How a Small Test-Prep Company Succeeded Without Big Funding
Veritas Prep, an international test-prep company, started modestly out of a living room. The co-founders' simple premise was that the company could do a better job than the industry giants who had dominated the test-prep industry for years.
“[The idea] was not completely original, but we like to think it was innovative," says co-founder Chad Troutwine. "It was mostly just better designed."
Troutwine and Markus Moberg bootstrapped the company 10 years ago with $25,000 dollars. Much of that nut came from competitions, such a business-plan competition at the Yale School of Management. The two kept pouring their revenue back into the business, obsessed with finding new ways to innovate.
They say that their insistence on remaining independent from day one, as well as their dedication to improvement has helped them compete. They're up against the big guys, as well as VC-backed companies that have more money to play with and newer mom-and-pop companies that are similar in size to Veritas.
Troutwine and Moberg started by conquering the giants. Troutwine, who scored in the 99th percentile on pretty much every admissions test he’s ever taken, including the LSAT and the GMAT, worked as an instructor for Kaplan while he was in college.
When he was at Kaplan, he noticed several shortcomings: uninspiring classrooms, increasingly shorter class times costing more money and substandard instructors. He thought he could do it better.
“These companies had basically seen some success and grown into a duopoly,” says Troutwine. “I was convinced that customers would flock to something else.”
Troutwine was strategic about avoiding some of the capital expenditures that burdened the bigger companies. Instead of buying real estate to make classrooms, they offer classes at universities, and occasionally at 5-star hotels. They not only saved money, but found that it's inspiring for students to learn in the very schools they’d like to attend, says Troutwine.
Troutwine would like to believe that with their help, the giants began to collapse and have been on a steady five-year decline. Veritas Prep now has to worry about smaller companies.
Several of them look very similar to Veritas Prep in its early days, and Troutwine says they may even look to his company as an example. Others might offer more hours or cheaper tuition.
But because Troutwine and Moberg have reinvested so much of their revenue, they’ve remained competitive with better technology and better services.
The venture-backed companies, that have anywhere from $5 to 70 million in funding are a little more of a challenge. To compete, Troutwine says they can only offer a better experience.
“We have to continue to focus on quality and design, and that comes from our years of experience,” he says.
And they have another advantage: No outside funding means no loyalties to investors, and more freedom to innovate. Because of their commitments, the other companies aren’t always making the best choices for their students, says Troutwine.
In fact, their decision to be debt-free might have been their best.
“We would have felt overly beholden [if we had accepted funding],” says Troutwine, adding that there have been offers. “And for some business at some stages it would have been a smart move. But we love answering to ourselves, our partners and our customers.”
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