Skillshare has spent the last year quietly transforming itself. It's working

By Erin Griffith , written on November 5, 2013

From The News Desk

If you've built an online-to-offline startup, you don't need a know-it-all blogger to tell you this, but here it is: Local markets are hard. Ask any online dating site; ask a daily deals site; ask Uber and its car-sharing peers, which battle local governments in each new city they enter. Ask Couchsurfing, which prioritizes the purity of its mission over venture-like returns, or crowdfunding site SmallKnot, which turned down VC money to keep itself small and local.

Online-to-offline businesses do a great thing -- they get people away from the screen and connect them in real life. Emoji smiles are nice and all, but human interaction can't ever be truly replicated online. There's a reason Meetup has 20 million members.

However, building a business around that doesn't always create abnormal venture capital returns. It is painstakingly time-consuming and people-intensive to enter new cities with your service, however awesome the result may be.

Skillshare, a New York company which connects amateur teachers with students, learned this lesson after two years of hustling in local markets. The company got its start in early 2011 and expanded nationally within months of launching. But it was haunted by the same challenges any local business faces: logistics. Where do teachers hold these classes? How can Skillshare help people find spaces to teach at scale, when classes range from cooking to screenprinting to Ruby development?

Furthermore, there was a high bar for winning customers. In order to earn one sign-up, the person had to first hear about the class somehow. They had to be interested in it. They had to be able to make it to the class at a certain place and time. And they had to be willing to go through sign-up and pay for it. Pushing users all the way through that funnel proved difficult, and the payoff for the low-priced classes offered by Skillshare just wasn't worth it. Skillshare classes are typically around $20 a pop. "The math didn't add up for us to build a big business," says CEO and co-founder Michael Karnjanaprakorn. "We realized that we wouldn't be able to fulfill our mission at scale."

Skillshare has venture capitalists. The company raised $4.65 million from Founder Collective, Collaborative Fund, Union Square Ventures, Spark Capital, VegasTechFund and SV Angel (Disclosure: The latter two are PandoDaily investors). Skillshare, and presumably its investors, weren't in this to build a nice, small, local business. So a year ago, the company decided to try out online video classes, starting with a few graphic design classes.

The response was overwhelmingly positive. In February Skillshare made its focus on design official, launching the "School of Design" with lessons from design rock stars like David Carson and Bob Gill, as well as Kid Robot founder Paul Budnitz, book designer Chip Kidd, Illustrator and typographer Jessica Hische, and Marc Ecko.

Since then, 75,000 students have enrolled. Skillshare has paid out more than $1.5 million to its online teachers. Recently, Skillshare opened the platform so that anyone can create an online course, upload a video and accept payments for it. There are now more than 250 online courses.

Online makes sense for Skillshare, particularly at its price point. The company's mission is to allow anyone to learn anything, at any age, at an affordable cost. Now the company can quickly expand that mission to anywhere in the world, not just people who live in the same city and happen to be available at a certain time. The classes are self-paced, and Skillshare has built a way for students to engage with their classmates by uploading and sharing their design projects. More than 20,000 projects have been created.

Naturally, given this traction, Skillshare is doubling down on digital classes and dropping its focus on local markets. A year ago, online courses represented 5 percent of its revenue. Now it's tipped to 99 percent.

Teachers can still create in-person classes on the platform, but very few are. Skillshare has no intentions of revisiting the local business, but it may work on ways to incorporate in-person sessions with online classes, Karnjanaprakorn says.

That's not to say local, online-to-offline businesses can't work for anyone. Plenty are out there trying, and they have Airbnb to hold up as their heroes. But it's not right for every business, especially when there is an easier, faster, simpler, more profitable and more effective online alternative.

Now that it's an online-only company, Skillshare's challenge will be to compete with the wealth of other free instructional video content out there on the Web, particularly as it expands beyond its first niche design. For that, the company will rely on classes from industry celebrities and thought leaders to draw students in. So far 32 percent of Skillshare's digital students have become repeat customers.

[Image via apieceoftoast]