At the August Princeton Tech Meetup, Elliot Bohm, cofounder and CEO of CardCash (Brick), gave advice to fellow entrepreneurs. One of his pet peeves are “wantrapreneurs,” founders of companies who are really not ready to go through what it takes to be an entrepreneur.
“They like all the bells and whistles that go with it, all the fringe benefits like meeting famous people and going to conferences, but it takes a lot of hard work and energy and passion” to overcome the challenges of entrepreneurship.
“Unfortunately, many people are not willing to go through it for the long ride,” he said.
When it comes to passion, he added, “People become too passionate about a particular product.” They forget to ask the essential questions like “who needs that technology?”
You can’t “go ahead and create a solution to a problem that doesn’t exist,” and then try to convince investors that there is a problem, he said. “Unfortunately, a lot of people do this and fail and waste a good part of their lives.”
In contrast to the conventional wisdom, the definition of a really good salesperson is not someone who can sell milk to someone who doesn’t need it, he said. “Unfortunately, many entrepreneurs have that mindset and think they can develop a whole business around that.”
Bohm reminded the group that, in order to be a great entrepreneur, you don’t have to be in love with your product, you have to be in love with your business.
“When we started CardCash, I didn’t have any passion for gift cards,” but they presented a big problem for which there was no viable solution. They ended up collecting dust and “sitting there in the sock drawer.”
He sized up the market and realized that about $100 billion in gift cards are given out each year, and about 27 percent of consumers have cards they haven’t used from last year.
“At the time there were a half dozen websites” trying to exchange gift cards “all at a very small scale.” You have to rethink the business model, he advised the group. “You have to ask why others have tried and failed.”
“I quickly noticed why eBay was small in the space. They were practicing a listing model,” which was inconvenient for users.
“We decided to rethink the whole situation, he said, and develop a real-time gift card exchange. “The seller goes on the website and has a $25 gift card. We’ll offer you $20 in cash for it. We take the card, put it in our inventory, you get a check. Then we put it up on the website for 10 percent off.”
A person trying to collect cards then gets the full face value of the card but has paid a discounted price. The whole thing is streamlined with a secure connection, Bohm said. The seller is happy because he doesn’t need the card and can sell it, and the buyer is happy for getting the gift card for less than it’s worth.
The difference between a small business owner and an entrepreneur is the entrepreneur’s appetite for risk, Bohm noted. A businessperson who knows that there is no pizza shop in an area and opens one fills a need, but there is low risk, he said.
Entrepreneurs have to have an appetite for risk, but they should also be careful about how they spend their money, whether they raise capital or not. “You read about all the companies that raise capital, but you don’t read about the hundreds that fail to raise capital.”
In CardCash’s case, the company started with no capital because it hadn’t shown it could execute yet. “I took together all the money I got as wedding gifts and used it to start our first website. … I started to buy gift cards to set up the site. Eventually we discovered that the customers had become our marketing agents” because they would refer friends to the startup.
Bohm told the cautionary tale of Plastic Jungle, CardCash’s primary competition. They were one of the companies that had started before CardCash got its earliest funding, he said. “When they saw what we were doing, they changed their business model to ours.” But it was too late. They had already burned through $30 million in funding and they closed up shop.
What happened? Bohm asked rhetorically. Their biggest problem was that they replaced the founders “from the get-go. …They went through something like six CEOS.” One of their last CEOs said they had to bring in senior talent. However, “senior talent might have more experience running a company, but they might not have the will or passion to keep going when the obstacles and bumps get too big.”
Another problem was that their investors were too focused on the exit. A lot of investors want to “pump and dump: pump in the investment and sell the company quickly.” With that much focus on the exit, they didn’t focus enough on the operations, just on growing the brand.
The lesson for CardCash: “Never give up just because a competitor is bigger and raising capital. You have to be willing to weather the storm. Sometimes it’s okay to be second, because you could be first soon.”
Bohm noted that the hardest days for CardCash were during the startup’s growth from a small business into a company. “We had to create a scalable infrastructure amongst employees. When a company has 10 people, you can sit around a table and discuss ideas, but when you have 40 to 50 employees,” you can’t do that. “Going from a 50-person company to 150 is much easier than going from 10 to 50.”
Bohm concluded by talking about the company’s plans for the future, which include the development of a real-time mobile app. “I think it will take our business to the next level.” He envisions shoppers on the floor at Sears or JCPenney buying up discounted gift cards to apply to purchases they’re making right there. “Gift cards are less about giving and more about saving money these days,” he said.