Ed. Startups Navigate the Hard Market Realities for Sustaining Success

Launching an ed-tech startup is a daunting task, full of fears of failure, worries about money, and questions about the K-12 marketplace. The bigger challenge, though, can be sustaining the business once it gets off the ground.

That is when most education startups take a nosedive, whether because of poor planning, unfriendly market forces, simple bad luck, or other factors, according to market observers.

Adam Geller and Michele McKeone are working their way through that phase right now, as they strive to move forward and develop their separate ed-tech businesses. They’re brainstorming about how to get the dollars they need to continue improving their products and services, identifying financial models to sustain their businesses, and hiring new employees.

All the while, they sometimes wonder how their startups will affect their own career paths.

Mr. Geller, a former science teacher and co-founder of Edthena, a secure video-sharing platform designed to provide feedback for teachers and teachers-in-training, and Ms. McKeone, a special education teacher who created a digital literacy program for students with autism, called Autism Expressed, are navigating the educational technology startup arena and learning important lessons along the way.

Education Week, in partnership with the University of Pennsylvania Graduate School of Education, is following these two startups to provide a closer look at the ed-tech industry, which has become a popular investment area and has spawned numerous products that educators use or are considering for use in their schools and classrooms. Both startups participated in the university’s education business plan competition, which provides financial awards and mentoring.

“Entrepreneurs get to the spot where they have a vision, some passion, a product or service, and they get a handful of customers,” said Joseph Olchefske, the board president of the Education Industry Association, a trade group based in Vienna, Va. “They’ve proven they have a reason to exist. But then how do they build the business and make it a thriving concern?”

Though the buzz and hype around the ed-tech marketplace continues to grow, the reality is that most ed-tech startups are likely to fail, said Barbara “Bobbi” Kurshan, the executive director of academic innovation and a senior fellow at the University of Pennsylvania Graduate School of Education. Only one in 10 startups that go through incubators or accelerators, which provide support for these new companies, will be able to raise additional rounds of funding, she said, adding that those statistics generally carry over to the ed-tech startup world.

Edthena, based in San Francisco, and Autism Expressed, based in Philadelphia, have both reached the point where they have to make a leap to scale up, she said.

They need employees to make sales pitches and oversee contracts, they must develop a business infrastructure, and Ms. McKeone and Mr. Geller need to focus on making the product—not their own journey—the story, Ms. Kurshan said.

Some factors are in their favor: Both companies have paying customers, and both have had either investors or the possibility of outside funding. But it remains to be seen whether the companies can take their products forward in the K-12 marketplace, which has a distinctive set of hurdles.

The Sales Challenge

Mr. Geller is trying to overcome those barriers. After launching Edthena in 2011, he’s aiming to grow the company. In October, he hired his first salesperson—paid through a salary, commission, and stock options—to pursue new customers.

The sales strategy relies, in part, on Internet-based demonstrations, Mr. Geller said.

“We’re trying to sell the fact that we can make video feedback and observation online easy, so it’s a natural fit to have someone try it out on their computer,” he said.

Mr. Geller has also made inroads with the Washington-based American Association of Colleges for Teacher Education, which accepted Edthena as an affiliate member, since the company provides a service to full members.

It’s a designation that gives Edthena entree to the 876 schools and colleges of education that are members, said Christina A. Jackson, the director of public relations and fund development. “Our members get a lot of solicitation,” she said. “They are very wary about who they partner with.”

A new teacher-certification initiative is also emerging as a boon for Edthena, Mr. Geller said. The performance-based licensing assessment for new teachers, known as EdTPA, is being adopted by schools of education and state across the country.

The certification steers participants directly toward video for both feedback and to submit proof of their skills, Mr. Geller said.

Even so, it’s been a challenge to get the Edthena product into teacher programs, particularly in the middle of an academic year, he said.

But Mr. Geller discovered people were willing to experiment with small, pilot programs because the difficulties of incorporating video feedback effectively into teacher-training programs are significant.

“People are willing try things in the middle of the year if what you’re solving is one of their top-priority problems,” he said.

For ed-tech startups selling directly to school districts, timing can be even more tricky, said A.J. Juliani, a K-12 technology staff developer for the 4,400-student Wissahickon school district in Ambler, Pa., and a co-founder of Collabo, a lesson-plan-collaboration startup, launched in 2010 and shuttered 18 months later.

Collabo’s financial plan was to provide the product free to teachers and sell a premium version to districts. But Collabo never got enough traction to get to that stage, Mr. Juliani said.

“If you’re trying to sell to a school or a district, there are a lot of loopholes and hoops to jump through,” he said. There’s a long lead time on sales, he said, and the administrator making the purchase may not be tech-savvy or be the person who will use the product.

But Adam Frey, a co-founder of Wikispaces, a successful educationally oriented Web-hosting company established in 2005, said new ed-tech companies need to get creative in how they pursue K-12 customers.

“There are purchasing cycles and regulations and a decisionmaking process,” he said, “but we’ve found that you can skip by that if you’re clever and can find decisionmakers at a low enough level to operate quickly and effectively.”

Broadening the Brand

For Ms. McKeone of Autism Expressed, the difficulty of getting her program into traditional school districts also meant looking elsewhere for customers, including private schools and organizations, like Haddonfield, N.J.-based Bancroft, a nonprofit company that runs schools and programs for students and adults with cognitive disabilities.

Though Autism Expressed is being used in the Philadelphia school district where Ms. McKeone teaches students with autism, and contracts with a few other districts are “in the pipeline,” Ms. McKeone has made better inroads with more nimble organizations.

That’s led her to a big decision. Though her product is aimed at students with autism, Ms. McKeone said she realized that the curriculum could help many other students.

She’s now rebranding her product, creating a separate but connected company called Digitability. It will be the same curriculum, but without an autism tag narrowing the customer base.

Dennis Morgan, the executive director of education programs for Bancroft, said he encouraged Ms. McKeone to widen her scope so he could use the product with adult brain-injury clients or even senior citizens.

“In the world of special education, labeling is very dangerous,” he said. A brain-injury patient might resist using an autism product, Mr. Morgan said.

Special education is also an area, like many others, where proof of impact is critical. Ms. McKeone has applied for a small-business innovation research grant through the U.S. Department of Education that could provide up to $900,000 over two years to research the effectiveness of the Autism Expressed program.

If the grant is approved, Ms. McKeone will work with Michel L. Miller, an assistant professor of special education in the school of education at Philadelphia’s Drexel University. Ms. Miller said she’d track student progress and outcomes, as well as how the curriculum should be implemented.

With hard data that show positive outcomes, for example, Autism Expressed could get on the endorsed product list of the Washington-based Council of Administrators of Special Education, or CASE, said Ms. Miller, who serves on the organization’s research committee.

“If [Ms. McKeone] went to submit her product right now, she wouldn’t have the data” to be approved, Ms. Miller said. “A lot of supervisors use a CASE endorsement as one of the ways to determine what products they’re buying for their schools.”

Ms. McKeone is also debating whether to leave her full-time teaching job at some point to focus on the business.

“If your company is gaining traction, there’s a point where you take the leap, understanding that it’s a risk,” she said. “But I’m someone who loves what I do in the classroom.”

Failure Is a Bad Option

As for Mr. Geller, he has accepted funding from some angel investors and also recently garnered an undisclosed investment from the NewSchools Venture Fund, a nonprofit venture capital firm based in Oakland, Calif.

Kristina G. Ransick, a principal at NewSchools, said Edthena was an attractive investment because it “has an end-to-end solution” and paying customers. “That shows real demand, not just perceived demand,” she said.

Because Edthena has a customer base, the NewSchools funding wasn’t critical to the survival of the company, Mr. Geller said, but those dollars give “us the assurance that if we hit a bump in the road, we’re not going to be teetering toward a crisis.”

That risk is something ed-tech companies should keep in mind, said Mr. Frey, of Wikispaces, since “trying and failing in the world of education can have a bigger, more meaningful impact than in other industries.”

“If you get teachers using your product,” he said, “and you have to pull the rug out from under them, that’s a real problem.”