Four Years to Profitability: Hard Lessons Learned in Edtech

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After a 20-year career in enterprise software, I decided that inspiring kids to learn was the best way to create a better future. To this day, my sentiments are captured best by Nelson Mandela: “Education is the most powerful weapon we can use to change the world.”

In 2007, we launched Big Universe, a digital literacy platform for grades preK to 12. Today, we have one million users (90% students, 10% teachers) across 30 countries and, most importantly, are profitable and poised for fast growth.

However, the first four years were brutal, filled with tough lessons learned.

Know Thy Business Domain and Model

My last company, Isavix Corporation, prior to starting Big Universe was profitable the first year because I knew how enterprise software worked in large organizations; it was self-funded and I took it from inception to a successful exit in six years. With Big Universe, I severely underestimated how much industry knowledge mattered in education. I thought: “I went to school and have kids in school ... how hard can it be?"

Between 2007 to 2010, we went from an advertising-based model (2007-2008) to a freemium model with a monthly subscription premium package (2009), to ultimately selling directly to schools (2010 to present). Each time, we had to transform our company, which was about as much fun as helping a friend move heavy furniture—multiple times.

The reason for the shift was simple: I originally wanted to focus on parents, but the demand was coming from schools. I suspect the parent model didn't prove viable for us because reaching a large enough consumer mass can be expensive, our product wasn't engaging enough (relative to today's video entertainment) and in general, there is too much competing for children's time. In the end, our mission of educating as many kids as possible was served either ways, whether we reached them via parents or schools.

Lesson learned: Have experts, employees, consultants, and advisors on the team to compensate for any lack of industry knowledge and help define the business model (e.g. B2C/B2E, OEM, white label, platform).

Think Revenues From Day One

I’ve previously written about the need to focus on revenues from day one and why many "practitioner" type entrepreneurs (e.g. technologists, educators) don’t do this as well as those with a sales or executive backgrounds. Product development is only a small fraction of running a successful business; the bulk of it relies on marketing, sales, and support.

A good product does not sell itself, so, sales and marketing are often the most important and difficult areas for any new company to focus on. You have to figure out who your target customer is and how you'll sell your product. For instance: Will you use resellers or focus on direct sales?

The answer is different for everyone. Companies like Ellevation Education have successfully built an in-house sales team, thanks to hiring a sales guru who streamlined the sales culture, processes and tools. We relied on resellers to grow sales by 600% to schools and districts in 2011, our first profitable year. Today, we still rely heavily on resellers but are also building an in-house sales team to complement resellers by focusing on territories that aren't covered well.

Lesson learned: Figure out how you'll generate revenue early and if you personally don't like doing sales, quickly find someone who will focus exclusively on this. Trust me—it will make all the difference.

Time Your Pricing and Product Changes Right

Pricing was one of the top mistakes we made, since we were one of the first to market. (Having competitors makes it slightly easier since they provide a benchmark.) It’s difficult since you aren't sure what a customer is willing to pay for the solution.

Pricing can also change over time as the product evolves. In our case, this included a growing library of eBooks and new features built for teachers including assessments, standards alignment, lesson plans.

Our pricing model changed over the years from a monthly subscription to our current annual subscription per school building. However, annual subscription fluctuated a lot—from $995 (2010) to $1,499 (2012), then $1,499 with two optional $500 modules (2013), and $2,999 (2014). Today, based on customer feedback, we have greatly simplified our pricing to $1,999 per school with 10% volume discount. We plan to leave it alone for quite a while!

While all these changes seem like a game of pricing Whac-a-Mole, there was method in this madness. For example, we looked at other subscription products (such as video libraries for preK-12 schools), discussed with consultants and resellers, analyzed new and renewal sales each year, gauged budgets of the departments we sell to and, of course, used complex financial models to project profitability.

Pricing changes can hurt sales but so can product changes. We made a big mistake of introducing major product changes, in the middle of a school year, without communicating them as effectively as we should have. When this happened, schools clearly expressed their unhappiness because it meant teachers and students need to be retrained. To make matters worse, 3% of our customer base couldn't use the new features due to modern browser requirements. These kinds of mistakes can lead directly to losing customers.

Lesson learned: Avoid making too many pricing changes and if you do, take care of your existing customers, otherwise, it'll adversely impact your retention rate. We really messed this up by expecting our existing customers to pay the new prices each time. We now guarantee the same price for 3 years and are considering locking it in for lifetime (similar to how Salesforce does it). As for product changes, we plan to release major features when school is out and provide plenty of advance notice on upcoming features to get customers excited and prepared.

Conclusion

Running a company can be an emotional rollercoaster ride and at times makes you feel bipolar, so be prepared financially and emotionally. Given how much trial and error it takes to get a startup going, ensure you have enough funding to get the business model working. Also, surround yourself with people who can help you avoid mistakes and get you through tough times.

I unintentionally chose the hardest way of doing things—a fresh, doe-eyed entrepreneur new to the industry at one of the worst budget times in the education industry, self-funding a company that at first struggled to hire the right caliber of people. Hindsight is 20/20, so a lot of my mistakes now seem foolish.

But through it all, I'm amazed at what we have built: a global community of students and teachers who learn to read and write everyday using our solution. As Steve Jobs said: "The journey is the reward."

Anil Hemrajani is CEO and founder of Big Universe

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