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.
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