How should I balance impact with economic sustainability in edtech?

Dear Esteban,

I’m struggling because I need my company to monetize and survive, but one of the main reasons I got into edtech is to have an impact. It seems like there’s always some type of tradeoff between the social and financial bottom line. As an edtech entrepreneur who is interested in both building a great business and making a change in education, how should I balance impact with economic sustainability?

ImpactED

Dear ImpactED,

 Let’s face it. Most entrepreneurs (and VCs!) in the edtech space are in it not only as a business opportunity, but also because we care about educational opportunity. As a result, many of us feel the need to balance impact and return. I believe true impact is derived primarily from these two factors:

  1. A product that adds real value to your users (QUALITY), and
  2. A product that has a far-reaching user base (SCALE)

If you figure out these two things and play your cards right, you’ll not only have an impactful business but also a large and sustainable one. Entrepreneurs like Schoolzilla’s Lynzi Ziegenhagen and AdmitHub’s Drew Magliozzi have demonstrated that you don’t need to face a choice between business and impact. In fact, focusing on social impact can improve the likelihood of building a strong business.

Value-add Product

For your product to be truly impactful, it must bring value to its core users. As obvious as this sounds, this is not always top-of-mind when people think about impact. Instead, many entrepreneurs, foundations and other stakeholders in the impact world tend to focus on who uses a product, but not necessarily how effective it is.

My thesis is product quality comes first. This is especially critical in edtech, where principal-agent problems (e.g. school administrators are the buyers and teachers/students are the users) can sometimes result in companies focusing on selling “minimum sellable products” instead of developing “minimum viable products.” Too often, sales teams end up talking to buyers and miss out on understanding the needs of their end users. This results in poorly developed products that are not used and valued by users. Regardless of your footprint, if your product is not being used or is of low quality, it will not have a positive impact in education.

How you define impact is up to you and your company’s mission. However, your users will typically have a deeper, more comprehensive, and less biased understanding of your products’ impact than you do. Because of this (and because of how hard it is to measure educational impact), you can use proxies such as usage rates, user reviews, renewal rates, and referrals to get an initial sense of how valuable your product is to your users. Pilots and RCTs have their own use, but they’ll only help you answer questions you know to ask, not the ones you don’t know to ask.

For example, AdmitHub is a company that sells a chatbot solution for colleges to improve the yield of admitted students by scaling and automating 1:1 communications by text. Drew, their founder and CEO, says, “The original goal for the bot was to reduce summer melt. But even in schools where melt is not a problem or even in those where student yield may not increase immediately after implementing AdmitHub, the staff is still happy with us offloading all the messaging work that our bots undertake, replying to every student text that comes in. They feel liberated to be able to focus on higher-level priorities.” Bottom line: you might have a different impact than you had anticipated. If your product adds value, it will be actively used by your customers and impact will be real.

Scalable User Base

The trick with listening to your users is that you might have great feedback from your first set of users, but that might not translate to the average user as you expand your reach. A good way to avoid making incorrect assumptions is to look at the profile of your initial users and understand whether their needs correlate with the mainstream market needs. If not, do you have a plan to address these differences? Oftentimes leading adopters are higher income schools (either K-12 or higher ed), but for you to really make an impact (and catch investor attention!), you’ll have to demonstrate your product adds value to the larger public school markets.

Lynzi Ziegenhagen, the founder of Schoolzilla, says: “your first districts / schools will shape your product and features, so if your goal is to serve predominantly high poverty districts, starting with affluent districts won’t necessarily shape your product to add as much value in your target market..” Understanding how your initial users shape your product and how that fits with your growth strategy is key.

Bottom line: real impact in technology comes with scale. As edtech entrepreneurs, we have to be humble and honest in that in most cases our impact per user will be limited. Ultimately, we are developing tools that are not likely to have a deep effect on the much wider educational experience of students. However, the key is that with scale you can have a broad impact on the overall market.

So I now have impact, but what about monetization…?

If you’ve built a sticky product, your customers will pay. If your market is big enough, you’ll achieve scale. Together, they’ll lead you to business sustainability.

The important thing to remember is not to lose focus on your product quality or make general assumptions about how your product will affect your users. Focus on product, have a plan to scale, and your impact will become very real.

—Esteban Sosnik
Partner, Reach Capital
esteban@blended.blog

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