New Venture Lab: Equipping Christian Entrepreneurs

Test your entrepreneurship skills.  Read through the profile below and try to determine whether or not you think this startup survived.  The outcome (or the current status) is shown below:

The Idea:

Concept: Inspired by the success of Southwest Airlines (nyse: LUV) and JetBlue Airways (nasdaq: JBLU) in the States, this U.K. outfit, founded in April 2002, aimed to bring a similar low-cost formula to Europe. The market seemed receptive: Morgan Stanley (nyse: MS) was expecting a pack of budget airlines--including EasyJet, Ryanair (nasdaq: RYAAY), Go and Buzz--to triple their share of European air travel, to 28%, by 2010.

Of course, the economics of the airline industry were brutal even before the price of crude oil spiked to $70 per barrel. (Jet fuel, made from crude, can eat up a quarter of an airline's operating budget.) Competitors did deals to gain efficiencies (EasyJet bought Go; Ryanair picked up Buzz), although the savings would take time to kick in--opening the door, perhaps, for a new, nimbler player.

To gain an edge, this upstart chose to fly only into smaller hubs--like Luton Airport, 40 miles north of London--that charge relatively low terminal fees but are still close enough to popular business or leisure destinations. It kept costs further in check by flying used aircraft on long-term leases. As for revving up revenue, the company planned to wire its fleet with technology that would allow passengers to receive cell-phone signals and connect wirelessly to the Internet--without interfering with electronic transmissions to and from the cockpit.

Funding: The company raised $1.6 million: $1.3 million from angels and friends, and $300,000 from the founders. It also received a "letter of intent" for another $13 million from a Luxembourg-based finance outfit called the European Aircraft Association. (In essence, EAA promised to raise the money by shopping the company's balance sheet to other investors, but the agreement set no firm time line for when EAA would deliver the money.)

By October 2003, the startup was down to its last $250,000 (EAA had not delivered a dime) and was looking to raise another $5 million to $10 million for more planes, gate rentals, salaries and insurance.

Management: The founders hailed mainly from large, established airlines such as British Airways (nyse: BAB) and Lufthansa. One of them helped launch Buzz in the U.K. The chief executive ran operations for a large financial services company, and one adviser was a past chairman of the London International Financial Futures Exchange.

The Outcome:

Rule of thumb: Don't count the money until the check has cleared the bank. Unfortunately, the subject of this quiz not only counted money that it never really had, it spent the cash, too.

Founded in April 2002 and inspired by the success of Southwest Airlines (nyse: LUV) and JetBlue Airways (nasdaq: JBLU) in the States, the U.K. outfit (which will remain anonymous) aimed to bring a similar low-cost formula to Europe. Despite the brutal economics of the airline industry, Wall Street was fired up about the upstart's prospects: Morgan Stanley expected a pack of budget airlines--including EasyJet, Ryanair (nasdaq: RYAAY), Go and Buzz--to triple their share of European air travel, to 28%, by 2010. And while competitors were doing deals to gain efficiencies (EasyJet bought Go; Ryanair picked up Buzz), the savings would take time to kick in--opening the door, in theory, for a new, nimbler player.

The entrepreneurs--who hailed mainly from established airlines such as British Airways (nyse: BAB) and Deutsche Lufthansa (other-otc: DLAKY)--had a multifaceted strategy: Fly into smaller hubs that charge low terminal fees but are still close to popular destinations; keep costs low by flying used aircraft on long-term leases; and wire the fleet with technology allowing passengers to receive cellphone signals and connect wirelessly to the Internet without interfering with transmissions to and from the cockpit. All in all, a solid plan.

The linchpin: Beyond the $1.6 million the founders had managed to raise, they received a "letter of intent" for another $13 million from a Luxembourg-based finance outfit called the European Aircraft Association. The EAA promised to raise the money by shopping the company's balance sheet to other investors, but the agreement set no firm time line for when EAA would deliver the money.

Source: Forbes