The long read: Corey Pein took his half-baked startup idea to Americas hottest billionaire factory and found a wasteland of techie hustlers and con men
The most desirable career of the 21st century, with numerous advantages over other fast-growing occupations such as hospice carer and rickshaw driver, is being a billionaire. Prior to the incorporation of US Steel in 1901, the world didnt have a single billion-dollar company, much less a billion-dollar individual. Today, more people than ever are becoming billionaires 2,000 and counting have made the great leap upward, according to the global wealth team at Forbes. And the USs hottest billionaire factory is located in the most hyped yet least understood swath of suburban sprawl in the world: Silicon Valley.
Despite what you may have heard, hard work in your chosen trade is absolutely the stupidest way to join the billionaires club. In Silicon Valley, the worlds most brilliant MBAs and IT professionals discovered a shortcutto fabulous riches. Ambitious Ivy Leaguers who once flocked to Wall Street are now packing up and heading west. The Valleys startup founders, investors, equity-holding executives and fee-taking middlemen have thrived above all. Inspired by their success, my idea was to move to Silicon Valley, pitch a startup and become obscenely rich. I left home with some homemade business cards showing my new emailaddress, firstname.lastname@example.org, and a bunchof half-baked ideas.
The first thing I needed was a place to stay. The best deal I could find on short notice was a place I called Hacker Condo. Like most Bay Area newcomers, I was relying on the short-term apartment rental app Airbnb. At $85 (59) per night, the place cost less than the marketaverage, but was still more than I could afford.On the upside, it was in what the real estate hucksters called SoMa a trendy San Francisco neighbourhood well suited to my journalistic and entrepreneurial purposes. Once a low-rent manufacturing district, the south of Market Street area had become the go-to place for startups seeking industrial-chic open-plan offices, although the poor and homeless had not yet been fully purged.
The ad for Hacker Condo stated an express preferencefor techies: We would like to welcome motivated and serious entrepreneurs who are looking to expand their network, it said. Perfect. The best part: No bunk beds. I told the hosts that I was an embryo-stage startup founder and author. The hosts didnt own the place. I looked it up: the mortgage was held by some European guy who seemed to spend most of his time surfing at a resort and dabbled in the tech business as a hobby. The legal status of this rental arrangement was, lets say, unclear.
I rang the buzzer for a unit labelled TENANT. A man answered right away. He had been waiting. After a moment, the door opened, and I met my new roommate, a gangly Kiwi. We took the elevator three floors up and entered a silent, beige-carpeted hallway. Our unit was No 16. The first thing I noticed inside was a small mountain of mens shoes. Hacker Condo was modern and more spacious than seemed possible from the outside. The unit was spread over three floors. The furniture consisted of a picnic bench and a sectional sofa spanning the width of the living room. I counted five other short-term tenants. The Kiwi told me that soon, some Norwegian guys a whole startup team would be moving in. We calculated that Hacker Condo would soon have three more guests than it had beds.
Whats the key situation? I asked.
Theres one key, the Kiwi said.
One key? I said. For everybody?
There were more tricks to learn, as a consequence of the possibly illicit nature of this type of rental arrangement and the evident stinginess of our Airbnb hosts. The Condo Hackers never came in through the front door. It was too conspicuous. I followed the Kiwi down to the ground-floor garage, then outside to the rear of the building. He showed me how to slide my hand along a grate to locate the tiny combination safe that contained the exterior door key. It was best to do this when no one was looking.
I knew not to spend too much time getting to know my flatmates, for we were all rootless high-tech transients, our relationships temporary, our status revocable.
The room I had booked was available for only two weeks. As soon as I connected to the wifi network, Iwould need to start looking for another place. My room had five beds in it. Ithought I had paid for a private space. I double-checked. The listing clearly stated no bunk beds, but down in the fine print I finally found the words shared room.
Two weeks was not enough time to find an apartment in San Francisco. Not on my budget. Rents were higher than in New York or London. One-beds were running at about $3,000 per month; studios, about $2,500; shares, $1,500; and illegal crap shares, $1,000. It was the same deal across the bay to the east in Oakland and Berkeley, as well as to the south in the Silicon suburbs of Redwood City, Palo Alto and Mountain View. Whatever I might save in rent by living on the periphery I would lose in transportation costs and time.
These hacker houses were the products of disruptive innovation in the urban property market. The city was once riddled with small apartments and single-family homes that sheltered trifling handfuls of obsolete labourers and their unproductive children, often for decades at a stretch. But the tech boom let such so-called family homes reach their full potential as investment properties. Some hacker houses were attached to startup investment incubators or shared workspaces. Others amounted to little more than flimsy bunks in a windowless room. A number of trend-savvy investors purchased or leased dozens of residential properties around the Bay Area to rent out in this fashion.
Although I envied them from my dark and squalid quarters, the San Francisco long-timers who lived in rent-controlled apartments were in situations nearly asprecarious as my own. I met a musician who lived in a$600 rent-controlled apartment in the Mission. WhenImet her, she was terrified that her landlord would evict her and sell the building so that it could be rented out at six times the price to white techie colonisers such as myself.
With landlords eager to cash in, formal evictions had increased 55% in five years. More often, though, landlords simply bullied their tenants into packing up. Tenants are getting evicted for having cups in their cupboards. The landlords say its clutter. Theyll say anything. Eventually the tenants just give up, a lawyer for a tenants rights organisation told me. His employer, the Eviction Defense Collaborative, was itself getting evicted from its offices so that the landlord could rent the space to a tech startup.
My earnings potential had plummeted when I stopped writing software and started writing for newspapers. I now looked with envy at the techies, the winners, the pioneers. They had ideas. They had momentum. Most important, they had money. Why not me?
I wasnt just changing careers and jumping on the learn to code bandwagon. I was being steadily indoctrinated in a specious ideology. As proud as I was of having learned new skills, I didnt understand that the only way to turn those skills into a livelihood was to embrace the economy of the digital world, where giant corporations wrote the rules.
My idea was to pitch a tech startup and get obscenely rich while writing a book about how to pitch a tech startup and get obscenely rich the Silicon Valley way.
To save money, I took to cooking my own meals most of the time. This was when I discovered that it was much easier to launch a tech startup if you could afford to always have food delivered and never had to deal with mundane chores such as doing laundry, washing dishes or buying groceries. As one Twitter wag observed, San Franciscos tech culture is focused on solving one problem: what is my mother no longer doing for me?
I never felt older nor crankier than when watching these digital natives stumble through the daily rituals of adulthood. One of the kids, an overachieving Ivy Leaguer whose Google internship demanded an advanced understanding of high-level mathematics, was completely baffled when it came to using a simple rice cooker. I explained the process: put in rice, add water, press the button labelled cook. He grew increasingly flustered, and I suspected he wanted me to make the rice for him. He managed to saut a boneless, skinless chicken breast, but only by following the instructions on the package to the letter.
How did it turn out? I asked.
Its terrible. Bland, he said. Im full, thats allthatmatters. I dont care how it tastes.
When I first heard about Soylent, the startup selling a gooey meal replacement beverage powder with a determinedly neutral flavour, I wondered what sort of miserable insensates would choose to subsist on such glop. Now I knew.
It may have been better for everyone when the overpaid nerds stayed home. Theyre importing children to destroy the culture, one bar owner told me.
A fairytale ending would remove that ugly ‘vs’ and replace it with an enlightened ‘+’. But there’s no doubt it will be a battle to get there — requiring legal challenges and fresh case law to be set down — as an old guard of dominant tech platforms marshal their extensive resources to try to hold onto the power and wealth gained through years of riding roughshod over data protection law.
Payback is coming though. Balance is being reset. And the implications of not regulating what tech giants can do with people’s data has arguably never been clearer.
The exciting opportunity for startups is to skate to where the puck is going — by thinking beyond exploitative legacy business models that amount to embarrassing blackboxes whose CEOs dare not publicly admitwhat the systems really do — and come up with new ways of operating and monetizing services that don’t rely on selling the lie that people don’t care about privacy.
More than just small print
Right now the EU’s General Data Protection Regulation can take credit for a whole lot of spilt ink as tech industry small print is reworded en masse. Did you just receive a T&C update notification about a company’s digital service? Chances are it’s related to the incoming standard.
The regulation is generally intended to strengthen Internet users’ control over their personal information, as we’ve explained before. But its focus on transparency — making sure people know how and why data will flow if they choose to click ‘I agree’ — combined with supersized fines for major data violations represents something of an existential threat to ad tech processes that rely on pervasive background harvesting of users’ personal data to be siphoned biofuel for their vast, proprietary microtargeting engines.
This is why Facebook is not going gentle into a data processing goodnight.
Indeed, it’s seizing on GDPR as a PR opportunity — shamelessly stamping its brand on the regulatory changes it lobbied so hard against, including by taking out full page print ads in newspapers…
Here we are. Wow, what a fun thinking about all these years of debates with fb representatives telling me ‘consumers don’t want privacy rights anymore’ and ‘a startup (sic) like facebook shouldn’t be overburdened’.
There are boxes on sale for *every* hobby. We're not kidding.
Image: cratejoy/mashable photo composite
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Online coursework is exploding across all kinds of verticals and fields of expertise — but those courses inevitably end up on platforms like Udemy, and for Ankur Nagpal, that’s really not a way to build a true business.
That’s why Nagpal started Teachable, a platform for experts that want to create a business around their coursework that helps them build an entire online education suite beyond just platforms like Coursera or Udemy. Niche expertise can be way too valuable for just a simple marketplace like Coursera, Nagpal says, and experts in those areas — even seminars on mindfulness or Feng Shui — should be able to make more than just a few thousand dollars a year off that coursework. Nagpal said the company has raised an additional $4 million in equity from existing investors Accomplice Ventures and AngelList co-founder Naval Ravikant.
“In the past, if you wanted to teach courses, you could either put it in the marketplace or have it on your own website — with your brand and domain name and full control of everything — but there’s no easy way to do it,” Nagpal said. “It’s the difference between listing a physical good on Amazon and having your own storefront. While you could make a few thousand dollars on Udemy, you couldn’t build a sustainable business selling courses for $10 to $15.”
That fundraise, however, comes with a whopping $134 million valuation in the end as the company expects to be profitable by the end of Q4 this year. Teachable has around 10 million students across 125,000 courses, with 12,000 paying customers on the platform. Nagpal says it is aiming for a business that will generate more than $200 million in sales this year, which might not be so far off given the speed at which it has ramped up from just $5 million in 2015 to around $90 million in 2017.
In Teachable’s earliest days, instructors focused on marketing or programming, which is where a lot of online coursework got its start when the value of knowledge skills like Ruby or Python skyrocketed. But since then, Teachable has grown into a platform where users with niche skill sets can create robust coursework, and if they already have content ready to go like videos, can get their domain up and running in just a few hours. Teachable has a multi-tier pricing structure ranging from taking small transaction fees to a paid subscription of nearly $299 a month in order to manage its online domains, which is designed to appeal to a wide variety of potential instructors looking to get their start.
“If you look at our top 10 or 20 instructors, there’s virtually no pattern of verticals that are successful,” Nagpal said. “[The popular courses are based on] professional skills, or learning to play a musical instrument, or fly a drone, or even financial empowerment. There’s almost an anti-pattern.”
And again, these aren’t supposed to be courses that get wrapped up into a $49 per-month subscription. Courses in highly specific verticals — like something like Feng shui — can cost up to a hundred dollars or more. But the idea is that these seminars have so much value that students who are looking to dive deep into them are willing to go beyond the cost of just a Udemy in order to get the most valuable content. Teachable aims to make it easy to port the kind of content instructors might post on one of those marketplaces to quickly get them up and running with their own independent online course.
That free plan with a transaction fee is ultimately what at least piques the interest of potential instructors, and Teachable also hosts workshops to try to get them more excited about the opportunity — and then get them to start paying as they look to attract more and more students and need a more robust toolkit, like advanced reporting. or priority product support. The company doesn’t really focus on paid marketing because Nagpal says it’s “not very good at it,” as it primarily leans on word of mouth and affiliates.
“Courses on marketplaces are effectively commoditized,” he said. “I would buy the top-rated courses, but the first course is as valuable as the second or third. On our platform, if people are buying the Ruby on Rails course, it’s probably because they’ve followed an expert on that for a year. What I’m buying is not commoditized, I have a relationship with that person. Their content is much more valuable. All the sales are generated through an instructor.”
Nagpal said he got his start building a bunch of, well, bad Facebook apps like personality quizzes and really simple flash games in the early days of the Facebook Platform. Getting such an early glimpse at that behavior on the Facebook Platform is pretty controversial today with the massive privacy scandal Facebook faces after Cambridge Analytica, a political research firm, ended up with personal data of up to 87 million people through a simple app on the Facebook Platform. Nagpal, however, said what now seems like a treasure trove of data was at the time not really all that useful for that business.
“We got some of that data, but to us it was junk and we never stored it,” he said. “It just seemed like noise.”
The biggest challenge for Teachable, Nagpal says, is making sure instructors actually want to remain instructors. The free tier might attract them to getting started, but instructors might just get burnt out from being instructors in general — whether that’s on Teachable or a marketplace like Udemy. The real competition, he says, are platforms like YouTube and other time sinks for content creators. To keep them on board, Teachable hopes to expand to other verticals of content like coaching and services. That, too, might keep it ahead of marketplaces like Coursera and eventually woo instructors with the opportunity to build an entire online business on Teachable.
“Every month we have 50 people getting more [than the top paid instructor on a platform like Skillshare],” he said. “The sustainability of the business is very different. It’s really hard to make a living selling $10 courses. On our platform, the average price point is closer to $100, which in turn gets reinvested to create actually good content. We’re finding most of the instructors don’t just sell courses, and they have multiple income streams. We’re trying to see if we can get our checkout product powering all that. That creates network lock-in.”
Teachable also took on a few smaller investors including Shopify founder Tobias Lutke, Weebly founder Chris Fanini, Lynda.com CEO Eric Robison, and Getty Images founder Jonathan Klein.