There is no more powerful lever one can pull to transform a person’s life than to provide access to quality education. But for education entrepreneurs to reach students at scale, they need access to people, systems and capital. The strongest businesses are those where strong educational outcomes are co-linear with strong financial performance. In other words, as the business reaches more students, the company generates higher revenue and more value—financially and with social impact.
At a recent panel I moderated alongside Amy Klement of Omidyar Network, Tory Patterson of Owl Ventures, Jennifer Lee of Learn Capital and Esteban Sosnik of Reach Capital we discussed some common themes when it comes to successful companies that drive impactful education outcomes at scale. We agree that there are some core principles:
Find a growing market
First, find a growing market in which a fundamental shift creates unmet demand and an opportunity for investment. In our discussion, Patterson pointed out that the market for K-12 curriculum has historically been dominated by a few large publishers with an expensive, top-down approach to distribution. Schools were unhappy with both the cost and the quality of the instructional materials available.
In recent years, however, a confluence of policy and technology shifts—assessment and accountability for individual student achievement, national standards and increasing broadband penetration—have enabled new entrants to disrupt that market with adaptive digital solutions at the school and district level and taking share from the incumbents.
Align with a great management team
When the Rise Fund made its first investment in Latin America, we were fortunately to partner with a team at Digital House with a deep knowledge of the enterprise space. The best management teams also find creative way to expand their market with unique funding vehicles and new approaches. For example, Tom Davidson at EverFi builds unique partnerships with the business community to subsidize the delivery of their content in public schools.
Sometimes a CEO has to take a company in a new strategic direction. Jessie Woolley-Wilson left a company 10 times larger to join DreamBox Learning because she believed in the power of their adaptive engine to reach students at scale. She shifted the focus of the company from focusing on selling to consumers to selling to school institutions, and rebuilt the salesforce.
Develop a value creation plan
It is vital to put educational strategy and outcomes first—strong outcomes which create a fundamental value for customers drive strong results, both financially and in terms of social impact. Generally, the due diligence also points to needs to improve the technology infrastructure and fill gaps on the team. The Rise Fund creates a “value creation plan” for each investment which represents a strategic plan, co-authored by the management team, for the strategic and operating initiatives that must be addressed in the first year of the investment.
Part of the value creation plan includes the data that management will report to the board. There’s a common dictum: “manage what you measure.” Klement explained that “At Bridge International Academies, management team is extremely data driven and captures most of what’s happening in the classroom, for both teachers and students, to better manage student outcomes.”
Focus on the core value proposition for the customer
How do you know you are creating value for your customers? Impact investors typically start the underwriting process by reviewing research for evidence that the interventions provided by the company will generate strong outcomes for students. In the same way that investors build a financial model to look at return on capital, The Rise Fund has created a unique process for building an impact model to estimate that dollars of societal impact that an investment will generate.
As Patterson noted, “As you scale the first set of users that you have, you should already be thinking about what it’s going to take for the company to move from the first 5 percent of the market to the next 95 percent, from individual schools and teachers to entire districts.”
Sosnick added that that “a great proxy for impact is engagement. Products that are actively used are generating value for teachers and learners.” Since engagement is correlated with contract retention, measuring these impact results in better returns. Retention is key in any software-as-a-service business, he noted, and “it’s easy to underestimate the exponential power of churn.”
Creating and growing the core value proposition can also help to guard against the risk of new competitive entrants coming into the field and taking share. After all, the most profitable way to grow is to hang onto your existing customers.
Lastly, many companies under-invest in customer success. Districts may buy a product, but do they implement it well and do they use it? The best way to reduce churn is to make sure that the product is creating the outcomes for which it was designed—and the best way to ensure those outcomes is to invest in customer engagement from the start.
Effectively manage capital
Finally, startups need to be well-capitalized with a cushion to get through their next sales cycle. Learn Capital’s Lee suggested that “particularly in the K-12 space, but also in other parts of education, you have to understand that the sales cycle can be really long and accommodate for that.”
Performance can move sideways, especially as entrepreneurs make early improvements, so they should give themselves as much runway as possible. Alignment with investors on their strategic plans and the social values that inform those plans will provide the best path to scale—both socially and financially—over the long term.