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Pepsi’s Innovative Business Model for Entrepreneurship

June 14th, 2010 by admin Leave a reply »

I was intrigued to hear about the Pepsico 10 challenge, announced at InternetWeek NY in May.

The challenge involves four main components:

How it works

Contestants from around the world are invited to submit their companies for the contest. The only criteria is that require is that the company already have a product, be producing >$250,000 year in revenue, and (presumably, but it isn’t stated on the website) the company should be focused on the Internet (but who isn’t nowadays?).  Ten companies will be selected during a 2-day event at Pepsi headquarters as finalists and invited to pitch to a panel of VCs, Pepsi execs, and other participants.  The winner wins money, fame and a host of contacts for increasing the lifespan of their company.

More details available here.

What’s innovative about this?

It seems like a win-win-win for all parties involved. Entrepreneurs who submit plans presumably get feedback on what works and what doesn’t about their current business model – and what’s needed to scale their businesses.  Mashable is a big winner in associating itself with leading edge entrepreneurial ideas – particularly those that are related to social media. This helps steal the thunder from its competitors (like TechCrunch) by allowing Mashable to report on innovations in entrepreneurship AHEAD of the competition and track potential hot companies of tomorrow.  InternetWeek wins by associating itself with a new model for recognizing entrepreneurship – potentially increasing its readership and following (among those who want to be on the leading edge of technology).  Highland Capital wins by seeing some of the best plans on the planet.  Pepsi, who presumably is matching the largest monetary and time commitment to this experiment, is potentially the biggest winner (although it may be hard to measure this) by associating its most precious asset – it’s brand/name – with young, risk-taking, intelligent entrepreneurs who are trying to change the world. In the world of the Millenials, these young social media start-up execs represent the future leaders…so Pepsi is associating itself with a great group of people.

Wait, Where Have We Seen This Before (Welcome Back Kotter)?

For those of you old enough to remember, the word “challenge” has a rich history at Pepsi, and is in fact a major component of the Pepsi brand. In 1981, here is one of the early commercials released by Pepsi in a series of “Challenges”…which went on to win many advertising and branding awards:

So, creating a “challenge,” in this case to find leading edge social media companies and technologies is a smart fit for this particular company and brand.

What Pepsi, Highland Capital and Mashable May be Missing

A short-coming I see from this model is the lack of specificity in the type of business start-up that is being sought.  What area of consumer internet should the company be from?  What customer needs should the technology address?  By being open to a wide range of opportunities, I think the contest creators may get a lot of applicants who really do not fit the criteria for what Pepsi was initially looking for.  I also think a lot of companies will pass on the opportunity to submit applications because of their uncertainty as to what Pepsi is really seeking.  On the flip-side, by keeping the “scope” wide, presumably the challenge brings in a wider range of opportunities.
Another short-coming might be awareness. The best plans will come to this contest only if entrepreneurs are aware of the contest.  Among 10 entrepreneurs I personally spoke with, only one was aware of the “Challenge” and no one I spoke with planned to submit a business plan.  (yes I realize my sampling was small and random)  Some significant marketing dollars (and lots more PR) need to be applied to this contest in order for it to become known to the community.  Perhaps partnering with Universities, other online social media broadcasters (TechCrunch or Vator.tv, for example) will help in the long run. As a professor at UC Berkeley, I’d love to get my MBA and Engineering students thinking about the contest next year.  Hopefully, Pepsi realizes that it needs to commit to 4-5 years of this model in order to really reap the benefit.

Noth withstanding these things, I like the fact that a major brand who could have spent millions by throwing out more advertising, billboards, and magazine back covers, is devoting some attention to this (yes, I realize the budget for this contest was infinitesimlly small compared to Pepsi’s overall brand annual budget). Give them kudos for trying…and give Mashable and Highland high marks for assisting in an innovative new approach to partnering for entrepreneurship.

Y Combinator …look out! There’s a new innovative model on the block.

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2 comments

  1. Berthold says:

    I agree that this is definitely the right way to go for Pepsi. Big businesses have had a hard time in the face of agile competition lately, especially on the ‘net. If there is a way to bring back innovation and quick reactions without plunging the entire corporate structure into chaos, I believe this is it.

    There really is only so much service and experience you can tack onto a carbonated soda pop before you create a noticeable dissonance. I don’t watch ads all that much although graduating in design next year I probably should. I believe that today’s brands live anywhere but in TV and magazine ads; the internet has kind of forced transparency on the industry which some companies embrace and others try to suppress. It’s not hard to see who is winning though.

    On the other hand, getting a company to 250k in revenue is tough – I tried and got close to it, but I also made pretty much every mistake in the book. In my opinion, if you already have made it past that point, you are likely to already have a good solid business concept. This might even send the wrong signals toward young entrepreneurs to get going before learning the ropes. I guess we’ll see how this pans out – in 4 or 5 years.

  2. It’s an interesting initiative, and the first I’ve heard of it! What you’d have to ask yourself is what is the benefit for Pepsi? Is it just about brand-building? I see it as innovative because it focuses on a business community that you wouldn’t expect an FMCG brand like this to traditionally go and proactively target, over and above the mainstream consumer marketing initatives.
    I can see the danger in this, as you discussed, as being that they only create awareness within a very specific business community and don’t get the wide reach that could really build hype. Although I’m sure the marketing machine of Mashable could help with that :)

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