When they graduated from the UCLA Anderson School of Management in 2002, Ramit Varma and Jake Neuberg had already devoted time, thought and discussion to the college preparatory industry.
Having both worked for well-known firms in SAT preparation, the two young entrepreneurs were eager to develop a program that corrected the shortcomings they had seen as SAT teachers.
“Teaching SAT prep after college got us involved in the industry,” Neuberg said. “(Varma) taught for the Princeton Review and I taught for Kaplan in L.A.”
The two went on to create Revolution Prep, which now ranks with Princeton Review and Kaplan among the top standardized test preparatory companies in the nation.
“We both had experiences that made us feel that there are a lot of things that could be done better,” Neuberg said. “Right after we graduated in 2002, we said, “˜Why don’t we put our money where our mouth is and start our own company?'”
They began by developing their product and customer base instead of their capital because they believed it would be a better strategy to sustain the company in the long term, Neuberg said.
To finance the operation, the two applied for dozens of credit cards, racking up approximately $250,000 in personal debt by the summer of 2003, placing their own personal financial reputations in jeopardy.
“We were in a tough situation because you can move credit card debt around, but after a while you start hitting really high interest rates, and eventually you can’t get anymore credit cards,” Neuberg said. “We were at the end of our rope and deep in debt.”
But, with a few hundred satisfied students, many of whom had seen substantial score increases and who were helping to spread news of the company’s unrivaled results, revenues began to pick up.
“The summer and fall of 2003 is when we started hitting high volume and were able to start paying down debt. Within a year, we were debt-free,” Neuberg said.
Throughout their rocky first year, the two founders were confident that if the firm turned belly-up they could still find good work to pay down the debt.
“We looked at it like, if this thing doesn’t work out, we’ll go get MBA jobs. I would go back into investment banking, (Varma) would go back to consulting,” Neuberg said.
“You can’t underestimate how motivating it is to know that you have to be very successful in order to pay your rent.”
Varma and Neuberg were also convinced that the development of a strong product would ultimately prove to be a more profitable course of action than soliciting investors.
“We knew that getting venture investors would be a huge distraction because we would be focused on that rather than on our customers,” Neuberg said. “Whoever gives you money becomes your boss. We wanted our customers to be our boss.”
The tremendous success that Revolution Prep has seen since it was started five years ago would not have been possible if students had not demanded high scores.
This competitive atmosphere, when coupled with university admissions rules that allow students to take exams multiple times, places overwhelming pressure on students to perform well. It directly promotes business for SAT preparatory firms like Revolution Prep, said Ely Dahan, assistant professor of marketing at the Anderson School.
High school counselors in Southern California often encourage students to enroll in SAT preparatory courses in order to boost their scores.
“A lot of our students (enroll in prep courses),” said Deliana Park, a grade level advisor at Whitney High School in Cerritos. “More than half do.”
Dahan said he attributes this phenomenon to the disproportionate amount of emphasis that undergraduate ranking systems place on the SAT performance of incoming freshmen.
“Some schools will actually not admit a student in the fall incoming class but will later admit them in another roundabout way just to keep them out of this statistic,” Dahan said. “USC has January admissions, where students with lower-than-average SAT scores are admitted late to keep them out of the fall statistics.”
In addition to encouraging students to achieve competitive scores, some schools push students to use other means to improve their chances of admission to top undergraduate institutions.
“Because the SAT (Reasoning Test) is such a difficult test for any student to study for, we are trying to educate parents and students about the ACT, the alternative,” Park said. “That tends to be a more achievable exam.”
Park also said that Whitney High School teaches students and parents that while strong scores are integral in the college admissions process, students must be well-rounded with extracurricular activities and healthy academic records.
“Your academic score is important, but it’s just one aspect of your application,” Park said. “Schools are looking at what kind of quality or trait you’ll be bringing to the campus community.”
Still, an inequality in the admissions process exists, as students of strong economic backgrounds can often afford the often expensive cost of preparatory programs, Dahan said.
To combat this, Revolution Prep has offered scholarships to students who have been unable to pay for the cost of tutoring services and maintains rates at half those of leading competitors.
“They were willing to give scholarships and positioned themselves as a company that was willing to help kids succeed regardless of whether or not they were making money … which puts them more on the side of the students,” Dahan said.
It was this willingness to help students that Dahan said has helped develop Revolution Prep’s customer base and reputation.
“This is the cool part: You can make an amazing change in a student’s life by changing what college they attend,” Neuberg said. “We feel we’re giving students the bootstraps to pull themselves up by.”