Issue Focus: Entrepreneurship
The Best-Laid Plans
Veterans of the HBS Business Plan Contest share their war stories about the roller-coaster ride of entrepreneurship. Fifteen years old and going strong, the contest continues to inspire a new generation of start-ups.
An online shipping platform that uses social networks and smartphones. Low-cost medical care and monitoring that helps seniors to live at home. The “Skype” of broadband, offering free Internet service.
On an April morning known as “Super Saturday,” 63 student teams present these and other ideas in the Aldrich classrooms where other people’s ventures are the usual topic of discussion. Judges — a mix of angel investors, VCs, serial entrepreneurs, and industry executives — score the plans on criteria including financials, people, risk management, opportunity, and context. By afternoon, 28 teams in the business and social venture tracks will be named semifinalists. A later round of judging will narrow the field to nine finalists, with the winners to be announced just over two weeks later.
First up in Aldrich 210 is Jess Bloomgarden (HBS ’12), with classmates Alex Stratoudakis and Emma Taylor. In fifteen minutes they present their plan for AfterSteps, a Web-based end-of-life planning service that offers advice and secure storage for legal, financial, personal, and funeral documents. For the next fifteen minutes the judges pepper them with questions about everything from the particulars of their target market, to their revenue model, to the name of the venture, before offering a five-minute summing-up. It’s a good morning for the team, despite the thorough going-over. “You’ve got something really wonderful here,” one judge concludes, marking the end of the team’s time slot. They go off to digest the feedback, making way for a team in the hallway that’s vibrating with nervous energy.
Much like the businesses that had their start in a similar scene — recent successes include CloudFlare, Rent the Runway, Good Start Genetics, EGG-energy, Urban Water Partners, RelayRides, and Birchbox, among others — the Business Plan Contest has grown and evolved from its first iteration in 1997. Back then, 37 teams submitted plans. Last year, a record-breaking 110 teams vied for a total of $170,000 in cash and in-kind services. In 2001, the School established a separate track for social enterprise ventures, and in 2009 the contest opened to first-year students with the understanding that it shouldn’t detract from coursework preparations.
“As long as students really dig hard and ask questions about themselves and the opportunity at hand, the contest is a terrific part of the MBA experience that has only gained strength over the years,” says HBS professor Bill Sahlman, a contest organizer with faculty members Michael Chu, Joe Lassiter, and Mike Roberts. Initially, Sahlman recalls, there was some resistance to the idea, which was first proposed by Alison Berkley Wagonfeld and Bill Nussey (both MBA ’96) as a project for Professor Josh Lerner’s Venture Capital and Private Equity elective. The next year, three members of the Class of 1997 (Jennifer Scott Fonstad, David Rosenblatt, and John Iannuccillo) continued the campaign, and the contest was off and running.
“We had some reluctance in the beginning, partly because we were concerned that it might become more about writing the best plan and making the best presentation — not who can find the real opportunity,” says Sahlman, who holds the Dimitri V. d’Arbeloff–MBA Class of 1955 chair. “In reality, there’s often an inverse correlation between those two things. Having said that, if you look at the quality of ideas that have converted into real businesses over the past fifteen years of the contest, it’s extraordinary.”
A few common experiences filter to the surface in conversations with past contest participants, whether their venture sells crème brūlée or online video advertising. Foremost is the fact that the business is often quite different from what was first proposed. And therein lies a tale, as any entrepreneur can tell you.
Paul Conforti (MBA ’97) was a 1997 quarterfinalist with classmates Kim Moore and Kristen Krzyzewski for Finale, an upscale restaurant with a focus on desserts. “I envisioned the path to be a little different,” Conforti confesses. “The plan all along was to turn Finale into a national dessert chain. We ran into the buzz saw of the recession just as we opened a fourth restaurant in a high-end mall. That’s now a couple of years in the rearview mirror, but you can’t deny that the recession had an impact on our trajectory.” Last year, with three remaining locations in the Boston area, Finale’s original lead investors acquired a majority ownership in the business, folding it into a Rhode Island–based holding company where Conforti now serves as managing partner of the restaurant group.
“When I started Finale, I envisioned two scenarios: One was a huge success. The other was a blazing, glorious failure. I figured we would either turn it into a national chain or drive it into the ground trying,” he reflects. “In reality, the most likely scenario is the one that played out.
“The original business plan vision of Finale hasn’t happened yet, which doesn’t mean it never will,” Conforti adds. “The journey itself has been very rewarding. I’ve had the opportunity to stretch myself and the organization in ways I didn’t expect.”
The ability to pivot is obligatory in high-tech ventures like EyeView, winner of the 2008 contest. “The plan that we won with is different from what we’re doing today, or even eighteen months ago,” says Tal Riesenfeld (MBA ’08), vice president of business development. Between his first and second years at HBS, Riesenfeld worked for Google in California, where he met a number of Silicon Valley entrepreneurs and came away with “a gut feeling that I could build my own company.” So he did, collaborating via Skype with friends located in Israel, Sydney, and Boston and investing $5,000 in what would become EyeView. “It didn’t feel like I was taking as much of a risk because I was still a student,” he says.
Initially, EyeView’s model was devoted to helping businesses create and post online video content. About a year later, the company shifted its focus to creating customized videos that target customers at different points in the sales cycle. Things were going quite well, Riesenfeld recalls: “At the peak we had 35 employees. We made over $1 million in our first year, raised a couple million more in funding, and had over 100 customers.” By mid-2010, however, it became clear that although the business was on a profitable path, it would never be a big company.
“We pivoted, took a leap aside, and had to lay off many of the staff, which was difficult,” he says. In its new incarnation, EyeView provides advertisers, agencies, and video networks a platform to create personalized online, broadcast-quality video ads tailored to the viewer by location, time of day, real-time offers, and weather. Today the company is hiring again and recently closed deals with Bed Bath & Beyond, Frontier Airlines, and Johnson & Johnson.
“You’re always asking, is this the right business model? But there are no answers. The market and technology are constantly changing,” Riesenfeld remarks.
The biotech industry presents similar challenges in a space littered with failed companies. When Potentia Pharmaceuticals won the contest in 2001 with Alec Machiels (MBA ’01) at the helm, its plan hinged on a mechanism created by a team of Harvard and MIT scientists that used atomic force microscopy in drug research. “A number of the scientists decided that being part of a start-up wasn’t for them, but one key person stayed,” Machiels recalls. “The Internet bubble had just burst, but we were still able to secure a funding commitment. Unfortunately at the same time I started to realize that the technology was always going to be fundamentally unreliable and therefore not suitable for industrial applications.” He turned down the money, bought out his partner, and relaunched the company with new people, eventually moving over to an advisory role as chairman of the board.
Potentia initially accepted small amounts of funding to pursue several ideas before zooming in on a treatment for age-related macular degeneration, a leading cause of blindness. In October 2009 the company entered into licensing and purchase option agreements with Alcon, which is now taking Potentia’s drug candidate through Clinical 2 trials with a to-market goal of 2014.
“The Business Plan Contest taught me how to ground a good idea in the reality of industry by talking to as many people as possible. That was a very good discipline that I still apply,” says Machiels, a partner at private equity firm Pegasus Capital Advisors. “I also learned to work with scientists. They’re brilliant, so they’ll always have new ideas, but if you can’t focus them on what you need to achieve as a company, you’re toast.”
Daniel Gulati and Vivian Weng (both MBA ’11) were semifinalists in the 2010 contest with FashionStake, a “community-curated marketplace for independent fashion” that circumvents the traditional department store model by giving consumers a voting voice to determine which pieces by new, independent designers will be offered for sale on the site. Those who vote for the winning item of the day receive credits and rewards. The business launched last September as the pair began their second year at HBS; graduation has brought an end to juggling classes and visits to New York (where FashionStake is based).
“The contest worked as a forcing mechanism for us,” Gulati says. “Without the discipline of deadlines and deliverables we might have flamed out at the first hurdle.”
“For us, the main goal wasn’t to make it to the finals or win, it was to get good feedback that would help us understand how VCs would be looking at our business model,” adds Weng. (Battery Ventures and a few private investors bought into FashionStake’s vision early on.)
FashionStake and other consumer Internet companies have benefited from a decrease in the cost of buying and maintaining technology hardware. “You’ve seen the cost of launching a new company go from $10 to $15 million down to $500,000 to $1 million,” comments MBA Class of 1954 Professor of Management Practice Joe Lassiter. “Since I came to the School in 1996 I’ve also seen more and more students who have already worked at consulting companies and I-banks arrive with the attitude of been there, done that, let’s try something new.”
For participants in the social venture track, the “something new” focuses on creating social value through a nonprofit, for-profit, or hybrid model business plan. In 2000, when Benjamin Fenton (MBA ’00) and Monique Burns (MBA ’93) entered the contest with New Leaders for New Schools (NLNS), a separate track had not yet been created. (The team also included Ed School students Allison Gaines, Michael Johnston, and Jon Schnur.) A national nonprofit that recruits and prepares promising candidates to become school principals, NLNS helps place its trainees in urban public schools and provides them with ongoing support once they become principals.
“In the semifinal round we finished with the highest score from a couple of judges and a dead zero from those who pointed out that they were asked to rate plans on financial return,” says Fenton.
“I didn’t think I’d be working on NLNS for more than three months after the contest,” he adds, noting that he’d already accepted an offer from McKinsey. Yet the team received overwhelmingly positive verbal feedback from some judges and offers of funding. “We need to do this work now,” is how Fenton sums up the collective realization at the time that they shouldn’t pass the idea along to a new team of executives. It wasn’t an easy decision to make, given the financial implications, but as Fenton recalls, “It still felt like the right timing. It was the height of the dot-com boom, so lots of people in my class were taking risks.”
Eleven years later, that bet is more than paying off. As chief strategy and knowledge officer, Fenton is part of an executive team that has seen NLNS expand from training 13 aspiring principals in two cities to training more than 700 candidates across twelve urban centers last year. Early research shows that students in schools led by NLNS principals are outperforming their peers, but Fenton remains driven by his vision of a system-wide, scalable model for education reform that recognizes the achievement potential of all students, regardless of background or circumstance.
Passion for another kind of far-reaching change was the driving force behind Diagnostics For All (DFA), a nonprofit offering a low-cost, point-of-care diagnostic tool that won top honors in the 2008 social venture track in addition to snagging the top prize in the MIT $100K Entrepreneurship Competition. DFA’s six-person team came together in the interdisciplinary MBA course Inventing Breakthroughs and Commercializing Science and included members with medical, science, public health, and business backgrounds from HBS, MIT, and across Harvard University. The realization that DFA’s product had the power to impact the health of millions rallied the team, recalls Jon Puz (MBA ’08), a director of account management at the health-care consultancy Carol Corp. (Puz continues to serve DFA in an advisory role; DFA’s original team also included doctors Gilbert Tang, MBA ’08, and Krishna Yeshwant, MD/MBA ’09.)
“Negotiating the people challenges involved in launching a company was a great learning experience for me as a future general manager,” Puz says. “Working on the business plan for DFA was an incredibly intense experience. I had more 6 a.m. nights during that time than anything I did during all my consulting days before business school.”
DFA’s breakthrough is a postage stamp–sized square that wicks biological fluids, such as blood or saliva, through treated paper to provide instant diagnostic results in parts of the developing world where lab facilities are nonexistent. In its first application, the paper chip, which costs only pennies to produce, monitors liver function and the adverse side effects of the powerful drugs used to treat HIV/AIDS and TB. In February, DFA’s reach broadened when the Gates Foundation continued its support by awarding the group a $2.99 million grant to develop agricultural diagnostics for rural farmers in sub-Saharan Africa to detect milk spoilage, corn mold, and a cow’s breeding status.
“The entrepreneurial bug has definitely bitten me,” says Puz. “Taking an idea and turning it into reality is a difficult, ambiguous process. But it’s one of the most exciting, gratifying things I’ve ever done.”
The tension mounts in Burden as the finalists of this year’s contest make their pitches. Each plan presents a solid solution to an unmet need, so much so that it seems virtually impossible to pick just one.
In fact, the strong field forces a new coda to the contest’s history when Baby.com.br (“Brazil’s one-stop shop for baby products online”) and BOSS Medical (a minimally invasive device for the extraction of bone graft during spinal fusion procedures) are both awarded top honors in the business venture track. In the social venture track, Sana Care wins with its low-cost mobile technology solution to performing cardiac diagnostic services in emerging markets.
With trophies hoisted and handshakes all around, another contest comes to a close. A winning participant bounds up the stairs of Burden before the crowd has even dispersed — for him, and others, the next chapter begins now.