Ed-Tech Isn’t for Wimps: Noodle’s Katzman on Building a Winner

2/20/13Follow @curtwoodward

Technology entrepreneurs are increasingly turning their sights on education, with visions of liberating knowledge from the textbook publishing cabals and driving down the costs that lead to heavy student loan debt.

That’s a good thing. But just like any other sector drawing a lot of startup interest, there’s starting to be plenty of dreck in ed-tech, says John Katzman, a longtime education entrepreneur.

“There are an awful lot of crappy startups in the education space right now, and people building features and thinking that they’re companies,” Katzman says. “The real opportunities, I think, are larger than that.”

Katzman, the founder and chairman of New York-based online education search company Noodle Education, was certainly in the right place to be discussing this topic—if education entrepreneurship is heating up, Boston is already one of the major hotspots.

As the country’s leading center for higher ed, and a place with plenty of entrepreneurs, the focus on education innovation makes sense in the Boston region. The scene here already includes everything from startups (like PeerTransfer and TenMarks) to accelerator programs (LearnLaunchX) and collaborations by the education establishment (MIT and Harvard’s edX).

Katzman knows a thing or two about education innovation. He founded and for many years ran the Princeton Review, a test-preparation company; he also founded 2U, a company that partners with universities to put degree programs online. Noodle Education, Katzman’s latest ed-tech venture, aims to be a one-stop specialty search engine for all things education—schools, courses, tutors, you name it.

At a Tuesday evening discussion organized by the New England Venture Capital Association, Katzman outlined some big goals that can still be tackled by entrepreneurs in ed-tech—including some big ideas he wouldn’t mind financing himself.

He also laid out the case against taking an ed-tech company public, explained why venture investors might not be ready to bankroll most companies in the sector, and gave a preview of where he thinks higher education is headed in the next decade.

For colleges and universities around the country, Katzman says, the future is going to look a lot different. At the top tiers of higher ed, “One or two programs will be larger and online. And the rest of them will be boutiques and live on, because they have huge endowments,” Katzman says.

The consolidation and specialization will be much more rampant in the middle and lower tiers, he says, in the same way the Internet and powerful networks have smashed through the old models in travel, bookselling, music, and “all of the information industries.”

“Overall, more kids will go to college. There will just be fewer colleges,” Katzman says.

That framework gives entrepreneurs plenty of things to target. As Katzman and company did with 2U (formerly known as 2Tor), he says there’s big opportunities in helping universities move online.

Katzman

Katzman also says there’s a big opening in helping create good education content—the fuel for a new breed of teacher, who will be able to select individual pieces from a wide array of (hopefully) high-quality lessons and ideas.

“Why is there one Khan Academy when there should be hundreds of people creating good content—both for consumers and for schools?” Katzman asked.

The K-12 world also is ripe for change, and will see plenty, Katzman says. The landscape there is a bit more complicated, of course, because the administration, funding, and policy oversight is so much more spread out over local communities.

One big idea for a company “that I’d love to fund,” Katzman says, targets ways to improve the teacher evaluation systems being contemplated as part of the latest round of national education reforms.

The way those evaluations are presently being built, he says, doesn’t really work. And a big part of that is because the people with the real valuable data about how to run a good classroom—the teachers themselves—aren’t getting help turning those insights into great, software-based tools that can help their peers make improvements.

It shouldn’t be a surprise that this isn’t happening, Katzman says: “Data is only used, exclusively, to fire them. You’re asking people who the gun is pointing at to design the gun.”

If the equation was flipped, and administrators had leeway to more easily fire the one or two worst-performing teachers, the good quality teachers could be an invaluable source of data about how classrooms perform, he says.

There are still plenty of complications for would-be education entrepreneurs, Katzman says. And the money people are a big part of that.

Traditional venture investors are still getting acclimated to the different dynamics in the education sector, he says—companies in the industry will take a longer time to develop, and their sale opportunities are typically going to be smaller than a blockbuster consumer Internet play, Katzman says.

That means entrepreneurs have to find the right VCs if they are looking for institutional investment, and also have to target people early in their funds, who might not mind waiting out a long-developing education bet.

The public markets also aren’t the best place for an education company, Katzman says, because the scrutiny is just too intense. On one hand, you have the education establishment that is very skeptical of attempts to change its model. On the other are Wall Street analysts who, if they’re doing their jobs right, will attempt to ferret out any weaknesses in a company’s product or business model.

“That tension of doing your business in total transparency, with a built-in jeering section, I think is headwind for any education company,” he says.

But those caveats shouldn’t necessarily scare off all education entrepreneurs and investors—Katzman says it’s still “a target-rich environment.”

“The people you’re competing with are either idiots, or … are going through their day with handcuffs on,” he says. “There is good business to be had here, and good social good to be had here. It’s just with some limitations.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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