What really sinks many edtech startups
As a 15-year startup operator turned impact investor in education, I deeply respect the challenges that entrepreneurs face in growing and scaling their edtech startups. The odds of succeeding are long and the work is hard, but great entrepreneurs find a way to persevere. That being said, more startups fail than succeed for a number of different reasons.
Over the years, I’ve heard many explanations for why startups fail. They include failure to listen to customer feedback, lack of understanding about the market, shortage of the right skills on the founding team, ignoring cash burn, poor leadership, and lack of capital. While these all have their place in the annals of shipwrecked startups, they fall short of explaining the other important reasons so many edtech startups fail.
Here are four often-overlooked reasons why edtech startups fail.
- The product is a “nice-to-have,” not a “must-have.”
Education is a tough business. There are a lot of competing interests and funding is often in short supply. Entrepreneurs often hear, “I’m interested in what you’re doing,” or “I like it” from prospective buyers who take up valuable sales time but don’t end up purchasing. This is often a sign of a “nice-to-have,” not a “must-have” product.
It’s important to keep in mind that most school leaders only have the capacity to focus on a few top priorities at a time. They’re asked to do well more than they have time to do in a day. If a product doesn’t help them address one of those top priorities in a meaningful way, no matter how much the buyer may like the product, it’s not going to result in a purchase. Unfortunately, most schools don’t have time for luxuries that don’t address a critical need. To avoid this, figure out how to address a top priority for the buyer.
- Differentiation is incremental, not game-changing.
As more and more edtech products enter the market, it’s harder and harder to stand out from the crowd. As a buyer, it’s often difficult to find products with clear differentiation when there’s so much to choose from. For example, how does a buyer make sense of hundreds of different options for tutoring when they have a lot in common? Systems like LearnPlatform are designed to help buyers solve this problem, but it’s a complex one. There are no silver bullets when it comes to differentiation. The more crowded a market is, the more difficult it is to carve out something unique.
When lots of smart people chase an opportunity, the product offerings look more similar than different. Look for underserved or overlooked segments of a market to find more opportunity for differentiation. In general, the fewer the number of entrepreneurs tackling a problem, the easier it will be to create a game-changing offering.
- Failure to tap a reliable revenue stream.
Education businesses take time to build, so entrepreneurs need to be able to tap funding streams that are dependable for years to come. Without a reliable source, such as Title funds, startups will struggle to be a part of a school or district budget year after year.
- A good, productive channel is hard to find.
A good, productive channel is such a critical thing to find in a startup. I would wager that this is the one of the top reasons so many edtech startups end up in the boneyard. To avoid shipwreck, entrepreneurs must find a productive channel that’s reachable with good unit economics. In the early days of a startup, it’s appropriate to experiment with multiple channels to learn about what works and what doesn’t, but a successful channel needs to be identified before the money runs out. In a tougher fundraising environment, there’s greater urgency to find a successful channel more quickly. Remember that customers don’t just come to a product just because it’s good — entrepreneurs have to make distribution happen and it’s harder than it looks.
If you address these issues early, you’ve got a better chance to overcome them and build a successful edtech startup. I’d welcome thoughts you have on the challenges facing your startup. Are there other reasons I’ve missed? Why else have you seen edtech startups fail?