Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Seven

As we put the finishing touches on our business plan, the school newspaper, The Daily Pennsylvanian, featured a cover story about a group of Penn students planning to start an off-campus debit card program dubbed "College Cash." I was shocked because the article wasn’t talking about us. The article also mentioned how the University was contemplating its own debit card program on the back of the PennCard, Penn's student identification card.

Suddenly, QuakerCard was faced with two possible competitors, College Cash and Penn. Both planned to offer debit cards emphasizing the safety of a “cashless society.” Both also planned to promote the fiscal responsibility of debt cards, because students could only spend their existing balances and not fall into debt.

While there was nothing innovative about what Penn or College Cash were offering, both planned to market their programs as being “customized” to meet student needs. In reality, generic debit cards were already offered by scores of local banks. On the contrary, QuakerCard planned to restrict its merchant base to restaurants only. Therefore, parents could fund QuakerCard and know the money could be used only for food purchases. Ironically, limiting the card usage was a way for parents to ensure students always had enough money to eat. In effect, it was designed to mimic an off-campus cafeteria program.

We were confident about competing with another student business, but we knew it was risky to compete with Penn. The school’s “Business Services” department had a virtual monopoly over its students, a near limitless budget, and a powerful brand. That’s why the University could offer a service and get 90% participation; meanwhile a private company could offer the same service and only get a 1% response rate. Clearly, it was in our best interest to convince Penn to work with us.

In order to explore the idea of a possible partnership, I went to the office of Larry Cotter, who helped manage the PennCard. I simply knocked on his door and asked to discuss the recent article in the school newspaper. He agreed with a slight hesitation, and awkwardly asked me if I worked with College Cash. His demeanor surprised me and my instincts told me if I had said “yes,” he never would have spoken to me.

Since Larry already mentioned College Cash, I casually asked if he would consider working with a student company. His answer was a resounding, “No!” His team had been researching debit card systems for years. They planned to put the system out to bid to large financial institutions like PNC Bank. Apparently, these companies would pay big bucks to sell their financial services to students.

Trying to understand Larry's strategy, I asked if the PennCard could ever become a restaurant meal plan. Not only did Larry have no intention of marketing a restricted card, but he also believed such a “discriminatory” policy would create too much protest in the merchant community. Instead, Larry preferred to offer a generic debit card, so every merchant would be able to participate. The PennCard was going to be accepted wherever VISA or Master Card was accepted.

It was apparent to me that Larry and I disagreed on the type of product students wanted. It also meant there was a chance for QuakerCard to carve out a niche for itself. Larry and I continued to talk and he even showed me a prototype of the new PennCard with an embedded smart card chip. As I left his office, he shook my hand and told me to call him if I had any more questions. I never did call him back.

The information I gleaned from my meeting with Larry was mixed at best. Although it was encouraging to hear that Penn wasn’t planning to market an off-campus meal plan, it sounded like the school would never work with us. If we proceeded with our business, we would be competing directly with the "Business Services" department of the University.

The school’s Business Services group was the department that provides commercial services to the local community. Besides education, colleges also address other consumer demands such as cafeteria programs, licensing arrangements, real estate development, phone services, and more. Unlike the educational side of the school, Business Services operated like a “for profit” department beneath the non-for-profit umbrella.

With such a dreary competitive outlook, you would think we stamped our business plan a “no go” and chalked the whole thing up to a very informative class project, but we didn’t. As daunting as the odds seemed, we hoped our idea was sufficiently unique from that of our competition. It was a risky gamble, because someone like Larry could take out a piece of University stationary, and write a letter to parents and students recommending that everyone avoid our services. He could run us out of business pretty quickly.

However, the four of us were still students, so we felt we had little to lose. If the company failed, we’d be no worse off. On the other hand, if it worked, we could become “successful” entrepreneurs. After all, the 11.8% fee had seemed like an insurmountable obstacle, but we made it work. We wondered if having the courage to take the initial leap of faith might be the secret ingredient to entrepreneurial success.
 
 

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.