Value Added: Social Networking 101

Here's Tom Heath's latest column on Washington's successful business people:


Seven years ago I somehow was selected for a fellowship to study at the Columbia University Graduate School of Business, where I learned lots of cool stuff like accounting, the discount rate and the definition of moral hazard.

But the biggest takeaway for me was something I had barely noticed before I got there: the importance of a social network.

In other words, connections.

A fascinating business school case explained that the reason Revolutionary War hero Paul Revere became a household name was because his social connections helped make him famous.

Another guy named William Dawes who also rode through New England screaming "the British are coming" barely rates a footnote in history. Dawes didn't work the crowd. Revere was a networker.

Which brings us to Christopher Gergen.


Gergen, 37, is a natural networker, in a very positive way.

"It's all connections," said Gergen, who has co-authored a book on becoming an entrepreneur, has built one successful business and is working on a second. "You've got to figure out who knows who."

After graduating from Gonzaga College High School, he took a year off and studied art in France, then worked for a theater in Massachusetts. He did a semester with National Outdoor Leadership School (something akin to Outward Bound). He once spent 95 straight days in the outdoors, doing things like winter backpacking, kayaking, telemark skiing and exploring caves (also known as "spelunking").

He studied English and fine arts at Duke, where the entrepreneurial spirit emerged. He sold a painting for $300 in his sophomore year and bought a plane ticket to New Zealand, where he began to think about the possibilities of distance education while teaching school on a 40,000-acre sheep farm. More about the distance learning later.

After graduating from Duke in 1993, Gergen succumbed to "parental expectations" (his phrase). He took a job writing news for CNN in Atlanta. But he "wanted to get in front of things," rather than write about them. He left Atlanta after a year and headed for Chile.

He talked his way into a job at Chile's largest television network. He also talked his way into riding on a Chilean battleship (I am not making this up), teaching English to Chilean sailors and cooking in the ship's kitchen. When he got off the ship, he befriended some actors and talked about setting up a coffeehouse that served good food with live music. He pitched the idea to leaders across Santiago - including a university president - and raised $40,000 ($5,000 from his parents, who include journalist/pundit/presidential advisor David Gergen). He converted a Victorian mansion into an 80-seat restaurant and art gallery.

That was around 1994-95.

The coffeehouse would eventually go cash-positive, but after his partners took their shares, the coffeehouse was sold in 1997 at a small loss.

He learned two important lessons from the investment: have ironclad legal documents that details who owns what share of the business. And second, he learned he was a good salesman.

"It's what I am best at. Getting people excited about new ideas."

When he got back to the U.S., Gergen started Leadership Enterprise Action Directive, which is a nonprofit at Gonzaga helping junior-year students launch socially-focused entrepreneurial ventures. He concurrently earned a master's in public policy and George Washington University and an MBA at Georgetown. This is a guy who does not sit still.

He met friend Burck Smith when they were interviewing with the U.S. Department of Education, and they began batting around business ideas.

"We started tossing stuff back and forth and really decided there was one idea that lent itself to the Internet: How do you provide real time, high-quality academic support to university students 24 hours a day, seven days a week?"

In other words, online tutoring.

They spent six months putting a business plan together, often working at Smith's family kitchen table in a rowhouse on Capitol Hill. They did some consulting to cover living expenses while they worked on their business plan. Gergen said he knew they had to have a rock-solid business plan before they could make their pitch to investors.

"We had to have our ducks in a row. We had a hell of an idea...had done a helluva lot of due diligence."

It also helped to have connections.

They raised $100,000 from their families and friends, and $900,000 from investors, including the father of Gergen's best friend at Duke. The friend's father had made a fortune in cable television.

"When we were getting ready for graduation, the father came up to me and said, 'Gergen, I don't know what you are going to do, but when you get ready to do something, call me.' I never forgot that."

Reminds me of Mike Nichols' film The Graduate, where a guest at Dustin Hoffman's graduation party pulls him aside and said he has one word for him: "Plastics."

Other early investors included San Francisco banker Paul Stephens. Frank Bonsal, a big deal venture capital maven at New Enterprise Associates (his personal money, not NEA's). Steve Walker of Walker Ventures, whom they met through Smith's father, was another investor.

The tutoring company they created is privately-held Smarthinking, where Gergen is chairman and owns less than 10 percent. Smith is chief executive officer and owns a little bit more. They eventually raised $12 million. They started in a Capitol Hill apartment at 8th and G Streets, where 15 people squeezed into three rooms. Now they are in downtown D.C.

This is the business: Provide high-quality online tutoring that students can call up 24 hours a day. Here is a differentiator, which is business talk for what sets Smarthinking apart from competitors: the company can get experts online with you to walk you through the material.

Universities buy access to the site in blocks of hours that range from several hundred hours to several thousand. They found a woman from Oxford University in England who put together the tutoring team. The site sticks with some two dozen standard subjects like physics, biology, chemistry and algebra, which are not interpretive.

They went through some bleak, cash-poor months where they had to scrounge an additional $250,000 from investors to see them through. There have been three rounds of fundraising.

Gergen would not disclose the revenues, but he said they are in the millions, that Smarthinking has a positive net income and serves 200,000 students at 1,000 universities, including many state schools and community colleges.

(Reader note: Smarthinking partners with Kaplan Inc., another for-profit education company, in some ventures. Kaplan is owned by The Washington Post Company.)

Gergen's latest thing is New Mountain Ventures, which is how I ran into him. The co-authors are plugging their new book, "Life Entrepreneurs: Ordinary People Creating Extraordinary Lives." The book is the text to their startup, which helps university students plan for post-college life. Gergen's partner in New Mountain is Gregg Vanourek.

"We are working with university sophomores who have been in college and starting to think about what they are going to do with their life."

Here's a hint: get to know lots of people. And save money.

Gergen isn't rich - yet. He is married with two children and lives in Mount Pleasant in the District. His wife, Heather, works at the Washington office of the Bill and Melinda Gates Foundation.

Christopher said they both save religiously in their tax-free retirement plans. Some of his retirement is in Vanguard's Windsor, a low-cost fund that buys undervalued large-cap stocks. I own it too. The legendary John Neff once managed Windsor.

Smartly, Christopher and Heather are building a 529 tax-free savings plan for their children, which is invested with American Funds, including AMCAP growth fund, American Mutual Fund, Capital World Growth and Income Fund - all of which are fairly aggressive.

"As a family investment strategy, because I have so much wrapped up in the private equity world, we are trying to diversify and have a stable investment strategy."

Something Paul Revere would have taken to heart.

By Dan Beyers  |  April 1, 2008; 1:19 PM ET  | Category:  Value Added
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Comments

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Just being David Gergen's son is a hell of networking connection in itself

Posted by: Anonymous | April 1, 2008 8:54 PM

When your father has worked three US presidents, then you are aything but a regular normal person. And yes access is a known item of value. Regular folks have to learn that in other ways. I'm not wishing illl towards him. Just let's be real.

Posted by: derikp | April 1, 2008 10:10 PM

Sure, connections help, but they only get you so far. You may be the child of a big-wig, but if you're a fool or bumbler, you won't get the benefit of the doubt for long, especially if you're losing people's money faster than Paul Revere rode his horse.
Also, when your father is David Gergen, the pressure and expectations can be even greater than for us mere mortals.
Curious how they blew through the first $12 million before needing an additional $250K. I Googled "online tutoring and Algebra" and 60,000 results came up...looks like Smarthinking has proprietary deals with universities, but there's competition out there. Their website is impressive (curiously, Gergen's name is not on it) and has examples of how the tutorials work, which is effective.
For those who want more info on why Paul Revere succedded where others failed, read Malcolm Gladwell's book The Tipping Point.

Posted by: Aja | April 2, 2008 5:04 AM

Because Christopher Gergen is David Gergen's son, he may have learned early in life the value of interacting with people and how to do it. Those are things I did not learn for many years. But I agree with Aja, that you really have to do it on your own. He is not sitting around, waiting for people to come to him. He is very actively engaged in life, business, etc. He certainly had advantages, such as education, a good example to follow, opportunity to make contacts, but from where I sit, it looks like he earned it.

Posted by: tom heath | April 2, 2008 2:34 PM

one more thing. i did not know gergen was david gergen's son when i decided to interview him about the blog/column. the gonzaga connection and enterepeneurship and washington home was enough to get me interested.

Posted by: tom heath | April 2, 2008 2:35 PM

Couldn't help jumping in (even as the profilee in question). What we found in our research for our book, Life Entrepreneurs, is that connections do matter - but these connections are richest when they are based on authentic, trusting, reciprocal relationships. Our networks are also healthiest when they are diverse. When Mark Warner started down the entrepreneurial path he failed - twice. But even after falling on his face, he preserved the integrity of a diverse array of relationships and this ultimately connected him to cell phone licenses that were being auctioned off on Capitol Hill (which he then brought to a group of investors - through yet more connections). And thus began Nextel.

Speaking from personal experience, the connections my parents provided my sister and I have been invaluable. But they are not enough to build a life or career upon. Ultimately, this is up to us. While at CNN life was pretty good - and my name did help. But it wasn't me. So I set off for Latin America to find my own path. When I started the cafe in Santiago, Chile (with the help of a diverse network of supporters) it reinforced what real success was. It's doing things on your own terms and building a broad community of people who want to help make big ideas happen. It is about connections - but it's about connecting authentically and following through.

Come visit us at www.lifeentrepreneurs.com and let us know what you think.

Posted by: Christopher Gergen | April 2, 2008 4:11 PM


I'm sure that your readers would like to know that a popular website
www.529andmore.com is a resource for information on 529 plans. The site
also provides an approach for funding higher education utilizing a unique patent-pending life insurance
policy from which the funding to pay for college can come while the insured is alive.

Posted by: bernard Zweig | April 2, 2008 4:16 PM

thanks bernard. never heard of 529andmore.com. how does the patent-pending life insurance policy work?

Posted by: tom heath | April 2, 2008 4:42 PM

christopher. how many of the people who invested and helped your companies came from your parents' circle and how many are "authentic" connections? i mean, not exact numbers, but approximately or percentages?

Posted by: tom heath | April 2, 2008 4:46 PM

I find it fascinating that someone who was involved in spelunking, backpacking and outward bound type activities which are generally isolated and singular would end up in a career focused on networking. Networking is just one aspect of the most important key to success in any public-facing enterprise: people skills. Having people believe in you and your talents and have confidence in your judgment is often more important that substantive knowledge. Good for Christopher in trying to help college students prepare for what has become an increasingly difficult task - finding a career that works. There are no sure things anymore and helping young men and women figure out how to interface with people is a valuable commodity.

Posted by: Cooper | April 2, 2008 4:53 PM

Thanks for the insight Cooper. Sounds like you have people skills.

Posted by: tom heath | April 2, 2008 5:28 PM

Cooper's comment gives me a nice opportunity to jump in. As it turns out, backpacking, climbing, spelunking, etc. are not singular but group activities that rely on coordinated effort and deep mutual understanding for success. Great friendships are forged in such environments just as they can be in business partnerships. You know you can trust someone with whom you've climbed a big Yosemite wall, for example. To come clean, my friendship with Christopher was forged in this crucible of adventuring. I'll not soon forget the time we climbed the technical Snake Dike route of Half Dome together.

One of the things I find most compelling about Christopher is his ability to translate his boundless energy and sense of wonder into tangible tools (book, companies, etc.) that benefit other people. Connecting to people seems a natural part of this will to contribute, as opposed to an instrumental requirement for building businesses.

Posted by: Jamey | April 2, 2008 5:40 PM

Tom - very interesting read but this guy's perception of himself as "ordinary" and "not rich" is truly out of whack. Reading the piece I couldn't help ask myself: "Who can afford to take off a year after college and study art in France, then on a whim go to Chile and start a restaurant, or take a few years off work (with family and two kids and while starting a business?) and afford two post-grad degrees at same time from majorly expensive near-ivy league schools?" Family funding or trust funding run deep within this guys story, and that's a pretty sweet launching pad. I would imagine his wife is from similar well-heeled family circles and has some cash and/or connections to be working with the Gates family. I think kids raised in privilege also tend to have more of a sense of "anything's possible" that also helps them (along with family funding and "friends" with family funding) think bigger and take more risks earlier in life than the average Joe/Sally. Those who grow up or live without a financial or emotional/family safety net can get bogged down by, well, rent. So the risks they take when building or starting a business are emotionally and financially bigger, and that's why less do. Ultimately though, good for Gergen for doing great things and not being a "Billy Carter" on his Dad's reputation. But really, let's face it, he was born into most of that opportunity. And with great opportunity comes great responsibility...

Posted by: mezz | April 2, 2008 6:15 PM

wow. you covered a lot mezz. gergen definitely grew up with advantages, and i do not know the answer about paying for colleges and grad schools. and i don't know what kind of family his wife comes from. he did see possibilities, and he acted on them. he does not wait for life to come to him. he goes after it. whether it's because he came from a successful family, i don't know. it can help. but there are children of successful people who do not do well, and instead they sit around and collect coupons or get into trouble. i was with a friend the other night who was telling me about all the problems in their family, most of which was brought about by idleness. and what allowed the idleness was great family wealth. this person's siblings, in my opinion, did not have to be concerned about things like career, grocery bills, achievement, advancement etc. they were so rich they just got into trouble. i give credit to gergen for going after things. but you make some provocative observations.

Posted by: tom heath | April 2, 2008 6:30 PM

Jamey. I just realized that you and Christopher climed Half Dome. How high is that? Good Lord. Can you say something more about that? I don't like heights. Did you guys climb as part of a group? You must have been in the National Outdoor Leadership school with Christopher. There is something else you put your finger on: boundless energy. People who are successful have tons of energy. They never tire. I think it's a prerequisite for success.

Posted by: tom heath | April 2, 2008 9:11 PM

Tom. I've known Christopher since 1999 when I was one of those 15 Smarthinkers squeezed into three rooms on Capitol Hill. Sure, connections may have opened a few initial doors, but a majority of the cash came from people who saw only a great idea and very well thought out execution. Your assessment is correct. I've seen Chris (and Burck too) work extremely hard for their success.

What's interesting to me are the people featured in Gergen and Vanourek's book that just seem to be wired for success. Regardless of their backgrounds or the obstacles they face they just seem to make things happen. Sure, family connections and money does not hurt, but maybe it's the DNA that's the real gift!

Posted by: Andrea | April 2, 2008 9:53 PM

Tom et al. I wanted to respond to a couple of specific questions/comments with some hopefully helpful context:

Question of money: My sister and I grew up in relative comfort - but the opportunities afforded to us were largely attributable to priority vs. "privilege". Our parents are both the youngest of four children. My mother grew up in England as the daughter of a stay-at-home Mom and a mid-level government employee. At the age of 23 she took a ship across to the U.S. seeking adventure and expanding her horizons (the savings from her previous teaching experience in her pocket). It was in Boston where she met our Dad on a blind date. My Dad grew up in NC with a stay-at-home Mom and a college professor father. Money was not readily available to either of them. In both cases, however, lack of material resources was compensated by the encouragement to push one self to embrace the world in its fullest - and to contribute as a public citizen along the way.

My sister and I grew up with this same ethic. Given that our Mom was a school-teacher and our Dad was working in the government for most of our childhood - there was not a lot of disposable income sloshing around. Though our family car was an old VW station wagon and we had a single TV that shocked the heck out of us every time we turned it on - our lives were very rich in other ways. Our parents prioritized education, as well as international travel, and service. And they worked hard to expose us to as much of this as possible when we were growing up. This lay the groundwork for the way that both of us have continued to pursue our paths. I into the education sector - my sister into family medicine (with a specific focus on serving underserved communities).

Now my wife and I are pursuing these same priorities in our own children - investing our own limited means in an education fund (hence the 529s), horizon expansion through travel, and eventual service opportunities (our children are still very young).

Privilege is all in how you define it - and I do feel very privileged but mostly because our parents pursued a set of priorities that I have subsequently seen real value in - and look forward to sharing with my own children.

(BTW, we are not alone in embracing these values. Among the 55 Life Entrepreneurs we interviewed for our book - these same values and priorities resonated throughout.)

On a couple of other points:

Taking a Year Off between HS and College: In keeping with our parents priorities, both my sister and I took a year off between high school and college. It turned out to be one of the most formative years of my life and I arrived at university ready to knock the cover off the ball (something I didn't have the maturity to realize coming out of high school). Financially, this alternative can be very affordable - especially if one carves out a portion of their time to work. Yes, it does just defer the inevitable college payment - but given the impact of the experience and my readiness and subsequent performance in college I can't think of a better return on investment. To learn more about how one can take advantage of this great alternative check out www.interimprograms.com

Incidentally, I would highly recommend taking a year off only once a high school student has already been accepted to college. This way you can defer - and still have a clear sense of where you will be headed when the year is over.

Finally - a clarification. SMARTHINKING raised its bridge money (i.e. the $250K+) after our seed stage of financing (not after our full $12m raise). This bridge financing helped get us through the very rough spring-summer of 2000, kept our momentum up, and allowed us to raise our Series A financing round in October 2000.

Posted by: Christopher Gergen | April 3, 2008 11:28 AM

good point on the DNA andrea. i also believe persistence has a lot to do with it. sheer get-up-and-go. you decide you want to make a difference. you choose to be ambitious and reach for something instead of choosing passivity.

Posted by: tom heath | April 3, 2008 12:42 PM

Friends and family: everybody should be so fortunate. It worked for me.

Posted by: George W. Bush | April 7, 2008 5:28 PM

Five seconds into this story, I made the connection. This is David Gergen's boy, who climbed the ladder due to the largesse of Papa's friends, associates, and classmate. Ain't America great. A ne'er do well can travel far and wide and decide to grow up one day with one phone call to Daddy.

Posted by: Trump This | April 7, 2008 5:31 PM

Art in France, sheep in New Zealand, coffee in Chile. Babies and trust fund fools. Life is nothing without a safety net. Mummy and Duddy's money, friends, and investors make life grand. And he accomplished this all before 37 years of age. What's the next book? Born on second base and thought he hit a triple to get to third.....

Posted by: Paris Hilton | April 7, 2008 5:36 PM

Why is Gergen not listed on Smarthinking's web site? And why does the article state he lives in DC, when on the New Mountain Ventures web site, it indicates Seattle as his home? Regarding his entrepeurial ventures, packaged fluff is still fluff.

Posted by: Ted Turner Leonsis | April 7, 2008 5:42 PM

I find this conversation fascinating. I think it would be naive to think that having social and family connections aren't advantages but at the same time, it's not your fault who your parents are. Therefore, it seems unfair that kids born into wealth or status should be held to a higher standard when they set out in the world. As Tom points out, a lot of the scions of privilege fail miserably despite all the advantages of their position (George Bush and baseball anyone?). And others take advantage of who they are in ways that are just selfish and lazy (Paris Hilton).

But I think it's important to give credit where it's due. Sure you might START with advantages but it's what you DO with them that counts. Why do we celebrate the poor kid who makes good and the "rich" kid who does good things is considered merely lucky?

Who your family is is an accident of nature, one we can't control. The question is: do you turn your back on the advantages just because or do you use them to do positive things, to contribute to the world in a meaningful way.

Seems to me, Mr. Gergen has tried to do the latter. Criticizing him for advantages he received because of who his father is, seems petty and unproductive. And seriously, how many of us have used our family and personal relationships to help us get ahead? It's the same thing.

Posted by: EMC | April 10, 2008 5:28 PM

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