GMAT Prep Startups Challenge Majors

When he was preparing for the GMAT a few years ago, Hansoo Lee found himself dissatisfied with the typical test prep options—namely the practice books offered by such companies as Kaplan, Veritas, and Princeton Review. Though he scored a 760 on his GMAT, well enough to get into the University of California at Berkeley’s Haas School of Business, Lee thought he could develop a better method to prepare people for the exam. “I wanted something that could fully utilize the power of the Internet,” remembers Lee.

His idea? To use technology to create an adaptive learning system for test takers. After a diagnostic test on the Internet, Lee’s software identifies a student’s strengths and weaknesses, and then serves up individualized lessons formed from a pool of more than a thousand original videos.

Lee co-founded Magoosh with fellow Haas Class of 2010 classmate Bhavin Parikh while they were still at school in 2009. The two began to work on the company full-time after graduating in May of last year. He named his company from the Persian word “magush,” which means one who is highly learned, wise, and generous.

Magoosh, based in Berkeley, CA., is one of many smaller firms in an increasingly crowded marketplace of test prep companies largely dominated by the likes of Kaplan, Manhattan GMAT, Veritas, and Princeton Review. Chad Troutwine, who co-founded Veritas Prep out of Yale’s School of Management, estimates that there are at least 50 competitors in the U.S. alone vying for a piece of the market. Roughly half of the people who take the GMAT prepare for the test with a prep course of some kind, figures Troutwine. Last year, in the U.S. alone, the GMAT exam was taken nearly 130,000 times (about 21 percent of GMAT tests taken annually are taken by repeat testers). “At least 10 percent of the people who take a prep course don’t even take the test,” he adds. “They do a course and decide ‘this is not for me.'”

And the market renews itself each year, providing an endless source of customers and encouraging a nearly endless supply of new competitors. They include local and regional players, as well as national and world-wide companies. The relative newcomers include GMAT Pill (see related story), Knewton, and Master GMAT. Together these new competitors are turning the industry inside out, using new ways to prepare students for standardized tests at a fraction of the costs of the old in-person classes.

Some of these new startups also claim to offer more personalized service. As Zeke Lee, founder of another test prep upstart, GMAT Pill, puts it: “At a large company, when you ask a question, you’re getting an answer from one of many different employees of the company. At GMAT Pill, you’re getting an answer from the founder.”

The way Lee of Magoosh sees it, the books and classes that most people use have problems that stem from the fact that they’re meant to prepare many different people for either the GMAT or the GRE. According to Lee, the study books are written in a “one size fits all” model, while in-person courses must be taught to the slowest person in the class.  Moreover, class schedules can be inconvenient for busy young professionals with demanding jobs. It’s one of the reasons he didn’t take an in-person class himself.

Lee sought to solve these problems with Magoosh, creating an online course that utilizes his firm’s adaptive learning platform. It’s not an entirely new idea. The notion of adaptive learning was first pioneered by Knewton, a New York-based prep firm, and has been picked up by others. But Lee says that Magoosh improves on this idea with an extensive library of original videos that employ lessons to address a student’s specific needs. If a test taker is weak on math, the system will recommend a heavy schedule of math lessons. Practice questions get more difficult, or easier, depending on your performance.

It’s cheaper than traditional GMAT prep as well. Magoosh’s basic plan costs $199 and offers e-mail support, practice questions, and of course, video lessons. The more expensive alternative from Magoosh costs $1999 and offers faster e-mail support as well as ten hours of one-on-one personal tutoring via webcam. Instructors who tutor students have access to each student’s practice results, which they can then use to identify the most effective study route.

Lee also believes that Magoosh can be effective for students who can’t devote months of their time to study for the test. The company has condensed lesson plans for those who want to cram for the exam a few weeks before taking it. All this is made possible by the adaptive learning platform, which tailors lessons to each person so little time is wasted, says Lee.

Though Magoosh is only just starting out, it has an impressive team of investors behind it, including Lotus founder Mitch Kapor and Berkeley professor David Charron. Lee and his co-workers began work on the adaptive learning platform soon after their graduation and quickly had enough to show to potential investors met through connections at Haas. Lee says he has plans to roll out more test prep options in the coming months. It is all part of Lee’s desire to help students perform better on these tests so that high quality education would be more available. “My passion is education,” says Lee.