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Wharton Start-Up, Chattersource, Helps Students Find Housing, Haircuts

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A Wharton start-up is trying to relieve students of a common source of frustration. It wants to help newly arriving students figure out questions such as where to get their haircut and or the best place to take a date. Can it gain enough traction to reward its investors?

Two 2010 Wharton MBA graduates, Kristina Anderson and Amy Cooper, co-founded Chattersource because when they arrived in Philadelphia, they could not find a good place to get a haircut, were not sure where to rent an apartment, and did not know which restaurants in town would best suit their palates. And they figured that they were not alone in this.

Sure, local review site Yelp.com, was available but students found that the results were overwhelming and not relevant to their student budgets and needs. Before Wharton, Anderson and Cooper (no relation to the CNN anchor), worked in the Boston office of LEK Consulting, a London-based management consulting firm. They helped private equity firms analyze potential investments and devised strategies to boost the performance of companies in which they had already invested.

Anderson, who focuses on operations, and Cooper, who works with users and partners, brought this analytical mind-set to the challenge of helping make Philadelphia a friendlier place for newcomers. Having worked in a corporate environment, they were both cognizant of the risk involved in putting their own money into the business and foregoing the more secure career opportunities available to them post-Wharton.

So they conducted market research. It was relatively easy to learn that there were 18 million college students in the U.S. and that certain cities -- like Philadelphia that has 50 colleges and universities and 20o,000 students -- were more ripe for their service than others.

But they also knew that they would face competition so they needed to understand their potential consumers. After analyzing a few hundred responses from potential users, they decided that Chattersource was a great idea. That's because their research uncovered significant dissatisfaction with the competition -- such as Yelp, the school newspaper, and emailing fellow students.

While they had several ideas for what the service would offer, the market research convinced them to focus on making Chattersource's website convey a very clear message. Specifically, they wanted visitors to recognize within 10 seconds that they were offering local reviews and recommendations of service providers that they would care about.

But when they launched Chattersource in April 2010, students were sending them emails asking whether the site could help graduating students sell their furniture or returning students to sublet their apartments for the summer.

Chattersource's view of how much to control the site's reviews and recomendations has evolved. Initially, the site was a "walled garden" --requiring people to log-in and limiting membership to those with .edu email addresses.

Later, Chattersource realized that its users were comfortable opening up the reviews and recommendations to the public but only those with .edu email addresses are allowed to post content. And Chattersource regularly checks the content to make sure it's right.

Chattersource has different "chunks" of revenue. Its housing guide is a good source of advertising revenue since housing management companies generally have regular cash flow. And it also generates revenues from operating its marketplace for buying and selling furniture and other items.

Having sunk their own money and that of friends and family into Chattersource, Anderson and Cooper are now focused on whether to expand the site more deeply in Philadelphia -- perhaps by hiring new sales people to target new advertisers -- or to open up new Chattersources in student-heavy cities like Boston, Chicago, and San Francisco.

Anderson and Cooper are going to evaluate this decision by looking at the data. For what it's worth, I would tell them to weigh the size of the untapped advertising market opportunity in Philadelphia against the cost of building the sales force needed to close those additional sales.

And my hunch is that they ought to defer expansion to new cities until they get the model working well in Philadelphia.

What do you think?