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STARTUP

Case Study: How to Reinvent a Failing Start-up

Flocabulary burned through $50,000—and had nearly nothing to show for it. Was it time to throw in the towel?

Mark Hartman

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Blake Harrison and Alex Rappaport were working the floor at the International Reading Conference in Toronto. It was spring 2007, and the two founders of the study-guide publisher Flocabulary had a lot on the line. After two years of hustling, the Brooklyn, New York–based start-up was nearly out of money. Harrison and Rappaport were desperate to close some deals.

"Wanna hear about how to teach history through hip-hop?" they beckoned across the aisles. An attendee wandered over, and Harrison and Rappaport cued up "Let Freedom Ring," one of their fact-filled rap songs, an ode to Martin Luther King Jr.'s "I Have a Dream" speech. The educator listened intently to their pitch. He picked up a copy of their book, Hip Hop U.S. History, and flipped through the pages, nodding his head in approval. Then it happened again. "You kids have a million-dollar idea here," the man told them. And then he walked away.

Harrison and Rappaport slumped into their seats. It just didn't make sense. Most of the teachers and administrators they talked to seemed genuinely interested in their product. At conferences such as this, they would listen to the pitch and rave about the concept -- but more often than not would leave Harrison and Rappaport with just $18 for one book, or worse, an earful of praise. Harrison wondered, If Flocabulary's idea was so great and the materials so impressive, why weren't people buying? When they got back to the hotel that night, the two friends had a somber conversation about whether they were cut out to run a business at all.

Flocabulary was Harrison's idea, and it had simmered in the back of his mind since he was in high school in Lexington, Massachusetts, in the late 1990s. Harrison was a good student, but he had always had a hard time remembering facts and figures. One day, it dawned on him that although schoolwork gave him trouble, he had no problem memorizing the lyrics of his favorite hip-hop artists, such as Outkast and A Tribe Called Quest. The obvious struck: If his school lessons were more like rap, retention would be a breeze.

After graduating from the University of Pennsylvania with a degree in English, Harrison befriended Rappaport, a recent Tufts music graduate. One evening, Harrison told his friend about his idea for using hip-hop to help students. Let's make a demo, Rappaport said. They wrote and recorded two songs that together defined 80 SAT vocabulary words, using lyrics like: "They don't say the word think, they say ratiocinate/ They don't render repeat, they say recapitulate." In the summer of 2004, the study-guide publisher SparkNotes showcased both songs as free, streamable MP3s on its website. People listened, and Harrison and Rappaport began to think they were onto something. They launched a website and began selling a self-published hip-hop guide to the SAT.

A few months later, Rappaport's father set the two up with John Whalen, a friend who is the founder of Cider Mill Press, a novelty book publisher in Kennebunkport, Maine. "I thought that with our design sensibilities and publishing experience, we could really make this a commercially viable product," Whalen says. The best part: Cider Mill worked with Sterling Publishers, the distribution arm of Barnes & Noble, which meant Flocabulary's books would find space in bookstores nationwide.

Within 18 months, Cider Mill published two study guides (the guides included a workbook and CD) -- the SAT book and a hip-hop U.S. history book. The books landed at nearly every Barnes & Noble. The Hip Hop Approach to SAT Vocabulary sold 10,000 copies in its first year and has since been reprinted five times. And Flocabulary received a slew of attention from media outlets, such as CNN, DailyCandy, MTV, and NPR -- even historian Howard Zinn offered praise.

As their study guides began to sell, Harrison and Rappaport found their goals were growing more ambitious. Flocabulary, they sensed, could be the basis for an education company. "We wanted to reach the kids who might never get to the SATs, whose families weren't buying books at Barnes & Noble," Rappaport says. In early 2006, with Cider Mill's blessing, the two decided to transform Flocabulary into an actual publishing business. They raised about $50,000 from friends and family and began visiting schools and attending education conferences. But their efforts yielded few results. "Teachers would say, 'This is so cool; my kids will love this!' but would buy just one book," Rappaport recalls.

One night that February, they met a Columbia Business School student who told them about the school's annual "outrageous business" competition, which recognizes start-ups with potential. They entered and won a social value award. Encouraged, they decided to participate in a program at Columbia that pairs new business owners with M.B.A. students who analyze business plans and offer advice.

Harrison and Rappaport knew they didn't know much about business. But they were surprised by the consensus of the Columbia students: Not one of them thought Flocabulary should continue self-publishing or pursue the school market. Instead, they urged Flocabulary to find a new publisher. After conducting extensive research, the students warned that Harrison and Rappaport were in way over their heads. Nearly every school district works differently, and selling to schools requires an immense amount of paperwork, they warned. One student concluded his critique: "If you do this, you're going to die."

Those words echoed painfully for Harrison and Rappaport six months later, as they sat dejected inside the Flocabulary booth at the Toronto trade show. Most of their initial $50,000 investment was gone. Perhaps, they thought, the students were right. Perhaps it was time to give up.

The Decision A few days after arriving home from Toronto, they decided they had invested too much in Flocabulary to walk away. Rather than giving up, they doubled down, creating a new product line called WordUp!, a series of vocabulary and reading guides based on standardized tests administered to students in grades 3 to 8. The duo returned to their old investors as well as found some new ones and managed to cobble together $110,000. By cold calling and networking at educational events, they rounded up 30 sales reps willing to peddle Flocabulary's products on commission.

In September 2007, Word Up! hit the market. The following March, Flocabulary landed its biggest sale: getting Word Up! into the 19 middle schools of the Jersey City school district. That helped them bring in revenue of $600,000 in 2008, more than double what they made in 2007. Amy Brewer, a fifth-grade teacher at Jefferson Elementary School in Norman, Oklahoma, won a grant to supply her classroom with Word Up!, and so far she says she has witnessed "astounding" results. Not only are students excited about their lessons, she says, but "they're internalizing the meaning of the words. Last week in creative writing class, two of my students used the words inept and collaborated in their poetry."

Word Up! materials are now used by teachers in about 100 school districts. And that exposure has kick-started retail sales. Cider Mill reprinted both of its Flocabulary titles in January, and Whalen attributes the increase in bookstore sales largely to the work Rappaport and Harrison are doing in schools. Flocabulary also commissioned a study that found that Word Up! boosted students' vocabulary proficiency more than 20 percent.

Though Flocabulary seems to be on track, the founders haven't figured out what's next. "We've been growing for the past four months," Rappaport says, "but we won't have an explosion without some new idea." And despite the increase in education spending proposed in the recent Obama budget, the market is tough -- Flocabulary must compete with publishers that are larger and better connected. "The idea is the strength of this company," Rappaport says. "It's what we do in the future that is uncertain."

The Experts Weigh In

Be Patient

Rappaport and Harrison need a little patience to allow a slow-sales-cycle market sector like public education to develop. With the Obama administration's emphasis on improved educational performance and willingness to increase federal education spending, Flocabulary now needs to arm its 30 sales reps with marketing materials that emphasize the 20 percent– plus improved vocabulary results. Before worrying about the "what's next" big new idea, they should dedicate funds to marketing their Jersey City success story by helping their sales reps target similar urban districts.

Charlie Kireker
Co-founder
FreshTracks Capital
Shelburne, Vermont

Spread the Word

Rappaport and Harrison need to position Flocabulary as an expert in education. An alliance, maybe with PBS or a youth-driven network, could help expand the reach of the brand; there also may be opportunities for product placement in this area. Speaking to teachers at conferences is a great strategy, but they also should consider hiring a marketing firm to position the brand in the education trade press. To get press is one thing; to be positioned properly in that press is another.

Aaron Arnold
CEO
MusicIsMyBusiness.net
Atlanta

Get A Celeb On Board

It's very important that Flocabulary expand its product line. The company has a nascent customer base, to which it can make repeat sales if it has additional products. As students get older and realize the success they have had with WordUp!, they can become consumers of more advanced materials. The two might also consider a celebrity endorser, something you almost never see in education. Rappaport and Harrison are trying to make their product cool, hip, and attractive to a younger audience. Will Smith is a world-renowned rap artist and actor -- and also a notorious fanatic about grammar. He would be an excellent person to help sell Flocabulary's product.

David Kim
CEO
C2 Education
Duluth, Georgia

Last updated: May 5, 2009




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