8 ms·

Why Education Companies Do Not Succeed

230 points by avichal 15y ago

nordsieck 15y ago
Counter example: The Great Courses nee The Teaching Company. There seems to be a reasonable amount of interest in what used to be called a liberal arts education.
- avichal 15y ago
  I do wish them the best but I don't think it's a counter example. They've been around for 20 years, so if they are huge (I have no idea how big they really are) then it because they stuck it out for the long term. "The Great Courses was founded as The Teaching Company in 1990 by Thomas M. Rollins, former Chief Counsel of the United States Senate Committee on Labor and Human Resources."
  - hncommenter13 15y ago
    According to Forbes, the Teaching Company's sales exceeded $100M/yr as of 2010. http://www.forbes.com/forbes/2011/0117/entrepreneurs-brandon-hidalgo-dvds-marketing-master-class.html http://www.forbes.com/forbes/2011/0117/entrepreneurs-brandon... [Edit:typo]
    - tokenadult 15y ago
      Thank you for mentioning the specific number for The Teaching Company, which allows me to relate it to my local public school district. I was just at a public meeting last week where I learned that my local school district, one of a few dozen school districts in the suburban Twin Cities (and by no means the largest), has an annual budget of $137 million. Other HN participants may want to check what the budget is of their own local school district. (As an update, a Web search I just did turned up my school district's budget documents online.) http://www.minnetonka.k12.mn.us/administration/Budget/Documents/Budget.pdf http://www.minnetonka.k12.mn.us/administration/Budget/Docume... On the basis of The Teaching Company bringing in less revenue than one school district in a single state, more than twenty years after it was founded, I would have to say that the submitted article's main point is correct, that there isn't a lot of big money for private enterprise in education in the United States. Note on background knowledge: I have bought a few sets of videos from The Teaching Company, as has my local homeschooling support group. Our local public library system also buys them. But the local school district spends more money in a year than the full revenue of the company even at that.
      - hncommenter13 15y ago
        I'm sorry, but I don't find that to be an instructive comparison. The money the school district spends isn't revenue from the open marketplace, it's tax dollars, which the law compels residents of the school district to give them. Your school district could be the absolute worst or the absolute best in the world, but the money they spend would be derived from the law, not from free choice of a similar caliber (it's much easier to stop doing business with the Teaching Company than to sell my house and leave the district). On esimply can't compare legally-mandated, tax-derived expenditures to cash freely given to a private enterprise (which is their revenue). Not only that, the proper measure in both cases is outcomes per dollar spent, not total expenditures. For the business, this is return on equity. For a school district, it's educational outcomes vs. dollar inputs. This is not to say that every company in the education sector is a great business; there are lots of so-so and outright horrible businesses in many sectors of the economy. But comparing a private enterprise to a tax-supported government entity doesn't make that point clearer.
deyan 15y ago
Thank you for this essay - I spent a lot of time researching (higher) education and had similar conclusions - although certainly not as substantiated by experience and well put.
deleted 15y ago
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jonbischke 15y ago
I think article is essentially right on. It's very difficult to succeed in the education space and, at a minimum, it typically takes a long time to succeed. If you have the patience you can definitely make money in the space (witness Wireless Generation as an example) but there are very few quick wins. Education also really is several separate industries rather than a monolithic one. K-12 has a very different dynamic than higher education and those industries have a much different dynamic than corporate training. Consumer education, which I would consider to be stuff like Kaplan Test Prep, Lynda.com, LiveMocha, etc. is essentially another industry albeit with some overlap with the others. And consumer ed is probably the toughest one to make money in, at least in the U.S. One of the biggest challenges with education companies in the United States is that I feel we've almost been conditioned not to pay for education. Public K-12 education (which is the vast majority of consumption) is paid for by the state. Higher education is heavily subsidized by the government and when it is paid for by the consumer it typically comes in the form of student loans. And then we you become an adult your employer steps in and pays for the majority of your education/training. So while people will spend lots of money for clothing, entertainment, food, etc. it's tough to get people to pay out of pocket for education. The industry that is most similar in this respect is health care and end the dynamics in these two industries are much the same. I'd highly recommend that anyone wanting to understand these industries more deeply read Disrupting Class and The Innovator's Prescription, both by Clayton Christensen.
- jbyers 15y ago
  > Education also really is several separate industries rather than a monolithic one. This is a great point, and something pundits and the author of this article don't explain in sufficient detail. Comparing a company that offers online courses to end consumers and a company selling software a a service to districts and universities is nonsensical. Is it safe to say that the education market on whole is a challenging environment? Sure. But beyond that, without specifying a narrow segment, generalizations are useless.
  - avichal 15y ago
    Hi JByers -- blog author here. I don't think the comparison is non-sensical because the common thread tying all of these different segments together is the end buyer's perception of value. If you as the builder or service provider or technologist think that the value you're offering is higher quality you will have a slow road. If you think it is saving cost/time to get to the same level of quality you will scale quickly. This holds across segments as the examples in the post illustrate -- Chegg, University of Phoenix, TutorVista, etc.
Irfaan 15y ago
Every time I think about the education space, I think back to a couple of Steve Krenzel's posts about his startup's experience. • http://news.ycombinator.com/item?id=1343380 http://news.ycombinator.com/item?id=1343380 • http://news.ycombinator.com/item?id=1343564 http://news.ycombinator.com/item?id=1343564 Quick summary: Union politics can rear its head in unexpected ways. :( There's probably good money to be made in this space. Goodness knows there's plenty of low-hanging fruit. But you may run-up against some terribly well-entrenched opposition.
droithomme 15y ago
He makes the claim: "Well educated people think about education as an investment." He later says: "The average, middle class person thinks about education as an expenditure, not an investment." Put together he is claiming that middle class people are not, on average, well educated. There is also an implication that lower class people are not well educated either. We are left, by inference, with the claim that it is only the upper class who is well educated. Perhaps we should define what it means to be well educated before proceeding or accepting any further claims in the article.
- njharman 15y ago
  You dropped "well". Well Educated and Educated are not equivalent. Educated is Univ KS BSCS I got for $600/semester Well Educated is MIT Masters of CS which costs what $10's of thousands
  - tomkinstinch 15y ago
    I would argue that being well educated is not about the name of the institution, but the breadth and depth of knowledge. A master's degree in CS from a top school does not make you well educated without the insight of how to apply it. That insight comes from more broad study in humanities and the arts.
    - Locke1689 15y ago
      No, in my experience it's mostly about the competence of your peers and the expectations of your professors. Decent schools teach you about operating systems. Great schools make you write an operating system and don't care when you bitch that it's "too hard" and takes 20 hours a week for that one class.
      - tomkinstinch 15y ago
        Mastery through rigor is one interpretation. For me being well-educated is about expanding one's scope of knowledge beyond a myopic mastery of a particular niche to an understanding of the power and potential of their craft, in the context of current society as well as history. How can I use what I know to improve things, and what have others tried before? What knowledge can I borrow from other fields to be more effective?
chrisabruce 15y ago
Great article! I have a rabid passion about this space and have been thinking and researching it for last 2 years. The five minutes I spent reading this has taught me more about the space than the last 2 years. I also think this resonates with me because it just shows how hard it will be to be disruptive and how jacked up it really is in the US. Thanks for posting!
ams6110 15y ago
My view is a bit different: education companies don't succeed because they don't have a market. People who are motivated enough to actually engage in online education can do it for free (MIT courseware, as one example). People who aren't, won't sign up. Or if they do they won't stick with it. So the only way to make money in online education is to appeal to people who won't ever really benefit, and take their money.
- ebiester 15y ago
  That may apply to end-user education. That is rarely the individual buying the education. You're selling to the parents, to the school district, who have different motivations than the user.
- trevelyan 15y ago
  I run an education company in the consumer space. Slight disagreement on the quality/cost problem. The big challenge isn't having a market. One of the reasons there is so much competition is that people will look at the leading players and think, "if they can sell that for $500 then I can make a lot of money with a better and cheaper product." This encourages a flood of really low quality education products that saturate the market and create a barrier to entry for new startups. The thing most founders don't realize is that most of the revenues from high-priced products are used to fund advertising and customer acquisition strategies, so competing on price is very difficult because - ironically - it hurts your ability to scale in the short-term. This makes bootstrapping tough because if you charge the prices necessary to get users you have to compete at the same level of quality as the established players, while if you charge less you will have trouble getting users. Meanwhile, the extreme competition makes SEO near impossible (our organic search figures are dismal - our growth is ALL word of mouth). This is why there is so much snakeoil in the industry: distribution trumps quality. The companies that survive tend to be the ones that take a shotgun approach to maximizing visibility rather than actually focusing on how to provide a better education. I personally believe focusing on quality at low cost IS a winning approach because once you achieve dominance you undermine the pay-to-advertise business model, but you have to figure out how to cover your costs and grow into that position organically. And this is simply not possible for startups that have expense structures that require them to get funding. I've been told by public listed companies not to enter our market because they were going to own it in X years by giving away both the cow and the milk. I've seen competitor after competitor flame out because they thought getting users would be easy, produced crap and discovered that no-one came. But if you can produce something that people use and care enough about to help spread word, you can do it.
MarkPNeyer 15y ago
a friend of mine has an education startup that's doing quite well, considering she spends maybe a few hours a month it. they offer dance lessons, after school at elementary schools, or during the day at preschools. depending on the school, they charge the parents of the children, or they charge the school directly. the money they earn is more than enough to higher dance instructors to teach for them and to pay their overhead. i'm talking to her about hiring programmers to come in once a week and teach the kids algorithmic thinking - i can imagine a ton of parents who'd be willing to pay $10 a week to help their kids learn to program. if you teach a one hour class five days a week, and each class has 30 kids, that's $1,500 a week. most of the thinking in this space - especially on getting more people into programming - is way too focused on people in high school and early college. at that point, their impression of programming is mostly set. if you want to really change the world, you've got to start with they're still excited about learning and too young to worry about being cool.
- deyan 15y ago
  Note that the article is talking about VC-scale (think 10s/100s of million in revenue).
jxcole 15y ago
This article basically centers it's argument around the fact that people in small town america don't need an education to survive. With increased automation and robots, that is quickly changing. I bet in 30 years we'll see a complete shift in American culture where education is absolutely necessary just to survive.
- potatolicious 15y ago
  The reality will change in America long before the culture will. The Asian obsession with education is ingrained from literally over a thousand years of systemized, central testing. I have my doubts that The American middle class (or, those who were once the middle class) will go from borderline anti-intellectual to embracing the need for education, in a mere 30 years.
  - lsc 15y ago
    "Never let your schooling interfere with your education" - there is a big difference between educating yourself for the real world and educating yourself for a test; this difference, I think, can possibly give the Americans an advantage. I do think that this American anti-intellectualism is a relatively new (and hopefully temporary) thing. I mean, if you can earn a good living working at a factory, you do what you are told, right? you don't go changing the system 'cause you think it's better. But really, I think this is largely a post-great-war thing, and hopefully it will fade. Really, as far as I can tell, schooling, if anything, makes this problem worse. You ever hire someone out of college? Most of them seem to think they should do what you tell them to do, no more and no less. And they expect fairly explicit instructions. The self-taught seem to be much more open to "hey, I need task X done. Go figure it out"
    - jleader 15y ago
      I think you may be conflating anti-intellectualism and need for structure. The need for structure is probably newer, as people grow up in an increasingly structured society. On the other hand, I think there is an American strain of anti-intellectualism that goes much deeper, to our national myth of "taming the frontier". We don't need no diplomas out here on the frontier!
michaelpinto 15y ago
The reason most geeks fail at this is because they think the answer can be found in technology, but what they always seem to forget is that at the end of the education is about people. By the way if anyone is interested in role model I'd suggest reading the book "Street Gang: the Complete History of Sesame Street" by Michael Davis: http://www.streetgangbook.com http://www.streetgangbook.com People tend to forget today that color TV was bleeding edge tech in the 60s and what CTW did back then was amazing. I also think that anybody who wants to be a CEO should study what Joan Ganz Cooney did at CTW, and more importantly what she didn't do: She found the best creative talent out there and made it a point to not get in the way. She also made it a point to not base her organization in Hollywood, and because of many of her choices kids today are still watching and learning from Sesame Street. http://en.wikipedia.org/wiki/Joan_Ganz_Cooney http://en.wikipedia.org/wiki/Joan_Ganz_Cooney
- ippisl 15y ago
  We're sesame street creators the first to use content testing(borrowed from direct mail ads) in a systematic way for children TV ? wasn't this the source of they're success ?
JupiterJazz 15y ago
It seems that they are serving the wrong customers. Most edu startups try to sell to parents, teachers, or administrators. Sell directly to the student. Thats one reason I think Khan Academy is having such success. What I would like a startup to offer me is this: Buy my product/service, invest your time and energy as well as you can learning the subject, and in return we will make you as employable as humanly possible. Maybe work backwards from that. Just my 2 cents.
- avichal 15y ago
  Unfortunately students have the same mentality and have no buying power on their own. Khan Academy has built a great brand but is free. The demographic analysis in the article supports the thesis -- in my unbiased opinion ;-)
  - paulgin 15y ago
    This is an easy excuse but it's dead simple wrong. Students represent a huge amount in spending power, with a huge percentage of that being discretionary spending on non-essential items. Students spend money. Lots of money. Parents spend even more. A lack of a market isn't the reason ed-tech startups fail. It's lack of value.
    - avichal 15y ago
      That's the point of the post. There's lots of money out there. But it gets spent in ways that are different from what the typical entrepreneur and VC expect it to be spent on. The dynamics of how purchasing decisions are made are around cost, not quality. Let's talk data. How many students spend money on educational services? 15% of students take SAT or ACT prep outside of school. By the time a student is 16 and has some discretionary spend and has some influence of a parent's spend. If students took their spending power/influence and prioritized educational spend you would have a lot more than 15% of students getting test prep outside of the school. Consumer spending is huge. Consumer spending on education is large. Consumer spending on education where the primary driver is quality is much smaller.
mnemonicsloth 15y ago
FTFY: "Why Companies That Deliver Incremental Improvement To Educational Services Already Provided Free To Most Rich-World Citizens Do Not Generate Sufficient Returns At Scale To Justify VC Investment."
DjMojoRisin 15y ago
The most important thing that I got from this article was the realization that for most people to live an average life where they are not "screwed" they don't need a very high quality education; an average education which provides good value for money will do just fine.
- briandear 15y ago
  The key isn't making education 'great' (whatever that means,) but making it easier. Edu-products need to be simple. Try getting a class of 9th graders to login to Basecamp and you'll see what the problem is..
ainsley 15y ago
Just a couple of notes on K-12 public education spending, for additional context: (1) The vast majority of the public funds go to teacher salaries and benefits. In most districts, as little as 5% of funds are available for new technology, pilot programs, or anything innovative. That said, small percentages can go a long way. New York City, for example, has an annual budget of ~$24 billion. (2) Per student funding is a complex mix of federal, state, and local dollars. Federal dollars are designed to even the playing field, while local dollars exacerbate socioeconomic differences. The lack of transparency around these formulas is a significant barrier to disruption--many families don't have an accurate picture of how their school's resources compare to the resources of schools in the town nextdoor, which would be a first step toward starting to think about what your money should really be getting you. Part of the reason the school choice movement has been so powerful is that it sheds light on per student funding. With the increasing number of blended/ hybrid learning options, I'm curious to see whether there's a push to give families even greater control over the per student dollars allocated to their children. If you can take your child's ~$10-13K and go to a charter school, why can't you decide to dedicate half the funds to online courses and half to live instruction?
tokenadult 15y ago
There have been tough barriers to entry set up by pricing for a long time in "education." If some providers have exclusive subsidies from taxpayers, it is difficult for other providers to compete. "In modern times [as contrasted with ancient times] the diligence of public teachers is more or less corrupted by the circumstances which render them more or less independent of their success and reputation in their particular professions. Their salaries, too, put the private teacher, who would pretend to come into competition with them, in the same state with a merchant who attempts to trade without a bounty in competition with those who trade with a considerable one. . . . The privileges of graduation, besides, are in many countries . . . obtained only by attending the lectures of the public teachers. . . . The endowment of schools and colleges have, in this manner, not only corrupted the diligence of public teachers, but have rendered it almost impossible to have any good private ones." -- Adam Smith, The Wealth of Nations, Book V, Part 3, Article II (1776)
jeffreymcmanus 15y ago
Anytime anyone advises you that something can never work, you should run screaming. "Never" is an extremely long time. First of all, what's being referred to here as "education" is really dozens of different categories of products -- it's very challenging to generalize about all of them. Secondly, the author asserts that building a meaningful education business will take 20 years. It's interesting that he makes that assertion since he didn't spend 20 years on his own education business. But consider that every meaningful innovation always seems like it's 20 years away. (Indoor plumbing probably seemed at least 20 years away the day before it was invented.) But then, as soon as something is invented, it immediately seems obvious and commonplace. That's how innovation works; that's why it fascinates us. The big problem with education is that most investors work on pattern recognition, which is to say they want to see some variant of something they've seen before. So they fund shitty businesses that really act more like media companies or software companies because they think that's how they'll achieve scale. And it's unsurprising that students are indifferent, because students want to be actually educated and your highly scalable education business essentially rickrolled them.
- americandesi333 15y ago
  I couldn't agree with you more. What you just said reminded me of how IBM first reacted to personal computers. The crux of innovation is disrupting the existing model. Thats what Apple did with its iPod and iTunes product. The author has mentioned very few education companies outside of the standardized tests/textbooks/tutoring model. Companies like Wireless Generation, Khan Academy, P2PU are the ones that are really disrupting how education is delivered. Another education company called Zinch which was purchased by Chegg turned the admissions process on its head. These are the type of innovations that education industry will have. It will be sad if we all sit around with our arms crossed thinking that it can't be done for the next 20 years because the technology is ripe and so is adoption...
  - avichal 15y ago
    Khan Academy - I point out the demographics in my post. It supports my point. Also note that it's free and a nonprofit, not a VC backed company. Wireless Generation - They have been around for 10 years and were not profitable at the time of sale. http://finance.fortune.cnn.com/2010/11/23/news-corp-deal-for-wireless-generation-is-great-but-doesnt-make-sense/ http://finance.fortune.cnn.com/2010/11/23/news-corp-deal-for... Zinch - didn't really get off the ground. I know the founder and others on the team. Really great folks doing some great work. Part of the reason they sold is that getting any serious traction and turning it into a large business is going to take many many more years. Put it another way. In the same amount of time that Wireless Generation was founded the rest of the Internet got: Facebook, iOS, YouTube, Wikipedia, DropBox, and much more. There is a big difference between an industry being nascent (as the PC industry was in the 70s) and the fundamental dynamics in the industry creating certain types of companies (as is the case with education and some other industries).

230 points by avichal 15y ago

Counter example: The Great Courses nee The Teaching Company. There seems to be a reasonable amount of interest in what used to be called a liberal arts education.

avichal 15y ago
I do wish them the best but I don't think it's a counter example. They've been around for 20 years, so if they are huge (I have no idea how big they really are) then it because they stuck it out for the long term. "The Great Courses was founded as The Teaching Company in 1990 by Thomas M. Rollins, former Chief Counsel of the United States Senate Committee on Labor and Human Resources."
- hncommenter13 15y ago
  According to Forbes, the Teaching Company's sales exceeded $100M/yr as of 2010. http://www.forbes.com/forbes/2011/0117/entrepreneurs-brandon-hidalgo-dvds-marketing-master-class.html http://www.forbes.com/forbes/2011/0117/entrepreneurs-brandon... [Edit:typo]
  - tokenadult 15y ago
    Thank you for mentioning the specific number for The Teaching Company, which allows me to relate it to my local public school district. I was just at a public meeting last week where I learned that my local school district, one of a few dozen school districts in the suburban Twin Cities (and by no means the largest), has an annual budget of $137 million. Other HN participants may want to check what the budget is of their own local school district. (As an update, a Web search I just did turned up my school district's budget documents online.) http://www.minnetonka.k12.mn.us/administration/Budget/Documents/Budget.pdf http://www.minnetonka.k12.mn.us/administration/Budget/Docume... On the basis of The Teaching Company bringing in less revenue than one school district in a single state, more than twenty years after it was founded, I would have to say that the submitted article's main point is correct, that there isn't a lot of big money for private enterprise in education in the United States. Note on background knowledge: I have bought a few sets of videos from The Teaching Company, as has my local homeschooling support group. Our local public library system also buys them. But the local school district spends more money in a year than the full revenue of the company even at that.
    - hncommenter13 15y ago
      I'm sorry, but I don't find that to be an instructive comparison. The money the school district spends isn't revenue from the open marketplace, it's tax dollars, which the law compels residents of the school district to give them. Your school district could be the absolute worst or the absolute best in the world, but the money they spend would be derived from the law, not from free choice of a similar caliber (it's much easier to stop doing business with the Teaching Company than to sell my house and leave the district). On esimply can't compare legally-mandated, tax-derived expenditures to cash freely given to a private enterprise (which is their revenue). Not only that, the proper measure in both cases is outcomes per dollar spent, not total expenditures. For the business, this is return on equity. For a school district, it's educational outcomes vs. dollar inputs. This is not to say that every company in the education sector is a great business; there are lots of so-so and outright horrible businesses in many sectors of the economy. But comparing a private enterprise to a tax-supported government entity doesn't make that point clearer.

deyan 15y ago

Thank you for this essay - I spent a lot of time researching (higher) education and had similar conclusions - although certainly not as substantiated by experience and well put.

deleted 15y ago

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jonbischke 15y ago

I think article is essentially right on. It's very difficult to succeed in the education space and, at a minimum, it typically takes a long time to succeed. If you have the patience you can definitely make money in the space (witness Wireless Generation as an example) but there are very few quick wins. Education also really is several separate industries rather than a monolithic one. K-12 has a very different dynamic than higher education and those industries have a much different dynamic than corporate training. Consumer education, which I would consider to be stuff like Kaplan Test Prep, Lynda.com, LiveMocha, etc. is essentially another industry albeit with some overlap with the others. And consumer ed is probably the toughest one to make money in, at least in the U.S. One of the biggest challenges with education companies in the United States is that I feel we've almost been conditioned not to pay for education. Public K-12 education (which is the vast majority of consumption) is paid for by the state. Higher education is heavily subsidized by the government and when it is paid for by the consumer it typically comes in the form of student loans. And then we you become an adult your employer steps in and pays for the majority of your education/training. So while people will spend lots of money for clothing, entertainment, food, etc. it's tough to get people to pay out of pocket for education. The industry that is most similar in this respect is health care and end the dynamics in these two industries are much the same. I'd highly recommend that anyone wanting to understand these industries more deeply read Disrupting Class and The Innovator's Prescription, both by Clayton Christensen.

jbyers 15y ago
> Education also really is several separate industries rather than a monolithic one. This is a great point, and something pundits and the author of this article don't explain in sufficient detail. Comparing a company that offers online courses to end consumers and a company selling software a a service to districts and universities is nonsensical. Is it safe to say that the education market on whole is a challenging environment? Sure. But beyond that, without specifying a narrow segment, generalizations are useless.
- avichal 15y ago
  Hi JByers -- blog author here. I don't think the comparison is non-sensical because the common thread tying all of these different segments together is the end buyer's perception of value. If you as the builder or service provider or technologist think that the value you're offering is higher quality you will have a slow road. If you think it is saving cost/time to get to the same level of quality you will scale quickly. This holds across segments as the examples in the post illustrate -- Chegg, University of Phoenix, TutorVista, etc.

Irfaan 15y ago

Every time I think about the education space, I think back to a couple of Steve Krenzel's posts about his startup's experience. • http://news.ycombinator.com/item?id=1343380 http://news.ycombinator.com/item?id=1343380 • http://news.ycombinator.com/item?id=1343564 http://news.ycombinator.com/item?id=1343564 Quick summary: Union politics can rear its head in unexpected ways. :( There's probably good money to be made in this space. Goodness knows there's plenty of low-hanging fruit. But you may run-up against some terribly well-entrenched opposition.

droithomme 15y ago

He makes the claim: "Well educated people think about education as an investment." He later says: "The average, middle class person thinks about education as an expenditure, not an investment." Put together he is claiming that middle class people are not, on average, well educated. There is also an implication that lower class people are not well educated either. We are left, by inference, with the claim that it is only the upper class who is well educated. Perhaps we should define what it means to be well educated before proceeding or accepting any further claims in the article.

njharman 15y ago
You dropped "well". Well Educated and Educated are not equivalent. Educated is Univ KS BSCS I got for $600/semester Well Educated is MIT Masters of CS which costs what $10's of thousands
- tomkinstinch 15y ago
  I would argue that being well educated is not about the name of the institution, but the breadth and depth of knowledge. A master's degree in CS from a top school does not make you well educated without the insight of how to apply it. That insight comes from more broad study in humanities and the arts.
  - Locke1689 15y ago
    No, in my experience it's mostly about the competence of your peers and the expectations of your professors. Decent schools teach you about operating systems. Great schools make you write an operating system and don't care when you bitch that it's "too hard" and takes 20 hours a week for that one class.
    - tomkinstinch 15y ago
      Mastery through rigor is one interpretation. For me being well-educated is about expanding one's scope of knowledge beyond a myopic mastery of a particular niche to an understanding of the power and potential of their craft, in the context of current society as well as history. How can I use what I know to improve things, and what have others tried before? What knowledge can I borrow from other fields to be more effective?

chrisabruce 15y ago

Great article! I have a rabid passion about this space and have been thinking and researching it for last 2 years. The five minutes I spent reading this has taught me more about the space than the last 2 years. I also think this resonates with me because it just shows how hard it will be to be disruptive and how jacked up it really is in the US. Thanks for posting!

ams6110 15y ago

My view is a bit different: education companies don't succeed because they don't have a market. People who are motivated enough to actually engage in online education can do it for free (MIT courseware, as one example). People who aren't, won't sign up. Or if they do they won't stick with it. So the only way to make money in online education is to appeal to people who won't ever really benefit, and take their money.

ebiester 15y ago
That may apply to end-user education. That is rarely the individual buying the education. You're selling to the parents, to the school district, who have different motivations than the user.
trevelyan 15y ago
I run an education company in the consumer space. Slight disagreement on the quality/cost problem. The big challenge isn't having a market. One of the reasons there is so much competition is that people will look at the leading players and think, "if they can sell that for $500 then I can make a lot of money with a better and cheaper product." This encourages a flood of really low quality education products that saturate the market and create a barrier to entry for new startups. The thing most founders don't realize is that most of the revenues from high-priced products are used to fund advertising and customer acquisition strategies, so competing on price is very difficult because - ironically - it hurts your ability to scale in the short-term. This makes bootstrapping tough because if you charge the prices necessary to get users you have to compete at the same level of quality as the established players, while if you charge less you will have trouble getting users. Meanwhile, the extreme competition makes SEO near impossible (our organic search figures are dismal - our growth is ALL word of mouth). This is why there is so much snakeoil in the industry: distribution trumps quality. The companies that survive tend to be the ones that take a shotgun approach to maximizing visibility rather than actually focusing on how to provide a better education. I personally believe focusing on quality at low cost IS a winning approach because once you achieve dominance you undermine the pay-to-advertise business model, but you have to figure out how to cover your costs and grow into that position organically. And this is simply not possible for startups that have expense structures that require them to get funding. I've been told by public listed companies not to enter our market because they were going to own it in X years by giving away both the cow and the milk. I've seen competitor after competitor flame out because they thought getting users would be easy, produced crap and discovered that no-one came. But if you can produce something that people use and care enough about to help spread word, you can do it.

MarkPNeyer 15y ago

a friend of mine has an education startup that's doing quite well, considering she spends maybe a few hours a month it. they offer dance lessons, after school at elementary schools, or during the day at preschools. depending on the school, they charge the parents of the children, or they charge the school directly. the money they earn is more than enough to higher dance instructors to teach for them and to pay their overhead. i'm talking to her about hiring programmers to come in once a week and teach the kids algorithmic thinking - i can imagine a ton of parents who'd be willing to pay $10 a week to help their kids learn to program. if you teach a one hour class five days a week, and each class has 30 kids, that's $1,500 a week. most of the thinking in this space - especially on getting more people into programming - is way too focused on people in high school and early college. at that point, their impression of programming is mostly set. if you want to really change the world, you've got to start with they're still excited about learning and too young to worry about being cool.

deyan 15y ago
Note that the article is talking about VC-scale (think 10s/100s of million in revenue).

jxcole 15y ago

This article basically centers it's argument around the fact that people in small town america don't need an education to survive. With increased automation and robots, that is quickly changing. I bet in 30 years we'll see a complete shift in American culture where education is absolutely necessary just to survive.

potatolicious 15y ago
The reality will change in America long before the culture will. The Asian obsession with education is ingrained from literally over a thousand years of systemized, central testing. I have my doubts that The American middle class (or, those who were once the middle class) will go from borderline anti-intellectual to embracing the need for education, in a mere 30 years.
- lsc 15y ago
  "Never let your schooling interfere with your education" - there is a big difference between educating yourself for the real world and educating yourself for a test; this difference, I think, can possibly give the Americans an advantage. I do think that this American anti-intellectualism is a relatively new (and hopefully temporary) thing. I mean, if you can earn a good living working at a factory, you do what you are told, right? you don't go changing the system 'cause you think it's better. But really, I think this is largely a post-great-war thing, and hopefully it will fade. Really, as far as I can tell, schooling, if anything, makes this problem worse. You ever hire someone out of college? Most of them seem to think they should do what you tell them to do, no more and no less. And they expect fairly explicit instructions. The self-taught seem to be much more open to "hey, I need task X done. Go figure it out"
  - jleader 15y ago
    I think you may be conflating anti-intellectualism and need for structure. The need for structure is probably newer, as people grow up in an increasingly structured society. On the other hand, I think there is an American strain of anti-intellectualism that goes much deeper, to our national myth of "taming the frontier". We don't need no diplomas out here on the frontier!

michaelpinto 15y ago

The reason most geeks fail at this is because they think the answer can be found in technology, but what they always seem to forget is that at the end of the education is about people. By the way if anyone is interested in role model I'd suggest reading the book "Street Gang: the Complete History of Sesame Street" by Michael Davis: http://www.streetgangbook.com http://www.streetgangbook.com People tend to forget today that color TV was bleeding edge tech in the 60s and what CTW did back then was amazing. I also think that anybody who wants to be a CEO should study what Joan Ganz Cooney did at CTW, and more importantly what she didn't do: She found the best creative talent out there and made it a point to not get in the way. She also made it a point to not base her organization in Hollywood, and because of many of her choices kids today are still watching and learning from Sesame Street. http://en.wikipedia.org/wiki/Joan_Ganz_Cooney http://en.wikipedia.org/wiki/Joan_Ganz_Cooney

ippisl 15y ago
We're sesame street creators the first to use content testing(borrowed from direct mail ads) in a systematic way for children TV ? wasn't this the source of they're success ?

JupiterJazz 15y ago

It seems that they are serving the wrong customers. Most edu startups try to sell to parents, teachers, or administrators. Sell directly to the student. Thats one reason I think Khan Academy is having such success. What I would like a startup to offer me is this: Buy my product/service, invest your time and energy as well as you can learning the subject, and in return we will make you as employable as humanly possible. Maybe work backwards from that. Just my 2 cents.

avichal 15y ago
Unfortunately students have the same mentality and have no buying power on their own. Khan Academy has built a great brand but is free. The demographic analysis in the article supports the thesis -- in my unbiased opinion ;-)
- paulgin 15y ago
  This is an easy excuse but it's dead simple wrong. Students represent a huge amount in spending power, with a huge percentage of that being discretionary spending on non-essential items. Students spend money. Lots of money. Parents spend even more. A lack of a market isn't the reason ed-tech startups fail. It's lack of value.
  - avichal 15y ago
    That's the point of the post. There's lots of money out there. But it gets spent in ways that are different from what the typical entrepreneur and VC expect it to be spent on. The dynamics of how purchasing decisions are made are around cost, not quality. Let's talk data. How many students spend money on educational services? 15% of students take SAT or ACT prep outside of school. By the time a student is 16 and has some discretionary spend and has some influence of a parent's spend. If students took their spending power/influence and prioritized educational spend you would have a lot more than 15% of students getting test prep outside of the school. Consumer spending is huge. Consumer spending on education is large. Consumer spending on education where the primary driver is quality is much smaller.

mnemonicsloth 15y ago

FTFY: "Why Companies That Deliver Incremental Improvement To Educational Services Already Provided Free To Most Rich-World Citizens Do Not Generate Sufficient Returns At Scale To Justify VC Investment."

DjMojoRisin 15y ago

The most important thing that I got from this article was the realization that for most people to live an average life where they are not "screwed" they don't need a very high quality education; an average education which provides good value for money will do just fine.

briandear 15y ago
The key isn't making education 'great' (whatever that means,) but making it easier. Edu-products need to be simple. Try getting a class of 9th graders to login to Basecamp and you'll see what the problem is..

ainsley 15y ago

Just a couple of notes on K-12 public education spending, for additional context: (1) The vast majority of the public funds go to teacher salaries and benefits. In most districts, as little as 5% of funds are available for new technology, pilot programs, or anything innovative. That said, small percentages can go a long way. New York City, for example, has an annual budget of ~$24 billion. (2) Per student funding is a complex mix of federal, state, and local dollars. Federal dollars are designed to even the playing field, while local dollars exacerbate socioeconomic differences. The lack of transparency around these formulas is a significant barrier to disruption--many families don't have an accurate picture of how their school's resources compare to the resources of schools in the town nextdoor, which would be a first step toward starting to think about what your money should really be getting you. Part of the reason the school choice movement has been so powerful is that it sheds light on per student funding. With the increasing number of blended/ hybrid learning options, I'm curious to see whether there's a push to give families even greater control over the per student dollars allocated to their children. If you can take your child's ~$10-13K and go to a charter school, why can't you decide to dedicate half the funds to online courses and half to live instruction?

tokenadult 15y ago

There have been tough barriers to entry set up by pricing for a long time in "education." If some providers have exclusive subsidies from taxpayers, it is difficult for other providers to compete. "In modern times [as contrasted with ancient times] the diligence of public teachers is more or less corrupted by the circumstances which render them more or less independent of their success and reputation in their particular professions. Their salaries, too, put the private teacher, who would pretend to come into competition with them, in the same state with a merchant who attempts to trade without a bounty in competition with those who trade with a considerable one. . . . The privileges of graduation, besides, are in many countries . . . obtained only by attending the lectures of the public teachers. . . . The endowment of schools and colleges have, in this manner, not only corrupted the diligence of public teachers, but have rendered it almost impossible to have any good private ones." -- Adam Smith, The Wealth of Nations, Book V, Part 3, Article II (1776)

jeffreymcmanus 15y ago

Anytime anyone advises you that something can never work, you should run screaming. "Never" is an extremely long time. First of all, what's being referred to here as "education" is really dozens of different categories of products -- it's very challenging to generalize about all of them. Secondly, the author asserts that building a meaningful education business will take 20 years. It's interesting that he makes that assertion since he didn't spend 20 years on his own education business. But consider that every meaningful innovation always seems like it's 20 years away. (Indoor plumbing probably seemed at least 20 years away the day before it was invented.) But then, as soon as something is invented, it immediately seems obvious and commonplace. That's how innovation works; that's why it fascinates us. The big problem with education is that most investors work on pattern recognition, which is to say they want to see some variant of something they've seen before. So they fund shitty businesses that really act more like media companies or software companies because they think that's how they'll achieve scale. And it's unsurprising that students are indifferent, because students want to be actually educated and your highly scalable education business essentially rickrolled them.

americandesi333 15y ago
I couldn't agree with you more. What you just said reminded me of how IBM first reacted to personal computers. The crux of innovation is disrupting the existing model. Thats what Apple did with its iPod and iTunes product. The author has mentioned very few education companies outside of the standardized tests/textbooks/tutoring model. Companies like Wireless Generation, Khan Academy, P2PU are the ones that are really disrupting how education is delivered. Another education company called Zinch which was purchased by Chegg turned the admissions process on its head. These are the type of innovations that education industry will have. It will be sad if we all sit around with our arms crossed thinking that it can't be done for the next 20 years because the technology is ripe and so is adoption...
- avichal 15y ago
  Khan Academy - I point out the demographics in my post. It supports my point. Also note that it's free and a nonprofit, not a VC backed company. Wireless Generation - They have been around for 10 years and were not profitable at the time of sale. http://finance.fortune.cnn.com/2010/11/23/news-corp-deal-for-wireless-generation-is-great-but-doesnt-make-sense/ http://finance.fortune.cnn.com/2010/11/23/news-corp-deal-for... Zinch - didn't really get off the ground. I know the founder and others on the team. Really great folks doing some great work. Part of the reason they sold is that getting any serious traction and turning it into a large business is going to take many many more years. Put it another way. In the same amount of time that Wireless Generation was founded the rest of the Internet got: Facebook, iOS, YouTube, Wikipedia, DropBox, and much more. There is a big difference between an industry being nascent (as the PC industry was in the 70s) and the fundamental dynamics in the industry creating certain types of companies (as is the case with education and some other industries).