GlobalScholar’s Kal Raman, Fresh Off $160M Deal, Seeks to Build an Oracle for K-12 Schools

12/20/10Follow @xconomy

Kal Raman has one of those classic poor-boy-makes-good life stories. He was born and raised in a village in India, hungry, with no electricity, no running water. The poor boy grew up to make a small fortune in the executive ranks in the U.S. at companies like Wal-Mart, drugstore.com, and Seattle-based Amazon.

Now Raman, a fast-talking entrepreneur, put himself in a position to not just make more money, but to shake up the market for K-12 education software in such a way that he hopes will help more kids like him climb out of poverty. So he started on a journey about seven years ago that led him to make headlines last week—when he sold his latest company, Bellevue, WA-based GlobalScholar, to a worldwide holding company for up to $160 million.

“It was about seven years ago, and I was financially independent,” Raman says, describing the beginnings of GlobalScholar. “I did some due diligence on my own life. It’s good to do that every once in a while. I realized the game changing thing in my life was education.”

The big idea at GlobalScholar, from when it got started in October 2006, was to help make schools function more efficiently through information technology. He learned when he really started sizing up the K-12 educational software market that it was huge—with a global value of about $7.5 billion a year. The problem was that there were, and still are, hundreds of different proprietary software offerings for hundreds of different narrow niche products that schools use—online gradebooks, programs that evaluate teacher performance, and longitudinal data collection that tracks how a student progresses over time. The average school bought stuff from 14 different software vendors. Those programs don’t work together seamlessly, and school IT staff really can’t stitch them together in a coherent way.

“I learned that education as a sector is about 20 years behind retail and finance in use of technology,” Raman says. “There are thousands of problems technology could solve, but aren’t being solved.”

Kal Raman

Kal Raman

One way to attack this inefficiency was to create a soup-to-nuts software offering for schools. Done right, it could free up teachers to spend more time teaching and less time bookkeeping, and administrators to spend more time administrating. This idea drew early backing from Michael Milken and Raman’s old boss at drugstore.com, Peter Neupert, along with Bellevue, WA-based Ignition Partners.

Raman ended up raising about $50 million, making four acquisitions, building a company with 330 employees, and putting together 5 million lines of code. GlobalScholar, which M&F New York-based M&F Worldwide (NYSE: MNF) agreed to acquire last week, has a product that is used to help track the performance of about 5 million students in 1,000 U.S. school districts, after less than three years on the market. If it goes on to capture about one-fourth of the market—with software for tracking 52 to 55 million U.S. students—then it could generate several billion dollars in revenue per year, Raman says.

The impact on society is no small thing, given the constant drumbeat of news about how dysfunctional the U.S. education system is, and how much better kids in countries like China and India are performing. During a time when schools are under increasing pressure to improve on standardized test scores, GlobalScholar intends to give teachers, parents, and administrators the kind of IT that financial firms and large companies use that helps them make better decisions.

“I want this to be the largest digital education repository in the world,” Raman says.

Raman was so passionate about telling me this story last week that I literally had to hold the phone a couple inches away from my ear. When I asked him to start telling the story from the very beginning, he started by briefly describing his childhood.

Raman’s dad died when he was 15, which certainly didn’t help for a family already living in poor conditions. He credits much of his success to his mother, who insisted that he always go to school. Raman figures he benefitted from the value his mother placed on education, along with “dumb luck, God’s grace, and being in the right place at right time.”

He studied engineering at Anna University in India, and worked his way into the technology industry in 1991 at Wal-Mart. He climbed up the ranks at Wal-Mart in IT, then, during the tech boom, joined drugstore.com in 1998 as chief technology officer. Three years later, he was promoted to CEO, replacing founding CEO Peter Neupert. Raman stayed in that job three more years, then did a couple year stint as a senior vice president at Amazon, before doing, as he says, “due diligence” on his own life.

All this left him comfortable financially. After leaving Amazon, he went back to India for a while, and started working hard on giving back to his community—and in a big way. Raman admittedly speaks fast and has a pretty strong Indian accent, so I made sure he repeated what he said next to make sure I understood. He said he adopted 2,000 kids in and around the village where he grew up, and built five schools. By adopting, he means essentially paying for room and board for a lot of orphans. He didn’t say how much this is costing him, but he made it sound like it’s not very expensive to him. He comes from a part of India where he estimates that 99 percent of his classmates growing up are still only making about $200 a month.

“I can’t take any money with me when I die, so no big deal,” Raman says.

This entrepreneurial push for education in poor parts of India caught the eye of Michael Milken, Raman says. The onetime kind of junk bonds recruited Raman for two years to do an education startup. Raman figured it was his passion, and he was young enough that he would do one more startup in his life, over the next 10 to 20 years. “The purpose was to use technology to make high quality education affordable and accessible,” Raman says.

Easier said than done, of course. Raman spent six months “running around,” he says, talking to teachers, school administrators, nonprofits, foundations, and companies, each with their own perspective on what’s wrong or what’s missing in education.

If he could find a way to eliminate the waste that he saw in this classic Tower-of-Babel software integration problem, he could save about 30 days a year of teacher time that could be redirected from paperwork to more productive “teacherwork.” And by tracking student performance in a more integrated fashion, teachers and administrators can quickly spot a student who’s falling behind and act on the data to help turn things around. “That became our value proposition,” Raman says.

It might sound great, but the reality is that budgets at schools are tight, especially for something that costs about $40 a student, and which does a lot of things a school is already supposed to do. It wasn’t easy to get started with, either, as GlobalScholar’s software required customers to migrate all their data from an existing system over to a new thing. Suffice it to say, it didn’t catch on overnight.

“The marketing challenges are phenomenal,” Raman says. “I had patient and passionate investors. I convinced them we wouldn’t do this by marketing. We would do it by building a great product, great customer experience, and let word of mouth take off.”

GlobalScholar’s sales, which he didn’t disclose, roughly doubled this year compared to the prior year, with what he calls “no marketing.” He says he’s not really up against any direct competitor, although, when pressed, Raman named Pearson (NYSE: PSO), the New York-based textbook publishing giant, as one threat to his company.

Raman plans to stay in Seattle, keep his team around him, and work within his new owner. M&F Worldwide, which oversees an Eagan, MN-based unit called Scantron, made sense as an acquirer because it has a global sales and marketing network with an intricate web of relationships with school districts. Scantron has what he calls an “excellent strategy” in selling and maintaining hardware in school districts like printers and scanners, as well as its own software. With GlobalScholar part of its offerings, Scantron’s sales and marketing team will now have another valuable thing to offer their customers.

Big challenges still remain. Despite Raman’s wish to shake up education worldwide, most of the company’s customers are in the U.S., where despite tough financial times, many school districts spend thousands of dollars per pupil, and can still justify another $40 per student to replace an inefficient program. That’s not true in poor parts of the world, like where Raman grew up, or in China. His goal is to boost the volume of sales, keep innovating in the technology, improve customer service, and bring down the price to make the software more affordable and raise higher barriers to would-be competitors.

If he can do that, he’ll have a product that could be working behind the scenes of education, sort of like how Oracle and SAP work behind the scenes to make big companies more efficient.

“We are in a business for a passionate social cause,” Raman says. “If we do that right, we’ll make lots of money.”

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