Shaping Your Business – Product Design and Business Models

Shaping Your Business – Product Design and Business Models

In the latest seminar from EduGrowth’s LaunchPad Essentials, Nikki Bonus and Tim Praill, thought leaders and entrepreneurs in Australia’s EdTech ecosystem, join David Linke to discuss the state of EdTech startups, product design, business models, and lessons learned from their years in the industry.

David Linke, managing director of EduGrowth, brings together two successful and enterprising entrepreneurs from Australia’s EdTech space:

  • Nikki Bonus, founder and CEO of Life Skills Group
  • Tim Praill, COO of Faethm AI and former head of Navitas Ventures

Nikki and Tim have a wealth of experience from both in and out of the education sector. They bring their lessons learned to this discussion with David Linke.

The highlights and full transcript of the conversation are below.

Getting into EdTech

Nikki and Tim entered EdTech from careers outside the industry. Tim shares that his experience working as a management consultant gave him a keen perspective on public versus private industry in the education ecosystem:

  • In most Western countries, education skews heavily toward public sector and government control.
  • The private sector is still very underrepresented.
  • Private companies must find an advantage over government initiatives. EdTech is an effective space in which to gain that advantage.

Nikki, working in mindfulness, yoga, and mental health, noticed that the climate of education was changing, that students’ and educators’ wellbeing was becoming a bigger and bigger issue. She founded Life Skills Group twenty years ago and now stresses that:

  • What we used to call “soft skills” (communication, attitude, social skills, etc.) are no longer soft. They are essential.
  • Students develop holistically from birth, all the way through their school years and beyond.
  • Growing bodies of neuroscience research support the implementation of mindfulness and positive psychology programs in school curriculums.

Starting an EdTech Business

Nikki and Tim agree that the K-12 and university ecosystems are vastly different and require different approaches from EdTech startups. Specifically:

  • Universities are less numerous and may require less, but more targeted, advertisement.
  • K-12 programs need to be scalable and flexible to be able to suit hundreds or thousands of potential buyers.
  • EdTech businesses will have trouble operating in both ecosystems as a result of the differences between them.

Tim works primarily on the university side and cites Trilogy and Academy XI boot camp programs as apt examples for how a startup could understand, target, and succeed in the university EdTech ecosystem.

“[Universities] are hard to sell to directly, but they have enormous brand power.”
Tim Praill, Faethm AI

On the K-12 side, Nikki explains that since the past year has pushed education online, it has been a challenge to adjust their systems. But there are ways to adapt:

  • Instead of pitching EdTech products top-down to a whole school, individual teachers or teams can take program licenses in a “tiered” system.
  • Platforms should be geared toward individual teachers’ needs, but with the adaptability to scale into the full school if necessary.
“We began to realize that [teachers] don’t need all the bells and whistles, but we also needed to not just throw something at them.”
Nikki Bonus, Life Skills Group

EdTech business models

A number of variables dictate the business model choices that entrepreneurs make in establishing their EdTech organization. Since EdTech startups are competing with both public and private sector initiatives, Tim stresses that oftentimes it is the subtle choices that matter most in the end.

  • Culture matters. Oftentimes a program designed for one culture will have difficulty bridging into another.
  • Western societies traditionally have a strong business-to-business (B2B) presence. Eastern societies are more business-to-consumer (B2C).
  • Established EdTech businesses have succeeded by taking advantage of partnership opportunities, innovations in the industry, and local market dynamics.

From K-12 to university and from one culture to another, EdTech companies must tailor their product to the specific customer they are trying to attract, while not being so personalized that they cannot adapt to a wider audience.

Attracting customers to your business

Tim discusses the freemium business model that some startups are utilizing to leverage greater numbers of potential customers:

  • Freemium models reduce the barrier to entry for new consumers.
  • A low cost of customer acquisition and back end monetization are key if products are distributed for free.
  • Individual teachers may also be easier to attract than full schools.
“Teacher-focused viral marketing is a very smart way to expand any K-12 product, full stop.”
Tim Praill, Faethm AI
EduGrowth LaunchPad Essentials Insights Seminar Business Models - Tim Praill speaking in image

In a similar vein, Nikki stresses the need to direct a startup’s limited time and funds in the right directions.

  • Spend time discovering teachers’ specific “pain points”, and focus the product on addressing them directly.
  • EdTech startups are particularly lean on time and cashflow. Both need to be employed intelligently.
  • Only devote full developmental resources toward a product that has been vetted by the customer.
“We never build anything unless we validate it with our customers. We might come up with an idea that we think is absolutely brilliant. But we make sure we go outside to even our unfriendly customers to validate it.”
Nikki Bonus, Life Skills Group

Refining the product

From her experience in the K-12 realm, Nikki shares her thoughts on tailoring and refining products to customers:

  • A low marketplace performance score (MPS) is an invitation to investigate deeper into a customer’s needs and adapt the product to meet them.
  • If a customer says “no”, find another customer. And another. And another.
  • Discounting the product for several pilot schools can get the product out for small-scale customer feedback more quickly.
“They felt like they were coming on a journey […] You have to be so clear on the mission or the value that you’re bringing to your customer, that it’s contagious.”
Nikki Bonus, Life Skills Group

Tim’s experience working in corporate advisory and venture capital gives him insights from another perspective. In particular that:

  • Distribution strategy is key. A perfect product which fails to get into the hands of customers is a failed product.
  • Startups need a strategy to generate cash flow very early on in order to survive.
  • Investing large sums upfront is often not viable until a company is very comfortably established.

Looking forward

Tim sees the EdTech industry as fast-growing and full of opportunity for startups, but cautions teachers especially, saying that:

  • Teachers have been an “unloved” segment of the workforce for a long time.
  • As veteran teachers retire over the next 10-15 years, there is pressure on new teachers to enter the field with high technological competency.
  • Targeting the early childhood market is going to be a “no-brainer” for EdTech startups in the near future.

Nikki explains that, while starting an EdTech company may be challenging, entrepreneurs can still succeed if they:

  • Stick to a lean minimally viable product (MVP). Don’t overextend in the early stages.
  • Target the true needs of schools and teachers – their “pain points”.
  • Leverage small advantages like pilot programs, tiered products, and marketing directly to teachers.
“Find the smallest, stickiest, tiniest pain point that you can focus on, and build out from there.”
Nikki Bonus, Life Skills Group
 
EduGrowth LaunchPad Essentials Insights Seminar Business Models - Nikki Bonus speaking in image

Full Transcript

David Linke:
Today’s session is looking at business models and product design, and we’ve got two fantastic speakers. I’d like to welcome Nikki Bonus and Tim Praill. Nikki Bonus is the founder and CEO of Life Skills Group, which is bringing more than 20 years of education experience in the development, measurement, and delivery of social-emotional learning, leadership, and well-being programs for schools. In 2016 Nikki found that life skill goes as a digital solution to expand access to social-emotional learning in schools across the world.

We also have Tim Praill here, who is the chief operating officer of Faethm AI and prior to that he was head of Navitas Ventures, which was a corporate venturing arm of the EdTech ecosystem. 

Nikki, can you give us a little bit more introduction to your background and your entrepreneurial journey to date?

Nikki Bonus:

I have been in education, and working in the health and wellbeing section specifically, mainly in social-emotional learning for a very long time — over a decade-and-a-half. My journey started in a face-to-face school program, sending specialist teachers into schools and then looking at how we digitize a service-based model into a SAS platform.

Tim Praill:

I’m currently COO of a business called Faethm AI. I’ve been involved in the technology space for probably about 10 years. I’m an ex-management consultant. Then I worked in corporate advisory for a number of years. My exposure to education is in both my personal experience, but also I had a strategy in transformation for a big global education company called Navitas, and as part of that I ran their venture capital arm making early stage investments into EdTech companies and organizations focused on the future of work. That was probably about five years ago now, so I’ve been in education since the start of that. It’s been great. I’m super passionate about the space and it’s also wonderful that I don’t know very many people in this call, which means EduGrowth is fulfilling its role to bring people together around education and the future of work.

David Linke:

Nikki, what was the problem that you saw that you decided you’re going to go and build an EdTech business?

Nikki Bonus:

The indicators for us were that we were already working in education and we were already working in schools, and what we were seeing was that the climate was changing in the demands and the needs of what teachers were doing outside of standards. Their key learning areas were dramatically changing. Also there was this really big exception with neuroscience, and research, and data coming out that was really saying that the standard way that we were teaching students wasn’t enough to be able to get to success.

We were part of this research program. What we saw was influencing creating and learning environments within children, and the the kind of activities or the kind of skills that used to be referred to as “soft skills”, we were now starting to see very large bodies of research coming up and coming out around that, particularly around brain science, mindfulness, positive psychology. Really more around how holistically a child develops from the age of zero right through to high school.

At that point our face-to-face programs were becoming extremely popular and were incredibly busy, and I didn’t want to continue growing a lifestyle sort of service-based business, and having hundreds and hundreds of teachers all over Australia. So it was at that point where the OECD and the world economic forum also declared that they’re no longer soft skills. These are critical skills for the future of work and for the 21st century. So within that it was a really an opportune time for us to take the data, and the research, and work that we’ve been doing in schools, and look at how we can begin to digitize that and really begin to find out more around what are the real pain points for teachers and schools and what were they facing. So that was the beginning thread of spending a lot of time doing a lot of research, and a lot of workshops not only with school principals, executives, and teachers, but also with students, and marrying up that information.

Not only did we know that we couldn’t just take a physical based program and just slot it into a digitized program, but looking at stepping outside of ourselves and really finding out more about the pain points that schools are experiencing and the pressure they’re experiencing from behaviour, and what was happening in classrooms and really getting very, very clear on our assumptions and deeply understanding the pain points of schools and teachers.

David Linke:

This is a sort of interesting question when I think about all of that. If I’m right, you target the primary school market is that right? Or your secondary as well?

Nikki Bonus:

We are in primary school but we are about to do a launch for high school as well. So what we found in the game — that is the change in the market — we found that there was such a need for what we have that high schools were actually buying our primary. It’s quite bizarre. High schools were actually buying our primary version to roll out at high speeds just to meet the need of the issues that were happening in high schools as well.

David Linke:

We’ll come back to that business model change because that’s really what we’re talking about today. We’ve got a whole bunch of EdTech entrepreneurs from both Australia and and from India who are thinking about what the problem they’re trying to address is, and the business models that do that, Which is a nice segue for me to to transition to you Tim, to do two things for me.

First, I want to know a little bit about how you got into education. And then we’re going to talk about some of the business models you’ve seen. I know the story why some of them were investable and interesting to you and some weren’t. Why did you wake up one day and decide that you’re going to go and work in the education sector?

Tim Praill:

I was a management consultant, so I was working for BCG. I was doing a mix of resources and retail and other sectors which are very transactional in nature and don’t necessarily excite. I was looking at my next challenge, really. I think when you work in advisory for a number of years you get used to quickly solving problems, but you don’t necessarily get to see them through to completion, so I joined an organization called Navitas, which I hadn’t really heard of because, when you think about the education sector, if you speak to most people on the streets, they don’t know any big education companies. Maybe  Pearson or Scholastic or somebody that wrote the school books that your children are using. But otherwise education as a sector is heavily underrepresented in the private sector. It’s very historically dominated by governments and especially in western countries.

I worked for Navitas, did a mix of corporate strategy transactions, and then got into their venture capital arm, and ran it for a couple of years. I think the one thing that Navitas taught me — because Navitas was a founder of their business — and it was focused on probably one of the smallest niches you could ever think of in education, which is the international student pathway sector, so not just partly focused on one segment within education which, is an international education, not just focused on the onshore delivery, which is obviously a relatively large sector in itself. It was a specific component of that which was the pathway business. When I think about why the business scaled in the way that it did, up to an organization that was about a billion dollars in revenue, it’s because it absolutely cracked the business model. When I look at education as a sector there’s very few organizations that I think have true technology advantage, and a lot of the successful ones have a very, very good business model advantage.

When you look at a Pathway program which was innovated by Navitas and its founder, Rod Jones, one of the biggest reasons why it was successful was it had a beautiful cash flow profile. A lot of the cash was received upfront. You took very, very low risk because you leveraged the university brands when it came to recruiting students. You met a significant need of the university which was to be able to attract more students and retain more students. All of your costs were variable. So when you actually look at the business model that it deployed, it was absolutely perfect. It allowed you to scale very, very quickly. It allowed you to take very, very low risk if you didn’t have large amounts of capital. But you needed that front to make it work. And it turned it into a very, very successful business. I think that whole kind of business model advantage is something that I’ve always felt is critical to education companies and when I look at a lot of the more recent success stories, particularly in higher education and post-secondary, I think that organizations like Trilogy, organizations like Guild — organizations that have really scaled very, very quickly — and have either had exits or IPO’d, it’s to do with business model advantage.

David Linke:

From a personal perspective, is the business model advantage you talk about because the sector’s not innovating, or is it because they’re disrupting, or they’re advised? When we talk about business model innovation from an EdTech company perspective and this institution, as a b2b market to begin with, what you are talking about when you ask, “Why is there an opportunity to be innovative around the business model in your view?

Tim Praill:

When I look at the higher education sector in particular, it has some inherent challenges with scaling, one of which is that you have these large incumbents in the universities that are quite sleepy. They’re hard to sell to directly but they have enormous brand power and they also have enormous incumbency that means it’s very, very hard for you to build a scalable competing organization that can compete directly with them. If you look at how there’s been a lot of challenging universities that have been launched. And they’ve often had very, very innovative approaches to education, but they’ve never really scaled to the level that has often been thought possible, at least in the western markets.

Then an organization like Trilogy comes along, and they’ve taken the aspects of the boot camp model which works so well — which is about creating certainty of job outcomes and creating really targeted delivery of job-relevant skills — and they’ve brought that into the university market. They’ve leveraged all of the sales distribution and brand power of the universities and they’ve delivered the one thing the universities are terrible at doing, and that is creating career outcomes for graduates. Before you know it, they’ve got a product that helps the university differentiate themselves, helps to offset one of the biggest weaknesses, and at the same time they help to create really good job outcomes for students. When a student is paying a hundred thousand dollars for a university degree, paying an additional 10 or 15,000 for a Trilogy boot camp, that gets them a guaranteed job outcome, then all of a sudden it’s a really smart thing to do. If you look at Trilogy competing on a bootcamp perspective against General Assembly, or Academy XI, or any of the other bootcamp providers out there, it’s a much harder thing for them to do well because it’s competitive and they don’t have the university brand or the captive market. That’s the kind of example of looking at an outcome from a different perspective using business model advantage in order to compete and win.

David Linke:

When you talk about business model innovation and providing competitive advantage through the business model; is that because the incumbents are so tied to their existing business that they don’t want to change, or is it because they can’t see the change, or is it because somebody’s asking a question that’s not been asked before? I’m an entrepreneur. I wake up in the morning and I can see an opportunity. Why is it that the universities aren’t chasing that?

Tim Praill:

When I look at the pathway market, it was traditionally that there were pathway providers out there that were university run. But one of the reasons why they never scaled is because it was a non-core part of the university operation, and part of the university set-up made it very difficult for them to create scalable pathway infrastructure and a specific way of serving those students. It was very much non-core for them and it wasn’t something they had deep-seated capabilities in, so one of the things about these big universities — and I’ll talk about the higher education sector before Nikki talks about K-12, which is a completely different beast — is the universities are increasingly becoming specialized. But think of them as, especially in Australia, billion-dollar enterprises. The billion dollar enterprises have traditional faculty-led processes which means that they’re very good at some things. But if you look at anything from student support, career outcomes, pathway programs, English language… They very much sit on the periphery of these large organizations. And that’s why if you’re a private provider you can come in and meet the needs of the university, meet the needs of the student, and sometimes also meet the needs of the parents. You can often deliver very large scalable businesses. That part of it is about identifying the opportunity, but when I talk about business models, it’s about aligning your business model to the outcomes that all three of those stakeholders need.

David Linke:

Nikki, did you test some different business models in Life Skills Group and then the “Go” product. What did you see work and didn’t work?

Nikki Bonus:

It is a completely different beast here and I think a lot of the time the different business models have really changed dramatically. It’s been a real pivot for us, particularly during Covid. I’m not going to say after Covid because we’re still there. But we’ve always gone top-down. We’ve always sold to whole schools. We’ve rolled-out through whole schools, and that’s always been our approach. We’ve worked from a top level, from your associations and your primary principles and networks. What we then tested, and what we saw, that was really interesting that was coming into the market, was more of that land and expand. We were seeing teachers really looking for a specific product that they didn’t necessarily have to have signed-off from a principal, and then they’d be creating a trial period for them, or creating an opportunity for individual teachers to then expand within a school if they’re finding value. That was a really big change for us. The other thing was also really adjusting because we had a face-to-face looking at what products we could bring in and have on demand. Instead of running our professional development face-to-face, having an on-demand professional learning so that schools could also have packages, and having tiered systems, has been a really big change for us. We went back and looked at what was being demanded and what was different. That’s been a big big change for us, David.

David Linke:

Did you ever toy with B2B or B2C and B2B at the same time? Or were you always focused on selling to schools? Have you looked at those different models?

Nikki Bonus:

Ironically that’s exactly what we’ve been doing the last six months. It’s wonderful to be able to say, “oh yes let’s pivot” because we’re getting sort of between 10, 20, 30 teachers each day wanting to get an individual license but to actually begin to build-out the platform, it’s a complete change. So there’s two things that need to happen here. It’s great that we’ve got this huge amount of teachers coming in but we also, with product and engineering, really need to look at what’s important to a teacher, and really starting to separate. It’s probably just for those entrepreneurs that are starting to look at onboarding. I think the most critical thing that you can do in education, and particularly if you’re in the K-12 sector, is to really look at nailing your onboarding because teachers are busy. They get really frustrated and it’s really hard to get right. And it’s also hard to fix if you haven’t done it.

One of the things that we began to see was this B2C so we’d always bring B2B then we began to see B2C, in particular, from all around the world. So we’re getting demand in America, and the UK, and South America. A whole lot of different areas were popping up, particularly last year, having to build the products separately or to have a really beautiful seamless opportunity that was also a tiered approach for teachers. We began to realize that they don’t need all the bells and whistles, but we also needed to not just throw something at them. We needed to be strategic in how we were bringing them in and the journey that we were taking them on because we wanted to expand further into their school and to be able to use the platform as we begin to build that out.

That’s pretty much where we’re at right now that we have found a very large demand of individual teachers coming in and purchasing. We’ve tiered that on different levels because an executive who’s running a stage is going to need something very different to an individual teacher in a classroom or a learning support teacher. We’ve been running a huge amount of focus groups and we went right back to being in schools and building paper-based models again and prototypes just to make sure that we’re getting them on seamlessly and that we were addressing their pain points, and that they could get value very quickly. Particularly for that B2C model, we couldn’t just give them a standard trial that we would for a school. They needed to be able to see how it worked, to get their head around it, to feel like they were solving a very big problem very quickly as soon as they got in there. We’re finding that we’re actually having huge success with that. 

Tim Praill:

You can define a business model in lots of different ways but for startup companies, which is mostly what we’re talking about, the business model canvas is a great way to think about business model innovation. If you haven’t reviewed it or learned about it and understand how to navigate between the various boxes, then I’d encourage you to do so.

When you look at something like the business model canvas or when you look at things like B2C versus B2B: those are high-level questions. But below, there’s things like, “What’s your cost model?”, “What’s your partnership model?”, “What’s your revenue model?”, “How do you look at pricing in order to make organizations sticky before you start to monetize them?” These are all the kind of things that, when you look at different businesses around the world, particularly in EdTech — and we can get on to some of the structural challenges with their tech and how organizations have overcome them through business on model innovation later — but when you look at those specific capabilities, it’s often it’s a subtlety around how they’ve maybe structured their cost model. It’s a subtlety around how they use partnerships to overcome some of those deficiencies, which is how some companies become successful and others don’t. It really is situational, depending on what segment you’re going after and the local market dynamics because, obviously, India is going to be very different from Australia, for example.

David Linke:

And the market that you’re targeting is really going to drive some of those options that you consider. Talk to me about freemium in education technology.

You have had a very great opportunity over many years to have lots of EdTech founders pitch their IT ideas to you as a prospective investor. That means you get to see lots of options. I want to talk specifically about freemium. Freemium is something that comes up all the time and I’m sure there are people on this call who are thinking about a freemium model so talk to me about what freemium really means in your view and then have you seen it being successful in education? And if so, how?

Tim Praill:

I’m going to ask to answer this in a roundabout way, which is to talk about some of the structural deficiencies of education. Traditionally, education, at least in the western market, doesn’t have a strong B2C presence. That is changing, but it historically has been led by our institutions. The other thing is that historically it’s not a consumable commodity. If you talk to your average 15 year old, they go out and they purchase certain things. They don’t naturally purchase, at least in western markets, education. Because of that, it means you don’t get the large consumer-focused brands in education that you do in some other consumer sectors. So that’s important. That’s a structural characteristic about education in western markets. It’s different in China. It does mean that because of that some of the freemium models that work in other consumer sectors don’t necessarily work within education. The other thing you tend to find is in things like K-12, it’s very fragmented purchasing. And Nikki can talk about this and how she has expanded in K-12 versus higher education. If you want to sell in K-12, you’re talking about relatively low ticket sizes, but you’re having to sell it to thousands of schools around Australia. If you look at higher education it’s 40 universities and each one is a billion-dollar enterprise. So in theory it’s very different markets.

To go back to your original question around the freemium model in education: it really does come down to cost of acquisition. If you’re talking in order to build a successful freemium model in education, I think you need to have some form of getting your product into the hands of consumers at a very low cost. And that either comes from viral processes, like people recommending products to others, or you have to have very low customer marketing, or you have to be able to piggyback off the back of other organizations’ partners, et cetera. But if you can do those things and you can get it into the hands of customers very cheaply then genuinely there is an opportunity for you to put it into the hands of as many customers as possible through a freemium model. Reduce barriers to them using your product, liking the product, and then you can monetize it in the back end. But the point is there has to be a commercial model somewhere in there, so if you’re not monetizing it up front you have to be able to monetize in the back end. And it can either be through premium products or it can be through things like advertising which isn’t really that prevalent in education. But it could be. So I just think you have to have a viable commercial model and if you’re looking at offering it for free you have to have a low cost of customer acquisition. So if you have those two things it’s probably viable. But because education is structured in a certain way, there aren’t that many businesses that can correct those two things.

David Linke:

I personally don’t think that I’ve seen any freemium model in Australia for K-12 that’s worked really successfully, but as I say, there’s always the exception. There is one really interesting Australian EdTech company which I won’t name, but using a freemium model, they’re getting some success because they are very much focused. They’re actually almost our B2C play. They’re treating teachers almost as a consumer, they’re monetizing the individual teacher and they’re doing a reasonable job of it.

Tim Praill:

They’ve really invested in that onboarding as Nikki mentioned before. I think teacher-focused viral marketing is a very smart way to expand any K-12 product, full stop. And if your way to get the product into the hands of as many teachers as possible and as many decision makers as possible is to make it free, then I think it’s a very viable process. The reason why that makes sense is because you’re overcoming the deficiencies of K-12. It’s a very fragmented market, incredibly hard to sell into. So anything that overcomes those two things probably creates quite a viable business model. You can kind of monetize it on the back end but I do think Australia is a very different market to, say, the US, where there is a larger consumer market and deeper capital pools. You can have a bigger run at creating a large consumer product in the US than you can in Australia, where at some point you’re always going to have to go offshore.

David Linke:

Think about valuations and business model innovation. What we’re going to talk a little bit about with Nikki is thinking about product design and influencing business models, and how they may have to be adapted and what role the prospective customer plays in testing and validating those things, and maybe some of the process you use because that will then be a nice way to come back to Tim. In the meantime, talking about product design, business model, innovation, working with customers, validating, testing, that sort of stuff.

Nikki Bonus:

One of the most important things we started with was being absolutely paper-based, and we made sure that we put no money into any form of development until we’d actually validated what the customer needed. Spending as much time as possible running really in-depth workshops and spending a lot of time building out literally paper wireframes, and then moving it into a product. At that time we were using Proto.io, so it was just a click through to validate it going out to schools using that. Making sure that we weren’t building something that we assumed they thought that they needed, so a lot of customer interviews, a lot of getting different people to interview them, and then when we started to lock-up the product, and getting them to actually use it, we still hadn’t bought it.

From that stage I started selling it because I didn’t want to put any more time and energy into it. Because we were selling to a whole school, I picked 15 schools and I said, “You know, it’s going to be this price.” We hadn’t actually finished building it and we hadn’t developed the whole thing, but we had a core group of people that were willing to pay for it. Part of them paying for it was that they paid in advance and that we brought them in as our pilot customers, and they became our friendlies. But they were also our clients. And to this day the majority of them are still with us. What we’re able to do is take them on the journey and then bring new people in, constantly listening in terms of validation, what success metrics like, “How do we validate?” “What were they using?”

David Linke:

Can I interrupt for one second Nikki? There’s a question that was asked in the chat which I think is really important at a practical level: “How do you actually get, in your instance, the three principles in a room or the three leaders in the room to actually begin that conversation?” At a practical level, how did that first step happen?

Nikki Bonus:

I’m a relentless person who finds people on LinkedIn, and I literally contact them all over the world. I’m not scared to put out an idea of what I’m doing, and let them know what I’m trying to build, and ask them for time. My initial relationships were literally built like that. When I think back to when I first started selling to schools, I contacted them on LinkedIn. I asked them if I could take them out for lunch. I’d been in the industry so I had a little bit of an understanding. But as I was beginning, in the really early days it was a lot of business development, bringing in and interviewing, picking up the phone, finding those people, and then asking those people if they had friends that might be interested in coming on and being part of an “innovation hub”, putting a name around it so they felt important.

They felt like they were coming on a journey, the same way that we bring some of you. When you bring in staff — when you’re really early stage — there has to be a conviction as a founder around what you’re doing. You have to be so clear on the mission or the value that you’re bringing to your customer, that it’s contagious. And then not giving up, so if someone says, “no” you go and find another person, and another person, and that was pretty much it. There’s nothing really over the top. It literally was pounding the pavement.

David Linke:

What are the points in your mind that you were saying, “Have we got an idea here that is worth pursuing?” What were those? Did you sort of have a set of metrics that you were thinking about? Did you have some specific test points that you wanted to create?

Nikki Bonus:

We did the onboarding process so we can get them on board very quickly. It was a big thing that we had to tick off. I’m using Proto.io and I don’t think we’ve nailed that. I think it’s a continuous thing as you continue to release products. But usage was a really big thing because we learned early on that it was so clunky that if we couldn’t get them on, then it was going to be a huge problem. Also the usage was something that we wondered, “Is this going to be something that they’re going to use?” and defining that usage. So internally we have our own data around what percentage of the week, or how many times a week, or what success looks like for us. Also, we have an MPS Score that goes out through our systems and, having a look at our MPS score, not being terrified, but being more excited if someone is unhappy with the product. Then really getting close to that person and spending a lot of time around finding what we’re not seeing. And I think that’s another really core area also in testing your product and features.

A lot of it is, and — this is kind of one of those terminologies that we all use — but if you’ve got a problem that is going to be scalable then it should be able to. There is usually an 80% problem, so we didn’t want to be just kind of solving 5% here and 10%. So the scientific part of it was a lot of customer interviews and then really researching those. We still do a lot of those today, David, getting and going back, watching the usage if we’re in schools — actually watching the kids use it, watching the teachers use it, and there have been very much signs of success for us.

David Linke:

I wanted to segue back to Tim and talk a little bit about the scalability that we keep talking about. And business model innovation is a really interesting thing so I’m sure that you’ve seen lots of business teams that have presented to you. But when they intend to say, “Hey, x millions of dollars”, it falls down at the business model. What were the things that you may have sort of looked down on and said, “Well, wait a second. This doesn’t make sense.”

Tim Praill:

Where does the business model break down outside of things like addressable market? I think distribution strategy absolutely makes or breaks the business and I think if the example is, “I’m going to give you money and you’re going to spend it on hiring sales people that will go door knocking.” Unless you’ve got a very innovative way of selling or a really deep untapped marketing pipeline, it’s probably something that just doesn’t pass the sniff test. I think distribution in education is just incredibly important to get right. I think cash cycle is also really important. Again, if you look at the birth of the OPM market, which is the Online Program Management market for universities, they said, “Right. We’re going to pay up. you’re going to give us a scope of work. We’ll design the course. We’ll take it online. But we want 70% of the revenue from that course.” That works when you’re taking 70% of revenue but the only reason why you can risk having all of that upfront product development cost is because you’re taking so much of the revenue from downstream, and that only works when you’re a cashed-up business. That’s the reason why OPMs are really hard under that model to create from scratch. You know you’re going to be sinking a million dollars before you start to get a dollar of return. So the cash cycle for me is really important because, especially when you’re investing in seed state businesses but you’re only putting in say a million dollars, they run through that pretty quickly. They’ve got to be able to be generating cash pretty quickly, and in order to do that they’ve got to have overcome this distribution challenge. They have to be able to get it into the hands of users as quickly as possible. Those are probably the two things that I look for, but you’re also kind of looking for some sauce.

There was a business that I saw out of New Zealand called Teach Starter. The thing I loved about their business model was it was a K-12 study aid where they were doing interview prep and preparation for students going through the national qualifications. But when you completed tests on their platform they provided accreditation and they provided course credits against the national qualification. For me that was a really innovative way. I had not seen somebody extend the test prep model or completing K-12 focused courses in your spare time into something that contributed to their national qualification. They’d identified a structural thing about the national qualification in New Zealand that allowed them to build a business model off the back of it. It’s little things like that that I thought were pretty interesting.

David Linke:

I want to give people a bit of a metaphor that I think that you should think about in your business model. Are you building an exercise bike or are you building a mountain bike? Are you building a racing bike? In many instances there’s lots of businesses that I see that are really exercise bikes. You can put as much energy as you like into it. It’s just not going to move anywhere. So you need to really think about, “What is the cost of your lead?” “What is the cost of yourselves, the cost of customer acquisition?” “What’s the lifetime value of it?” Because these are the metrics that help inform your business model and many early stage startups ask me lots of times, “What’s the price point I should be selling at?” And the answer is, “I don’t know.” Because all of those other metrics inform it and the market is the final piece of it, what the market will bear. But you need to work that out really quickly.

 One of the things that’s really important is to be very skeptical of people who say, “Yeah, that’s a great idea. I would buy it.” The only real test of whether they’ll buy it is if they do. It’s very hard for early stage startups to start thinking that way, but if someone says, “Yeah, that’s a great thing. I’d buy it.” Well then, you say, “Great. How much are you going to pay me for it?” You just need to be really conscious.

Nikki, think of an idea you started to build, and something you tested in the market. What was the validation that you went, “Yes. I’m going to do it. I’m going to continue to do this.”

Nikki Bonus:

I think it’s when we hadn’t built it and we still had it in Proto.io, and the school paid us. I didn’t want to build anything unless they’re going to pay for it. So we came up with a rough number and we just went, “It’s going to be heavily discounted because you’re a pilot school.”

David, you know, as a young startup founder I remember thinking, “How can I own the cost of acquisition and all of these kinds of things when I’m still trying to work out my problems and what the product’s going to be?” I think there’s so much intelligence in actually beginning to allocate 50% of your time to the product. And 50% of the time, do you go to market? What’s going to cost you your channels? Because there’s nothing worse than ending up with the product that no one’s going to buy. So to your point, David, when we had finished doing the the mock-ups on proto.io, we used a whole lot of other people’s apps and sticky-taped them together. We did presentations. We ran them in schools and we were flipping between apps, and when the school signed-off on it we actually had it. It was 15 schools that signed-off on it at the pilot price. We then went, “Okay. We’ve got something here. We’ve got 15 schools that will come along on a journey with us for at least 12 months while we begin to sort out some of the other bigger problems.” And that was really about, “Okay. Now let’s go with this and let’s start building this out.”

We also never build anything unless we validate it with our customers. We might come up with an idea that we think is absolutely brilliant. It’s going to change the world, and we make sure that we go outside to our unfriendly customers and also validate it. Because the early adopters might come in, we also want to be able to move beyond the early adopters. So it’s really important that that testing in the market is validated beyond the initial people that are coming along because they’re already in our space.

David Linke:

We’ve talked about finding the valuation model, with the curve within, and ensuring that you’re connected to it. We’ve talked a lot about what that means, and some of the structural problems in education. I want to talk in a very broad term. I’m going to ask you a question that’s unanswerable. What trends, when you were looking around EdTech, were you seeing in Australia or a lot of Australia that interested you? Was there a market differentiation that you’re seeing for Australian companies or people out of India pitching, or people out of North America that you weren’t seeing in other spaces?

Tim Paill:

I think the professional development market was a particular sector that we were very interested in because we saw it was growing very fast. We saw that the purchases of that product were corporates and professionals, and that there was a large addressable opportunity there. I always felt that the teacher training and development market was very underserved. I think teachers have been an unloved segment for a long time, and I think when you look at the demographics of most western teaching populations, there’s going to be a lot of retirees over the next 10-15 years, and there’s going to be incredible pressure on the next generation of teachers coming through, and being able to you know use the technology and teach in different ways. I think there is still the opportunity for some really good higher education partnership business models. I was particularly looking at the university space and I wasn’t looking at K-12. But I felt early childhood in certain markets is a no-brainer opportunity for organizations to focus on. But I felt that, in the same way that Trilogy was able to build close to a unicorn business, focusing on higher education boot camps; I felt that there was additionally different pathway models, distance learning models, that the right organization would be able to come and absolutely dominate globally. And they would turn into very large addressable market opportunities. So, it was post a professional development teacher-training and development, and higher education partnerships with the three that I was particularly focused on.

David Linke:

All right, Nikki, let’s let’s try and find a couple of little pieces of nuggets of inspiration and practical advice for tech founders that are in our call. So specifically, let’s try and think about, “What’s the one thing that you did in product design that you now know you shouldn’t have done, and you wish you could go back and have not done?”

Nikki Bonus:

One of the biggest mistakes was that we didn’t stick to a lean MVP. So we built-out huge amounts of content, and even though we validated the use of it, looking back now we could have been really lean. We could have just had those key areas that we knew they really wanted, but we got over-excited and built way too much, which has been fantastic because we’ve got huge amounts of content, and it continues to help us grow. But, looking back now I would never have done that. Find the smallest, stickiest, tiniest pain point that you can focus on, and build-out from there.

I would like to formally thank superwoman Nikki Bonus, founder and CEO of Life Skills Goal, Tim Praill, Chief Operating Officer, Faethm AI EdTech entrepreneur around town.