By Michael F. Carmichael
March 4, 2010
Winning $100,000 for a school competition for entrepreneurs is intriguing - certainly enough to make a follow-up phone call. Upon hearing such news in late February, Corp! called Dr. Tim Faley, managing director of the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies. When you think of an administrator at a leading business school like University of Michigan’s Ross School of Business you would not imagine Dr. Faley. An engineer with a Ph.D. in business, he is someone who relates the story of his mother, a high school graduate, who called to congratulate him on his appointment at Zell Lurie. She said that she had been concerned about what he was doing for years because she didn’t really understand it. Recently, however, she had begun to hear a lot about ‘the e-word’ - “entrepreneurial, she meant to say,” says Faley, “so she now feels much more at ease with my career choice.”
Teaching an entrepreneurial skill set is the Institute’s goal, says Faley. “Because we realize most students aren’t going to start businesses while they’re in school. Research shows the most successful entrepreneurs start their first venture three or four years after they’re out of school.”
That skill set includes opportunity, explains Faley.”Application, shaping that into a business structure, assessing the feasibility of the business, creating an operational plan, resourcing the business, then growing it - those are what they need to be armed with once they get out there. First they see an opportunity, then they know how to recognize it, how to shape it into a business they can grow.
“Our version of a business plan competition came about three years ago,” he continues. “We had held traditional competitions where a team would write a plan, toss it over the transom, a bunch of judges behind closed curtains would review it, invite half a dozen teams to present and then a winner is picked. It all happens in an afternoon. We said, ‘hmm, that doesn’t seem real.'” So Faley and some others set out to create a “real world” competition. The initial reaction from his administration was “you guys are insane!”
This was going to be different, he explained to them. “We’re going to do it how we teach it. Instead of an afternoon, it’s going to be four months. We’re going to have training sessions, intermediate deliverables. We’ll run it like an extended March Madness in which a bunch of teams enter. We winnow them out along the way and we’ll culminate in some grand prize.
“We also wanted our competition to be campus-wide,” Faley continues. “How many engineers, or people in chemistry or physics are going to be able to meet the ante of a full business plan?” he asks. “So now the scientists could come over and say ‘I have this cool science and I think it could be a business if you did this, but, hey, what do we know.'”
The new concept worked. “The last year we ran it the old way we had 14 entries. The first year we ran it the new way - 40. This year we had 80.”
The first round, held in November last year, was a three-minute stand-up pitch on ‘what’s your business idea?’ It was essentially an idea for an elevator pitch - ‘we’ll stand out here, push the button, and see if the doors open.’
After the first round only half the prospective teams would progress. “That’s the nature of the beast, we told them.” Faley continues. “But, we also told them ‘go to all the pitches, not just the one you’re in. If yours doesn’t make it, go join another team that does.’ We encourage them to remix.”
The first year worked “exactly how we dreamed it” Faley says. “Four Ph.D.s from the Space Science department came over and gave a three-minute elevator pitch on ‘space weather.’ All the judges were sitting around saying ‘huh? I think there’s something there, but I’m not sure what they said. Let’s move them along to find out.’ Turns out there was an MBA student in the audience whose father is an aerospace engineer and the student was used to the language from sitting around the dinner table. He went up to them, asked to join their team - and they nearly won the whole thing.”
That’s how it works, Faley explains. “First round, the pre-elevator pitch. The second, in early January, with only 24 teams, is a seven-minute version, adding PowerPoint slides on the feasibility of the business. What’s the size of the market, what do the financials look like, how much would it cost to build the business, what’s the potential return for investors if you need them.”
The third round with eight teams, and the fourth down to four, are held on the same day.
On Feb. 19, 2010 the eight teams presented their full business plan in the more traditional competition format of 15 minutes of presentation, followed by 15 minutes of questions from the judges.
“But,” continues Faley, “that’s still not real-world, either. When they go to a meeting with real investors [instead of judges] they don’t get 15 minutes uninterrupted. So, for the fourth round, instead of standing up in the front of the room, we have them sitting around a table, with real investors, all money guys. They get three minutes uninterrupted and for the next 27 - anything can happen.
“That’s when you can see the teams that really know their stuff flourish in the fourth round,” Faley says with the pride of a parent. “All look good in the third round, where they’re controlling the message. In the fourth round, when they’re not, it separates those that really know their stuff from those that just know their pitch. We love it.”
“We tell the teams that there will be a bias toward businesses that are backable by venture capitalists who want a return on their investment. Even a great idea for a service business probably won’t make it. We have another prize for that.”
One of the teams in the third round didn’t make it to the fourth, but they stayed to watch it. Faley says he asked them how they felt. “‘It was terrifying but we wish we were there,’ For us, that’s the perfect answer.” The team, North Coast Fisheries, did receive a cash prize for best written business plan.
A third-round team that didn’t win in the fourth was Milo, with a plan for a premium-priced line of hair care products for African-American women. Afterward the judges, according to Faley, said that it was going to be a good business because it would aggregate a geographically-dispersed market, which is what the Internet is capable of doing.
“They said ‘it’s not going to be big, so we’re not going to pick it as the winner,'” Faley explains. Milo won $1,000 for making it to round four. “That’s okay,” Faley continues. “You give that feedback to the company and they said ‘yeah, we knew we weren’t going to be a billion dollar business, but this is what we’re passionate about.'”
Such feedback is another benefit to the teams. “The beauty of plan competitions is that you’ll get good feedback from people who wouldn’t give it to you otherwise,” says Faley. He explains that if a team were to go to a venture capitalist’s office to make the same pitch you’d likely hear a very non-committal comment along the likes of ‘that’s a nice business, we should continue talking’ or ‘that idea doesn’t fit into our portfolio at this time.’ What you won’t get, he says, “is ‘wow, your entry strategy is really weak.'”
The Zell Lurie Institute sends teams to the traditional plan competitions, but cautions them, “You’re going to get starry-eyed about the money you can win at these things, but the real value is the feedback. When they come back they say they get it.”
What kind of money gets handed out at other competitions? “Mobius Systems is a good example,” Faley relates. “They were an engineering technology company with a Business School partner, and they won over $200,000. Our deal with them all is the same. We pay for their travel, we’ll do the coaching, but if you win something - you get to keep the money, but we want the ‘hardware.’ Use the money wisely, but we want the trophy,” he laughs.
Faley says that the Institute also doesn’t take a percentage of the intellectual property developed by a team while they’re students. Some schools do. “We view them as pure grad students. We want them to be successful entrepreneurs. They’re not an investment.”
Is there a trend in the types of businesses being presented? “It’s very diversified,” Faley observes. “Which is a particularly good thing for Michigan - the University. When you look around the Michigan campus it’s hugely diversified. From medical devices to pharmaceuticals, to green technology in engineering to electronics, I think we’re reflecting the campus. That’s what we intended to be when we formed the Institute 10 years ago. We wanted to be the hub of entrepreneurial activity for the university. We knew we would have to engage the schools and colleges that make up the place. We were active in the formation of the Center for Entrepreneurship at the College of Engineering, for example and the Center for Innovation over at the Med School.”
With a group of entrepreneurs coming out of Zell Lurie who have come up with a diverse collection of business possibilities, the question then becomes whether they’ll stay in Michigan, or even the Midwest.
Faley says that he heard from a colleague that some venture capitalists were saying there’s no good technology coming out of Midwestern schools. He then offered to translate what the venture guy had said. “That’s what his words were, but that’s not what he said,” Faley explains. “What he meant was ‘there’s no technology-differentiated, investable businesses coming out of the Midwest.’ That’s why we’re teaching the skill sets we’re doing. And, why we’re reaching across our internal disciplines - to add a business component to their specialized ideas. That’s what makes that ‘technology-differentiated, investable businesses’ - a piece of technology or science that’s unique. Otherwise, it can probably be replicated and it becomes an execution exercise.”
Still, the Midwest has to improve at building businesses, “Faley says passionately. “On either coast they have a pool of what I call ‘guides.’ If you have a cool piece of science or technology and you walk into a coffee shop in Palo Alto, for instance, there are probably three or four guys who have already taken a business through inception to acquisition who can help you. They’re ‘guides.’ Here, you’re not going to find that. I always tell people you can hire a guide to help you get to the top of a mountain - or you can build a road and drive up. Building a road is a lot harder, but in the long haul, it’s better. We’re trying to build roads.”
We’ll take a closer look at the winners in a later issue.
Michigan Business Challenge Awards:
-¢ Ambiq Micro, (formerly Cubiq) a fabless semiconductor company that has developed the world’s most energy-efficient microcontroller, received the Pryor-Hale award for best business, Williamson award for Outstanding Business and Engineering Team and one of two Outstanding Presentation Awards
-¢ Enertia, an energy scavenging technology that supplies life-cycle power for autonomous, self-sustaining wireless sensors, received the Runner-up award for Best Business and the second Outstanding Presentation Award
-¢ Green Silane, which produces silane gas in a flexible, low-cost and environmentally benign manner, won the Erb Award for Sustainability
-¢ Hippo Water International, a U.S.-based NGO that aims to reduce the physical and time burdens of water collection by manufacturing and distributing an innovative water transportation tool, was awarded the Social Impact Award
-¢ Magnetic Ventures, maker of a low-cost, long lasting magnetically-assisted artificial joint, took home the Undergraduate Award
-¢ North Coast Fisheries, an aquaculture firm that produces antibiotic-, growth hormone- and mercury-free fish for stocking and consumption received the prize for Best Written Business Plan
-¢ Milo, a premium online beauty e-commerce site for black women seeking high-end hair care products, received a $1000 prize for advancing to the final round
Dare to Dream Award Recipients
The Dare to Dream grant program encourages teams to evaluate and accelerate the development of their unique business ideas. Designed to stimulate students’ entrepreneurial spirit, a total of $39,000 in grant funding was awarded to student teams. Integration grants of up to $10,000 were awarded to:
-¢ Ambiq Micro
-¢ Bazaar Bee: online marketplace connecting North American-based Asian Indians to wedding vendors in India
-¢ Shepherd Intelligent Systems: provider of real-time vehicle location information to passengers and managers of public transit