Friday, May 06, 2016

Business Model for Education Start-Ups: Three Ideas to Consider

Lean has come to Education too, but it needs some special consideration.

Education Start-Up is no longer an oxymoron, but a real thing. Venture Capitalists do invest in education, and some indeed treat this as the next big thing, a sector with abundant growth potential in an otherwise growth-less world. However, this is one sector in search of a business model: Most VCs would try to use models they use for technology or media businesses on education propositions - and they mostly do not work.

I have tried and failed with an Education Start-up. Since then, my approach has been one of caution - quite antithetical to my usual excitable nature: Whenever I have been invited to join Founding Teams, I have shied away, and stated that the education start-ups need much more capital than one could possibly project using a technology or media investment model. This, because the Customer Discovery process, central in the Lean Start-up worldview, has special challenges when it comes to Education. 

Here is what I see as the central challenge: No one, except the investors and entrepreneurs themselves, values 'New' or 'Disruptive' in Education. The students want better outcomes - better job prospects or better qualifications - but not new outcomes. The regulators, by definition, do not like the 'D' word, and most student funding options - banks, multilateral funds or charities - are tied closely to regulatory outcomes. So, an Education Start-up is often at an impossible place - trying to prove that they are innovative and disruptive to employers, conventional and rule-based to regulators and solid and predictable to students.

Einstein defined Stupidity as doing one thing over and over again expecting different results. Education Start-ups fall in this trap quite easily, trying to do standard things to satisfy the regulator and by speaking the usual language to attract the customers - and often trying to highlight little innovations as the panacea to all problems educational. However, they are usually up against established providers, with millions of dollars of Marketing budgets, sprawling campuses and list of professors with impressive sounding degrees claiming to offer better education. Even for the skeptical, who knows at heart that too many traditional players fall short, trusting an education start-up is one plunge too deep: Getting it wrong, lest we forget, cost not just money but time and opportunity!

The customer discovery process, therefore, is a much bigger challenge in education start-ups, than it would be for technology or media companies. It is not about signing up for a social network or trying out an App. Even free sign-up options, such as in the MOOCs, do not fully work as education is hardly a consumer product: The learner needs to commit to the process of education to get value out of it. So, the huge number of drop-outs is hardly a smart way for customer discovery, because the people who sign up for free education are quite different from those who would commit and complete a programme successfully.

Indeed, my own thinking is that it is easier to focus on 'enabling' start-ups rather than 'disruptive' ones in Education, those which work within the existing education ecosystem rather than attempting to create new ones. This has two obvious problems. One, it signals a lack of ambition, and I see so many businesses trying to focus on a very narrow problem to solve. While these may be worthwhile problems, they would often become too special purpose and not worthy of attention outside of one or two institutions that may have directly experienced the problem. Two, Some of the 'enabling' solutions - take the case of companies trying to solve Education-to-Employment transition problem - are too critically dependent on the rest of the ecosystem, the quality of education that precedes their intervention. Without control over this critical input, trying to focus narrowly on solving one problem may mean setting oneself up to fail.

All this tells me to follow three rules while thinking about Education Start-ups: (a) Direct-to-Student market is difficult for start-ups to break into, and the Solution Provider model, which works with existing providers to do something they can not do otherwise, works best; (b) Rather than a narrow niche built around the hope that technology makes everything scalable, it is better to aim to build platforms that may enable ecosystems, and allow connections and conversations to happen; (c) Rather than trying out a freemium model that media and technology companies often use, the education start-up may try to guarantee outcomes, if only by promising a full refund like Udacity does (and not unlike many e-commerce solutions that offer no-questions-asked return to gain trust).





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