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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

February 6, 2012 at 10:12 AM

Lessons from TeachStreet, folding into Amazon

For every Mark Zuckerberg, there are thousands of entrepreneurs still waiting for their big prize.

Sometimes it’s just the promise of a steady paycheck.

Consider the fate of Seattle’s TeachStreet, an online education directory that’s shutting down Feb. 15 after five years. Its breakout moment never came, but the company still had an outsized effect on the region’s startup community and ended up teaching a few lessons itself.


Chief Executive Dave Schappell, 43, left in 2004 to work for philanthropies and startups. The idea for TeachStreet crystallized over coffee with another Amazon vet, Jason Kilar, who now runs Hulu in Los Angeles.

With less than a dozen employees, TeachStreet built an online version of the community bulletin board for listing instructional services such as piano lessons and language teachers. Its listings grew to more than 400,000 local and online classes, and investors eventually put more than $3 million into the business.

While TeachStreet built up an audience and began expanding beyond Seattle, Schappell became a prominent member of the region’s enthusiastic circle of Web entrepreneurs.

Schappell — who earlier helped lead the humor website JibJab — is a garrulous rainmaker who stood out in field of polished networkers.

Among his lasting contributions is the monthly “Hops and Chops” startup gathering at a Capitol Hill bar, where Schappell promised to pick up the tab last Thursday, the day TeachStreet announced its fate.

“He’s one of those guys who has 40 hours a day somehow … and he found lots of time to help out,” said Scott Jacobson, a partner at Madrona Venture Group, which invested in TeachStreet, along with Kilar, Jeff Bezos and a handful of others from Seattle. “That’s the hallmark of a guy who’s not just a good entrepreneur, but cares a lot about the startup ecosystem.”

Schappell said the turning point came a year ago.

After four years — and a painful restructuring in 2009 — TeachStreet became “essentially profitable” in January and February of 2011.

Then it was walloped — by Google’s notorious “Panda” revision to its search ranking system.

Google’s goal was to improve the quality of its results and demote sites that used sketchy techniques to boost their search presence, but the casualties included scores of sites like TeachStreet’s that were built largely around the flow of customers from Google.

“That was the point where we lost two-thirds of our traffic overnight,” Schappell said. “We tried a lot of things to try to recover that traffic.”

At that point TeachStreet had to decide whether to raise more money for a renewed push or “find a good transition,” he said.

“That’s when the expense shortfall or the net losses started piling up,” he explained. “We looked at things and felt the better thing was to find a partner who already had a lot of traffic and matched our content.”

It turned out the partner was right outside TeachStreet’s office in South Lake Union, which is now dominated by Amazon’s headquarters.

A month ago Schappell subleased TeachStreet’s space to social-gaming startup Massively Fun. Then last Tuesday the TeachStreet team began working in its new offices at Amazon, where it’s now part of the AmazonLocal team offering daily deals from local merchants.

At first, I wondered if AmazonLocal was going to draw on TeachStreet’s directory to sell discounted lessons, but that apparently wasn’t part of the deal. TeachStreet will delete all student and teacher customer data when it shuts down.

Amazon spokeswoman Mary Osako said via email that “the team will join us to work as part of the growing AmazonLocal team,” but didn’t provide more details.

So how did the investment turn out for Madrona?

The firm’s “happy with the outcome,” according to Jacobson, also an Amazon veteran.

“Dave’s a really talented entrepreneur and we certainly enjoyed working with him, and Amazon’s getting a great team,” he said. “In all those senses, it’s a great outcome.”

Jacobson wouldn’t discuss the terms or what intellectual property Amazon acquired.

But speaking generally, he said that companies wanting to quickly build a team may invest in “experiential IP” — or an experienced group of developers.

“Sometimes you can accelerate that by having a coherent team that already works well together, has already seen all the challenges, knows what mistakes not to make,” he said. “A well-oiled machine that can just hit the ground running and has the background and experience to not make the same mistakes is actually quite valuable.”

It didn’t get the blockbuster exit, but at least the TeachStreet crew ended up with good jobs at a leading tech company.

The real lesson may be that companies have to be careful about building too much of their business on a single, shifting platform. That’s hard for Web startups, given the dominance of Google and Facebook. But Jacobson said new devices and services are giving companies more channels to reach customers now, compared to the early days when startups battled for play on AOL, Yahoo or the “carrier deck” of software that phone companies loaded on earlier cellphones.

“There’s a lot of examples — not just in Web — where if you’re not well-diversified, you run risk as a business,” he said. “I don’t think anybody says, ‘We’re going to hitch our wagon to one thing or another,’ but in some cases they’re more exposed to one source of traffic than others.”

He pointed to other companies that did break through, such as Yelp and the Cheezburger network, which built brands strong enough that people navigate directly to their sites.

That may be what TeachStreet clients have to do after the site shuts down next week. One of the first users, Wedgwood art teacher Janet Lia, said TeachStreet was “vital to the growth of my art studio” and brought 90 percent of her students now taking private lessons.

“I’m feeling nervous and tenuous about not having that exposure on the Internet,” she said.

Lia started her AWE Studio the same year as TeachStreet and used its free listing service. Later she paid monthly fees for premium services such as marketing templates.

“In this economy, to start a business five years ago and be successful has been pretty miraculous,” she said. Now, “I’m going to have to do the work to complete this.”

Here’s Schappell demonstrating the TeachStreet just before its launch:

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