Startup Competitions are a Distraction

Maybe it's my imagination, but I've seen a huge rise in the number of startup competitions around the Bay Area and Silicon Valley. Some examples include:

• The UC Berkeley Big Ideas competition (mostly for non-profit ideas; max $10K grant)
• The CleanTech Open (up to $100K in in-kind services + mentorship)
• The Berkeley BPlan Competition ($5K - $30K)
• The Stanford BASES Social-E Prize ($5K - $30K for a social venture)
• The D-Prize ($20K to fight poverty through innovation)

While free cash is never a bad thing, I believe that startup competitions are largely a distraction to the startups involved. Filling out applications, practicing pitches, and going through rounds and rounds of elimination requires time. How many days are spent on these competitions?

You may argue that the time sink is worth it if you win the prizes. A few days of work for $10K in funds is well worth it --true. But what exactly is getting rewarded? Entrepreneurs are being rewarded for their ability to articulate their ideas and demonstrate metrics of success. The winners are not necessarily the ones with the best business models (only the market can judge that), but rather the ones who can pitch and present the best.

Competitions tend to reward startups which stand little chance of succeeding in the marketplace in their current state --this is especially true in social entrepreneurship competitions. How is it that a competition can grant $10K to a startup and take no equity, while the startup struggles to find a single investor? Competitions tend to fund projects based on optimism --the feel-good ideas get the attention. Investors fund projects that sound financially viable. There's a big difference. It's easy for a judge to award cash that isn't hers. Try asking the judge to invest her own cash --that's a different story!

One of my friends asked me, "Don't all the prizes your team has won make it easier for you to get funded by investors?"

"No," I said. "They don't really care about any of the prizes we've won."

We've won the following prizes:

• People's Choice Award, UC Berkeley Mobile Startup Challenge
• First Place, University Mobile Challenge; Mobile World Congress, Barcelona
• Second Place, Win Demo Mobile Competition
• First Place, UC Berkeley Big Ideas Competition 
• First Place, UC Berkeley Big Ideas Video Competition 

We're happy to tell the world about what we're doing, and we're grateful for the recognition and the cash prizes we've received. But ultimately, prizes are just like eating candy. Winning tastes great, but you can't feed yourself on it.

Press coverage (the result of winning a prize) isn't what an enterprise startup needs. What we need is customers. Anything not related to getting customers and getting positive cash-flow is a distraction. Investors (the smart ones, at least) understand this and are not affected by prizes. Prizes might win you a few extra minutes of an investor's time, but if you don't have a real business you're not going to get funded no matter how many prizes you have.

Going after investor cash can also be a distraction. Every minute spent going after VC could be a minute spent closing deals with customers.

Plus, the amount of cash that these competitions give to promising startups is nothing compared to the cash that a few customers can bring.

i) $1000 profit/customer x 10 customers = $10,000 cash
ii) A two-round, 10-page application process with 160 competing entrants and an eight-month wait-time = $10,000 prize

What would you rather have? Of course you want the first one. You've gotten cash in the door. You are 100 times more likely to succeed than a zero-revenue startup because you know you have something of value. Isn't that the real prize?

Competition prizes are a double-edged sword. They can give startups the cash infusion they need to succeed, or they can encourage a startup to keep trudging forward towards failure. In the world of "fail fast," winning a $10K check from a startup competition may actually make it harder for you to find your best business model swiftly. A competition's seal of approval encourages you to keep going in the direction that sounds good on paper, rather than following the direction that will actually win you customers and cash-flow.

Winning competitions is fun, but we need to keep our eyes on the real prize --a customer buying what you're selling.