Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Fourteen

“A leader is a dealer in hope.” –- Napoleon Bonaparte

George, Mark, and I caught what I can only describe as the “entrepreneurial fever.” We spent all of our free time in the office, shooting ideas at each other about the potential for the business. George was convinced there was a market for our “off-campus meal plan” at other schools. He talked about how much money we could generate if we expanded to the 10 largest campuses in the country. We started to get excited about the possibilities.

The challenge was that we had too many advantages on Penn’s campus that couldn’t be transferred to other schools. As students, we recruited a lot of free help from our classmates, we knew how to navigate the campus, we had access to campus buildings, and we knew how to customize our marketing message to our peers. After all, we were the student body. Unfortunately, we wouldn’t have these advantages elsewhere. It was going to be nearly impossible to start a new program like QuakerCard at another campus, unless we partnered with the universities themselves.

If we could partner with the schools, we potentially could create programs that were more successful than QuakerCard, because every incoming freshman would automatically be our customer. Since we exerted so much energy trying to get people to try QuakerCard, working with the schools seemed like a dream come true. Being the “official” program would allow us to focus more on managing the system and less on recruiting new customers. The “monopoly power” of Business Services would work for us and not against us. We all agreed the future of our company depended on our moving in this direction.

Unfortunately, we had an enormous handicap when approaching universities about partnerships. The best selling point to a new school was the endorsement of a university that had already worked with us. A good reference was the credibility we needed to penetrate the market. Unfortunately, our relationship with Penn’s Business Services was miserable. Although we already had a successful program with QuakerCard, we had no reference we could use from Penn.

If we couldn’t get a recommendation from Penn, we reasoned the next best strategy was to leverage our local popularity, and approach other colleges in Philadelphia. Drucker University, which was in close proximity to Penn’s campus, was an obvious starting point.

It was possible the administrators at Drucker would consider working with us. After all, someone from Drucker could walk over to Penn’s campus and observe our program in operation. He could talk to the local merchants and ask the students about us. We were confident he would get great feedback from the community. We hoped that Drucker would realize we were a good company to partner with.

Establishing a card system on Drucker’s campus would fix many of our problems. If we did a great job, Drucker could be a reference for us. Even better, it was proof that we could be successful at a second school. As a result, we began planning the best way to contact Drucker about our services.

Unfortunately, if someone at Drucker read our marketing materials, he would think QuakerCard cannibalized the school’s cafeteria business. In many ways, our “alternative meal plan” was not “university-friendly.” It was possible that Drucker would decline partnering with us, because our concept took money away from its other business. Therefore, we decided to change the tone of our marketing strategy.

Going forward, we would no longer promote a “restaurant meal plan.” Instead, we planned to broaden the focus of QuakerCard to include both meals and “campus essentials.” Essentially, we were trying to “toe the line” between a restaurant meal plan and a generic debit card. If the future growth of our company depended on working with the schools, we needed to change our image. Although the majority of our merchants were going to be restaurants, recruiting a few additional services (pharmacies, taxis, etc.) muddied the waters. It made it less obvious that programs like QuakerCard might compete with the cafeteria.

In order to take further emphasis away from the “alternative meal plan” aspect of our services, George had the idea to add new functionality to the QuakerCard. We planned to make it into a student discount card. It was just one more service that we could offer to benefit students, and one more advantage to pitch to schools.

George immediately made calls to all of our vendors and negotiated special QuakerCard discounts. Some vendors offered 10% discounts for students using our card, and others gave special “buy one, get one free offers.” Inspired by George’s success, I began calling regional vendors such as Amtrak and local museums to try and secure other types of student discounts for cardholders.

As we scrambled to expand our program, we had our first backlash from a QuakerCard vendor about our fees. One of our merchants, Saladworks Café, threatened to quit the program if we didn’t lower his 11.8% fee. Out of the 40 merchants on the plan, this was the first time anyone ever approached us about cutting fees. It was a big concern to us, because if we showed flexibility and word got out to other merchants, everyone would want to renegotiate.

As I later discovered, the problem started because we had made the decision to drop our prices for convenience/ grocery stores such as Wawa, Campus Market, and Thriftway Supermarket, because they had lower margins than did the restaurants. We agreed based on the condition of absolute confidentiality. Unfortunately, someone blabbed to Saladworks Café, and the owner promptly insisted that his fee be lowered as well.

Unfortunately, Saladworks Café was one of our most popular restaurants, and the owner knew it. We were too scared of losing him, so we lowered his fee to 7%. By succumbing to pressure from the merchant, we were potentially sending the wrong signal to the market. We risked having more restaurants try to renegotiate with us.

However, we were willing to take that risk because our priorities had changed. We were keen to show a 100% merchant retention rate and a happy merchant community to prospective university clients, even if it meant making less money. As a result, we were ready to sacrifice some of the profitability of QuakerCard, if the “window dressing” helped us to partner with other schools.

Suddenly, we became much more focused on the “big picture” because we believed our company’s success depended on our expansion into new markets, not just on the profitability of QuakerCard.

 

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.