A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh (Part 7)

Sramana Mitra: What happened in 2014?

Bhavin Parikh: There was more growth in 2014. Also, how do we start expanding outside of GMAT and GRE? We realized that we could be a very strong company in GMAT and GRE, but to really achieve our mission and vision, we needed to expand much broader. We started thinking about the SAT more seriously. We started thinking about TOEFL. We started working on new products in addition to moving forward with our existing products. We continued to bet on mobile.

We’ve expanded now to paid advertising. We have done some paid advertising but we really started ramping our spend in 2014. Way back in 2010 and 2011, paid advertising didn’t work for us. My hypothesis was no one had heard of our company before. Because test prep is such a high stakes thing, people aren’t willing to buy a product they haven’t heard of. By 2014, a fair number of people had heard and used our GMAT and GRE product so when there’s an ad out there, they start to see all these great reviews. That’s when paid advertising started working.

We further diversified our marketing channel. We really don’t want any specific marketing channel to have too much lead into revenue unless it’s word of mouth. When it comes to mobile or anything else, we want to be cautious because anytime there’s a change, you can get affected.

Sramana Mitra: Facebook in particular did a horrible change with their Facebook pages. I was talking a couple of days ago with an entrepreneur who I’ve known for a while. Her company went up to $15 million in revenue and then when Facebook made this algorithm change, they dropped down to $10 million.

Bhavin Parikh: I recognized that when you’re early on, you shouldn’t diversify because you have to figure out that one thing that works. Over time as you start to scale, I think that’s the time you want to think about diversification so when you get hit, it’s not that bad.

Sramana Mitra: How much did you do in 2014?

Bhavin Parikh: We did a little over $4 million.

Sramana Mitra: Still no outside financing besides the initial $750,000?

Bhavin Parikh: Correct.

Sramana Mitra: What about first quarter of 2015? Has anything happened that is worth discussing?

Bhavin Parikh: The biggest thing is that we’re launching an ACT product. We’re realizing that the ACT is a growing market. It’s underserved. Part of our mission is really reaching those markets and demographics that are underserved. There is such an issue between people who can and can’t pay. We’re trying to help solve that problem.

At a company level, we are realizing that people who are interested in our products or are studying for one of these tests often come across us. That’s great but a lot of people don’t do research. They just decide to buy something because they’ve heard about it. We’re doing a lot more brand advertising now. We are running an ad in the San Francisco park.

We’ve created a new mobile app that is a vocabulary builder, which is just generic. 50% of people who download the app aren’t studying for any test. They’re just using it to improve their vocabulary. We’re doing a lot more of this brand advertising to get people interacting with our company so that if they know somebody who’s going to take a test, maybe they’ll remember us.

Sramana Mitra: Are you looking to raise money?

Bhavin Parikh: It’s not a priority right now. We recognize that if we raise a big round of financing, we are implicitly making a promise that we’re shooting to be a massive company. While we certainly want that opportunity, we don’t want to lock ourselves in because we’re not sure that’s the best path for us. If we know exactly how to deploy that capital and we have a high degree of confidence, then we would consider.

Sramana Mitra: Absolutely. It’s a much smarter way to build the company. You talked about paid advertising. You have $4 million plus in revenue. If you were to take a small round in financing, would that be attractive?

Bhavin Parikh: It could be. I’d say it’s at the back of my mind. It’s a potential option and if we end up coming across opportunities that we’re turning down because we lack the cash, then that’s something I would start considering. I’m building relationships and letting people know. We may raise funds at some point.

Sramana Mitra: Excellent execution, Bhavin and you’ve told the story really well. Thank you for being so eloquent and precise.

This segment is part 7 in the series : A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh
1 2 3 4 5 6 7