Four things that K-12 edtech leaders should know about school purchasing

Last week was sobering for K12 edtech startups and companies. EdWeek reported that over 50% of school districts have frozen their spending outside of critical priorities. 

At the same time, many edtech companies are experiencing a surge in usage. During ASU-GSV’s virtual conference, Mercedes Bent from Lightspeed Venture Partners shared that some edtech companies are experiencing 3-4 times higher usage after temporarily lowering their paywalls.  

But in edtech, user needs do not necessarily translate into customer purchases. Here are five highlights from industry experts and my recent conversations with school administrators. 

#1 - Budgets are freezing this year and declining for the next two years 

In terms of current spending, districts are somewhat paralyzed by the unfortunate timing of Covid-19 and their new needs that have emerged from school closures. According to Michele Molnar of EdWeek, schools typically have the most discretion and motivation to use expiring funds in the lead up to summer. But social distancing interrupted state legislators from finalizing their school budgets for next year. The resulting uncertainty is forcing school districts to be conservative toward the purchase of “nice to have” products. 

More concerning are the budget shortfalls that are expected to affect next school year. Last Thursday, Kevin Custer of Arc Capital suggested that K-12 edtech companies should plan for a 20% or greater impact to sales volume and retention. 

Superintendents are planning for two scenarios. The best case is the flat budget that was left on the table in many state legislatures. The worst case is a downturn in state revenues and the contraction of school budgets. Similar to businesses, a school’s desire to preserve jobs will force a rationalization of its subscription products and other expenses.  

#2 - Discretionary budgets are most in flux

Most of the edtech companies that I support make supplemental technology products that usually cost schools $5,000 or less per year. A benefit to operating in this price range is that schools can fund those purchases using a diverse source of funds: district money, principal budgets, and innovation grants.

The challenge for these companies is that discretionary money will be significantly impacted by the uncertainty surrounding school closures this year and next. One principal shared that while his school has leftover money from canceled end-of-year events, that money has already been repurposed for school sanitization and bolstering Chromebook stockpiles. 

A source of funding that’s sure to be impacted by school closures is innovation grants. Many teachers apply for grants to fund the purchase of new classroom technologies. These grants are offered by the state, private corporations, educational foundations, and school districts themselves. All of these sponsoring organizations are expected to have smaller operating budgets in the school year 2020-21.

#3 - State funding for districts will be impacted hardest

School budgets are dependent on tax revenues but to different extents based on their state and locality. In some school districts, the lion’s share of district funding is derived from local taxes. For example, over 80% of Austin ISD’s budget is derived from local property taxes, some of which are recycled through the state first. The housing market isn’t expected to fall as sharply as it fell in 2008, but school districts will be impacted by homeowners defaulting on hefty tax payments.

In other states, school districts rely heavily on state funding. In Hawaii, 89% of school funding comes from state revenues. States mostly fund education through sales tax so states that rely heavily on tourism -- such as Hawaii, Florida, Colorado, and Nevada -- are most at-risk. According to Axios, Nevada relies more on income tax than any other state in the US. Governer Sisolak recently advised all state agencies to prepare for budget cuts up to 4% next year and 6-14% the following year.

#4 - High poverty districts will be hit hardest

Since an economic contraction will affect state funding the hardest, lower socioeconomic areas of the country are bracing for the biggest impact. This includes states that depend heavily on state funds -- much of the Southeast US -- and rural areas in other states.  

For example, New York is already rescinding funding for at-risk schools through its recent $100 million cut from the Fair Student Funding formula. Introduced in 2007, this legislation added additional funding per student based on need and also gave principals the discretion to purchase new technologies.   

The biggest variable for at-risk districts is the extent of current and future relief. The federal government has already promised about $13B to support public schools through the Education Stabilization Fund. The major of this money is targeted for Title 1 schools and governors are already claiming this is not nearly enough. 

Three opportunities for K12 edtech companies

On the minds of most K12 edtech CEOs -- after how Covid-19 will affect their immediate sales -- is how to best position their products for the new learning paradigm. 

“The genie is out of the bottle when it comes to virtual learning,” declared Andreas Schleicher of OECD last week. The bureaucracy and lack of community engagement that holds back innovation in education have been exposed by the needs of the moment. “Students will personalize their learning, even if the systems around them won’t,” Schleicher points out. 

While Covid-19 is sure to accelerate the shift toward digital learning, K12 leaders will first have to overcome the new challenges and shrinking budgets left in the pandemic’s wake. Here are three opportunities for K12 edtech companies to consider in the coming months. 

Opportunity #1: Fill the assessment gap

As of recent, states and school districts are relieved of the requirement to conduct end-of-year summative assessments. This change frees up time and energy that would have otherwise been focused on test preparation and administration. Accountability measures are derived from the results of these tests and performing well drives the behavior of administrators. 

But the lack of major assessments will rupture the continuity of personalized learning year-over-year. Schools use these assessments to identify struggling students and to prescribe different forms of personalized learning for the following school year. 

Without these assessments, schools are turning to digital programs that contain both assessment and instruction. In Texas, schools are doubling down on iStation and Moby Math because these programs contain basic progress monitoring in math and language arts. 

While these programs are effective at showing the pace of student progress, they lack the comprehensive snapshot of student achievement against grade-level expectations that summative tests provide. Edtech startups can fill this gap by providing alternative assessments and options for tailoring personalized learning.  

Opportunity #2: Help schools plan for multiple contingencies

While a handful of states have canceled the remainder of this school year, most states and educators have not given up on resuming in May. This uncertainty is requiring educators to plan resources and learning strategies for different scenarios and unfolding challenges: 

> How will learning resume if we return to school soon?

> Are new tools like Zoom safe and equitable for all students?

> What happens if the start of school is delayed next year? 

Uncertainty in the timeline is forcing educators to build agility into their strategic plans and adopt the silicon valley mindset of “failing fast.” The unfolding story of Zoom in education is an indicator of this tension. 

The number of weekly active users on Zoom has skyrocketed during Covid-19, partially due to the rise in remote and distance learning. But the initial embrace from schools has become strained by the challenges inherent in providing all students with a safe and high-quality experience. As a result, many school districts -- including New York Public Schools -- are revisiting their policy toward Zoom. 

The implication of this change is a dramatic reduction in live teacher instruction. And as a result, educators are becoming more dependent on supplemental programs that can be deployed in different environments and with minimal teacher or parent oversight. 

Opportunity #3: Help teachers manage anxious parents

Covid-19 will be a trying period for teachers because of the new demand for managing parent expectations. Parents have now become adjunct teachers themselves and are coping with the new responsibility of keeping their children productively engaged throughout the day.  

At the same time, educators are scrambling to develop failsafe instructional materials for use at home, react to changes in district policy toward programs like Zoom, and communicate this to anxious parents. That is the equivalent of building the plane while flying it and providing Southwest-style customer service. 

The biggest need that parents have is for childcare. Brick and mortar schools work because they provide a safe communal place for children to go during the day. The massive obligation to keep children busy has now shifted onto parents, as has the challenge of supporting students with different learning styles and needs. For example, what should you do if one child breezes through their workload and the other is struggling?

Unfortunately, teachers are receiving the brunt of parent’s anxiety. I listened to a beloved first-grade teacher brief an Austin ISD parent group this weekend. Instead of recognizing the abundance of extra work that went into preparing his outline, parents berated this teacher with requests for even earlier access to resources, screenshots of individual student reports, and more of his time effectively babysitting their children.  

It’s fair for parents to feel the weight of their new responsibilities. But a lack of appreciation for the behind the scenes work is leading to an influx of new demands and strains on teachers. Should this teacher oblige and manually download progress reports from both Moby Max and iStation? 

Edtech companies can help teachers now by designing tools and content that support their communication with parents. In this example, the ability to download student progress reports in mass would save this teacher an hour of work each week. By streamlining the points of intersection between parents and teachers, we can ensure that teachers remain doing what they do best: directing our children’s learning.

Four Key Takeaways from #LearnLaunch2019

Last week LearnLaunch held our signature conference, Across Boundaries, which is also demo day for our accelerator program. Across Boundaries brings together investors, entrepreneurs, and educators from across the world to forge relationships and swap notes on the future of education. Below are the key takeaways from me, Jean Hammond, and Tetyana Astashkina on the conference.

#1 – Smart devices will reduce learning friction and increase data use

A new session on the agenda this year was Alexa for Learning, which explored smart device adoption in schools. We were surprised to learn that higher education institutions are now spending over $12B annually on digital transformations. K-12 education is also moving toward digitally driven systems and many sessions included discussion of data standards and data models.

Two points made by the panelists convinced us that smart devices in education are inevitable and will catalyze the use of data in schools. 

First, these technologies are naturally finding their way into the classroom as they become second nature at home. This became clear to Rayna Freedman, President of MassCUE, when she noticed her students hunched over, in their Chromebooks, whispering “Hey, Google.” Rayna emphasized the need to get ahead of these technologies by suggesting "the revolution is here, but nobody is teaching students how to use it."

The second point made by panelists is that very simple use cases have the potential to be profound. For example, if an administrator wants to check school attendance they currently have to log into the SIS or access a dashboard elsewhere. The small amount of work required to access data dampens the frequency with which it is accessed. With smart devices, that same administrator could ask Alexa, “what’s our attendance today?” without breaking his or her stride. The removal of friction from the process of retrieving information will promote the use of data in countless ways.

#2 – Higher Ed and workforce training evolve under influence of changing labor market demand

Workforce edtech was another topic featured on the agenda with panel discussions that spanned the technology and business sides of innovation in this space.

Workforce education is gaining importance due to the rapid labor market change that results from automation and globalization. In his keynote, Ryan Craig talked about many problems arising within workforce education, as well as, some hopeful trends. For example, the demand for entry level employees with modern skills is placing a healthy pressure on higher education institutions to rethink their position in the market.

Many new programs cater to a wide range of stakeholders, including hiring managers. One recommendation to innovators is not to neglect the user experience of individual employees. Successful learning programs will meet the emerging needs of learners: in context and delivered just-in-time. 

A second recommendation for innovators is to bridge learning outcomes and business ROI. “Business leaders are trying to connect the dots between credentialing and business drivers, such as attrition and engagement,” according to Paul Crockett, CEO of Authess.

#3 – Global education markets look starkly different than the US

With the skyrocketing valuations of non-US edtech companies – VIPKid, Byju, and iTutorgroup – many panels found themselves exploring the growth dynamics in foreign markets, especially China, India, Japan, Israel.

The up-shot for entrepreneurs is that the compositions of these markets are starkly different. For example, the lion share of spending in the US is institutional, whereas the dominant business model in many global markets is B2C.

The reason for this is the imperative of economic mobility for families outside of the US. In China, over 20% of disposable income is spent on their children’s education. This point was driven home by Vince Chan of Creta Ventures who shared that learning applications are being disturbed on SIM cards via guys on motorcycles in areas lacking telecommunication infrastructure.

The other consideration for entrepreneurs to remember is that the local markets within each country can vary greatly. For example, Vinit Sukija from Learn Capital shared that India, as a country with 29 different states, operates as 29 different markets. “Consumer habits, channels for connecting to customers, even spoken languages are different,” according to Vinit. 

#4 - Governments are sponsoring global edtech innovation as an economic driver 

A noticeable difference from past Across Boundaries was the increased presence of global public-private partnerships in both the audience and discussion.

Outside the US, government agencies are becoming a vital source of funding and resources for early stage companies. Enterprise Ireland, for example, is an Irish trade association that sponsored a cohort of companies to attend Across Boundaries. With low unemployment in Ireland, the agency’s mission is to export domestically built edtech solutions to the US and other markets.

We also have a number of companies supported by Cap Digital in France and Austrade in Australia within the LearnLaunch community. The magic to these partnerships is founder-friendly financing, key relationships in target markets, and the credibility of government support. It’s not an uncommon requirement that a percentage of awarded grant money be spent on market research. This support is critical to companies entering the US, which need to compile efficacy research and develop an understanding of the marketplace.

Three Ways Virtual Reality Will Change Education

Virtual reality (VR) is making exciting headways into the educational system, giving teachers new and effective tools to impact the minds and lives of their students. The combination of low-cost, smartphone-powered headsets and inexpensively produced 360 VR content enables teachers to experiment with virtual reality applications. In fact, as of June 2016, Google claims that over one million students have experienced virtual field trips through its Expeditions program.

Early VR applications, although groundbreaking in many ways, are only scratching the surface of the technology’s potential to transform learning. Below are three highlights from my recent presentation at the 2016 SIIA Education Industry Symposium.

#1 Virtual reality promotes retention through exploratory learning

Traditional models of education are centered on the transfer of knowledge from teacher to student. Success is primarily determined by a student’s ability to retain information and demonstrate comprehension on assessment measures. It is widely acknowledged that this model needs to be turned on its head in order to prepare today’s students for tomorrow’s jobs.

Plato and Maria Montessori advocated that the concept of mind, body and spirit are interconnected and that hands-on experience, learning and personal development are interconnected as well. Constructivists seek ways of helping students become better processors of information and develop skills that are applicable to real-world issues. Virtual reality enables this type of learning in ways previously inaccessible to educators.

Imagine a teacher teaching about the International Space Station from within the spacecraft, as they can do with Unimersiv’s App. Or consider a VR lesson where students get to learn about marine biology by actually exploring the deep ocean. Virtual reality removes the constraint of what’s physically possible so that students can experience anything imaginable. One of my favorite applications of this new realm of technology is the Curiscope human body application, which enables students to explore their own anatomy. 

Now imagine those classrooms with VR and consider how the teacher’s role has changed. Educators will finally have the ability to move away from being mere purveyors of information to becoming guides for their students’ educational journey. They can now lead them through the fascinating deep exploration of many virtual places and provide interaction with and dissection of virtual objects.

#2 Virtual reality helps equalize access to education

Despite efforts by the No Child Left Behind Act to improve education in lower socioeconomic regions, inequality across the public school remains intact. According to The Hechinger Report, the gap between wealthy and poor schools actually increased 44% over the last decade. STEM courses, which best prepare students for future jobs, often experience the largest shortage of materials and quality teachers. 

Once purchased, virtual reality devices can help address the shortage of materials that exists in classrooms. Virtual content can supplement or even supplant real materials for chemistry experiments, biology dissections, home economics, music, and art classes. In addition, virtual reality enables the expansion of those materials to include items that weren’t previously safe or practical. Virtual chemistry labs could incorporate combustive materials and biology classes would even be able to dissect large animals.

Virtual reality also helps with the shortage of quality teachers by enabling student-teacher connections across the globe. Online courses have been slow to adopt this technology because the camaraderie among students and teachers in a physical classroom is an important driver of student engagement. As VR technology evolves, students and teachers could interact in virtual environments with the same level of intimacy as in the real world. The LectureVR app is already making distance irrelevant through its suite of virtual meeting places and lecture halls.

#3 Virtual reality supports cogitative and emotional development

Perhaps the most profound way that virtual reality will change education is by supporting the development of high-level cognitive functions within the learning process, such as patience and empathy. Unique to other forms of technology, virtual reality is consumed in a fully immersive context. This means that users are completely present in the experience without the distractions that exist in today’s educational environment. Users are also fully engrossed in the content first-hand, enabling them to not just comprehend the material but actually feel its essence.

In his recent TED talk, Chris Milk shared that 360 VR videos are being used to fundraise and spread awareness for the Syrian refugee crisis. By creating VR stories of refugees, Chris argues that virtual reality allows us to “empathize and feel humanity in a profoundly deep way.” In another example, consider how powerful it could be to learn about U.S. history by actually experiencing discrimination, and imagine the life-long impact that the experience could have on students.

Although virtual reality is still in its infancy, there are many indicators to suggest it is even now breaking into our schools. Samsung conducted a survey that found 85% of teachers are enthusiastic about using virtual reality in the classroom. The most cited use cases were virtual field trips and STEM simulations. In addition, Goldman Sachs predicts that the market for VR educational content will reach $300M in the next four years.

Given the proliferation of VR hardware and content, the desire of educators to adopt the technology, along with strong market projections, it’s probable that the next generation of students will be learning through a pair of goggles.

Seven Takeaways from a SaaS Transformation

Software as a Service (SaaS) has arrived. Over the last decade, early SaaS companies like Salesforce and NetSuite paved the way by changing the way that software was purchased. We recently measured that 80% of our target customers (U.S. school districts) preferred subscriptions to traditional software license models.

As an education technology company, our leap from perpetual licenses to SaaS was fueled by both opportunity and survival. The movement towards subscriptions in our market is driven by a variety of customer considerations including risk aversion, budget predictability, and implementation flexibility. This is not surprising given the large percentage of software licenses going unused in public education.

We are two years into our transformation and have discovered that success requires not only a new set of values but also a healthy balance of planning, patience, and optimization. Below are some of our key takeaways from the experience.

#1 – Develop a roadmap with benchmark milestones

Transitioning to a SaaS business is a big undertaking, and one that will likely require several years. First, develop a roadmap that outlines a realistic financial mix over a timeline. For example:

This is a critical step for several reasons. First, outlining the goals over time will enable you to then align the go-to-market strategy with those objectives. For example, you could start by just offering a portion of the product line as a SaaS while maintaining the rest as license, or SaaS only for deals of a certain size, or only in certain geographies. If your business is transitioning completely to a SaaS then the roadmap should also define when the transformation is “done” and when end-of-life for the existing sales model will occur. 

Second, developing a collective understanding of the plan will empower leaders across the organization to make decisions that are in alignment with that timeline. We learned that by having clear milestones throughout the first year created a collective sense of urgency and helped identify some early issues.

Another reason to develop a roadmap is for cash flow planning, which brings us to the second key takeaway.

#2 – Create a realistic financial plan 

Instead of chasing large upfront deals, SaaS companies bill on a monthly or annual basis with the goal of extending the average customer lifetime value and having more predictable cash flows. The transition time period itself, though, can be a tough one to weather financially if not done right. 

In our case, revenue generated from a SaaS customer in one year is about one-quarter of that produced by a perpetual license customer. One of our colleagues once referred to the ‘high’ of the upfront enterprise cash and revenue recognition as ‘crack cocaine’—it feels great (and looks great on the top line), but it isn’t necessarily healthy for the business in the long run. This trade-off between large up-front cash versus smaller cash at periodic points over time is one that needs to be well understood, communicated with stakeholders, and planned for in advance by conserving cash, decreasing expenses, exploring financing options, or other measures. 

#3 – Align incentives with your roadmap

In our case, we ultimately found that two levers drove the tempo of our transformation: the compensation plan of our sales team and the relative pricing between our perpetual license and SaaS offerings. We intended to make our transformation more gradual, but what occurred instead was an almost overnight “flip” in our sales mix when we adjusted both the sales team’s compensation plan and the pricing at the same time. While it was the direction we wanted to go, the pace of the transformation outpaced our expectations and our plans. 

#4 – Embrace the responsibility for customer success

Becoming a SaaS company means that your customers are making a purchase decision every renewal period. Customer expectations are higher with SaaS, and the value they are getting must be proven out constantly. 

A shift to SaaS means a shift in the vendor-customer relationship. In the days of license software sales, the responsibility for success was on the customer. With SaaS, because customers are making a purchase decision every time they renew, the onus of successful deployment, implementation, and usage is essentially now on the vendor.

That shift in responsibility from the customer to the vendor required, in our case, many changes across the organization. Automated renewal letters for nominal annual support fees were replaced with several “live” touchpoints from account managers throughout the year. Software releases had to be more frequent to meet customers’ increased expectations of continuous product enhancements and perception of value. Customers’ usage of the software had to be monitored and systems created such that if a key customer’s usage fell below a certain level, additional support, professional development, or training was triggered.

Implementing all of those changes required not only new operations, but also a redefinition of core values and a shift in culture, which leads us to point #5.

#5– Reshape culture around customer success

Building a culture that prioritizes customer success requires that employees become more aware of and sensitive to customer needs. Sixty-five percent of software licenses go unused in education and that figure is as high as 90% in other enterprise software markets. In SaaS business models, low product usage is often the root cause of poor retention rates. Companies that are successful in SaaS are vigilant about monitoring customer usage in the first month, quarter, and year and make the necessary investments to bolster adoption.

#6 – Let go of customers who no longer fit your model

Perhaps the hardest realization one makes during a SaaS transformation is that not all current customers will transition to your new offering. Some customers may prefer their own infrastructure, rely on heavy customization, or simply have needs beyond your new offering. Some of these customers may be your biggest advocates and closest friends. Letting go of them (and the revenue they bring) will be hard.

Using Pilot Programs to Build Great Edtech Products

The education technology industry could be doing a better job serving the needs of educators and students. Most school districts rely on federal and state funds to purchase software programs, yet 65% of these software licenses go unused according to Learn Trials. This figure suggests that either educators are not leveraging these programs to their potential or that edtech products are failing meet their promises -- or a combination of both. 

I’m fortunate to work at a company that takes seriously the mission to deliver academic results for educators. We believe that a relentless focus on building products that maximize student growth will naturally lead to positive financial outcomes. Having that mindset, though, has required a thorough examination and rethinking of every aspect of our product development process.

I recently spoke at the Software & Information Industry Association (SIIA) Summit about our journey and the four-stage process we employ to ensure our products lead to exceptional student growth. Below are the highlights of that process.

Opportunity Selection

There are no shortage of challenges in today’s schools. And, educational leaders are inundated by the vast and growing number of choices in software programs available in the market. Ensuring a winning product in the market requires not only validation of product-market fit, but just as critical is alignment to an organization’s core competencies and their mission.

We start with a crisp framework for deciding which products and features to build. The framework helps us to triage opportunities based on their market attractiveness, product complexity, and alignment to our mission. A product council vets these opportunities (which can be submitted by anyone in the organization) and further vets selected opportunities until the value proposition is succinct. By having organizational agreement on this framework, we’ve stayed true to our promise of shipping products that yield exceptional student growth.

Concept Validation

Once we’ve decided on which products to pursue, we commit (limited) design and research resources to validate the solution concept. Initially, this consists of customer interviews to flush out pain points and solution characteristics. Then, we rely on surveys to identify feature sets that make a viable product. Finally, we leverage mock sale presentations, with real prospects, to gauge the likelihood that a customer will purchase our solution.

Conducting this research at scale required forming new habits and a true culture of curiosity. We established customer advisory groups to enable ongoing and impromptu feedback on design and ideas. We developed competencies in running ad hoc focus groups at conferences and collecting inexpensive quantitative research through a survey engine. Most importantly, we learned that by having these research capabilities in place we are able to test ideas frequently while keeping the costs manageable.

Usability Testing

The root cause of many failed edtech implementations is that teachers find the programs difficult to use. According to a one district administrator I just spoke with last week, “Your program can have the best content in the world, but if it takes an hour to set up a class, teachers won’t use it.”

Fine tuning products prior to launch by conducting usability research is at the heart of our development process. Our approach to usability consists of having users attempt to complete a list of tasks with little or no guidance. We hypothesize about the approach and estimate the amount of time it should require to complete these tasks. In order for a feature to be declared “ready to ship”, 90% of those in our usability study must successfully navigate a workflow in a reasonable amount of time.

Beta Program

Educators make large investments in time, effort and money when implementing a new digital program across their school or district. We view these educators as our partners, and it is our responsibility to facilitate successful implementations by anticipating their needs. As such, the final step in our product development lifecycle is a beta program that all new products are required to undergo before we release to market.

Our beta program is designed to test the cohesiveness of our entire offering. It enables us to flush out unanticipated issues with the onboarding of large customers. It provides us with a venue to test professional development and our support and onboarding processes. Most importantly, it allows us to measure the efficacy of new products to ensure our promise of students’ academic growth.

Installing these changes to our product development process has not been easy, and have not been free. Our usability and beta programs have extended the timeline for a new product to reach the market, which is a tough concession for any business. We’ve had to create new status reporting metrics and dashboards, gain internal buy-in on release criteria, develop our employee skill sets in market research practices, and most importantly, transfer the control from us to our customers in deciding when a product is ready to launch.

Our education system is not in need of more products. It is in need of better products that drive student outcomes.