Written by: Deep Thinking Circle

Everyone says that the student market is the hardest to make money in. They have no money, are unwilling to pay, and have a high churn rate. Investors will tell you not to touch this market. Your friends will say that this idea won't work. But Coconote's founders, Brett Bauman and Zack Hargett, proved these conventional wisdoms wrong in two years. They made $6.7 million in annual revenue from an AI note-taking application without spending a single penny on advertising, and then were acquired by the education technology giant Quizlet. After delving into their story, I found that this was not luck, but a series of unconventional decisions. These decisions broke our inherent perceptions of product growth, pricing strategies, and target markets.

Momentum is Oxygen

I particularly appreciate a quote by Sam Altman that Zack referenced in an interview: 'Momentum is like oxygen; it’s the lifeblood of a startup.' This statement sounds simple, but the implications behind it are profound. Many founders will spend months or even a year refining their product, waiting for the perfect moment to launch. They will tell themselves that they need to perfect all features and optimize all processes to ensure an impeccable user experience. But Brett and Zack chose the exact opposite path.

When they launched Coconote in April 2023, the product was still quite rough. Zack candidly admitted that at launch, "the product was barely usable," and it even lost recordings. But they made a key decision: to start charging from day one. They didn’t wait until the product was perfect to charge, nor did they wait until user numbers increased to think about monetization; from the first user, they offered a free trial that required payment after it ended. This decision seemed risky, but it was actually the core reason for their rapid growth.

Why do I say this? Because revenue is the most authentic validation metric. You can have a million downloads, but if no one is willing to pay, it indicates that the value you have created is not sufficient. You may have high user engagement, but if the conversion rate is zero, you have just created an interesting toy. Revenue cannot be faked. When someone pays real money for your product, that's the true signal: you did something right.

Zack mentioned that he has an "unhealthy" habit of constantly checking RevenueCat’s revenue charts. His wife even had to have a serious talk with him, saying it had become a problem. But I understand why he does it. In the early days of entrepreneurship, that continuously rising revenue curve gave them tremendous confidence. Within 45 days, they surpassed $100,000 in annual revenue, hit $1 million in 4 months, and over $2 million in 5 months. Each milestone made them more confident to invest more resources, hire more content creators, and make bolder bets.

This is the power of momentum. It is not just a psychological boost; it is a tangible cash flow. They could invest the money they earned this month into next month's growth, creating a self-reinforcing flywheel. And because they maintained approximately 50% EBITDA profit margins, this flywheel was sustainable. They didn’t need to burn cash for growth, nor were they worried about cash flow disruptions; they could focus on doing the right things.

Content Creators vs Influencers

In social media marketing, I find that most people are going in the wrong direction. They seek out influencers with hundreds of thousands of followers, willing to pay high prices for them to promote products. But Zack and Brett’s approach is completely different, and it is the key to achieving explosive growth without an advertising budget.

Zack clearly distinguishes between "content creators" and "influencers" in the interview. He said that if you reached out to a creator and found that their email was from a talent agency's domain, you were already too late. The existence of these agencies is to eliminate the kind of surplus returns you are trying to create. They charge high commissions, causing creators' prices to far exceed actual value, turning what should be flexible collaborations into rigid business transactions.

In contrast, they seek out those creators who have a Gmail address listed in their profiles, have follower counts around 5,000 to 10,000, but produce high-quality content. Why is follower count unimportant? Because in the era of algorithmic recommendations, TikTok and Instagram's distribution mechanisms have shifted from a follower graph to an interest graph. Whether your video goes viral depends on the quality of the content itself, not how many followers you have. Zack verified this in his previous startup: their first TikTok video, with zero followers, received 8 million views and brought in 150,000 registrations within 48 hours.

This insight is crucial. The traditional influencer marketing mindset is: find influential people and leverage their audiences. But in the algorithmic era, the right mindset is: find people who can create great content and let the algorithm help you find the audience. The difference between the two is huge. The former is paying to access someone else's audience, while the latter is paying for high-quality content and then letting the platform distribute it for free to the most relevant audiences.

At their peak, their content team consisted of just 10-12 people, and now stabilizes around 25, all part-time contractors. But this small team has generated hundreds of millions of video views. One core creator alone contributed hundreds of millions of views. What does this indicate? It shows that you don’t need a large marketing team; you need to find the right people, give them enough freedom, and ensure they understand what kind of content can truly convert.

Zack communicates one-on-one with every creator weekly, letting them know which videos led to actual conversions, and which videos, despite having high view counts, performed poorly in conversion. He used a great analogy: if you package your product as a quirky toy, people will view it as a toy and won’t be willing to pay. But if you present it as a solution to a problem, people will take it seriously and be willing to pay for the value.

One of their videos received 41 million views and 4.5 million likes but had a very low conversion rate. Why? Because that video showcased a feature called "PDF to Brain," which could turn long PDFs into "brain rot content" set to a Minecraft parkour background. This feature is fun and went viral, but it’s a toy. People will like, share, and comment, but they won't pay for it. The videos that actually generate income are those that show how Coconote helps students relax and listen in class, ensures they don't miss any key details, and helps them efficiently review before exams.

The Art of Pricing

I believe the pricing decisions made by Brett and Zack might be the most counterintuitive aspect of the whole story. They target the student market, which is widely recognized as one of the hardest demographics to monetize. Students have limited budgets, are price-sensitive, and generally have high churn rates. Conventional wisdom tells you that if you're selling to students, the price should not exceed $50 a year, and ideally should be around $30.

But Coconote launched with a pricing of $99.99 yearly and $19.99 monthly. This is already high-end pricing for student applications. But they didn’t stop there. In early tests, they raised the annual fee to $129 and found that user numbers and revenue both increased. This contradicts traditional theories of price elasticity, but it truly happened in practice.

Why did this happen? I think Brett’s statement reveals the core: "We want to be seen as a premium product because we also want to be viewed as reliable." There’s deep psychology behind this. When a student decides to stop taking handwritten notes and entirely rely on an app to record class content, they are taking on significant risk. What if the recording gets lost? What if the app crashes? What if they can’t review before an exam?

This trust is priceless. And high prices send a signal of reliability. If an app costs only $29, students might think: "So cheap, is it reliable?" But if it’s $129, it may actually convey that: "This price shows they are serious, they have resources to invest in product quality, and they won’t easily shut down."

Interestingly, about 80% of their users choose the annual plan. What does this indicate? It shows that users recognize the long-term value. They aren’t just trying it out and leaving; they truly intend to integrate Coconote into their study routines. This sense of commitment is gold for a subscription product.

Another overlooked dimension of the student market is that Zack mentioned they found many users are not the traditional 18-22-year-old college students. There are numerous lifelong learners, working professionals in continuing education, and those preparing for various qualification exams. These individuals are much less price-sensitive than full-time students. So when you position your product as a "learning tool" rather than a "student tool," your market expands, and your pricing flexibility increases.

Another clever strategy was marketing to parents. Early on, many of their viral videos had captions like "My mom changed my life" or "My mom bought me this app." Imagine this scenario: a college freshman and her mother are on campus attending orientation, and someone approaches to pitch a tool that can improve grades, ensure they don’t miss key class points, and assist in learning for just $129. Who would you expect to pay? Obviously, it's the mom. And for a parent who spends tens of thousands of dollars a year on their child's education, $129 is practically insignificant.

This insight into decision-makers is crucial. Many app developers fall into the trap of thinking that the user is the payer. But in many scenarios, these two are separate. In enterprise software, it’s the boss paying for employees to use it; in children’s apps, it's parents paying for kids to play; and in learning applications, it could also be parents paying for students. Understanding who truly pays can help you redefine your marketing strategy and value proposition.

The Secrets of the Growth Flywheel

Let’s see how Coconote establishes this growth flywheel. They didn’t use complex growth hacking techniques, nor did they rely on viral spread mechanisms or referral reward programs. Their growth model is actually very simple: create high-quality content → content goes viral → users download → smooth onboarding process → quick trial startup → high conversion rates → reinvest revenue into content creation.

Every link in this loop has been carefully optimized. When it comes to the onboarding process, they made a counterintuitive decision: placing the login process behind the paywall. The traditional approach is to make users register an account as soon as they open the app, but this leads to a 10% drop-off rate. Why? Because before users experience any value, you are asking for their personal information. It feels like a restaurant asking for payment before they’ve seen the menu.

The advantage of delaying login until after the paywall is that users can first experience the product value, decide whether to subscribe, and then need to create an account. Moreover, in the iOS and Android ecosystems, users are already logged in with Apple ID or Google accounts, payments can be completed through these accounts, eliminating the need to create an account within your app. This change seems technical, but its impact on conversion rates is substantial.

Another key optimization is the length of the onboarding process. They tested and found that increasing the onboarding process from a few screens to 15 screens improved trial startup rates by 16%. This sounds counterintuitive because it is generally believed that shorter processes are better. But in fact, a good onboarding process is not about being as short as possible; it’s about finding the balance between user investment and value delivery. When you take the time to show users social proof, explain how the product works, and let them personalize settings, you are increasing their psychological investment. This investment translates into a greater sense of commitment and a lower churn rate.

In terms of retention, they also discovered some interesting patterns. Students are a highly seasonal user group, with many cancellations each year in May and June as summer break starts. But they didn't simply accept this churn; instead, they launched a pause feature that allows users to pause subscriptions for 3 months rather than completely canceling. This feature was very effective because it meets the real needs of users while keeping them in an auto-renewal state.

Even more interesting is their trial extension strategy. When users attempt to cancel during the free trial, most apps offer discounts. However, Coconote found that offering an additional 7 days of trial time was much more effective than providing a 30% discount. Why? I believe this relates to the perception of product value. If users want to cancel while still in the trial, it may be because they haven’t fully experienced the product value, rather than because the price is too high. Giving them more time allows them the opportunity to use the product in more scenarios and may lead them to discover value they overlooked before. Discounts signal to users that the product isn’t worth the original price. Once you set the expectation of price reductions, users will wait for the next promotion instead of buying at full price.

The cumulative effect of these optimizations is astonishing. Although they did not disclose exact conversion rate figures, based on their growth from $100,000 ARR in 45 days to $1 million ARR in 4 months, their funnel efficiency must be very high. And the key is that this growth is organic and sustainable, not reliant on paid advertising or other channels that require ongoing cash burn.

Don’t Optimize Too Early

Brett and Zack mentioned a principle in their interview that I find very important yet often overlooked: do not optimize too early. This principle is common in software engineering but is equally applicable in entrepreneurship.

Many founders start worrying about the cost structure before their product has been validated. Founders of AI applications are especially prone to falling into this trap because LLM API calls come with costs. They spend a lot of time optimizing prompt length, caching strategies, and model selection, trying to minimize the cost per call. But this kind of optimization is often a waste of time in the early stages.

Coconote did not focus on costs in its early days at all. Their logic was simple: if costs become an issue, it means we are already successful enough, and that’s a good problem to have. Moreover, as scale expands, costs naturally decrease. The price of LLMs is continuously declining; today’s functionalities might cost half as much a year from now. So why start optimizing costs before the product has product-market fit?

Interestingly, they found that the costs of audio transcription are actually higher than LLM calls. What does this indicate? It shows that your assumptions on paper may be completely different from the reality of operations. If they had spent months pre-release optimizing LLM costs only to discover that the real cost bottleneck lies elsewhere, wouldn’t that time have been wasted?

The same principle applies to paid advertising. They tried running ads and worked with some agencies, but the results were consistently disappointing. They couldn’t achieve profitability on first purchases. But Zack candidly admitted that this may be because neither of them truly invested enough time to delve into this channel. Paid advertising is not something you can dabble in. You either go all-in, committing enough time and budget to learn and optimize, or focus on other channels that are a better fit for you.

They chose the latter, focusing on UGC and organic growth. This decision was correct because this was where their strengths lie. Zack had experience and intuition in content marketing, while Brett could quickly iterate on product functionalities. Investing limited time and energy into your strengths is much more effective than trying to shore up every weakness.

This "don’t optimize too early" mindset was also evident during the acquisition process. Many founders start planning exit strategies, considering valuations, and interacting with investment banks very early on. But when Quizlet first reached out to Brett and Zack, they almost rejected the conversation, believing it was too early to discuss acquisition for a company that was only a few months old. Fortunately, they still took the call, but even during the following year-long negotiation process, their main focus remained on growing the business, not preparing for acquisition.

This focus was key to their success. If the possibility of an early acquisition had diverted their attention, they may not have achieved such rapid growth or the eventual acquisition. Rather, because they concentrated on doing the business well, the acquisition came naturally.

Considerations Behind the Acquisition

Regarding the decision-making process for the acquisition, I found it most interesting how they balanced short-term benefits with long-term vision. By the time Coconote was acquired, it was already a profitable company, with positive cash flow each month and good growth momentum. From a purely financial perspective, they could have continued operating independently, potentially creating even greater value in the coming years.

But they chose to be acquired by Quizlet. Why? Zack mentioned a critical factor: time horizon. As a self-sustaining startup, they had to maintain a 50% profit margin to keep their cash flow healthy. This meant they couldn’t make investments with long payback periods or sacrifice today’s profits for tomorrow’s returns. They had to maintain financial discipline, ensuring that every decision considered its impact on cash flow.

Joining Quizlet released this constraint. They could think about more long-term issues: how to serve more students with Coconote, how to lower prices to make it more affordable for more people, and how to invest in functionalities that may not generate immediate returns but are important in the long run. This shift in time perspective allowed them to truly fulfill the mission of the product rather than being constrained by cash flow.

Another layer is the mission fit. Coconote’s mission is to "give learners superpowers," and Quizlet is also a company committed to helping learners. Although their statements may differ, the spirit is the same. This alignment of values makes the acquisition not merely a financial transaction but a strategic combination that can create genuine synergies.

I particularly admire their secrecy with the team. During the year-long negotiation process, only Brett and Zack knew about it, not even their wives were aware of the specifics. This wasn’t because they didn’t trust the team, but because they wanted to protect their team. M&A deals can fall through even in the final week; if the team knows too early, it only brings unnecessary anxiety and distractions.

Zack refers to this as "the leader’s responsibility is to protect others." I find this perspective vital. Many people view transparency as a virtue and believe that the team should know everything. But transparency is not the goal; it’s a means. The real goal is to enable the team to focus on the most important things and make decisions based on clear information. If certain information only brings noise instead of signal, then temporarily keeping it secret is actually the more responsible approach.

When the deal finally closed, they informed the team on the same day the transaction was finalized. Zack was driving from North Carolina to Connecticut and was battling the flu, feeling awful. Once the bank transfer was completed, he pulled over in a Taco Bell parking lot to share the news with his wife. She cried. They celebrated this significant life moment at Taco Bell.

This detail impressed me. It wasn’t in a fancy restaurant, nor was it champagne; it was in a fast-food parking lot. This is the true face of entrepreneurship, not all glitz and glamour, but more about being on the road, persevering under pressure, and moving forward amid uncertainty.

What I Learned from this Story

Reflecting on the entire story of Coconote, I think the most important aspect is not the specific strategies and tactics, but a mindset: to question conventional wisdom, think through first principles, and quickly validate hypotheses.

Conventional wisdom says the student market doesn’t make money, but they asked: why can’t it make money? If we provide real value, why wouldn’t students pay? Conventional wisdom suggests looking for big influencers for promotion, but they asked: in the algorithmic era, is follower count still important? Isn’t content quality more critical? Conventional wisdom advises perfecting the product before launch, but they asked: how can we validate market demand the fastest?

This mindset allowed them to make decisions that seemed risky but were actually well thought out. The $129 annual fee wasn’t set arbitrarily; it was based on a profound understanding of user psychology and value perception. Hiring content creators rather than influencers wasn’t about saving money, but rather because they grasped the fundamental changes in social media distribution mechanisms. Charging from day one wasn’t a rush to make quick money; it was because they understood that revenue is the best indicator of value.

Another important lesson is the power of focus. Brett and Zack didn’t try to do everything. They didn’t establish a sales team, didn’t spend heavily on ads, and didn’t attend many meetings and roadshows. They focused on doing two things well: creating a great product and crafting good content. This focus enabled them to excel in these two areas rather than performing mediocrely across ten.

I also appreciate their reflections on health. Zack mentioned that during the startup journey, he neglected his health issues as all his energy was invested in the "baby." This is something many founders experience. But he also realized that this burnout is unsustainable. After joining Quizlet, he finally had time to focus on his health. This reminds us that entrepreneurship is not a sprint but a marathon. Maintaining physical and mental health is essential to go further.

Finally, I want to say that Coconote's success is not an unreplicable miracle. While timing and luck played a role, the core is execution. Much of what they did, others can do as well. The key is to have the courage to question conventional wisdom, the patience to wait for validation, and the focus to do the most important things well.

The AI era has provided us with unprecedented tools and opportunities. Products like Coconote couldn't have existed five years ago because voice recognition and natural language processing weren’t good enough. But technology is just a tool; the real value is created through a deep understanding of user needs, a carefully designed growth strategy, and a continuous refinement of product experience.

From zero to $6.7 million ARR, from two people to acquisition by an industry giant, Brett and Zack covered the distance in two years that many companies take ten years to travel. This wasn’t because they were any smarter than others; it was because they did the right things and made the right decisions at critical moments. And those decisions were often the ones that seemed most unconventional.

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