- The conversation is about educational technology and the success of educational startups.
- The blog post titled "Why Educational Startups Do Not Succeed" by Avitra in 2011 is discussed.
- The post suggests that entrepreneurs in education focus too much on quality instead of cost, and that education businesses have a different growth curve than internet companies.
- The market for educational technology is seen to be more relevant in Asia than in the US.
- The conversation also touches on the shift in values regarding education and the challenges of selling educational products to parents.
- The success of ed tech companies and the investment they receive from venture capitalists is mentioned, with a comparison to Chinese education companies.

- Chinese education companies have experienced significant growth and success, surpassing American education companies in terms of IPO valuations and revenue.
- The cultural dynamics and public school system in China contribute to this success.
- American education companies struggle to achieve high valuations and revenue numbers, making it difficult for them to go public.
- The education industry lacks a standout company like Uber or Stripe.
- However, there are some successful ed tech companies, such as ABC Mouse and Chegg, that have found success in targeting specific markets.
- The education industry is undergoing a cultural shift, with younger parents and educators recognizing the importance of technology in education.
- Schools in the US are becoming more connected and technology-focused, creating opportunities for ed tech companies.
- Startups should focus on making products that are cheaper and more efficient, target markets outside of the US, and be prepared for slower growth and longer timelines.

- The internet has brought about structural changes in education, allowing for more decision-making power and easier access to products.
- The question for startups should not be whether these changes will still be true in five years, but rather if there are enough customers currently and if the market will evolve to resemble early adopters in the future.
- Some markets, such as science education, show potential for quick growth, but monetization remains a challenge.
- The Asian market, particularly China, is a promising market for education companies.
- Building a better product in the education space is important, as the real issue is quality rather than price.
- Consumers do appreciate quality, but there is a trade-off between quality and cost that companies must consider.
- Education, like healthcare, has a long ROI cycle and evaluating quality in the short term is difficult.
- Shortcuts or shorthands for quality, such as making education fun and accessible, can be used to signal quality in education.
- Ultimately, the goal is to drive educational outcomes and improve learning.

- The current measurement of educational quality based on test results is a symptom of a mis-measurement of better education.
- Student engagement and motivation are often ignored as proxies for quality in educational products.
- The current educational system is not aligned with the changing world and there is a lack of a cohesive plan to fix it.
- The purpose of education should be to help children grow up and live happy and productive lives, rather than solely focusing on specific career outcomes.
- Science, critical thinking, communication skills, and programming are foundational skills that are important regardless of career choice.
- The societal argument for certain types of education is that it helps individuals think critically and be better positioned for the job market. However, there are boundary conditions and it is important to be careful with the societal argument.

- The speaker discusses the importance of individuals pursuing their own passions and interests rather than conforming to societal expectations.
- They mention the trade-offs individuals face when choosing between their passion and job opportunities.
- The speaker believes that more people should pursue computer science degrees and data science skills for better job prospects and financial stability.
- They emphasize the importance of understanding one's motivations when starting an education company and not solely focusing on financial success.
- The conversation shifts to the broad field of education technology (ed tech) and the various opportunities within it.
- The speakers highlight the potential for innovation in ed tech, especially in redefining education models and lifelong learning.
- They suggest that the field of learning is still in its infancy and there is a need for a deeper understanding of the science of learning.

- The learning space is a wide open territory with many discoveries still to be made about the science of learning.
- There are huge business implications for anyone who figures out something new in the learning space.
- The internet and mobile technology have the potential to disrupt the education industry and create new business opportunities.
- The industry will be transformed multiple times in the next decade.
- The speakers are optimistic about the future of learning and believe that the human race is good at figuring things out.
- They are optimistic about experiments in reaching teachers and parents in new ways, as well as the use of technology in education.
- They are less optimistic about the likelihood of dramatically changing public education in the United States soon, but believe that there are interesting things happening on the fringes.
- They believe that knowledge will eventually matter and that things will get better in the learning space.

The conversation discusses the challenges and potential of educational startups, focusing on the importance of cost and quality balance. It highlights the success of Chinese education companies compared to American ones. The shift in values towards technology in education is recognized, along with the need for cheaper and more efficient products. The speakers emphasize the potential for innovation in ed tech and the transformative power of the internet and mobile technology. They express optimism about the future of learning and believe that improvements will occur over time.

Keith Schacht - https://twitter.com/keithie - is the cofounder of Mystery Science - https://mysteryscience.com/ - which makes lessons that inspire kids to love science. They were part of the Summer 2017 YC batch.

Avichal Garg - https://twitter.com/avichal - is an Expert at YC and prior to that he was the Director of Product Management at Facebook.

Geoff Ralston - https://twitter.com/gralston - is a Partner at YC and before that he cofounded Imagine K12, an edtech accelerator that’s now makes up YC’s edtech vertical.

Avitra, you founded PrepMe in 2001, sold it 10 years later in 2011.

That was actually the year we founded Imagine K12, the world's first educational technology accelerator.

And Keith, you founded Mystery Science, I think in 2013.

We just celebrated our fourth birthday in January.

And you just celebrated your fourth birthday with Doug Peltz, and you guys actually did YC in summer 2017.

So The idea of this podcast was to have a conversation about educational technology, about maybe some current, past, and future stories around ed tech.

1 of the things that was the initiative for this conversation was a blog post that Avicii wrote in 2011 titled why educational startups do not succeed.

His summary of that post, I'll just give it really quickly since he helpfully put it in the post itself, was that entrepreneurs in education built the wrong kind of business.

They think of it as a quality problem when actually it's a cost problem.

Building an Education does not follow an internet company's growth curve and because of that it's, you have to think way longer term than venture capitalists are interested in funding you.

So the opportunities for servicing education, they're actually not in the US, they're actually in Asia.

So, like, it's not really gonna be relevant for another 5 years.

That was in 2011, so maybe it's relevant now because that would have led us to 2016.

Maybe Avicil, you can start by sort of reflecting on why you wrote that post and how you're thinking about it today and then hopefully you guys can start having a conversation about that.

Yeah, I think that's a great summary, that's a great intro.

I mean, the genesis of that blog post for us was really, we started this company, we had a lot of ideas around how to make education better using machine learning and using technology and personalization.

And it turned out a lot of people wanted that in the early days.

And so we got some early signal that That's actually what the market wanted.

And then very quickly, things started to plateau from a growth perspective.

And I think my conclusion was that we'd saturated a lot of the early adopters, and the mainstream market just wanted different things.

The mainstream market really cared much more about cost rather than quality.

And the fundamental sort of disconnect between people who start education businesses and the consumer themselves is fundamentally that.

The people who start education businesses tend to care much, much more about the quality of the product.

And in the US, the average consumer just looks at it differently.

And the buying psychology is fundamentally different.

And there are a whole host of reasons why that's the case that we can get into that I think actually have very interesting downstream ramifications on things like politics.

About whether people value education in and of itself, right?

And I mean, actually, so if we want to sort of unpack that, the thing I think, and this is, I have very little other than anecdotal to back this up.

So this is my current belief, which I could be wrong.

We'll have to hear probably from Keith why I'm wrong.

But I think what happened was post-World War II America was really good for a lot of people.

And So if you're in the 60s or the 70s, you could get a job at the GM factory.

So maybe together you make $80,000 a year working in the factory.

So that'd be like living in San Francisco, and you and your spouse make like $3 million a year and you never went to college, I think you would rationally, you would look at that and be like, why would I go to college?

I can buy my house and I can have a great life.

And then the people that were sort of born, just to make the math easy, let's say you were born in 1982, so you'd be 18 in the year 2000, you'd be graduating from high school.

The people who were born in 1982 were raised by people of that generation.

And so kind of the value system sort of I think came from a belief that the world would still work that way.

But the world doesn't actually work that way, right?

Starting with 2000, the internet, with the crash in 2001, the massive—there was in between little recessions, there was a crash in 2008.

So basically if you were an adult in 2000, you've kind of been in and out of work for most of your adult life if you were kind of in that camp, if you didn't go to college.

And that kind of, I think, has bleed over effects into things like politics, where like the system, the way you thought the world was going to work, the world doesn't actually work that way anymore.

And that disconnect has been a really hard transition.

And there's this entire 15 to 20 year range of adults that kind of got trapped by it.

And I think we're seeing some of the effects of that right now in politics.

I'm especially interested in this perspective, which I think was more true in 2001 than it is in 2018, which is that if you're gonna make any money in educational technology, you better appeal directly to parents because schools weren't gonna pay for technology.

Actually, they'd been burned with a whole bunch of hardware, and technology wasn't so relevant to them at the time.

That seems like it shifted a bit, so maybe you can.

Yeah, I mean, 1 interesting thing when talking about the space is it's, I think it's actually hard to talk about the education space.

Like elementary versus high school are totally different markets in many respects and parents versus institutions are very different markets.

So it's interesting, you know, we often sort of group this as the education space or the education industry and we have to be careful about generalizing.

And so, I mean, just 1 line, I mean, Mystery Science, we are helping fix science education in this country by giving elementary teachers a remote science expert to co-teach the class with them.

So we effectively sell schools a curriculum that replaces the textbook.

You can think of it in a sense as a digital textbook.

And our whole pitch to teachers and to schools is that this is better.

It's better than whatever the conventional curriculum is.

And it's notable that our teachers and the students and even parents increasingly are starting to recognize that it's better.

So, it does give me pause to hear, you can't build a business by making something better.

I think there are some interesting challenges to trying to how you communicate that your product is better and how the customers appreciate it.

But yeah, for just very early on, we've gotten a lot of traction selling into schools and getting appreciated for making a better educational product.

It does seem to be true, to back up Avichail's point about parents in general not being willing to pay, especially sort of the mass market, to be willing to pay for education quality.

The value that they place on that, in the United States at least, is still not clear.

There's a lot of money being spent outside of school and education, but it's test prep and tutoring for pretty affluent families, isn't that true?

Yeah, it is an interesting, so we are preparing for our transition from selling to schools, selling direct to parents.

And so we've sort of dipped our toe in the water with homeschoolers, which is a relatively small market and are getting ready to go mainstream.

And so there's still a lot yet for us to prove about that.

But there's a couple interesting observations that we've made so far.

I think the thing that makes the market a funny market, the parent education market, is that you get this product for free.

So basically through property taxes, that's how you pay for school.

But as an entrepreneur trying to build a business in this space, it's interesting to compete with free out there because parents feel like, well, I have this thing.

And so 1 thing we've noticed in interviewing parents is that at the very young age, parents feel very involved in learning.

So from birth to when they send their kid off to kindergarten or preschool, the educational value of the products they're buying is 1 of the dominant factors in considering whether you're going to buy that speak and sound or that play mat or that book or whatnot.

Once you send your kid off to school full time, parents remain involved in some respects.

They still feel like it's their job to make sure they're reading regularly to their child and helping to reinforce their ability to read at home.

And then it sort of drops off for the next like 6 to 8 years, your involvement as a parent in education is making sure you're supporting the school and going to parent-teacher conference and picking the right neighborhood or you sort of you get involved in that respect, not by buying products and sort of delivering education at home.

And then towards the end of high school, it kind of ramps up again with the whole, like getting into college thing or shoring up a week grade or whatnot.

Well, it certainly seems that your prediction that venture capitalists wouldn't fund ed tech companies has not come true, especially since 2011.

We founded Imagine K12 in 2011, and the companies that we funded alone received hundreds of millions of dollars in venture investment.

So obviously, venture capitalists saw opportunity somewhere.

I think they basically made the mistake that I tried to call out in that post, which is I think they expected that the ramp of those companies from a business perspective would look like an internet company ramp.

Whereas, I think, I mean, I don't know the numbers of most of the American companies, but I think they pale in comparison to Chinese education companies that go from 0 to a billion in IPO in 7 years.

It's just like the ramps are just crazy in a place like China.

more people in China, too, as it turns out.

And the public school system is much worse.

I think the cultural dynamics are different.

The public school dynamics are different.

There are a lot of factors there for sure.

But the net effect of it then ends up being, on paper, you might have a company here as an education company that's worth $100 million or $200 million and has raised a lot of venture capital, but do the revenue numbers actually back that up?

Could you actually take that public on the market in 2 to 3 years at a billion dollar valuation?

And what kind of revenue would you have to do to support that?

And I think by and large, that hasn't been the case, which is why you haven't really seen education company IPOs.

Leeson But is that unique to education companies?

Because just take consumer tech generally, there's many $100 million plus valuation consumer tech companies that don't have the revenue to back it up.

And there are also many consumer tech companies in China where the Chinese equivalent will scale much faster than the American equivalent.

The reason I, so it's certainly true that I think you have a lot of companies that are going to end up in this kind of dead zone.

But the reason they do is because there are some that make it out.

Like every now and then you'll get a Snapchat or a WhatsApp or an Uber or a Lyft or a Stripe or like the list goes on.

And most of these companies are not that old, right?

Like these are all 7 to 8 year old companies, right?

So it's the hope that you stumble into an Uber or a Stripe that really I think supports the rest of the ecosystem.

I don't see like where is the Uber or the Stripe of the education space.

The closest is probably ABC Mouse, recent billion dollar valuation straight to parents.

And Teachers Pay Teachers would be another 1.

And you know, Chegg is worth 2 and a half

That's actually the 1 that I use most often, which is by and large, if you look at Chegg, the way they got to where they are is they didn't reinvent digital learning, they just made textbooks cheaper.

Yeah, but they've almost completely shifted.

If you look at Chegg's website today, they don't talk about textbooks anymore.

It's they're a smarter way to a student, whatever that means.

And so that, you know, but I think it's all about digital education for Chegg.

Now, you know, I know It's a multi-hundred million dollar business for them.

I was gonna ask, do you know how that number breaks down between like their core textbook business versus-

I think the core textbook business and volume is bigger, but the digital business is- Growing.

So it's interesting, there are ed tech companies that are scaling.

Certainly revenue has been tough for many of them.

Although, you know, even I look at companies like Mystery Science, which has actually scaled revenue without mentioning any numbers very well by selling to schools.

I do think selling to parents still because of this free zone, and we have to be clear that for better or worse that free zone is for the mass market in middle America.

There is plenty of more affluent families that spend tens of thousands of dollars every year on private schools, on private tutors, on an SAT prep, on all sorts of educational advantages that do constitute a pretty big market, right?

And it's notable that ABC Mouse is, in some ways I think of them as the new leapfrog.

Like they're targeting that same age demographic that leapfrog used to, which is outside of that free zone.

Yeah, it's the early state, like the early.

Yeah, and I think that, I mean, that pattern has held for a while too.

That's why, I mean, in that blog post, I called out something like 5 years, because I think what you're starting to see is, cultural shifts just take a while, right?

And I do think there is a cultural shift.

And the cultural shift essentially is that generation of parents that were 18 in the year 2000, or they're parents now and they have five-year-olds.

So the person that was 18 in the year 2000 would be 36 today, so they probably, you know, they might have some young kids.

And I think they're starting to look back at, you know, they probably don't have a 25-year-old, but they might have a 6-year-old or an 8-year-old.

So starting to look back at their life and saying, wait a second, like, what happened?

And so I think people are generally pretty smart.

And so there's start that cultural change is starting to happen.

Or that might be the 36 year old that's now the head of the science department and is looking at it and saying, wait a second, I grew up with the internet.

Like I get this, we should be better buying better stuff.

And so I do think that change is happening, but we're kind of at like the early parts of that change.

And hopefully it accelerates, but I don't think the mainstream has flipped quite yet.

There's another aspect of the cultural change, which seems to me is a cultural change within schools, which for me has shifted radically.

In 2011, when you wrote that post, the fact is that most schools were not connected with reasonable internet access.

Today, almost all of them in the United States are connected with, you know, enough bandwidth for more than 1 person could run YouTube at the same time.

Many schools have directors of technology and are thinking about their technology buying plans.

So it seems to me, I don't know how you think about this.

Yeah, I think that's in the school space, I think that's 1 of the most significant things is, it's, from my perspective, it seems like it is mirroring the enterprise cycle lagging about 10 years or so.

So when we started 4 years ago, we finally could assume that most of our teachers would have a computer, and at least 1 computer in the classroom, a projector so the kids could see it, and an internet connection.

Not the best internet connection, often consumer grade, shared, it would slow down during lunch hour and then speed up afterwards, but we could assume this baseline level.

And that was 2014, so maybe that only happened around 2012 or so.

Like that's relatively late compared to what happened in business.

And so I think we are really deep into this first generation cycle where there's a whole wave of companies that are just bringing efficiency to schools.

So it's like, hey, now that we're on the internet, we can make attendance easier, we can make grading easier, we can make student rostering easier, we can make a lot of back office stuff.

And so that's a whole wave of companies that aren't even involved in learning, they're just involved in making these business operations more efficient because, hey, internet software is good for that.

And then there's the second parallel we're seeing.

And this was part of the wave we're riding in other companies, where it used to be that there were directors of technology in business who made this software purchasing decision and then rolled out to everyone.

And so that's how the school director of technology started.

And now we take the Salesforce sales model to these teachers, where Salesforce didn't get permission from an IT department.

They just got someone in marketing who signed up for a free account and got started.

And eventually the IT department had to take notice because they had 50 users in the company.

And so we do the same thing with our software and other ed tech companies too.

Yeah, this is called pull model instead of the push model.

Instead of having to wine and dine supervisors around the country, you actually convince, persuade teachers that you have a great product.

And in the end, they persuade their administrators to buy, right?

And there's a bunch of interesting shifts that happen there.

So Salesforce was selling against incumbent CRM providers.

The onboarding for it looks different, and the cost structure looks different.

We've got the Pearson, McGraw, Houghton Mifflin, that generation of companies who still assume they're going to sell top down and roll out, and then Mystery Science and other tech companies that just do the a la carte and roll it up.

So Aviciio, do you think your conclusions still stand today?

Have you modified your take given what's happened over the past, I mean, you sort of gave it 5 years and it's been 7.

Let me just read your conclusions And I'm wondering if you think they're still valid today or whether you would counsel new ed tech entrepreneurs differently.

This is the good and bad of putting things in writing.

Well, no, but, And to be fair, I disagree with very little of what he wrote in 2011, right?

And so, the real question is, have we moved on?

So, your first point was, Don't make a better product, make a cheaper product.

Which by the way, this efficiency stuff that Keith was talking about plays directly to that.

Don't start in the US, start in or other developed countries because it'll be too slow, start in Asia.

Don't target the middle class because they don't really care.

And don't expect a quick flip or quick growth.

You want to, you know, you can take those as a whole or 1 at a time, however you like.

But there are pockets where it's starting to change.

And I think the places where you're starting to see a change are especially around, I think schools have changed a lot.

I think things like, I was talking to Dan at Clever, and he was talking about how Chromebooks have just changed the landscape.

Should be an Imagine K12 long story for another time.

So he was making the really great observation that, to your point too, I think, is that just changes the game.

All of a sudden, you can actually assume that there's an internet connection and a thing that looks like a laptop and is pretty reasonable and has good specs.

So I think the fundamentals have changed.

But the way that the fundamentals then manifest in terms of startups is just starting to change, because there's a phase shift there.

So now that internet is good, now that the person making the decisions might be the department head or the teacher, now that there are products that you can just sign up for and you don't need to go through the district.

All of those are structural changes that have just started to happen in the last, you know, let's say 2 years, 3 years, that's really gone mainstream.

So I think looking forward now, so I think the question really is, are they still true today, take a snapshot?

But that's not really the question that a startup should be asking or a founder should be asking is like, will it be true in 5 years?

I don't think it will be true in 5 years.

If you're starting a company today, the question really is, are there enough customers for you to get going?

And has the world evolved such that in 5 years, it will be dramatically different and look a lot more like your early adopters, and I think it will.

Well, they're all forward-looking statements.

So I think you're basically saying, ignore that blog post because The future's different.

The present, as of today, still kind of looks like that, but the trend lines are good.

And so you look at Mystery Science, you look at No Red Ink, or you look at Clever, There are all these companies that I think have managed to get pretty substantial traction.

And so if you're starting today, I think some of these markets are actually...

You can get pretty reasonable growth pretty quickly.

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Cost vs Quality in Edtech – Keith Schacht, Avichal Garg, and Geoff Ralston