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Unleashing Entrepreneurial Energy to Transform Education DRAFT: Do not cite without permission from the author. Unleashing Entrepreneurial Energy to Transform Education By John Bailey Digital Learning Now! RESEARCH PAPER: JUNE 24, 2015 Papers for this conference are available online at www.aei.org/feature/education- entrepreneurship-papers/ 0 DRAFT: Do not cite without permission from the author. Recent advances in technology present an opportunity to reach every student with the customized education they need in order to succeed in school, career, and life. We are in the middle of dramatic economic and technological shifts in which entrepreneurs are positioned to solve large, complex societal challenges, specifically within education. New personalized learning systems analyze student data in real-time and provide a customized list of activities and content to meet a student’s unique needs. Traditional educational services, from instruction to professional development to course delivery, are being run as online services. The real breakthroughs are with new models of education that were designed around next generation tools and services that deliver a better education experience aligned to student success. New Classrooms’ founder Joel Rose suggests that, “Our collective change in K-12 innovation today should go beyond merely designing and producing new tools. Rather, our focus should primarily be to design new classroom models that take advantage of what these tools can do.”1 The challenge is not to romanticize any one particular technology, tool, or service but instead to ask how these new technologies might be used together in new models to solve problems in smarter ways. While the models are still emerging and the tools still evolving, one thing is clear. Education is no longer limited to a building. It is becoming accessible anywhere, anytime. This is the first generation of children who will experience education as an on- demand service. Education is available to them through the download of an app or a click to an online course. It is available to them from school, from home, from the car, or from anywhere they can be connected. 1 DRAFT: Do not cite without permission from the author. Behind this on-demand revolution is a group of courageous entrepreneurs, empowered with low cost technology platforms, broadband distribution systems, and expanding flows of financial capital. The Schwab Foundation describes these individuals as driven by social change and transformation, using “entrepreneurial zeal, business methods and the courage to innovate and overcome traditional practices. A social entrepreneur, similar to a business entrepreneur, builds strong and sustainable organizations, which are either set up as not-for-profits or companies.”2 This emerging generation of entrepreneurs is blurring the lines between purely social or business interests as demonstrated by the rise of Silicon Valley companies tackling societal challenges ranging from greentech to healthcare to education. These social entrepreneurs are often driven by a double bottom line of measuring success not just based on traditional business metrics but also social outcomes. Within this wave of social entrepreneurs are individuals launching ventures aimed at solving difficult challenges within our education system. They strive to address pain points and frustrations for teachers, improve the learning experience for students, offer parents new ways to help their child, or reimagine the way instruction can be delivered using games. They see every problem as what William Eggers, Global Public Sector Research Director at Deloitte, describes as a “wicked opportunity.”3 Problems are like catnip to an entrepreneur. Tackling them is what motivates an entrepreneur to bootstrap their startup or spend hours coding a new feature. In reflecting on these types of individuals, Matt Greenfield of Rethink Education observed that “Successful entrepreneurs have a fascination for a particular kind of intellectual problem and a 2 DRAFT: Do not cite without permission from the author. relentless, unstoppable, endlessly inventive, and improvisational effort to solve that problem.”4 It is from this passion to challenge the status quo, to question long held assumptions, to solve problems, and to help students succeed that entrepreneurs are launching new products and services. We see it in the more than 71 tech startups that were catapulted out of education incubator ImagineK12. We see it in how Teach for America has grown from 400 corps members in 1989 to 11,031, alumni of which have gone on to become leaders of states, schools, and startups. We see it in the growth of public charter schools from 1,542 in 1999 to 6,400 in 2014 who are experimenting with numerous combinations of technology, human capital, and instructional innovations to develop new school models. There are thousands of entrepreneurs just waiting to bring innovations to education. The question before us is if our nation will give them the opportunity to do so. TAILWINDS FOR EDUCATION ENTREPRENEURS Sailors use the terms “tailwind” and “headwind” to describe events or conditions that impact their progress. A tailwind references favorable conditions where the wind is at one’s back propelling them forward at a faster pace. Conversely, a headwind is a situation or condition that slows forward progress and makes the journey more difficult. While often used to describe certain economic conditions, the terms can also help categorize broad trends facing education entrepreneurs. 3 DRAFT: Do not cite without permission from the author. The Tailwinds of Philanthropic and Private Capital An unprecedented level of capital is flowing into education startups, from major foundations to private capital markets. Education technology companies raised $1.36 billion in 201 rounds from more than 386 unique investors in 2014, representing a nearly 212 percent growth in the sector since 2009.5 (See Figure 1.) Figure 1: Investments in Education Technology Companies from 2009 - 2014 4 DRAFT: Do not cite without permission from the author. This is in the context of the U.S. venture capital market being on pace to have the highest amount of funding since 2000.6 (See Figure 2.) Figure 2: Funding to U.S. Startups from 2009 - 2015 The U.S. is also witnessing unprecedented levels of philanthropic capital coming from 86,192 foundations with $715 billion in assets and $52 billion in grants,7 22 percent ($5 billion) of which is invested in education. These funds are fueling new social entrepreneurial efforts as well as the necessary advocacy work needed to remove roadblocks and help scale high performers. New funding models, such as crowdfunding, are also opening up alternative avenues for entrepreneurs. Since 2009, Kickstarter has channeled more than $1.7 billion to more than 86,000 projects. DonorsChoose has 5 DRAFT: Do not cite without permission from the author. supported 240,000 teachers in 61,000 schools with nearly $327 million by crowdsourcing the funding of local classroom projects. Tailwinds of Internet Disruption of Traditional Supply Chains The Internet, app stores, and mobile platforms are disputing traditional distribution and supply chains. Before the Internet, entrepreneurs had to individually sell products to 15,000 separate school systems, all of which had their own byzantine and lengthy procurement processes. “In the past, innovation came to schools in a car,” quipped Jennifer Carolan of New Schools Venture Fund, referencing the practice of salespersons driving from school to school, providing a demo, and trying to secure a procurement deal.8 Today, the Internet reduces this friction and allows entrepreneurs to directly reach teachers, parents, and students. New “freemium” business models allow a teacher or student to try out services and enable entrepreneurs to build up a core group of users before a formal procurement is triggered. Freemium models offer a free version of the service with some limitations (e.g. limited features, customer support, or seats) while a paid premium version unlocks features and functionality. Freemium allows teachers to try something first with little risk of sinking funds or time into something that may not meet their needs. Alan Louie, a Silicon Valley entrepreneur and one of the co-founders of the education incubator ImagineK12, believes this all culminates in a new distribution and sales model in education. He says, "The model of only going to schools and selling there is the hardest way for a startup to go. Consummating a sale generated by a teacher and 6 DRAFT: Do not cite without permission from the author. then executed by the district is just fine by me. That wasn't possible five years ago." 9 The Tailwinds of Lower Costs to Launch New Startups A number of broader technology trends are making it easier, cheaper, and faster to take a concept to market. Cloud computing has made nearly an infinite amount of computing power and storage available, and has also introduced sophisticated development tools and applications on an inexpensive, pay-as-you-go basis. Even small start-up teams can reach a national audience, often in a targeted way, through paid and organic search optimization, advertising platforms on Google and Facebook, and other digital marketing channels that didn’t exist five years ago. Experts estimate that today’s startup can launch for less than $100,000, nearly one-tenth of the cost a decade ago.10 Mark Andreesen, one of the early pioneers of the Internet, reflected that in 2000 it cost $150,000 a month to run the Internet-based application. Running that same application today on Amazon's cloud services costs about $1,500 a month.11 Google Executive Chairman and ex-CEO Eric Schmidt and former SVP of Products Jonathan Rosenberg put it this way: Many incumbents—aka pre-Internet companies—built their businesses based on assumptions of scarcity: scarce information, scarce distribution resources and market reach, or scarce choice and shelf space. Now, though, these factors are abundant, lowering or eliminating barriers to entry and making entire industries ripe for change.12 All of these changes reduce the barriers to entry for entrepreneurs.
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