Biz plan contests: more are better?

The LA Times this morning ran a story on the business plan competition at the USC Greif Center for Entrepreneurship. On the front page of the business section (which today is not its own section) and with an obligatory picture of the latest winner, on one level the story was a fairly conventional reporter’s response to a college press release.

However, what caught my eye is that USC is not content to have one business plan competition, but seems to have four: the (original?) Greif competition, a New Media competition (“Crunch”?) at the Annenberg School of Communication, a newer New Media competition planned for the business school, and then a competition at the Viterbi engineering school

I know at SJSU, we’ve tried to make our business plan competition be an all-campus event, and that seems to be the philosophy at Stanford and MIT too.

There are occasional exceptions. When I was researching tech entrepreneurship programs at the top 25 business and engineering schools in the US, I noticed that Purdue has a separate Life Sciences Business Plan Competition.

There are pros and cons of each approach: The bigger all-campus competitions should be able to offer bigger prizes: MIT now offers $100k to its top winner, as well as more visibility. The smaller contests are probably going to be capped at around $10k top prize money (the three winners at Greif were awarded $12,500 each.)

On the other hand, the more focused competitions will be easier to judge, because the competitors are more homogeneous and it’s easier to get judges who can span this narrower domain. The size of the competition is kept more manageable. And perhaps more importantly, I think the organizers and judges can provide better feedback to the contestants.

The LA Times article notes — as any contestant or organizer would tell you — that the value of competing goes beyond the money to include the practice, the feedback and the connections made. My hunch is that where a campus can support multiple, college-specific competitions, the students will learn more and get a better career boost than the all-campus Inventapalooza that would otherwise ensue.

Seeking a judicious decisiveness

Coming to the end of his second journal editorship, economist (and Yahoo researcher) Preston McAfee reflected on the thousands of decisions he had to make — rejected 90+% of the submissions.

His views on decision-making seem directly applicable to the core problem of an entrepreneur: making decisions quickly based on incomplete information:

When Paul Milgrom recommended me to replace him as a co-editor of the American Economic Review, a post I held over nine years [1993-2002], one of the attributes he gave as a justification for the recommendation was that I am opinionated. At the time, I considered “opinionated” to mean ‘holding opinions without regard to the facts,’ and indeed dictionary definitions suggest ‘stubborn adherence to preconceived notions.’

But there is another side to being opinionated, which means having a view. It is a management truism that having a vision based on false hypotheses is better than a lack of vision, and like all truisms it is probably false some of the time, but the same feature holds true in editing: the editor’s main job is to decide what is published, and what is not. Having some basis for deciding definitely dominates the absence of a basis. Even if I don’t like to think of myself as “obstinate, stubborn or bigoted,” it is valuable to have an opinion about everything.

In his resume, there’s little evidence of any entrepreneurial bent, and in fact he was the economist helping the Federal Trade Commission attack the creative (if controversial) Rambus business model.
I do see one problem in applying his model to a startup. The editor of an elite journal has hundreds of very bright minds to draw on. Yes, half of them may say “no” when asked, and some have personal agendas. But still, this is a tremendous pool of knowledge that can correct egregious errors by the leader.

No such pool of knowledge is available to the tech startup, which raises the risks of overconfidence by its leaders. Certainly scientists (and to some degree engineers) tend to have the view there is one “right” answer. When it comes to the merits of an idea, some overconfident leaders tend to assert “this idea is wrong” when really “this idea is wrong for us.”

Henry Chesbrough famously noted that in innovation, firms often control for false positives (Type I errors) and predictably end up creating too many false negatives (Type II errors). This is one of the reasons he came up with “open innovation” paradigm — both to remind firms to avoid Type II errors, and to suggest specific mechanisms for profiting from good ideas that don’t fit.

Still, a judicious decisiveness is essential for any entrepreneur or entrepreneurial management team. From my own experience, it’s clear that postponing decisions often makes the decision for you. The key is that if it’s important, the startup can’t afford to “watch and wait” but instead must aggressively investigate to obtain the missing information.

References
R. Preston McAfee, “Edifying Editing,” American Economist, 55, 1 (Spring): 1-8.

Hat tip: pointer to McAfee essay via blog of Greg Mankiw.