Challenges for EdTech Startups
In a knowledge-based economy like the one we live in, education (or the lack thereof) is one of the most influential aspects that can accelerate (or hinder) the economic development of any nation. Yet, the education space has been neglected by government and it has lagged behind in terms of innovation, more than any other field. The number of problems that are desperate for improvement includes the high cost of education, student debt, student performance and outcomes, skills gap, and under/un-employment. These barely scratch the surface.
The education space is a HUGE market. Every year, over $4 Trillion (with a T) is spent worldwide in education.
Why is it that education, a space everyone knows the big problems that are affecting it, and there is so much money spent on it, there has not been significant innovation?
These are some factors that I think have slowed down innovation in education:
Market Structure: The market is fragmented. In K-12 there are over 98,000 public schools, governed by more than 13,000 school districts. In higher education, there are over 6,000 institutions. Each of those school districts and Higher Ed institutions has an independent (and lengthy) procurement process.
Decision Makers: Who buys? Who consumes? Most of the products and services in education are intended for students, yet the target buyers are usually: the parents, or the teachers, or the school administration or the school district.
Risk aversion: There is little incentive for decision makers to promote innovation due to the perceived downside of making a bad decision as much worse and scarier than the upside due to so many stakeholders. If the school screws up, it will directly impact students. How do you think the parents will feel? Press? Government authorities?
Irrational Choices: In a free market economy, rational people seek the best features at the lowest price, but in education this rule does not apply. This happens because the incentives of the decision makers are not aligned with the incentives of the consumer. For example, a large amount of the funding for universities come from alumni donations, research grants, financial aid from accreditation boards, etc. Sadly, decision makers are not always thinking rationally for what is best for the students.
Sales process: It’s just too long. At times, a sales cycle can take over a year. There are too many stakeholders involved in the decision: administration, technical staff, academic staff, etc. Getting more than five people to sign off any decision is a very tough task. Worst of all, if you did not make it into this year’s buy, you have to wait another school year for your next chance.
Regulation: I don’t consider myself an expert in regulation, but there is still regulation in place that gives too much power to teachers unions, for example, like the power of preventing bad teachers (underperforming classrooms) from being fired. Until recently (before Common Core State Standards was passed), every state had different curriculum for the same grade, requiring teaching materials to be approved at each state before being able to commercialize it.
Sadly, there are few signals to suggest that the landscape will be changing drastically anytime soon. However, a silver lining has emerged in the past few years through rising support from some EdTech focused VC firms as well as from foundations like Bill & Melinda Gates.
Thankfully, startups have also started to figure out how to work around all of these hurdles. We are starting to see innovative startups in EdTech demonstrating traction, doing things that will be transformative.
The best is yet to come.