David Klein
David Klein

Social responsibility a central theme in CommonBond’s vision

David Klein

The CEO of a graduate student loan refinancing platform credits a deep understanding of the market as one of the reasons behind his company’s phenomenal growth.

David Klein helped start CommonBond at Wharton in 2012. In three years, it has grown to serve more than 700 graduate programs across the United States.

When marketing primarily to millennials, it helps to be one, and Mr. Klein is. But truly understanding their preferences and how to reach them still takes plenty of analyses, and in speaking with him it is clear Mr. Klein has devoted many hours to this.

Mr. Klein said there are five factors that matter to millennials as they think about a brand.

One is doing social good. While many companies preach the importance of social responsibility, few are actually accomplishing social good while delivering effectively on their core competency.

While designing CommonBond, Mr. Klein said they incorporated the 1-1 model. For every degree fully funded on CommonBond, they fund the education of a student in the developing world through a partnership with Pencils of Promise, which builds schools and educates people in developing countries.

The 1-1 model is part of CommonBond’s core, Mr. Klein said.

“It’s not the strategy of a company that matters, it is the soul of a company that matters because that drives naturally the things you want and need to be doing.”

In developing their social strategy, Mr. Klein said he looked to eyeglass manufacturer and retailer Warby Parker. A core component of Warby Parker’s strategy is for every pair of glasses they sell, a pair gets donated to someone in need through a service partner.

CBLogo_2015Mr. Klein said he often spoke with Warby Parker Co-CEO Neil Blumenthal about how that company dealt with the challenges of incorporating social responsibility into their business. One issue that arose was how to address potential investors worried about how the 1-1 model would affect the bottom line.

“He said if they don’t want to invest in this, they don’t want to invest in who we are.”

“More than any other generation we believe what you value seeps its way through everything you do in life not just personally.”

Prioritizing social responsibility has also proven to be an excellent recruiting tool, Mr. Klein explained. In speaking to MBA students across the country, he said a growing number want to start, work with and conduct business with companies who truly believe in being socially responsible.

“It’s a great way to raise awareness among millennials and a great way to attract talent,” he said. “Millennials want to do business with companies whose values they share.”

Mr. Klein discovered that being known for social responsibility among millennials is also good for the bottom line. As word spreads about their partnership with Pencils of Promise, more people want to give them their business. This lowers CommonBond’s customer acquisition costs.

“The more this happens the more people will see having a social mission just isn’t the right thing to do, it is also good business.”

The second factor important to millennials is the actual product. CommonBond offers both variable and fixed products ranging from five to 20 years in length. They also introduced the industry’s first hybrid product where the first five years of the 10-year product offer a fixed rate before moving to a variable rate in the second half.

Millennials are also concerned about price. Mr. Klein said while adding that along with product these are the two most important features for a company to get right. CommonBond is highly competitive in this area, as they save the average graduate borrower $10,000 relative to what they are studying.

Millennials expect great service too, Mr. Klein said. While many would think they would be willing to sacrifice service for speed, the actually wants high levels of both.

“As much as technology needs to speak for itself, millennials still want to know they can pick up the phone, someone’s going to immediately answer and they will be great and knowledgeable,” Mr. Klein said.

CommonBond recruits customer service representatives from universities like Duke, Cornell, and Penn, he added.

“They are an empowered and intelligent group that can deal with any issue.”

The final important component is the technology. Some designers are overly reliant on technology for its own sake. Mr. Klein said any technology being introduced needs to deliver on two fronts.

“Simplicity and speed are really important to millennials.”

Applicants can easily employ CommonBond’s technology to get pricing in as little as five minutes, Mr. Klein said.

Of course having a great product is not enough. You have to be able to reach your client base. David Klein believes CommonBond has done an excellent job of reaching a group many struggles to attract.

The road has to travel through social media. Many companies try to unlock the secret of using it and many of them fail.

“One of the things we’re proud of is on the paid side we’ve been able to crack that nut and heavily leverage social media,” Mr. Klein said. “That is why it is our largest source of the acquisition on the product development side.”

“Our market is millennials, and we’re founded by millennials. We have a lot in-house and we’ve hired many too.”

In some respects using social media to market to millennials is second hand for a generation immersed in it.

“‘It’s not a strategy it’s who we are’ is a good way to put it,” Mr. Klein said.

He said he does not know if millennials are harder to market to per se.

“Like anything else if you get it it’s easier if you don’t its harder.”

Mr. Klein believes millennials have high standards for each of the top five factors and that any company wishing to capture the segment has to deliver extremely well if not the best in all of them.

The timing of the financial crisis played a key role in this shift, Mr. Klein said. The first millennials came of age just before and during the crisis seven years ago.

“We saw traditional financial system almost bring the world economy to its knees based on who was in power, what was important to them and what they valued,” he said.

This fostered a growing disconnect between an increasingly socially conscious generation and a financial system that had less and less to offer them.

“A recent survey revealed 71 percent of millennials would rather visit their dentist than their bank,” Mr. Klein said. “One third also see a world with no need for banks.”

Banks have incurred billions of dollars in fines for various misdeeds and more are on the way, so Mr. Klein said they have not exactly gotten off unscathed. Their efforts to delay further penalties will undermine their credibility with millennials in another way too.

“More fines will just validate the belief traditional banks are not serving millennials well,” he explained.

Those that aim to serve millennials well will have to pay more attention to their brand than they did in the past, Mr. Klein believes.

“In banking and emerging fintech moving forward I do believe brand becomes increasingly important. Those platforms that have a brand that means something to borrowers will win.”

“Our social mission is part of who we are. You can’t remove it without removing a large part of ourselves and our brand.”

CommonBond has established a Social Impact Award, which they’re awarding to the country’s top MBA social entrepreneur next month. Nominations are currently open, and the winning entrepreneur, who will be determined on Aug. 6, will receive $10,000 to put toward their venture. Those interested can go to the award website.

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