UCLA grads score big with SAT preparation company
Like many business school graduates, Jake Neuberg and Ramit Varna had big plans.
Theirs didn’t involve corporate offices with city views or big signing bonuses but instead the standardized test that is the bane of many high school students’ existence.
When they graduated from UCLA’s Anderson School of Management in 2002, the two wanted to create the largest SAT preparation company in the country, even larger than long-established companies Kaplan and Princeton Review.
“We were full of that unrealistic optimism that you need to have to be an entrepreneur,” said Neuberg, 31.
Not that Revolution Prep, the company they founded in 2002 out of the back of Varna’s apartment, is remotely close to failing the aspiration exam.
Revolution Prep is the leading SAT prep company in California in sheer numbers, with 10,000 students, its owners say. (Princeton Review contends that it is larger but acknowledges that Revolution will have the most students next year.) It also reaches customers in New England, New York and the Washington, D.C., area. Neuberg and Varna, 32, employ 40 full-time and 300 part-time workers and expect revenue of more than $6 million this year, up from $14,000 in 2002.
Test preparation has become a hot business as the crop of college-bound students grows and as entry into top schools becomes more competitive. Business is so good that Kaplan Test Prep and Admissions has helped its parent, Washington Post Co., weather the newspaper advertising and circulation slump.
But the industry has come under criticism from those who say that it gives some students an unfair advantage. Basic classes from companies such as Kaplan and Princeton Review cost about $1,000, and prices climb if students hire individual tutors, who can charge hundreds of dollars an hour.
“Kids are deluged, correctly or not, into believing that they are involved in an arms race in which their competitors are getting the best coaching money can buy,” said Bob Schaeffer, public education director of Fair Test, a nonprofit that advocates for less emphasis on standardized tests. Schaeffer thinks that the test preparation companies leave less affluent students “further behind the eight ball.”
Varna and Neuberg responded to such complaints by charging half their competitors’ price and telling parents, teachers and students that they wouldn’t turn away those who couldn’t pay.
The price wasn’t the only thing that was different about their new test-preparation company. They offered courses in schools, so that students wouldn’t have to travel far. They tried to alleviate students’ anxiety about test-taking and changed typical preparation curriculum to make students more interested in the SAT. They established online components that allowed students to check up on their practice test scores and progress online.
The pair say that Revolution Prep was successful because they looked at education as businessmen. Neuberg spent most of his career until business school as a banker, although he had tutored for Kaplan; Varna’s background was in management consulting, and he had worked for Princeton Review. They say their experiences with Princeton Review and Kaplan enabled them to see the flaws of both companies.
Their methods of finding financing probably won’t be held up as a case study in any business school class. Both left UCLA’s Anderson School of Management tens of thousands of dollars in debt. To start their business, they applied for dozens of credit cards and paid for everything they needed, including practice tests and promotional materials, with plastic. They received turnoff notices for their phones. Varna sold his car to get more cash.
“For the first 12 months, we’d sit down and ask ourselves how much money we needed to make to keep the doors open. We’d say $30,000, and then we’d make $15,000,” Neuberg said. They visited high schools and tried to educate guidance counselors and students about their new company, in what Neuberg calls “straight hustling” and Varna calls “straight desperation.”
Nancy Leonard, an independent college counselor who was at the time a guidance counselor at Mira Costa High School in Manhattan Beach, says she remembers when “these two young, fresh-faced boys” showed up at her office pitching their company. She was accustomed to young college graduates offering their services as SAT coaches, but in a year or two, they would be gone, on to graduate school or a different job.
“I looked at them as I did everyone not named Kaplan, Princeton Review and Ivy Prep, and I told them, ‘This is going right in the trash,’ ” she said about the material Neuberg and Varna had prepared. Leonard challenged Revolution Prep to tutor five of her students and improve their scores. When the students’ scores climbed, she agreed to mention Revolution Prep in the same breath as the big three.
Earning that kind of respect from nervous parents was not as easy.
“Getting parents to know all their options was our biggest obstacle,” Varna said. They tried to emphasize that they were more approachable than the big companies and that they cared more for individual students.
They relied on word-of-mouth marketing, and they kept true to their promise never to turn anyone away -- at one school, 36 of the 37 students they tutored were on scholarships.
In some cases, it was difficult to sell parents on the idea that a lower-priced course could be as good as an expensive one. Most SAT companies have convinced parents that they need to spend big for their kids to succeed.
Once students’ scores started improving, though, parents started to talk.
“Word-of-mouth marketing among parents is an awesome thing,” said Palma Odano, a past president of the Culver City PTA, whose two children took courses from Revolution Prep and who started recommending the company to friends.
When their marketing efforts started to pay off in the summer of 2003, Varna and Neuberg were still working off Varna’s couch. In May of 2004, they moved from Varna’s spare bedroom into a small office without air conditioning in Santa Monica. By the end of the summer, they had paid off their debt.
In a few short years, their company was growing astronomically. A student of SAT vocabulary might even call it a coup.
Their competitors aren’t quite sure what to think of the upstart.
Paul Kanarek, president of the Princeton Review franchise in Southern California, calls his product a “high-end service,” comparing Princeton Review to a Lexus and Revolution Prep to a Toyota.
“I offered scholarships for 25 years; I just never perceived it to be a marketing opportunity,” Kanarek said.
Varna and Neuberg didn’t stop at SAT test preparation. They designed educational materials and software to help students prepare for California’s high school exit exam and were recently chosen by the Los Angeles Unified School District to provide 30,000 students with the materials. They’re working on developing preparation materials for exit exams in other states and will start offering a Graduate Record Examination preparation course in the spring. They’ve also launched a separate business, Revolution Careers, that aims to connect students graduating from college with a wide range of businesses interested in hiring employees.
The two say they realize that with expansion comes the danger of being too much like their competitors -- too big, too impersonal, not focused enough on their core mission of helping kids improve their SAT scores. But five years after graduating from business school, neither seems in danger of becoming a corporate stiff.
Neuberg pads around their small Santa Monica office barefoot, wearing shorts and a T-shirt. Varna pairs his T-shirt with jeans. They still share an office, which is outfitted with big red couches for meetings, a white board and a map.
And, sounding more like the college students they used to be than the businessmen they are, they still believe in the power of karma.
“If you do the right thing,” Neuberg says, “people find out.”
(BEGIN TEXT OF INFOBOX)
Business: Helping students prepare for college admission tests
Owners: Jake Neuberg and Ramit Varna
Employees: 40 full-time and 300 part-time workers
Headquarters: Santa Monica
Revenue: $6 million projected for 2007
Goal: “To provide the highest-quality SAT prep classes and tutoring at a fraction of the price of our competitors.”