Competition vs. Customers
Competition vs. Customers
After the competition, my son's business partner said, "If we would have spent the time and effort in getting new customers instead of this competition, we would have sold $100k in revenue."
And that statement from Melanie pretty much says it all.
I believe in startup competitions. Their greatest value is early in the new business’ lifecycle. As the business develops and gains customer traction, the value of competitions drops precipitously.
Believing this to be true, I asked my son David, "Why did you participate in this business competition in London?"
He has customer traction. He has meaningful and growing revenue. He even has the beginnings of brand recognition in the international coffee market. So what was the hoped for value from all the effort he and his team put into winning this competition?
The first prize was 50,000 pounds and 25,000 in services.
This was my guess for his participation in this competition. David is looking to start an office in London. Having this money and the accompanying services would go a long way to establishing the office. Better to use the competition winnings and free professional advice than his money or investor money to do it.
And he was feeling like he had a good shot at winning.
Over the last two years, he won two competitions. The first was his LSE graduate class competition. The second was the LSE startup competition. This competition included alumni from prior years who were currently in the early stages of business formation. These two wins gave him a lot of confidence.
But I know how much of a time commitment these bigger competitions require. They consume the founder's thought process for the two to three weeks prior to the competition. And if the founder of a small company is thinking about it and working on it, so is everyone else in the company. This was true for David and his M-Cultivo team.
So what other benefits might he look to receive from this time commitment?
The next greatest value besides the prize money was a broader people network.
London is a new community. This competition gave him an on-ramp to the city’s startup community. There were eighty companies in the competition, and they were representing universities from all over England and Scotland.
Because of this broad-based geographical representation, David had a chance to meet people doing what he and his team are doing. They are working hard at creating something new that will make a big difference in this world. This is why they were selected. It was not just about building a new business but a new social impact business. These were his peeps.
In addition, there were the attendees who were interested in this space—the judges, the CPAs, the lawyers, the academics, and the investors. Being a national competition, it attracted a great crowd. Maybe he would meet one or two new people who could help him move M-Cultivo forward.
The competition began, and the venue was Wimbledon Stadium.
David is a big soccer fan. Is there a more iconic location in the world that he would like to visit? Heck no! As part of the orientation by the organizers, he and his pitch competitors got the grand tour, including the locker rooms of the World Cup players and the Queen's box where the big bands set up, and a deep dive into the history of Wimbledon. What a great experience.
He was competing in two rounds the first day.
They started with eighty companies. It then went to forty. And finally to the final five who would pitch the next day. David made it through Round 1. Then he made it through Round 2. He called exhausted and excited that night telling me he was in the Final Five.
And that's when the analysis started.
Questions like:
Who is the bank that is sponsoring this competition?
What are they looking to gain from the winner?
Who are the judges?
Do they know startups?
Are they entrepreneurs?
Do they know your industry or business model?
Who are the other entrepreneurs?
What about the gender, race, and nationalities of these presenters?
How do these nonbusiness criteria play into the selection?
So although he hoped the best business would win the competition, there were lots and lots of other criteria. And these criteria varied based on each judge’s experience and perception. Then there were the instructions given by the organizer to the judges on what they were looking for in the winner of this competition.
With all this in the mix, the next day arrived. Each of the five founders presented. David told me, "They were the most polished pitches I ever witnessed. Each of the entrepreneurs was likable and engaging. Some with ideas and others with real businesses."
He didn't win. He went into this competition batting 1.000. He came out batting .666.
David was heartbroken.
It is tough to put all you've got into the competition, including all the best efforts of your team and the support of friends and family, and not win. And that's when the rationalizing starts.
I loved what his partner, Melanie, said. In short, next time let's use the time to sell new customers.
And I agree. If the business was in an earlier stage, as was the winner of the competition, then it would be worth it. The competition sharpens the message and prepares the founder to pitch to paying customers. And it also tests the idea, economic model, and sustainability of the newly proposed enterprise. It might also attract an industry connected investor. All good for a startup business.
But M-Cultivo is already in the market.
"So why did you choose to be in this competition?" I asked again.
David answered, "I was asked to represent the London School of Economics. I considered this a real honor. And that's why I did it."
Good reason, don't you think?
Postscript
The day after the competition David met with a prospect. He closed a $23k deal. I told him this increased the value of his company by $100k. If he won the competition, the 50k pound prize would be valued at 50k. Selling customers is always the best way to go.