'Tis business plan competition season once again.
This time of year, I spend lots of time traveling around the country judging business plan competitions at colleges and universities. The participants are either undergraduate or business school students who form "teams" and compete for cash prizes or (sometimes) face time with me and other influential people in the entrepreneurial community. Given the age demographic, most participants are millennials or members of Generation Z who have had little or no exposure to the business world outside of the classroom (except maybe for binge-watching "Shark Tank" episodes).
When you do as many of these as I do, you see lots of teams making the same mistakes over and over again. Here are the most common:
—Worshipping the consumer but forgetting the vendors.
Being students, team members focus their business plans on what they know — life as a student. I can't tell you how many times I have seen the following plans: a smartphone app or peer-to-peer platform that will help students get the lowest prices for their textbooks; an on-campus takeout service that will provide fresh, healthful locavore food to students on demand; and an online bulletin board to help students socialize with peers from different cultural, ethnic and religious backgrounds.
I have no doubt that these students know their markets better than I do (yes, I was a college student once, but it was back in the Paleozoic era, when you pinned a note up on a corkboard if you had a textbook to sell), but they give no thought whatsoever to motivating their vendors.
Why would a textbook publisher that releases new editions of popular texts every year, precisely to discourage aftermarket sales, go along with a scheme that would reduce its profit margins?
Why would a university (or its labor unions) tolerate a student-run takeout joint on campus, which would compete with its own food service operations?
What types of companies would buy advertising on the online bulletin board, and why?
Too many young people simply assume that advertisers, suppliers and vendors act out of altruistic motives — an illusion easily and quickly cured by exposure to the real world.
—Assuming that consumers are not price/cost-sensitive.
There's a reason college students are notorious for eating fast, unhealthful food. It's cheap.
Here's something that hasn't changed in the 40-plus years since I graduated college: Students have no money.
And it costs more to produce high-quality healthful food than it does the junk stuff, leading to higher prices (most) students cannot afford.
To their credit, most students are fairly good at calculating the true cost of their merchandise and services. But they assume — often wrongly — that consumers in the real world would knowingly and willingly pay that price.
—Not taking laws, regulations or taxes into account.
Whenever I look at the cash flow projections submitted by student teams, there is always — I mean always — a glaring omission: The students fail to include a line item for "legal, accounting and professional fees."
OK, I get that many of these students haven't taken the business law class yet in their programs or plan to skip it because they don't intend on becoming compliance officers when they graduate.
But too many business plans I review fail to take into account laws, regulations and taxes that would have a big impact on the operation and profitability of the business. A handful of these plans involve models that are outright illegal (for example, clickwrap agreements that prohibit customers from using competing products or services), and I really hate to burst their balloons when I bring this up during the judging. (OK, OK, I really do enjoy it, but it always makes me the "bad person" on the panel nobody wants to have dinner with afterward.)
The days of "capitalistic acts between consenting adults" are long over. The government is your partner in every entrepreneurial business, and your strategy for making that partner happy (or at least satisfied) needs to be part of your plan.
—Adopting overly "flat" management structures.
I need not point out that there is a strong and growing inclination toward socialism in today's young people. Their professors have rightly touted the benefits of a flat management structure — one that rejects the rigid hierarchical pyramid of management layers, which used to be the norm — but for entrepreneurial companies, most student teams go too far.
I judged a plan recently in which the five team members actually referred to themselves as "co-presidents" and said they would manage their business by consensus, with unanimous agreement required for major decisions.
Nice and democratic, to be sure, but try selling that to an investor who wants the quickest possible return on his investment and needs to know where accountability lies in the organization.
Democracy is a great way to run a country, but it creates obstacles to performance — witness the gridlock in Congress right now — and encourages groupthink among the management team.
Like it or not, somebody has to "person up" and be the boss.
Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.