Are entrepreneurial contests worth it?

Posted: Tuesday, August 12, 2008 10:18 AM by Eve Tahmincioglu
Filed Under: Starting up, Marketing, Financing, Entrepreneurship

At a time when banks are reining in loans to small businesses, it's not surprising that there has been an explosion of contests promising seed money for budding entrepreneurs.

There's an endless stream of entrepreneur contests available out there run by an array of organizations, some fly by night, others established financial institutions or universities.

There's also a popular reality show in the United Kingdom called "The Dragons' Den" where individuals with ideas for businesses come before a group of highly critical, rich people who have money to invest in a concept they find interesting. A host of would-be entrepreneurs appear on the show looking for funds.

You guys have to see it -- it's addictive:



But can any of these contests or competitions lead to entrepreneurial gold?

Bo Fishback, vice president of entrepreneurship for the Kauffman Foundation, says we're seeing an increasing number of these competitions.

As for long-term idea "ka-ching": "Anecdotally, we know some successful companies are launched out of these programs, but we don't know for sure how effective or quantifiable the outcomes are," he explained.

I'm constantly getting e-mails from companies that hold these contests.

Two such contests that have received some media attention (in part because they're constantly pitched to reporters like me), including Ideablob.com, which is run by credit card company Advanta, and American Express Open's "Micro to Millions" program, which is part of the company's larger "Make Mine a Million $ Business" initiative.

Basically, credit card companies are trying to tap into the lucrative small business market, and what better way to do that than host entrepreneur contests?

Ideablob has a monthly contest that pays out $10,000 for the best idea determined by its online community, while Micro to Millions offers $5,000, marketing help and business coaching to firms with less than $250,000 in sales.

I asked both organizations what the success rate has been for their entrepreneurial winners.

Ideablob spokeswoman, Jennifer Sherlock says:

"We have five winners who started new businesses, and we have five winners who used the money for their existing businesses."

And Danny Urquia, a spokesman for American Express, says:

"We've got 40 women in Micro to Millions right now. The goal is to get them to $250,000 in 18-24 months, and since we only started in March of '07 we don't have any numbers on success yet.

In comparison, we have awarded [funds to] 140 women through the Make Mine Million $ Business program and one-third have already crossed the million-dollar revenue barrier.

The entire program's ultimate goal is to have one million women declare their intent to build million-dollar enterprises by 2010."

These goals are indeed ambitious, but before you enter a competition you have to figure out what's at stake for you and your concept.

Disclosing highly-confidential information with the public is a bad idea, Fishback maintains, but you can offer an elevator pitch on how the product or service will work "without giving away the secret sauce."

And you also have to consider how much time and money you want to spend on preparing a business plan to submit to a contest. Some universities require extensive background material and information about the company you want to launch that could take months to prepare.

"You may have to go through a lot of hoops in order to even be allowed to compete," he notes, referring to one well-known national competition called The MIT 100k Entrepreneurship Competition.

But there are some benefits beyond cash prizes.

You can make connections and develop possible mentoring relationships with the people you meet through competitions. And every entrepreneur can use the exposure winners often receive in the media.

The bottom line, Fishback adds, is figuring out whether the value you could receive outweighs the risks.

"Everything in the world of entrepreneurship is about the risk-value ratio," he said.

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