests

Very interesting point from David Miller in Campus Entrepreneurship relating venture contests to my plan-as-you-go business planning:

It also makes one wonder a bit about the value of business plan competitions which demand static plans created for judges rather than a living, evolving tools of entrepreneurship that is the plan as you go business plan?

I think David's right. The question should be asked. So I think that in venture or business plan contests, as in the real world, every plan ought to include its review schedule with times and dates and participants of future meetings spelled out, along with the sensitive metrics to watch, guidelines for metrics performance, and key assumptions that should be reviewed. OK, in most cases it's hypothetical, but so what? Even hypothetical can be done right. Every plan should plan on planning process.

I'm biased on this point because although I do want to change the way people think about the plan-as-you-go plan, I also really like venture contests. I've been a judge of several (this year I'll be doing Rice, University of Oregon, University of Texas (Moot Corp), and Notre Dame). I believe most of them, certainly these four included, have a pretty good format for evaluating new ventures. That's a combination of summaries and business plans and elevator speeches and presentations and on-the-spot questions and answers. 

Also, most judges in these contests give implicit extra credit to the venture that is already started and has a track record. And, even more so, if the founders talk about how their plan has adapted itself to changing conditions and new assumptions.