Something about startup competitions just doesn’t feel right

It’s tough to put my finger on exactly what it is. I think it comes down to one simple question: What is the objective of a startup (or business plan) competition? Is the objective to generate interest in entrepreneurship, to get more people talking about startups and interested in the process? Or is the goal to provide validation for startups and indicate, in some way, that some startups can be judged to be more likely to succeed than others.

It seems like the process for competing in business plan or startup competitions is only tangentially related to what really needs to be done to launch a real, viable startup. If your goal is to launch a company, which I assume is the goal of most of the participants, then I have a feeling that excelling in the environment of these kinds of competitions is, at best, inefficient use of time and effort and at worst, teaching potential entrepreneurs the wrong things to focus on for launching a company.

Of course, this is assuming that there isn’t a strong correlation between winning or placing in a startup competition and general success as a startup company. I wonder if the success rate of companies participating in startup competitions is any different from startups “in the wild” and if this data is available somewhere.

This unsettling feeling with regards to startup competitions was recently stirred up again after attending the Momentum Summit put on by Scott Kirsner. One of the guest speakers was the Chief Scientist at Akamai. He spoke about the startup history of that company and talked briefly about the MIT 100K competition (then called the 50K) at Sloan, a club program at MIT. I’d often heard Akamai trumpeted as one of the success stories of that particular competition. At one point he said something to the effect of “The common mythology is that we won the 100K competition, the truth is, we didn’t even place in the final round.”

Akamai is interesting from a couple of perspectives. The first, if we’re assuming that startup competitions are for generating interest and entrepreneurial activity, it was clear from the story that Akamai would never have happened if it wasn’t for the impulse from the 100K competition. On the other hand, one of the most successful companies to emerge from the 100K was eliminated, and didn’t even place in the competition. Granted that’s only a single sample, but does it maybe indicate that winning such a competition has no real correlation to success as a company? In that light, what does it mean to win a startup competition? If winning is relatively meaningless from the perspective of startup success, what’s the impetus to participate for people for whom that’s the real goal?

Startup competitions are popular because they overlay structure, clear rules for winning and losing over an inherently messy and unpredictable process. I think that’s why most schools and governments like startup competitions, they make the unpredictable predictable and establish a clear way to crown winners and losers. Startup success is, unfortunately, a very messy and unpredictable affair.

Comments on this entry are closed.

  • http://www.greenhornconnect.com Jason Evanish

    Mike,

    Interesting point. I think the key is just that it motivates a lot of people to “finally do it.” Akamai was finally motivated because they had an artificial deadline of the 50K entry to get them to actually put a business together.

    The steps of a good competition will make you ask many of the right questions about your business. Maybe some of them are too early or will change in the end, but it's still an effective exercise.

    At the heart of it though, I think the important thing you point out is: It doesn't matter if you win. What matters is if it motivated you to do something and where you take it regardless.

    …and maybe losing gives you a little extra chip on your shoulder to try to succeed?

    -Jason

  • http://www.greenhornconnect.com Jason Evanish

    Mike,

    Interesting point. I think the key is just that it motivates a lot of people to “finally do it.” Akamai was finally motivated because they had an artificial deadline of the 50K entry to get them to actually put a business together.

    The steps of a good competition will make you ask many of the right questions about your business. Maybe some of them are too early or will change in the end, but it's still an effective exercise.

    At the heart of it though, I think the important thing you point out is: It doesn't matter if you win. What matters is if it motivated you to do something and where you take it regardless.

    …and maybe losing gives you a little extra chip on your shoulder to try to succeed?

    -Jason

  • http://www.greenhornconnect.com Jason Evanish

    Mike,

    Interesting point. I think the key is just that it motivates a lot of people to “finally do it.” Akamai was finally motivated because they had an artificial deadline of the 50K entry to get them to actually put a business together.

    The steps of a good competition will make you ask many of the right questions about your business. Maybe some of them are too early or will change in the end, but it's still an effective exercise.

    At the heart of it though, I think the important thing you point out is: It doesn't matter if you win. What matters is if it motivated you to do something and where you take it regardless.

    …and maybe losing gives you a little extra chip on your shoulder to try to succeed?

    -Jason

  • http://www.greenhornconnect.com Jason Evanish

    Mike,

    Interesting point. I think the key is just that it motivates a lot of people to “finally do it.” Akamai was finally motivated because they had an artificial deadline of the 50K entry to get them to actually put a business together.

    The steps of a good competition will make you ask many of the right questions about your business. Maybe some of them are too early or will change in the end, but it's still an effective exercise.

    At the heart of it though, I think the important thing you point out is: It doesn't matter if you win. What matters is if it motivated you to do something and where you take it regardless.

    …and maybe losing gives you a little extra chip on your shoulder to try to succeed?

    -Jason

  • http://mikepk.com mikepk

    Right. I think it's good that it gets people to actually start something, but I think what I'm getting at is: Why compete if the competition itself doesn't validate your startup? You enter the competition to win (clearly) but my gut feel is that winning doesn't map to success as a startup. I guess the prize money (or services, or whatever) could be a motivator in some cases. It's a weird set of incentive problems that I haven't quite wrapped my head around, but like I said, it doesn't quite feel right. It's like winning a beauty pageant when you want to be a mechanic.

  • http://www.greenhornconnect.com Jason Evanish

    You're also assuming only the winners get value?

    Many teams get valuable mentorship…
    Many teams will network to meet more team members…
    Many of the exercises of the competition (not all) are often good steps/questions for a business.

    Yes…everyone wants to win the office space/investment/notoriety, but to go a touch corny (but I think it works), “Shoot for the moon. Even if you miss, you'll land among the stars.”

    -Jason

  • http://mikepk.com mikepk

    I'm not trying to say that competitions are a bad thing, quite the contrary. A *lot* of good has clearly come out of them, but most of the benefits seem to be “secondary effects” independent of winning/losing the competition (at least from the perspective of starting a successful company although, I guess you could argue media exposure would be one direct positive effect).

    Even though there are a lot of positive effects, are they the primary motivation for competing in the competition? If participation is it's own reward, then why compete? Are there other ways to accomplish those same positive effects without it being structured as an attempt to pick out clear winners and losers and overlaying an artificial success structure on startups (I don't know, just talking out loud).

  • http://twitter.com/jarrodphipps Jarrod Phipps

    Mike/Jason,

    I've been involved this past year as the Director of the MIT $100K. I think your debate is entirely justified, but I thought if I shed some light on our core mission it might put this all in perspective. Our mission is simple: to promote the commercialization of technology by promoting entrepreneurship, educating entrepreneurs, and making it easy for those entrepreneurs to access the great minds in the Boston/Cambridge area. From our experience, many of the companies that go through the competition find it extremely educational whether or not they take home the grand prize. If you want a recent Akamie-esque example, check out this Xconomy article [http://bit.ly/d62AaY] featuring Julia Hu, the CEO of OurLark, one of our semi-finalists this year. I think she does a great job outlining what makes the MIT $100K a valuable experience even though they didn't take home the grand prize.

    I'd like to think that competitions like the MIT $100K are making an impact that fulfills the mission we set forth for ourselves, but I do know that the system isn't perfect. I think Steve Blank made an excellent criticism of how business plan competitions may not be perfectly modeled for Web/IT driven businesses that need to iterate numerous times in succession to find product-market fit [http://bit.ly/d6D6T8]. Even with this argument, a perfect counterpoint is last year's winner KSplice, an IT-focused company, which has been a profitable enterprise ever since winning the MIT $100K.

    Jarrod Phipps

  • http://twitter.com/jarrodphipps Jarrod Phipps

    Mike/Jason,

    I've been involved this past year as the Director of the MIT $100K. I think your debate is entirely justified, but I thought if I shed some light on our core mission it might put this all in perspective. Our mission is simple: to promote the commercialization of technology by promoting entrepreneurship, educating entrepreneurs, and making it easy for those entrepreneurs to access the great minds in the Boston/Cambridge area. From our experience, many of the companies that go through the competition find it extremely educational whether or not they take home the grand prize. If you want a recent Akamie-esque example, check out this Xconomy article [http://bit.ly/d62AaY] featuring Julia Hu, the CEO of OurLark, one of our semi-finalists this year. I think she does a great job outlining what makes the MIT $100K a valuable experience even though they didn't take home the grand prize.

    I'd like to think that competitions like the MIT $100K are making an impact that fulfills the mission we set forth for ourselves, but I do know that the system isn't perfect. I think Steve Blank made an excellent criticism of how business plan competitions may not be perfectly modeled for Web/IT driven businesses that need to iterate numerous times in succession to find product-market fit [http://bit.ly/d6D6T8]. Even with this argument, a perfect counterpoint is last year's winner KSplice, an IT-focused company, which has been a profitable enterprise ever since winning the MIT $100K.

    Jarrod Phipps

  • http://twitter.com/jarrodphipps Jarrod Phipps

    Mike/Jason,

    I've been involved this past year as the Director of the MIT $100K. I think your debate is entirely justified, but I thought if I shed some light on our core mission it might put this all in perspective. Our mission is simple: to promote the commercialization of technology by promoting entrepreneurship, educating entrepreneurs, and making it easy for those entrepreneurs to access the great minds in the Boston/Cambridge area. From our experience, many of the companies that go through the competition find it extremely educational whether or not they take home the grand prize. If you want a recent Akamie-esque example, check out this Xconomy article [http://bit.ly/d62AaY] featuring Julia Hu, the CEO of OurLark, one of our semi-finalists this year. I think she does a great job outlining what makes the MIT $100K a valuable experience even though they didn't take home the grand prize.

    I'd like to think that competitions like the MIT $100K are making an impact that fulfills the mission we set forth for ourselves, but I do know that the system isn't perfect. I think Steve Blank made an excellent criticism of how business plan competitions may not be perfectly modeled for Web/IT driven businesses that need to iterate numerous times in succession to find product-market fit [http://bit.ly/d6D6T8]. Even with this argument, a perfect counterpoint is last year's winner KSplice, an IT-focused company, which has been a profitable enterprise ever since winning the MIT $100K.

    Jarrod Phipps

  • http://twitter.com/jarrodphipps Jarrod Phipps

    Mike/Jason,

    I've been involved this past year as the Director of the MIT $100K. I think your debate is entirely justified, but I thought if I shed some light on our core mission it might put this all in perspective. Our mission is simple: to promote the commercialization of technology by promoting entrepreneurship, educating entrepreneurs, and making it easy for those entrepreneurs to access the great minds in the Boston/Cambridge area. From our experience, many of the companies that go through the competition find it extremely educational whether or not they take home the grand prize. If you want a recent Akamie-esque example, check out this Xconomy article [http://bit.ly/d62AaY] featuring Julia Hu, the CEO of OurLark, one of our semi-finalists this year. I think she does a great job outlining what makes the MIT $100K a valuable experience even though they didn't take home the grand prize.

    I'd like to think that competitions like the MIT $100K are making an impact that fulfills the mission we set forth for ourselves, but I do know that the system isn't perfect. I think Steve Blank made an excellent criticism of how business plan competitions may not be perfectly modeled for Web/IT driven businesses that need to iterate numerous times in succession to find product-market fit [http://bit.ly/d6D6T8]. Even with this argument, a perfect counterpoint is last year's winner KSplice, an IT-focused company, which has been a profitable enterprise ever since winning the MIT $100K.

    Jarrod Phipps

  • http://twitter.com/jarrodphipps Jarrod Phipps

    Oh, and also, the MIT $100K is an MIT club, not MIT Sloan. It's a common misconception, but we are in fact under the school of engineering…

  • http://mikepk.com mikepk

    Updated, thanks.

  • http://mikepk.com mikepk

    I think you're achieving your stated goal, a lot of companies wouldn't have been formed (like Akamai) without the initial impulse from the competition.

    What doesn't feel right to me is the seeming misalignment of incentives. I'd like to ask all of the competitors: Why do you want to win the competition? If their answer is primarily centered around building a viable company, and if we assume that winning doesn't have a strong correlation to that goal, then there's an odd mismatch there. That's not to say they don't get a lot of positive benefits from competing (like Jason outlined) just that they seem to result from participating rather than winning.

    It could be that “competition for competition's sake” is the best way to motivate the particular personality type that naturally fits with being an entrepreneur. In that case it could be viewed kind of like a benign bait-and-switch, activating and supporting that entrepreneurial drive with everything else being secondary. Just more food for thought.

  • http://www.bizplancompetitions.com Joe H.

    Mike, you are raising excellent points. The discussion may help in understanding how some competitions attract hundreds (or even thousands) of applicants while others attract only a few, even when they offer a fairly generous prize pool.

    I believe that many entrepreneurs enter these competitions because they know they the odds of succeeding with a new business are difficult and they are seeking out anything that might improve those odds–whether it be cash prizes, funding connections, guidance, extra motivation, publicity, or whatever. Besides entering business plan competitions, they also do things like reading startup blogs, subscribing to Inc. and Entrepreneur mags, and joining local networking groups.

    Joe Hurley, co-founder
    Bizplancompetitions.com