Founders' Corner

Entering Emerging Markets

by Esteban Sosnik

Dear Esteban,

I am a K-12 entrepreneur continuously reading about the immense growth of our industry in developing countries. How would you go about expanding into those as an early-stage startup?

Ready to Reach

Dear Ready to Reach,

A few weeks ago I met a number of international edtech companies, particularly a few based in Malaysia, UAE, Brazil and Mexico and was impressed by many similarities they all had.

A few impressions I got from these companies:

  • Most companies sell top-down, primarily via departments of education, entire municipalities or even provinces/states. There might be a some differences in private schools, which are generally more independent and can make decisions at the school level, but the private market is, in most countries largely diversified.
  • The solutions that are being developed tend to be super comprehensive, incorporating in many occasions SIS functionality, LMS, data tools for student retention, content, and curriculum.

In contrast, in most cases U.S.¹ startups are single-solution. The companies that have had most impressive growth in the U.S. have been primarily freemium models (time or feature-based), where teachers adopt software for free and companies upsell based on utilization. These tend to be replacing report cards (ClassDojo), math worksheets (Dreambox), blackboards and powerpoints (Nearpod), or textbooks (Mystery Science).

In this context when considering entering emerging markets, U.S. companies should consider whether to:

  • Select a partner and integrate with one of those platforms as a single point of entrance into the local system
  • Focus on the private school market initially and expect the larger publicly-funded school markets to evolve to incorporate single-solution systems

I think many U.S./European companies can be valuable for those in emerging markets trying to win state deals. Single-point solutions have more depth than expansive platforms and hence the local partner can find great value to add on new products/features to their offerings to win deals. Having a respected U.S. brand could also be valuable to local partners.

The biggest risk in this option is ROI. Navigating partnerships and state-run purchases can be slow and very politically charged. You might win a contract with a state that never gets implemented or renewed in the future due to political priorities or changes. Being disconnected with the customer (local government) also adds risk for the U.S. company. “Many times the customer contracts at this level are relationship-based,” says Komal Dadlani of Lab4U (a company based in Chile and Mexico) with ample experience working across Latin American countries, “so you are vulnerable to the relationship of your local partner, regardless of the quality of your offering.”

Another way to go international is by focusing on the private school market. Some companies including ClassDojo and Seesaw have already made quite an international inroad by focusing on the private school market (beginning with IB programs). Clearly it’s more difficult to get bottoms-up adoption when the solution requires integration with school systems or core curriculum.

Focusing on English-speaking countries or programs (like the IB program) is a good idea as it minimizes the amount of localization (think product, content, marketing, etc.) necessary to launch. Komal comments: “Also, how you charge and how your pricing works matters a lot. Private schools charge parents and sometimes they expect you to have a payment link for parents and a parents dashboard. In other cases, be aware that private schools will charge parents but with a higher price tag to make a margin on your product. An edtech company might debate this practice and decide not to work with these kinds of schools.”

The other thought that this brought to my attention is whether as U.S. companies start to consolidate in the next 5–10 years, maybe the U.S. market will start to look more like the emerging markets look today. If you look at the recent M&A activity, you will see content companies broadening content offerings (starting in ELA and expanding to math and science, for example), classroom tools start to integrate homework, content marketplaces, communications, etc. At that point, will U.S. platforms win the global market (much like Facebook has in the consumer side or Salesforce is doing for the enterprise) or will we have different platforms win different markets?

Trying to become a global platform has many challenges, as Scott Cook, founder of Intuit, so eloquently describes in this video. He describes how a product developed with one market in mind might not be well suited to scale in other geographies.

I would be curious for readers to share how much this experience compares in the Higher Ed industry for emerging markets.