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Why do Edtech Startups fail?

(Disclaimer: This is only my point of view from my experience being in edtech for 5 years, you may or may not agree with what I have written)

Being an education or edtech start-up is not easy. It is not easy in India, and it is not easy anywhere else in the world. A good way of explaining the same to you will be the fact that even after having a $100 million+ funding, edtech start-ups such as Knewton, Coursera, Udemy, Duolingo are still ‘figuring many things’ out. They are well known and are doing cutting edge work but are far away from a time where they can see to recover the money they are spending or become profitable.

Back in India, edtech start-ups have seen some form of success in only few segments that include Test Prep, Professional Courses & LMS. Barring this, majority of segments such as Pre-school, K-10 & Higher-Ed are yet to see decent success stories.

Multiple factors are responsible for the low success rate of Edtech start-ups. I am sharing a few here that I have observed as well as faced over the years that has threatened our existence our existence but we always came out on top.

1)    Lack of understanding of education market

Education is a very unique market and probably there are few industries that are as diverse and spread-out as education.

Say, you are selling B2B to schools (K-12). This means that your POC (point of contact) is the school administration; your consumers are school students; your buyer is the school trust / board; and your customers are parents whose kids are studying in that school. Barring the actual consumer, everybody else decides things on whims and fancies and your sales are dependent on each one of them being onboard to buying your product / service.

In the B2C market in K-12, you are (in most cases) competing with a tonne of other products & services that are providing exactly same (or somewhat similar) features as you are. Yet, everyday a new start-up crops up in this space providing the same features & no differentiation from the existing lot. Even if the features change, there is no noticeable difference in the value proposition. To add on top of this, there is always someone providing the same for FREE and just takes away any leverage you can build in the market.

2)    Expectations of hyper growth right from the start – lack of patience

Education is no e-commerce, or taxi business, or hyper-local business. Start up in education only if you are in for the long haul i.e. atleast 15 – 20 years. In most other types of businesses, hyper growth is one of the possible ways of growing. In education, no one has seen hyper growth. You may come and argue that Khan Academy has X million users or Duolingo has Y million users. Well, I agree they have users. But are they paying? Khan Academy is not-for profit so it is in its own league. Duolingo has still to figure out how to make money. It takes time in education to get your model right, to get your pricing right and to get your strategies right. You cannot just randomly say you will reach out to X million in 5 years. You might infact take 5 years to get your product-market fit right. Patience is a powerful friend of a smart edtech entrepreneur. Your initial focus should be to survive as long as you can, doing as varied things as possible so that you can quickly know what works for you and what doesn’t. Don’t take VC money before you get your product right. That is a sure-shot way of failing. Be patient – the longer you survive, the higher is your chance of success.

3)    Not figuring out the Right Model / Revenue Channels

This is an extension of what I wrote in the previous point. You should know the behavior of each of your stakeholders inside out and play those to your advantage. Parents like quality but cheap products, educational institutes like unique product that they can take from you at a price point of x and sell at 5x or 10x. Can you do any one of these without losing money? Ask this question to yourself everyday. Education is not a quality problem for the customer, it is a pricing problem (barring test prep). If parents get option to choose from two online learning platforms, they are not going to choose the cheaper one since they are high inexperienced and incapable of differentiating between the two products (which is aided by the fact that the two platforms are actually not very different from each other).

The graver sin after this is to raise institutional capital before having figured out the right model. VCs mostly have an 8 – 10 year period to return money to their LPs. In no way, can an upcoming education start-up figure things out and start growing crazily in that little time. They will push you to do things that don’t make sense and will only end in more pain for you. If you need to raise, raise from angels who get what you are doing and are equally passionate about the problem you are about to solve.

4)    Wrong interpretation of early traction

Most edtech start-ups that show decent initial traction believe that this is how their growth curve is going to be. Being as optimistic as possible, they start using these initial traction numbers to draw exponential growth curves and sometimes, in an effort to be realistic they simply draw linear curves. They cannot be more wrong to do so. Every edtech product’s initial customers are the best types of customers to have, they are willing to try what you provide and try even giving you the right feedback. It is good to use these sets of people as your evangelists but not more. The next set of customers are crucial who are skeptic but have just enough faith to give you a shot. Now, this is your make or break shot. If you convince this particular bunch, you will find your mojo that will help you scale. You also need to also be ready to take all the criticism / feedback this bunch will have since it will only help you refine your business model.

5)    More users vs More paying customers

This is a serious problem for most edtech startups showing good initial traction. There are many who never even reach a point where they can say they have 10,000 users or 15,000 users. So, this point is not valid for them. Every ed-tech startup touches a peak number after which the growth starts plateauing and you are in search of getting more people. When doing that, you start discounting using VC money. Bad move, don’t do it. Figure out more innovative ways of reaching out, but don’t give stuff for free just to acquire more users. Users are not going to keep you afloat, paying customers are. You are not a wallet that you will have 20 million people on your platform and you will start leveraging the fact that you have data. Very, very few ed-tech startups even see the face of 2 million users, let aone 20. You cannot leverage data. You can build a sustainable business model to survive giving your customer a value proposition that makes him / her look better, smart or whatever that keeps him / her happy.

What to do?

It is very true that what does not kill you only makes you stronger. Being an ed-tech start-up means you must always be nimble, frugal and tip-toeing your way in the academic space. Find your niche, stick to it and build a quasi moat if it is too hard to build a real one. Knewton is a great example of a company that has built a quasi moat and whenever you think ‘Adaptive Learning’, you think Knewton when infact they were far from being one of the first players in the segment. Don’t raise too much money too quickly, take your time. Survive. Survival is key. Too much money too easy will just brutally kill you. Be in the sector for a long haul and for the right reasons, you will surely see success. It is the most brutal market but it is also one without too many success stories and opportunities are always up for grabs for those who know the dos and don’t’s of edtech. 

PS: You can reach me Here, Here & Here. Also, you can ask me about Edtech HERE!

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14 Comments

  1. Hi Priyadeep I have been following your start up Gyan Lab since long and I have deep appreciation for the work you are doing. This article is indeed a well researched piece and a must read for all those who aspire to do EdTech start up or even who are already in the trade and figuring out the building blocks. I am also working in this industry for past 10 years and I echo almost all what you have written here. Lets catch up sometime and open the channel of discussion as I believe not only we are travelling in the same boat but we are also rowing in the same direction. Keep writing and keep disrupting EdTech its an important industry segment which will ensure true rational growth of our country.

  2. i just loved all the points priyadeep!

    one of my fav lines is “Patience is a powerful friend of a smart edtech entrepreneur.”

    it’s true for so many of us. even a community like trh :)))) 

    thanks for sharing this one!! 

    ps: i’ve been watching you since our first OH in b’lore in 2013. and it’s amazing to watch you mature and evolve as a rockstar entrepreneur 🙂

  3. True Mandar. I used to travel a lot to Mumbai till 2013 but that has reduced over the last 2 years. Let me know if you are travelling to Bangalore sometime soon – we can catch up & discuss more 🙂

  4. Thanks Asha 🙂 Very kind of you to say that. I believe time is a great teacher and with time entrepreneurs just learn so much (given that they want to learn) 

  5. Sure whenever I come to Bangalore next we shall definitely plan and meet however in the meanwhile we can also connect over the phone/skype as well 

  6. Nice, some imp takeaways for all startups irrespective of the industry 🙂

    As an outsider, I noticed most edtech/edu startups fail to reimagine processes/methods for teaching/learning. Most of them are trying to automate archaic processes e.g., building ERP for schools, or building apps to mimic something that was broken in the first place.

  7. Hi Priyadeep

    Spot on points specially asking EDtech start ups to have patience and its a power …well said 

    I want clarification on one point you made

    Very, very few ed-tech startups even see the face of 2 million users, let aone 20. You cannot leverage data.

    Why you think student data can’t be leveraged to monetise, pl let me know

    Thank you

    Prasad

  8. Priyadeep,

    – Do you think Ed Tech should follow the Khan Academy approach and go free and live on grants etc? (I assume thats their model)

    – What is the success of the big MOOCs like Udemy and Coursera? Are they successful?

    – Which is your reference of Edu Tech success? Any company in the World/India?

  9. Hey Alok,

    Wow, so many questions from you. I will try answering them to the best of my knowledge and opinions.

    I personally don’t like the Khan Academy model because at the end of the day they have to rely on gracious donors (much like a parasite, I always feel). So while they are alive they will do a great job but one day someone will do it better than them for sure and people would be willing to pay as well. So, I sincerely feel nothing should be given for free.

    The larger MOOCs are on the path to finding success of some sort – but I believe they still have a decently long way. Udacity is somewhat ahead of the pack with the concept of nanodegrees. If the phenomenon catches on over the next 7 – 10 years, we may even see large number of cases where people completely skip college degrees and get one of those at the convenience of their homes getting equal or better opportunities. When this happens, Coursera, Udacity, Udemy will be all big successes – they are then going to be the ‘Universities of the Future’

    I believe some of the universities such Manipal Group (with its international universities & allied businesses) has been a good success so far. Some of the test prep companies – Career Launcher, Aakash, and others have been decent successes so far but they need to adapt to the changing world or might become extinct soon. PluralSight has been a great success so far. Duolingo has the potential to change the world (again free & must come up with a solid business model that is missing). Knewton has a pretty advanced product but are still struggling but surely have the potential to bring in the AI revolution in edtech.

  10. Prasad, the issue there is that it is a very strange problem. By just having K-12 student data, you basically do not have the data of the decision maker (B2C – parent; B2B – institutions). In case, you have parent data, someone like Google, Facebook already has 200X – 300X data when compared to you. Even e-com sites, wallets have better & more parent data than any edtech platform. So, data is not something, that I believe, can be leveraged well by edtech start-ups even of they have 2 – 4 million users.

    When it comes to college students, again all these organizations have much larger data sets on them. So, the point gets beaten.

    Hence, my belief is that edtech start-ups must focus on reaching to the correct business model at the earliest possible.

  11. hey priyadeep – just read about byjus – how are they doing?

    http://techcircle.vccircle.com/2016/03/22/ed-tech-startup-byjus-raises-75m-from-sequoia-sofina/

    the founder of myly is also a rodinhooder. i must get him to share his views on this post of yours 🙂

    do you think edtech has started attracting a bit of VC attention recently? it’s not as hot as foodtech was last year, but then, we know what happened there…. 🙁

  12. Asha, true they just raised a lot of money. So, they are making shit load of money already. I may not be a fan of BYJU’s products, but the company knows how to sell. They are the best in the Indian ed-tech space in those terms.

    No, ed-tech has still not picked up, actually according to me. BYJU’s success is their effort & nothing really to do with the sector. 

  13. Udemy is not a MOOC. My company has a number of courses on Udemy and it is probably the best online education platform right now

  14. Not exactly. It deals with MOOCs but is a marketplace where anyone can create courses while others just have MOOCs created by Universities (along with certification)

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