Lessons Learned From a Failed Ivy League Entrepreneur

A "Case Story" By Chris Cononico
 

Chapter Twenty-Six

“Common sense is not so common.” -- Voltaire

Unfortunately, as we played the waiting game with the universities, QuakerCard was not generating enough cash to fund our operations. Trying to expand our business had created a lot of new expenses. For example, we had to pay for new employees, the living expenses of the founders, additional office rent, and our marketing trips around the country.

In order to fund the business, we should have tried to sell equity to angel investors. Instead, we started borrowing money from our unused QuakerCard deposits. In our minds, QuakerCard was like a bank. It’s well understood that all good banks put their excess reserves to good use.

We had always known that student deposits could be invested to generate additional income. In fact, when students enrolled in our program, they signed a cardholder agreement that gave us permission to use the deposits and exclusively keep any monies earned. Instead of investing in the marketable securities of other companies, we reasoned we could use that money to invest in our company.

At the time, we thought it made perfect sense to take advantage of a free loan. We were confident our hard work would pay off, so we didn’t hesitate to tap into our deposits. Suddenly, we were flush with cash. Unfortunately, if our new business failed, we would have to repay our cardholders, but the money would have already been spent.

Since we knew that we couldn’t rely on our QuakerCard deposits forever, we racked our brains for other ways to make money. Ultimately, we resurrected a business idea that I had researched as an independent study at Penn. We called the idea the “Corporate Program.”

The idea behind the Corporate Program was to apply what we learned from QuakerCard to create a corporate overtime meal plan for companies. As former interns, my partners and I were familiar with the overtime meal policies of several corporations.
Basically, if an employee worked past 8:00 P.M., he or she was reimbursed the cost of dinner. In order to get reimbursed, the employee submitted a written expense report with the receipt.

If we recruited a list of restaurants in the city, we could design an interactive web site with the menus so employees could order food on-line from their desks without any hassles. Our idea would also eliminate the need for employees to stash piles of menus in desk drawers, eliminate the burden of expense reports, and help employees get reimbursed more quickly.

In 1997, this was a pretty original idea. The Internet was just beginning to blossom with commercial opportunities and this was our attempt to capitalize on the trend. According to our proposed system, an employee could order dinner by clicking on an on-line menu, and the site would automatically fax the order to the restaurants, e-mail back a confirmation to the employee, and file the expense report automatically. The employee could pay for the meal with a credit card on-line, and the delivery person would deliver the food to the office address.

Everything was recorded electronically, so companies could reduce the amount of paperwork, and employees could get reimbursed faster. Since our company had a lot of experience recruiting restaurants and negotiating discount rates, we estimated we could obtain a 20% discount with each merchant.

When my partners and I discussed the idea, it became a way for us to generate additional cash flow and diversify our risk. We reasoned that if our university business lagged, we might get lucky with our Corporate Program. It’s hard to say “no” to a good business school concept like “diversification.”

In retrospect, I think it was a bad idea, because start-up companies shouldn’t be diversified. We just didn’t have enough resources to invest in multiple projects. We needed to channel our efforts towards our main product, which was our campus card program. Until we made an official strategic change, we should not have blurred our focus with a new idea. Ultimately, we were seduced by the hope that the Corporate Program could generate extra cash, while we waited for our university business to gather steam.

We trusted our gut in the past, and we thought we could do it again. Since I had already written a business plan about the concept, we knew that Manhattan was the best place for our Corporate Program. It had lots of professional firms, and there were tens of thousands of employees ordering dinner every night from their offices. Because of our newfound enthusiasm for the Corporate Program, we agreed to open our new office in New York City.

With the cash from our QuakerCard deposits, we rented office space on Park Avenue in midtown Manhattan. We reasoned the office space had indirect value because our “Park Avenue” address could also help to establish credibility with university clientele. We hoped it could make us look more stable and successful. Besides, an office on Park Avenue made us, as founders, feel like the business was progressing. We were tired of having what still felt like a student-run business. After all, we weren’t pizza shop owners; we were entrepreneurs

It was agreed that I would take the lead with our Corporate Program, George would remain focused on our university business, and Mark would work on everything. Before I knew it, I was walking the beat in Manhattan. I had a list of investment banks, and I began recruiting the surrounding restaurants. Within months, I had over 50 restaurants that signed contracts and agreed to our 20% discount rate.

Unfortunately, because of the hefty rent we paid for our office, we couldn’t also afford our own apartments. I initially made the commute from my parents’ house in Queens to our midtown office, while George and Mark slept on the floor in the office. However, there was such a strong sense of team among us that I soon preferred to crash on the floor of the office with my partners. I began using my parents’ house as a place where I did my laundry and stored my clothes.

George eventually purchased a black futon couch that he pulled out in the office at night. He had no blankets, just the couch that transformed into a mattress. Within a few months, the drool marks on the pillows would stir more than a raised eyebrow from visitors. Mark and I bought sleeping bags and slept underneath our desks.

Our office was not the most comfortable environment for our employees. It doesn’t give you very much faith in your company when you arrive in the morning and your bosses each have bed head. Our old habits of staying up late, drinking soda, eating pretzels, and strategizing on a giant dry-erase board followed us from Philadelphia to New York City.

 

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.