How your Business Model will Impact your EdTech Startup Team Structure

I joined Lalilo as its first employee in April 2017 — and have since worked on all marketing and operations.

For a quick bit of context, Lalilo is building a web-based app that uses A.I and speech recognition to differentiate reading instruction in Kindergarten-2nd grade classrooms. On the student side, students learn through exercises adapted to their individual level and read books out loud so that we can evaluate their progress and their areas of need. On the teacher side, teachers can access a thorough dashboard with data on each student and the ability to assign lessons to reinforce their classroom instruction..

This is the hardest question

As we are trying to figure out what Business Model works best for Lalilo, I am starting to study and learn as much as I can about business models in EdTech — what has been successful and what has not. Here are a few points I can make:

• Publishers have been successful — thanks to a wide range of products offered and powerful salesforces;
• For more recent EdTech Startups, the road is tougher;
• Commercial adoption is an important metric that investors look at because they know it will make a difference in the long run (and because when companies like Edmodo and TenMarks did fail, only few others have succeeded).

I have understood that there was no simple answer to what would be the best Business Model for Lalilo, and that it remains the hardest nut to crack in the Edtech space (as I have heard over and over during investor meetings).

The possibilities are numerous

This article by Esteban Sosnik, partner at Reach Capital, provides a clear summary of the three main Edtech Business Models. Sosnik lists the four main options:

• Freemium (a core part of your product remains free and you charge for additional features);
• Free trial (all of your product is free for a limited amount of time, then you charge fo all of it);
• Consumer (your clients are parents);
• Institutional (sold to large districts);
• Sponsored (free for your users but financed by a third party);

I like to think of the different possibilities Lalilo could consider with a double entry chart:

• Who we are going to charge: parents, teachers (when they have a budget given by the school), schools or districts;
• How we are going to charge them: through a free trial or a freemium model.

Once we have chosen a “cell of the chart” we will have to define two other dimensions: our price point, and our exact offer (premium on which feature or length of the free trial for instance).

What’s also important to consider is that three things have to be aligned at all times: your price point, your business model, and your product. You cannot sell a $2,000 assessment product directly to a teacher. You cannot sell a $10 classroom management app to a district. The industry standards are that if you are selling above $1,000 per class, you will have to have a direct conversation with a member of the administration.

The impact on team structure

What I have found the most interesting in my research is how the business model you choose impacts your team structure. From the information available on Linkedin, I studied the team structures of 4 successful (from a venture capitalist point of view) EdTech Companies: Freckle, ClassDojo, Mystery Science and Flocabulary.

You can find the results of the research here.

Here is what it comes down to:

• If, like Freckle, you choose to grow bottom-up — offering a Freemium to teachers to then upsell features to schools, then get ready to dedicate a lot of your time and funding to a sales team. From what I see on Linkedin, 1/3 of their employees work in sales.
• If, like ClassDojo, you choose to sell to parents — then you’re a Consumer App and your core team will be a product team.
• If, like Mystery Science, you’re offering a year-long free trial to teachers — to then sell yearly licenses below $1,000 — then you’re focusing on Customer Satisfaction.
• Flocabulary appears to be the most balanced out of the four companies . It offers a free trial priced for teachers, as well as a premium offer available for schools and districts , which, in the end, is reflected in a pretty balanced team.

How we are defining our business model

There is no right or wrong answer, and we are considering two dimensions to define the business model which will turn Lalilo into a sustainable company.

• Our own convictions, ethics, and vision. We all work at Lalilo because we want to make a difference in education and in teachers’ lives. If it turned out that most teachers paid Lalilo out of their own pocket, we would stop and consider another way. If we sold directly to districts and were forced onto teachers and saw little usage, we would stop and consider another way. We’re still young enough as a company to shape our own reality, and we will not give it up any time soon.
• Reality checks through constant testing. We are testing exactly what our users are ready to pay for through cold-emails, sales calls, paywalls, newsletters , and many conversations. There is no better reality check than the moment a user has to pull out their credit cards. And we believe that is what will help us make the right sustainable choice.

I would be very happy to connect with fellow EdTech Entrepreneurs who are facing the same challenges :) Hit me up! juliette@lalilo.com