As a co-founder of an edtech startup, SharpScholar, we have learned important edtech business lessons while building the startup over the last two years. Along the way we got to be on Dragons’ Den (aka SharkTank of Canada), interview at Imagine-K12, accepted into the DMZ incubator, won awards, and learned from people at Khan Academy, GoogleX and others.
However, along the way we also made significant mistakes – some of which were irreversible (ouch!).
We are now closing our doors.
This post articulates the learnings from our experiences from operating in the edtech startup space. Furthermore, I have researched and added links to other founders and edtech companies that have learned similar lessons.
- Lesson #1: Have a direct relationship with your customer
- Lesson #2: Don’t Confuse Your Customers, Consumers, and Users
- Lesson #3: Empathy Gap between Teachers & Entrepreneurs
- Lesson #4: Teachers Want to be Thought Leaders – Not Doers
- Lesson #5: Teachers Don’t See Learning and Performance in terms of Data
- Lesson #6 – Teachers are influenced to be FREE Consumers
- Lesson #7: Flaws in early adopters of “customers” in Edtech*
- Lesson #8: Entrepreneurs want to Get to “execution” fast without questioning or “taking the harder (slower) route”
- Lesson #9: Products that Mandate Narrow Pedagogy Will not Achieve Broad Adoption
- Lesson #10: A Great Product that Requires More Work Will Not Get Used
- Lesson #11: Summary: How to Best Serve Teachers (Caution)
- Lesson #12: Understand the Ins-and-Outs of Educational Industry to Survive
- Lesson #13: Schools are Buying Ed-Tech Tools, but then failing to Use Them
- Lesson #14: Summary: Reasons Why You Should Stay in EdTech
- Lesson # 15: No Teachers, Students, or Admins Alike – Even Remotely
- Lesson #16: There is an EdTech Bubble so Don’t Read TechCrunch
- Lesson #17: Educational Technology is Not New – Its Old
- Lesson #18: Most Investors are Betting “Consumer Internet Expectations” to EdTech Market
- Lesson #19: Inexperienced Founders Starting in EdTech with “Aha” Moment
- Lesson #20: Why Schools Don’t Want to Deal with EdTech / Startups
- Lesson #21: Lack of Data and Effectiveness for EdTech Startups
- Lesson #22: Education Is a Cost Problem for Consumers not a Quality
- Lesson #23: The Growth Curve of EdTech does not Equal Internet Companies
- Lesson #24: The Industry is Flooded with “Nice to Have” instead of “Must Have”
- Lesson #25: Summary: Examples of 5 Failed EdTech Startup Companies
- Lesson #26: Simple EdTech* Startups Win (..maybe) – Stravinsky Principle
- Lesson #27: Barely Anyone is Making Money in EdTech
- Lesson #28: There are Four Types of Business Models in the EdTech Field
- Lesson #29: Beware the False-Positives in the EdTech Space
Lesson #1: Have a direct relationship with your customer
Problem: Stakeholders – students, teachers, administration, and the government – are very interdependent for making decisions related to students.
A few examples of this interdependence are:
- Teachers coordinate with colleagues in their department to plan the syllabus for their course. Thus, if you are a business that sells course content (textbook, paid content, education apps etc), you will find yourself trying to convince all of them to purchase your content.
- Policies dictate how much course-related fees can be charged to students. In Canada’s higher-education, the ministry sets a maximum for what can be charged to students. Thus, if you are a business (like SharpScholar or TopHat) that charge students for the cost, you will find yourself either discouraged or limited by such policies.
Our Situation: At SharpScholar we created a highly interdependent product – the purchase of the product depended on approval from students and admin which effectively complicated our relationship with the teacher. This resulted in us having different messaging for students, teachers, and admin as well as lack of focus as to who we are tailoring to.
Solution: For a startup, having a direct relationship with your target customer (teacher, student, or admin) without interdependence from another stakeholder is important for the startup’s success. It gives you
Thus, try to minimize or eliminate layers of approval and interdependence of your edtech product.
Here are some case studies of edtech companies that can expand upon this lesson:
- DonorsChoose – CEO Charles Best “observed that creating a direct link eliminates the layers of approval and bureaucracy“.
TopHat – Co-founders realized it’s “better to sell the application on a subscription basis directly to students” by targeting the professor and charging the students i-e the textbook industry’s sales model.
Note: I still believe TopHat is struggling with Lesson #1 & 2 – just like us.
Lesson #2: Don’t Confuse Your Customers, Consumers, and Users
Even if you have a direct relationship with your “customer”, you may still be in the grey area. Customer, by definition, is someone who pays for the product. Consumer, by definition, is someone who uses the product. Users, by definition, can be a combination of both or an external party that participates in the process.
The toy industry is known to have understood its customer and consumer. They advertise their product to the kinds (consumer) particularly during their favorite cartoons or TV shows. These kids then bug their parents (customers) who then go out and purchase these products for their kids.
The same is true for the candy industry. Even wonder why the candies are stacked from the floor-up besides the payment counter? So your kids (or future kids) can easily grab them!
However, this relationship is not crystal clear in the educational industry. Given the complications of getting money, there are all kinds of startup models – charge students (TopHat & Us), Free for Students and Teachers (way too many to list), and Not-for-profit etc. Other than not-for-profit ventures, I believe the rest (including us) don’t have a viable business model.
Lesson Learned: Beware the complications of scaling a business model that makes the consumer (students) pay while the customer (teacher) enjoys it for free.
Lesson #3: Empathy Gap between Teachers & Entrepreneurs
Many EdTech companies today have a very difficult relationship with their customers – teacher, student, or the admin.
Teachers view their job as empathetic – not companies or entrepreneurs.
If you are trying to get them to adopt a classroom app, they are thinking about the kids who don’t have a phone, first testing it out, or extra work for the students. They want to think on it and make decisions slowly.
Whereas entrepreneurs (despite having empathy or care for education) want to scale fast – meet and exceed sales metrics. This gap is often too much to bear and results in startup failure.
Closing the gap is going to take direct communication with teachers and ensuring they understand the constraints (time and hypothesis testing) of a startup.
Lesson Learned: EdTech entrepreneurs want to learn fast, test, experiment on students / teachers / admin whereas teachers are thinking the impact of another tools that the students will have to learn, will this work, will another SaaS tool help my students?
Case Study: When Ed-Tech Startups Fail
Lesson #4: Teachers Want to be Thought Leaders – Not Doers
Talking about tech and being on the Twitter make teachers look good to administrators and to the public. However, much like politicians, they don’t plan or have the capacity to implement the changes they talk about.*
* This is where we need to be aware of their “empathy gap” (Lesson #3). The change does eventually come but not at a rate where EdTech entrepreneurs can bank on it.
Lesson #5: Teachers Don’t See Learning and Performance in terms of Data
Some teachers simply don’t see learning and performance in terms of “data.” There is still debate regarding the validity of using a numeric grading system to measure learning.
This explains the slow adoption of analytical tools for in-class instruction (partially us).
Lesson #6 – Teachers are influenced to be FREE Consumers
Would you pay for using social media – twitter, facebook, or snapchat? No.
That is the same psychology teachers’ have been primed to think (unfortunately) by the flood of desperate edtech companies. Furthermore, many big guys (Google, GitHub, Microsoft) have freebies or highly discounted products for the teachers.
They do believe that there is such a thing as free lunch for being in education space.
Case Study: Knack – How these lessons took them to the Grave
Lesson #7: Flaws in early adopters of “customers” in Edtech*
* In Higher-Education of Classroom Technology Category (e.g SharpScholar)
Unlike other industries, edtech early adopters should be chosen carefully. Many of them of conflicting agenda – particularly the ones with educational research. They see the tools as an icing on the cake for their research or case study and create noise for the co-founders.
Others are simply not educated enough to know all solutions out there hence they purchase yours (which is a risky sale). The remaining say yes to the same because it is the easiest thing to do instead of going out and searching for a better solution (yes they should even if that means you lose business).
We at SharpScholar struggled to wash ourselves clean of such customers.
Lesson #8: Entrepreneurs want to Get to “execution” fast without questioning or “taking the harder (slower) route”
It’s easier to build novel technology than to deeply engage with students and teachers to understand their fundamental needs. Better yet, try to fight the system in aligning the interests of admin, teachers, and students.
Many edtech business are built over a decade even if they run only a few million dollar in revenue – which is very few entrepreneur’s cup of coffee.
Lesson #9: Products that Mandate Narrow Pedagogy Will not Achieve Broad Adoption
If your product requires behavioral change (SharpScholar does) in how they conduct and view their job – you will not achieve broad adoption.
Lesson #10: A Great Product that Requires More Work Will Not Get Used
We all believe we live very busy lives – teachers actually do.
It does not matter how good your product is (or how much it improves learning) but if it requires more work to be put from the users’ side – good luck because no one wants to do more work.
Lesson #11: Summary: How to Best Serve Teachers (Caution)
Teachers are one of the main drivers of educational process and if your edtech startup wants to deal with them successfully, keep the following in mind;
- Student Adoption – They are the gatekeepers for student adoption. Despite recommendations from the admin, it is them who decide which products to use. However, don’t confuse them to be your customers (Lesson #1-2).
- Each Teacher is Unique – CAUTION: Teachers will give you input into building your product, but only if you respect their opinion and the fact that all students, teachers, and schools are different.
I am not convinced that the above factors provide enough ROI to serve and solve their problems. I would take these more as cautions.
Lesson #12: Understand the Ins-and-Outs of Educational Industry to Survive
Education is unlike any other industry because you are dealing with molding the minds of children, future thinkers and contributors to society.
To make it more complicated, it is a public good. So government, parents (taxes), teachers, and students play a political role in it.
Furthermore, the change or innovation in this industry is highly fragmented. It happens differently in different provinces of US as issues are different. Some people may not even have access to good education while others like in California are focusing on greater outcomes.
Just as education is a long-term pursuit, edtech entrepreneurs should also view the companies they are building as a long-term project.
Lesson #13: Schools are Buying Ed-Tech Tools, but then failing to Use Them
Given the fad and schools wanting to “advertise” that they are innovative, “spend” (not invest) in edtech projects which rarely reach adoption or near success criteria.
Over the two years, I have observed million dollar projects at my school and others that happened at different universities in Canada and US – needless to say the rate of change and the success criteria are depressing.
Lesson #14: Summary: Reasons Why You Should Stay in EdTech
Despite the warnings above, the experience has also taught me what kind of entrepreneurs at fixated on making things work despite all the above mess.
- Passion, Determination, and Patience – I repeat – passion, determination, and patience. You must have a burning passion to crack the educational market, and the determination to commit a decade or more of your life (which maybe all you got) to your startup.
Now you may ask that passion, determination and patience are prerequisites for any startup, so what is different in edtech? Well, education market, has a unique set of challenges that make it a difficult environment for growing a successful company. Some of them include;
- Financial Sustainability – Long and uncertain budge cycles, long and expensive sales cycles, limited to low investor appeal, labor intensive work etc.
- Political Pressures – Mirco and macro pressures that shape the budget decisions and how that puts big companies (not startups) at advantage.
- Lack of Resources for Large-Scale Implementation – Finding yourself stuck without having to become a full-suite solution (Sorry. Google, Microsoft, Apple, and LMSs will eat you alive if you do this).
- Noise and Competition in the Ed-Tech Space – You product by default is “not needed” given how many products have ruined the reputation for technology products.
Change Management – You are in the business of change people and way of doing things that have been rooted in civilization for centuries.
These obstacles mean it can take 3+ years to get the kind of “hockey-stick” growth that sometimes happens on the consumer Internet. On the flip side, once you build a strong relationship with your customers in this market, you can have slow but sticky growth.
Lesson # 15: No Teachers, Students, or Admins Alike – Even Remotely
Proceed with caution when you are trying to build your ideal customer profile – double check against other schools and teachers if this is something they resonate on.
Lesson #16: There is an EdTech Bubble so Don’t Read TechCrunch
There are too many edtech apps – many of them VC backed with little to no revenue (or even signs of it).
There is a bubble. It’s no longer potential, it’s real. Those flatly saying “yes” to the bubble question on stage included Weld North CEO Jonathan Grayer (buyer of two edtech companies in one day this month) and Senior Managing Director Chris Hoehn-Saric of Sterling Partners.
Lesson #17: Educational Technology is Not New – Its Old
Just because iPads in classrooms and Facebook-like software interfaces are the rage doesn’t mean education technology hardware and software didn’t exist pre-2010. If you really want to improve education, do a little homework of your own. Not just back to the days of Oregon Trail, SMART interactive white boards and Renaissance Learning (founded in 1984?)
If your edtech idea is truly transformational, even if there’s a desperate need for it, even if it works as advertised, even if it’s free-free-free, prepare to be pushed on to the curb. As Hoehn-Saric summed up, “When you’re going in to change the system, there’s always hostility – particularly in edtech”
Lesson #18: Most Investors are Betting “Consumer Internet Expectations” to EdTech Market
Their investors have consumer Internet expectations in a market with completely different dynamics;
Investors who don’t understand the education market have unrealistic expectations for these startups.
“I wouldn’t want to back a business that’s selling to public schools or characterized by public financing, unions or government-run institutions. Those institutions are incredibly hostile to change,” said Andreessen Horowitz.
Lesson #19: Inexperienced Founders Starting in EdTech with “Aha” Moment
Many edtech startups (including ourselves) build their product because one of the founders had a particular issue in school and they jumped to the solution without truly understanding the problem or the cause of it (maybe it was just that he was poor at time management).
For instance, a founder might think “I used to forget to my books before class so why don’t I develop a cool app that automatically texts students right before a class to bring their books?” (I won’t be surprised if this exists).
Without knowing the research on how students learn and develop as well as the literature on how technology affects student outcomes, the chances of your startup magically creating student success are almost none. As Om Malik put it for failed edtech venture, Kno – “that startup is ultimately trying to solve a problem that it wanted to solve for itself, not for students and publishers.”
Lesson #20: Why Schools Don’t Want to Deal with EdTech / Startups
When an established edtech company fails, it is a big deal.
- Financial Constraints – Money for a replacement is tied up in an annual budgeting process. IT and technology support roles–already understaffed–need to juggle this emergency alongside their existing responsibilities.
- Teachers and administrators simply do not have extra hours during the school year for technology training.
- Students need to start over with new materials and a new product to learn.
Learn about the culture of academia and help academia learn about the culture of startups. This will help you understand institutional resistance to new technologies in education as well as help you understand how to best approach your new academic partners.
Lesson #21: Lack of Data and Effectiveness for EdTech Startups
Many companies are starting to fall victim to this – lumosity, Duolingo, etc. It is like trying to measure your brain power without a meter?
Higher education faculty and administrators are already distrustful of startups because there is inherent skepticism about for-profit ventures. Ed-Tech companies have little to no data showing that their product does what they say it does. Not a surprise that in their Unleashing the Potential of Educational Technology report the U.S.’s Council of Economic Advisers politely wrote, “It is difficult for producers of these technologies to demonstrate the effectiveness of their products.”
Lesson #22: Education Is a Cost Problem for Consumers not a Quality
Most entrepreneurs in education build the wrong type of business, because entrepreneurs think of education as a quality problem. If I improve learning outcomes or experience, I will reach the land of riches.
The average person thinks of it as a cost problem (paying taxes for school, going to college, taking loans, free education etc).
People who do look at it as a quality problem send their kids to private schools. The average citizen is satisfied with public schools – after all how many parents do you see protesting to improve educational standards? Few or none. They are all busy with work.
Lesson #23: The Growth Curve of EdTech does not Equal Internet Companies
Building an edtech startup does not follow an Internet company’s growth curve. Do it because you want to fix problems in education for the next 20 years. See lessons #13, #8 and #3.
Lesson #24: The Industry is Flooded with “Nice to Have” instead of “Must Have”
Self-explanatory given the rapidly increasing number of edtech startups digging their own graves. See Lesson #24 below.
Lesson #25: Summary: Examples of 5 Failed EdTech Startup Companies
Here’s a rundown of five education startups that didn’t survive (source):
This startup that offered interactive e-textbooks missed going under completely by a nose. In the end, Intel acquired Kno for $15 million —pennies on the dollar, given that the startup raised almost $73.4 million in venture capital and debt. Kno began as Kakai Inc. and lasted four years, during which its tablet flopped as Apple took over the market and its shift in focus to an app-based textbook platform failed to gain traction. The startup was acquired mostly for its intellectual property and employees.
Knack billed itself as “a different kind of online gradebook built on the truth that teachers are short on time and support.” Unfortunately, Knack also found itself short on time and support. It shut down in 2011. According to a blog post by its founder, Knack shut down because it “had a very low number of users for a very long time.” Knack head Jarrod Drysdale wrote that he learned a lot about teachers and education, “including the truth that Knack is not a solution people want.”
This teacher lesson plan and collaboration site failed because, according to its founder, it was treated like a side project and never got the attention or traction it needed. Still, AJ Juliani, writes in a thoughtful post-mortem blog piece that he might have been onto something: “Three months after shutting down … two other companies received multi-million dollar rounds with painstakingly similar ideas. What was worse is how much better they were at executing and shipping than our team was.” Juliani is now the founder and an editor at educationismylife.com.
The online tutoring marketplace got respectable venture capital funding, but in the end it didn’t work out. One problem, according to Pando Daily, was that once the tutor and student found each other, there wasn’t much to stop the two from cutting Tutorspree out of the transaction and depriving the company of its cut (a healthy 50% when the company started out). A final blog post highlights successes the company had but notes that its founders could not “make it the company we wanted.”
This Pearson-backed startup aimed to help students become better prepared for college and at one point claimed 100,000 users. At launch, a Mashable article billed it the “Zynga for learning.” Alleyoop planned to offer online learning exercise and get users to pay for extra exercises using virtual currency — online currency that was, of course, purchased with cold hard cash— not unlike the way Zynga’s Facebook games charge for upgrades.
Lesson #26: Simple EdTech* Startups Win (..maybe) – Stravinsky Principle
*Note: They are not really “EdTech” startups they are just simple technology solutions to serve a need. Remind101 is essentially whatsapp for students and teachers. This raises an interesting debate – are we overcomplicating “EdTech” with things like adaptive learning etc?
Now, let’s observe some of the startups (still searching for sustainable business models) that are showing signs of adoption (not profitability).
- Edmodo – The lesson plan and homework sharing site has 32 million users.
- ClassDojo – The positive behavior rewards feedback site — which essentially allows teachers to give students virtual gold stars — has 20 million registered users.
- Remind101 – a service that helps teachers send text messages to students and parents (but doesn’t allow minors to reply to their teachers), has 10 million teachers.
- StudyBlue – which helps students quiz themselves on class material by making flash cards that they can access from their phones, has 5 million.
What do these services have in common? They all start out free, go straight to the user AND..
And they are all relatively simple technology (with little to do with EdTech).
Even some of the thought leaders in edtech think likewise – “I think it’s fair to say that there’s a whole lot of incremental innovation going on, and not all that much radical stuff,” said Geoff Ralston, who runs Imagine K12.
Lesson #27: Barely Anyone is Making Money in EdTech
- 2U’s Income Statement in Millions USD
Lesson #28: There are Four Types of Business Models in the EdTech Field
If the whole field is examined, almost all companies can be categorized under the following four buckets.
Simplicity Play (Fremium Adoption)
Enterprise Play (B2B Sale)
Niche Teaching Applications (Authority Sell)
Blue Ocean Play
- 2U, Audacity, Udemy etc.
For More Details on Types of Business Models in EdTech checkout “Overview of EdTech Business Models”
Each category requires you to have access to certain key resources. Pick your battles carefully.
Lesson #29: Beware the False-Positives in the EdTech Space
“Way to go SharpScholar Team! This is a much needed tool for teachers and students!”, said the Dean of a school that we were talking to. Such sayins were almost everyday occurrences for us.
However, here is the downside of such ego-boosting false-positives.
- They give a sense of hope or validation to the founders (i-e false-positives)
- It could be another way of teachers saying this is not for me or I do not want to change my teaching habits
Lesson Learned: Ignore compliments or remarks from anyone expect your customer (who uses and pays for your product).
Note: I will continue to reflect and collect my learnings here. I do appreciate any comments challenging, criticizing, or adding onto my lessons learned.