An evening with Mr Rahul Varma
On Friday, January 17, we had an insightful session by Mr Rahul Varma, the CEO and Co-Founder of Unschool.
About Mr Rahul Varma
Mr Rahul Varma has been the CEO and Co-Founder of Unschool since Feb 2019.
Earlier, he was Chief Operating Officer, The Climber, a mentoring platform to enable students to pursue their passion and make an informed career choice.
Mr Varma holds a Bachelor of Technology in Computer Science from SRM University. During his college days, Mr. Varma was Vice President Operations at AIESEC. He has attended the YC Winter 21 batch of Y Combinator, considered one of the world's best startup accelerator programs and investors.
About Unschool
Unschool (YC W'21) ranked #3 on LinkedIn's Top Startups India 2020, is an approved training partner for National Skill Development Corporation. Unschool is a marketplace for industry experts to create high quality courses and for students to learn new skills. The term Unschool signifies undoing the schooling done in conventional fashion and reschooling as per industry standards and expectations.
Unschool is creating a lifelong online learning ecosystem. The hope is that students need not resign themselves to a one size fits all model. They can learn in a unique way that brings out the best in them. Anyone with the knowledge to share and skills to teach can host their own course online and earn while mentoring students remotely.
When Unschool was launched, there were other learning platforms like Udemy, Coursera, Swayam. They had many users, excellent instructors and great courses. But the main problem was a low rate of course completion, in some cases, as low as 3%. There were these learning platforms and sites like Naukri, Monster and Internshala which enabled internships and placements. What was missing was a platform which could connect the demand and supply side.
Unschool moved into this white space. On Unchool, the course completion rate is 60%, the highest in the world. Unschool also guarantees internships. About 8 out of 10 students are placed within the Unschool Ecosystem.
Profitability vs Growth
It is important to strike a balance. Growth is crucial for early-stage startups. But only profits can ensure long term sustainability, for a period of 7 years or more.
In simple terms, profitability implies that revenues exceed expenses. Only in that case the founders can take some money home.
Growth by itself does not guarantee profits. Many startups keep growing fast in the hope that one day, they will become profitable. To generate fast growth, they may offer discounts and so on. Only a few startups have turned profitable this way. Zomato is a good example. Before its IPO, Zomato was not making money. But since then, things have improved. But many others, like Swiggy and CRED are still not profitable.
But growth does enable market dominance. By onboarding many customers, it creates a network effect. We must remember that it is four times more expensive to attract a new customer than to hold on to an existing one. At the same time, each new customer adds more value to the network. The delivery network is in place. Many downloads are happening. Once a threshold is crossed and users are hooked to the platform, it is difficult for competitors to wean them away. That is why the ecommerce platform, ONDC, despite government backing, finds it difficult to compete with Zomato and Swiggy.
With market dominance, the hope is that one day, with a strong customer base, prices can be increased, and the customers will stay with the platform. Rapid growth can also attract a certain category of investors who are ok with losses as long as the venture is meeting the specified growth KPIs.
But high growth at all costs is not desirable. Heavy expenditure may be incurred to acquire customers. There could be cash flow problems as losses mount. It may become necessary to approach investors for additional funding. This may lead to the dilution of the stakes of the founders. With this kind of pressure, the founders may get distracted and lose their focus on the core business.
In contrast, profitability ensures sustainability. It inspires investor confidence. It also enables informed decision making. For example, the venture will ensure that the price charged will exceed the cost of customer acquisition. The venture will also be more resilient. It will sustain itself based on internal cash flows rather than depending on investors for additional funding.
To ensure profitability, unit economics is important. Each customer and each transaction should be profitable. Key metrics to track include customer lifetime value, churn rate and customer acquisition costs. Profitability is also enabled by attracting strategic investors who can stay with and help the venture in the long run.
Concluding remarks
Growth is important but profitability is essential for long term success.
A venture should prioritize unit economics and find the right balance between growth and profitability.
Growth without profit is eventually unsustainable.
Q&A
Mr. Varma emphasized that becoming an entrepreneur for fame or glory is a wrong reason. It is difficult to achieve that. The more likely scenario is hours of toil (first to enter the office and the last to leave) and personal debt. Being an entrepreneur is more of a marathon than a sprint. The results take a long time to come. For at least three years, the founder must be content with being the lowest paid employee of the company.
Mr. Varma joined THub’s Lab 32 program along with 20 other startups. Most of them were headed by NRIs who had made a lot of money in the US. Mr. Varma was a first-time founder with limited resources. He did not go by the book. In fact, he got going even without a website. He would pick up the phone and call respective customers about the courses that were going to be launched by Unschool. People were willing to sign up. Unschool was profitable from the first day. The approach worked even though Mr. Varma had an uncomfortable feeling that he was taking a short cut.
In contrast the other founders typically spent 6-18 months building their product without any Minimum Viable Product (MVP) testing. Only then they would realize that they were either too late or the product they had launched was not what the customers were looking for.
Mr. Varma pointed out that many entrepreneurs make assumptions and heavy investments. They also do not test protypes and instead strive for perfection. Even if the focus is on growth, it is important to make something people want. We should go to the market fast and fail fast. We should talk to customers and find out what they want. Prototypes, MVPs and iterations are the way forward.
When it comes to course completion, Unschool’s approach has focused on diligent follow up. Students are reminded that they will get the certificates only on completion. Unschool has also built a vibrant community that has enhanced student engagement considerably.
Even though an internship is guaranteed, only 2 out of 10 students apply. Aspiration and willingness to put in the required effort must be considered while designing the product. Unschool ensures that the students complete all the prerequisites including projects before being eligible for internships.
Entrepreneurs should keep their eyes wide open for funding opportunities. Boot strapping means using one’s own savings as well as the contribution of family members and friends. Sometimes ego prevents us from reaching out to people close to us. We should not let our ego come in the way.
Many incubators (IIM Bangalore, IIT Bombay, IIIT Hyderabad, THub, etc) support startups. We must keep applying and take part in business plan competitions. It was with this perseverance that Mr. Varma got an opportunity to spend time with YCombinator. The selection rate is only 0.5%. On an average, entrepreneurs get through on the fourth attempt.
Founders are trying to go after venture capitalists (VCs). But the VCs are also trying to identify promising start-ups. Mr. Varma did not chase VCs. Unschool was profitable from the start. After about one and a half years, VCs started approaching Mr. Varma.
Typically, when they find a promising venture, VCs start with a 20-minute call. If they are satisfied, they make a second call. Otherwise, they suggest that the founders can stay in touch with them. Mr. Varma did stay with them. Funding sometimes came 1.5 year after the first call.
Networking is important. Mr. Varma managed to contact VCs like Mr. Mekin Maheshwari through LinkedIn.
Mr. Varma has raised funds from strategic investors who are there for the long haul. These are people who can help the business to move forward rather than just look for a quick exit.
For internships, Mr. Varma has not gone after the large, reputed companies. He has focused on small start-ups who cannot afford to pay huge stipends. These companies are looking for not necessarily the most skilled people but people with good intent, learning ability and passion. To qualify for the internships students must complete a major project and a minor project satisfactorily.
Unschool has also built strong communities. Initially, to get the attention of people, the themes chosen were cricket, football, etc. This improved engagement, increased the time people spent on the platform (from 15 minutes to one hour on an average) and got these students hooked. Later serious groups like AI/ML were created. These communities have enabled peer group learning. Today, the community finds mistakes in a program. There is no need for the instructors to go through all the code. Thanks to this kind of crowdsourcing, the time of the instructors has been freed up.
Ycombinator mentions that founders should do things which do not scale. What that means is we should do what we think is right and what is good for the customer. Once money starts flowing in, we can figure out how to scale up. We should not worry about scaling on Day 1.
Note: Recall an earlier WiseViews session on Feb 3, 2023, by Mr Satya Raghu, who has pioneered the concept of micro greenhouses for farmers. He mentioned that there is too much hype about scaling and expanding the customer base. We must first measure the depth of impact and then only the spread of the impact. There is no point in scaling something with an insignificant impact. We must only scale something which is transformative.
Indians are price conscious, and competitors are offering discounts. It is difficult to become profitable. How do we compete in such a market? We could try to become a premium brand. But if we do so, we will limit the market. To target the mass market, competitive pricing is important. As the number of users increases, profits can be generated even with competitive pricing and discounts. We must remember that there are about 600 million youth in the country. Ultimately, we should choose a price point consistent with our value proposition. Mr. Varma has kept his pricing higher than Udemy, but far more affordable than the likes of Byju.
They took the growth path and raised a lot of money. Some of them made many acquisitions and tried to do in 5 months what would have otherwise taken 5 years. The big stalwarts also focused on competitive exams. In contrast, Unschool has chosen to target students from lower rung colleges and teach them skills with high employability value.
During Covid, EdTech took off. But after Covid, the EdTechs went through a rough patch. So, they had to downsize. For Mr. Varma, layoffs were not easy to implement. Unschool had built a great culture. People were working with the start-up even if competitors were offering 30% more. But Unschool handled the situation with a lot of sensitivity. Mr. Varma spoke with each person and explained the decision. He also explained what they could do later when the situation changed for the better. Many of the employees who were let go continue to be in touch and are still good friends with Mr. Varma.
For the community portal, Mr. Varma has picked up several ideas from CRED. Students who spend more time on the Unschool platform get Unschool credits. Through a tie up with a coupon company, these credits can be used to get good discounts on merchandise. Daily contests are run. For example, students can comment on a meme. This kind of virtual competition has increased the time spent on the platform from 15 min to 1 hour on average. Revenues may not have gone up, but the community has become more vibrant. Thus, gamification has enabled better learning outcomes even if it has not directly affected revenues.
Unschool’s philosophy has been to keep the prices as low as possible to fit the budget of college students who typically get a pocket money of about Rs 5000-10,000.
In the case of AI, certain courses are prerequisites. Many students have not taken these courses earlier. So Unschool offers 5 courses together as a package for Rs 20,000. Separate subscriptions for these courses would have cost the students Rs 35,000. As a result, Unschool has been able to increase customer lifetime value and generate more revenue while giving the students a good deal.