Introduction

Three weeks ago, my first business - Evolutionary Tutors - was acquired. 

I decided to write this document to briefly outline some of the important lessons I learned and what I would do differently if I was to start a business again today. This document deliberately places more emphasis on the problems we encountered as opposed to everything we did ‘right’, as there is minimal benefit in analysing the latter.   

What was Evolutionary Tutors? 

Evolutionary Tutors offered private one to one home and library tuition to Years K-12 students in Sydney and Melbourne. We matched students with expert local tutors within 24 hours via our online marketplace platform. 

Why/When did we start Evolutionary Tutors? 

One night in April 2017 I was at a 21st birthday party. I struck up a conversation with a friend (Tim) who had previously tried to start a business in the tutoring space and failed. After speaking for a while, we both realised that we had the right complimentary skills to work together in this area and build something truly great. We met up the next day, struck out a brief preliminary plan, registered the business name, and Evolutionary Tutors was born. Over the next few months we started discussing and planning in more detail what we wanted to build and how we were going to achieve it. We officially launched Evolutionary Tutors in Sydney in August 2017, when I was 20 years old. 

Our Results

We gained traction very quickly. Much quicker than we expected. Within a couple of months we started averaging approximately 7-8 new clients per week. 

At the time of our exit, we achieved over $350K in revenue over two years, helped more than 400 students, employed over 100 tutors, had over 6,200 lesson hours in total across Sydney and Melbourne, and achieved over 25 five star Google reviews from satisfied clients. We were also sustainably profitable from Day 1, achieving about $100,000 in net profit over two years. Our customer lifetime value (‘CLV’ or ‘LTV’) was approximately $900 and our customer acquisition cost (‘CAC’) was close to $0 (we didn’t do any paid advertising). 

What We Did Right

This business was a fantastic example of how if you do the basics right, it’s not that hard to successfully start a service-based business. In general, service-based businesses are easier to disrupt because the incumbents tend to be less innovative and adaptive. Most service-based business owners don’t understand digital marketing, project management, technology or website design and conversion optimisation best practices, because they have typically been operating for a very long time (pre-internet). By contrast, we understood these things quite well (or at least well enough that we could identify from Day 1 that we needed to learn more about them). Service-based businesses are also great because you can start them with very little capital. We spent less than $2,000 getting Evolutionary Tutors up and running.  

Speed, Convenience & Quality

Our research showed that one of the main pain points of students and parents looking for a private tutor was that it can take a long-time to find the right person to tutor their child. In other words, our existing competitors were slow in finding them a tutor, and often that tutor was not suitable for their child. 

So, we had our pain points to address: Speed, convenience and quality. 

Knowing this, we set out to build a service that addressed these problems. 

We matched students to tutors within 24 hours, replied to clients immediately when they submitted a request (via automation) and matched them with a high-quality tutor who had been thoroughly vetted and trained by us. 

We obsessed about the quality of our service.

Systems 

Without going into the specifics of what systems we built (due to confidentiality reasons), this was one area we excelled in, and it gave us a massive advantage over our competitors. 

During the first 6 months of operations, everything was very primitive, and our systems were not entirely built for scale. For example, we originally hired and trained tutors in-person at a make-shift library ‘office’ (cubicle) at Macquarie University. Whilst this was great for personalisation and connecting with the tutors, as well as for vetting the tutors better, it was far too time consuming for what each tutor contributed to the business in its entirety. On average, about 80% of our revenue came from 20% of our tutors. It was very clear that the Pareto principle was holding true. 

• We did the basics rights – speed, convenience, and quality of service was fantastic. 
• Obsessed about the quality of the service. 

• Tutor training
• Tutor resources 
• Good communication with clients

• Strong automation = maximum efficiency 
• Great free marketing methods to attract clients at $0 cost
• Strong understanding of the market and opportunities, because it was a market I had worked in for 3 years already. 
• Web design
• Customer service

Some of the Problems We Encountered (A Lot!)

• Not pivoting business models soon enough.

• Margins just weren’t good enough. Needed to pivot to either a marketplace model, group tutoring, or selling tutoring lessons in packages. 
• Difficulty scaling. 

• Not tracking the right data. 

• Our high growth rate early on tricked us into thinking it was sustainable. We missed the forest for the trees. 
• This point is so important that I will be spending the next 4 months teaching myself Data Science and AI via an online degree. I believe very strongly that if we could have gleaned better insight into our data, we could have pivoted more quickly and grown the business much quicker. 

• Haphazard communication between founders – different time zones and priorities.
• Not setting clear enough goals nor ambitious enough targets. 
• No common vision for the business/misaligned vision of the company and personal goals between founders. 

• I was doing Uni full-time and my business partner was working full-time on another job. 

• Not being passionate enough about the business. 
• Not delegating tasks & building a team around the business soon enough. 
• Not experimenting enough.
• Not diversifying sales/marketing methods and finding a sustainable long-term paid growth strategy where CAC < CLV. 

• Should have squeezed more money out through email marketing. 
• Should have done content marketing. 

• Not building a good enough culture amongst the tutors (contractors). 
• High tutor turnover. 
• Not diversifying revenue streams quick enough, which meant our CLV wasn’t good enough. 🡪 Should have been looking at ways to target younger students better, rather than just Year 12’s. Should have also been looking at ways to sell products to those graduating Year 12 students (e.g. affiliate links for University textbooks). We did consider this, and had it all written down, but were not able to execute on it before the Sale. Should have also been selling notes or other up-sell products/services such as career advice. 
• Not offering enough value to tutors 

• Should have changed their pay structure to a tiered schedule as we did originally (but changed because of the excessive admin). 
• Should have offered them more incentives to stick around, e.g. creating a Slack Channel where they could communicate with each other, organising meet-ups, trying to connect with them industry leaders for graduate jobs, etc. 

• Not changing CRM providers. They didn’t have an API. 
• Hiring great people is extremely difficult!

• Out of all the problems we had, this was by far the one thing that surprised me most. I really was shocked. For some strange reason, perhaps I was just naïve owing to my age, I thought that people who achieved outstanding academic results and had great communication skills would also be highly reliable, committed, ‘Type A’ personalities. I could not have been more wrong. It was very difficult to find ‘Type A’ personalities and, wow, what a massive difference they make. I am so convinced on this point now, that if I was to start a company again tomorrow I would absolutely obsess over hiring. Let me illustrate this point further. Approximately 80% of our revenues came from 20% of our tutors. I was astonished that the well-known Pareto principle actually applied very astutely to our business. I always thought this was just one of those textbook theories that doesn’t actually apply in the real world, but I was very wrong. Steve Jobs made a very good point about hiring in this 1970s interview, which I wholeheartedly agree with: “When you get a core group of, you know, 10 great people, it becomes self-policing as to who they let in to that group. So I consider the most important job of someone like myself is recruiting.” https://www.youtube.com/watch?v=rQKis2Cfpeo / https://www.youtube.com/watch?v=wNUP92l4Ujg 
• What happens when you hire people that aren’t ‘Type A’? 

• They don’t reply to texts/calls on time. 
• They are flaky – they take on jobs and then renege. 
• They quit. 

• Training could have been better and more personalised. 
• Could have automated more systems.  
• Getting customer reviews is difficult because people are time-constrained and barely open emails. 
• Bookkeeping/payroll system wasn’t that accurate, nor automated. 

Why We Sold

We had plans to fix the above problems, and we were reasonably confident we could execute on them successfully, but at the end of the day we had to ask ourselves: ‘Is this what we really want to spend the next 5 years of our lives doing?’ The answer to this was a very clear ‘no’ for both of us. I value my time much more than I value money, so this was a simple decision. I want to spend my time working with smart people on difficult problems. I also love innovative technologies and thinking about the future. I believe very strongly that if you get a bunch of smart people (‘A-Players’) in a room together, they can achieve remarkable things together. Trying to do everything yourself would be very difficult, and very slow.

I see myself wanting to build things that are important for the future, and I didn’t think we could do this with Evolutionary Tutors, because we would be forever constrained to the NSW Government’s archaic HSC education system. In essence, we would have to play within the confines of that system, rather than developing a truly unique and effective education system in light of the future we are heading towards. I didn’t like thinking about this, because on the one hand we were helping students get great results in their HSC, but on the other hand, I thought ‘So what? The HSC is so out-dated and doesn’t prepare students for anything in the real-world (in my opinion). The future is all about technology (AI) and soft-skills’. In the end, I couldn’t really reconcile these two views with Evolutionary Tutors, nor did I think we could make a viable pivot. 

As I sit here writing this one month post-sale, the feeling I keep coming back to is one of ‘regret’ more so than ‘joy’. I’ve tried to pin down why this may be, but I think it owes to my competitive streak. I hate quitting. I guess, in a way, I view ‘selling out’ as quitting. So I guess there will always be that nagging feeling of ‘what could have been’ if we kept going with this, but I know deep down that selling was the right decision, and it has freed up my time now to focus on learning everything about artificial intelligence (A.I), via online learning courses which I am thoroughly enjoying. 

What Would I Look For In My Next Business? 

I created the below checklist for the main, very preliminary (‘Step 0’) questions I would ask myself when considering another business idea. I’ve decided to include this because I think it gives a good insight into how I think about business in general: 

• Does it solve a real problem? 
• Is there an urgent need to address this problem? 

• What subset of users (target market) really need this? 

• Who are the early adopters? 

• Have I encountered this problem myself personally?

• If you haven’t encountered the problem yourself, it is exponentially more difficult to ascertain whether it is really in fact a problem, and you may end up with a solution looking for a problem (every entrepreneur’s worst nightmare). It is also much more difficult to ascertain the target market and the solution. By contrast, if you have encountered the problem yourself, you can at least build something that you yourself would enjoy, and you straight away know that at least one subset of your target market is people like you. 

• Is it in a growth market that will be important for the future? 
• Does this add real value to people’s lives? 

• Will it impact a large number of people in a small way, or a small number of people in a large way? (Both are fine, but the price charged may be inversely correlated). 

• Are people willing to pay for a solution to this problem? 

• Be very careful of market research results. Track what people do, not what they say (i.e. follow the actual data). See Shoes of Prey’s failure for a classic example of not understanding this. 
• If they’re not willing to pay, it’s probably not a big enough problem for them. 

• How big is the market for this product/service? 

• Can this business feasibly achieve $10m revenue within 3 years? 

• What are the unit economics necessary to achieve this?

• CAC vs LTV assumptions, gross/net margins, operating expenses, etc. 

• Is there a sustainable, profitable way to acquire customers?
• Recurring revenue? 

• Is there vertical markets you can expand into after the idea is past the early adopter stage? 
• Start narrow and deep with a very specific target market, then expand to a wider customer base and other related markets/products. 

• This may involve several business pivots to capture more revenue over time. 

• Is this idea contrarian? 

• Is the idea so seemingly obvious that people wonder ‘why hasn’t this been done before’? 
• Is the idea so non-obvious that people don’t know they want it until you give it to them? Do they think it’s a ‘stupid idea’ when they first hear it? That could be a sign you’re onto something which lay people haven’t given much thought to (or it could mean that your idea is actually, in fact, stupid. You won’t know until you test your assumptions).

• Contrarian ideas are great because they present a blue ocean of untapped opportunities that you can use to gain a first mover advantage in some markets, if you can prove that your assumptions about the problem/solution are correct. 
• Is the idea a ‘purple cow’? i.e. Does it immediately capture people’s attention when they hear it? Are they compelled to hear more? 

• What are the assumptions underpinning this problem/solution, and how will you prove those assumptions right? 

• Assume that you are wrong, because you almost certainly are. Try to prove yourself less wrong again and again via iterations/pivots, to get product-market fit. You will never be completely ‘right’, and you should always aim for continuous improvement.  

• Is the business goal ambitious enough that I will be able to attract ‘A-Players’ to the business? 

• Extremely important to be able to attract exceptional talent. This is the key to everything else. You simply can’t do everything yourself. 

• What is exceptional? In my opinion, an exceptional person has the following general traits: 

• Committed to always learning. 
• Passionate to the point of being obsessive/unusual/relentless in pursuit of their goals. 
• Independent thinker, who probably doesn’t care much for the status quo.  

• Independent means they think about things from first-principles rather than by analogy, and they aren’t easily swayed when people tell them they are wrong unless the other party presents a logical, coherent, persuasive argument backed by data. They think deeply about things that others think are fundamentally ‘the norm’. They realise that just because something is in a textbook, that doesn’t mean it’s right. Just because something is quoted as data, doesn’t mean it’s right (e.g. they question how that data was assembled, who assembled it, what that person’s motives were for assembling it, etc).  

• Someone who questions everything, and is naturally curious. 
• Probably disagreeable by nature, but courteous, honest and confident enough to communicate with clarity and emotional intelligence why they disagree with something – even if this means telling the ‘big boss’ their opinion/s directly. 

• When you get a bunch of extremely smart, independent thinkers who are disagreeable by nature, and put them in a room together, you can get a better perspective on the problem/solution and you’ll end up with a more optimal outcome. 

• They can hold two seemingly contradictory positions in their mind simultaneously and can quickly change their mind when presented with evidence to suggest which view is correct. If it turns out they were wrong about a decision, they are quick to recognise and admit that they were wrong and are willing to pivot at a moment’s notice. They are never too proud to admit they were wrong. They recognise that making a decision quickly is important, even if it means they could be wrong and may need to pivot later. 
• They see the ‘big picture’, but are laser focussed on the day-to-day tasks as well. 

• Do I care enough about the problem this business is addressing to commit at least 5 years to solving it, no matter the personal, economic, financial, or social cost?  
• Can an MVP be bootstrapped, or will it require outside capital and/or expertise? 

At its core, I think business is quite simple. It’s about providing an exceptional good/service for customers. It’s really that simple. When your product is so good that people can’t help but tell others about it, you will win. 

This can generally be tracked by a business’s Net Promoter Score (NPS). In the digital age, I often read a lot about various topics that, in my opinion, overcomplicate things. For example, no amount of on-page SEO, click-through rate optimisation or exorbitant ad-spend can make up for a poor product. By spending money on optimisation before you achieve product-market fit, you’ll be throwing more and more money to acquire customers. This is a losing proposition, because no matter how much money you throw at the problem you’ll eventually run out of customers to target (saturation). Likewise, if the price you charge for your product doesn’t match what your target market is willing to pay for it, no amount of optimisation will help. 

Final Comments

One of the things I have realised is that asking the right questions is just as important as ascertaining the right answers. For example, if someone was to ask a paid marketing ‘expert’: “Will Facebook/Google advertising work for my business?” and the ‘expert’ was to respond “Yes, it generally works for all businesses”, then technically they would be right. 

BUT, the question was wrong. 

And the answer was deceptive. 

Let me explain. 

The right question here should have been “Will Facebook/Google advertising be profitable for my business, and if so, how much money will I need to spend before the campaign reaches profitability? How long do you think this will take? How will you measure my results over time?”

Thus, my point is that if you don’t know enough about a certain topic to be able to ask the right questions, you will not get the right answers. Certainly, you should not delegate any tasks that you don’t know well enough yourself to ask the right questions, because you are almost guaranteed to get bad results. This is part of the reason I am teaching myself to code at the moment, as well as teaching myself Data Science and AI specifically. I am very confident that AI will be the defining technology of our generation, equivalent to the internet before people knew what it was. It’s not about being an expert in AI, it’s about knowing enough to ask the right questions, so that you can get the right answers from the right people.