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Easing Entrepreneurship
Wharton Small Business Development Center helps local bike maker, DVD-rental company.
David Greenfield knew he had a good product — his bicycles were popular among triathletes, even professionals. And as he himself admits, he had plenty of the chutzpah that's often essential to being an entrepreneur. "I'm a hustler," he says. "That's what I do — I hustle."
But with no formal business background, he couldn't really assess how well his company — Philadelphia-based Elite Bicycles — was faring. "I just paid the bills, took out money when I needed it and never really looked beyond that," he says. A former professional triathlete, Greenfield had started the business in 1997 out of frustration. As a pro, he says, "I kept breaking bikes." He wanted to create one that was not only more durable than his competitors but also specifically designed for the demands of triathlons. His bikes, he explains, provide a comfortable fit, despite the awkward aerodynamic position in which triathletes race, and handle well at high speeds.
He therefore
started asking friends, customers and business associates about places
where he might find some guidance. His inquiries led him
to the Wharton Small
Business Development Center. The Wharton SBDC,
which is supported in part by the Wharton School and is part of Pennsylvania
Small Business Development Center network of SBDCs, provides consulting
and education for small businesses, like Greenfield's, located
in the Philadelphia region. The Wharton SBDC is a division of the Sol
C. Snider Entrepreneurial Research Center.
Staffers at the Wharton SBDC responded to Greenfield's request
as they do to the hundreds that they receive each year. They met with
him to do an initial assessment of his needs and then they dispatched
one of their consultants — in this case, Tim Walters, who was a second
year MBA student — to assist him.
Walters began by doing a profitability analysis of Elite, breaking the business down by bike frame — Elite sells several — and by the parts that Greenfield installs on his frames such as handlebars, brakes and pedals. Just as important, Walters taught one of Greenfield's employees how to use Excel spreadsheets, so Elite could continue to do this sort of analysis after the consulting relationship ended.
Walters' analysis helped Greenfield see that he needed to move production of his cheapest frame abroad; the rest of his frames are made in California. "That frame was almost a loss leader," Greenfield says. "Now we're making good money on it."
The analysis also prompted Greenfield to raise the prices on all of the frames that he produced in the United States. Walters showed him that his profit margins were smaller than those of comparable bike makers, even though his costs were competitive.
Greenfield had suspected that he managed costs well. Since he had bootstrapped the business, starting in his basement, he had always kept overhead low. Even now, as a well-established bike maker, he operates out of a modest storefront in Center City Philadelphia and employs only a handful of people. "People who just know our bikes think that this company is a lot bigger than it is," he says.
Greenfield also asked Walters to help him decide whether to set up a shop for painting his bikes. He lets his customers choose the color schemes on higher-end bikes, and he had long outsourced the painting. "I sat down with Tim, and we figured out that bringing it in-house would only be profitable after, like, 10 years." Greenfield, therefore, continued to outsource.
Elite has kept growing, including increasing sales abroad, since its engagement with the Wharton SBDC ended. Greenfield attributes that partly to what he learned from Walters. Besides continuing to use the financial-analysis tools that Walters created, Greenfield believes that Walters taught him to be a better entrepreneur. "I pay more attention now," he says. "I know what months are slow and what months are big. I know when the lulls are. That's also allowed me to take precautions."
Unlike
Greenfield, Jonathan Bebo had plenty of business training when he approached
the Wharton SBDC for help last summer. Bebo had
graduated
with
an MBA from
Wharton in 2003. While in school, he knew he wanted to be an entrepreneur.
But he spent
about a year finding the right venture. "I wanted to find something that
I could test with my time and money and not by raising $3 million to $4 million
from venture capitalists," he says.
He settled on the idea of renting DVDs and DVD players to people riding trains on the railway corridor that stretches from Washington, D.C., to New York, which is the country's busiest. He figured that the idea would be easy to test. All he'd need initially were DVDs, players and kiosks for rentals and returns in, say, New York and Philadelphia. But as he delved into his market research, he concluded that his plan wouldn't work. Securing space in train stations and locking out competitors would be too tough.
Still, he was convinced that the basic concept of renting DVDs to people away from home made sense. Pondering other venues where it might work, Bebo settled on hospitals. "In hospitals, you have lots of people waiting around," he says. Plus, he figured that he could persuade a local hospital to let him test the business with a kiosk in its lobby. After all, the hospital would have to spare only the space, and Bebo's service could make the stays of patients and their families more pleasant.
He also suspected that many hospitals would have little interest in competing with him because they'd have to swap their old TVs for ones compatible with DVD players. "Eighty-five percent of hospitals are nonprofits," he says. "And many of them are struggling with huge cost pressures."
He persuaded Riddle Memorial Hospital in Media, PA, to give the service a try. Last summer, his company, called Careflix, set up a kiosk offering 300 movies and a dozen DVD players. "The trial gave us a lot of data. By Christmas, we'd been going for three or four months, and then we went to the Wharton SBDC and asked what should we do," he says.
The Wharton SBDC, led by consultant Chris Luo, pored over Bebo's business plan and data and came to a surprising conclusion: Ditch the kiosks. Rather than handling the rentals himself, Luo suggested, he should consider partnering with hospital food-service staffs, which already visit every patient room thrice daily.
Bebo therefore approached Sodexho, the food and facilities-management giant, about a partnership. "Sodexho is in about 1,000 hospitals across the U.S.," Bebo says. "And they're very enthusiastic about improving the total patient experience."
The discussions led to a six-hospital trial of Careflix's service. For these, which began this summer, Careflix is providing DVDs and players, a week of startup consulting at each site and a telephone helpline. Assuming the trial succeeds, Bebo hopes to partner with other hospital food-service firms, too.
In addition, Bebo is considering expanding his business model thanks to a series of discussions with Leslie Mitts, the Wharton SBDC's managing practice leader, about long-term strategy. "We're moving beyond the simple model of movies and thinking about patient education as well," he says. "Maybe we'll in bring in health insurance and pharmaceutical companies as partners."
Bebo credits Luo and Mitts with helping him move his business forward by being able to take a broader view. "They came at things from a different place," he says. "They weren't trapped in the detail. They were able to take a step back."
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Wharton Entrepreneurial Programs
Wharton Small Business Development Center
Sol C. Snider Entrepreneurial Research Center