The Sizzle or the Steak?

Putting the building blocks of the business into a plan for investors is one of the top teaching methods for an MBA student. I would heartily recommend the gruelling process to any person trying to be top in their field. It is a realistic teaching method that replicates the stress of presenting your business model and future revenue streams to Bay Street financiers, as well as bringing the defeats which build up business resilience. As John Rothschild, Founder of Prime Restaurants said in the evening during his fireside chat to the room of entrepreneurs, "We all get beaten down and scarred, but we all get back up again."
The Ivey Business Plan Competition is the best in the country at attracting top students from the USA and across Canada. Perhaps it could be the $30,000 prize money, or the added benefit of spending a few days with the best and brightest students as they put in the foundation stone of potential new businesses.  
This year, I had my team at Loewen & Partners look at the four business plans and executive summaries to weigh up which plan they thought was the most fundable idea. I like to read the plans beforehand and compare my team's views with my own. Usually the business plan reflects the best idea and it is pretty obvious which plan and team deserves to go to the finals. 
This year was different. 
The most financially exciting business idea had a well written executive summary, but not much information for the investor. If they were trying to attract an Angel investor for seed capital, they were not building a compelling case for me. Yet, the problem was that their IP technology came out of the hugely reputable Waterloo University, and it was immediately fundable. The judges would all know the government would add in grants or loans.
At Ivey, during the judge’s briefing, we went over how to judge who goes to the finals. Was it based on effort and excellence of the plan or was it based on who I would see getting financing. I was told the winner would be the company most likely to attract investment dollars for their concept today in VC world. In other words, the steak over the sizzle must win.
It was heartbreaking to see my top ranked team get bumped by the weakest presentation, despite the relevant PowerPoint and the carefully crafted speeches. If the weak plan had been presented by a team demonstrating true entrepreneurial vigour, I could forgive the lack of financials.  
That was sadly not the case. 
In the end, the weaker team won because their plan was green tech, which we all knew is immediately fundable by VCs. Anyone see a bubble here?
In comparison, the team who’s work I admired, would not attract funding from a Canadian based VC as it was a start up in China. In my book, Money Magnet, I lay out the reasons VCs and Angels say yes to a business investment, and the first rule is it has to be within 3 hours driving time. China clearly does not fit that rule. If only this excellent team had read the chapter on Angel and seed investing in my book. Barring that, if only they were seeking seed money at a MBA competition in China.
There you have it: the steak had to win. 
The sizzle, although it got my mouth watering, was not enough for seed investors. It is not often that I have judge’s remorse, but the competition left me reflecting on how business success is about being in the right industry at the right time.  I have no doubt, that hard working team will benefit from their effort in the real world. Perhaps, in five years time, maybe we will be reflecting on how a business plan competition spawned a Chinese business success story.

1 comment:

Anonymous said...

From an investor's point of view, ideas and "sizzle" are always mouth watering; however, what are the risks involved? I think it takes a certain type of investor or even entrepreneur to take that leap of faith on a simple idea; and I suspect it may not be the majority of investors out there. On the other hand, a great idea with some proven form of success (patent, license, etc...) would be that much more attractive not only for the finances, but also as proof of the entrepreneur's commitment. In the end, it is not to make myself feel better, but I truly believe I learnt a lot from this experience and I am not sure if I would have learnt as much if we actually won. (Not that I would mind that, 25k in prize money...). All in all, as John Rothschild put it nicely at the supper, "we all get beaten down and scarred, but we all get back up again" right?
Sent by Yan Truong