William Kelly. CEO & Founder.
- Date of Incorporation: 1999
- Location: Portland, Oregon
- Industry (Yahoo Finance): Education & Training Services
- Employees: 65
- Website: www.learning.com
Learning.com has been recognized by numerous educational and technological institutions—Reader’s Choice, the Association of Educational Publishers, Codie, etc. How did your story start?
Learning.com was founded in 1999. Prior to that, I had been the co-founder of a company called Sapient Health Network, which was acquired by WebMD in January of 1999. I had a friend from college named Barclay Burns who had pursued a career in international development and had come back to the United States and had gotten a PhD in instructional psychology at BYU. At the time in 1999, he was doing a post doctorate at Cambridge University in England, teaching strategy at their business school and doing research on neuroscience. I was trying to figure out what was next for me after the acquisition of Sapient Health Network. He contacted me and we started talking about what happens when education meets the Internet. Is there something unique there? In September of 1999, we decided that there is. So, we wrote a business plan, we formed a corporation, and we started raising capital.
Most of the capital was raised by angels who participated in the Sapient Health Network success. We launched the company with the idea of creating an online portal for teachers. That concept was way ahead of its time, not because of technology but because of the state of the educational economy. So in mid 2000 we had a course correction and retooled the company. The first product after the restructuring was EasyTech, a computer technology literacy program for students K-8. We had a big break when the state of Texas adopted EasyTech for their schools. The competitive part was selling after the adoption. By creating a partnership with Pearson, we were able to win half the elementary schools in Texas. That gave us a six-year guaranteed revenue flow of a reasonably substantial size and has been key to helping us become innovative and push out our sales channels.
Let’s talk more about angel investing. Why did you choose this route compared to private funding or another route?
It’s not so much that I sat down and said, “We need to go with angel funding.” When you start a company you go where the money is. It’s very pragmatic. If I could have funded the company through partnerships with key customers or industry partners, without giving up equity, I would have done it in a second.
There are definitely differences between angel capital and venture capital (VC) in the relationship with the investor and what they expect. You can get a little strategic in this choice. We didn’t raise our first VC round until 2005. Everything before that had been angel investors. Angels are people who care a little bit about the company and product, but care a lot about the people. It’s a much different fundraising technique than positioning yourself for VC. The VCs are interested in a product or company in a specific category. They’re looking for things that fit their preconceived notions of investing. So, it’s a very different way of raising capital.
Which is the better route? VCs or Angels?
I think VC is better later on once you’ve proven your business model. At that point you’re talking with an individual who is more of a financial investor, one who monitors growth trends rather than looking for you to be the smart guy in starting a company in a category that they’re interested in. Every time that I’ve seen a VC come in too early to a deal it causes a lot of tension between the founders and VC. Very few really start-up level VC investments end in a very happy outcome for everybody. VC will typically sack the founder team through investment, get discouraged and find an early exit, or simply write it [the company] off. None of those are good outcomes. Very few early VC investments end like a ‘shoot-the-moon’ kind of thing. So, I think every kind of capital has its time and place.
Certain kinds of capital have more glamor. It’s glamorous for start-ups to have VC backing. We just got VC from the guys who had a little tiny stake in Google and they made a boat load of money after that. Your company is not going to succeed on the basis of who your investors are; your company is going to succeed on the basis of whether or not you have identified a viable market opportunity and whether you’ve assembled the right resources to take advantage of that opportunity. It’s going to ride a lot more on the leadership and team then it’s going to ride on who you get your capital from, except for the fact that you have to manage investor expectations. You have to nurture those relationships in the way that’s expected by the investors; otherwise as CEO you’re going to have a lot of wasted time talking with people that are upset.
So, I’m starting a company. How would I find or approach an angel or VC?
The first time around I was a partner in the starting team but I wasn’t the CEO. The CEO had some of those relationships. I got in as a founder but as a second founder. It wasn’t really my responsibility to find capital, but I did ride along on those presentations. We raised angel capital in the Portland community, so I met a lot of people. Having had a successful outcome with Sapient Health Network, I could call people and they would take me seriously. You have an existing network. Maybe the advice there is to take every opportunity to meet the investors. If you’re a product manager and you think that someday you are going to start your own company, start then and go to shareholder meetings. Do what it takes to meet these people. The biggest question that you’re going to face is, “How am I going to start this?”
If you haven’t done that, then there are two things that you can do. First, meet with your local community of angel investors. There are good networks in almost any big city. In Portland, there is the Oregon Entrepreneurs Network that supports founders and creates social opportunities. Angel Oregon is one of them. On the VC side, those guys are getting hundreds of unsolicited ideas. So, cold-calling them is not going to work, unless you have the greatest pitch ever and the company just got up discussing an industry that they want to get in to. Second, there are industry gatherings. So, in the education industry, for example, there are three or four events a year where companies get together for business development and investment purposes. Part of the purpose is to meet the investor community. That’s a really good way to meet investors especially if you’re not in the one of the “hot” industries, which regularly change. Education, for example, rarely makes the radar for most VCs. So, if you go to the education-specific, industry events, you know that they are interested and want to invest.
So, why did you choose K-5? Why education?
I ask that question every day. All the funding comes from public sources. If a state legislature gets some bee in their bonnet and reduce or reconfigure, then we’re the guys who suffer or benefit. Really, not everyone is going to see the value of your product initially. You slug it out. You have to understand that the person who you’re talking with may not be the decision maker. You have to ask whether or not this issue will go in front of school boards or the legislature. We hire lobbyists. We attach ourselves to the issues. And so, it’s not as straightforward of a business. Every opportunity has its own characteristics. Education is not that easy to get into. But once you’re in, you tend to have a lot of retention of the customer and a lot of opportunity to build your business from the existing customer base.
Let’s talk about your experience at Harvard. How much of an impact did an MBA from Harvard have on your career and Learning.com?
I would say that my MBA has become more valuable each year. At Harvard, everyone goes into Wall Street investing or high-profile consulting companies like Bain or Mckinsey. I didn’t choose those routes. When I graduated and started my first job, I probably made a third of what my classmates were making. It didn’t feel like having that degree meant anything; however, the further along I got, the more my responsibilities moved to general management strategies. The more I had to rely on my own name with investors, the more valuable my degree became. I can honestly say that the things that I learned at Harvard I use more and more in my the day-to-day work. And having the degree at the very least checks someone’s box if they are wondering “Is this guy worth investing in?” I think it was a good investment.
Do you feel that it was crucial to obtain an MBA—albeit one from Harvard?
Everybody is on a different path. I got an undergraduate degree in German Literature and started out in the newspaper industry. I was a little naive and inexperienced in business. I have a good friend who in some ways is more entrepreneurial then me. He’s remarkably successful. He dropped out of his first year of college. Everybody has their own path. I don’t think you go get an MBA to figure out what you want to do, unless you want to get sucked into the vortex of Wall Street banking. There’s an entry ticket there. You have to go to one of the top schools; i.e., if that’s what you have in mind. Depending on your circumstances, it might be a critical thing at that point; it might be a waste of two years. So, I just can’t dispense generic advice about it. I advise different people different ways.
Do you feel that an MBA from Harvard is better than or just as good as one from BYU?
Oh, that’s a tough question. The quality of the MBA depends upon so many aspects. One aspect is the quality of the curriculum and how you learn. I have to say that Harvard is a little stodgy in that. They have the case method. They sell their cases all over the place. I’m not sure that it’s always the best way to teach. It’s really interesting. I’ve seen a lot of things at BYU that I’m very impressed with. So, that’s from a curriculum standpoint. Then, you have to consider the various components of the network. The network consists of the faculty, the students, and the alumni. I think BYU is doing a great job. They have a stunning faculty; they have great students going there; however, they don’t have the alumni network yet. It’s impossible to compete with the alumni network at Harvard. So, BYU is a great school and it’s screaming up the Business Week rankings. And, if the network you need overlaps with BYUs business schools, then you’re best bet would be BYU.
Let’s talk about change. You successfully piloted Learning.com through the .com bubble burst. How have you remained competitive online?
Sometime it doesn’t feel like we have a competitive edge. We get too complacent. Some of our biggest contracts are six-year guarantees. It’s a tricky balance because you have to have that security to run a business, but as soon as you have a profit and revenue flow, you get into this steady mode of doing business. 90 percent of the time is spent serving your customer base and selling the current product line.
We have successfully remained competitive through innovation and managing the culture of the company. We use ‘Voice of the Customer’ surveys and obtain feedback that verifies whether or not customers like direction we’re heading. It’s shocking for some employees to hear customer perceptions of what we’re doing. So, bringing that in to the company helps. Hiring people who are jazzed about building new products helps. You can’t have people who care only about future products though, while current customers suffer. Sitting around and slapping ourselves on the back because we won an award and some customer likes us, is not good. It’s my job to help employees remember that there are problems that need to be solved. Usage data is good for this. I try to help people see that we’re not accomplishing all that we’ve intended to do. I might say, “Look at this tiny company. Look at this tiny competitor. Look at what they’re doing.” Of course they’re not going to get distribution, but what if they do? It’s phenomenally remarkable to me how people sort of fall asleep and get into a state of complacency when their company is financially sound and they have a customer base that likes them.
One more item on change. How have you personally grown as an entrepreneur and leader throughout the past few years?
That’s interesting. I read a lot. I try and stay informed about what’s going on in business. I try really hard to not buy into the status quo of the industry. I try to get as close as I can to other CEOs in the industry to get a sense of what they’re thinking. I try to keep my thinking a few steps ahead of them. I read things that are intellectually challenging. I love reading about science and economics, things that are not about my industry specifically. You have to understand metaphors and analogies to be effective as an organization. If you get too insular in your industry then you are going to be blinded. I have become a student of Facebook because I’m fascinated at how they ‘get’ people. Last thing in the world that I want to do is pick up a book about becoming a CEO. I don’t want to hear about how I need to be a CEO. I want to learn about the latest microbiology theories; what they are doing on the Hubble telescope. I like to ask, “What does this mean?” If you’re bathing your brain in stuff like this, then you’ll likely be able to keep up on change. I suppose it’s different for different people. If I stop reading and become less engaged in things, then I’m in trouble. If I begin to find that the world is becoming uninteresting, then I know that I’m becoming uninteresting.
What business or otherwise inspirational books would you recommend to “the aspiring?”
I have a very skeptical eye for so-called “inspirational books.” I tend to not turn to them. I don’t like to read something where someone is trying to tell me to be a CEO. I like to read about how people have done it, learning what it was that they saw. For example, I just helped my second-oldest son write a paper on John D. Rockefeller—his chosen topic. So, I’ve been reviewing the John D. Rockefeller story and how he came into business, how he supported himself. I find it very inspiring to be able to see in a digestible story how somebody went from zero to the richest man in the planet in a matter of 50 years; not that being the richest man on the planet is what we should aspire to. He was disciplined in how he did business; he paid tithing; he was a member of the Baptist church; he tried to make this a practice thorough out his life. I find that to be a very inspirational thing.
What advice would you give to “the aspiring?”
There’s a lot, I suppose, that can be said. One, you have to simultaneously be a cheerleader and the biggest critic of your own ideas. You have to think through the process of skeptical evaluation because everyone else is going to do that anyways. So, if you do that yourself then you’ll know where the weaknesses are and understand how others might perceive the opportunity.
Secondly, I would say that you shouldn’t assume that you’re the smartest guy in the room. If you ever find yourself as the smartest guy in the room, then something is really wrong. One of the skills that you need is the ability to attract highly-qualified people to work with you. If you cannot attract those kinds of people, then you need to ask, “Is it me or something with the idea?” I’ve seen more people get disappointed by trying to hold onto too much control and ownership than I’ve seen succeed and then regret having given up so much ownership. So, those who recognize that it’s a whole lot better to own 10 or 20 percent of a success than it is to own 90 or 100 percent of a failed enterprise are much better off. There’s a balance you have to strike. I think it’s going to be a hallmark of success if you can wisely give up ownership to accomplish a goal. Sometimes you have to bide your time and sit back and learn.
Some of the best advice that I got was from Bill Salmon in an entrepreneurial class at business school. This guy is a legend at Harvard. He came into class one day and said we were not going to do the case. Everybody groaned because we had all spent six hours the night before getting ready for the case. In essence, he told us that if we wanted to become entrepreneurs, we had to throw ourselves into an operating role in an industry we loved. We needed to learn the business and have enough experience to understand where the opportunities were in that industry – how the economics worked, etc. He disavowed us of the notion that we were either going to go “get rich” in investment banking or consulting and then start a company, because we would just get used to the cash flow and not be able to turn it off long enough to get a company off the ground. He also disavowed us from believing that we could walk out of business school and get funding for a startup. Investors want to invest in experience and knowledge, not in someone who thinks they’re smart because they just graduated from business school. So I took his advice, and I think it’s worked out.
