Entrepreneurship, Paul Revere Style

By Thomas Heath
Monday, April 7, 2008

Thomas Heath's "Value Added" is a new column appearing Tuesdays on the WashBiz blog. Most weeks, it will profile local entrepreneurs, discussing how they make money and what they do with it.

Seven years ago, I was somehow selected for a fellowship to study at the Columbia University Graduate School of Business, where I learned lots of cool stuff like accounting, the discount rate and the definition of "moral hazard."

But the biggest takeaway for me was something I had barely noticed before I got there: the importance of a social network.

In other words, connections.

A fascinating business school case explained that the reason Revolutionary War hero Paul Revere became a household name was because his social connections helped make him famous.

A guy named William Dawes, who also rode through New England screaming, "The British are coming," barely rates a footnote in history. Dawes didn't work the crowd. Revere was a networker.

Which brings us to Christopher Gergen.

Gergen, 37, is a natural networker, in a positive way.

"It's all connections," said Gergen, who has co-authored a book on becoming an entrepreneur, has built one successful business and is working on a second. "You've got to figure out who knows who."

After graduating from Gonzaga College High School, he studied art in France, then worked for a theater in Massachusetts. He did a semester with National Outdoor Leadership School (akin to Outward Bound).

Gergen studied English and fine arts at Duke. He sold a painting for $300 in his sophomore year and bought a plane ticket to New Zealand, where he began to think about the possibilities of distance education while teaching school on a 40,000-acre sheep farm.

After graduating from Duke in 1993, he got a job writing news for CNN in Atlanta. But, he said, he "wanted to get in front of things." He left Atlanta after a year and headed for Chile.

He talked his way into a job at Chile's largest television network. He also talked his way into riding on a Chilean battleship. (I am not making this up.) When he got off the ship, he pitched the idea of a coffeehouse to leaders across Santiago -- and raised $40,000 ($5,000 from his parents, one of whom is journalist/pundit/presidential adviser David Gergen). He converted a Victorian mansion into an 80-seat restaurant and art gallery.

That was around 1994-95.

The coffeehouse eventually was cash-positive, but after his partners took their shares, it was sold in 1997 at a small loss.

He learned an important lesson from the investment: Have ironclad legal documents that detail who owns how much. He also learned he was a good salesman.

"It's what I am best at. Getting people excited about new ideas," he said.

Gergen his friend Burck Smith when they were interviewing with the Department of Education, and they began batting around business ideas.

"We started tossing stuff back and forth and really decided there was one idea that lent itself to the Internet: How do you provide real-time, high-quality academic support to university students 24 hours a day, seven days a week?"

In other words, online tutoring.

They spent six months putting a business plan together. Gergen said he knew they had to have a rock-solid business plan before they could make their pitch to investors.

It also helped to have connections.

They raised $100,000 from their families and friends and $900,000 from investors, including the father of Gergen's best friend at Duke, who had made a fortune in cable television.

Other early investors included San Francisco banker Paul Stephens. Frank Bonsal, a big-deal venture capital maven at New Enterprise Associates (his personal money, not NEA's). Steve Walker of Walker Ventures, whom they met through Smith's father, was another investor. They eventually raised $12 million.

The tutoring company they created is privately held Smarthinking, where Gergen is chairman and owns less than 10 percent. Smith is chief executive and owns a little bit more. They started in a Capitol Hill apartment, where 15 people squeezed into three rooms. Now they are in downtown D.C.

This is the business: Provide high-quality online tutoring 24 hours a day. Here is a differentiator, which is business talk for what sets Smarthinking apart from competitors: The company can get experts online with you to walk you through the material.

Universities buy access to the site in blocks of several hundred to several thousand hours. Gergen and Smith found a woman from Oxford University in England who put together the tutoring team. The site sticks with some two dozen standard subjects that are not interpretive, like physics, biology, chemistry and algebra.

They went through some bleak, cash-poor months where they had to scrounge an additional $250,000 from investors. There have been three rounds of fundraising.

Gergen would not disclose the revenues, but he said that they are in the millions, that Smarthinking has a positive net income and that it serves 200,000 students at 1,000 universities, including many state schools and community colleges.

(Disclosure: In some ventures, Smarthinking partners with Kaplan, a for-profit education company owned by The Washington Post Co.)

Gergen's latest thing, this one with Gregg Vanourek, is New Mountain Ventures. The co-authors are plugging their new book, "Life Entrepreneurs: Ordinary People Creating Extraordinary Lives."

"We are working with university sophomores who have been in college and starting to think about what they are going to do with their life."

Here's a hint: Get to know lots of people. And save money.

Gergen isn't rich -- yet. He is married with two children and lives in Mount Pleasant in the District. His wife, Heather, works at the Washington office of the Bill and Melinda Gates Foundation.

Christopher said they both save religiously in their tax-free retirement plans. They also are building a 529 tax-free savings plan for their children that is invested with American Funds.

"As a family investment strategy, because I have so much wrapped up in the private-equity world, we are trying to diversify and have a stable investment strategy," he said.

Something Paul Revere would have taken to heart.

More on Christopher Gergen can be found at the WashBiz blog at blog.washingtonpost.com/washbizblog.