How Ed-Tech Companies Will Make (and Lose) a Few Fortunes
It’s bubble time in education technology. Over the past few years, investment dollars have started to flow in larger amounts. MBAs (like me and one of my co-founders) are starting to get interested, and I know of at least two separate groups in Boston alone trying to develop ed-tech incubation spaces.
But for all the interest, we have yet to see any quick, VC-type fortunes built in the last few years. As an ed-tech entrepreneur I’ve watched as the hype around the space has grown, and I’ve seen some of the magical thinking that comes with it.
Like many investors, I believe that there are opportunities for outsized returns to be made in education as technology finally infiltrates one of our slower moving industries. I also think that a couple of major traps unique to education still exist that will snare many companies. Here’s where I see the traps and the opportunities when it comes to primary and secondary education:
Trap 1: Selling classroom technologies to school districts.
This is the sexy place to be. To really make big bucks, you have to sell to school districts. To have the most visible impact on education you have to insert yourself in the teaching process. This is also the valley of death for most startups.
It’s not just that sales to districts have long sales cycles, which means it’s hard to experiment. And it’s not just that the process is political, which means you need seasoned (expensive) veterans who have sold to districts before. It’s also that every district buys differently, so even cracking the code in one district won’t help you scale. This is a near impossible market to tackle without an existing, large sales force.
Also, making an impact on the classroom teaching process is more challenging than most who haven’t been in a classroom believe. Startups live and die on their ability to experiment and make mistakes. For most Web startups, an error that only impacts 5 percent of your users leaves 95 percent of them satisfied. In a 20-person classroom, however, that one student with the error can derail the entire teaching process. Classroom technologies have to be bullet-proof in a way that most startups aren’t used to building.
And finally, one of the truths of business (which is just as true in education and even more painful to hear) is that we don’t invest in the things we don’t measure. Technologies that improve the classroom experience will have a hard time getting traction unless they make a major impact on measured educational outcomes, and proving that is a long, arduous process.
Opportunity 1a: Selling more efficient versions of services districts already buy.
While many startups try to transform education in new ways, plenty of opportunity exists to capture money that educational institutions are already spending. You just have to look outside of the classroom. Large, more flexible budgets with clear ties to results exist in areas like professional development, admissions (for higher ed and private schools), and alumni management. That’s why you see smart startups like BloomBoard, Matchbox, and EverTrue tackling these areas.
Opportunity 1b: Targeting students and teachers first to get access to the district.
Many companies have recognized the challenge of selling to districts and are trying to find new ways into school systems without going through the usual sales channels. Most of these models involve getting massive user adoption among students and teachers. Then they can go to districts where teachers and students are already using their software and sell district-wide licenses or premium accounts.
No one has cracked this business model on a large scale yet, but two of the most forward companies pursuing this are … Next Page »
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