Before we get started, have you seen these? Here’s a box right there on Wistia. Here’s another box on InDinero’s website. They’re all over the place. They’re from this company, Olark. Here’s another one, and the reason these companies have the box up on their website is so their customers can have chats with them in real time. Now imagine what a confused customer is going through and the frustration they’re having with the website, and then boom! they have the ability to chat, with the founder, with somebody at the company who cares and can help them.
Beyond solving their problem and giving you a way to help your customers, it will also give you insight into what your customers are going through when they’re on your site in real time, Olark. I’m making you aware of them so that you’ll add them to your website and be able to give your customers incredible support and so you can learn from them. Once you hear about Olark, you’ll see them all over the place.
My second sponsor is Grasshopper. It’s the virtual phone system that entrepreneurs love. It gives us toll-free numbers. My toll-free number’s from Grasshopper. Unlimited extensions, call forwarding and so much more, Grasshopper.com.
And final sponsor is Scott Edward Walker of Walker Corporate Law. Imagine having a problem with a contract, imagine having to get an agreement put together and walking over to either your family lawyer who just doesn’t get it or one of the expensive startup law firms who’s going to want a piece of your business and then tens of thousands of dollars in billing. And then imagine going over to Scott Edward Walker who will understand what you have as a business and understand your environment and be able to help you out, Walker Corporate Law.
Here’s the program.
Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart, the place where you come to listen to entrepreneurs tell the stories behind their businesses so that you can help find out how they built them.
Joining me is Nicholas Green. In 2003, he founded the test prep company, Ivy Insiders. Seven years later he sold it to Revolution Prep. I invited him here to tell the story behind the business. Nicholas, welcome.
Nicholas: Thank you, Andrew.
Andrew: How many students did you have at the time of the sale?
Nicholas: The year that we sold, 2010, we worked with about 6,000 students.
Andrew: 6,000 students. Wow.
Nicholas: 6,000 students.
Andrew: And how much was each student paying?
Nicholas: Most students were paying between – it’s a pretty wide range – but between $200 and upwards of $3,000, depending on whether they were doing group courses, private tutoring, online, in person, etc.
Andrew: When I was looking at the articles about you business, what I saw at first was there was a lot of articles that were saying, he’s cheaper than Kaplan, and he raises the test scores higher than Kaplan. Did you start off with a cheaper price and then raise it and offer other more expensive services over time?
Nicholas: Yeah. We came in certainly with a value kind of strategy early on. I started teaching SAT classes when I was in high school. So I kind of just by virtue of my own lack of brand, lack of experience, that was the strategy that made the most sense for me, and it worked pretty well. I entered the market in 2002, 2003 at a time when Kaplan and Princeton Review were the only household names, a lot of mom and pop shops on the one end, Princeton Review just dominating the market on the other, and they were charging $1,000 plus for test prep. This was almost ten years ago and for test prep that had no transparency of results and quite a lot of customer dissatisfaction issues.
I saw an opportunity where I could come in and not only be half the price. In fact, early on it was less than half the price but also deliver results that were significantly higher. When your competitors aren’t willing to show their results, it’s that much better.
Andrew: How much money did you guys raise to build the business?
Nicholas: I actually bootstrapped the business. I had the distinct luxury of being a college student as I grew it, and it being a very seasonal business that I was able to run it during my summer vacations. It’s a service business, so it wasn’t capital intensive, and I wasn’t depending on the business to pay rent or pay for food.
For me, it was really just something that I could take pretty easily over the course of the first three or four years, grow it slow and organically, plow back the revenues, the profits, rather, each year and fortunately not take any outside investment.
Andrew: Yeah, real bootstrapper. So you went to Harvard University 2003 to 2007. You launched the business 2003, so essentially just as you got into Harvard, you started this business to help other people get into Harvard.
Nicholas: Presumably, yeah. My goal was to help kids get into whatever colleges they were excited about, and obviously early on one of the advantages of the brand was the idea of working with an Ivy League undergraduate which for students who are intending to attend competitive colleges, that’s very appealing.
We also found that Ivy Insiders didn’t just appeal to that sort of upper echelon of high powered students. There were students from all across the spectrum with all sorts of cool colleges that they wanted to attend. Early on, I was doing the classes myself, teaching in my local community, so it was really just family and friends that I was working with.
Andrew: How much did you sell the business for?
Nicholas: The amount of the sale wasn’t disclosed. It was a private sale to Revolution Prep. I can tell you that at the time of the sale we were doing between $2 and $3 million in annual revenues.
Andrew: $2 million and $3 million dollars and you were the only owner of the business?
Nicholas: I was the sole owner, yeah.
Andrew: Sole owner. Wow. What were the net margins roughly? What were we talking about in this business?
Nicholas: Test prep is a high margin business.
Andrew: It’s a high margin business?
Nicholas: It is. On the service side, it certainly is. On the software side, it’s even higher. So we were doing a split between some online and then a lot, obviously, on the ground. Our model was very different in that we were actually paying our entrepreneurs to go out and sell the programs themselves, deliver the programs, and then participate in the profits.
We had a pretty low risk and relatively high margin model that was successful in generating between 30 and 40 percent margins pretty consistently.
Andrew: Oh. And high margin, even for you the parent company that was enabling all these entrepreneurs to set up shop around the country?
Nicholas: Yep.
Andrew: Oh, wow.
Nicholas: Those are operating margins, and as I said, we are staffed up for growth and certainly investing most of the capital in growth. You can do an adjustment to even an EBITDA that looks pretty good.
Andrew: Right.
Nicholas: Or you could look at the actual EBITDA which wasn’t nearly as good.
Andrew: Your gross margins, they were . . . are we talking over 30 percent in this business?
Nicholas: For gross margins, yeah. That’s pretty typical actually of test prep.
Andrew: Well, all right. Let’s go back and find out how you came up with the idea, how you grew it, how you came up with the vision for spreading it by having others promote it. You started it as soon as you got into school. Help me understand at what point specifically in your first year of Harvard did you say I’m going to start this business?
Nicholas: Actually, I started before I got . . .
Andrew: You did.
Nicholas: After I got into school, before I got to school.
Andrew: Okay.
Nicholas: The first courses that I ran were after my senior year of high school. I hadn’t done test prep myself, but I had a lot of friends who had. As I said, I sort of saw a marketplace that my age group was very familiar with, and it didn’t really offer a lot of appealing options. You had, again, sort of mom and pops on the one hand that lacked the expertise, lacked the track record and in many cases were out of touch with the current college admissions process and the new SAT.
And then, on the other hand you have the very expensive “premium” options of Kaplan, Princeton Review, and a few others that were high priced and not really delivering results either. I had done a little bit of tutoring on the side while I was in high school and decided, why don’t I run my own SAT course this summer. I think I can do pretty well. I had gotten a perfect score on the test myself and sort of leveraged, basically, my academic credentials, my test score performance and just my network and my community.
I was the captain of a cross country team, the debate team. Obviously, I knew a lot of folks at the high school. I gave classroom presentations in the classes of my favorite high school teachers. I hired some of my friends to market the course as promoters.
Andrew: You got students by going into classes and giving presentations about your tutoring?
Nicholas: Well, not about my tutoring, about free workshops that I’d hold or free practice exams that I’d hold.
Andrew: Oh, wait. This is interesting. You had like a whole sales funnel then. Wait. You stood up and you’d tell people about a free workshop. They’d come into the free workshop.
Nicholas: Right.
Andrew: You would train them.
Nicholas: Right.
Andrew: Then, if they wanted more, that’s where they pay, and that’s where they get this. Is that right?
Nicholas: Absolutely. It was a very face-to-face grassroots model, and business continued to be that way. That’s how we scaled, by getting people with the same kinds of backgrounds and the same kind of credentials that I had and the same kind of network in their community to do the exact same thing, talk to the people they know, communicate the importance of test prep, get them in for a free practice test or a free workshop, give them a free consultation, even give them a free tutoring session, and the experience and the results speaks for themselves. When you’re working with somebody…
Andrew: Where did you get the idea to create that workshop first and then sell? Most people would just go straight for the sale, stand up in front of a class and say, buy from me or, maybe, they might say, here are five great tricks. If you want to learn the real stuff, sign up and buy. Where did you get this idea for a sales funnel?
Nicholas: I mean, what they’d call it now is sort of a freemium model. It certainly wasn’t the way that I framed it at the time, but the idea was, I think, a pretty logical one. If you’ve got a great product or a great service, people will be willing to pay for it. If what you do creates value, there’s a market for that, and you don’t have to be worried about showing what you have before they pay.
And so, for me I was confident enough that given the chance to deliver a workshop to a set group of students or given the chance to do a free private tutoring session that was going to result in a sale. I was, for the most part, successful.
Andrew: Did you get that from a business book? I know later on, and we’ll talk about this, you had good advisors, but where did the original idea come from?
Nicholas: Honestly, it was just sort of my thinking about what’s the best way to get students. I’ve got no track record, no experience to speak of. The only things I have is I feel like I’m well known to these students. They know who I am. I did well in the test myself, and I think I can talk pretty well.
Andrew: Were you someone in high school who was confident? We always imagine that the guy who was on the football team was, maybe, a meathead but was confident and popular, but the guy who did great on SATs was a dork, who wasn’t comfortable talking with people but could work on it. You don’t seem to fit that stereotype. Were you someone who’s always confident in public?
Nicholas: It’s funny. I have what I call contact specific confidence, and one of the areas that I was definitely confident is public speaking. I was part of the debate team and traveled nationally for debate during high school and then standardized tests. I’d done well on them and could speak about them with some eloquence. No, I definitely wasn’t the big man on campus by any stretch of the imagination. I think I was much more known as the nerd, but given the chance to talk about something nerdy, I did all right.
Andrew: Oh, wow. Contact specific confidence. I’ve never heard that, but I really like that.
Nicholas: Put me on the football field, and I won’t be very confident, I’ll tell you that.
Andrew: I was going to ask you about that. I don’t want to make you feel like you’re some kind of superman who’s terrific at this. I want to expose some of your weaknesses just to make sure that people see that you’re a real human being who’s open with us. Tell me about a place where you weren’t confident in high school?
Nicholas: Socially. I would still say in a business context, a structured setting, a meeting, whatever, I’m confident, I’m comfortable, et cetera. Sit me down at a bar next to a group of friends, and I’m definitely not going to be the one who’s controlling the conversation. I think the confidence is absolutely contact specific, and a lot of it has to do with where you’ve got experience and where you’ve got expertise. It sort of goes back to what I was saying before.
With giving away something for free, you can be confident that you’ll sell it if it’s worth value, and it’s easy to be confident when you’ve got value and when it came to whether it was public speaking or test taking, it was something that the confidence was legitimate. I know I’m not the best in social situations, so therefore I don’t have the confidence.
Andrew: Interesting. What about the curriculum? Did you use the same curriculum that you taught when you were working somewhere else?
Nicholas: Well, I never worked anywhere else, and I didn’t do a lot of formal test prep myself so that was one of the early challenges for me. I’ve always seen the SAT and other standardized tests as games, and so my initial approach right off the bat was let’s turn it into a game. Let’s get inside the test maker’s head. The test maker is the opponent. If you ever want to beat the test, you’ve got to beat the test maker. You have to understand their psychology.
And so, that was the starting point for me. Then, it came down to doing a lot of reading of the test prep books that I hadn’t read when I was actually getting ready for the SAT and taking bits and pieces from each that I thought were interesting and would work. And then formulating them around this idea of turning the test into a game.
What that ended up becoming was the core of our audience headers curriculum which we call SAT game theory. It was a fun approach, a little bit edgy. It’s really great when it’s delivered by someone who’s young and who’s been in the student’s shoes before. Like I said, the results were really strong, even from the beginning.
Andrew: Yeah. Here I’m looking at an old article. Pollock, I guess, was one of your instructors.
Nicholas: Who’s that?
Andrew: Pollock. Was Pollock one of the early instructors? I forget where I copied and pasted it. I kind of wish that I . . .
Nicholas: Is that the last name or first?
Andrew: The last name.
Nicholas: Yeah. I think that’s Theodore.
Andrew: Ah, Theodore Pollock. Okay. At Ivy Insiders instructors utilize the SAT game theory in their lectures, a tactic not used by standard test prep companies according to Pollock. “What the game theory translates to is that we break down the SAT as if it were a game to be beaten,” she said. “Instead of drilling 500 vocabulary words into your head, we focus on teaching the most useful strategies to attack each area of the test.”
I’ll come back to that in a minute because what’s interesting to me is it looks like every city you went into, the local schools would write about you. I’m wondering if that was planned, or actually let’s jump into it now. No, I want to go and find out.
Nicholas: It absolutely was planned.
Andrew: Sorry?
Nicholas: It absolutely was planned. That was completely part of the plan, and early on I had done in my own community local press releases. Again, just leveraging the network that I had. I had a network in the school. I had a network with sports. I had a network with debate, and I’d been featured in the newspaper a few times before, just the local newspaper for my test scores or debate performance or whatever.
I went to the staff writer who had interviewed me for those stories and basically said, hey, this is what I’m doing this summer, starting my own business. This is how it’s going to work. This is what I’m going to do. I’m going to hold all these free events. Why don’t you write a story about me? He did and multiply that by 300, and you kind of get what the business was doing last year.
Andrew: Oh, wow. How many students did you get the first time you did it?
Nicholas: The first summer that I taught my classes, I worked with about 80 students.
Andrew: 80.
Nicholas: I think I was charging about $250 per student, and it was a ton of, ton of fun. I think the initial pool of students that I had was, maybe, 15 or 20 during my June or July classes, but then by August I had to open up like three extra classes because the referral business was so strong. That’s actually something that’s also remained really, really constant in the business.
Again, you have someone in the front of the classroom who doesn’t look like a normal teacher, who is only a few years older than the students or teaching and that can really relate to them, have credibility with them and say things that will resonate with the students. Kids talk about that. When they come out of the class and they’ve raised their score 250 to 300 points, they talk about that, too.
When a parent has a kid come back from SAT class and say, hey, mom, today was fun, they talk about that. Referral business as referrals as, I think, with most service businesses was at the core of the exponential growth for us. That’s where things really get viral in the individual markets and then for the business as well.
Andrew: What did you do in the beginning to make your course such fun because I remember the SAT classes being something I had to do. It was not fun. What did you do to make it fun?
Nicholas: I think it was just being real with the students. Right off the bat, again, you have an added layer of credibility and when you are 18, 19, 20 years old yourself.
Andrew: There’s also a danger there. I see the credibility that comes from it, but also if you weren’t good, then they would say, oh, he’s just a kid. He’s just like us. The guy hustled our parents into paying, but he’s not going to hustle us into paying attention. So there was more to it. Was it attitude that you were bringing into it?
Nicholas: I think it was. There was a certain level of edge from the very beginning, saying look, this test is a game. All right, it’s not about being smart. It’s not about how much you studied in high school. It’s not about anything else except for how well you play the game, how well you understand the test, how much you practice, and how well you employ the right strategies to beat it. That in itself is an empowering thing to students who are sitting here stressed out about the test, not only because they think it’s crucial to get into college, but for many of them because they see it as an evaluation of their intelligence.
Right off the bat you destress the exam and get them feeling excited and put that edge on. And then I think the second part comes down to just getting results, like when people see themselves improving. We had exams. I would do problem sets every single day, exams every single week. When they come in after that second exam and say, damn, I just improved 100 points on my SAT after one week of class. That gets kids excited.
Andrew: I remember actually at Dale Carnegie when we taught presentation skills and how to win friends and influence people, the whole Dale Carnegie session, one of the reasons that they kept people so engaged for the eight or twelve week programs was that they gave you an instant breakthrough. They found one thing that they could teach you that you can see results from right away in the first session. And they knew that if they could get you to do that, then you’re going to trust them the rest of the sessions when it might take a little bit longer. Did you have something like that? How did you find that one thing that would give them instant results?
Nicholas: I had a few of them, and I didn’t wait until the first class for them. Those are in the workshops.
Andrew: Oh, in that first workshop. Tell me about that.
Nicholas: Oh, yeah. That’s how you close them, right? If someone sees I just learned a skill that’s going to raise my SAT score 30 points in five minutes, just a simple heuristic, a simple paradigm shift that raises my score instantly, that gets them excited. You create that credibility, and I think that’s what Dale Carnegie is talking about, and that’s what I would try to do in the workshops.
You have to do that continuously. You have to keep giving them little bits of things where they feel like they’re getting freebies. If people feel like they can get something for nothing, there’s nothing more exciting for them than that.
Andrew: How do you find the one thing that gives them the instant result?
Nicholas: Well, on the SAT, fortunately, there’s tons of them. There’s tons of tricks and traps that the test makers have laid for you.
Andrew: Do you remember one of them?
Nicholas: The guessing penalty. People might have forgot about the guessing penalty.
Andrew: What is it?
Nicholas: The guessing penalty.
Andrew: The guessing penalty, okay.
Nicholas: Student freak out, in general, about the guessing penalty. As soon as they find out you lose a fraction of a point for every question you get wrong, they instantly become way more conservative than they should be. People are more afraid to lose what they think they already have than they are excited about gaining what they don’t.
Most students are really, really conservative with guessing. They don’t fill in any answers unless they’re absolutely positive of the results or that they’re correct. For most students, that’s a really bad strategy because if you can eliminate one or two answers on each question, you’re actually at a statistical advantage to guess randomly on the remaining answers.
Right off the bat, telling a student, look at your practice test. You got 20 questions wrong that you just left blank. All right. How many of those would you have eliminated with, at least, one answer? Well, probably all of them. How many could you have eliminated with two? Half of them, right, blah, blah, blah. You realize if you had just guessed on these questions, you would have gotten five extra points, which translates to 50 on the scale, 50 points.
Andrew: I see.
Nicholas: That’s just a really simple one. That’s taking advantage of the test format, but there’s a lot of others, too. There’s concepts that appear over and over and over again on the SAT. There’s question types that appear every time the test is given, and there’s little tricks in terms of the way that you move through sections of the test that matter massively in your ultimate score.
One of the biggest places where people fall on their face on the critical reading, for example, is reading the passage before they read the questions. Well, you don’t get points for reading the passage. The only reason you care about the passage is it contains answers to the questions. So read the questions first, then look at the passage and answer the questions as you go. It’s efficiency stuff like that that can make a big difference in terms of the test.
Andrew: Okay. All right. Now I want to sign up for a SAT course. It’s interesting. Once we feel like we’ve got some control of something, we want to go in and master it.
Nicholas: Absolutely.
Andrew: All right. I see how you’re growing by speaking to classes. I see how you’re growing by speaking to the papers. What’s the next step?
Nicholas: The next step was really kind of accidental. I had never planned to build a scaled business. I never planned to hire additional employees. I was very content as a college freshman and sophomore to be making $10,000 or $15,000 during the summer, teaching SAT classes twice a week. What happened for me, I decided after my junior year of college I should probably get a real job. It’s everyone and my cohort at Harvard was getting summer internships. They were looking at investment banks, consulting firms, et cetera.
So I went through the whole interview round about there, and I landed a job and didn’t think about what I was going to do with my SAT business until after I got the job offer. At that moment I was thinking, damn I don’t want to lose this job, and I don’t want to lose my business. At that point I already had a website. I had a bunch of marketing collateral that I designed and put together myself. I had a curriculum. I had run the business for four years. I knew how it worked.
I thought, why don’t I try to teach other students at Harvard who had the same background as me, the same credentials, and are just finishing up their freshman or their sophomore year, how to do this. They can go back home. I’ll take a cut of their profits. They’ll take a cut of the profits, and we’ll see what happens.
I hired 15 undergrads, all from Harvard, that first summer. I trained them in the basement of my dorm and made copies of the collateral. I added them onto my website which was powered by Word Press at the time and kind of just had a go of it. It worked, and I gave them the title of branch manager which was a big thing for them. They get a little bit of cache that way. I had branch managers that summer who were more successful than I had been my first summer running my business. I had some, of course, that were less, but what I realized pretty quickly was there was nothing magical about me.
There’s a lot of people that can do this job, and the next year I went out and hired from all across the Ivy League. And the next year I found out there was nothing special about Ivy League undergrads either. We could hire people from other top colleges or top candidates from other very middle of the road colleges who could go back and do a phenomenal job in the position.
Andrew: I see. The idea was send them back with the same sales process that you had, but what I’m wondering there is couldn’t they just take your sales process and, maybe, get a SAT book or two or adjust it and make the sales themselves?
Nicholas: Absolutely. That was a major concern in the business model at all points. They can always go below board. They can even use my curriculum and just not tell me and take the sign-up in cash. I think that issue is exacerbated by the fact that the parents, in fact, will ask for that. They see the sticker price on private tutoring, and it’s $80 or $100 an hour. Well, hey, why don’t I pay you $40 cash? Then, you’ll make the same amount and I’ll be paying half as much.
Yeah, there’s that temptation all the time. I think early on it’s very much a trust thing. I was hiring people, some of whom I actually knew in college. I was training them personally, and I think their connection to an individual was a big check against that. As we grew, there had to be some teeth behind that. They no longer felt a personal connection to the owner of the business, and I think we had to be a little bit more draconian in saying, look, if you do this, this is how I’ll find out and this is what will happen. At the end of the day… What’s that?
Andrew: What happened?
Nicholas: We report them to Career Services.
Andrew: You what?
Nicholas: And this has happened, by the way. We report them to Career Services.
Andrew: Career Services at the school?
Nicholas: At the school.
Andrew: I though you would say, we sue them. That’s a big factor with things when you were doing it?
Nicholas: That’s a threat, but what I’ll tell branch managers all the time and to this day we’ll say this. Look, you’ll sign a contract. In that contract it’s a non-compete. You’re working for a boss. Part of that means you’re not doing services on the side. If you do these services on the side, we will terminate you. We’ll report you to Career Services. It would be within our legal right to sue you. Practically speaking, we’re not going to do that. It’s not worth it but know that there will be consequences.
The much bigger thing, I think, for the two or three percent of people that might do that if they weren’t given severe consequences, we need to do that because it is a risk to our business. But for the 97 percent of people that are normal, relatively ethical people I think all it takes is just saying don’t do it, and then showing we’re contributing value to justify the company takes
Andrew: What kind of value do you give beyond the original idea?
Nicholas: Well, now it’s actually a management program that they participate in, so they receive several days of full training, both the business and the teaching side. They, of course, receive our entire curriculum. They receive a presence on our website, all the Ecommerce functionality, the record tracking, et cetera. They also though receive a lot of business best practices, business systems, tools, operating systems, marketing, metric trackers, all the institutional memory that the company has accumulated over the last seven years so that the business for them essentially becomes plug and play.
It’s a very similar value proposition, I think, to a franchisee but probably magnified because these are first time entrepreneurs who are wanting to learn business skills and aren’t coming in with much background whatsoever.
Andrew: The article I saw was with Jody Pollock.
Nicholas: Jody Pollock, right, in Pittsburgh.
Andrew: Sorry?
Nicholas: Is it in Pittsburgh?
Andrew: Let’s see, Montgomery High School. I don’t know where it is, but it’s Montgomery Blair High School.
Nicholas: Okay.
Andrew: These are the kinds of articles that I found about you as I was doing research. Basically, it’s saying Blair, I guess that means the high school, has partnered with Ivy Insiders for a series of essays, so they’re talking about you, and they’re talking about Jody Pollock, and they’re talking about the courses. How did you train-what did you call them, I’m sorry?
Nicholas: Branch managers.
Andrew: Branch managers. How did you train the branch managers to get press like this locally?
Nicholas: Good question. A lot of it is just who they are. They are success stories out of the community, and they’re coming back. A lot of what they’re doing is free workshops and practice exams and tutoring for students in their community. I’d say it’s a pretty compelling story actually that usually doesn’t require a lot of work to get published, someone that’s young, that’s been successful. Maybe, scored a perfect score on the test, attends a good college, is coming back to help kids in the community do the same. It makes for a good story. I think that’s part of it.
I think the other part of it from a business standpoint is we really systematized the whole thing. We have press release templates. We have a whole script for how do you go in and get the press release landed. Here’s an email that you can send to the staff writers. Here’s how you should do your follow-up. And then, they use actually a business system where they have a sales dashboard, CRM tools to track their follow-ups, whether it’s with potential customers, whether it’s with administrators they’re looking to partner with, or whether it’s with a newspaper that they’re looking to get an article published in. We really make sure…
Andrew: I see you smile because that’s the part that I’m amazed by that you were giving them a whole kit so that they could go out there and get press and get new students and so on. By the way, this article is written by a student at Blair. It’s glowing. It raves about you in a way that the New York Times wouldn’t rave about someone else.
Nicholas: The funny thing is I probably wrote most of that article.
Andrew: So, that’s what it is.
Nicholas: Jody probably gave that person a template that was the press release.
Andrew: Interesting. Okay. How did you know this? I don’t see anything in your background that says Nicholas studied PR, was a PR expert and then decided to go into this. It just seems to come out as I’m researching you. Where did you find out how to do this?
Nicholas: It was trial and error. The first summer they had very bare bones direction, and some branch managers got it, others had no clue where to start. You iterate a few times, and you figure out what kind of direction people need, what level of specificity and granularity they need in the directions. What I figured out, and I don’t know how universal this is, it’s certainly the case for young first-time, I would say, employees but definitely college students is they need a lot of direction, and they need it right down to the granular level.
If we don’t give an email template for a communication to high schools, 90 percent of branch managers will send something that’s pretty good, five percent of them will send something that’s pretty bad but not embarrassing, and one to five percent are going to send something that you just want to pull your hair out when you read what they sent.
We are very hands on, and the branch managers frankly appreciate that. What they appreciate is the fact that they don’t have the professional experience. They may not know the way to initiate some of these interactions, and so to be able, like I said, go to that kit and plug and play is a real advantage to them.
Andrew: So this is you just figuring it out on your own and how to write a press release back when you’re starting to do your own training and then adjusting it, adjusting it, passing it onto them and then they use it. And then, you realize, wait, I need to give them more of a framework so you improve it. It’s that kind of process.
Nicholas: Exactly. And a lot of the improvements wouldn’t actually come from me, right? I would see an article that a branch manager got published, and I’d say, where did this article come from? They’d say, well, I took your press release and I tailored it a little bit. One of the greatest assets our business has always had is the hundreds of very, very smart, young undergraduates who are coming in, knowing so little that they can be ambitious, they can try new things, and every once in a while one of those experiments really works.
We’ll take it, and we’ll put it into the institutional memory. That’s allowed us, I think, to reach an optimization point on a lot of our collateral, on a lot of our marketing best practices, on a lot of our systems and processes in general.
Andrew: I’m curious about how you do that. I don’t know Jody Pollock, but she did a really good job with this. I’m wondering if she innovates or he innovates. How do you bring that back? It seems like you’re really good at giving people systems, and most people who are good at giving systems often aren’t good at being flexible and adjusting those systems, based on what other people do. How does your institutional memory have that loop that allows it to improve?
Nicholas: Most of the systems were built around, not just enabling me to communicate with branch managers but giving me visibility into what they were doing. That’s something I realized very quickly in a decentralized organization was essential. Again, if people don’t have accountability, you’re going to have some percentage, maybe a significant percentage, who will still go out and do it, especially if their incentives are aligned, but you’ll have some people that won’t.
And so, pretty early on we started building the business systems that required branch managers to go in every day and report what activities that they did and attach what press release they used and paste the email that they used.
Again, they’re doing all their customer relationship management directly in their Ivy Insiders dashboard, so we can see summaries of each of the interactions that they had, every email that they wrote, how many times they’re contacting the customers. And that enables us to sort of, in a sense, micromanage them but do it at scale.
That kind of two-way business system was important from the very beginning, and one of the things that we actually did which I think was probably one of the biggest innovations there was gamify the whole process.
Andrew: Gamify the process of teaching them and getting feedback?
Nicholas: Yeah, gamify the business systems.
Andrew: How interesting.
Nicholas: So in the same way, and honestly the insight here came very parallel to the insight on the test, turn it into a game. Kids like that, and they improve. With business systems, no one wants to be sitting in there, hacking away in their CRM dashboard all day, but if you start giving them points for the activities that they log and you tell them that those points are leading indicators of the revenue they ultimately generate. And then you rank order branch managers across the country on the points that they’re receiving, you start to get a competitiveness and a social element to the experience that we found is just explosive.
Andrew: This is fascinating. This is unreal. Okay. You’re not a developer. In the early days, you were too busy focusing and imagining on this business to create a whole CRM program that allowed you to do all that. How did you do it?
Nicholas: Well, one is I got help. I hired people. I brought together a team of people that had more experience in things like sales, specifically sales, than I did.
Andrew: Did they help develop the CRM for you?
Nicholas: Actually, a lot of the CRM stuff I took just out of the box. We began with a software as a system platform, just a database driven platform that allows for rapid non-coding development, basic business systems, totally ugly interface, but pretty powerful ability to create customized applications. And then, we took out of the box some of the applications that had already been built on that platform. CRM is a pretty typical one.
Then, we had some other tracking tools that we used and made minor modifications to it, but gen one was very bare bones. And again, like a lot of the areas of the business, it was the iteration and the trial and error and just continual modification that brought it to be something that I think now is very plausible.
Andrew: The gamification was custom.
Nicholas: The gamification was totally custom, yeah. I created my own metric called the Ivy Points, and that metric, the way we set it up, was so that the Ivy Points would directly correspond to the dollar value of the activities the branch managers were doing.
They would log their activities in the dashboard. They received Ivy Points. They’re rank ordered in Ivy Points among different categories within their region across the country, and those Ivy Points are used to get rewards. They’re used to recognize a branch manager performing well, and ultimately the branch managers will watch their Ivy Points curve converge with the revenue as it starts to come in. But, yeah, it was completely custom. There was nothing out of the box about that.
Andrew: I wonder if people think I’m getting too excited about this without recognizing why I’m getting excited. I should say, can you imagine if there was a CRM that was available right now that would give, even if I was just working as a one man operation, me points every time I made a phone call? First of all, I’d be much more likely to log it in, and second I’d be much more likely to do it and then understand how it impacts my business.
What if I have a team of sales people and I wasn’t just measuring their sales, but I had a way of measuring the phone calls they made or the emails they sent or whatever it is and gamify that? What if I could gamify it with other companies that I’m working with? I could understand how people would get excited and be a part of this and how they might make a phone call or take a step that they wouldn’t otherwise.
Nicholas: They actually did. There are certainly platforms out there that I think enable the kind of metric tracking and comparison to get sales people competitive. I mean, SalesForce.com has that and certainly be used for that sort of thing. I think where our insight was, and what really made it more gamey was to not just say compare people across how many press releases did you release or how many sales did you get this week or how many calls did you make this week. But to create a metric that went across all those categories.
So Ivy Points you now can basically translate, convert each of your different activities into Ivy Points, and it all goes into this one big bucket and one big game. I think that for us was the key insight. It was especially important for our business because in the sales process you have, obviously, a sales time line. It takes time to close a sale, and for our branch managers who are first time sales people they often didn’t understand that.
It can be very disheartening when you spend the first month trying to build your business and you don’t get any sign-ups, or you expected to get 30 sign-ups and instead you get five. And so, the Ivy Points allow them to see the leading indicator of where they are going to be, so they can be confident. Look, I’m doing the right things. I’m doing the right things. The sales will come, and that was key as well.
Andrew: Wow. You know what? I love that. And now I’m wondering, what am I missing about your business? It’s that exciting and that different, and I’m only missing it because I don’t know how to ask the right question or I didn’t happen to read the right high school newspaper that will lead me to it. What else was it? What else made it really effective as a company?
Nicholas: I mean, the talent of the people that we were hiring. There’s not a lot of businesses out there that have figured out how to tap into very rough but very, very high talent individuals like first year college students. You look at most companies. They’re looking to hire kids coming out of college. They want to hire people after their junior year, intern for a summer, and then become full-time. There’s no similar value for an intern who just finished their freshman year.
I think we found a very under valued resource in the labor market in first year college students who happen to be really, really smart and in the areas of SAT and ACT extreme experts, and then within their communities almost local academic celebrities.
Andrew: How could you identify those people? I can understand identifying people who are great at the SAT. There’s obviously a clear metric for it, but to know that someone is both confident and go back to their local community and stand up in front of a class and say, hey, I’m offering this course, come and do it. To me, even, that would be something to make me nervous.
Nicholas: Yeah. I interviewed probably 70 or 80 people in the first year to hire 15. This year we had over 2500 applicants to the program to make about 650 hires. We screen really, really rigorously, and the great thing is when you’re recruiting at schools where everyone’s got the test scores, you can screen on those intangibles, like leadership experience, like confidence, like the speaking ability.
Andrew: At what point did you decide to go online?
Nicholas: We started going online actually not too long before we got bought. That was, I guess, maybe in mid-2008. We started experimenting with online self-directed courses as well as online instructor-led many classes. One of the challenges in our business from the very beginning which was an asset early on but became a liability, was the seasonality, the fact that all the revenue came during this 12 week period during the summer. And so for us, online was the opportunity to continue leveraging the branch managers’ relationships with their home towns. They can continue basically being year-round branch managers but giving their services online.
We didn’t, I don’t think, perfectly hone that model by any means. It remained really a pretty small part of our revenue percentage, and given a few more years I think we could have figured it out, but for us the opportunity to get on a bigger stage faster and join Revolution Prep which was already exploding in the online space and had this pretty, to me, very interesting business in K-12 selling through the school channel. That’s what got me really excited.
Andrew: Tell me more about why you decided to sell instead of growing. Revolution Prep launched, I think, about a year before you.
Nicholas: Yeah.
Andrew: They were on a nice trajectory, but so were you. Why sell instead of continue to be independent?
Nicholas: I think there were a number of considerations. First, I guess the prefacing comment should be I wasn’t looking to sell. We actually were looking to raise capital to get moving online. Like many buyers and like many sellers, I was an opportunistic play, but ultimately what it came down to was, again, to build the online business it was going to take a lot of capital, some significant time, and very significant risk.
My feeling was I had been doubling down for a number of years already. I wasn’t opposed to taking that risk, but I also wasn’t opposed to weighing an alternative. When I actually weighed out those alternatives, I felt that from the standpoint of impact, the standpoint of personal learning, and the standpoint of what I saw as the mission of Ivy Insiders, all three of those things could be affected probably in a bigger way and certainly more immediately than Revolution Prep.
One of the big things which I haven’t even talked about but has been central in Ivy Insiders since the beginning was the social mission. The idea of going back to the community and having test preps that wasn’t just half the price for every students but also was whatever price any student could pay, if they couldn’t pay the full price. We never turned down a student for financial need and over the years have given away literally on the order of millions of dollars of scholarship monies in terms of discounts on the program.
From the beginning the branch managers had 100 percent discretion to discount the course, and in Revolution Prep we found a company that had basically done that on a larger scale. They work through the schools. They have relationships with high schools who support and promote them, and part of that is because they offer scholarships to any student who can’t afford to pay for the course.
I got real excited about that, and then as I said before, they had this other business which I didn’t have a part of or foray into which is the K through 12 channel, so actually working with districts and schools largely low income and urban schools and districts to help the students who would never be paying and in communities that would never be paying for test prep or academic services at all.
Andrew: I remember reading an article in the Wall Street Journal about how colleges get as much money out of you as possible. I hope this comes across well. Tell me if this is a side benefit. Basically, what they were saying was they raised the prices to some astronomical level because someone could afford to pay it. And then, when you come in and you say I can’t afford to pay $40,000, they say, how much can you afford to pay and you say, $10,000. [Snaps fingers} That’s the price.
Nicholas: Yeah.
Andrew: Is it a side benefit of that? That snap actually took me a little bit by surprise.
Nicholas: Yeah. No. I put my business person’s hat on absolutely, right? And we weren’t setting the price at $40,000 a year, thank God. But set a price that captures the willingness of 90 percent of people and then if they can’t afford it, you ask them what is your price? In fact, that’s one of the questions on our scholarship application. What price could you take the program? Generally, we give it to them at that. In fact, universally we give it to them at that.
Andrew: Okay.
Nicholas: For us, I felt that we were in a rare position in that there aren’t a lot of markets where you can do well and you can do good, where you can be impacting kids’ educations, where you can be offering something at a reasonable price, where you can be giving stuff away for free or for close to free to students who can’t afford it and still be very profitable. This is one business that happened to be able to do that, so that was real exciting to me.
Like I said, on the K-12 side which is the business I’m now working very heavily in, you’re selling to the school, but you’re impacting the students, and the students aren’t paying anything.
Andrew: From what I saw, everyone was just very surprised by how low the price was and always happy that the prices were low and the results were high. They would show numbers to me, to be honest, since I haven’t taken the SAT in a while didn’t really speak to me, but I can see that they were happy about it.
I said earlier that over time you offered other services beyond the classes. Can you tell me about those? How did you come up with those extra services, and what were they?
Nicholas: Yeah. We expanded first from the standard group class to private tutoring. We went from there to academic tutoring, SAT tutoring, AP tutoring. From there we moved up to the college admissions space, so actually doing SA editing and college admissions consulting. All of those, for me, were kind of niche businesses, mostly cross cell opportunities, not something that we were heavily marketing as an independent product but definitely were nice and in some cases very high margin activities for us. But our core always remained pretty squarely in the SAT, ACT front.
Andrew: What percentage of the business was SATs versus all the others combined?
Nicholas: It was probably 80-20.
Andrew: 80-20, okayK. The other thing that I mentioned earlier was that there was an article about you in the Harvard Crimson about how you were getting advice from mentors who had been through school. Can you tell me about that and the impact it had?
Nicholas: Yeah. The article in the Harvard Crimson, I think I’m thinking of the same one that you read was actually more about the college admissions consulting side of the business. Actually, Ivy Insiders originally did not have the name, Ivy Insiders, so this is a bit confusing. But from 2003 to 2006 it was just Green Test Prep, right? Until I started scaling the business, I wasn’t calling it Ivy Insiders.
I had actually used Ivy Insiders as a separate name for a boutique college admissions consulting business that I started a year, maybe, it must have been 2006-2007. And then, switched that name over to the test prep business in early to mid-2007.
Andrew: I see.
Nicholas: I believe that article was in reference to specifically the college admissions consulting business but same model, right? You have an instructor mentor that’s been in your shoes before and can really take you through the process because they’ve just been through it recently themselves.
Andrew: Okay. I thought I read that you also had mentors who had been through Harvard, who started businesses before, who were helping you, but maybe I misunderstood it.
Nicholas: Oh, mentors for me. Okay. Maybe, I’m not thinking of the right article then. Why an explanation for no reason?
Andrew: No, actually that was insightful, too. It was interesting to see that, and I’ll come back to the reason for the two companies, but tell me about the mentors.
Nicholas: I definitely did have mentors though. One of the things that I’ve said I always regret is starting the business myself. I would have loved to had a partner, and I think that the synergies that can happen when you’ve got two brains working on one problem, it’s definitely a situation where one plus one is more than two.
It was a perennial challenge for me to be a solo entrepreneur. It was very stressful, so having mentors was always key. Initially, there were friends of my parents who had been entrepreneurs. Later it was through the Harvard community, and that was absolutely seminal in keeping me on track.
Andrew: How do you get someone to be a mentor to you? What’s the benefit for them, and how do you convince them to say yes?
Nicholas: Good question. I guess you show potential, right? I think particularly for entrepreneurs, if you’re really an entrepreneur and passionate about entrepreneurship. You like seeing other people that are going to be entrepreneurs and helping them to get there faster. One of the things about being an entrepreneur is you’re always making mistakes. In retrospect, it’s like, wow, I could have done what I just took a year to do in a month had I only known what I know now.
I think there’s a huge feeling of satisfaction for someone to be able to do that, if not for themselves at a younger age, for someone else who’s in that position that they might have been at. I certainly think about that myself with the branch managers, right? It’s so satisfying for me to have total clarity on these things that for them are still very intractable. I think it’s the same way with a lot of my mentors. It’s just satisfying to be able to help someone.
Andrew: Can you give me an example of one of the mentors who you had? Maybe, how you got them and what he or she did to help?
Nicholas: Yeah. One of my early mentors actually right after I went full-time with the business in 2007 was a guy who lived in Cambridge, attended entrepreneurial events at Harvard. I met him at an entrepreneurial conference and had had a firm doing bar exam review. He sold his business in the mid-’70s. As I see it, a very different space for test prep in general and a different test, but he was an entrepreneur in education in test prep and really, really gave me a lot of insight into just the process of building a business and especially building a business to sell.
Andrew: And so, why would he come in, the same benefit as you said? He wants to see you do well.
Nicholas: Yeah. I think it’s again he’d gone through the trial and travails of being an entrepreneur. He had made all of the mistakes that he knew I was probably going to make, and there’s something satisfying about being able to really help someone do something way better than they would have done had they been learning from trial and error.
Andrew: So you said all entrepreneurs make mistakes. What’s one of the big ones that you made?
Nicholas: Too many to count. I probably made more than your typical entrepreneur because I went into it literally blind. I had no business experience. I had no real experience of any sort, right? I was 18 when I started running my business, but I think there’s myriad examples where I was penny wise and pound foolish kind of thing, just not really understanding how to deploy capital in any meaningful way.
Andrew: Do you have one example because right now it almost comes across as a scary story to hear because it’s inspiring on the one hand because look at how much you built, but on the other hand look at how well he did. Everything just seems to have fallen into place.
Nicholas: Yeah. It’s weird when I talk about it now casually. You think, oh, seven years went by in a snap. During the process it was long. It was arduous, and it was a lot of just 70, 80, 90 hour work weeks. But no, there were huge mistakes.
I think one big example was in hiring. I was always doing two things. One, trying to do outsourced work and get contract work where actually I should probably have been bringing someone in in-house. I had the capital to do it, and once I’d finally get someone in-house they’d produce in a month what I’d just spent the last six months working with a contractor to do. That was a big issue early on.
I think the way of paying people. I’m a huge believer in efficiency wages now. I wasn’t five years ago. I think that when you negotiate people down to their bare sort of walk away number, you can really have them come in with sort of their lowest level effort. When people feel like they’re getting a deal and they feel like they’re being appropriately valued, I think they contribute more value as well.
Those are two examples, but I could probably go through… If I went through a book of business lessons, which I’ve never, by the way, read, I could probably point to two thirds of them and say, yeah, I made that mistake. I made that mistake. I made that mistake.
Andrew: What’s the reason that you did so well, despite all those mistakes?
Nicholas: I think part of it was the strength of the opportunity, just kind of lucky, right? There is a massive opportunity in test prep. I was tapping into it in a small scale. Revolution Prep has tapped into that on a very huge scale, and I happen to be at the right place at the right time and running my little business and realized that I could scale.
I think that’s not an uncommon thing for entrepreneurs. I think there’s always the temptation to think you’re just that smart or that you’re just that effective. I think for me it was really a lot of good fortune, at least, initially with the idea.
Andrew: I said I’d come back and ask about the two companies. Why create a consulting company?
Nicholas: What’s that?
Andrew: Why did you create a consulting company, Ivy Insiders, which eventually became the parent company or the whole business? Why create that side business?
Nicholas: One is I wanted to do it with a friend of mine, and so it was a simpler way to just create a separate entity that he and I would focus on the consulting side rather than looping consulting into my test prep business. The second was my test prep business was called Green Test Prep which consulting doesn’t fall into very well. I didn’t make that mistake when I renamed the business.
The third was I just was looking for distractions. I can actually say probably the biggest mistake I made consistently, and I think entrepreneurs are very prone to do, is just getting distracted. It’s so easy when you are someone who likes to start things, like to build things. You get going on the thing that you’ve got. You get a little bored, and oh there’s this other thing I can start.
Andrew: Tell me about it. I feel like that’s a danger for me sometimes. Give me an example of something that was such a good opportunity that you got distracted by it or a great idea that you couldn’t help but create.
Nicholas: Well, to some extent some of the online stuff was. We ultimately realized after a year and a half of struggling to build online tutoring interfaces and a fully functional, animated online course was that we were under capitalized to be doing it. That’s why we ended up starting to go out and raise money which ultimately led to the acquisition, but it took me a year and a half of being distracted by that which had major cost to the core business.
When I’m spending 30, 40, 50 percent of my time on a business that essentially is not generating any revenue, at least, initially when I’ve got a huge revenue generating business that also requires attention, there’s a major opportunity cost to that. Yeah. I did that systemically in a number of areas. If I went back and I was going to do it all over again, I would never have done anything in college admissions consulting, no academic tutoring, no SAT or AP curricula. We wrote curricula in every single SAT II, every major SAT II and AP exam. That was a massive, massive amount of time on my part just to oversee that project.
Did it drive value? Yes. Did it drive as much value as I would have been able to drive through the core business had I been focusing that time thee? I’m positive no by a lot.
Andrew: I see. What’s SAT II, by the way?
Nicholas: SAT subject test.
Andrew: I see. Okay.
Nicholas: As soon as they take the SAT, some schools require subject tests on top of the SAT. Usually, two or three that are specific academic subjects, like biology or U. S. history or chemistry.
Andrew: I see. And so, that was a smaller market. Why distract yourself with that smaller market when you can do so much more with the bigger market that you’re good at? Is that what you’re thinking?
Nicholas: Yeah. It’s a smaller market. Most students take them in the spring directly after they’ve taken the class. Very few students do any preparation for them, and those that do wouldn’t be doing it in the summer. There’s any number of reasons why we shouldn’t have been going into it, and it requires more specialization on the part of the tutor or teacher because they’re teaching a higher level subject that’s much, much broader in scope.
Andrew: How did life change after the sale? Do you remember the day when you got the check and things were different?
Nicholas: How did life change after the sale? We closed the acquisition on June 3rd, 2010, and actually things didn’t change that much except for that I moved to California. We transplanted almost instantly to California and now based in Santa Monica. In fact, I’m in the Revolution Prep offices here in Santa Monica right now.
We were, from day one, kind of ramping up for a big summer. Now June, July, August are the major months of revenue for Ivy Insiders, so we basically cloistered ourselves in one room in the Revolution Prep offices and barreled away for three months.
Then, once I came out of my cave I think that’s where things really changed. It’s really changed for the better for me. The three things that I said made me excited about joining Revolution Prep held very true, particularly the learning side.
One of the things that was challenging in starting a business right out of college is just that I was learning through trial and error. I was just learning for myself. And now I’m in a team, a member of an executive team where I’m learning from people with more experience than me, some of whom are much smarter than I am and all of whom are coming from different perspectives than I do. That’s been super valuable.
I feel like my learning curve with Ivy Insiders was really steep for a while, and then it flattened out, especially in the last couple of years. My learning curve over the last year coming into a business that’s just a few years further along in that growth curve has been enormous.
Andrew: All right. Finally, any advice for other entrepreneurs?
Nicholas: Advice for other entrepreneurs?
Andrew: Maybe, around processes. It’s so amazing how you were able to get so many different people to all work in a uniform way and be successful.
Nicholas: Systems and processes are key. I’ve read a number of books about that, and it was something that I got into pretty early on. I’m sure everyone’s heard of the book, “The E-Myth: Revisited” or something like that.
Andrew: That’s it.
Nicholas: I read that. Wasn’t that in 2006? I had a major impact in my thinking about systematizing the business, creating turnkey processes and work flows which are obviously very, very important for my business to scale. So that’s it at a tactical level.
I’d say, on a bigger picture level, the advice that I would give has to do with just calibrating expectations. I look at what I was able to accomplish and grow a business, sell a business. I talk about it now, and I’m like, wow, it sounds impressive. When I was doing it, I honestly felt like I was always falling short, just every single day I wasn’t accomplishing as much as I wanted to. Every year the revenues weren’t quite where I wanted them to be.
I think it’s really easy, especially if you’ve got a disposition that’s already pretty self-critical which a lot of entrepreneurs do, to get by on what’s not going right. Whenever you’re starting a business, there’s going to be more that’s not going right than is. My biggest advice would be recognize that and shift your focus on the things that are going well. I think I could have built a business that was just as successful as it was, maybe, more if I’d had a little more fun doing it.
Andrew: Wow. Well, it is impressive. What you did here is spectacularly impressive. I was sure that there was a co-founder somewhere in there, but you and I talked before the interview started and there wasn’t. It was you building this up, the sole owner of the business.
Before I say good-bye to you, Nick, let me say hi to someone. I want to say hi to a fan who’s going to be watching this interview months and months and months in the future. He’s going through my interviews about, actually one at a time, and he’s currently on number 117, the one with blue lithium. And I’m over 450, so in the next few months he’s going to get to this one, and I want to say hi to Dr. James Ashenhurst. He’s the author of “Master Organic Chemistry.” He’s a fan of Mixergy. Dr. James Ashenhurst, thanks for listening.
Thank you all, guys, and keep telling me where you are, where you’re listening to it, how you’re taking this stuff in. I want to know about it and, Nick, thank you for doing this interview with me.
Nicholas: Thanks, Andrew. It was really fun.
Andrew: You bet. Bye.
Nicholas: All right.
