Advice to Every New Education Technology Entrepreneur in India
About twice a week I receive a request to advise, invest, or utilize the services of a new ed-tech company. Given my desire to aid entrepreneurs and promote innovation in the field, this usually leads to interesting conversations on the strategy and the future of the business. I realized I seemed to be repeating myself and offering the same advice over and over. Thus, I thought it might be interesting to pen down the broad strokes I wish every entrepreneur considered before entering this space.
More often than not my advice is to exit the space and pivot to another industry, geography, or customer base.
The Market Is Not as Big as You Think:
a) Institutional Market: There are about a thousand schools and colleges in the country that will be able to absorb any type of semi-sophisticated product. Most of them are under constant assault from regulators to cut their fees, which restricts their ability to innovate and derive top-line benefits from implementing technology. They also are being pitched by technology companies every week or month that promise the world but fail to deliver on those promises. On average, most of these institutions are willing to pay up to twenty thousand in US dollars (a generous assumption) per year across a wide variety of products and services, which leads to a total effective market size of about twenty million per year in US dollars.
b) Individual Consumer Market: If you run the numbers, you will find there are less than ten million households (thirty-five million people) with the discretionary income to buy educational products beyond the basics. These are the households that can afford to spend more than thirty-seven US dollars a month after base spending on food, shelter, FMCG, consumer durables, basic education, and basic healthcare is met. Competing with everything from eating out to entertainment — although a priority in India — this still leaves a very small market for education products and services. Even assuming a generous 25 percent of education spends from discretionary expenditures, this leads to something like a per-year market of 1.11 billion in US dollars (10 * 37 * 25% = 92.5 million per month). This is for all education products across all categories and ages. Also, Indians generally don’t like paying for apps and online services.
c) Corporate Market: There are about twenty-seven thousand companies in India, including private and public, with paid-up capital of more than one million in US dollars. Although the need for retraining incoming employees is high, as well as the need for skills development, most companies do not have the large training budgets that exist in more developed countries. Most estimates put total spending on training at 1 to 2 percent of employee costs across the board, although in certain sectors this is much more. The average industry size in India is considered to be around 1–1.5 billion in US dollars, depending on the source of information.
KEY ADVICE: Pivot to the international market as soon as possible. India simply does not have the size and scale needed to support a large number of players.
Actually Know Education and What Is Needed: I see this a fallacy of not only entrepreneurs but also policy makers — I went to school, my parents went to school, my kids are going to school so I know and can revolutionize education. Unfortunately, you and everyone else. The pain points for educators, especially those in a decision-making capacity, have more to do with revenue, quality measurements, and regulatory than what goes on in the classroom. Beyond a few enlightened administrators, most products fail to address the issues and concerns of the majority and end up being more of a “glamor” add-on than something essentially game changing. On the teaching end, entrepreneurs are more in love with the technology rather than how it seamlessly fits into the classroom — and into the business model of how a school or college is actually run.
KEY ADVICE: Get someone who has actually worked as an administrator and teacher to properly go through the idea and the value-added service. They should ideally be part of your core team.
Differentiated Products and Business Models are Rare: If I had a penny for every new LMS (MOOC enabled!), ERP, testing, measurement, and video solution that came across my desk, I would be a good deal richer. On the other end, education market places, online tuitions and videos, and board exam and IIT preparation courses litter the consumer space. By 2016, everyone has tossed their hat into the arena and seemingly doing the same thing as everyone else. Everyone has already done the it-only-costs-x-per-student-or-per-person model. Very few truly are able to provide a differentiated product or a business model that actually is disruptive.
KEY ADVICE: Find a true differentiator. A marginally better price, better design, easer, faster, etc. is not enough to get people to adopt and switch. Copying things that are done internationally and doing them in India is not a differentiated product.
Set Aside Stock for Key Customers and Opinion Leaders: Instead of charging initial customers to pay for the early product or service, get them to invest (even a token amount) and partner with them on product development and testing. This is one of the best tactics that successful companies employ. As an investor, a customer is far more likely to be forgiving of early faults in product and service and willing to offer valuable feedback for improvement. Once involved in your venture’s journey, they are extremely likely to pick up the phone as a reference point and help you in acquiring future customers and contacts. We are always happy to work with great entrepreneurs to flesh out their ideas and provide them with immediate scale.
KEY ADVICE: Instead of wasting stock on founders whose roles can be outsourced, keep a chunk of stock for “founder customers” who can assist you with refining the product and service — and serve as an anchor and reference point for future customers.
Early Wins Do Not Scale: There are about fifty to sixty schools and colleges that are early adopters (we are as well). Similarly, there are from one hundred to two hundred companies that are early adopters. Almost all start-ups seem to have the same fifty to sixty clients when they begin but suddenly find that expanding their customers beyond that list is extremely difficult. The sales cycle for business-to-business sales are notoriously long, require extensive founder intervention, and decision making is slow. In the consumer space something new and exciting receives a lot of initial volumes (read free content/courses) but then dips after the ten-thousand mark, and has extremely low conversion rates for paid content (1 to 3 percent). Customer acquisition costs are phenomenally high even for well-established, long-term players with marketing costs exceeding 50 percent of revenue. Many start-ups excited by early wins and numbers project a huge growth that simply does not materialize.
KEY ADVICE: Recognize that until you have at least hundred-plus corporate and institutional clients, or ten thousand PAID users, you do not have a clear picture of the actual growth trajectory and scalability of the model. Assume huge marketing costs for customer acquisition and scale-up in the business model.
Understand the Regulatory Framework: Most entrepreneurs are shocked to learn post-product launches that the government restricts fee increases to 10 percent (including your product and service) every year for formal education in many jurisdictions, or that fee committees scrutinize expenses, or that syllabus content and in-person contact hours are heavily controlled and regulated by affiliating bodies. Educators spend more time dealing with regulatory issues than on administration or teaching. Without understanding the regulations, entrepreneurs find they are unable to move their products into the institutional spaces. For industry, they do not link with existing skilling programs, or run afoul of regulations by the government that control what can be offered to whom by whom — certificate, diploma, degree, and such.
KEY ADVICE: Understand the regulatory environment, and tailor the product and service to seamlessly fit into the existing education system rather than asking clients to “revolutionize education.”
Choose The Right Underlining Technology Platform: If you are not using cloud computing (read Amazon AWS) from the get-go to power technology basics, you should not receive funding. The success of “tech” in ed-tech is really dependent upon selecting a scalable platform on which to build the company. Many start-ups wind up making common errors, including using off-the-shelf proprietary systems or platforms with lock-ins, only to realize once they pivot or scale that their technology stack is either unable or has become prohibitively expensive. Spending time to find the right underlining technology, both for the product and service side in addition to the business side, will save a lot of grief down the road.
KEY ADVICE:
Make sure the platform you choose can scale quickly, and there is in place an extremely healthy ecosystem that includes the necessary support and talent. Avoid proprietary development platforms as much as possible.
Thrice Burned, Now Super Shy — Interoperability is Essential: The landscape is littered with failed start-ups that persuaded administrators and HR heads to deploy their systems at great expense, including time and energy, only to fold within a few years. Companies are extremely wary of trusting new start-ups unless they are well funded and will be there for the long run, and thus are very afraid of lock-in. They have probably already invested in existing systems that may or may not be supported by the existing vendors. Adherence to standards — and interoperability — is absolutely key. Data being able to connect to and move with existing systems, as well as conform to industry standards (such as SCORM), has become a requirement. Entrepreneurs can no longer get away with proprietary closed-door systems that lock in customers and don’t play well with competitor products.
KEY ADVICE: Your product should conform to open data standards and industry learning standards out of the box. If it truly brings great value it should not be afraid of being part of an ecosystem of products and services.
Don’t Have More Than 3 Founders, and Vest Them: This is a general rule that I suggest to all new companies. I see plenty of ventures with six or more founders. Usually there are two or three real founders; the other three are friends along for the ride who don’t really add that much value. Once the company stock is split equally between everyone — it should not be, but usually is — there simply isn’t enough upside left to make the journey worth it monetarily. Without vesting it is almost certain that two or more founders will drop out or get fired within the first year, or after the first pivot, and keep a large chunk of stock without having earned it. With a small market, successful firms end up being more lifestyle small and medium businesses rather that true tech start-ups that really scale and can absorb a large number of initial shareholders and multiple rounds of valuations.
KEY ADVICE: Keep core founders to a minimum, with each bringing a unique value proposition. Vesting over three to five years is absolutely key to preserving the interests of those there for the long run. Additional people should be given stock as part of their negotiated compensation packages and job descriptions — and not for simply showing up.
Focus on a Key Value Proposition: Most companies try and do it all rather than focus on a key product and service. This usually occurs when they hit the market and realize they need to pivot, but instead of doing a complete pivot they add product lines and services to expand users and clients. This only leads to a drop in quality and differentiation across the board and a waste of critical management time and company resources. This happens easily in the education space, as entrepreneurs haven’t truly appreciated the difficulties the market presents and then panic.
KEY ADVICE: If you need to pivot, then pivot completely. Don’t try and run products and services that are not gaining traction, working in the hope that they will somehow be fixed or revived. Multiple pivots are fine and are well understood by most sophisticated investors.
Don’t Outsource the Tech Team: This is perhaps the biggest mistake most ed-tech start-ups make — they hire outside agencies to provide them with the programming expertise. Almost all of these outsource projects fail, and the start-ups are left hanging with strange and inefficient code they don’t know what to do with. It is extremely important to have the core technical and programming team in-house, with only select outsourcing of one-time, high-value needs such as UX design or cloud architecture.
KEY ADVICE: If you cannot attract and secure high-quality programming and technical talent, don’t do the start-up. There are hundreds of people with your idea in their heads — execution is the key — and that cannot be outsourced.
Spend Time on Great Design and Design Think: In 2016, great design is no longer a value add or a differentiator — it is a base requirement. Most start-ups have not even applied basic UX design principles on navigation, page loads, and color schematics. Often poor design, cliché copy, and endless stock photographs make one ed-tech start-up indistinguishable from another. Further, most start-ups fail to learn design-think methods and apply them to their products and services. This results in failures and troubles that could have easily been avoided, expending time, energy, and money they cannot afford.
KEY ADVICE: Pay attention to great design from the get-go. Learn the design-think approach and apply it to the entire company — not just the products and services.
Do Not Depend on the Government for Contracts: There is an entire cottage industry devoted to following around government contracts in the education space. Each state has its own list of companies that have perfected the art of securing these contracts. It is an incredibly hard market to enter, requiring a certain ethical flexibility and insider knowledge that is hard to come by. Even if you have an “in” the government decision making and procurement system can take months, if not years, and wait times to get paid for work done can be as long if not longer. Many companies have gone bankrupt with sky-high revenues and corresponding accounts receivable that never quite materialized.
KEY ADVICE: Government work is a specialty industry in its own right. You need a lot of grit, patience, connections, and ethical flexibility to be able to succeed in this market. If the government is a target customer, then your start-up needs to have a dedicated team and financial structure.
Differentiate Between an Ed-Tech Start-up and an Ed-Life-Style Business: There is a lot of scope for consultants and small service providers in the space. If your product and service offering fits into this, then it is perfectly fine. Many people can establish a small to medium business earning a few million dollars in turnover a year, along with a strong client list providing technology services; however, a few million dollars a year with a few clients a proper tech start-up does not make. It is more like a traditional business, which can be incredibly satisfying and right for many entrepreneurs. Distinguishing the two is important, as labeling a business a technology start-up usually implies extremely high growth rates, large markets, and huge revenue potentials. Investors are looking at multiple returns on their investment.
KEY ADVICE: If your business model looks like a traditional business, then own that label and operate along those lines. Get partners, employees, and investors who are onboard with that vision.
Ed-tech is a space with extremely high competition, and seemingly low barriers to entry. Many a passionate entrepreneur has entered only to exit after a few months or years after burning through their own, their family’s, or their investor’s cash.
There are probably another dozen or so minor points of advice, but if an entrepreneur has covered these main bases, he or she has a great shot at success in this sector. There are huge opportunities here for true innovation and disruption, but these require an extremely differentiated product and service model — and brilliant execution.
