Why Do EdTech Startups Fail?

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.

Who am I?

I run an Edtech startup called GyanLab.com which has been working since 2011 in the K-12 space to build exciting products that make learning more engaging & fun for students. Our current efforts are focused on building an adaptive learningplatform for K-10 students that personalizes learning to makes it more fun & engaging.

(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)