Young Entrepreneur Offers Insights to Startups

September 27, 2012

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Chuck Cohn, the 26 year old founder of the successful startup Varsity Tutors started his business while still a student at Washington University in St. Louis in 2007. He hired two college friends started a tutoring service. He now employs 60 employees and supports a nation-wide network of more than 1,000 tutors. They offer tutoring in a wide variety of courses in Math, Science, English, Test Preparation, numerous Foreign Languages, and Social Studies.

Read the interview to find out more about Chuck Cohn and get some inspiratins.

How many people did you start the company with and how many people work for you now?

I started the company by myself and hired two of my friends as the initial two tutors. We now have ~60 employees and 1,000 tutors.

How’d you fund this venture?

We were bootstrapped – no big venture rounds for us. I started the company with a $1,000 loan from my dad. I worked as an investment banker at Wachovia and then as a venture capitalist at Ascension Health Ventures after I graduated from college. This allowed me to (1) not take a single cent out of Varsity Tutors and plow all cash flow back into growing the company and (2) take a sizable portion of my salary and bonuses from my finance day job and invest that into Varsity Tutors to further accelerate the growth. I waited until my time – and not cash – was the limiting factor to our growth before quitting my day job to scale VT full time.

What sort of tips do you have for other startups?

For most companies, I encourage them to bootstrap their company until their time – and not cash – becomes the constraint. Most new entrepreneurs think that raising lots of venture money is the goal. It’s not – that just gets your ownership stake diluted. Venture is a means to an end and if you don’t truly need the cash you shouldn’t take it. Having worked in VC for 2.5 years, I’ve seen firsthand how control changes once you take money and what happens if you don’t grow as fast as you expect to. Interacting with investors and reporting results also takes an incredible amount of time. Many entrepreneurs seem to think they’ve earned some sort of notch in their belt with a big capital raise. When I see that I always wonder what they’ll think when they realize just how costly that notch was. You’re effectively borrowing at credit card-level interest rates. My advice is to only take what you absolutely need and what you know you can get a great return on. Too many venture-backed companies start burning cash on stupid projects because they’re searching for ways to “put money to work”. Once you have to start searching for ways to spend money, your ROI is going to start dropping on incremental investments. There is an incredible cost to taking institutional money – only do so to the extent you need to. Most industries aren’t changing fast enough that the “land grab” mentality makes sense. In most cases, building a sustainable cash flow positive company should be the focus. Make sure your product is great but don’t spend money on things you don’t need or don’t facilitate that end goal.

What’s your definition of success?

One of my best friends asked me last week if I felt like I had “made it”. The answer is definitely ‘no’ and here is why: we’ve only made a small impact on the industry so far. Tutoring is a $7 billion industry so the potential is massive. The education system in this country is largely broken. The largest companies in the tutoring industry only have 3-4% market share. Lots of students aren’t getting the supplemental assistance they need. I think that the industry will consolidate and move from a cottage industry to a handful of larger best-in-class companies each servicing a different niche. The current “big guys” will be largely displaced due to their ridiculously high cost structures. To compete, they’ll need to make deep cuts to their national footprint. I think we have an opportunity to own the market for moderate to premium tutoring services. The directory sites will own the bargain hunters who aren’t concerned about quality. The large national brands will struggle to compete in the new hyper-competitive environment given their substantial fixed costs and overhead. And I think we’ll gain significant market share through operational excellence and a laser-like focus on delivering a high quality product at a moderate cost.

Tell us about the early days when you were just starting up. What was it like? What struggles did you go through?

In 2008, we had two cities: St. Louis and Houston. Hurricane Ike hit Houston hard and all the schools completely shut down for weeks. Our sales fell to essentially zero. I thought we were going to have to let some people go (we never actually had to). It was pretty scary for a bit. Since then, we’ve pretty much grown exponentially so we’re completely financially sound now but we certainly weren’t in the first year or two. We now have the benefits of diversification among our 14 markets that we didn’t have then. You just had to believe that people would eventually go back to school and refocus on education. It made for some restless nights back then.

What’s your office like?

We have a virtual company. Everyone works from home. We believe that a lean operating model allows us to offer the best product for a moderate cost. I listen to Turntable.FM all day while I work – you can find me in the “mashups” room listening to hip hop and rock mixed together.

Describe the customers experience with your company.

We allow parents and students to easily search for tutors on our site by location and subject. Unlike directory sites that have popped up recently – which are essentially well formatted Craigslists – we only have one level of tutor: great. All of our tutors are rigorously interviewed (both by phone and later in person). Clients work with our talented Directors, who know the tutors personally, to select the right tutor for their particular needs. While we have powerful technology and scalable systems, we also have a talented team of people that put a lot of time and money into each tutor who ultimately becomes a Varsity Tutor. Our tutors are better and that’s why people go with us.

How do you picture your company in 5 years?

I think we have an opportunity to be the clear market leader in one-on-one tutoring in every market we’re in. We have a better system for identifying, recruiting, and managing talented tutors and a substantially leaner cost structure than our national competitors. I’m not sure how they can compete long-term.

How do you handle frustration? When/how was the last time you dealt with frustration?

I go for a run. Before I react to any big news, I like to give myself 20-30 minutes to think about it. That’s how I manage my natural tendency to overreact in either direction – just give myself a bit to let it sink it. It’s not natural for me to spend 20 minutes reflecting – I have to force myself to do it because I know it leads to better decision making.

Who or what inspires YOU? Who are your role models?

The people who inspire me are “super entrepreneurs” like Peter Thiel, Elon Musk, and Richard Branson; People who live by the “go big or go home” mindset.

What are your favorite websites?

I read www.avc.com, www.techcrunch, www.seomoz.org every day. They keep me on my toes as it relates to technology and innovation.

What is your favorite mobile App?

Quora and then Twitter. I follow my favorite technology experts, venture capitalists and entrepreneurs and like to see what they’re reading and thinking.

Which do you prefer, Apple or Android?

I just made the switch to an iPhone from my old Android G2 that was on its last legs. I loved that G2. Android has better Google Apps integrations (which we use) but I like the Facetime feature. Overall, I’m liking iOS more all-in but only it’s only marginally better. It will be interesting to see how the Apple-Samsung patent suit impacts Androids in the long-term.

What's your company’s unique value proposition?

There is no better value for your money in tutoring. We deliver outstanding tutors at a modest cost. We have expert-level Directors who supervise the entire process and ensure our clients are ecstatic about their experience. It’s easy to find other tutoring companies charging 2x-3x as much for a lower quality product. When you come to our site, you know you’ll be getting more for your money then you could anywhere else. Our tutors are outstanding and our costs are moderate. That’s our differentiation. We take more care and put more time into selecting our tutors than any other company we know of. We have better, more scalable backend systems that make our team more efficient and effective than their counterparts at other companies. We’re trying to use scalable systems and repeatable processes to ensure our tutors stay outstanding as we grow substantially. There are some good boutique tutoring firms out there but the vast majority let quality slip as they grew. We’re very concerned with making sure that doesn’t happen to us. Tutor quality has been and needs to continue to be our core competency.

What's the very first thing you do at work everyday?

I spend the first 30 minutes of the day reading tech blogs. I find it stimulates my creativity and makes me “think big” for the day. Then I do email 90 minutes. I try not to do calls in the morning. I try to come up with one “game changing” idea each day. Most don’t end up going anywhere, but a few do and help elevate the business to the next level.

To reach Chuck Cohn:

LinkedIn: http://www.linkedin.com/in/charlescohn

Twitter: https://twitter.com/chuckcohn

For more information go to www.VarsityTutors.com