Driven to Succeed

By Robbie Shell

Students and alumni launch an imaginative array of new products, from micromovies to imaging machines to ear warmers.

Wharton students who sign up for Professor Ian MacMillan’s advanced entrepreneurship class are given fair warning right from the start: “We highly recommend that you take this course only if an entrepreneurial career is a serious consideration since the work load is high and students who think they would like to take the course ‘for the fun of it’ will probably regret doing so,” reads the syllabus.

The message is clear: Entrepreneurship — whether in theory, practice or the educational setting — isn’t for slackers. Many words come to mind when thinking about starting a new business — exhilarating, challenging, terrifying, discouraging, rewarding — but ‘easy’ isn’t one of them, as anyone who reads the voluminous literature on this subject can verify.

Ian MacMillan’s words of caution aside, however, interest in entrepreneurship among Wharton students has increased dramatically over the past few years: In 1996, students started an entrepreneurial club (the E-club) that currently has 120 dues-paying members and sponsors an annual conference featuring nationally-known entrepreneurs and business professionals. Students continue to fill up courses offered through the Goergen Entrepreneurial Management Program, making the entrepreneurial major second only to finance in popularity. And Wharton this year initiated a school-wide business plan competition that drew more than 125 student entries and will award $25,000 to the winning team later this spring.

“The entrepreneurial environment here is incredibly rich, and we intend to ratchet it up even more,” says Mark Fraga, managing director of Wharton Entrepreneurial Programs. “One way we can help is by easing the path to available resources — through our courses, through access to business people as coaches and mentors, through the availability of industry and market data and so forth. Our goal is to package these resources so that students know they are here and can access them. It’s one way we have of encouraging more students to start a new venture, either while they are in school, when they graduate, or 5 or 15 years down the road. Whatever the time frame, more and more students are seeing entrepreneurship as part of their career path.”

The Wharton Alumni Magazine decided to check out some of the new products that are being marketed by alumni and students, as well as those still in the concept or testing stage. We have chosen products that are primarily non-technical, e.g. that one can wear, eat, play with, lie on, listen to or apply.

Experiences, anecdotes and insights are noted on the following pages. Whether the start-ups failed or succeeded or are somewhere in-between, every person interviewed had positive — and sometimes even humorous — feelings about the process. As Brad Oberwager, WG’97, put it: “Starting a company wasn’t all that difficult. Running it was.” Below, meet some great ideas.

A Super Bowl of Ice Cream

It would seem that Jeremy’s Microbatch Ice Creams, the two-year-old premium ice cream company started by Jeremy Kraus, W’98, when he was an undergraduate in Wharton’s entrepreneurial program, leads a charmed life.

The latest example: In January, Kraus won an essay contest that landed his company a free 30-second commercial, worth $1.6 million, on the Super Bowl. The day after the commercial ran, the company web site logged more than 250,000 hits in 24 hours (compared to its usual 1,000). “It has tremendously increased our brand awareness,” says Kraus, 22.

Jeremy’s Microbatch Ice Creams, based in Philadelphia, had sales of $100,000 in 1997, $1 million in 1998 and is anticipating $10 million this year. Six flavors of ice cream were in 3,000 stores at the beginning of January. Kraus expects that figure to climb to 7,000 this spring. He has four full-time employees — including partners Tom Shelton, W’99, and Sam Cohen, W’98 — five part-times ones and is looking to hire more.

The company continues to innovate. “All our flavors are limited editions in nature. We are experimenting now with a non-alcoholic beer-flavored one,” he says. “That will probably get us tons of free press.

“We position the company more as an innovative flavor house rather than the manufacturer of any one flavor of ice cream,” he adds. “It’s a new way of thinking for the ice cream industry.”

It’s been a heady two years — helped along by milestones like landing a $1 million investment from a venture capital firm — but Kraus is already able to look back and realize how he might have done things differently. For example, “I would have advertised less in the beginning and focused more on in-store tactics. That means things like allocating additional capital to producing elaborate in-store points of sale rather than purchasing a billboard.”

And he would have “grown a bit more slowly in the beginning. I tried to grow very fast in 1998 and things became a bit turbulent. For example, I should have been more discriminating about where I sold the product. I was grabbing sales from anyone I could, not taking full account of what effect that would have on the product niche. I was willing to sell to ‘laggard’ outlets when I should have been focusing all my attention on the true innovators and opinion leaders. All sales are not equal in the beginning of a brand-based enterprise.”

Wrap-Around Ear Warmers

When Ron Wilson and Brian Le Gette, both WG’95, were students in the entrepreneurial program, they came up with an idea for ear warmers that wrap around the back of the head. After doing a private placement one month before they graduated and raising several hundred thousand dollars from classmates, the two launched the ear warmers on QVC in December 1995. They sold 5,000 in eight minutes.

In the 1996-97 season, the company, called The Gorgonz Group, sold approximately 250,000 warmers and in 1997-98 approximately 600,000. Sales are generated by the company and their licensee, Wells Lamont, the world’s largest glove manufacturer. The ear warmers continue to sell on QVC and are currently being test marketed in stores like Sears, JCPenney and Target.

In 1997 Wilson and Le Gette started another company called Gray Matter Holdings with two other partners. GMH has already developed several new products, including a self-opening beach towel with a built-in air pillow (already launched) and a radio-controlled glider for kids (about to be launched.)

“None of our ideas are rocket science,” says Le Gette. “Success depends on how you execute them.”

Which leads to Le Gette’s first piece of advice, “the need to be flexible. The people who succeed are the ones who can recognize that the path has changed, that there might be an alternative opportunity to which you can quickly redirect your efforts and money,” he says.

As an example, “in 1998, our major retailer (QVC) completely changed their strategic focus in a way that had an enormously negative impact on our deal with them and with products we were [planning to sell through them], such as a tool for inserting nails and a child’s lunch bag with insertable windows for graphics and a recordable chip for messages. QVC’s action meant that we have had to advertise in other areas and distribute through other channels much more quickly than we thought,” says Le Gette.

His second suggestion is to direct your entrepreneurial efforts into an area with which you are familiar. “We didn’t,” he says. In order to launch the ear warmers, “Ron and I had to learn all about plastics, materials, the sewing process, retail distribution and so forth. It probably made things a little harder.”

Making It in the Music Business

Rob Weber, W’82 and a graduate of the Jerome Fisher Program in Management & Technology, helped write the business plan for a musical instrument company in the mid-1980s. Within a year, he had become the company’s director of marketing.

“I had two responsibilities,” he says. “Raising venture capital money and overseeing the introduction of the new product (electronic musical instruments known as synthesizers). Basically I was trying to create an awareness and an image.”

Between 1984 and 1988, the company, called Ensoniq, grew from zero to about $24 million in sales. Weber, who left to look for another entrepreneurial venture, held on to his stock and cashed in when the company was sold a year ago. He spent the next two years helping to launch a product that ended up not succeeding, and then ran a company called Elastomeric Technologies, a manufacturer of specialized electronic components known as connectors. He sold the business in 1995 and now has his own investment and consulting firm focusing on emerging growth technology companies. He is also a lecturer in Wharton’s entrepreneurial program.

“The hardest thing in launching any product is to get the timing right, to find the equilibrium between when development is done and when there is awareness and enthusiasm for the product,” he says. “With Ensoniq, we generated a lot more excitement than there was availability of product. So there was a real shortage in the marketplace along with quality problems …

“You want to create excitement, you want to be aggressive and hit the market hard, but you need to temper this with actual readiness. The marketers can’t always control this. They have to be in sync with development, ask hard questions, find out how close production really is to a final product. I now have my own theory. You take whatever amount of time the people in development tell you they need to get the product ready, double it and add six months, and by then you’re probably closing in on the right time.” Also, Weber adds, “have customer service ready before you ship your first product. It gives you a nice safety net.” Finally, Weber says, “try to be a big fish in a small pond, meaning focus your limited marketing dollars hard in a few places. For Ensoniq we selected three magazines and a few distribution outlets. It also helped to have a sales manager who was from the music industry.”

A Treasure Chest for Young Readers

The business plan for Secret Cove is subtitled, “A Buried Treasure for Our Brightest Kids, Every 30 Days,” and it refers to the way in which the plan’s authors think about reading. Secret Cove would be America’s only premium book club for children, dedicated to “restoring the magic in home reading” for kids who are “buried in the haze of marketing around blockbuster TV tie-ins.”

“The idea evolved tremendously,” says Brenda Thickett, WG’99, “from the original concept of offering personalized stories to children on the Internet to our current plan for a book club. We went back to the drawing board last fall and spent weeks researching the publishing industry and interviewing parents, daycare centers, teachers and independent book sellers.”

The research blitz ended with the idea for Secret Cove. “One thing we noticed in a lot of book stores was the small number of children’s books that were face out on the shelves,” says Rob Steiner, WG’99, another of the business plan authors. “Many, many more are crammed in with only their spines showing. These books, a lot of them written by unknown authors, fall between the cracks, even though they might be excellent choices. That’s where we feel the marketing opportunity lies.”

Secret Cove’s inventory of books would be chosen by a proprietary board of experts in child development and children’s literature, and the books would arrive in treasure chest boxes with the child’s name printed on the lock.

All five students involved in the business plan have firm commitments after graduation. “But we also want to see how much farther we can take this idea,” says Steiner, a former reporter for the Wall Street Journal who has a job with BCG in Toronto. “If the idea gains momentum, at some point one or more of us might want to jump back into it.”

Steiner suggests a reality check before going too far with a business plan. “Too many people lose the discipline of sensible, pragmatic thinking, especially in an era when the Internet seems to have thrown basic realities out the window. Everyone gets fascinated by their own ambitions. They forget that you have to figure out, above all, how your product fits into the evolution of the market.”

Nutrition to Order

Brad Oberwager, WG’97, came up with his idea for Acumin — a company that produces custom-formulated nutritional supplements — in his entrepreneurship and venture initiation course. Between the last day of classes and graduation, he raised $500,000 mostly from family and friends, and set out to capture part of the $14 billion market for nutritional supplements.

With the help and encouragement of his father, a Wharton grad and successful entrepreneur in his own right, Oberwager established a manufacturing operation a few blocks off campus with administrators, pharmacists and an operations and business development staff.

“The idea started to get some legs, but it wasn’t until we put it on the Internet that it really took off. It’s a very interactive process that depends on give and take with the customer. The Internet essentially takes the power of convenience and personalization and gives that to the customer.”

In November 1998, after 18 months of running Acumin, Oberwager sold it to GreenTree Nutrition, an “online wellness center and superstore” based in San Francisco. Oberwager is president and reports to the CEO. GreenTree sells, in addition to Acumin, products ranging from vitamins, minerals and herbs to homeopathic remedies, antioxidants and dietary supplements. Annual sales for Acumin alone are approaching $1 million.

The decision to start Acumin “seemed so right,” says Oberwager. “What was hard was running it. I had to do everything for a while — accounting, payroll, taxes, janitorial services. Managing people was especially hard. You only have three things when you are starting a business: time, money and energy. Managing people takes an incredible amount of energy.”

If he could do anything differently, he would focus on the “leveraging aspect of the Internet more quickly,” Oberwager says. “It’s the best way to improve the customer’s experience and ensure customer satisfaction.”

Shopping to Music

When Ken Frieze, WG’95, was working for Bain & Co. in Boston, he got the idea for a music promotion and distribution company that would bring original-artist recorded music to non-music retail stores in the form of listening stations and in-store play. “Imagine, for example, walking into Urban Outfitters and hearing, while shopping, new music that fits your tastes and then finding that same music featured on a listening station located prominently in the store — stocked with CD inventory for immediate sale,” says Frieze, who named his company Stage One, Inc.

Although music labels and the artists themselves were willing to pay “significant promotional fees” for this exposure, the plan didn’t work for two reasons. “First, I wanted to open in thousands of locations, which meant dealing with the best national apparel chains in the country, like Urban Outfitters, Eddie Bauer, Timberland, etc. In the end, these stores were so concerned about controlling their own branding and shopping experience that they couldn’t make the decision to leave the sound part of it to someone else.

“Second, there are already very large and successful businesses — including Musak, AEI and DMX — that do in-store programming. We were going head to head with them and we couldn’t compete.”

Frieze worked full-time on the idea for over a year. “We did pilot tests, we sold CDs, we made it work in some environments, but at the end of the day it was too risky,” he says. He hardly regrets the attempt. “It was an unbelievable experience, like going to college or grad school. You learn so much.

“The biggest thing I learned sounds simple. There is a huge difference between talking the talk and walking the walk. We came so close to signing certain key retailers. We got all kinds of enthusiasm and encouragement, but when it came time to getting that signature on the bottom line, it wasn’t there.”

Frieze, who now works for a Boston-based family business called Gordon Brothers, a retail asset redeployment firm, has another observation. “Once you’re known to be an entrepreneurial type, you get contacted a lot. I just heard from a Wharton friend who wants to leave investment banking and start an Internet company. My response was, ‘why would you do that? If you want to start a company, start an investment banking firm. That’s where your experience is.’

“In my case I had a background in retail but I had never done anything in the music business before. That didn’t help.”

Getting Drugs to Market

Anne-Marie Corner, WG’89, is founder and CEO of Biosyn, a Philadelphia-based biomedical company that has two products waiting for approval from the FDA — an oral rinse for lesions caused by the AIDS virus and a microbicide/contraceptive to prevent HIV transmission.

Biosyn is definitely in the home stretch of the approval process, a grueling effort that typically takes several years — and millions of dollars — to complete. “We expect to go into trials, which last anywhere from 12 to 24 months, by the end of this year,” says Corner.

Biosyn has 12 employees and 8 consultants, including product managers, project managers, toxicologists, chemists, monitors and investigators who recruit patients and administer the drugs. Also involved in the approval process are such components as a manufacturing site, a statistical site and a contract research organization that oversees the entire testing process. “This is probably the most complex, single project in terms of product development that you could ever imagine,” notes Corner.

“I know everyone says this but it’s true. [The start-up process] takes twice as long and costs twice as much as you think. For us, it’s actually been four times as long and four times as costly. Along the way, we have had to be very creative.”

For example, signing up drug manufacturers when you don’t have the money up front to pay them means “you try to get the manufacturers to take equity or buy into long-term supply agreements, or whatever you can think of. It’s about not accepting the strictures of the system but working them in a more creative way.”

It’s “sheer determination that gets you through this business of starting a company,” adds Corner. “You have to keep your eyes on the prize constantly.”

An Entertainment Experience

Eric Schlagman describes Mezensen, the company that he and two partners already have up and running, as a micromovie studio with three components. One is a “unique production model — ‘SmArt’ — that uses a proprietary digital technology to produce high quality full-length feature films.” The second is a licensing and branding business based on the intellectual properties generated by the production model. “So we could license everything from animated characters and movie images to music and graphics,” says Schlagman.

The third component is Channel 8, a high-tech media service which will distribute film content, create on line catalogues and take orders for individual movie-related items, among other features.

Since June 1998, Mezensen has worked on 10 different films and established relationships with writers, actors and directors, says Schlagman, a magna cum laude graduate of NYU’s film program who founded his own film production company in 1988 called Right Coast Productions, where he wrote, directed and produced his first feature film, Punch the Clock. He has also sold three screenplays and worked with international film distribution companies.

Mezensen’s core audience is expected to be people between the ages of 45 and 60 who see movies at least once a month. “We differ from our competitors because we link the entertainment experience to the company itself,” says Schlagman.

Mezensen has made significant progress in part because of the intellectual and creative abilities of mentors associated with the project, including talent managers, entertainers, consultants and professors, Schlagman adds. “Taking entrepreneurial courses from Professors Ian MacMillan and Myles Bass last fall, for example, probably saved us about $4 million of required capital. When you start a new company it’s much more valuable to have experienced people associated with it rather than flavor-of-the-month personalities.”

The company’s name is also emblematic of the new venture. “At first we were told that people wouldn’t be able to understand or pronounce ‘Mezensen’ but once we tested it, the name turned out to be very popular. There has been tremendous buy-in to it, and it also happens to be the last name of Hazel and Filbert, two of our animated characters,” says Schlagman. “We are already producing our first animated short. It’s called Hazel and Filbert Are Nuts.”

Imaging Improvement

To detect the kinds of compounds that terrorists use to make bombs, airport security teams rely on a technology called quadrupole resonance (QR). NATO and the former Soviet Union countries also use this technology in their effort to clean up mines in war-torn areas of Asia and Europe.

Two years ago, one of the English inventors of this technology realized it could be adapted for imaging of the human body as well. Which is where Frank Lexa, WG’99, and Mark Chandler, WEMBA’94, come in.

Lexa is a neuroradiologist, a member of the Penn Medical School faculty and former director of their MRI center. Chandler is vice present of BTG International, a company that manages intellectual property. The two have identified areas where they feel QR imaging can do a better, cheaper and easier job than the more expensive MRI and CT scanning machines used in the majority of hospitals.

“The QR technology can be especially promising in detecting potential thyroid disease, osteoporosis and breast cancer,” says Lexa. “And the machines are small and portable, unlike MRI systems which cost millions of dollars, require special walls and reinforced floors, and create magnetic fields that raise occupational safety and health issues. “The question now is whether to start a separate company or license the technology to an existing imaging business. My strong recommendation is to create a separate company.”

Lexa is prepared to do that. In his entrepreneurial management course last fall, he and two classmates developed a business plan for Novus Imaging, Ltd. If the decision is made to go ahead and launch, Lexa would most likely run the company.

“I understand the medicine and science well, and I now have some insight into the financing,” says Lexa, “but I was struck by the enormous amount of work you have to do in terms of thinking about regulatory issues, like dealing with the FDA, and channeling issues, like how to actually market and sell QR. Coming up with a way to get products like these into the 6,000 hospital systems in this country is the single biggest problem people in the medical device arena face. There are barriers to entry, it’s expensive and good salespeople are hard to find.

“Ian MacMillan told us that instead of focusing on what you do well, you should look at the potential potholes,” adds Lexa. “It’s those issues that can do you in.”

Monitoring Medication

Salvatore Tirabassi, WG’00, and Dennis Molnar, WG’98, met when both were interns at Penn’s Center for Technology Transfer, the university entity that commercializes intellectual property ideas from Penn faculty and staff. While there, Tirabassi and Molnar hatched a plan that eventually evolved into a company that is now up and running, although still in the preliminary stages.

Adhere Technology develops what are called prescription drug adherence aids and information services. “Essentially we make a device for pills that includes an electronic system that tells the patient when to take the medicine, records when the patient removes the pill from the holder and registers the time and date the pill was taken,” says Tirabassi, a joint Wharton and engineering student. “That monthly profile gets uploaded into the pharmacist’s record-keeping system when it is time for refills. Our company uses that data to create a value-added information profile.”

Ideally, this will help patients remember to take their medicine and consequently result in better health care. Practically speaking, however, “it’s a good way for pharmaceutical companies to make more money. A big problem these companies have is that patients don’t take as many pills as they should,” says Tirabassi. “The pharmaceutical industry is our target market.”

He and Molnar are in the process of raising $1.5 million in half million increments, mainly through venture capitalists, says Tirabassi, who plans to commit to the company full-time starting this summer. Molnar is an advisor. Monitoring Medication

“We had an encyclopedic knowledge of the market by the time we were done with our business plan, but it’s important to remember that investors are concerned only with five or six variables at a time,” says Tirabassi. “For example, they will be interested right from the beginning in the quality of the management, the strength of the intellectual property and the product’s short-term opportunities. You need to address these issues directly. Later on investors become more interested in the actual development horizons and the longer-term opportunities.”

The hardest part of the process, he adds, has been dealing with the uncertainty. “I’ve already been successful on my own in terms of building my career in the start-up high tech and venture capital area. Waiting around for things to get going can be frustrating, especially when I know I can send a bunch of letters to Silicon Valley and have a job in six weeks with a company just like mine.”

Creation, in 14 Weeks

Students who take Karl Ulrich’s operations and information management (OPIM) course, “Product Design and Development,” have exactly 14 weeks to come up with an idea, a prototype and a marketing plan.

Some recent examples of student ingenuity: a new compact disk case, a folding urban shopping cart, an electronic tennis scorekeeper, a personal eye glass cleaner, a fast-food tray for eating in the car, an onion chopper, a pickpocket protector, a trash compactor for recyclables, a specially designed jog bra and a calculator for golf club selection.

“The ideas tend to be fairly simple because of the time constraint and also because students are required to use off-the-shelf technology,” says Ulrich, an associate professor in OPIM who focuses much of his research on product design, product architecture and management of product variety.

Ulrich has what amounts to a checklist for success that he uses to assess new product ideas. “First, is there a rich information channel between the designers of the product and the marketplace? That doesn’t mean someone in marketing writing a memo to R&D saying, ‘here is the opportunity, here are the specs.’ That never works. The designers and developers must have an intimate understanding of the market; they need to be part of a team that goes out and develops first-hand knowledge of customer needs. Anytime you get information second-hand, a filtering process has already taken place and decisions already been made about what is or is not relevant. A lot can get lost in the translation.

“Second is the ‘what-not-how’ principle. It’s important to define what the product must do, not how it does it. Students all the time will say, ‘I have this great idea for a product and here is the technology.’ Consider, as an example, the idea of putting an industrial diamond dust in bike tires in order to get ultra long life. Before immediately concluding that you’ve come up with a great product, you should say, ‘there’s an opportunity out there for a long-life bike tire, and here is what the product will do,’ rather than ‘here is how the technology works.’ If you get wedded to one solution, frequently someone else comes along and beats you with a different, better approach.”

Ulrich suggests his students perform a multi-level screening process before presenting their ideas. First, think through the criteria and consider how the idea stacks up against customer needs. Second, select the two or three best ways to meet those needs and, third, do a concept test with customers. Go out with a prototype if possible and say, ‘here are three ways we might meet your needs. Which do you prefer?’”

Finally, do a “reality check” before getting too far along in the process, Ulrich says. “It’s a principle called ‘get physical fast.’ Which means that you should try to get a physical realization of the product as early as possible, a prototype, because you will learn all kinds of things quickly, both on the technology side as well as the marketing side. Products often exist on paper far too long.”

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