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Sunday, 17 March 2013 22:00

Pitch Perfect? Do business plan competitions help launch sustainable companies?

Written by  Mike Brennan and Brian Edwards
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Pitch Perfect? Do business plan competitions help launch sustainable companies? PHOTO: ADAM BIRD

Davenport University seniors Tyler Essenberg and Calvin Beeke entered an elevator pitch competition for college students last fall — and lost. It might have been the best thing that ever happened to them.

Although their G-Raps product — a sleeve that slips over eyeglasses to advertise sports teams or other brands — didn’t win any prizes in the contest hosted by the West Michigan College and University Group (WMCUG), the pair got lots of feedback that Essenberg said helped prepare them for the next pitch contest.

That next contest turned out to be Start Garden, where G-Raps netted an initial $5,000 investment. Three months later, their investor update presentation earned another $20,000 from Start Garden, the Rick DeVos-led business accelerator that invests in promising ideas from a $15 million pool. Since earning funding from Start Garden, G-Raps has filed for a patent on the product and launched the product earlier this year.

“We’ve already had our first big purchase for 1,000 units,” Essenberg said. “We’re now shopping it around to several eye doctors in Grand Rapids. We hope to get connected with a national distributor soon.”

In several ways, the G-Raps experience epitomizes the value of elevator pitch and business plan competitions, where students and would-be entrepreneurs can hone their business plans, sharpen their presentation skills and even take a few punches from judges — without getting knocked out.

These contests are practically a growth industry in Michigan these days, with new competitions launching in recent months including PITCH at Western Michigan University, the GreenLight Business Model Competition at Michigan State University and a first-of-its kind competition for socially conscious businesses called the Pure Michigan Social Entrepreneurship Challenge.

But as contests continue to spring up in West Michigan and around the state, some are beginning to wonder if these events are effective at training entrepreneurs to turn their ideas into businesses or to raise capital in the world outside of competitions.

“It’s pretty rare that you’ll find a viable business plan that comes out of these competitions,” said Remos Lenio, a managing director at Grand Rapids-based DWH LLC and a board member of the nonprofit Great Lakes Entrepreneur’s Quest.

[RELATED: Business plan competitions at a glance]

Lenio ticks off a list of shortcomings that he sees in many business plan and pitch competitions including a lack of quality coaching, insufficient cash prizes and the tendency for competition organizers to go for quantity over quality when it comes to entrants.

Because several competitions are sponsored by universities and economic development organizations, “organizers want numbers instead of viable business plans,” said Lenio, who has raised nearly $500 million in capital for small and middle market companies (including the parent company of MiBiz).

Likewise, the growing number of competitions is watering down the quality of both entrants and judges, says a longtime Michigan venture capitalist.

“There are so many of them these days that the quality [of competitors] just keeps going down and down and down,” said Jack K. Ahrens II, founding general partner of Kalamazoo-based T-Gap Ventures LLC. He has judged several business plan competitions including the GLEQ and contests at Notre Dame, the University of Michigan and Wayne State University, and often sees the same companies at multiple competitions peddling the same plans.

Plus, as more competitions pop up, organizers are straining to find quality judges.

“They all want to have venture capitalists run these things, but look around: There aren’t a whole lot of them in Michigan,” he said. “You can’t expect these guys to review 20 plans. They all have day jobs. So it takes a lot of judges to run business plan competitions.”

Ahrens helps coordinate judges for the GLEQ competitions. Finding 80 judges twice a year requires him to “pull out every favor I can,” he said.

Coaching is another area where some of the pitch and business plan competitions are struggling, said Ken Kousky, president of the Blue Water Angels network in Michigan’s Great Lakes Bay region. Oftentimes, the coaches and mentors are consultants or business advisers, rather than experienced entrepreneurs, he said.

As a result, “you end up with a lot of coaches that are great English teachers or good accountants that take sort of a textbook approach [to writing business plans],” he said. One unintended consequence: “We’ve seen a lot of really well-done business plans, but when we start due diligence, we find they don’t measure up,” he said.

Kousky, Ahrens and Lenio said they rarely — if ever — find investment opportunities at competitions. While they do have some criticisms of the contests, they also acknowledge their value.

“The competitions do a good job of engaging people,” Kousky said. “If they grow community interest in startups, that is valuable. They also help focus [competitors] on the critical issues and financials of their business.”

Both Ahrens and Lenio praise the organizations that focus on quality coaching and mentoring, particularly GLEQ and Start Garden, which offers classes and adviser hours with experts in various fields. Lenio said he’d like to see more competitions require follow-up reporting — as Start Garden does — and pay out cash awards in tranches based on the company’s ability to meet performance metrics.

Hands-on learning

At the college and university level, the experience of competing and building a network is typically more important than getting funded or launching a startup right away, according to experts.

“I think the competitions do help some entrepreneurs get funding, but not all of them,” said Steve VanderVeen, a Hope College marketing professor and director of the Center For Faithful Leadership, the school’s entrepreneurship initiative. “In the case of WMCUG competitors, the first and second place winners have generally done well. Some have gotten good at pitching and have won other competitions, which has provided seed money. The competitions have also helped the students develop networks and find funding elsewhere.

“It takes much more work on the part of students and mentors and advisers to turn idea pitches and investor pitches into workable businesses. But it has been done.”

Thinking through the process of bringing a new product to market is a key benefit of the pitch competitions, said Davenport University Associate Professor Marjolijn van der Velde, chair of the management department. Davenport works with six other local colleges on two regional student competitions each year — an elevator pitch contest in the fall and a business plan competition in the spring.

“Both become learning opportunities where our students can think through the business process of bringing a new product or service to the marketplace,” she said. “It encourages students to use the money they win to develop a manufacturing prototype or explore business opportunities.”

At Grand Valley State University, pitch competitions are used as a learning tool, said J. Kevin McCurren, director of the Center for Entrepreneurship & Innovation in the Seidman College of Business.

“What you get in pitch competitions is a way to create a focal point,” he said. “It gives them a drive or motivation to act as team. It encourages students and entrepreneurs to shoot for the process rather than the prize.”

To some extent, what’s driving the development of all these business competitions is a growing awareness of entrepreneurism as a career path in Michigan, he said.

“A lot of students have ‘entrepreneur’ in their list of things that they want to become,” McCurren said. “Secondly, we have a governor supportive of entrepreneurs. You’re seeing the Michigan Economic Development Corp. funding a lot of these programs. Third, it’s a great way to learn. You can’t teach entrepreneurship in a classroom or in a book. These competitions are a great teaching tool.”

Fail fast

A huge part of the learning process for students and entrepreneurs alike is the opportunity to throw stuff against the wall and see what sticks, said John Mueller, assistant professor of entrepreneurship at Western Michigan University and a veteran of two startups himself.

“Entrepreneurship is about learning as fast as you can,” he said, adding it’s important for entrepreneurs to “fail fast so you can succeed faster.”

In line with that thinking, he’s helping start WMU’s PITCH competition for students and also recently started a new monthly event in Kalamazoo called Pitch Zoo, where participants pitch ideas and get feedback, but no prizes. It’s all about feedback and tailoring the pitch to the audience, whether it’s an investor, banker or customers.

Learning to pitch effectively is more about acquiring skills than acquiring capital, according to Sam Hogg, a partner at Open Prairie Ventures, an Illinois-based venture fund that manages the Southwest Michigan First Life Science Fund in Kalamazoo.

“It is very hard to gauge from a five-minute pitch whether a company is real or just a fancy idea with nothing much behind it,” Hogg said. “As such, no investor ever makes an investment based on a business plan competition pitch.

“On the other hand, pitch competitions are great ways to display the passion, energy, and presentation skills that will be necessary to do things like raise money or close sales, so they are a great way for investors to meet entrepreneurs and get that longer-term conversation rolling.”

Business-plan competitions and elevator pitch contests are just two pieces of the entrepreneurial puzzle in a state where building an entrepreneurial climate is difficult, said Michigan Economic Development Corp. President Michael Finney, which sponsors both GLEQ and ACE.

“It’s very challenging to find all the pieces,” Finney said. “GLEQ, incubators and pitch nights all help entrepreneurs so we don’t lose our best entrepreneurs to other states. We’ve been trying to build an entrepreneurial climate for a long time. While we’ve made a lot of progress, we still have a long way to go.”

Finney helped launch perhaps the most lucrative business plan competition in the world two years ago: the Accelerate Michigan Innovation Competition. The contest offers $1 million in cash awards and in-kind awards, including a grand prize of $500,000. Students also get a chance to win money as well: a grand prize of $25,000.

Thirty alumni of the Great Lakes Entrepreneur’s Quest competition were among the 53 semi-finalists selected for the competition. GLEQ alumni also have been successful at landing lucrative exits, said Diane Durance, the organization’s executive director. Success stories include fuel-cell developer Adaptive Materials, which was acquired by United Kingdom-based Ultra Electronics Holdings, and medical device maker Accuri Cytometers, which was acquired by New Jersey-based Becton, Dickinson and Co.

“I believe that business plan competitions are a really good traction device,” Durance said. “They bring the entrepreneur out of the woodwork and get them to interact with state resources. It gets them connecting with other entrepreneurs and potential investors.”

Durance said she’s not a fan of using business plan and pitch competitions to just hand out money. But the money, she said, does increase the number of entrepreneurs competing. While the money is great, the biggest benefit of these competitions, Durance said, is the prestige these companies gain.

“Once you’ve been through GLEQ, Accelerate Michigan, Start Garden and Boost, people know who you are,” she said. “If you’re looking for help and support, there is no better way to do it than through meeting people. There simply is no substitute for networking.”

Harvey Koning, partner at Varnum LLP in Grand Rapids, agreed that competitions provide more value than just monetary rewards.

“It’s part of it but it’s not everything,” Koning said. “It’s all about building the ecosystem, the climate that encourages and fosters newer growth companies. … It gets students primed and interested in starting new businesses. A few do go on and become actual businesses. Even if they do not go on immediately to become a business, they’re out there giving it a try.”

 

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