The 3 Essential Questions for Biz-Plan Competition Finalists

I'm down in Palo Alto today to judge the final round of the BASES Social E-Challenge, the Stanford entrepreneurship society's annual social enterprise business plan competition. Although there are hundreds of variables that determine whether a business will be successful, there are three essential questions that I think each of the five finalists needs to contemplate.

The Business Association of Stanford Entrepreneurial Students is one of the larger and better known entrepreneurship groups for undergrads and graduate students. Around since 1996, its strength is demonstrated by the sustained commitment of the BASES community to one another once they graduate and move into professional settings.

A great example of this is the young company that produces Startup Digest, a weekly newsletter that has in about six months exploded to almost 50,000 subscribers and become an essential guide to the startup scene not only in the Bay Area but in dozens of other cities as well. The project was started out of BASES by Chris McCann, and has already spun into a number of side projects to help startups including Help A Startup Out.

So how to approach judging a competition like this? The reality is that I don't have a lot of hands-on experience with most of the issues that these projects are trying to address. For example, I have never invented a gel that helps transform arid land into arable crop land.

My job is, I think, to identify the key questions that every social venture needs to ask itself and figure out who has the best answers. In my mind, the three questions I want to know from each of them are:

1. What are the key assumptions you're making? Every business is built on a boatload of assumptions. Assumptions about the way a problem is experienced; assumptions about the best way to approach the solution; assumptions about customer behavior. For my money, the assumptions that create the most challenges are the assumptions about changing customer behavior. How many businesses have failed not because they didn't make a better product, but because they underestimated the "cost" of switching to a new alternative, even if it was "better"?

2. How well do you understand your customers? One of the most challenging aspects of business-driven social ventures is the gap in experience between the entrepreneurs and the customers. You'll often hear Silicon Valley investors say they don't love investing in founders who haven't really experienced the problem they're trying to solve, largely do to how easy it is to make bad assumptions about customer behavior. When you're trying to do something like sell a new form of energy to base of the pyramid consumers in East Africa, there are going to be a boatload of things that you don't know about how they're going to make decisions, even if you've done a great job visiting them and doing focus groups and research. That doesn't mean "don't do it," it just means building in systems to deal with the consequences of what you might not know.

3. How adaptable is the business model? Both questions #1 and #2 are to greater or lesser extent about assumptions. The main question when it comes to whether I think a company will be successful or not is its ability to learn from real conditions and make changes quickly. My biggest problem with the traditional business plan competition format is that it rewards an ability to design a compelling plan for the future, rather than rewarding a demonstrated ability to deal with the fact that the future doesn't give a shit about your plan. More than anything else, I want to know how these founders have build learning and adaptation into the fabric of their organizations.

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