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Aaron Harris for the Toronto Star
Case Studies
Posted: October 23, 2012
by Steve Kupferman

An end to raised hands: Understoodit’s app changes highschool and university classrooms to show teachers what students understand

Vital Stats
Owner:
Liam Kaufman
Address:
1240 Bay Street Suite 807, Toronto, ON
Field:
Education software
Years Active:
1
Offering:
Classroom and audience engagement software
Core customers:
Educators

In an age when many tech startups grow at breakneck speed in the hopes of hitting the buyout lottery, Liam Kaufman is taking things slowly.

His company, Understoodit, is in an enviable position. Many startups require huge amounts of capital before they can develop a usable product. Kaufman, meanwhile, has managed to build Understoodit’s application entirely on his own, and with very low overhead.


It’s a simple, web-based tool that allows educators to gauge how well a class understands a presentation. Rather than raising hands, students click buttons on laptops or mobile devices. A readout on the teacher’s computer graphs the results, helping them tailor their lessons to a class’ level of comprehension.

The fledgling company has raised no venture capital. It has no offices, no servers of its own, and no paying customers — yet. It’s all part of a minimalistic, if risky, master plan.


The company must attract 8,000 paying customers to achieve liquidity before existing capital runs out. Otherwise it will need to seek outside funding, or fail. Finding that number of buyers will be especially difficult because Understoodit charges only educators, not students. This means that, unlike some of its competitors — who could quickly reach 8000 users by partnering with a handful of universities or highschools — Kaufman will need to reach thousands of educators at hundreds of schools to make his business viable.


That’s why he’s starting slow and minimizing costs, bankrolling the company himself, working from home, and only hiring two other employees — an IBM engineer and a PricewaterhouseCooper accountant — who both work part-time in exchange for equity, although the plan is to bring them on full-time soon.

“The biggest cost is time,” says Kaufman, a former neuroscience graduate who started programming after teaching himself math from library copies of high school textbooks. “Most of the startup capital is for my living expenses. We don’t have crazy costs at the moment.”

The 8,000-customer threshold is based on a simple calculation. When the app launches, educators will pay a minimum fee of $3 per month, with more features available at an additional cost, while students will have access for free. The 8,000 signups at $3 each would generate gross income of about $24,000 per month — not bad for a three-man operation with high profit margins. A couple thousand more users would allow the company to start expanding.

“Really, the limiting factor for growth is software developers, in terms of adding features,” says Kaufman. “With 10,000 paying users we could probably afford another developer.”

Understoodit stands a decent chance of reaching that goal. About 2800 people are already on a waiting list to use the app, with registrations growing at about 12 per cent per week. Students don’t have to register, meaning all of those signups are potential paying customers.

But whether they fork over credit cards will depend upon the soundness of the app itself. It works like this: a teacher signs up for an account, and creates a webpage with two giant buttons, one marked “Understood” and the other marked “Confused.” During a class or presentation, students visit that site, click a button, and a graph on the teacher’s screen updates to reflect the ratio of “understoods” to “confuseds,” giving educators real-time feedback on the effectiveness of their lessons.

Kaufman conceived the product as a solution to a problem he noticed during his academic career.

“Being someone that’s relatively outgoing, I noticed I didn’t put my hand in classes that were larger than 100 students,” he says.The prospect of speaking in front of large crowds was intimidating. “Most students are not outgoing, so they definitely didn’t participate at all.”

Crowds are also a problem for the company itself. Keeping costs low means a marketing budget of zero, and the 2800 users were signed up through word of mouth. This puts Understoodit in a bind. If it spends too much acquiring new customers, it could run out of capital before earning enough revenue to make up the difference.

But Jed Schneiderman, vice president of partner development for online marketing firm Live Insite, says the business could work.

“If he understands what marketing is working and why he’s grown his business — and he can scale that — it sounds like he’s in great shape,” says Schneiderman.

Kaufman is convinced the process of finding more users will be simple and inexpensive.

“Everyone that uses it becomes a salesperson for the product, because they’re always using it in front of people,” he says.

Assuming Understoodit is able to market effectively and for little cost, Schneiderman thinks the company’s decision to delay outside investment will end up being a good one. Plus, the possibility of raising venture capital will still be on the table later, when the app is more established.

“VC is certainly something that we’ve thought about,” says Kaufman. “It is on our radar.”


In the meantime, he hopes to bide his time, and grow Understoodit at a natural pace.

EXPERT VIEWS

As Interviewed by: Tom Henheffer

Understoodit is a really interesting product. It’s essentially an instant feedback tool, which has all kinds of potential applications. They may find there’s a market for teachers, but there are likely other opportunities out there. Political parties could use it to get a sense of what resonates during speeches, companies could use it to find out how staff receive messages from their CEO, even retailers could use it to have customers rate their experience. I think the business model is fairly solid. The penetration of smartphones and tablets means the timing is right, and using word of mouth can be effective, especially if Kaufman lets select early adopters use the app for free to get a buzz going. But I disagree with the growth strategy — this industry is expand fast or die, and the idea is just too easy to replicate. The company needs to look at other opportunities and exploit them as quickly as possible, or risk fighting imitators. If the demand is there and the app is technically robust, they should be able to secure growth capital.

by Peter Conrod, FCMA

by Tisha Rattos

I’m excited for this company. There’s a new pedagogy coming through the startup world called the Lean Startup Methodology. It says the old way of doing startups isn't efficient — getting venture capital, building a project in secret, then having a big coming out party and hoping for the best. Today, the best way is first building a small, minimum viable product that’s just enough to satisfy an outstanding need, then working with customers to continually build better versions. It’s what Kaufman is doing, whether he knows it or not, and I’d recommend he keeps going — exposing his solution to even more customers, absorbing their feedback and improving in incremental steps. Not just on the product, but on the business model. Eventually he will find the best way to go to market. Once he figures out where the real value lies, then I’d concentrate on developing proprietary items, things that ensure companies like Apple have to buy him out instead of ripping him off. Once he has this and generates some sales, he can look for investors if he wants.

by Sean Wise