Outsourcing Homework and Building a Business
How one entrepreneur made the grade by building a disruptive business model to help students learn.
ANN ARBOR, Mich.—Entrepreneur Krishnan Ganesh got his latest business idea from a cartoon in a U.S. newspaper. In it, a parent tells a disgruntled-looking child, "No, you may not outsource your homework to India." Ganesh thought, "Why not?" Not long after, he launched TutorVista, an online tutoring service where students connect with live tutors for a lower price than bricks-and-mortar tutoring centers. The company offers on-demand tutoring and unlimited sessions for a monthly fee. In his case study on the novel startup, Ross professor M.S. Krishnan outlines how Ganesh successfully executed this disruptive business model while facing some serious constraints, not the least of which was an outsourcing backlash in the U.S. He also had to cope with high upfront capital needs, recruiting a network of tutors, and building proprietary technology. In the following Q&A, Krishnan, the Joseph Handelman professor of information systems and innovation, details the ways in which TutorVista seized on global trends and technology to redefine the tutoring business.
What does this case tell us about building a successful startup against entrenched competitors?
Krishnan: It's not just about how you create a startup. This is a story about how you build a disruptive business model. TutorVista changed everything and turned it upside down. The traditional model is that you pay on an hourly basis.—$40-60 per hour.—and they changed that to a 'buffet-style' model. That is, you can have all the tutoring you want for a monthly price. I have a lot of fun teaching this case because it's about teaching a new business model. It's about innovation. It's about how you look at the trends in the external environment, like globalization and digitization, and come up with a new idea. It's about leveraging technology to fundamentally change the age-old business model of tutoring.
It's not just changing the price. The business model is deeply thought through from the experience of the student. Traditionally, tutor times will be fixed, say Tuesdays and Thursdays from 6-8 pm. That model expects students to adjust their lifestyle. Because you have to go to tutoring, you miss soccer. You have to make a tradeoff. That is prevalent in many industries where companies expect customers to adjust to their products. TutorVista goes along the lines of the book I co-authored with C.K. Prahalad, The New Age of Innovation, where we looked at how recent trends in technology, social networks, and convergence of technologies and industries is leading to new concepts and new business models. TutorVista is a good example of that. They created a disruptive model from an economic standpoint, but also in convenience to the customer. As a student, you can pick the day of the week and the time of day you want to be tutored. They even have on-demand tutoring. In addition, if a student is not happy with a tutor they can request for a change!
Another big assumption in tutoring is that to get economies of scale you have a tutoring center and a group of students who need help. They come to your place, and the tutor comes in and does his/her curriculum and they teach at their pace. TutorVista allows students to pick the tutor and a pace that that is appropriate for them. And it's a one-on-one, N=1 experience for the student. So it's going to that personalized, focused attention on one consumer at a time and creating a unique experience. And you orchestrate that experience not by owning all of the resources. TutorVista connects to thousands of tutors across the world and is bringing them into this platform to run the experience for that one consumer. That's the interesting piece about strategy and new business model in this case.
But you still have to execute this model, and there were some hurdles to overcome.
Krishnan: Yes, this case also is good for teaching execution challenges. This isn't just about an idea, but how you take it forward and implement it. We talk about the operational challenges. How do you build a scalable technology model? You need to deliver value to consumers at a completely different price point. But at the same time, you have to partner with thousands of tutors and only a few hundred of them are your employees. In other words, how do you build a Velcro kind of organization with many small partners, who are kind of entrepreneurs themselves? Who is available out there? Can we get housewives, or retirees, or engineers who have a passion for teaching for a few hours a day and want to pick up some decent money? And it's a good way for them to impart the knowledge they have and help society by providing this educational experience.
You can teach it from the point of view of operational challenges. How do you manage this large, scalable operation and make it flexible so that it can adapt to the needs of the students? But at the same time you have to make it flexible resource-wise so it can deliver the experience to the consumer at a game-changing price.
The company did face a challenge in getting people in the U.S. to accept a tutoring service with tutors online half a world away. How was that overcome?
Krishnan: There were a lot of cultural barriers initially. People didn't embrace it that quickly. So they also offered a promotion where people could try it for free for a month. That helped build some engagement with the consumers. That made the interface very important. How do you make it very inviting for the customers? They have sessions for parents only and for students. If you go to the site, in a few seconds a chat box will pop up to say, "How can I help you?" and asks about your background and what you're looking for. TutorVista will set you up with a test tutor within a minute so you can experience what it is. It took off from there and people started finding value in that. Ultimately if the customers see value in this they certainly will embrace these models. The growth in TutorVista's customer base so far indicates that they have been successful.
In terms of analytics, the company's ability to collect real-time data and find meaning in that data helped them address a number of their challenges. Is there a lesson in there for any business?
Krishnan: Absolutely. We talked about this in The New Age Of Innovation. Analytics is going to be one of the key capabilities for any company. When you take your business model and orchestrate an experience to one customer at a time— as opposed to selling mass products to everybody—you have to have the capability of analytics because you are going to be flooded with data. The real- time experience with customers is your data. But you have to have capabilities to quickly put some analytics on it and derive the right insights for decision-making. If you don't have that you can actually drown in data. Identifying the right analytics and dashboards is not a one-step process. You can't just do it for three months and say you're done. It's a continual process of discovery. You have to have this culture of experimentation. It has to be embedded in these business models.
I understand turnover is high among the staff tutors. How has the company dealt with that?
Krishnan: It is a real challenge and they are dealing with it. They are talking to tutors to get deeper insights about why they are leaving. Some are seasonal reasons, such as with the big dip in business in the summer. Some were looking for temporary jobs. These are realities you have to come to terms with. You cannot change them. Internally, you have to adjust your processes and systems to make it so that when a new tutor comes in, they quickly understand the profile of the student and you have to make that process efficient. They are creating a more supervisory role for some expert tutors so there's some upward mobility. It goes to show that you have to understand constraints and innovate within the constraints.
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Terry Kosdrosky, (734) 936-2502, firstname.lastname@example.org