Cardsmith Case Study

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Case # 144-C06-A-U

Arthur M. Blank Center for Entrepreneurship
January 2006 Babson Park, MA Phone: 781-239-4420 02457-0310 Fax: 781-239-4178 URL: http://www.babson.edu/eship

CardSmith, Inc.
Taran Lent, co-founder of CardSmith, Inc., leaned into his laptop as he tapped out a response to his partner some 300 miles to the South in New Jersey. Soon, two other members of their dispersed team had joined the instant messaging strategy session. As developers of a business that was pioneering online interfaces to economically install and operate student debit-card programs, it seemed only fitting that their company was itself essentially virtual. By July of 2005—one year after beginning operations—the CardSmith team was eager to begin scaling the business. After a harsh ride on the learning curve with an Internet powerhouse that had failed largely from lack of focus, the CardSmith team had long ago resolved to concentrate their efforts on the education market. That resolve, however, was being tested following a call from a high-profile government agency looking for a debit card solution that was well within CardSmith’s capability to deliver and manage. The Green Card In the summer of 1994, Taran Lent was drawn to a debit card enterprise developed by a fraternity brother at Dartmouth College in Hanover, New Hampshire. Taran, a computer engineering major in his junior year, recalled that the no-tech system that was elegant in its simplicity: This all began as a service within our fraternity. Mitch, who had just graduated, had a manual punching machine to emboss names on laminated cards one letter at a time. Our frat brothers and friends (with money often begged out of their parents) would charge up their accounts by giving Mitch cash that he held in escrow. Cardholders could then make purchases at participating shops in town by filling out and signing slips that the merchant saved in a box. Then, twice a week, Mitch would cruise Hanover on his bike to collect all the slips. He’d manually deduct those charges from each account, and then cut a check to the vendor to cover the sales—minus a six percent fee.

This case was prepared by Carl Hedberg under the direction of Professor William Bygrave. © Copyright Babson College, 2006. Funding provided by Babson College. All rights reserved.

The 40 or so cardholders enjoyed the convenience of the cashless transactions, and the eight participating vendors appreciated that the card was steering those customers to their door. As the fall semester approached, Mitch and Taran decided to grow the business by attracting more vendors and by opening up the program to the entire student body. To that end, they met with the card administrator at Dartmouth to propose a joint-venture that would expand the purchasing power of student IDs beyond the dining halls and the book store. When the woman made it clear that the college had no interest in moving in that direction, the partners raised $20,000 through friends and family to establish an offcampus business that sported the school colors; the Green Card. Taran noted that by that time their roles in the venture had become clearly defined: Mitch and I were perfect partners. He’s a great strategist, salesperson, and an ideas guy; but implementing plans and managing day to day operations is not his strong suite. I never wanted to be an engineer in the traditional sense—my interest lies in crossing that divide between business and technology by designing solutions that improve operations. Together we made a really good team. Word spread quickly among the students, and the growing popularity of the card was a key selling point as they worked to expand the base of participating merchants in town. Taran explained that as an additional enticement, they devised an advertising credit program: Similar to a marketing agency, we began buying radio and newspaper ads in bulk so that we could resell them to our vendor partners. The bulk rates were far less...
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