Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Sixteen

Almost a year after writing our first business plan, I drafted an updated plan for Brody’s class. The second plan had a very different feel to it. Even the way I was referring to QuakerCard had changed. Now it was being mentioned as a “test site” to prove the “robustness” of our business model in the “untapped university marketplace.”

On the heels of achievement, our egos had swelled. QuakerCard was already launched, and we were managing a successful program on Penn’s campus. We believed we had a viable business, so we viewed ourselves as "experts." We planned to use our new business plan as a marketing tool to woo new investors, not as an exercise to rethink our assumptions in light of our new strategy.

Unfortunately, QuakerCard didn't prove we could form partnerships with schools. QuakerCard only demonstrated we knew how to market our product to Penn students, nothing more. Although we speculated about expanding to other campuses, we had no idea how other universities would receive us.

The only bright spot about our growth plans came from our new market research. George had identified some industry trade organizations that focused exclusively on card programs for colleges and universities. He discovered that hundreds of schools were interested in outsourcing off-campus debit card systems to outside vendors. As a result, we felt confident that a broader market existed. The question was whether we could ever break into that market.

In reality, universities would prove to be more difficult customers than we anticipated. After all, it was no longer $500 meal plans we were selling. Now, we were asking administrators to endorse our company to their entire student body, which could represent millions of dollars worth of transactions. Traditionally, most schools preferred to work with large and stable vendors with lots of references. There was just no incentive for a school to take a chance with an unknown company like ours.

To make matters worse, universities were slow to give definitive answers about new partnerships. Instead, they generally invited companies to participate in a Request for Proposal (RFP) process. An RFP is a large questionnaire sent out to a list of competing vendors. For many schools, it’s an internal requirement to go through the RFP process, even if the school already knows with whom it prefers to work. Unfortunately, a full-blown RFP is time consuming to complete and it can take months or even years before the school announces a winner.

In responding to an RFP, suppliers provide price quotes, company history, service descriptions, and references. It often requires representatives from the company to meet with university administrators to discuss the proposal further. There was nothing about the RFP process that seemed friendly to a new company like ours.

George’s answer to this problem was simple: We needed to team up with other vendors who had more credibility than we did. After all, we managed off-campus card programs, but we didn’t manufacture equipment. There were plenty of other vendors who manufactured equipment, but didn’t provide management services. If we teamed up, perhaps the partnership could provide a better whole product for the schools and help us win business.

We also wanted to build increased brand recognition for our company by joining the various industry trade groups.  Besides giving us an opportunity to network at conferences, these groups also gave us a chance to get quoted in the trade press.  Appearing in published articles helped to position us as experts in the marketplace.

If necessary, George suggested we could “buy” our way into the market by offering to manage our first few card programs at cost as an incentive for the schools to work with us. Although this approach wouldn't make money immediately, we wouldn't lose money either and it would allow us to build references for the future.  We believed as long as we could show our business model would eventually be profitable, we could raise money from investors.

As Professor Brody’s class came to an end, my description of the business in our new executive summary read:

“University Student Services, Inc. is a company that focuses on the marketing, implementation, and maintenance of university debit card programs. Our company emphasizes superior marketing, customer service, and client support to guarantee the most successful and profitable debit card system possible through increased student participation and cash flows.”

In my new business plan, I highlighted that major banks and companies like Wells Fargo, AMEX Special Teams, Sprint Campus Card Programs, and MCI Telecommunications were exiting the university market, because they were losing money. Instead of discouraging us, we considered this to be very good news. QuakerCard was making money, so maybe we knew how to run these programs better than did these Fortune 500 companies!

I asked the question:

“With hundreds of colleges and universities in North America, considering the expansion of their campus card systems into the off-campus… who is going to run these systems? The banks are unsuccessful, the tech providers are inexperienced, and the universities want to outsource the whole thing.”

The answer in our minds was that it would be us. After all, in the emerging campus card market, we were among the most experienced. In the new business plan, I also talked about our expansion plans. I said we wanted to be at three to five schools by the following year and 20 schools within the next four to five years.

Our new executive summary ended with the following sentence:

“With regards to expansion to other universities, the company has recently broadened its focus from operating an alternative meal plan at the University of Pennsylvania to becoming a successful marketer and operator of debit card systems in partnership with other schools across the country.”

In the second business plan, we also had a much more extensive industry section. Since the industry was young, there weren’t a whole lot of players at the time. There were less than a dozen technical suppliers, a half dozen banks, and two other private companies like QuakerCard that marketed services.

In terms of experience, QuakerCard was as big and successful of a program as any card system in the marketplace. Unfortunately, the schools seemed to prefer working with larger and more established companies.  Because we were a small business with a limited operating history, we were at an obvious disadvantage. We were facing a common dilemma for entrepreneurs: How do you establish credibility in the first place, if people won’t take a chance on you?

George, Mark, and I knew establishing ourselves in the market was going to be a challenge. George wanted to be the person leading the charge. We all agreed his main function going forward was to form relationships with administrators at schools. Once we found a way to break into the market, our plan was to leverage these contacts to expand to additional campuses across the country.
 

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.