Three lessons from trying to start a low-cost school in Ethiopia

There is a lot of debate these days on low-cost schools. The Economist recently had a cover-feature on affordable private schools emphatically statingPrivate schools are booming in poor countries. Governments should either help them or get out of their way”. This in turn has generated a lot of points and counterpoints[1, 2]. This might be the right time to add my 2 cents to the low-cost schooling debate.

Back in Feb 2014, we started researching and unraveling root causes for Ethiopia’s very low literacy rates and poor learning outcomes, predominantly at the Primary and early grade levels. The findings from this research eventually gave rise to the Leap Academy concept.

Although Ethiopia boasts one of the highest school enrollment rates (83%) in sub-Saharan Arica, it ranks among the lowest in the world in overall literacy. Despite tremendous progress made in the last few years, student dropout is still very high. Within the country, the Addis Ababa region ranks highest on all schooling indicators, yet less than 14.5% of all Grade 2 students can read at the international benchmark level.

The root-causes for this low literacy rate are many. Teachers are not trained very well and there is a very high turnover in staff at most schools. There is major under-supply of learning materials and due to a highly regulated and closed-market, schools, families and students cannot access very common teaching kits, books and other learning aids that are widely available in many other countries in Africa. The “free” public schools cannot compete on quality of education with the few private schools. And among the few private schools, very few offer quality education comparable with international standards. These very few private schools offer high quality education at a very high cost and are concentrated in highly urbanized areas. Consequently, majority of lower-income households are excluded from access to quality education at an affordable cost.

Leap Academy’s goal was to address many of these root causes to improve access to affordable, high-quality basic education. We planned to achieve this through a scalable model by setting up our own learning centers underpinned by a strong curriculum that will be curated from international, open source resources with necessary customizations made to fit within the Ethiopian context.

This concept was appealing not only to us, but also to other proponents of affordable private schooling (APS) and soon we were selected as finalists for a US-based social-enterprise competition and were also selected for the prestigious Edupreneurs Africa programme by PALF/Village Capital and are in the “philanthropy investments” pipeline for HNWI clients of Credit Suisse. This external validation gave us the motivational fire to push ahead and to make the Leap concept a reality.

“Life is what happens to you while you’re busy making other plans” — John Lennon

Fast forward one year and the original Leap Academy concept has since metamorphosed into AcceleratED. So why did we drop Leap Academy?

Customer development:

We did conduct a ton of market research. We spoke with teachers, with school administrators, with private schools and with public schools. We engaged with parents to understand their frustrations. We came up with a list of problems schools currently face and developed a list of “innovations” or solutions that could be deployed within our school chain.

We built strategies for mitigating teacher turnover, strategies for ensuring consistent content delivery, strategies for boosting student enrolments, strategies for reducing overheads, strategies for fee payments schedules and strategies for site selections. While all the data we collected validated our hypothesis and all the strategies we developed stemmed from deep customer engagement and awareness, what we didn’t anticipate was this: doing business in Ethiopia.

Doing Business in Ethiopia:

One investor we spoke with in our early days scoffed at the idea of “private-sector enterprise” in Ethiopia. Having spent three years in Ethiopia supporting various agro-industrial businesses, I did know that the business climate in Ethiopia left a lot to be desired — but I have always strongly believed (still do) that with the right partners and the right approach, many of these bureaucratic hurdles could be managed. Bureaucracy was the least of Leap Academy’s problems.

Involvement of foreign nationals in primary education is a grey area — some say you cannot do it and many others say it can be done — through joint ventures, through complicated franchisee setups, etc. But clarifications from different government agencies and legal advisors was confusing and not always consistent. But this was not even our major problem — we finally found a way this could be done. Repatriation of profits is always a tricky area — but we didn’t worry too much as we were focused on domestic growth rather than profits in foreign currency.

If there was one reason why Leap Academy didn’t go forward — this would be it: real estate in Addis is an absolute nightmare. We were exploring peri-urban Addis in areas like Ayat and Summit where new mega-housing projects are sprouting up everyday under the assumption that these emerging areas would be significantly cheaper than prime areas in the urban core. Wrong. False. Mistaken. And completely off-target.

Prices we were quoted were completely ridiculous and would mess up our cost-structures so bad that we could not call ourself a low-cost school with a straight face. Building owners would immediately charge three times the original price when we mentioned we would be using the premises to run a school and wouldn’t be open to negotiate. My team and I scouted around 15 places all across Addis and probably had a short list of 1–2 premises that we could have signed up. We could have started Leap if we really wanted — but after having seen the difficulty that we had to go through to set up our first school, I didn’t want to get into this every time we wanted to expand or when the landlord decides to kick us out of our leased premises on a whim.

Lessons Learned:

Lesson 1: The devil is in the details and the details are a million.

Customer development and market research will help us define strategy and implementation to a certain extent; but deep understanding of the “invisible” parts of implementation like signing lease agreements, hiring employees and securing the buy-in of a low level kebele official look very simple on a business plan but can almost certainly derail the project if not managed well and on time.

Lesson 2: Pursue initial traction solving an easy problem and gradually integrate the harder ones

There are MVPs (minimum viable products) and then there are MVPs. Defining the “minimum” is the million-dollar challenge.

Leap Academy was trying to solve 3 problems at once: access, quality and affordability. Any solution that can solve all these three problems while being financially sustainable would be the holy grail of Education. There are many school chains that claim they solve these three issues and more. But that is a conversation that I can best let Prachi Srivastava debate.

A lot of startup advise revolves around picking and setting “big-hairy-audacious-goals”. That would make sense in a Silicon Valley setup or maybe Estonia where starting up businesses is as easy as buying barbecue sauce online. Starting a business, any business in a country like Ethiopia is “big-hairy-audacious” enough that we do not need to make our lives more difficult by trying to solve too many problems at once.

With Accelerated, we are moving away from an infrastructure business investing in premises, furniture, equipment, etc. to an “intellectual” business purely focused on building tools and services that solve critical pain-points for our partner schools.

Lesson 3: Focus on Scalability from the beginning and build your risk-analysis matrix for both startup and for scale.

Paul Graham famously advises startups to do things that don’t scale. I am a big-fan of PG and his essays and a lot of what he mentions makes sense for a tech startup. Doing things that don’t scale will help you acquire your early adopters, better understand the intricacies of your business model and to get initial traction. And most importantly, all the things that one does that can’t scale can later be automated with algorithms or outsourced to mechanical-turks.

Whereas, in a non-tech context where most social enterprises operate, scaleability is most important from day-one. If the local real-estate market necessitates spending 3–5 months selecting and negotiating lease agreements, this is definitely not scalable in the long run when you want to expand your business 3X or so year on year.

Going forward:

Is there a need for a private-school chain in Addis?

There are 1671 private schools in Addis Ababa alone — this fragmented market is ripe for consolidation. Some schools need to die, some need to merge and some need to grow. There are multiple inefficiencies in today’s schools that a school-chain could leverage economies of scale for consistent delivery of quality content. Without a doubt there is enough latent demand for affordable, quality options and parents need cheaper schooling options. I still get calls from parents we interviewed about a year ago for our market surveys asking us when and where we will start our first school.

For an affordable school-chain to flourish and to be sustainable there are a lot of preconditions to be met — investor confidence, government support, focus on learning impact and clear definitions of affordability and more.