Help! My Co-Founder Wants to Enter a Business Competition
How business contests and startup competitions – despite the offer of mentorship, networking, and the chance for cash – fail to add adequate value to entrepreneurial ventures. No purchase necessary.
By: Tim Schuster
So, your co-founder came into the office the other day and suggested you enter your startup in a business competition. There is a chance you’d win cash, but at the very least you’ll get mentorship, networking, and feedback on your business plan. What’s to lose?
Here I explore the value of startup competitions and business contests and invite my reader – and her co-founder – to consider the hidden costs of entering a startup business competition.
Let’s start with the obvious disclaimer: It truly takes a community and team to start a business, launch a non-profit or, really, make something of creative value. This I believe. There is no “I” in entrepreneur. You can go fast alone or further together, says the proverb – but entrepreneurs magically find a way to do both.
And, of course, if you are starting a business (including a non-profit, social enterprise, or church), you will need much of what business competitions bundle into one offer:
· Business plan feedback
· Mentors & coaches
· Visibility and media exposure
· Human and social capital
· Financial investment
These benefits are included with entering the competition, and despite a scarce amount of cash available to the winner, the benefits appear to be fruitful. Yet, the question remains:
Is the juice worth the squeeze?
Let me offer one snarky point and three risks to consider when discerning if a business competition is worth your time and energy. First, the snarky.
How Beauty Pageants Work
Startup business competitions and beauty pageants share the same model. Apply for the competition – you even get to meet their deadline! – and advance through a series of rounds. Do a variety of skill demonstrations and talent show-like displays of effort (such pitch decks and product demonstrations). Go to networking events with small-plate appetizers while waiting to advance to the next round. Do what you’re told. Last person standing is crowned the winner with bragging rights until next year’s winner.
As long as contest entrants are willing to succumb to the panel’s criteria of beauty / economic value, there will be judges who are willing to offer their opinion. And as long as there are judges willing to volunteer, under the guise that business experience translates to entrepreneur expertise, there will be entrants who succumb to their judgment. Business competitions reveal true economic opportunity akin to how beauty pageants claim to reveal beauty.
(I ran an early draft of this piece by a friend who volunteers as a business competition judge. Instead of getting push back, which I expected, they said: “I wholeheartedly agree … definitely not worth it here, in my opinion… Even though I’m one of the judges. Gotta build that network!”)
Like pageants, business contests create mirror universes with narrow and arbitrary rules that define the engagement. In an echo chamber of opinions, the organizers and judges commit to the needs and criteria of the contest, but over the course of time, they look less like the environment where the company actually needs to succeed: with consumers. When was the last time you took a candidate pool of mobile devices through six months of skills competitions and pitch deck refinements? Consumers just don’t make decisions like that.
In addition, business contests, like pageants, must manufacture scarcity: There is only so much cash to be awarded. A simple primer in game theory reveals why this has appeal, but if you get to know 10 entrepreneur ventures over the course of six months, it’s within the realm of possibility that each of them could be funded with a reasonable expectation of return on investment. Or zero of them. Or 2 immediately and 3 later. The scarcity of a business competition assumes only a select few are worth funding within this candidate pool that happened to enter the competition at this time.
This raises a question for both beauty pageant and business competition hopefuls: Where do you want to compete? There is enough competition in the actual market of buyers and (other) sellers, why go looking for more? There are enough people in the world who want to judge your beauty, why look for more? There are enough reasons to see a scarce (rather than abundant) universe, why go looking for more reasons?
Three Risks of Entering a Startup Contest
Now, if your co-founder likes beauty pageants and is still not convinced, there are three potential risks to consider.
Risk 1: The Opportunity Cost of Your Time and Energy
“Entering the contest is free. What do I have to lose?”
The short answer: It’s what you could have accomplished with that time and energy you put into the contest.
Actual inputs of time and energy will vary, but like most competitions, the further you get into the contest, the more time and energy will be required to pull off the win. It will take whatever you give it, which is a lot like a black hole. Cloaked in the language of “opportunity,” the black hold will take and consume anything you put into it, and good leaders know a black hole when they see one. Great leaders avoid them.
Logically, as far as where to spend your time and energy, it is better to lose in the first round than “make it” to the last round and not win. This also means the winner is the person who put the most time and energy into the competition. That’s nice they had all that extra time and energy.
(Some people say the contest is a good place to get accountability. That’s a red flag. If your drive and passion, combined with your knowledge of the industry doesn’t result in taking action on your ideas, you’ll always end up looking for things to hold you accountable to your work. What happens when the contest concludes? I’d be hesitant to give an award to someone who needs that to stay motivated.)
Back to the point: What could have happened during that time when you were busy with the competition?
Markets change. You adapt. Your time matters. You learn new things by designing experiments and executing tests. You pivot. You persevere. But some competitions, from entry to prize, take more than 6 months. There is a risk, then, the competition will keep you emotionally locked on an idea for too long in an environment that only mirrors the place you actually need to win: the market.
Rarely is the first idea of Minimum Viable Product the idea that achieves market success, so the risk is that the competition keeps the entrepreneur emotionally anchored for six months when a marketplace of actual, potential buyers could have told you it wasn’t going to work with much less time, energy, pomp and circumstance.
Eliminating distractions and creating options is part of the work of an entrepreneur, and we encourage you to ask, “What would I not be doing if I devote the time and energy to enter this competition?”
In addition to the opportunity cost, there are two additional risks.
Risk 2: The Risk of a False Positive
Entrepreneurship is the proving and/or disproving a series of hypotheses. Designing and implementing in-market experiments are crucial. It’s how we stay objective on our way to demonstrating market adoption and usage at key milestones.
Winning a business competition does not guarantee success in the marketplace (which this author assumes is your goal) and the risk is that the winning the competition affords you a false sense of confidence. Winning a competition guarantees market success no more than getting good at Guitar Hero gets you ready to join a band and play in stadium tours. Does proving it “there” prove it where it actually matters?
Said another way: What may be worse than losing a startup contest is winning the contest and incorrectly assuming it will translate to marketplace success. Meanwhile, there goes the months of time and energy that could have been spent testing and iterating, activities more appropriate to proving key hypotheses and milestones (see above on opportunity cost).
What did winning the contest prove? It proved you could say the right things and show the right stuff to a group of people who don’t have skin in your game and (most likely) are not your customer. Winning the competition proved only one thing, and that one thing is only peripherally, if at all, related to actual in-market, customer adoption and usage.
Case in point: Thousands of entrepreneurs since the beginning of time got in to market, learned quickly, adapted and iterated, and scaled up – all while avoiding the distraction of business competitions. They are rewarded accordingly.
Overall, if your customers and stakeholders just don’t care about the competition, why should you? False positives and unverified confidence are too easy to come cross that we don’t need the help of a panel of volunteer judges who will sleep well at night regardless of how your product does in the market.
A false positive is a true risk, now let’s talk about the risk of a false negative.
Risk 3: The Risk of a False Negative
Just like winning a business competition doesn’t prove much, losing the competition doesn’t prove or disprove much either.
Let’s say you enter and lose a business competition. Does that mean you should give up? It absolutely does not necessarily mean that. Or – it might mean that. That's the point: It’s too difficult to tell wha the implications are of winning or losing a business competition.
Either way, I grow uneasy when I think about contest entrants quitting their dreams because a group of judges or voters said they didn’t win their competition. How many businesses folded up shop after not-winning? How many should have kept going?
If you enter and “lose” a business competition, all that means is that your businesses didn’t make it through a series random hoops and arbitrary qualifications as defined by people who may not know your industry and have very little skin in the game. It may indicate you are actually on to something promising, but who’s to know?
The reality is that regardless of the outcome of the competition there could be a buyer for your product or a donor for your mission. How will you know unless you get out there and ask someone to buy it or donate to it? Devoting time and energy to a mirror-universe business contest only makes it more difficult to get in to market because of the permission we’ve given non-stakeholders to judge our idea, plan, and vision.
Winning or losing a business competition reveals one thing: whether or not you won or lost said business competition. The greater risk is how it effects your mental model of starting and scaling your business – what to prove and where to prove it with the only people who matter: actual stakeholders, customer, investors, and YOU.
False positives and false negatives are risks for every entrepreneurial venture, and the entire conversation raises still another question.
What Is Success?
In a business competition there are winners and there are losers. There are those who succeed and there are those who failed. Unfortunately, this contributes to a growing problem: That failure and success are binary states of being. One is to be avoided (and not talked about), while the other is to be pursued.
Television programs like Shark Tank turned entrepreneurship into a spectator sport. You get one shot to pitch your idea, conveniently enough segment time to get to the next commercial. The truth is the it takes months to build relationships with the right kind of investors for your venture. That’s equally true for non-profits.
The entrepreneurs who succeed in market do by diligently conducting activities that some may label as “failure.” Testing hypotheses is a series of controlled experiments. Some call it failure; entrepreneurs call it learning. Evolution calls it adapting.
My friend Matthew says that humans are not good at evaluating without comparisons. He’s right, and I’m convinced the difficult, emotional work of defining what constitutes success is necessary for a life well-lived and the topic of another article.
Entrepreneurship is a lens that sees through the false binaries of success and failure. There is no such thing as failure if it’s the price of learning; and learning without skin-in-the-game isn’t all that interesting or sticky. It takes years to develop that kind of skin, why risk losing it inside a business competition that sorts you and others arbitrarily into winners and losers that ultimately has very little chance of helping you where it matters?
A Few Rare Cases Entering a Competition Makes Sense
To be quite fair, there are times when it makes sense to enter a business competition:
· If the goal of your business is to win a business competition, then enter as many as you can.
· If you see the bigger picture and want to help raise the profile of entrepreneurial activity in your city or region, helping with a business competition is one way to do that.
· If your prospective customers are business competition organizers, business contest entrants, or business competition sponsors, it makes sense to dive in to learn as much as you can about these potential customers. That is called market research.
· If your business plan is to disrupt and shake up the business competition industry, that would be a quite interesting value proposition to enter into a business competition.
Media mentions and public relations stemming from winning a business competition can be very helpful in securing funding. However, if you are trying to build a lasting, impactful, thriving enterprise, entering a business startup competition may not be worth your time and energy.
A New Way to Help Founders
Many small business, non-profit, and social enterprise founders find themselves a few months or years into their efforts and they realize they could have done a better job getting people involved. They realize people want to help.
However, individually-financed side hustles, non-profits, and social enterprises rarely have the financial capital they need to pay for resources, coaching, and support. That is why we need platforms and opportunities - in a mutually beneficial way - to bring together those who want to help entrepreneurs and those who are founding new organizations.
Tim Schuster is Founder of Popup Think Tank where they build communities around difference makers. He also works with Thrivent Church Solutions where he and his teammates design, test, and launch social businesses. He lives in North Minneapolis with his family.
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