business model for education startups pdf

Edtech Startup Business Model: Which One is Right for You?

2020 was an amazing year for edtech. The pandemic fueled the industry and sparked a ton of innovative ideas. But having a good product is just a part of success. Your edtech startup business model should actually be sustainable.

And this isn’t only about earning more than you spend.

According to CBS Insights , 42% of startups fail because their product doesn’t solve a real problem.

As an edtech development firm , MindK has seen many startups with a vague E dtech business plan and a vague idea of how they will earn money. Some of them ran out of cash before their product was ready. Others managed a valuable exit. But if you want to achieve success in the long term, you need to think about something that people really want. And then ask yourself: how can I create a sustainable business around this value? 

Most of the edtech business models look pretty similar to what you can see in other niches. Yet, there are some specifics you should know before launching your startup.

So, here are the top 7 types of business model for education startups you can use to rock the EdTech market in 2022 and beyond.

Edtech business model canvas

You can download a blank canvas template to quickly systematize your business model

Freemium (aka Coursera business model)

Give users a freebie and offer a more advanced plan as an upgrade. What could be easier?

It’s an attractive model for startups as it allows you to establish trust in your brand and quickly become a niche leader.

Initially, Coursera offered free courses on a variety of topics with an option to pay for a certificate. Powered by $210+ million of investments, the company quickly became an edtech powerhouse.

In 2020, Coursera gained 30+ million new users.

Introducing a free enterprise tier brought $22 million in revenue and attracted 4,000+ institutions, which the company intends to monetize sometime down the road.

Yet, Coursera still reported a net loss of $67 million.

And this leads us to the the two main challenges with the freemium model:

• You will burn through lots of cash acquiring and supporting a large number of free users – marketing alone accounts for 36.5% of Coursera’s revenue.
• You’ll need to somehow convert these free users (and this can be harder than it seems ).

So, is there anything you can do to improve your chances of success?

For starters, you can charge a small one-time payment for your basic plan (aka Cheapium ) to filter out freeloaders and convert users with subscription fatigue.

Or you could go the free trial route (which I’ll explain next, so read on;)

Free trial + paid subscription (aka Mystery Science business model)

This approach is similar to freemium. The only difference is that you offer a complete package right off the bat, but for a short period of time.

After the trial runs out, people either stop using your app or purchase an upgrade. This means that at any point in time, most users will be paying customers generating early revenue, especially, if the trial automatically changes to a paid subscription.

Some users may simply forget to unsubscribe, others will be too lazy. But if you offer a valuable service, most will stay as your loyal customers.

For example, Mystery Science is successfully using the free trial model to help kids fall in love with science. They offer a ton of free lessons on a variety of STEM-related topics.

The company uses a somewhat unusual spin on the free-trial model. Most teachers learn about Mister Science from a friend or a colleague. They can use the product free of charge. At the end of a school year, their school or a district buys a membership for all the teachers.

Read more: 7 edtech market trends to keep an eye on in 2022.

Edtech marketplace (aka Udemy business model)

Few startups have enough resources to produce educational content at scale. This is one of the reasons why edtech marketplace is such a popular business model.

The idea is simple – build a platform where creators can make money from their educational content and take a share of their revenue.

Udemy is one of the world’s most valuable edtech companies, worth $3.3 billion.

The platform hosts thousands of 3rd-party courses from businesses and individuals offering a full set of tools to produce, market, and monetize learning materials.

Posting a course is free but Udemy takes 50% of the creator’s revenue. There are other edtech revenue models you can use, like charging an upfront fee for hosting a course or taking the first $50,000 earned on the platform like edX.

But the marketplace model isn’t only suitable for the edtech giants.

Tyoch Learning is a Luxembourg-based platform that unites coaches, enterprises, and professionals. As a self-funded startup, it couldn’t afford a massive custom platform. Using our experience with existing Learning Management Solutions, our engineers built an MVP that allowed Tyoch to take off.

The platform now hosts a variety of courses in leadership, time management, communication, and professional skills. It has both B2C and B2B models with one-time purchases and enterprise coaching programs.

Read more: how to build a Learning Management System .

Advertising + ads-free subscription (aka Duolingo business model)

Duolingo started back in 2009, when language learning software cost hundreds of dollars apiece.

But the app went with a very different business model. Duolingo planned to provide the service 100% free and charge businesses for user-translated texts.

The company spent its early years growing the user base. They tested every little detail, measured user behavior, experimented with gamification, and iterated to make the app as engaging as possible.

Usage grew at a steady pace, but the startup wasn’t making any money.

In 2013, the company partnered with CNN and BuzzFeed, translating 600+ articles a day.

Over the next few years, Duolingo built a flashcard app called TinyCards and introduced paid language testing which accounts for about 20% of the company’s bottom line.

Yet, these revenue streams were insufficient to make the app profitable. Instead of focusing on the B2B service that was bringing money, the founders went back to the core idea – provide the best way to learn a language, free of charge.

They started showing ads at the end of a lesson with an option to pay for the ads-free experience. Combined, this earned the company almost $180 million in 2020.

The key to succeeding with an ad-based model is to make it your ads as unobtrusive as possible. User experience is still the king!

Whatever model you choose, Duolingo proves it’s essential to test all your assumptions with real users, experiment in quick iterations, and pivot if necessary.

Duolingo Plus combines freemium and free trial models

Institutional model (selling to school/district admins)

This is a traditional model for the K12 sector.

The concept is simple – pitch your product to school districts, university administrations, and other decision-makers.

This model can be a winning choice if your product benefits organizations more than individuals. Or if it needs to be integrated into data systems at the district level.

Schoolzilla offers interactive dashboards to 140+ school districts across the US. Its main benefit is better decision-making, which appeals to principals and district admins. So the top-down approach was a natural extension of the product.

However, it’s not a one-fits-all solution.

There are over 16,000 districts in the US alone. Some of them big, some small and there can be large differences in the procurement process.

You can, of course, sell to individual schools instead of districts. According to Y Combinator’s CEO Geoff Ralston, schools now have bigger IT budgets and often employ directors of technology to help with purchasing decisions. Getting to know people those might be the key to your success.

However, to scale effectively, this model might require a large number of people doing the groundwork across the country.

Another challenge is that your end-users (teachers and schoolchildren) are often not your customers (people who pay for your product).

SharpScholar founders had to reboot their product because it had too many approval layers. The buy-in process involved both teachers, admins, and students. This resulted in a lack of focus and muddied positioning.

Their advice is to reduce the layers of approval and maintain a direct relationship with your customers, whoever they may be.

Enterprise/B2B sales (aka Udacity business model)

A similar top-down approach works if you work in B2B and association management niches.

Enterprise models involve pitching your product to decision-makers within large organizations. The contracts usually have a fixed duration, designated value, and come with a renewal at the end of the term.

Benefits are two-fold – large deals for some early revenue and long-term partnerships you can use to produce high-value content for the B2C sector.

Udacity is a $1.1 billion unicorn that sells educational courses both to businesses and users. These so-called nano degrees are created in partnership with companies like Google and Amazon. This makes them more attractive for the students and helps the company stand out from the crowd.

The company also has a successful B2B model with on-site training for corporate clients.

By combining different B2C and B2B models, Udacity managed to increase its revenue by 260% in 2020.

AlreadyOn is more of a niche player targeting Norwegian communities and associations. They evolved from a pure enterprise model (sell the product to organization leaders as a single transaction) to a more traditional SaaS business.

A self-service portal we built for them can be easily customized for any organization, be it a professional association, a political party, or a business entity.

The subscription is based on the selected modules and the number of members in your system.

Learn how MindK can help you build a successful edtech business as a custom software development company .

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Innovative Business Models for Higher Education: An Exploratory Analysis on Education Technology Start-Ups in Selected Countries

There have not been any (breakthrough) innovations in education in the past 100 years. We mostly teach and learn the same way as our ancestors have done and there haven’t yet been any innovations that allow for faster or better learning or teaching. As a result there is a growing need for enhanced education technology (edtech) in the field of education. As innovation often comes from startups, this article examines which innovative business models are developed outside higher education institutions (in the edtech field), especially by entrepreneurs. Previous research has discussed the need for edtech innovation in educational institutions and has given concrete examples of how to improve present higher education models, technologies and procedures. Yet, only a few studies have analysed and compared edtech firms between different countries. The goal of this study is to analyse the core elements of innovative business models in the field of edtech start-ups in higher education and to ...

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Business Model Analysis of Startups

By: Stig Leschly

• Length: 7 page(s)
• Publication Date: Jan 9, 2020
• Discipline: Entrepreneurship
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Jan 9, 2020 (Revised: Dec 11, 2020)

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Human-Centered Change and Innovation

Innovation, change and transformation thought leadership, lovingly curated by braden kelley, the education business model canvas.

GUEST POST from Arlen Meyers

The business model canvas is one of many useful tools to design, evolve and test products and services business models.  While the original model was proposed to help founders create a viable and scaleable business model,  it has also helped non-profit executives, as  the mission driven business model,  and those looking to make a career change, using a personal business model as the  Business Model You.

The construct is also useful if you are an edupreneur, trying to create and launch new educational products and services, including new courses, certificates, programs or degree offerings.

Edupreneurship rests on several foundational principles:

• Having an entrepreneurial mindset
• Intra- and entrepreneurial knowledge, skills, abilities and competencies
• Design thinking  focused on creating stakeholder and beneficiary defined outcomes
• A systems engineering approach to  solving wicked problems,  like how to fix outcomes disparities and their social determinants
• A different business model
• More respect for and attention to edupreneurial champions
• Better teacher education and training
• An incentive and reward system for not just tweaking a failed system , but rather, making it obsolete given the basic structural changes in the US economy
• Eliminating unnecessary and burdensome bureaucracy, credentialing that does not add value and administrivia
• Paying more attention to and measuring student defined outcomes
• Better public-private integration
• K-20 integration and alignment

13.  Teaching students what they need to win the 4th industrial revolution

14.  Embracing cradle to career integration

15.  Creating a competent diverse and equitable talent pipeline

We has seen several recent advances in edupreneurship.

Here is the boomer’s guide to teaching millenials.

The UGME steering committee recognizes that medical education programs are faced with the ubiquitous challenge of repeated calls for innovation and that, frequently, these calls do not adequately address the associated resource demands. As medical educators, we have become highly creative in identifying strategies to do more with less, but as we know, this is not a sustainable model of stewardship. In 2016 and 2017, the UGME section collaborated with the Group on Business Affairs (GBA) to explore evolving models to support and sustain UGME programming. A result of this work is the Business Model Canvas for Medical Educators. The original Business Model Canvas was proposed by Alexander Osterwalder in 2008 and has been modified over time to fit other needs.  The Table of Contents will direct you to resources, including the Business Model Canvas for Medical Educators template and two examples submitted by institutions who have successfully used the template to secure funding from within their own institution.

The edupreneurship business model canvas has a few modifications to the traditional startup one:

Customer segments:  The primary customer are students. However, there are many other education stakeholders, including admininstrators, alumni, donors, employers and parents.  In addition, for any given subject, potential students will have different backgrounds  and experience in the subject, will have different jobs they want done, and, therefore, will have different applications for what they learned, be it finding a job, getting a promotion, or adding value where they presently work.

Value proposition : For each customer segment , you have a specific value proposision. You typically describe it in the course syllabus, telling users about the intended audience, the goals of the course, the learning objectives, and the curriculum. For example, the value proposition for a course I teach to xMBA/HA students is :

This course will introduce graduate level students in healthcare administration and leadership to the principles and practice of healthcare innovation and entrepreneurship defined as the pursuit of opportunity under volatile, uncertain, complex and ambiguous conditions with the goal of creating stakeholder defined value through the deployment of innovation using a valid, automatic, scaleable and time sensitive (VAST) business model.

Following completion of this course, you should be able to:

1. identify gaps in your health entrepreneurship competencies and develop a personal and professional development plan to address them

2. create an organizational culture of innovation, lead innovators and overcome the barriers to healthcare innovation dissemination and implementation

3. identify the multiple clinical and non-clinical ways to practice healthcare entrepreneurship

4. Create a plan to solve a problem inside or outside of your organization that meets the goals of the quintuple aim (Quality, cost, access, experience, waste/business operations)

5. Identify the startup life cycle and challenges at each stage

Channels : This describes how you will deliver your course. Will it be face to face, online or some hybrid model with elements of both?

Customer relationships:  This describes how you will get, keep and grow the numbers of students who will take the course, e.g. promoting in the course catalog, attending a career or course proposal day, creating awareness on social media or using word or mouth dissemination from previous students.

Revenue model : This describes how your employer or you will generate revenue from the products. Traditionally, universisty based courses use a “butts in the seats” model, but COVID and new eductional technologies have radically changes the revenue generating possibilities, inluding advertising, freemium models, subscription models and others.

Key resources:  This describes the human, physical, intellectual property and financial resources you will need to build, execute and scale your initiative. For example, do you want to copyright your materials, or , do you want to make them an  open educational resource using a Creative Commons license?

Key activities:  This what you need to do to perform and deliver on your value proposition, like what you will do using a learning management system, like create videos, run office hours, moderate asynchronous virtual discussions and design and grade exams and quizzes

Key partnerships : This describes who can help you, be they guest faculty, educational technology partners, corporate sponsors, e.g. if you are using project based learning techniques or online tools and resouce producers, e.g cases from the Harvard Business School collection.

Costs:  This describes the tangible and intangible costs to produce your product. In most instances, your time, opportunity costs and effort will overshadow the monetary costs.

COVID has accelerated the pace of change in higher education,  forcing them to create entrepreneurial universities.  Teaching faculty how to use the education business model canvas should be part of faculty development to mimimize projecdt and product failure.

Here is what I learned, using the business model canvas, teaching sickcare innovation and entrepreneurship to first year medical students at the University of Colorado.

In this post ,  Steve Blank offers a new definition of why startups exist : a startup is an organization formed to search for a repeatable and scalable business model .

So is a new course or certificate. Use the education driven business model to make your product desireable, feasible, viable and adaptable and be sure to document your success when it comes time for your evaluation,promotion and tenure review. More likely, though, you will be  including it in your failure resume,  since, like the vast majority of new products,  yours is likely to fail  because 1) you offered a product students don’t want to buy or someone does not want to pay for, and 2) you do not have a  VAST  educational product business model.

Image credits: Strategyzer

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