How does a startup transition from a necessary focus on survival in its early days to a focus on growth once it has traction in the market? That was the challenge facing Mike Silagadze and Mohsen Shahini, co-founders of Toronto-based Top Hat Monocle in 2011.
Founded in 2009, Top Hat Monocle sells a learning platform to improve the classroom experience. By September 2011, the company had 15 employees and had received $1.5-million in seed funding from angel investors. The founders knew they had to scale quickly if they wanted to become the leading platform for mobile education. But how could they change the survival mindset they'd had since startup?
Top Hat Monocle provides a tool for interactive learning in the classroom. The idea was born of the founders' realization that the classroom experience could be improved if students could interact more and professors could gauge progress more, and that the mobile devices – like smartphones and tablets – which virtually all students brought to class, could be usefully deployed. The platform initially focused on quizzing and polling functions, but as adoption spread from science classes into humanities classes, more diverse capabilities were added, such as online competitions (called tournaments) and online, open discussions. Within a year, Top Hat Monocle had 20 professors on board and was being used by 3,500 students in five Ontario universities, The following year, in September 2011, Top Hat Monocle was being used by 200 professors and over 30,000 students at 30 universities.
During these first two years, the founders had focused on survival. "No-one in Canada was interested in investing in education platforms, especially one that was unproven," explains Andrew D'Souza, the company's chief operating officer. "There was a constant focus on the immediate return of any investment. For example, if we wanted to add a product feature that required three months of engineering time, we needed to understand what we'd gain from it and when. Would it provide more revenue in the short-term than hiring an additional sales person or buying new software for internal use? The company had to focus on immediate, short-term revenue generation in order to stay in business."
However, competitors were entering the mobile education market and the founders knew that they needed to scale quickly and make longer-term plans if they wanted to win that market. How could they do this?
The founders realized that they needed both capital and expertise to achieve long-term growth, and so they actively sought out investors who would help them think big. Mr. D'Souza believes that several factors helped them attract the investors they wanted. He had been living in San Francisco for over a year at that point and had existing relationships with key investors when he joined the team to open their office in that city. Since Top Hat Monocle had been so focused on survival, it had a healthy business model and was generating revenue, which made it stand out from many companies looking for investment. Additionally, the timing was right. Investor interest in education technology was heating up and there were lots of startups in the market. Again, Top Hat Monocle stood out because it had already been around for two years and was one of the few young companies in the space with a rapidly growing customer base.
In 2012, Top Hat Monocle was successful in raising $9.1-million in venture capital, $5-million which came from the U.S. In conjunction with this financing came board members who were growth oriented. "We've brought on board members who have done this before with some of the most successful software companies of the decade," says Mr. D'Souza. "We are being introduced to founders of high-growth companies and different attitudes about risk and growth, and this is opening our eyes to how other companies have achieved scale."
Part of this evolution has involved finding new revenue-generating products and services. Mr. D'Souza says, "We have signed a partnership with the textbook publisher Pearson Education, where our software can be bundled with any Pearson textbook and we import Pearson content into our product. We are examining the broader content market; for example, letting professors create course material which they share with other professors on a peer-to-peer basis. We are also looking at ways to use rich analytics of the data our system generates to help universities understand student retention, which is a key problem for them. All of these growth possibilities are longer-term in nature than a survival mentality would allow."
However, Mr. D'Souza adds that their history of being focused on survival is beneficial. "Staying lean and maintaining a maniacal focus on our customers has got us to where we are and will take us to where we want to go."
This academic year, Top Hat Monocle is being used by 2,000 professors and over 150,000 students at 300 universities. The company now has 75 employees and offices in Toronto, San Francisco, Chicago and Sydney, Australia. The growth in Australia has been particularly striking. According to Mr. D'Souza, in the five months since they entered the market, over 29,000 students in 27 of the 40 Australia universities are using their product. The company is being approached by Silicon Valley investors who are interested in participating in another round of financing at the end of 2013. Most exciting, they have been successful in attracting experienced talent who are committed to helping them grow. For example, they have just hired Ralf Reikers as chief financial officer, who was an early employee at the rapid growth company Eloqua. "He's successfully scaled a company before and wants to do it again, and he thinks we're the company to do it with," states Mr. D'Souza. "Bringing Ralf on board is a major endorsement of our future."
Special to The Globe and Mail
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Small Business website.
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