A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh (Part 2)

Sramana Mitra: I have two questions. This was not a freelancer. It was a development company ,but you took one guy out of that company as a dedicated resource.

Bhavin Parikh: That is correct.

Sramana Mitra: How did you find it? How did you select this particular company?

Bhavin Parikh: In our case, Pejman found the company. He asked others who had outsourced for recommendations. Generally, I think recommendations are a great way to go because you have evidence from people who’ve worked with the company before. When we look for contractors even today, I just reach out to my network.

If we think we can make it work with a firm, we do a sample project. If the sample project goes okay, we’ll do something bigger. That was the process we followed. After we started working with the firm, we realized that this one person was quite responsive and easy to work with. We told the person who’s managing the firm that we would only like to work with him. We know that when someone’s time is split between two or three projects, they’re not really going to do their best work. The rate at that time was cheap. It was $8 to $10 an hour. It wasn’t the best but it got us what we needed.

Sramana Mitra: How long was the duration of the contract that you were able to get a MVP?

Bhavin Parikh: Overall, we worked with them for over four months but within a month, we had something live. It was incredibly basic. It was just a landing page with a question and then an email box saying, “If you like the explanation to the question, sign up.” Over time, he would keep pushing more things live. We added ten questions and we added login. We left this open and we told people, “If you sign up now, you’ll have it free forever.” At some point, we put a date out there that we’ll start charging in three months. It took us four months to get us to a point where we had people paying. We were validating every step of the way.

Sramana Mitra: After four months when you were able to start charging, how much were you charging?

Bhavin Parikh: Early on, we didn’t really know how to price. We knew that classes were very expensive and books range from $20 to $50. We priced ourselves at $29. We said it’s going to be $29 a month. We learned a few things. One is that the test prep industry aren’t used to subscription. They have a fixed test date. With classes or books, they just pay once. Otherwise, they were just going to wait till the last month and try to cram, which is not good for them and us because we want students to be successful.

Sramana Mitra: Were they willing to pay more?

Bhavin Parikh: When we changed the price from $29 to $79, we found that more students are purchasing because there’s also a value issue. Test prep has this perception that it should cost more if it’s high quality. We built more credibility and we actually got more students paying. In the monthly model, when people knew that they could wait for the last month and just pay for one month, they would do that. To give you a sense of the numbers, we might have had 20 students pay in the first month. We increased the price to $79 a few months later. We then got 40 paying students.

Sramana Mitra: These were just people you knew? How were you getting these people to find out about you? Before you found out customer acquisition, how were you doing these tests?

Bhavin Parikh: It was a struggle. We told our friends. We told them to tell everyone they knew. I’m sure they were hesitant because, in their minds, it wasn’t a proven product. We went on to forums like GMAT online forums and we would tell people about our product. We didn’t want to be overly promotional. We tried to create value. To create value, we would post questions from our product in those forums and say, “Try these. Have a discussion around them.” We would then post a link to a video explanation on our site. Over time, some of the early adopters were willing to take a risk on us.

Sramana Mitra: Content marketing is one of the most effective forms of marketing.

Bhavin Parikh: Yes, that’s how we really figured out customer acquisition. At that time, we just didn’t know any better.

This segment is part 2 in the series : A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh
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