Why do edtech startups fail?

Being an education tech, or edtech, startup is not easy. It is not easy in India, and it is not easy anywhere else in the world.

A good way to see it is that even after having over $100 million of funding, edtech startups such as Knewton, Coursera, Udemy, Duolingo are still ‘figuring things out’. They are well known, and what they are doing is cutting edge in the industry, but are far away from breaking even, much less becoming profitable.

In India, edtech startups have seen some form of success in only a few segments that include test preparations, professional courses and learning management systems (LMS). Barring these, the majority of edtech segments, such as preschool education, K-10 and higher education have yet to see decent success stories.

A multitude of factors are responsible for the low success rates of edtech startups. These are a few I have observed over the years, or that have threatened our existence, but which we have successfully overcame.

1) Lack of understanding of the education market

The education market is a very unique one, and there are probably few industries that are as diverse as this one.

Say for example, you are selling B2B educational materials to schools (K-12). This means that your point of contact (POC) is the school administration, your consumers are the school students, your buyer is the school trust/ board; and your customers are parents whose kids are studying in that school. Besides the actual consumer, everybody else decides things based on their whims and fancies, and your sales are dependent on each one of them being onboard to buy your product.

In the B2C market in K-12, most times, you will be competing with a ton of other products and services that are providing exactly same (or similar) features as you are. Yet every day, a new startup pops up in this space, providing the same features with no differentiation from the existing lot. Even if the features change, there is no noticeable difference in the value proposition.

To add to this, there will always be someone providing the same products or services for free, taking away any leverage you can build in the market.

2) A lack of patience, expectations of hyper growth right from the start

Education is no ecommerce, or taxi business, or hyperlocal business.

Start up in education only if you are in it for the long haul, that is, at least for the next 15 to 20 years. In most other types of businesses, hyper growth is one of the possible ways of growing. In education, no one has seen hyper growth.

 You might take 5 years to get your product-market fit right.

You may argue that Khan Academy has X million users or Duolingo has Y million users. Well, I agree they have users. But are they paying? Khan Academy is not-for-profit, so it is in its own league. Duolingo has yet to figure out how to make money. In the edtech industry, it takes time to get your model, your pricing, and your strategies right. You cannot just say you will reach out to X million users in 5 years. You might, in fact, take 5 years to get your product-market fit right.

Patience is a powerful friend of a smart edtech entrepreneur. Your initial focus should be to survive as long as you can, doing as large a variety of things you can, so that you can quickly know what works for you and what doesn’t.

3) Not figuring out the right revenue model

4) Wrong interpretation of early traction

5) More users versus more paying customers

What can you do about this?