The

Entrepreneurial

Code

Lessons from an

Ivy League Entrepreneur
 

 

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter11

Chapter 12

Chapter 13

Chapter 14

Chapter 15

Chapter 16

Chapter 17

Chapter 18

Chapter 19

Chapter 20

Chapter 21

Chapter 22

Chapter 23

Chapter 24

Chapter 25

Chapter 26

Chapter 27

Chapter 28

Chapter 29

Chapter 30

Chapter 31

Chapter 32

Chapter 33

Chapter 34

Chapter 35

Chapter 36

Chapter 37

Chapter 38

Chapter 39

 

Lessons Learned

 

 HOMEDISCLAIMERFAQAUTHORREVIEWSCONTACT

 

Chapter Twenty-Six

 

“Nothing is more dangerous than an idea, when it’s the only one we have.”

– Alain Emile Chartier

 

Ironically, Johnny was now ready to consider the same mass-marketing tactics he and his partners shunned when starting the Bullfrog Card.  He felt they had no alternative.  Rather than using a grassroots approach, campus by campus, he considered buying leads from a mailing list company.  For example, a list of the names and addresses of high school seniors was for sale from national marketing firms for as little as 10 cents per name.  If they used a mass marketing approach, the company would lose any campus-specific branding, but they would reach a lot more students faster.  It was a tradeoff that Johnny was now willing to make.

University Services Inc. could also partner with VISA and use their national merchant networks.  It was possible to restrict the types of merchants that could accept a product like the Bullfrog Card by SIC code.  If a student tried to use his card at a non-restaurant like a liquor store, music store, etc., the transaction would be declined.  It wasn’t a customized merchant base like the Bullfrog Card system, but it would give them a national presence by allowing them to choose from the merchants that already accepted VISA.

A national version of the Bullfrog Card went against many of the tenets Johnny and his partners preached when they started their business.  It was generic and it lacked a campus feel.  Somehow, Johnny was now able to rationalize these concerns away.  It sounded nuts, but he thought maybe a national program was crazy enough to work. 

As a young entrepreneur, Johnny was at odds with himself.  He was too proud to give up the business, but he wasn’t sure how much longer he could commit without seeing more significant progress.  He was ready to throw the Hail Mary pass.  Whether it worked or it didn’t, he was about to create a very binary outcome for his company whereby they would either succeed or fail quickly.  Sometimes, the most difficult thing about being a good entrepreneur is keeping your objectivity.  Unfortunately, Johnny was beginning to lose his.

Maverock was resistant to the national card program at first.  He had invested so much time developing relationships at individual campuses that he was reluctant to give it up.  Johnny tried to convince Maverock they weren’t walking away from anything.  They were just expanding their focus.  Abe was surprisingly easy to convince. And so, the three partners agreed to explore this new approach, which they dubbed the “College Card.”

Maverock called various mailing list companies and confirmed they could purchase the list of student names and addresses for 10 cents each or $180,000. The printing costs for the brochures and letters were equally expensive. In such bulk quantities, they could have a direct mail campaign printed for another $180,000. That was not to mention the cost of postage. If they kept the weight of the mailing down to a minimum and pre-sorted, it would cost an additional $400,000 in mailing costs.  After adding in the projected costs of new office space, employees, and equipment needed to process the applications, the total investment to start the program was about $1million.

It was a far cry from the $40,000 they had initially invested in the Bullfrog Card.  Johnny and his partners were not easily daunted and they assumed they could raise the money.  Johnny chalked up the setbacks with their earlier expansion plans as bumps in the road.  He and his partners had no reason to believe they couldn’t accomplish anything they put their minds to doing.

Before they could raise new money, Johnny and his partners needed to revise their business plan.  Unfortunately, there was a huge trade off from working with VISA.  It was great on the one hand that they didn’t need to travel the country recruiting merchants and leasing their own equipment.  However, they would be earning a lot less money per transaction.  Instead of earning over 10% per transaction, the company would earn approximately 1.5%.  Although VISA usually charged as much as 3% per transaction, the company had to split it with a banking partner to be able to use the VISA system.

As a result, Johnny and his partners tried to devise ways to increase the dollars spent per student on the card.  Although they wanted to maintain their “restaurant meal plan” focus, like the Bullfrog Card, the “meals, books, and campus expenses” marketing approach would enable the College Card to be used for larger purchases like textbooks.  Books were among the biggest ticket items purchased by students, so Johnny and his partners wanted them purchased with their card.

After some brainstorming, the partners took the idea a step further.  What if they opened their own bookstore and shipped the textbooks to students at wholesale prices? It was a random idea that sounded far-fetched, but they already knew another student business at their alma mater called Campus Books that had successfully entered the textbook market. So, they knew it was possible to open their own bookstore and source the textbooks.

They did some research and found if they used their web site as the interface for a bookstore, students could do an online query for textbooks, place an order through them, and Johnny and his partners could source the books from wholesalers. The student simply needed to pay the wholesale cost of the books and any additional shipping and handling costs. The company would ship out the textbooks at wholesale prices without any additional markup. On average, they figured the books would be discounted by 32% from typical retail prices.

By offering their own on-line bookstore, Johnny and his partners wanted to accomplish two things. First, they hoped it would generate a buzz about their services.  It was an amazing benefit for students, so they planned to use the bookstore as a promotional tool to attract more cardholders and to promote their website. Second, they could make it a requirement that the textbooks be purchased with the College Card. Therefore, they would at least earn the transaction fee from the use of their card.

As it stood, Johnny and his partners were offering an alternative restaurant meal plan, a student discount card, and an alternative bookstore. They began calling this collection of services the “College Pack” and they formed a new company for the business, which they named "University Financial Services."  As they continued to brainstorm new ideas, they also planned to offer scholarships and writing competitions through their website.  They hoped that once the program got a certain threshold of popularity, it would take on a life of its own.

The partners were painfully aware that life on college campuses was seasonal.  It was early February and Johnny was adamant they needed to be ready for an August launch of their new product. Working backwards, the mailing campaign needed to be done by May, which meant they had given themselves a mere four months to get everything set-up.

Unfortunately, Johnny and his partners were glossing over their biggest risk. It was impossible to gauge how each university would react to their plans. There was no doubt they would be ruffling some feathers.  After all, the Bullfrog Card had some significant backlash from the university when it started.   

Johnny and his partners estimated that less than 100 schools planned to establish off-campus card systems of their own.  Of the 4,100 colleges and universities in the US, that represented less than 2.5% of the total market. That’s how Johnny estimated his risk. The partners assumed they would immediately lose 100 schools, but the remaining 97.5% of the market would be friendly to them.

Johnny and his partners were willing to lose 2.5% of the market.  Unfortunately, the mailing list they would be purchasing didn’t identify which schools the high school students were attending. Therefore, there was no way to avoid targeting students at the 100 schools that were likely to be unhappy.  From their experiences with the Bullfrog Card, once these schools heard about the new product, they might put warnings in the mailboxes of incoming freshmen advising students not to participate in the program. There could also be a negative article in the school newspaper.

Without an on-campus presence, Johnny and his partners wouldn’t be able to defend their company.  Nevertheless, they reasoned that 2.5% of the market was a small piece of the pie that would be dropped on the floor.  They couldn’t complain because they still had 97.5% of the pie to themselves. Over 4,000 schools remained from which they could build their customer base, customize their services, and dominate the industry.  As a result, Johnny was ecstatic when he sat back and imagined the possibilities for their company.  Unfortunately, Johnny didn’t realize how much trouble 100 angry schools could make for him.

 

Next Chapter

 

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.