A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh (Part 5)

Sramana Mitra: Interesting. That started converting as well. This was not only traffic but it was the right traffic.

Bhavin Parikh: Yes. The thing is you don’t see the conversion immediately because people need to build that relationship with you. They come to your site. They read a post and start to think, “They really know what they’re talking about.” I really think the articles need to be strong. You can’t hire someone with no expertise in the field.

Sramana Mitra: Yes, content marketing only works if you can produce good content.

Bhavin Parikh: Exactly. They would come again and again. The other thing is, it could pay off indefinitely. A great article will still be a great article well into the future. You could go back and update it. People will search and come across that article. Content marketing was huge for us in terms of getting the business off the ground. That was our initial year of customer acquisition.

Sramana Mitra: When did it start converting meaningfully?

Bhavin Parikh: This is a really interesting story. In short, maybe three to six months. We didn’t know that GRE is very seasonal. November to February are the really low months. We have great revenue growth. I mentioned earlier that we were earning about $10,000 a month when we partnered with a forum. When we stopped partnering with them, we dropped back down to $5,000 or less a month. We built GRE from zero to maybe $20,000 a month over that summer. That was great.

Then we were stuck at $20,000 a month in November, December, and January. We were burning cash. We were spending $50,000 a month on a lot of different experiments. We were losing $30,000 a month. In the initial round of funding the first year, we’d only raised $500,000. All of a sudden, it looked like we’re going to run out of money. We basically started looking at ways to cut expenses. I started the process of raising an additional $250,000. We didn’t know about the seasonality factor. Even though our revenue was flat, we were actually growing in market share. By next April and May, that $20,000 jumped to $40,000. It got up to $80,000 the following summer.

Sramana Mitra: Did you end up raising money or did this happen and the need to raise money urgently went away?

Bhavin Parikh: We started the process of raising an additional $250,000. Halfway through it, we realized we didn’t need to raise. We switched to cash flow positive in May 2012. I thought we were going to end up shutting the doors in May 2012. It worked itself out. The fundraising ended up not being critical but I’m glad we did it. Our last investors who wrote us a $50,000 check was 500 Startups. At that point, we were cash flow positive. I talked to many people who had taken money from 500 Startups. It seemed like it was smart money to take. I don’t have any regrets about taking their money. They’ve been incredibly valuable even though the valuation remained the same. They got a pretty good deal I would say because we were much bigger at that point than we had been.

Sramana Mitra: Where does that bring us up to?

Bhavin Parikh: We’re talking about September 2012 when we were doing over $100,000 a month. One really important point that I want to mention is about the founders. There were four of us initially. By May 2010, there were only two of us left — me and Hansoo. The others parted ways for various reasons. Hansoo and I went through this entire process. He was the CEO. He was the one who helped us raise money and build investor relationships.

In December 2011, he was diagnosed with lung cancer. He was a non-smoker. He was 33 and was very health-conscious. It was actually tough. At the same time, we both thought we only had four months left in the business. He was incredible in that he was supporting me because he recognized that I had to step into his shoes. We have to keep the business alive. He stepped away from operations. He passed away 15 months later in March 2013. That was tough. We think about him every day here at Magoosh. I didn’t want to miss that part because it’s so important.

This segment is part 5 in the series : A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh
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