Imagine yourself as judging a business plan competition. You read the plan, watch and listen to the pitch, ask questions, and consider the answers. What do you do, in that situation, with a team whose opportunity is in your opinion bigger than it realizes? What about a team whose opportunity is different from what it realizes?

Do you reward the team for what you’re thinking and they aren’t? For the opportunity they’ve built that they don’t see?

For example: a team is trying to do too much too fast, spreading the business way too thin, and therefore losing, in your opinion, a really interesting opportunity at hand. That opportunity would require focus, and they’re trying to do way too much.

Another example, almost the opposite of the first one: the team is focusing very narrowly on a hard market, not seeing what you think is a much more interesting and easier to address market in a different direction.

Is it the best business opportunity, based on the assumption that this team will listen and redirect? Or is it the best business plan?

Having seen similar situations as angel investor, I want to put my money where the opportunity is; as long as I can reassure myself that the team will see it as I do. But as a judge in a venture or business plan competition, I think I have to go by what the team says, not what I think it could have said.

What do you think?

I’m leaving for New York city today to participate as a judge tomorrow in the Forbes.com Boost Your Business business plan contest. This will be my second year. I love it.

I like judging business plan contests. I’ve judged the two big contests in Texas, both the University of Texas Moot Corp and the Rice University contest. I’ve judged the University of Oregon’s New Venture Competition 12 times. I’ve also judged at Notre Dame University, University of San Francisco, and some others.

As I leave to judge this one, I’m thinking about five reasons why I really like it:

1. It’s open to any U.S. business, MBA-related or not. The MBA contests are reserved for teams with MBA members. Forbes is for everybody.
2. The criterion for winning is simple and easy to understand. The winner is the business that can do the most good with $100,000. That doesn’t make the decision easy at all, but it makes the competition clear.
3. The public gets to vote; not just the judges. The public vote helped choose the five finalists from the 20 semi-finalists you can see on the Forbes.com Website right now. The vote is closed now but soon you’ll be invited to view the five finalists.
4. The competition is available online. Anybody can go to the Website to see the presentations, questions from the judges, the entrepreneurs’ answers, and vote on the winner.
5. The prize is simple and easy to understand: $100,000 for your business. It’s not an investment, or a loan, or goods valued at whatever; it’s half in good old fashioned money, and half in advertising.

You can see for yourself on the website: click here for the Forbes.com contest site.

Wow. Take a look at an amazing collection of small business and startup stories at Intuit’s Story Gallery.

This is a collection of very short and easy-to-watch videos about different businesses. There are startups, nonprofits, lots of small personal businesses, some restaurants, some make-up artists, music lessons, dance, gyms, a real variety of different businesses.

What they’ve done is put together their stories, in short videos, in the hope of winning grants of up to $25,000 from Intuit.

People have been voting on these for several weeks. You can sort them according to the votes so far, to get the most inspirational, the most useful, and the funniest.

And if you register, which is free, to become a member of the Intuit site — I can’t think of a good reason not to — then you can also vote on your own favorites.

Warning: you can get lost in this. It’s only a few minutes per clip, but it’s hard to stop clicking for the next one.

Craig from trackster.com asked me last week in a comment he added to my Willamette Angel Conference post:

I was wondering with all these business plan competitions that you judge, how many winners or even non winners have you seen turn into successful companies? Are there any examples that you could give?

Yes, a lot of these companies make it. It’s more like half than the one in 10 portion you’d think from the classic assumptions.

I’ve seen lots of these companies launch and become successful, in a much higher proportion than the classic assumption of one or two of every 10.

For example, take a look at this page from the Rice Business Alliance, which has run one of the best of these contests since 2002. The graph here shows the success rate for all of the 166 ventures entered in the Rice contest from the beginning. The trend is very clear. The Rice Alliance says that since 2001 (quoting their website):

• 66 of our past Rice Business Plan Competition teams are successful business start-ups
• 192 business teams from national and international schools have participated
• More than $90 million in capital raised by Rice Business Plan Competition participant companies

Although they make the raw data quite as accessible as the Rice Alliance does, the University of Texas’ Moot Corp, the oldest and most respected of these contests, has to have a similar success rate. I say that because I’m involved with both and the plans and the people are excellent in both. And Moot Corp does post a very long page full of specific successes, with a lot of details. I saw all of the companies they have there from the 2007 and 2008 contests, and I’m not at all surprised that they’ve made it.

I particularly liked cQue, which recently landed a contract with the San Francisco Giants to revolutionize ticketing technology; and Evapt, an automated billing system for software as a service; and several dozen others. They are up and running, they are raising money, they are making it.

To be fair, these two competitions tend to be the best of the best. The entrants are carefully selected. Most of them have won local or regional contests. They are grad students and people in the real world. I’m also involved in some less ambitious business plan contests, like ones for undergrads, that don’t produce a lot of real companies.

And this year I’ve added angel investment, which is a different thing entirely. Like the major academic contests, it is about business plans, ventures, presentations, questions and answers, investors’ points of view, exit strategies, and so on. Unlike the academic contests, there are no MBA requirements, and no faculty advisors.

And specifically, the angel group I’m in, the one I posted on last Thursday morning: there were five finalists that presented to the group. All five of them are very real companies already, even thought they want and in some cases need angel investment of $125K. All five will be there a year from now. The one with the lowest need and least ambitious forecast, a software company called CenterSpace, won the investment. But the four others that didn’t win, led by my personal favorite, Zapproved, have good future prospects. That was also Zaps Technologies, Wicked Quick, and Floragenex. All of these are going to survive and grow.

Interesting question, which came to me via Twitter: “Does a business plan have an ideal length?”

It reminds me: I was about five years old when my granddad first asked me how long a person’s legs should be. His answer was “long enough to reach the ground.” He liked that.

And I borrow from him when I say a business plan should be long enough to set strategy, list assumptions, establish concrete metrics, list specific steps including dates and task responsibilities, and project basic numbers such as sales and cost of sales, expenses, funding, and cash flow.

It should have enough detail to establish useful and realistic tracking of results.

And that doesn’t get measured in pages. I myself hate measuring business plans by page length. I like to think of the plan as a plan on a computer, linking topics with hypertext, jumping from topic to table to chart to topic and back again, without being printed out into pages.

Still, people ask that question, so I’d like to answer.

• The classic business plan document that prints to show to outsiders, as output of the real live plan on the computer, shouldn’t take up more than 25 pages.
• Not that MBA-level business plan contests lead this area, but still, for what it’s worth, the topic has been in my emails lately. A group of organizers of major intercollegiate MBA-level business plan contests last week agreed to limit plan length to 15 pages. Randy Swangard, who has run the University of Oregon New Venture Competition for several years, set that limit for this year’s contest and told me the group agreed to approve it.

The shorter, the better; but only as long as you cover the information you need.

Form follows function. All business plans should cover the main points, but it’s about business, not writing. So your business plan has to adjust to the actual specific use.

Jeff Mullins is a man with a mission. He says he was a patent attorney for seven years to get to know how that works. Then he went back to school, in the MBA program at Carnegie Mellon University, to focus on entrepreneurship. He’s now got the hottest startup I’ve seen in a while, Dynamics, the winner of the big prize at the Rice University Business Plan Contest.

And the big prize is pretty big. It’s hard to piece apart the package between cash and cash equivalents. There’s $20,000 in cash, $80,000 in free services, a $100,000 investment from Opportunity Houston (which is contingent on moving to Houston), and, certainly the real value jackpot, a $125,000 investment from the famed GOOSE Society of Texas. 

The GOOSE group — it stands for Grand Order of Successful Entrepreneurs — was formed by Rod Canion, Bob Brockman and four other very well known Texas entrepreneurship giants a few years ago, mainly to invest in the Rice contest winner. It now includes eight members. And past winners have ended up with more than just the investment money promised — mentorship, good advice, and deeper pockets.  They’ve supported past winners with a lot more than just the initial amount.

What Dynamix has is a market-ready credit-card technology that programs the magnetic stripe. It’s compatible with the 60 million existing card swipe readers out in the world, but still manages to manipulate what the stripe shows using buttons the owner pushes. And it’s just about the same size as the standard credit cards everybody now uses.

The flow of awards and prizes Saturday night took two hours (Brad Burke, Director of the Rice Alliance that puts on the show, and master of ceremonies, struggled in Oscar-Awards fashion to keep the talking short. Rumor has it that I was fingered as one of the offenders). Awards began with the $2,500 specialty awards like Palo Alto Software’s, which we give for the best written business plan, ( as in my post here last Friday) and mounted up through a NASA $20,000 life science Innovation Award and a $20,000 Dow Chemical Sustainability award. Total awards, including service equivalents and investment offers, totaled $805,000.  

These were very good plans in an excellent business plan contest. Several speakers cited the prize money to lay claim to the biggest and best. Although, in the fine print, the winner also gets a berth in next month’s Moot Corp contest at the University of Texas, which director Rob Adams will tell you is the “Super Bowl” of venture contests, started in 1984, the oldest or at least the most well known (I hate having to miss Moot Corp this year because of a scheduling problem).

As a judge, I struggled with the contest’s insistence on absolute rankings, without ties, because so many plans were so good. Rice got more than 340 entries, which it weeded down to 42 teams for last weekend. By the end of the finals, it seemed to me like most of the finalists were worthy of first place in any normal venture contest. For example:

• NextRay, which took second place (and also won our best written plan award, and the NASA life sciences award), presented a new technology that may be able to replace X-rays with only one tenth of the radiation. From the University of North Carolina.
• Tendix Development, representing Johns Hopkins Univeristy, showed the IRIS Engine, a new kind of internal combustion engine promising to deliver more power than what current engines with less than half the energy consumption. It has already won awards from NASA and ConocoPhillips.
• Integrated Diagnostics, from the University of California at Berkeley, showed a quicker way to test blood for HIV.
• Audiallo, from the University of Michigan, presented a new technology for processing sound, based on waves rather than digital, that hopes to offer way better clarity for hearing aids, and, later, bluetooth headphones and other uses. 
• In Context Solutions, from the University of Chicago, showed a dazzling 3D store simulation able to perform fast in real time, targeting the high-end market research done for consumer packaged goods companies.
• Authors of the open-source MODx content management system, a team including students from SMU, is building a company called Enterprise Theory to commercialize MODx support and services and tools, following a Red Hat model. This one, which had one of the best-looking business plans I’ve seen in a while, didn’t even make the finals.

So I’m flying back to Oregon now, as I write this, thinking that the Rice event has become a real winner. Lots of sponsors, lots of judges, and about 350 teams that were eventually paired down to 42. Great plans. I’m already looking forward to next year’s event.

Most venture contests deal with three elements: the business plan, the pitch presentation, and the question and answer session. Where does the plan itself stand, in the mix? What I’ve gathered from 13 years of judging graduate level business venture contests is the following:

• The best business plan isn’t always the best venture.
• The best venture usually has one of the better business plans.
• The best venture almost never has a bad business plan.
• There are relatively weak ventures with relatively strong business plans.

I’m in Houston the rest of this week for the Rice University Business Plan Contest. The finals are tomorrow. Winners will be announced tomorrow night. And there, amidst about $800K in cash and in-kind prizes, will be the $2,500 Palo Alto Software outstanding business plan award. With me announcing the winner.

Leading up to that, two days ago, 11 of us met in a Palo Alto Software conference room. It was the culmination of a three-week process that required evaluating the 42 business plans competing today at Rice. The award is for the plan, not the venture. We’ve seen the plans only, not the people, not the presentations, not the questions and answers. We divided them up so that everybody read at least 10 of the plans, most of the people 12, and a couple of people read as many as 16. The participants included me, our CEO, COO, VPs of product development and customer experience, web producer, and marketing managers. To help balance the output, every plan was read by at least four people.

But we had four winners, not just one. There were four plans which were that good.

Rice University and the contest should be very proud of these plans. The teams that submitted them should be very proud of them. After all of the scrutiny, we ended up with four plans that we’d be very proud to award as the best plan.

Several of us had different views on the relative weight of the plan as document vs. the plan as description of the venture. I know that’s a hard concept to swallow, but think of it like this: can a business plan that has every major factor locked down, but has some occasional spelling and grammar problems, be a winner? Is that better than a plan that is beautifully written, easy to read, has great illustrations, looks sensational, but has maybe one hole in the business details?

And how about this one: is a high-risk, high-return plan, taking tens of millions of dollars to yield hundreds of millions 10 years from now, but only if it runs a very narrow gauntlet of challenges, better than a plan that has only medium risk, a product already selling, happy customers, but projects getting to $8 million in five years, with a valuation of $15 million?

Tomorrow I have to announce a single winner, and, happily, we did finally come to a decision on which one to name. But that one is one of four plans that deserved to win.

What if you had to take the classic business plan, developed for an MBA-level venture competition, and shrink it down to 10 pages?

Last Friday I spent a fun and fascinating day as a semi-finals judge at the University of Oregon New Venture Competition. My part of the program was evaluating four ventures developed by MBA students from Clemson, Northwestern, Penn State, and Michigan, along with three other judges. That was one of five flights, so there were 20 teams, selected from more than 100 entrants.

The new rules for this year gave them 10 pages for the business plan, plus up to 10 pages for appendices. The judges loved it, of course, because we have to read all the plans. The teams had mixed feelings.

Summarize. In this context, the venture competition, with teams of smart MBA students, it should have been duck soup (although that particular expression isn’t that popular at the University of Oregon, because the home team is the Ducks).

Keep the highlights. Stick to the headlines. Summarize. I don’t care if you’re the next big thing, with an unimaginably exciting new idea and a great team, you can still create a meaningful summary in 10 pages.

Start with a one-page summary. Then tell a story about the need, and your solution, your market, your secret sauce, your strategy, and your great team. Add in a financial summary, and don’t forget to highlight your capital needs, valuation, and exit strategy. If you do no more than 3 paragraphs in any one of these 10 main topics, you ought to be able fit that in 10 pages using a lot of bullet points and white space. Make it an attractive document that the judges, who tend to have older eyes, can read. Leave some space for some snappy graphics, a bar chart or two, and then include the financials in more detail in the appendices.

Some of the teams struggled too much with the page limitation. Some chose the dark-side option, filling the page with dense, small text. Some skipped important topics.

As we get used to these competitions, with page limitations growing more common, I’m expecting more teams to realize that there ought to be a master plan, from which these summary plans, and the presentations, and the elevator speeches, are just alternative output.

Once they get that, they should then start thinking more about the combined communication impact of the plan, the presentation, and the other elements. Can they summarize strategy briefly in a plan, and then explain it more in a presentation? I think so.  The plan and the presentation obviously overlap, but they both don’t have to cover exactly the same territory.

So today my business plan judging marathon month continues. After the event in Portland over the weekend, this evening I’m going to a three-hour meeting of the Willamette Angel Conference, reviewing business plans, listening to presentations, doing due diligence on plans.  On Thursday I leave for Houston, to judge the Rice University Business Plan Competition.

Business plans everywhere. I’m reading, annotating, filling in score sheets, and getting cranky. I explained that on this blog last Monday.

So what’s with the unrealistically high profitability projections? This year it seems like I’ve discovered a new 50-50 rule of profitability in business plans, as in, 50% of the plans I’m looking at project 50% or higher profits on sales.

That reminds me of a song my youngest daughter used to play: “That Don’t Impress Me Much.”

Occasionally a very successful startup will come up with something so new that it can, for a while, chalk up very high profit margins. That’s extremely rare. Out here in the real world, though, nobody really makes much more than 5-8-10% or so profits on sales. The real startups might make 15% or even 20%.

Projecting 40%, 50%, and even 60% profitability on sales doesn’t tell me you have a great business; it tells me you haven’t done all of your homework. You’re underestimating cost of sales, expenses, or both.

I find this particularly galling in business plans with some social implications, related to health care, or education.

What would I like to see instead? First, find out average profitability for the industry you’re in. Put that number into your plan. Then explain why your company’s projected profitability is higher. Proprietary technology, specialty niche market, new processes? Okay, I can take that; just be aware of what the normal is, so you know what you’re up against. Please.

Standard financials are available from several vendors, for less than $100 per industry (and here I can’t resist adding that they’re bundled with Business Plan Pro, my company’s software product. Sorry. I’m an entrepreneur. I can’t help it.) You can also get those from Oxxford Information Technology, or the Risk Management Association (RMA).

Anyhow, that’s my opinion.

Sometime in middle May you might find me emerging, blinking, uncomfortable from the sunlight, after reading and evaluating 75 or so business plans in a single month. And watching and judging and asking questions about almost as many presentations. I can see the headline:

Man reads 75 business plans in a month … and lives to tell about it.

Does that sound like a complaint? I hope not. Actually; there’s a touch of bragging to it. I couldn’t have spent the last 30 years focused on business planning if I didn’t like reading them (although, perhaps, maybe it would be better without so many all at once).

This is business plan season for me. I just finished reading half a dozen plans for Notre Dame’s annual business plan competition (we, Palo Alto Software, give a prize to the best one), and another half dozen plans for the Rice Alliance business plan competition (I’m a judge, and we have a best business plan prize for that one too). I still have to read five plans for the University of Oregon’s New Venture Competition next weekend (I’m a judge), and I’m supposed to produce a first-cut on 43 plans for the Willamette Angel Conference (I’m one of the angel investors) by the end of the workday today.

Oh, and this is the season I teach my Starting a Business class at the University of Oregon, so I’ll have another 20 or so plans to read as part of the class.

Despite all this, I’m very disappointed that I have to miss the University of Texas’ Moot Corp Competition this year, because of a scheduling conflict. That would have been another half dozen or so plans, also this month.

So don’t tell me, please, that nobody reads business plans. I do. So do the other judges. So does a whole team at Palo Alto Software. And so do all the other members of the angel investor group I’m in.

So you’d like tips, hints, suggestions? If you wrote one of those plans then it’s too late for you to change it now; but maybe I can influence your presentation. And also, maybe if I comment on some of the business plans I’m reading while I’m reading them, it might help somebody else with a plan later on.

All for the greater good, I’m sure.

Maybe I’ll make it a category, like “the business plan marathon,” or something like that. So you can click for related entries. Tim’s folly, perhaps.

And just to kick this off, some points worth noting:

• Profitability too high: I’m not impressed with a plan promising 40%, 50% or more net profit on sales. That doesn’t mean the business is very profitable; it means they’ve underestimated expenses.
• Dense text: Particularly dense scientific text. I’m a business reader, I’m not going to evaluate your science anyhow. I’ll just look at your degrees and past work to see whether that makes your claims credible. Maybe the patents, too, but patents don’t mean much unless they’re good strong patents with a lot of legal work supporting them.
• Missing tables and charts: For example, I want a bar chart to show me the highlights — projected sales, gross margin, and net income, for the first three years, or five years if you insist. I want to see the projected income table in detail, so I can track things like marketing expenses and payroll. I want to see cash flow table. I want to see startup costs, and what the proposed investment is going to buy the venture. 
• Treasure hunts: Don’t make me hunt around to find exit strategy, valuation, defensibility, market focus, or any other key point. Make it all easy to find, please.