For the third year in a row, I was lucky to be selected as a judge and mentor for the Kenneth A. Freirich Business Plan Competition at Skidmore College. The competition always attracts some of the brightest and most motivated students (across every discipline) and, as usual, I was truly inspired by the students. Their hard work and innovative ideas always make me stop and take a fresh look at the world.
Since this is my third year, I’ve also learned a little bit about what it means to compete in a business plan competition. In actuality, the process of putting together a compelling business plan isn’t that complicated.
There are really only three foundational things that matter in terms of a student created business plan:
1) Market size/Addressable market/Your share of the addressable market
Looking at all of the people or companies that you’re looking to serve with your product or service – how much money, in aggregate, do they have to spend on your solution? Or alternatively if you’re looking to create a new market – how much money do you think they would be willing to spend if your solution existed? Is that number growing or shrinking? Very often I see business plans with small (or non-existent) markets – which makes it very hard to make a successful business.
Inside the total market figure, what portion of that market is “addressable” to your business in the first 3 years. For example if you’re looking to start a business that’s supported by digital advertising you may quote a $40B total market size. However, if you’re only operating in one region, or only on mobile devices, that will limit the portion of the market that is addressable to you.
In year one, two and three what percent of your addressable market do you plan to take? Who are you taking share from?
2) Value Proposition/Differentiation
Why would your customers buy your solution over others? Does your product have realistic differentiation?
3) Costs and Operating Margin
Do your cost and operating margin projections pass the sniff test? Quite often something major is omitted here (like forgetting to account for supply chain or sales channel costs – e.g. a retailer’s margin).
And then there’s the X-factor:
4) Why you?
Why are you the person to execute this business? Are you “all in” on this idea? Do you display the tenacity to actually bring the idea to life?
Numbers 1-3 are important and serve as the foundation for the business idea, however in my opinion, #4 is by far the most important. How quickly can you get your idea out in to the real world and start to iterate on it (because it will change). Meet with potential customers, interview them about their wants and needs, get data points, “test” pitch and, if successful, ask customers to pay upfront (that’s how you know if they’re serious or just trying to be nice).
The formula to win the competition is to start with a solid and plausible plan and in between the first round of the competition and the finals – hit the street. If you can show up to the final round with real orders and actual customers, then you win – no matter what the judges decide.
Sometimes the biggest mistake people make in a business plan competition is to focus too much on the plan. The plan is necessary, but purely academic until you are out in the wild.
Remember Steve Blank:
No business plan survives first contact with a customer
And, of course, the Mike Tyson version:
Everyone has a plan until they get punched in the mouth.