The

Entrepreneurial

Code

Lessons from an

Ivy League Entrepreneur

Chapter Fifteen

On the heels of achievement, Johnny and his partner’s egos had swelled. The Bullfrog Card was already launched, and they were managing a successful program on their school’s campus. So, they now viewed themselves as “experts.”  Johnny planned to use the new business plan he was writing for Trout’s class as a marketing tool to convince investors to give them money. 

Unfortunately, the Bullfrog Card didn't prove Johnny and his partners could form partnerships with schools. It only demonstrated they knew how to market their product at their own University, nothing more. Although the partners speculated about expanding to other campuses, they had no idea how other universities would receive them.

The only bright spot about their growth plans came from their market research.  Maverock had identified some industry trade organizations that focused exclusively on card programs for colleges and universities.  He discovered that hundreds of schools were interested in outsourcing off-campus debit card systems to outside vendors.  As a result, they felt confident that a broader market existed. The question was whether they could ever break into that market.

In reality, universities would prove to be more difficult customers than Johnny and his partners anticipated.  After all, it was no longer $500 meal plans they were selling. Now, they were asking administrators (like Mr. Bureaucracy) to endorse their company to the entire student body, which could represent millions of dollars worth of transactions. Traditionally, most schools preferred to work with large and stable vendors with lots of references. There simply was no incentive for a school to take a chance with an unknown company.

To make matters worse, universities were slow to give definitive answers about new partnerships. Instead, they invited companies to participate in a Request for Proposal (RFP) process.  An RFP is a large questionnaire sent to a list of competing vendors. For many schools, it’s an internal requirement to go through the RFP process, even if the school already knows with whom it prefers to work.  Unfortunately, a full-blown RFP is time consuming to complete and it can take years before the school announces a winner.

In responding to an RFP, suppliers provide price quotes, company history, service descriptions, and references. It often requires representatives from the company to meet with university administrators to discuss the proposal further. There was nothing about the RFP process that seemed friendly to a new company like Johnny’s.

Maverock’s answer to this problem was simple: They needed to team up with other vendors who had more credibility than they did.  After all, they managed off-College Card programs, but didn’t manufacture equipment. There were plenty of other vendors who manufactured equipment, but didn’t provide management services.  If they teamed up, perhaps the partnership could provide a better whole product for the schools and help them win business.

Maverock also wanted to build increased brand recognition for the company by joining the various industry trade groups.  Besides getting an opportunity to network at conferences, these groups gave Johnny and his partners a chance to get quoted in the trade press.  Appearing in published articles helped position them as experts in the marketplace.

If necessary, Maverock suggested they could “buy” their way into the market by offering to manage their first few card programs at cost as an incentive for the schools to work with them. Although this approach wouldn't make money immediately, they wouldn't lose money either and it would allow them to build references for the future.  Johnny and his partners believed that as long as they could show their business model would eventually be profitable, they could raise money from investors.

As Professor Trout’s class came to an end, Johnny’s description of the business in the new executive summary read:

“University Services, Inc. is a company that focuses on the marketing, implementation, and maintenance of university debit card programs. Our company emphasizes superior marketing, customer service, and client support to guarantee the most successful and profitable debit card system possible through increased student participation and cash flows.”

In his new business plan, Johnny highlighted that major banks and companies like Wells Fargo, AMEX Special Teams, Sprint College Card Programs, and MCI Telecommunications were exiting the university market, because they were losing money. Instead of discouraging Johnny, he considered this to be very good news.  The Bullfrog Card was making money, so maybe they knew how to run these programs better than did these Fortune 500 companies!

Johnny asked the question:

“With hundreds of colleges and universities in North America, considering the expansion of their College Card systems into the off-campus… who is going to run these systems? The banks are unsuccessful, the tech providers are inexperienced, and the universities want to outsource the whole thing.”

The answer in Johnny’s mind was that it would be University Services Inc.  After all, he believed he and his partners were among the most experienced players in this niche market.  In the new business plan, he also talked about their expansion plans.  He said they wanted to be at three to five schools by the following year and 20 schools within the next four to five years.

The new executive summary ended with the following sentence:

“With regards to expansion to other universities, the company has recently broadened its focus from operating an alternative meal plan at [the University] to becoming a successful marketer and operator of debit card systems in partnership with other schools across the country.”

In the second business plan, Johnny also had a much more extensive industry section. Since the industry was young, there weren’t many players at the time. There were less than a dozen technical suppliers, six banks, and two other private companies like Bullfrog Card that marketed services.

In terms of experience, the Bullfrog Card was as big and successful of a program as any card system in the marketplace. Unfortunately, the schools preferred working with larger and more established companies.  Because University Services Inc. was a small business with a limited operating history, it was at a disadvantage.  Johnny and his partners were facing a common dilemma for entrepreneurs: How do you establish credibility in the first place, if people won’t take a chance on you?

Johnny, Maverock, Abe, and Joe knew establishing themselves in the market was going to be a challenge.  Maverock wanted to be the person leading the charge.  Everyone agreed his main job going forward was to form relationships with administrators at schools.  Once he found a way to break into the market, the plan was to leverage these contacts to expand to additional campuses across the country.

Copyright  2005 by Chris Cononico
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