U-M Competition Helps Earliest Stage Startups Refine Business Models

12/2/11Follow @XconomyDET

The Michigan Business Challenge, a four-month business plan competition sponsored by the University of Michigan’s Zell Lurie Institute, kicks off today in Ann Arbor. Student teams will compete for $60,000, gaining valuable feedback and broadening networks along the way. And the public is invited to watch at every step.

Tim Faley, managing director of the institute and adjunct professor of entrepreneurship, compares the Michigan Business Challenge to the March Madness basketball tournament.

“The Michigan Business Challenge is different from any other competition because it takes four months to get through all four rounds,” Faley said. “We use it as a feeder system to other competitions—it’s really fertile training ground.”

Round one has all teams (this year, there are over 40) presenting their business plans. The second round is where judges decide if the business plans are feasible. Advancing teams give their 15 minute pitch in the third round. In the final round, four teams meet with investors, including local venture capitalists and alumni from other regions, to give a three-minute pitch and follow it with a 20-minute conversation where the investors pick apart their ideas.

“I’ve had VCs tell me that 20-minute conversation the closest thing to what happens in their offices,” Faley said.

Are You a Human, a tech startup that developed an identity-verification tool called PlayThru after it found the industry-standard CAPTCHA method to be too vulnerable to hackers, is one of the most successful veterans of the Michigan Business Challenge. The company completed its Series A round of funding in July with investments from U-M’s Frankel Commercialization Fund, the First Step Fund, and Detroit Venture Partners (DVP). A few weeks ago, the company moved into its new digs in downtown Detroit’s Madison Building, which is owned by DVP’s Dan Gilbert.

Founder Tyler Paxton said he had the basic idea for Are You a Human before he started taking business classes at U-M, but participating in the Michigan Business Challenge two years in a row helped refine his vision.

“You can actually develop your business plan as you go along,” Paxton said of the competition’s multi-round format. “You can incorporate the feedback you get as you go along, which allows you to truly build your company instead of just tuning it for the competition.”

Faley said that’s exactly the point of the Michigan Business Challenge. “That’s the beauty of it—we wanted the barrier of entry to be low so we can raise the bar constantly as we go through it, and it seems to be working,” he said.

Sarah Schmid is the editor of Xconomy Detroit. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET

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