Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Thirty

George began calling around to banks across the country looking for a financial partner so we could utilize the VISA network. Basically, we wanted whichever bank we chose to be our silent partner. We wanted total creative control over how we presented our program to parents and students. After weeks of non-stop phone calls, George negotiated an agreement with a small bank in the Midwest. The 3% merchant transaction fees would be split evenly between our companies, but our banking partner got to keep 100% of the interest earned on deposits. The first piece of the puzzle was solved.

While we were pleased to have a banking partner, Mark and I gave George a lot of grief about the revenue split. We talked about the possibility of shopping our deal around to other banks, in the hopes of getting better economics. George assured us that he negotiated the best possible terms, so we trusted his judgment. In retrospect, I think we were lucky to find a banking partner in such a short time frame.

Being a successful entrepreneur was supposed to be about hitting walls and adapting quickly. Since we weren’t making as much money from the 1.5% merchant fees, we discussed charging students a one-time processing fee. A lot of schools charged “processing fees” of $10 to $20 when students picked up their school identification cards. There were also discount cards being sold by private companies that charged $25 annual fees.

Since our “College Pack” was offering an off-campus meal plan, a discount card, and huge savings on textbooks, we thought it offered enough value to justify a one-time fee. We researched the college market and took comfort that $25 seemed to be a successful price point among competitors, so that’s what we decided to charge students. By offering a $25 discount card that could be used for four years, we reasoned Campus Card would be 75% cheaper over four years than the programs of our competitors.

In order to recruit our national discounts, I began speaking with companies such as IBM, TWA, Transmedia, Greyhound, Comfort Inn, Clarion, Quality Inn, Econo Lodge, Lens Express, Jiffy Lube, The Princeton Review, Flowers USA, Sears, Columbia House, Firestone, Dollar Rent-A-Car, World Ski Association, Domino’s Pizza, York Priority Photos, Papa John’s Pizza, STS Travel, United Artists Theaters, General Cinema, Loews Theaters, Cineplex Odeon, AMC Theaters, National Amusements, and a company that offered up to 80% discounts on magazine subscriptions, among others.

I contacted these prospective corporate partners and after each conversation, I sent a letter with a description of our program. The letter read as follows:

“Dear [name],
College Financial Services is helping to coordinate meal plan expenses for college students. We are also planning to offer students the option of using a debit feature on a national student identification card (Campus Card) for “meals, books, and campus expenses.” This year, we are including a directory of “student specials” offered by national companies. It provides a link between students and corporate friends of students. The service is free for the companies promoted in our program. There is absolutely no charge. To qualify, a company must offer a valuable special to students.

Just fax us permission to use the [Company name] logo in conjunction with a description of the student offer that you want announced, and the locations that will be participating. It may be a discount, special, or deal that you currently implement or a new program. The special can be offered as a general discount for everyone or an exclusive student special only for users of the Campus Card debit account. We will promote your company extensively for either scenario.

Enclosed is additional information. If you have any questions or comments please call me immediately. Participating companies in the directory are currently being finalized."

It was hard for companies to decline our offer for free marketing. Most companies already had canned promotions, so they just dusted them off and made them exclusive to our cardholders. Even if they didn’t want to offer “exclusive” promotions with our company, we agreed to promote their discounts anyway. It was free advertisements for “friends of students.” Besides, we reasoned it was better to gain rapport with as many companies as possible and circle back for an exclusive deal in the future.

Soon, our office was filled with camera-ready artwork from Fortune 500 companies. During this time, Mark was on the phone constantly with printers and suppliers, organizing the logistics of our mailer. He worked out the details of how to process all of the student information. After all, we hoped to receive hundreds of thousands of return envelopes, and we needed to respond back promptly to everyone with a customized information packet and Campus Card.

Mark recommended we make students submit their information on special forms by filling in corresponding circles with a #2 pencil. Then, we would be able to feed the forms through a special machine and eliminate the need for data entry, while improving the quality and speed of our data collection. It sounded great, but unfortunately the company that manufactured the specialty equipment, did not rent its machines. In order to use the equipment, we would have to purchase it.

I think the machine cost about $20,000. Rather than buying it outright, we found a finance company to lend us the money secured by the equipment. Unfortunately, the three of us had to personally guarantee the loan. When we added up this lease, the leases on our QuakerCard equipment, the individual credit card bills that were accumulating, the borrowed deposits from the QuakerCard, and the mounting trade credit, the three of us were on the hook for a lot of money.

 

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.