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In the USA it is common practice for Universities to award substantial
prizes to winners of Business Plan Competitions. At the University
of Oregon, for example, $60,000 is being handed out this year,
vs. $300 when the contest started in 1991. Duke and Brigham Young
vie for the top honours, with Duke offering something in excess
of $110,000 and Brigham Young's prize up to $120,000.
The odds of winning any contest appear better than the odds of
trying to raise venture capital in today's bear-market climate,
where the amount of available cash has shrunk drastically since
the heady days of the Internet bubble.
Not surprisingly, interest in these contests has grown sharply,
with some entrepreneurs entering several of them. For example,
the team that won the first prize of $60,000 in this year's Brigham
Young contest in early April moved on later in the month, to the
University of Nevada, where a first prize of $40,000 was up for
grabs. So intense has the competition become that Duke University
two years ago banned "gamers" -- those who enter multiple
contests -- by requiring that at least half the members of each
entrepreneurial team be composed of Duke students.
However, despite all the high profile of the contests, it is
becoming clear that many entrepreneurs would do better if they
devoted the 100 or more hours required to prepare a lengthy business
plan to driving their existing business harder and generating
some real sales.
The problem, is that even if they were to beat the odds and win
a contest, entrants would be likely to find that professional
investors give business plans much less credence these days. Indeed,
even as business-plan contests become more popular, business plans
are declining in importance as vehicles for attracting investment.
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| In a recent survey, 42 venture-capital firms were asked to
consider what was most important in evaluating a start-up business.
They list a number of factors before getting to the Business Plan
- ranked much higher in importance are things like real sales,
the size of the market, and the quality of the management team.
A number of investors are taking a much firmer stand investing
in people, not in paper.
The shift away from business plans can be seen in these investors'
actions. Nearly half of the venture capitalists surveyed said
they have invested in one or more companies within the last three
years that hadn't submitted a structured business plan at all.
Only 36% said a business plan is very important in helping them
decide whether or not to invest in a company.
A rather obvious problem with Business Plans appears to be that
many venture capitalists were badly hurt in the Internet boom,
when they invested in start-up companies largely on the basis
of business plans that many in the less speculative ‘real’
world saw as aspirational and visionary – rather than sound
construction based on analysis and evaluation.
As appealing as Business Plans may be to those who want to see
their start-ups get started there is a clear need to adapt to
the higher demands of now more real-world conditions.
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