Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Nineteen

As our graduation approached, we had the opportunity to bid with CMC to provide our services at two major universities. George and I even flew across the country to visit the campuses, so we could customize our RFP response sections. It didn’t matter if the trips were in the middle of final exams week. George and I took turns driving from the airport to the campus, so the other person could study in the passenger’s seat.

Working through the RFP process did a lot to improve our understanding of the market, because it gave us insight into the concerns of our university customers. Each RFP contained a list of questions that schools needed answered before mandates could be awarded. At the same time, it allowed us to see how our services could be differentiated from those of other vendors.

Basically, we were the only company willing to staff people in a local office and manage the off-campus programs for the schools. Everyone else was just selling equipment or banking services. Further, we weren’t charging the schools for our services, but got paid a percentage of the merchant fees we negotiated. Therefore, we thought our involvement should be a no-brainer for the schools.

There were approximately 4,100 colleges and universities that were potential clients of ours. Less than a handful had already expanded the functionality of their student ID cards to include off-campus purchases. Initially, we had wanted to narrow our focus to the largest schools, because we thought they were the most lucrative customers. Ironically, they were the worst initial targets for us, because larger schools tended to be more conservative, and less likely to work with us. They preferred to work with proven market leaders with lots of references. Unfortunately, we didn’t fit that description.

We needed to allow more time to build credibility in the marketplace. It wasn’t going to be a skyrocket path to the top for us, so we needed to hunker down and prepare for the long haul. The smart move could have been to approach smaller colleges and build our credentials slowly. By ignoring the big campuses and marketing to smaller schools, we could have had more immediate success, a cash flow stream, and established a dominant position in a niche market. This could have given us the gradual credibility to capture larger campuses over time.

It was the “bowling pin ” effect, whereby a victory in a small market could give us the credibility and references to eventually penetrate larger markets. The effect was analogous to the sport of bowling, whereby the bowling ball hits the head pin and causes a chain reaction, knocking down the other pins. We needed to capture an easy market, dominate it, and then gradually move up the food chain until we had the credibility to expand into bigger segments.

The problem was that we had trouble setting our sights so low. I wanted to capture a major school immediately. I craved the big kill, not some pipsqueak junior college that no one had ever heard of. Besides, pitching local colleges seemed like it would take too long for the company to gather sufficient momentum. Therefore, it never “felt” like the right move to me, because it didn’t fit my personal timeline. I wanted the business to be successful more quickly.

Instead, my partners and I decided that a more timely strategy would be to keep expanding our partnerships with vendors beyond CMC. If we partnered with other suppliers and pitched for business together, we might be able to “sneak” into a few deals. After all, universities bid on whole packages of products and services and we would be thrown into the mix of services. If they liked the overall package, they might not object to our involvement. Once we had a recognizable customer base to speak of, we believed we could leverage our credibility and expand more quickly.

Although we had an arrangement with CMC, we knew they might not be the best partners for us. For instance, Penn had already decided to stop using CMC equipment in favor of another supplier. We knew that CMC had difficulties competing with other vendors, which was probably why they were willing to partner with us in the first place. They were desperate to differentiate themselves, but we wanted to ride on someone else’s coattails, not carry another firm on ours.

Unfortunately, there were no dominant equipment suppliers at the time. Half the schools couldn’t even decide if they wanted to run their programs with smart card technology, or magnetic stripe technology. That’s why we decided to partner with as many vendors as possible and not commit ourselves to any one relationship. Everyday, George was on the phone talking with potential partners that could get us involved in more RFPs. He didn’t limit us with any one alliance, but tried to position us to work with everyone – phone service providers, banks, and manufacturers.

It was a harsh reality, but the growth of our company was not going to come in an orderly fashion. We experienced a lot of initial success with QuakerCard, but then things went stagnant for a while once we tried to expand to other campuses. Unfortunately, I expected our company to be an immediate phenomenon, and I allowed that unrealistic expectation to motivate me. It created an emotional roller coaster, as things seemed to heat up and then lose momentum. Now I recognize that it’s common for companies to see their growth creep to a halt when they try to enter a new market .

We had a long road ahead of us before we could establish a meaningful reputation. Besides trying to partner with vendors, George continued to cold call campus administrators to introduce our company. We also became members of the various industry trade organizations, NACCU, NACAS, and NACUBO, and George did his best to get quoted in the industry magazines whenever possible. George even maneuvered himself into a position on the corporate advisory board for one of the major industry conferences. We did anything we could to increase our brand awareness in the marketplace.

While we struggled to grow, it was increasingly bothersome to us that our company had no relationship with Penn. The QuakerCard office was in the center of Penn’s campus and we ran a popular service for the students. It was somewhat of an embarrassment to pursue business relationships with other schools if Penn hated us. Somehow, we needed to try and fix it.

The question was how best to combine the existing QuakerCard program with the new PennCard program. After much deliberation, we thought we had come up with the answer. We decided to offer our QuakerCard program back to Penn for free. We even considered volunteering to help them run the new program. The catch was that Penn had to become an enthusiastic reference for us in our bid to win business at other schools.

We thought it was a good solution for everyone. Penn got control over their off-campus market and we moved on to our new business model, which had us working in partnership with other schools and expanding to new campuses across the country. If Penn were reasonable about working together, we would close up our QuakerCard business, transfer our cardholders to the school, and advocate the new account on the PennCard. All we wanted was the credibility of a partnership with Penn.

We reasoned that Penn could adopt “QuakerCard” as a “necessity account” on the PennCard that was restricted to purchases like “meals, books, and campus essentials.” Logistically, it could function as a second magnetic stripe on the card, separate from the bank stripe. The “necessity” account didn’t have to be trumpeted as an alternative meal plan, but it could still function as a way for parents to set aside funds for “necessity” purchases like restaurant meals. Like QuakerCard, the funds could never be withdrawn as cash from the ATM.

We even reasoned that the University could maintain our equipment, so the “necessity” account could be used with a closed group of off-campus vendors. Despite its broader focus, we believed the “necessity” account would still be popular among the students. While my partners and I spent countless hours preparing to approach Penn, we were aware the clock was ticking and our graduation was approaching.

Unfortunately, the RFPs we submitted would not be awarded for many months or even years. The only possibility we had to capture a university client before graduation was to negotiate a deal with Penn. Doing so would reduce much of the uncertainty we faced as graduating seniors pursuing entrepreneurship. It would add credibility to our new business and give us an important reference to build upon. With graduation around the corner, we needed to approach Penn quickly. We couldn’t postpone it any longer.
 

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.