Why Education Startups Do Not Succeed

 I co-founded PrepMe in 2001. We were one of the first education companies online and the first purely online, personalized platform. We were acquired in 2011 by Providence Equity-backed Ascend Learning. In the last month, I’ve had 3 VC firms bring me in to chat with their partnership about education and 6 independent entrepreneurs reach out to me about their new education startup. This is a summary of what I tell them in person. 

Note: I am going to make some generalizations below. Clearly there are nuances around education policy, economic policy, technology, and more. But this is a blog post, not a book, so take it for what it’s worth. These views are my own, not PrepMe’s (or Spool’s).

Summary

  • Most entrepreneurs in education build the wrong type of business, because entrepreneurs think of education as a quality problem. The average person thinks of it as a cost problem.
  • Building in education does not follow an Internet company’s growth curve. Do it because you want to fix problems in education for the next 20 years.
  • There are opportunities in education in servicing the poor in the US and building a company in Asia — not in selling to the middle class in the US.
  • The underlying culture will change and expose interesting opportunities in the long term, but probably not for another 5 years.

What Entrepreneurs and VCs Think

“Education is ripe for disruption. Technology and great products could make education so much better. If a product like Blackboard or University of Phoenix can succeed, then imagine how great a company you could build if built educational products like Apple does for consumer electronics!”

First, let’s qualify what they’re saying here. Almost always what they are really saying is “consumer, Internet, online education in the Western world is ready for disruption. Everyone is online now and everyone gets an education, so clearly there are massive businesses to be built.” They probably aren’t talking about education in Asia because the companies in that space are started on the ground in Asia. They most likely aren’t selling to schools, districts, the government, or universities. VCs usually don’t like to invest in businesses that sell to the government until those businesses are big (at which point it’s really a private equity deal, not a venture capital deal). Angels will invest in education companies because they’re more motivated by making a difference, not by making a big return in 5 years. For now, let’s focus on US and European online education targeted at consumers.

Why they are wrong

The average person in a developed country does not think about education the way a well educated VC or entrepreneur thinks about education.

VCs and entrepreneurs tend to be well educated. Well educated people think about education as an investment. You put as many of your resources in to an investment as you can. It may take 20 years to pay off, but if the return-on-investment is high (which it is for education) then you invest. This group of people — if you’re reading this, you fall into this group — generally understand that education is an investment, and as a result are price insensitive and will optimize for quality (a higher return on investment). For this group of people, quality is the primary driver of a purchasing decision, not cost.

The average, middle class person thinks about education as an expenditure, not an investment. It’s something they have to do because it’s mandated and the lack of the highest quality education hasn’t negatively impacted their lives in a meaningful way. Step back for a second before you judge. Imagine it’s 2005, and you live in a small town in the middle of Ohio (where I grew up) and you don’t get a college degree. If you get a factory job and make $25k/year and your wife gets a factory job and makes $25k/year, you’re making $50k/year. But houses only cost $90,000 and food is affordable and you can get a loan for a car for $300/month. So you’re not doing terribly and the default state for your children is the same life. You can afford a house, food, have a car, and have weekends off.

So, what has the lack of an education done to the typical American’s life? It’s removed job security, screwed your retirement, and maybe set you up to go bankrupt if you get sick. There are no immediate consequences, there are no immediate consequences for your children, but there is an immediate cost. So the average person thinks of education as an expenditure. If you get sick when you’re 70, you’re screwed. Or if you don’t save in your 401k, you may have to work till you’re dead. Or maybe your children won’t be as competitive in a global workforce 30 years. Don’t believe me? Only 15% of kids taking the SAT pay for an out of school test prep course like Kaplan. Over 50% of Americans don’t have beyond a high school degree.

This fundamental investment vs. expenditure mindset changes everything. You think of education as fundamentally a quality problem. The average person thinks of education as fundamentally a cost problem.

What does this mean for education companies?

Educational companies that focus on delivering higher quality solutions to consumers will not scale to the mainstream. Educational companies built around driving down costs to the end consumer will scale. Or a corollary, an enterprise sales or government sales company that taps into government revenue streams will scale but will not have a consumer Internet growth curve.

Let’s look at some data from the marketplace:

  • Chegg – A company that is in education and sells to consumers. A $1 billion valuation and growing quickly. But, Chegg sells you the same textbook experience for much cheaper. It’s a great consumer focused business with offering real savings to students. Note that even in 2011, the “Netflix of education” is booming because of the equivalent of its DVD (physical textbook) business. Digital, personalized learning online or tablet based, interactive, social textbooks aren’t anywhere to be found.
  • University of Phoenix – $6 billion market cap. They make it easier to get a degree because it’s convenient and subsidized by government backed loans. Consumers make the decision but ultimately the government is footing the bill. They aren’t a consumer company and they are a marketing machine. They are a company that makes it easy to get the same quality diploma that you would get at the local college. They don’t compete with Harvard, they compete with the local university that costs more and only has on campus night courses. They weren’t an overnight success either; UofP was started in 1976 and they IPO-ed in 1994.
  • Kaplan – they didn’t get huge because of their test prep business, which is a consumer business and (arguably) delivers educational value. They became huge because they started following the University of Phoenix model for Kaplan University. Again, the primary value they offer is not quality of education, but convenience.
  • K12 – they are not a consumer, online education company. They sell to school districts and their model revolves around being able to drive down costs for school districts in their high cost students — special needs, gifted, rural, etc. They have built an interesting consumer business overseas — in the Middle East and Asia.
Here are a few examples of companies that tried to do consumer Internet style education plays and how it worked for them:
  • TutorVista – started by offering online tutoring to Western students using tutors in India. All you can eat for $99/month or so. They burned millions on search engine marketing and were able to build a business that generated eight figure revenue — nice but not enough to IPO on. So they pivoted and opened education centers in India and were acquired for $213 million by Pearson. A $200+ million acquisition in India is unheard of.
  • Tutor.com – started a decade ago to offer online tutoring to the masses. Never went mainstream, even after 5 rounds of funding. They’ve built a niche business that survives through deals they’ve struck with various government bodies — libraries, schools, etc.
  • GlobalScholar – started by the CEO of Drugstore.com, tried initially to do a direct to consumer play. Realized it wasn’t working and bought an electronic gradebook company that works with schools and was sold to Scantron that has great distribution with schools.
There are dozens of examples of companies that have tried to build around quality and hit a revenue ceiling in the few millions. Think about the 10 local tutoring centers in your city that probably make $1 million each. This early traction is very misleading because you see engaged, happy, paying customers. So you assume that it will scale but it turns out that this business won’t scale because your early adopters behave fundamentally differently than the mass market.

An Aside: Being Asian or poor changes your perspective

Yes, this section is a little hand wavy and full of generalizations. These are observational insights with some data points that show the generalizations are directionally accurate at the end. This is not a rigorous sociological study, so take the generalizations for what they’re worth.

If you’re living in most of Asia (South Asia included) and you don’t get an education, you’re screwed. Part of this is cultural (you have no social capital if you’re not well educated) and a lot of it is economic (if you don’t have an education, you will do menial labor and not have enough money to feed your children). Consider the difference between some random person in China vs. some random person in Kansas. If the Chinese person doesn’t get an education there’s a good chance they will not get a job. They will die poor, unable to adequately feed their children, and unable to take care of their parents (since the model is that the young take care of the older members of the family). But if they do get an education, they have a shot at a good life — call centers, banks, government jobs, the army, etc. And if it’s too late for that individual, they know that they can give a good life to their children. The non-college educated person in Kansas probably won’t have a great life and a secure retirement without an education. But they, their children, and their parents probably won’t die hungry and homeless on the streets of Topeka. This cultural mentality is carried over to many Asian Americans via immigration. This is not universally true, of course, of Asian Americans but there is no denying there is a strong correlation. So if you want to start a consumer education company in Asia, you can make it work and make it scale — MegaStudy and Kumon are two great examples. However, there are not enough Asian Americans to support the same scale of business in the US.

Being poor also changes how you think about education. Interestingly, in the US, the people who are most willing to try new things are the poor and uneducated because they have a similar incentive structure to a person in rural India. Their default state is “screwed.” If a poor person doesn’t do something dramatic, they are going to stay screwed. Many parents and teachers in these communities understand this. So the communities are often willing to try new, experimental things — online education, charter schools, longer school days, no summer vacation, co-op programs — even if they may not work. Why? Because their students’ default state is “screwed” and they need something dramatically better. Doing something significantly higher quality is the only way to overcome the inertia of already being screwed. The affordable, but poor quality approaches just aren’t good enough. These communities are on the hunt for dramatically better approaches and willing to try new things. Unfortunately the poor don’t have a lot of money to spend so servicing this community requires selling to the schools, which is an enterprise sales type of business — not a consumer business.

Consider Kumon, which is worth almost $1 Billion. They started in Asia, they are essentially a franchise model that caters to well educated parents, and a key part of the value proposition is in giving students a place to go and be supervised (babysitting!). It’s a great business that serves 4.2 million students worldwide. Of this, about 200,000 are in the US. The overwhelming majority are in Asia.

It’s not a perfect dataset but the Quantcast data for Khan Academy’s US demographics support this. The people going to the site are:

  • the already well educated who value education and want supplemental resources
  • Poorer (which unfortunately correlates with being African American and Hispanic)
  • Asian

Khan Academy Demographics

Education is a huge market and there are opportunities

Clearly education is billions (trillions!) of dollars. There are lots of opportunities, especially if you take a long term view of it and want to build something meaningful for the next 25 years. However, don’t make the following mistakes:

  • Don’t believe that building a better product will make you successful. Delivering something for cheaper will. Even if that cheaper thing is lower quality. This is usually repugnant to most well-educated entrepreneurs.
  • Don’t start in developed, western countries because that’s where large, Internet businesses have been built. Asia is a much better education market if you want to target consumers.
  • Don’t take VC funding because the growth curve in your education business will not live up to VC expectations early on. Take angel money from people who want to make a difference in education. Then take private equity money once you’ve figured out how to get to $10 million in revenue on your own. Even better, don’t take any PE money and grow it on cash flows. Successful education businesses are often not capital constrained.
  • Don’t target suburban or urban, middle class users with disposable income. You’ll build a niche business that can’t go mainstream. Target poor students in the US and get to charter schools who are desperate to try new things. Target families in China and India where a family will put down half of their monthly income on education. Or target people who really value education and will pay 10x more for something that is higher quality. That’s where there are big businesses to be built and a willingness for new solutions.
  • Don’t expect a quick flip or quick growth. Building a large, successful education company will take 20 years. The growth curve will not be like an Internet technology company until you hit $10+ million in revenue. Then things will ramp  quickly because you will have identified your core market and built the beginnings of a brand; the education industry is small and people will know if you deliver real value.

Some Additional Reading

I threw some numbers in here. A lot of it just stuff I’ve read over the years but I tried to track down some stats on things that I thought would be harder to believe for the people who will find this article.

Thanks to Curtis SpencerKaran Goel, Jon Bishke, Elad Gil, Dan Siroker, Christine Tieu, Aditya Koolwal, and Yin Yin Wu for reading drafts of this and providing input.

167 thoughts on “Why Education Startups Do Not Succeed

  1. Actually, I don’t think of Education as an expenditure, or an investment. It’s a basic human right – and I’ve watched (over the last 30 years) the encroaching privatisation of this sphere… creeping in like some disease.

    But then my education was free. I was paid a grant to go to university, rather than being saddled with a debt that would take decades to pay off. This was easy to do back then because corporate tax, and tax on the wealthy allowed for it – and you had to reach a certain level of academic standards to get in… so not everyone and his dog could just turn up and claim a degree by paying for the right of passage.

    What is wrong with “education startups” at a wider level is the entire phillosphy behind extracting money for something that is a basic human right is entirely socially corrosive. It’s “capitalism as social policy” again, which promotes this idea that everyone’s out for themselves, rather than doing things as a nation, or as a people. What this gives you is a class-system. What it gives you is low social-mobility. What this gives you is about a million poverty-related deaths a year in the US alone. What this gives you is “the cult of the individual”, which (let’s face it) makes people more unhappy, the more it is applied.

    So. “Education” is not a product, it’s a right.

    1. Nick,

      I think what you’re saying, though true, doesn’t detract from the point I’m trying to make. It doesn’t matter how YOU think about it. What matters is how the average person thinks about it. Because this then dictates their behavior both in terms of consumer spending and also in terms of taxation. This then determines what is and isn’t available to students.

      A simple example: where I grew up in Ohio and the surrounding districts, school specific taxes are often on the ballot. In most places they regularly fail and are not passed. The people in the community don’t want to pay more taxes for better schools. This flies in the face of treating education as a human right but has real consequences for the funds that are available to acquire resources for students in the classroom.

      Avichal

      1. People know when they are spending good money after bad. When a system is proven to be bloated or broken, a bad system, they are reticent to spend more money on more of the same. As the system does not seem to be able to fix itself (or bite off a limb or two), private supporters must participate in enough innovative pockets to prove that the same can be fixed and solutions can be scaled. Then, the majority of a population would be willing to back proven innovation, efficiency, success.

    2. I think it’s important for a society to provide education for it’s citizens/people but it’s really hard to argue that education is a right because it is so poorly defined – like health care but way worse. What defines an adequate education? What subjects should be taught? What skills? How indepth should it be?

      Is shelter a right? Water? Food? These are all still the basis of billion and trillion dollar businesses. I don’t see why education doesn’t fall under a similar categorization.

      1. Jason,

        To get the base line on rights, may I direct your attention to the “Universal declaration of human rights” , article 26. USA is a signatary of this declaration and a founder of the UN.

    3. Nick,

      The reason we have wealth and class inequality has very little to do with education, or “extractive” education entrepreneurs.

      Some people are just smarter, work harder and are more talented:
      http://lesswrong.com/lw/ub/competent_elites/

      Education as a right is not going to fix this – advancement and intelligence is more likely to be genetic and environmental. If you don’t believe this, you are envisioning a utopian 1984-like society.

      We can spend hours debating semantics over whether you want to call education a “right” or a “product/service”, but it serves no practical purpose.

      If you care about output (better education, smarter more creative people), then why does it matter who delivers it?

      Furthermore, where do you draw the line in calling people “socially corrosive”?

      Are teachers working in private schools socially-corrosive? Is the janitor that sweeps the floor in your local high school corrosive? Is the company that manufactures schools supplies and pencils corrosive?

      You are lumping a whole lot of people together.

      If the private sector can deliver education better than the public sector, then the private sector will grow – and if not and those businesses will die. It’s pretty simple.

      The same cannot be said of the public sector – unions protect teachers, restructuring of schools never occurs, etc. Teachers retire at 50 and drain resources via entitlements that would otherwise go towards current students.

      If you spend a bit of time researching private education:
      http://www.amazon.com/Beautiful-Tree-Personal-Educating-Themselves/dp/1933995920

      You will rapidly conclude that it is incredibly insulting and foolish to generalize a group of people, many of whom provide far more value through their work, than their public sector peers.

      It makes me incredibly sad to read comments like yours. It’s part of the reason why there aren’t more entrepreneurs trying to fix these difficult problems because no one should have to deal with this ideological sewage.

      ——

      @Avichal: I agree, VC investment and a lot of the new interest from institutional investors is probably mis-placed.

      In our market, which is systems – there has been a flood of capital. Everyone seems to be operating on the thesis that they’ll get to scale with a few million students and “turn on” monetization (Edmodo, Schoology, CourseKit, LearnBoost, etc.)

      This approach seems incredibly stupid given that it didn’t work:

      Some will be lucky and flip things in time, but for the rest once the VC money burns out, it is lights out – and this is where things are destructive for schools.

      Blackboard, Pearson, News Corp and the PE guys (Providence, etc.) will swoop in and pick up the pieces.

      The founder of Wireless Generation wrote a very good paper on this:
      http://www.aei.org/docLib/20071024_BergerStevenson.pdf

      —-

      IMHO the better approach (and opportunity) is to consolidate and roll-up smaller education companies with $1-5mm in revenues. This is the correct rational consolidation to reduce duplicative costs, build standardization and focus R&D.

      There are simply too many mom & pops running businesses that were started 20 years ago with no direction and no vision. They should sell, retire and let the next generation run things.

      1. @Theo
        Well said.
        @ Avichal
        Off topic but it seems to me through my research that more students are not studying majors that focus on building infrastructure in society and that the majority of students are pursuing degrees for services. The problem is an entire country cannot survive just alone on services. You need people who are experts in building cities, bridges, etc. This is an issue that perhaps could garner some interest from the private sector.

      2. Your own link to the Competent Elites is full of the kind of gushing associated with someone who has been overwhelmingly impressed by charisma and charm, not necessarily “elite” capability and intelligence. Spend time around competent people in PR, and it becomes more apparent how much appearance and charisma can change the perceived intelligence of someone in a social setting.

        “If you care about output (better education, smarter more creative people), then why does it matter who delivers it?”
        It is with this question, that you’ve missed the point of the OP – if you care about the output (better education, smarter more creative people), private enterprise will not succeed at delivering meaningful improvements in a market that views it as an expenditure. You are still thinking in terms of education as a “quality problem. The average person thinks of education as fundamentally a cost problem.” This does not encourage entrepreneurs to deliver high-quality fixes to the problems in the system.

        As for “utopian 1984-like society” – I hope you understand why that’s an oxymoron…

      3. @Theo: You should read http://www.theatlantic.com/national/archive/2011/12/what-americans-keep-ignoring-about-finlands-school-success/250564/
        The schools in Finland, where the results are much better than in US, are all public.
        Also, is not only “people are just smarter, work harder and are more talented”, some people have parents with more money, friends with more money….
        Education as a right means, a little more, equal posibilities to all, after that evere one can do his way.

    4. your argument is flawed for several reasons. First of all, “privatization” does not necessarily mean for-profit. A good example is the green dot privatization of some sections of the LACUSD. A stunning success. Privatization means getting something outside of the hands of the government, whether it be for profit, non-profit, or a mixed public-private partnership.

      The question of whether or not it’s a right is also muddled. Is it a ‘right’ in the same way free speech is a ‘right’? If you were marooned on an island, with no one else to boss you around, you would have the right to speak whatever you want. The same goes for other rights, like you right to practice religion or bear arms.

      Of course, education is necessarily a social good, it’s the transmission of information from one person to another. Let’s say you were on an island with one other person, an extremely wise person. Is it your ‘right’ to force the wise person to give you her knowledge? And what is the recourse if she doesn’t?

      1. The right to education that is referred to is not a right to coerce people to educate you – as your second example implies.
        The right to education is the right to be educated – that an individual should be provided with education at the elementary level by a governing body, such that they understand how to pursue further learning. At higher levels, this still requires the individual (or those responsible for them) to obtain/provide the education, but it is intended to prevent it being restricted for any other reason than academic merit.

    5. The only models of any good or service that do work are private, for profit, systems. Give families their own money back and let them choose. Are you saying some educrat can make a better decision about YOUR child? That is silly!

      Do you have any background about the sorry state of inner-city education? It is a DISGRACE! Green dot is better but it is still a bureaucracy. Let private institutions compete.

      Set the children free!

    6. Education is not a right. You misunderstand what a “right” is if you believe such nonsense. Every right has a concomitant duty; for example, the right to free speech is nothing more than the duty of everyone else not to prevent you from speaking freely. But no one has a duty to educate anyone. Do you have a duty to pay for my education? If so, then please send me a check; and if not, then cease your moralizing about education being a “right”. If education is a “right”, then so is clothing, food, housing, medical care, sex, entertainment, and everything else that collectivism demands that the productive turn over to the lazy.

    7. “Education is a right”… in the sense that it’s something that your parents owe you. And very often, your parents cannot make good on that debt. It’s quite difficult to put 9 children through a private school.

      My parents paid a lot of money so I could receive a very valuable engineering education. So their debt is paid. Likewise, I’m indebted to my future children for their education.

      ‘Round and ’round we go. Pretty simple, right?

    8. Though completely agree with Nick on Education being a right, I would differ on one point.
      Even freedom of speech is a right (or at least it should be so) but there are many countries where private enterprises like facebook, twitter are the mouthpiece of the ‘right’ rather than the Governments. It may not cost hard cash, but these sell your private info for ad revenues.

      Your education was funded by tax – a ‘crowd funding’ of a different sort. But take a look at this:

      How many seats were available as against the number of people who wanted to get educated
      How many grants were available for university/college education as against the number of people who could ad could not afford.
      Value attached to education at that time and now…

      I’d rather talk about setting the ‘philosophy’ right and probably regulating it rather than wiping away education startups. Even among them only those that actually deliver value will survive in the long run – which is not necessarily the

      I also don’t subscribe to the view that it gives a class system – if the nation/public sector could deliver what people needed, then there won’t be a need for education startups. if nurtured in the right environment, they actually democratize education rather than make it the preserve a few who could either afford it or are intelligent and smart enough to get the scholarships.

      “…..so not everyone and his dog could just turn up and claim a degree by paying for the right of passage” so what’s wrng if every one and his dog wanted a degree.. not everyone is aiming to be a PhD. most of them are trying to make ends meet and if a degree is able to bring an improvement in the quality of their life so be it… what is so exclusive about having a degree.

      Education is a right and if startups can actually contribute to more people getting educated and qualified, so be it.

    1. That simplistic comment is unhelpful on many levels. Just wanted to add my 2 cents. I’m a bilingual Chinese, I have a following in Asia and am an ESL professional, 21st century education advocate and education business owner. I just don’t want people to be taken, jump into ESL as a profession because a next curve is on the rise.

  2. Have you heard of educator.com? Take a look at it when you have the chance. It was a project started by my friend and could be categorized as “disruptive” but you won’t get him to admit that. It has an interesting way of teaching and connecting with students that I haven’t seen any education startup do and is actually pretty effective.

  3. Impressively well thought out and explained. It’s easy to get misled by early adopters in other spaces as well. But nobody likes to admit it when it’s their industry/space cuz it shortchanges their company’s potential growth.

  4. Quoting, “Building a large, successful education company will take 20 years”. True. I think that internet savvy business guys think of ventures and choosing the vertical of Education to build a company might be the reason for a failure. Those are the guys who want to model it relative to a tech company and hence expectations arise. It has to be other way. People who are in the field of education and will anyway be with that vertical for next 30 years have to look at Technology , go out and build a education startup with a vision of next 20 years and how technology can play a role in what they originally wanted to achieve. I am a strong proponent of technologists reaching out to domain specialists and empowering them to do startups for respective vertical. Hope I have expressed with clarity.

  5. Thanks for the analysis. I’ve been working with inner city kids for 20 years using non-profit business model dependent on donor investors to support distribution of non-school mentoring tutoring to families who don’t have money to pay. I’ve also been aggregating information that could be used by others to support their own involvement in helping inner city youth reach jobs and careers – over a 20-25 year birth to work cycle.

    Would like to gather people who want to focus on long term solutions in this Debategraph site where each can add his/her own ideas and take away the collective thinking of the group. http://debategraph.org/mentoring_kids_to_careers

  6. Thank you this blog post, the analysis and perspective is part of the reason i didn’t release (i am thinking of making it open source) an exam engine type software app i built … although i knew i could beat my direct competitors, the cost to do that in terms of total revenues would make it uneconomic for a small bootstrapped start-up …

    I think, however, that large successful companies have well i don’t like to say duty but if they could look past the bottom line and fund and work with educators and the community and “put back what they take out” this culture would benefit the whole community and potentially attract talent to work for their company.

    I know some companies already do this, but way not enough … otherwise you would not have written this great post …

    http://glynology.info

  7. Fantastic article. My firm, the Accent Reduction Institute, is assessing various strategies for growth, and your article hits on so many crucial elements that could impact our success. Obviously, our customers are non-native English speakers.

    The question we’re facing is how to automate the instructor, even though in our experience they are crucial for success, because that’s the only way to drive the cost down. But we don’t want to dilute our brand with an offering that we can’t stand behind. Many of the automated language products have bad reputations because they simply don’t work well.

    Anyway, it’s an interesting challenge, and you’ve given me plenty to think about.

    1. Justin…you can’t. You either target quality or you target volume. You cannot automate an instructor. My company, English For Asians, tried that. I would be happy to help inform your insights with my years of experience as an ESL professional and education business owner here in Asia. Human to human I’d suggest you re-read this article again. You either go for those with investor mindset or those with consumer mindset. You cannot aim for both – it is not possible.

      There are lots of educational products out there – many come to Asia and quite a few have approached me but I tell them – No, it still depends significantly on quality instructors or a quality manager to run the center.

      The problem is not a lack of products but a lack of great instructors. Automating one is an oxymoron.

  8. Avichal, you have hit the nail by thorough research, though everything looks like common sense! Unfortunately American general population has been so brainwashed for a long time, that they don’t consider education as an investment. In fact they are reinforced with the thoughts that they go to school for fun and entertainment. This is even more true in the case of even undergrad education. Hardly 20% of the students take the education seriously at this level and the rest become un-employable. The educators are more focused on sports, games and entertainment. The service vendors simply rip them off with high priced goods and services.

    The current economy has brought some semblance to the thinking among the general populace. Hopefully things will turnaround in the next 5 or 10 years. Regarding your point on levying additional taxes to support schools, I don’t fully agree. There so much bloat and inefficiencies in the system, it should be revamped at the earliest. Hopefully the politicians, bureaucrats and the general public will come to senses and address the systemic issues which will change the people’s mindset.

    Unless the basics are addressed and changed, your observations will remain true for foreseeable future. Startups and entrepreneurs have to be vigilant and identity the opportunities as the education ecosystem goes through the titanic shift in the coming years.

    1. There is a difference between doing something in order to seek a good outcome, and doing something to avoid a bad outcome. I think the article writer is correct in asserting that for the US and Asian middle classes, education is mostly about the latter currently.

      By contrast, private education here in Norway (where I live) is oriented heavily either towards self-realization (especially in the folk high school system) or quick economic success with less effort (profession educations with high demand, such as web designers and real estate brokers in recent years). It’s still the middle class doing this – a sense of social safety makes it an appealing prospect.

  9. “Don’t believe that building a better product will make you successful. Delivering something for cheaper will”.

    Is this seriously misleading and unhelpful advice.

    Not because it isn’t based upon a realistic observation (yes, you can be successful ‘just by being cheaper’) but because, as a basis for a plan of action, it does not take the realities of the education market place into account.

    How long do you want to be ‘successful’ for?

    What’s the big deal about how ‘difficult’ or ‘expensive’ it is to be ‘better’ in education.

    You can always be better AND cheaper in education.

    Harvard? You can do anything Harvard can do at a tiny fraction of the price, except ‘The Harvard Experience’ itself and that is NOT what we’re talking about.

    Be cheaper, yes, but this is education, for goodness sake: it is comprised of nothing more than content and service, not some physically scarce commodity.

    You can ALWAYS make content and service better AND cheaper.

    And because your competitors can do exactly the same thing, then in order to be ‘successful’ you have to keep on making it better, forever, because cheaper has a bottom and better has no top.

    1. “What’s the big deal about how ‘difficult’ or ‘expensive’ it is to be ‘better’ in education.” — the big deal is that the mainstream market doesn’t respond to this.

      “Harvard? You can do anything Harvard can do at a tiny fraction of the price, except ‘The Harvard Experience’ itself and that is NOT what we’re talking about.” — that’s exactly what we’re talking about. Harvard caters to a tiny group of people. A few thousand new people per year attend of the millions who graduate from high school. Harvard’s educational experience is not easily or quickly replicable, nor is its brand, which is why people are willing to pay lots of money to go there.

      ” but this is education, for goodness sake: it is comprised of nothing more than content and service, not some physically scarce commodity.” — totally wrong. Good people are a physically scarce commodity and having people who care as part of the process is very important. Teachers and parents make all of the difference. Technology does not solve education on its own.

      “cheaper has a bottom” — it does in a perfect market. What happens in an imperfect market is that the marketing tactics become a core competency instead of the educational aspect of the business. Many of the largest educational businesses are phenomenal marketing and customer acquisition machines. That is something that cannot easily be replicated and since that has a quick return to the revenues and profits of a business, that’s where money gets invested.

  10. Avichal,

    Its a great starting point for a discussion. I lied the article, because I partly agree with it (as it looks back in terms of why some startups succeeded) and partly dis-agree with it (in that I think it assumes that the future will repeat the past). For me, the larger question is whether one can apply social engineering to overcome the notion of education as a cost. I’ve seen few examples of this being discussed, perhaps because Machiavelli seems to have a negative connotation attached. But its no different than what I do with my children at home — its rare that they want to go to school to be “taught”, or even to “learn”, and yet by dint of tactful bribes, suggestions, etc., I manage to get them there everyday. If we could build companies that could get the average student to do a little better, and their parents to feel that this was worth the cost, there’s a business to be had there.

    I, for one, like what I do, and get up everyday wondering what I can build to make things better wrt education.

    I sometimes jokingly tell people that the entire reason to have kids of your own is that when you use them as guinea pigs, others can’t yell at you.

    1. Vibhu,

      Thanks for reading! I 100% agree — it will change in the long term. It has to because the consequences to the larger economy are too dire if we don’t focus on quality. And ultimately the end consumers of education are businesses and society as a whole. If the economy in the US is terrible for 10 years and at the same time we have a shortage of engineers in Silicon Valley, lots of folks will get involved to fix the problem. Some will be people who want to make society better. Some will be people that want to make the country better. Some will be businesses who have a vested interest in getting better educated employees to compete globally. It’s already starting to happen but will take a few more years to really get momentum.

      Hope all is well!

      Avichal

  11. Great info. the other thing is how educations is not so expensive as their making out to be. It really been toyed rather being a tool. Most education faculties was a joke onto the students that join and right now even though things seems bad , it just clearing out those faculities that stole a lot of students time and money, Economy crisis. What bothers me how the bigger has caused this debt and now looking for everyone to over look it and help. Just let faculities and others failed then now tries to fix it by chopping everything important down. sucks,. Again nice post

    1. There’s a whole class of companies that are about professional education. The dynamic here is very different because the person paying is often receiving some sort of direct benefit. A certification that lets them perform a certain job, learning a tool or trade that enables them to make more money, or being considered for a promotion where a particular skill is a mandatory requirement. These businesses are often quite profitable and scale nicely because they don’t have to go through government channels and the value proposition to the user is very near term, i.e. learn this and get a promotion, or learn this so you can do your job faster. Straddling education and business productivity is a great place to build a business. Often these businesses are run as productivity businesses, not education companies.

  12. Sorry, but I just don’t find this blog’s arguments around quality versus price to be compelling. Yes, there is a huge mainstream that cares only about price. That’s why we have Dell and Walmart. But, there is also a huge audience that cares about quality. That’s why we have Apple.

    What’s very unclear from your examples is whether anyone has yet really succeeded in producing an education product that radically impacted the quality of say the education UX in the way Apple disrupted many markets through insanely great UX. Sure, all those companies believed they had insanely great UX, but how many really did? Color me skeptical that a concept like TutorVista had anything like the disruptive potential based on quality that an Apple offers.

    Microsoft, for example, certainly believes it offers great UX, but in fact, it really won its monopolies on price vs companies like Apple. As the online world has eroded that perceived value, their fortunes have gone South because who wants to pay anything when free is right there in your browser? This only widened the gap between quality and price so much that Apple drove a truck right through it becoming the world’s most valuable tech company.

    Quality as in “we’ve got the best one” is often claimed but very seldom achieved. Ironically, the combination of ultra-high quality combined with a perceived great value on pricing has also staked out a very successful niche among the middle class. When you’re talking about people going back for more education to further their careers, and particularly when you have government subsidies to help fight cost differences, the students are consumers, and they’re going to do what consumers do. Some will flock to the lowest price, but more than enough will flock to real quality to make a huge business.

    Best,

    BW
    smoothspan.wordpress.com

    1. Bob, I agree that Apple is a Tech company but I would rather like to call it a Fashion company. They know how to sell and what to sell – and it is not the best technologies that they sell, but it is the experience of owning an Apple product or being part of that cool cult.

  13. Good Morning Avichel,

    Thanks for sharing your experience and insights on the educational internet companies. I liked reading the article. Keep up the good work of candid opinions. Thanks again. Vijay Sharma

  14. Wonderful analysis and commentary. A few questions: Which market segments and applications do you believe present an opportunity for venture investment in the US today? Do you think the struggling economy and the emergence of the iPad change any of the dynamics noted in your analysis? What do you think about services like Codecademy, Floating University and the various language applications such as LiveMocha, Voxy and PlaySay?

    Thanks for sharing your perspective.

    Tim

    1. Hi Tim,

      I’m going to write a follow up on this. I do think there are segments that are better poised for disruption than others — the iPad may end up being an interesting element in business, professional learning services like CodeAcademy, and a few others. One simple way to look at the market is to consider companies that enable businesses to be more efficient. Some of these like Lynda.com can be very successful businesses. They’re educational in nature but they’re really great business efficiency enables.

      Avichal

  15. Thanks for your post Avichel. For the un-initiaited looking at disrupting education, I think there are some tremendously valuable insights and cautions here.

    That said, I do think there are a few generalizations here that compromise the validity of the conclusion somewhat. Specifically, it is mis-leading to think of the success of for-profits like Kaplan and UOP as a triumph of price over quality. In fact, most for-proft HE institutions are substantially MORE expensive than locally available alternatives (community college tuition is dramatically cheaper than FP’s, while even state universities tend to feature in-state tuition that is cheaper than UOP). That said, I would agree that instructional quality and/selectivity is not at the heart of their differentiation. Convenience, flexibility, and ease of access and enrollment are much more central to their growth, along with the marketing prowess that you describe. You could interpret these factors as a version of quality that has allowed these businesses to charge a premium versus other options and scale dramatically nonetheless.

    I mention this critique only because I would hate for investors looking at our space to believe that ignoring quality and focusing exclusively on price is the only path to success in education. In Higher Ed specifically, where quality has historically been defined by exclusivity (see Harvard example), I believe there is enormous opportunity in re-defining quality as educational experiences that are more responsive to student needs, and more effective in delivering outcomes. My business is partnering with traditional institutions in pursuit of these goals, rather than starting competitive institutions ourselves, but at the end of the day our focus is helping to bring private talent and capital to bear on using technology and data to improve educational outcomes at partner schools. No doubt you are right that it will be a tough slog, but we have found a few VC’s that are up for the battle at least partially because of a shared vision of the value of taking on big problems worth solving. Here’s hoping other entrepreneurs and investors get excited about that same opportunity as well.

    Thanks again for your insights.

    Charles

    1. Very good point. I’m defining quality narrowly as “quality of educational product” whereas UofP has succeeded by offering other dimensions such as flexibility.

  16. Actually, for many students an online for-profit is less expensive than a traditional school. If a student gets accepted to a traditional f2f school they generally have to quit their job and maybe move. Parents may have to add childcare costs as well – all that can be much more expensive in total than the cost of tuition for UOP.

    Other than a few successes like UMass Online, traditional state Higher Ed has been tremendously resistant to moving online, mainly I think due to internal culture – which has done a great deal to create the market for online for-profit.

    1. Agreed on the cultural barriers to online expansion at not for profits. On the pricing issue, most students who enroll in for-profits are considering other adult-focused f2f programs, like community colleges and/or executive programs at state schools, as quitting their job for a residential experience is simply not an option for most adult learners. When compared to these options (especially the CC option), it is clear that something other than price is driving the decision to enroll at for-profits. Add the fact that the availability of financial aid further reduces price sensitivity among this population, and I think you can safely say that that a tiny percentage of FP enrollees are making their decision based on a cheaper total tuition cost. Which makes the opportunity for public institutions who better understand these decision drivers and act on them even more substantial.

  17. Your typical mainline American is so paralyzed and demoralized that I can’t see them investing in education services for their children. Okay, a sporadic tutor here and there but nothing on par with the drive in Asia (I’m an American who taught in Korea for a couple of years). Brazil, Latin America, and Asia will be the main growing contingents. Americans have just really lost their way, but it was really only a leader in education because it industrialized early. People on learn or do 1) what they have to do, 2) what is the easiest, or 3) what pays the most for the least effort.

  18. Great, if sobering, analysis.

    I’ve thought about doing an educational startup (I’ll spare you the half-baked details, but very generally: science and engineering tools for both the 7-12 range as well as serious research groups), but my off-the-cuff analysis came to the same conclusion. The only way I can figure to make this work is to run it as a non-profit (501(c)3) after I’ve amassed enough wealth to be able to bootstrap it and give away the tools. (This certainly falls into the “passion” category and is not about running a business.)

    Alas, even here I have to admit that the main reason why I think it might work is I don’t have any data otherwise…

  19. You’re missing the sacred cow problem. Education is not comparable to consumer business models owing to corruption of its purpose, coercion of its consumers and displacement of cost from consumer to parent thereof. Discarding the platitudes, among the core factual purposes of education are:
    1. (K-12) A babysitter for children/teens – maternal relief, now a political imperative.
    2. (K-12) An incomparable liberal propaganda tool and vote farm for Liberal parties.
    3. (K-12) A bunker-busting (family penetrating) tool for state intervention in private lives.
    4. (Univ) An effective, aristocratic-pedigree racket, whose inefficiencies are intrinsic to its essential mystique.
    5. (College) An ineffectual pseudoaristocratic-pedigree racket predicated on lower cost & easier hoops through which the victims are expected to jump.

    My (utterly amateur/amoral) conclusion would be that an entrepreneur ought to therefore
    (a) target adult trade schools. Totally different ball game.
    (b) target the de-facto purposes outlined above, offering the purchasors (variously: governments, other vested interests, parents) what they seek.
    (c) in the K-12 game, get their heads around the reality that coercive funding (tax) is discounted by parents (correctly, insofar as further expenditure fails to displace taxes + utility to taxpayers is not among the criteria for taxation);
    (d) focus on tutoring; or
    (d) target liberal/institutional funding vs. VenCap; the logical “big world” target would be e.g. UN, WHO, etc.

    I doubt a business offering a 13yr babysitter for less cost or longer hours would fail to appeal to mothers; or that a succulently-disguised liberal vote farm would fail to attract gov’t funding.

    I doubt that K-12 consumers (students) en masse give a damn about the supposed purpose of “education”. They value (and would pay for) the socialization, escape from effective supervision, fashion show, incomparable opportunity to get laid, marijuana marketplace.

    I could go on, but I’ve offended enough by now. Suggestion: critical thinking! My illustrative context is Canada.

    1. I agree, especially the propaganda role.

      One outstanding source of the finest education is the military. Many of my students are gaining excellent technical skills, and getting paid for it. Especially the RN program!

  20. Very useful analysis of some of the broad cultural factors, although I think any search for “the average user” is a tricky proposition.

    The missing link here is that edtech startups as well as providentially sustained big edtech are both struggling in the current climate to build strong, mutually thoughtful partnerships with educators in the research and development stage. Educators and educational institutions are cutting back on budget for innovation and the presiding ethic is cost efficiency. Ask any public school teacher and they’ll tell you the same story, that they’re already using their own money on supplies for their students and tools for their classrooms, because this is sometimes the only way to get things done and to be sure that all children have equal access to the things they need.

    Sadly educators and ed tech entrepreneurs often don’t meet until the developed product is at the retail stage, or the institution is at the RFP stage. Then the accusations (and generalisations, you’re right) start to fly. At the moment this is why traditional higher ed institutions can seem anti-online, for example, when in fact they’re doing a great deal online, including a ton of unacknowledged partially online work using public cloud social media.

    Disclaimer: this is written by an educator …

  21. why do educationists see only ‘studying for a certificate’ (degree, diploma, school, whatever) as ‘education’? education can be continuing education that has such a huge market in the medical, aerospace, legal, pharmaceutical and other fields. education can be vocational education that builds skill based on one’s academic education and inherent talent. education can be more than just what you do sitting in class (and therefore can be done better, faster, cheaper sitting in front of your computer)

    i have been working on creating something that would allow people to look for, find and acquire jobs better. this too is education. and this kind of education does not differentiate between occidentals and orientals, if such a distinction exists at all…this kind of education offers no returns to the student in terms of documentation but only in terms of skills…and this kind of education is delivered through the net…though once again, it cannot be said that people with money are too excited to invest in something like this…what could be the reason here? seems it fits into all the criteria you say it should

  22. Avichal,
    your article is clearly intelligent and based on a lot of knowledge and experience, but let me add something that contradicts what you said, at least in part.
    The first thing you said is that “Well educated people think about education as an investment”. Well, I guess I’m a well educated person (I graduated from the best university for engineers in Italy), but the more I work, the more I think of education as an expenditure.
    One reason is that very little of what I learned at university has proved useful for real work, but the main reason is that in my experience I see very little correlation between education level and income, or success in general.
    I know that in the U.S. things are different, people with a degree from the best universities have much better chances of bringing home a higher income than people with lower education, I just wanted to raise the point that this isn’t true for all western countries.
    Oh, by the way, I’m the co-founder of an online tutoring website which went live three months ago and I think you’re definitely right: it’s very difficult to succeed in this business.
    Andrea

  23. Hi Avichal,
    in addition to my previous comment I have a question for you. When you say that “Asia is a much better education market if you want to target consumers”, what business model do you have in mind? To be more specific, are you thinking of companies that offer online courses (like Kaplan University) or companies that offer one on one private lessons (like tutor.com)?
    My personal view is that people with a lower income might be interested in online courses because they cost less than regular universities, but I don’t foresee a big interest in private lessons, because this is usually considered a luxury, even when offered at low prices.
    Andrea

  24. While I agree with the general point of this article, I highly disagree with the premise.
    Assuming higher education is an investment is assuming you’re getting GOOD education. Which is not the case in this day and age. We’re paying more and more for higher education that is worse and worse. There is NO direct correlation between the price of higher education and knowledge. I can give you a lot of examples of people who paid tens of thousands for higher education who have less knowledge than “uneducated people”. There’s plenty of examples of this in the world today, both prominent public figures and not-so-prominet ones.

    I don’t know anything about you but I’m going to assume you have a degree, maybe a Masters or Ph.D.. You value your education. More so, you value the world of higher education. You’re entrenched, committed and vested in that world. You don’t see anything outside of it clearly. You don’t realize that knowledge is good, but education doesn’t necessarily contribute anything to that knowledge. But above all, knowledge without wisdom is useless and NO school, college or “Enlightenment-style” institution can give you that.

    There’s a lot more wrong in Higher Education than Higher Education Startups… which is why the latter have a hard time succeeding.

    1. Re-reading that second paragraph after posting made me realize I sound aggressive and personal. Totally not what I was going for. I was just making a general assumption to transition to my point but it looks like a personal attack and, for that, I apologize.🙂

    2. Education is whatever you want it to be. Do you want to learn something “in demand”? Or do you want to memorize historical facts? Or read Shakespeare?

      The point is, education will give you the skills to perform the functions in society that you want to do. So YOU decide.

      And sometimes you choose to learn skills that nobody needs… and you end up working at McDonalds or driving a truck with a PhD in Shakespeare.

  25. Thanks for the post Avichel – couldn’t agree more. My K12 ed company, Flocabulary (www.flocabulary.com) is living out the truths of your argument.. luckily we’re committed to helping in the long-run, and aren’t trying to make an easy buck and move on. One thing I’ve been thinking about recently is the opportunities in K12 that target the teachers, rather than the students. Making their work more efficient and/or more effective. By saving teachers time, money, or headache, we can help free up time and energy for their all-important, gargantuan core task: educating children. They spend so much time on everything else (paperwork, behavior management, inefficient prep and grading, just to name a few), they often can barely get through what could have been an amazing lesson.

    As more and more teachers find their way online – including Twitter and other social platforms – they can become more of the fast-scaling market tech and VC-backed startups are used to going after. In addition, teachers absolutely do spend their own money (unfortunately) to improve their practice, and I imagine that a huge majority would love to pay a reasonably small amount of $ for a solution that helps them do their jobs more efficiently.

  26. Avichal,
    Thank you for your comments regarding teachers and parents. “Good people are a physically scarce commodity and having people who care as part of the process is very important. Teachers and parents make all of the difference. Technology does not solve education on its own.”

    As an educator in Harlem, at a well-funded organization, with an unbelievable amount of tech resources at our disposal, I find that it comes down to the teacher in the classroom. There is an energy transfer that happens from teacher to student that is hard to quantify, but it’s easy to see when it is happening (or not happening). It comes at great expense both physical, socially, and emotionally when done right. Despite the many great made for TV stories out there, its not always glamorous, and not always rewarding. It’s still a job after all.

    Technology can definitely help. I would have to agree with VLAD that there seems to be little out there that actually makes teachers work more efficient. Well, for those teachers that want to be more efficient and be treated more like professionals. Most of the tools (hardware, software) I have messed around with still feel boxy, and often aren’t used well or used at all and relegated to the same room as the overhead projector and last year’s textbooks.

    1. Maryland educator here. You said “There is an energy transfer that happens from teacher to student that is hard to quantify, but it’s easy to see when it is happening (or not happening). It comes at great expense both physical, socially, and emotionally when done right.”
      100% correct. Thanks for expressing the most vital aspect of K12 education that never gets discussed. Some teachers can stimulate and sustain this energy transfer; mind-exchange; emotional connection — and some cannot. I suspect this is why research keeps showing that the most important factor in effective instruction is the ‘quality of the teacher’. You’re defining the mystery factor that is at the core of ‘quality’.
      Ryan: if you don’t mind, please send me an email at david [at] edplans.com

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  28. Interesting article! I think there is a finer distinction to be made among “education companies” when considering the actual service that the company provides. For instance, Chegg.com provides textbooks for students who are already enrolled and have already made an investment (or expenditure, whichever you prefer) in their education. Are they renting texts because they want to drive down the cost of their expenditure, or does that no longer matter since they’re already in the school/course and must access the textbook (and if so, what is driving their incentive, then?) Also, whether that investment/expenditure is subsidized by government loans, they may actually think of that as a non-immediate cost. At the same time, Kap. U and U. Phoenix are obviously targeted toward potential students who have not yet taken the leap, so then their targets may be more cost-oriented, but at the same time, I’m interested to hear how this plays out over the next few years as the scrutiny of online schools continues. Cost may be a current consideration, but if EDMC and associated education organizations continue to take a beating over their accreditation and post-graduation employment opportunities, popular sentiment may revert back to traditional education.

  29. This blog article is based on a dichotomy between “government funded” and “consumer”. In the education era which we’ve entered that dichotomy has been largely eliminated.

    1. Erik,

      Any reason why that has been eliminated? Do you have data you could reference — I’d be curious to see it. Based on how the data I’ve seen (govt spending, consumer spending on education) it doesn’t appear to have gone away.

  30. This is a great post and I can certainly relate to some of things because of my work related to Eejot. (http://www.eejot.org) in Nepal. I have been struggling to find a pricing model which is self sustaining. Any thoughts? Just to clarify, it’s a non profit so I am not interested in profit aspects.

  31. This market is always open to interpretation. Three years from now some smart kid will come along and invent something that the education sector has a field day over. Now that many have started to take a interest in education the only place for it to go is up. The only good advice I have for anyone entering this market is “Don’t try to copy everyone else”. Offer what no one else is offering, and make sure their is a need for it first. Talk with everyone that will be using your product, and you will for the most part get hints to what they want improved, or new.

  32. I believe mobile education (phone and tablets) is transforming the way we learn.

    Mobile education can offer economies of scale and serve rich/poor at the same price point.

    Enclosed are RealSimpleEdu.com’s learning in last 12 months.

    • Most entrepreneurs in education build the wrong type of business, because entrepreneurs think of education as a quality problem. The average person thinks of it as a cost problem.

    o RealSimpleEdu is bringing education to mass market with its 99 cent and $1.99 mobile apps

    • Building in education does not follow an Internet company’s growth curve. Do it because you want to fix problems in education for the next 20 years.

    o Our revenues have grown 5 times in last one year. Customer base has also grown 5 times in last one year. I believe mobile education solutions will see internet company’s growth.

    • There are opportunities in education in servicing the poor in the US and building a company in Asia — not in selling to the middle class in the US.

    o Mobile education can serve every market. From top to bottom. We currently serve in 150 countries. All at same price point.

    • The underlying culture will change and expose interesting opportunities in the long term, but probably not for another 5 years.

    o Mobile education is the most interesting opportunity (right here, right now)

  33. Avichal,

    A professional colleague of mine forwarded me your blog post, and it was a refreshingly unique take on the problems with scaling education startups. Some of your ideas resonated with me; however, what is missing is the fact that there is an absence of an “innovation ecosystem” in this area. Until the American education system is restructured to provide the right incentives for investment in new education products, while eliminating the long sales cycles, then you are correct that venture capitalists will not participate.

    You are correct that startups must innovate “disruptively,” and thus target areas of “non-consumption,” which means international territories and low-income communities. The problem also lies in the notion that investments are only happening in “content delivery” and not “content creation” vehicles. Education reform requires a choreography between both categories, and then we will be able to prove unequivocally that digital learning can actually LOWER the education expenses per pupil, not increase them. “Blending Learning” will be the next wave of education reform, and we must put the right mechnisms in place (e.g., translational pathways between academic R&D, public policy and private industry) for systemic change in public education to succeed. It will not happen overnight, but take at least a decade to show results. And we will no doubt make many mistakes along the way.

    Al

  34. What I don’t understand is that even though people in India and hopefully other developing countries value education more than anything, there is no good e-learning startup, in this space.

  35. Thanks so much for this valuable information. It is on point with most of our research for the company we have started to help the “Education Achievement Gap” within the Latino community in this country. We have also done research on other countries like south east Asia. Thank you again.

  36. May I simply just say what a relief to find someone who genuinely understands what they are talking about over the internet. You actually know how to bring an issue to light and make it important. More and more people really need to check this out and understand this side of your story. I was surprised that you’re not more popular given that you definitely have the gift.

  37. Well written blog. Like the focus on Asia. A shame that so much of the edu startup is so focused on American education. With the Asian century at its infancy Silicon Valley edu-startups will have to start to pivot or perish.

  38. Most educators do perceive education to be investment – both in ones personal and financial development. Most of us, however, view the cost as a burden. Acknowledging this discrepancy could be valuable for both edu-startups and public school policy makers. Thanks!

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  41. Well researched article. However, there were some conclusions, I was unable to understand. Could you please explain, how do you arrive at “Don’t start in developed, western countries because that’s where large, Internet businesses have been built.” How do the internet businesses have an affect?

  42. The article is spot-on; however, it’s made an assumption about educational-technology startups being focused on content delivery, learning, and knowledge production. They don’t have to be, and increasingly, I’m convinced they shouldn’t be. As more and more students are “non-traditional”, cobbling together credits from community colleges, AP courses, CLEP tests, and online sources like Coursera, it becomes clear that the actual dissemination of content is a solved problem. There are choices, and the choices seem to suffice. However, there’s an entire broken ecosystem surrounding k-12 education, higher education, and the transition points between the two; this ecosystem breaks at these places, at least, and likely at many more as well:

    School selection
    Major selection
    Course selection
    Schedule planning
    Knowledge-to-skill mapping
    Personal education planning
    Job and internship sourcing
    Interview preparation
    Job preparation

    We published a brief report about it here that might be interesting:

    http://roe.myedu.com/student-journey/myedu-publishes-academic-journey-research-students-lack-support-in-major-selection/

  43. I have developing web based solution for school for last two years and we recently go into alpha testing in school. I am located in Taiwan so maybe I can provide some “Asian” perspective.

    Education market is huge and there are many different segments. Since my product is for K12 level schools so I will focus on my discussion on this area.

    I agree with the assessment that it takes longer time to build a successful business for education since it is heavily regulated. Every action is scrutinized by community so school officials, education ministry and teachers are very conservative. It is not easy to get something into the system but once it is adopted, it will last longer than consumer market.

    In Taiwan, educational market is dominated by hardware. Microsoft get its cut by bundling their software with hardware. I have heard from my friend that China is similar. This mean hardware maker like Acer/Asus/Lenovo are the dominate players and you need to work with them. Acer and Asus also tried to provide their own software solutions.

    If you want to enter K12 market in Taiwan, hardware is a much easier approach than software. I have seen several software companies who had tried and end up sell the solution to hardware companies or pivot and go after other market.

  44. i have family members getting online post-secondary ed ( university of phoenix ) and i can confirm that they are much more sensitive to cost than quality. the unfortunate thing is that they actively complain about he quality – but ‘need the degree’ to get a better job.

  45. You touch on the reason education itself is failing massively in the US as well. The anti-intellectualism here is rampant. People take pleasure in being stupid. Hedonistic stupidity.

  46. Thanks for the article, Avichal. I’m not a startup/tech person. Rather, I’m a teacher and occasional reluctant admin who got pointed to your article by friends in the technology sector. I think your article is spot on not only with education startups but with education reform in general. I’ve seen many young teachers approach education reform in ways that you describe these failed startups do, not realizing that mainstream US education is ultimately a cost problem—high quality education is irrelevant if people can’t or won’t pay for it—and that significant change/traction is measured in decades and not the months or years that well-educated young people who grew up with this highly technological culture is used to. What you said about markets for innovative tech startup is true for teaching and pedagogy in general too: the most interesting things in US schools are done either with the support of highly educated parents or in traditionally poorly-performing areas, and many of those solutions don’t scale well with the current cost and cultural expectations of the US.

  47. I have worked with schools for a decade selling technology products and working directly in their IT departments, and I will say from my experience that the cheaper solution is almost never adopted. New technology purchases usually fall under grant funding, budget surplus/end of year spending, construction financing (new schools), etc etc. When money is available there is never a discussion about sustainability and long term planning, its what can we buy with this money quickly, and the people making the decisions will typically go with the solution they are familiar and comfortable with. If its expensive they will find the money for it, if its cheap but necessary they seldom do. Purchases and “planning” are dictated by fads in the industry and change just as quickly, and the high turnover in administrators results in shifting priorities in the middle of a long term project. The problem with schools is that they are inconsistent and have mediocre administrators that stick around for a few years and jump ship at the next opportunity. I agree that having a great product is not the recipe for success, but neither is having a cheaper one. Schools respond to flashy and trendy as much if not more then the typical impulsive consumer. Administrators want to be cutting edge and look as though they are pushing schools into the future with new gadgets and gizmos. Go into a school that has recently made major purchases and see how well they are being adopted by teachers and students. I will put my money that its hardly being used, if at all, to its potential or intended purpose. If your a startup and want to make money with schools, plug into or start the next new fad and ride the wave.

    1. I like the analogy of this to a “gym problem”. We have a whole world of people spending a lot of money on education (via taxes and or fees) and yet as Warren says, schools don’t seem to have much long-term vision, planning or strategy in most of what they do. Thus, while we’re focusing on educating youth we need to be developing tools that attract adults and engage them more in what works, what’s not working, what could be working if they were more involved, etc. I’ve been trying to do this via the Tutor/Mentor Connection I formed in Chicago in 1993. I recognize that volunteers who become part of tutor/mentor programs and connect with youth begin to build bonds and empathy that leads many to stay involved longer, be more engaged, and do more to change the conditions in which the youth live and go to school. By supporting the growth of such programs in more places and trying to help programs engage more volunteers for more time my goal is to increase the number of people “going to the gym” to build their knowledge and involvement in public education, democracy and all sorts of problem solving. This 4-part strategy shows actions I think need to be happening on-going and in many places. http://tinyurl.com/TMI-4-part-strategy I suspect many of you might have your own ideas of ways to engage more adults, and keep them engaged (coming back to the gym) over and over for many years.

  48. Very thought-provoking. I wonder what the innovation opportunity landscape in the education space would look like by adopting a “jobs-to-be-done” perspective ala Clayton Christensen (Harvard) or a consulting firm like Strategyn?

  49. Excellent points. I’d add a significant missing factor (as a current tech professional and former college-level humanities instructor, higher-ed fundraiser, and academic administrator). Simply put, *most people are completely unable to judge the quality of an educational experience.* Even more so than in health care, this phenomenon explains a LOT.

    It’s impossible to imagine what it would be like to be smarter than you are, and this is a big part of the problem. Class differences also enter into it–many people don’t realize that just acquiring a narrow set of skills is a) no guarantee of job safety b) cuts off a great deal of potential at a socially, physically, and mentally crucial time c) often assures you’ll be a worker bee forever, which, as the extensive self-help industry shows, many people are eventually realizing they don’t like. But you can’t tell a stupid person this, or an uneducated person, and those are going to be your target audience. The smart kids already went to Harvard, or even kicked ass at a second-tier school. Furthermore, they’re smart because they continue to do smart things (read, try to learn French, start messing around with Arduino), just like “fit” people do stuff like run five miles three days a week.

    So possibly this is really a gym problem…how do you convince seriously out-of-shape people to transform themselves at a gym, with all the agony that entails? Is your educational product a P90x (quality, but very difficult to finish) or a Thighmaster (cheap, very limited focus, may produce some middling results occasionally)? Does it make sense to sell a course like Great Courses, i.e. a bunch of high-quality tapes, or to continue to try to sell by duration?

    And where do ethics fit into all of this? Phoenix depends on the fact that its students aren’t even smart enough to consult Wikipedia before enrolling…

  50. Wonderfully insightful article! I have had similar experiences, and believe that catering to the poor, with good quality education is the answer to uplifting this country of mine… @Avichal, need some specific advise: would you say catering to the vernacular student (whose mother tongue is Hindi, Marathi, Telugu etc), with ‘vocational’ or soft-skills training, in the language the student is comfortable with, is a good idea?🙂

  51. pretty much the best article on edutech I’ve ever read (disclaimer: have recently launched an ESL startup in the middle east)

  52. Pingback: Skolkovo Community
  53. I believe there is lot more to the basic thought on quality. Everyone attacks quality and content, but the biggest thing from my experience is the average skill set of understanding and logistics. Students or adults ant to learn to either brush up their skills, or work towards promoting their career up the ladder. There are in more important things than content to be explored for an education sector. Most of us in the field put the thought based on our learning experience and/or our kids or cousins. To make an education start-up to be seen different and appreciated , we need to move away from old school concepts and teaching style to more at the level of enthusiasm for the learner. The thought “home is our first school ” where books dont prevail here vision and explanation plays a big role for a bay to understand. Lets understand the student mindset to make a program or teaching more memorable. Spoke from my experience and how my students got enthusiastic to become volunteer teachers….

  54. What an insightful article. I am at a crossroads with my tutoring business, but you shed so much light on the roads. Thank you for sharing. 🙂

  55. Great Read, Avichal, as this post is from 5 years ago, I request you to write an updated version as the Ed-tech space has changed quite a lot in last 5 years (quite in line with your comments and market in Asia/India). A lot of Ed-Tech companies are being funded by VC’s and personally i see the potential of a consumer style exit but obviously your experiences are much greater and practical that mine. so 2 requests

    1. what do you think?
    2. if you could – i think every reader of this blog post would benefit from an update to this blog post.

    Regards

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