Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Forty-Two

Two months after our mailer launched, we began the painful process of shutting down our business. It was a depressing ordeal made worse by the fact we had to let go our entire staff. The office, which was filled with an exciting buzz not six weeks prior, now was empty.

We needed cash badly, so we began knocking on the doors of neighboring companies trying to liquidate our assets. We asked office managers to buy our fax machine, refrigerator, copy machine, printers, computers, etc. As our neighbors haggled with us on price, it felt like we were running a garage sale. Suddenly, getting $50 for a copy machine we had bought for $300 two months prior seemed like a good deal.

I was always a pretty good salesman, but it felt like I was going door-to-door selling the belongings of someone very close to me who passed away. It felt surreal to watch the office slowly emptying until all that remained were piles of boxes and a few telephones on the floors of our respective offices. It was hard to believe that everything else was gone.

Mark’s father drove to our offices everyday from Pennsylvania to supervise our shut down, because he wanted to make sure everything got done properly. It was the worst kind of work in the world as Mark and his father read through all of our leases, agreements, and liabilities. We had bills outstanding to printers, graphic design firms, equipment providers, landlords, staffing firms, and mailing houses. Mark and his father closely monitored our bank account and cash balances as they worked to unwind the company’s obligations.

One day, George and I left the office early to exercise at the gym, while Mark and his father stayed behind to finish paperwork. While we were gone, two men wearing blue suits arrived at our office. A tall and lanky man with a head full of white hair asked to speak to the owners of NCRB because he wanted to order a Campus Card. At first, Mark was puzzled and explained to the man that Campus Card was a product for college students.

The white haired man, who did all the talking, accused Mark of not being able to deliver a Campus Card. For some reason, he was trying to get Mark to admit that the product didn’t exist. Mark explained that he could “produce” a card, but it was a service for college students and we didn’t make the cards on the premises. Instead, he offered to take down the man’s information. Nevertheless, the white haired man continued a cantankerous argument with Mark, demanding to purchase a Campus Card.

Realizing that they were locked in a stalemate, the man pulled out a badge and identified himself as an FBI agent. As he flashed his badge, Mark left the room to call our attorney. Pale as a ghost, Mark got Leon on the phone and explained how the “Feds” had arrived at our office.

Mark handed the phone to the agent and Leon explained how we already had signed a voluntary agreement with the Post Office. After less than a minute the agent handed the receiver back to Mark with a chuckle. He patted Mark on the back and said, “Why didn’t you tell me you guys worked it out? I put a lot of pressure on you, but you didn’t back down! You did really well!” Then, he apologized for the inconvenience, grabbed his partner, and left.

The incident was indicative of how surreal everything had gotten for us. The world felt like a blur to me and the more everything came into focus, the more depressed I started to become. I felt incredibly guilty about letting my parents invest in the business. I wanted to make them rich, but I was so unbearably confident that I lost their money instead. Now, I needed to borrow even more money from them to pay for my share of the outstanding bills.

I remembered reading articles about successful entrepreneurs who financed their businesses with credit cards, second mortgages, and “friends and family” equity rounds. That’s exactly what I tried to do. I accepted money from those that knew me best and had a stack of credit cards with large outstanding balances. Unfortunately, when things didn’t work out as planned, I was so deeply in debt that I lost the money of those I cared about most. In that regard, it was a much riskier financing strategy than I ever contemplated. I dreamed of the upside potential, instead of making sure I was okay with the worst-case scenario.

Mark’s father offered to lend us money for any amount we couldn’t cover. He didn’t want any of us to declare bankruptcy at such young ages. My parents were also adamant we make good on our commitments. However, it was depressing to think that it might take three or four years to pay off my debts. Assuming I could still get the sort of job offers I had as a college senior, I could be a 28-year old before I settled all of my obligations. It was like a bad dream.

We weren’t the only ones who suffered either. My best friend from home, Daniel, had quit his job only a few weeks earlier to join us as head of marketing. Once all hell broke loose, he decided to decline the job offer, but he already had left his other job. He was subsequently unemployed. I think he blamed himself for his poor judgment, but I was the one who put him in that situation.

I blamed myself for a lot of things. After all, as an equal partner I had the ability to veto everything we did. I considered it my fault for losing my parents’ money. I also blamed myself for not being smart enough to see disaster coming. I still thought a restaurant meal plan was a great idea for students, but somehow we managed to screw up the implementation.

Although we still had the QuakerCard program and the Corporate Program, it was safe to say that our University Student Services and NCRB businesses were finished. My partners and I were getting a lot of pressure from our families to walk away from the entire group. At the end of the day, we knew they had our best interest at heart, so we agreed to close down everything.

George started to discuss bankruptcy as an option for him. He described it as a clean slate, and bought a book on the topic so he could understand his options. I think bankruptcy should be avoided at all costs. Although you may get freed from your creditors, no one in the capital markets will likely trust you in the future. It could even preclude you from working in the securities industry. It’s like a big disclaimer on everything that you do in the future. Some people may be left with no choice, but we were fortunate that it never came to that for us.

In the end, our families agreed to take another financial kick in the stomach and provide the liquidity we needed to pay our creditors. They didn’t want to see their sons starting out with big black marks on their records. My parents fronted almost all of the money for my debts. I also took out a small loan from Mark’s father on a handshake to pay for my share of equipment that Mark had personally guaranteed for the company.

While I am still tremendously grateful to our families for rescuing us from ourselves, it was a humbling experience. For the prior two years, I played the role in my mind of the big entrepreneur. I was confident and didn’t listen to anyone but my partners and myself. Everything was a game to me with our late-night strategizing on the giant dry-erase board, our 4 A.M. runs to Wawa for pretzels and caffeine, and our spreadsheets and financial projections of wealth.

We were obsessed with becoming rich entrepreneurs. It became our number one priority. I thought about it when I went to bed at night and when I awoke in the morning. It filled me with a sense of anxiety that never left and I believed I would only be able to relax after the company became “successful.” Therefore, I tried to grow the business as quickly as possible. Eventually, my hunger for “success” eclipsed many of the other opportunities that came with entrepreneurship.

When I think back to that guest-speaker in my Wharton entrepreneurship class who played full court basketball games with his staff during the middle of their workday, I realize that he had created a job for himself that he loved. Unfortunately, I had not. Everything for me was a high-pressure race and I stopped having fun and taking advantage of the freedoms entrepreneurship afforded beyond making money.

While Mark and his dad straightened out our finances, I was charged with the task of driving Mark’s car to Philadelphia to shut down the QuakerCard office. We were fortunate to close during the summer when the campus was empty, and usage of the system was low. I drove around to each of our merchants and informed them we were closing the business. I went behind the counter, disconnected the wires and removed the equipment and in five hours, the trunk and backseat of Mark’s car were filled with 50 debit terminals and a tangled mess of wires.

It took two years to build that program, and a day to tear it all down. I emptied out the office, packed up all of our equipment, and shipped it back to our supplier. The owner of CMC, Loren, was good enough to allow us to return the equipment and terminate our lease agreement without penalty. He had been following the situation and understood what happened.

Ultimately, we also paid for another mailer to our existing QuakerCard holders and even to students who had graduated with money in their accounts. The letter explained our decision to close the operation, and enclosed full refunds to everyone. Given the circumstances, we were adamant that every cent be refunded, even for people with as little as four cents left on their balance. It was ridiculous to spend 34 cents on postage to return four cents to a former cardholder, but we wanted to be sure there were no potential complaints. We had finally learned to err on the side of caution.

Although we were strapped for cash, we made certain every QuakerCard merchant was fully paid. QuakerCard held a special place for us, and we didn’t want anything about it to be tarnished. George, Mark, and I also drove up to New York and closed our New York office. Unfortunately, it meant going door-to-door through the building with a list of office furniture and equipment for sale. We got the usual pennies for a dollar, and the same humiliation of bringing people down to our office to inspect the wreckage for salvageable pieces.

Eventually, we vacated our office premises. I moved back to Queens, New York with my parents, Mark moved in with his girlfriend in Philadelphia, and George moved back with his family in California. One of the strangest things about being back in my parents’ house was sleeping in the same bedroom as I did as a kid. It’s as if time stopped in that room. The same posters still hung on the walls from high school, along with the same trophy case and Little League plaques. It was a small room with a single bed, and a desk I barely fit into, as I sat in silence thinking about how I got there.
 

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.