The

Entrepreneurial

Code

Lessons from an

Ivy League Entrepreneur

Chapter Twenty-Five

“Common sense is not so common.” -- Voltaire

 

Unfortunately, as Johnny, Maverock, and Abe played the waiting game with the universities, the Bullfrog Card was not generating enough cash to fund their added overhead costs.  Trying to expand their business had created a lot of new expenses.  For example, they had to pay for new employees, their own living expenses, additional office rent, and the costs of their marketing trips around the country. 

In order to fund the business, they should have tried to sell equity to angel investors.  Instead, they began borrowing money from the unused Bullfrog Card deposits.  In their minds, the Bullfrog Card was like a bank.  It was well understood that banks put their excess reserves to good use. 

The partners had always known that student deposits could be invested to generate additional income.  In fact, when students enrolled in the program, they signed a cardholder agreement that gave the company permission to keep any monies earned on the deposits.  Instead of investing in the marketable securities of other companies, Johnny and his partners reasoned they could use that money to invest in their company.  It made perfect sense to them to take advantage of a free loan.  So, they tapped into the deposits and were flush with cash. 

It looked like the company’s first new card program was going to be with a large school in Nevada. Johnny and his partners had been introduced through their equipment supplier, CMC, who sold equipment to the university. After meeting with a number of people at the school and giving a formal presentation, they submitted their proposal to manage the off-campus system.  Maverock was optimistic about their chances. 

Eventually, the school did give them an offer, but it wasn’t what they expected.  The school wanted them to purchase all of the equipment and give 100% of the revenues to the school.  The university hoped the company was desperate enough to spend several hundred thousand dollars to use them as a showcase campus.  Otherwise, they weren’t interested and would proceed with an RFP process that could take years. 

University Services Inc. just didn’t have that kind of balance sheet to invest with no hope of getting back the money.  While the visibility would have helped their business, the situation could have also backfired.  What if the school was unhappy with the system? Johnny and his partners would be right back where they started less a few hundred thousand bucks.

Also, there was a risk the school would disclose the terms of the agreement to other universities.  If that happened, other prospective customers would demand similar economics, which would have been disastrous.  It could make it impossible for the company to negotiate profitable deals in the future. With such awful terms, Johnny and his partners were almost certain Poppycock or Mr. Bureaucracy had been in contact with the school and thrown a wrench in the deal.

If Johnny and his partners could have just covered their costs, they would have gladly accepted the offer. But they couldn’t afford to take such a loss on their first project.  The whole situation shook Johnny’s confidence. They were having a tougher time marketing themselves to schools than they had anticipated.  Maverock had been pursuing dozens of other “leads” and RFPs, but they couldn’t tell if they had better chances.  Johnny wanted to rethink their business model.

In Johnny’s mind, he was sleep-deprived, overworked, underpaid, and felt like he was no further along with the company after almost 18 months of working himself around the clock. They say most new businesses fail within the first two years and Johnny understood why.  He was frustrated because friends of his, who were no smarter, lived in nice apartments that Johnny couldn't afford.  They ate dinners at fancy restaurants and took vacations, while Johnny slaved away at the office eating fast food.  Every dollar Johnny spent was on one of his seven credit cards, the balance of which he couldn’t pay back any time soon.  He began to question whether he should have taken a job instead.

When Johnny compared his situation with those of his friends, it only made him feel even more anxious.  It was possible that after all of Johnny’s efforts, he would have nothing to show for it.  His company was having difficulty paying the bills. Suddenly, the future began to scare Johnny.

Johnny didn’t like to admit defeat, but he wondered if quitting the company might not be for the best.  He put so much pressure on himself to be successful quickly that he wasn't having fun and he began questioning whether or not entrepreneurship was making him happy.  One of his professors used to say, “Fail quickly and fail cheaply!”  He meant an entrepreneur should not waste a lot of time with new products that weren’t going to be successful. Rather, he should keep his investment to a minimum until he tested the concept.  If it didn’t work, he could walk away having minimized his losses and his opportunity costs.

Unfortunately, Johnny and his partners were poised to fail slowly and expensively.  Johnny also found it difficult not to be emotionally involved in every outcome.  He began blaming the people working at the universities for blocking them out of the market.  It made him furious.  He felt an enormous amount of pressure to turn the business around.  If they couldn't partner with the schools, then Johnny reasoned their only choice was to compete directly with them again.  Johnny and his partners needed to find an effective way to offer their services directly to students.  They needed to go back to their Bullfrog card roots, but on a much grander scale.      

 

Copyright  2005 by Chris Cononico
All rights reserved. No part of this manuscript may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the author, except by a reviewer who may quote brief passages in a review.