Unleashing Entrepreneurial Energy to Transform Education

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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/

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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.

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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

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.

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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

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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

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

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. They allow parents, teachers, and other “non-techies” to be able to take a concept to market in a way never before possible. Take for example the story of Jinal Jhaveri and Forum Desai who were frustrated by the cumbersome, paper ridden process involved with kindergarten

DRAFT: Do not cite without permission from the author. applications for their daughter. Drawing upon their experience, they launched

SchoolMint – a web-based and mobile-app tool that streamlines and manages not only the enrollment forms for parents, but the application, waitlist, and lottery process for schools. The amazing part of their story is that they were able to take their idea, prototype it, and then launch in a matter of months. Soon after they were powering the application process for Philadelphia parents selecting options among public, charter, and Catholic schools.13

The Tailwinds of Incubators and Accelerators

The National Business Incubation Association (NBIA) estimates that the number of incubators grew from twelve in 1980 to more than 1,400 by the mid-2000s. The number of education technology incubators has surged to over 17, including the Jefferson Fund,

LearnLaunch, and the Kaplan Ed Tech Accelerator. These entities play a critical role in the startup ecosystem by providing some of the skills building and support startup founders need to bring their idea to reality. Many of these programs culminate in a “demo day” where the founder pitches their idea before investors, helping to attract the financial capital needed to launch or scale. For example, the team at incubator 4.0 Schools, which has helped launch more than 40 tools, services and schools since 2010, tackles issues ranging from youth unemployment, code literacy, teacher training and new school models.

There are also a number of informal incubators that have served to cultivate and grow leaders who then go on to start new ventures. Teach for America not only addressed a teacher pipeline challenge, but has become a leadership incubator. Alumni have gone

DRAFT: Do not cite without permission from the author. on to found KIPP, become state chiefs in Tennessee and Louisiana, create the New

Teacher Project, and launch School of One and New Classrooms’ pioneering personalized learning model. Staff that worked for Joel Klein while he was Chancellor in the New York City School District have gone on to launch technology start-ups, assume leadership positions in non-profits, become state chiefs, and lead philanthropies. The experiences gained though these education roles have in turned helped shape their work in various social ventures.

The Tailwinds of Expanded Student Options

The conventional wisdom is that the school choice movement has struggled with the exception of public charter schools. In reality, there has been an explosion of choice in the form of charters, vouchers, online learning, tax credits, and Education Savings

Accounts (ESAs). More than 20 states have school choice programs, 42 states have charter school laws, and 26 states have statewide virtual schools. Florida alone offers a broad array of options through tax credits, charter schools, virtual schools, McKay

Scholarships, Opportunity Scholarships, course access, and Personal Learning

Scholarship Accounts. Far from struggling, the movement is gaining momentum. In 2015 alone, at least 34 states (up from 29 last year) considered proposals to create or amend programs that offer private education options.

A fresh wave of reform is sweeping the country in three new ways that transcend traditional school choice politics. The first is Course Access policies that allow K-12 students to access a variety of quality courses outside the four walls of their school

(where they remain enrolled). This policy strengthens the traditional classroom and

DRAFT: Do not cite without permission from the author. school and gives students an expanded and targeted course catalog. These programs promise to offer students more flexible options, expanded curricular programs, and alternatives that meet their unique needs. Not only does Course Access offer expanded opportunities for all students, it strengthens local schools by offering new career opportunities for teachers, new revenue streams for schools, and the opportunity for meaningful 21st-century professional development. This can be seen in Louisiana where students are using Course Access to choose from hundreds of online and face-to-face courses offered by over 37 active providers, including institutions of higher education, other school districts, the Florida Virtual School, and other private and non-profit providers. Families use a simple statewide online catalog to select the learning opportunities (online, blended, or face-to-face) that may be unavailable or underserved at their current school. Through the program, students are able to take everything from

Advanced Placement to ACT Prep to vocational classes.

The second new reform is Education Savings Accounts (ESAs). These flexible debit card-like accounts allow parents to pay for a variety of education services and supports, including tuition, tutoring, therapy for students with disabilities, instructional materials, online courses, a-la-carte public school courses, and savings for future college costs.14

The mechanism of a flexible spending account builds on several decades of promising success in the use of accounts to allocate government subsidies and empower beneficiaries. Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are now widely seen as an important component in improving healthcare. More recently, dependent care reimbursement accounts help families with managing childcare or

DRAFT: Do not cite without permission from the author. eldercare expenses.15 Job training reforms have explored the use of Individual Training

Accounts (ITAs) and Personal Reemployment Accounts (PRAs) to assist unemployed workers not only with job training but other services needed to secure a job such as public transportation to an interview or resume assistance. 16 Coverdell accounts provide flexible saving and spending accounts for students to pay for tuition, books, tutoring, and other services, notably in higher education.

So it is only natural that these mechanisms would find their way into elementary and secondary education. More than 22 state legislatures debated ESAs in 2015 with

Tennessee and Mississippi joining Florida and Arizona in giving parents an education debit card to spend on state-approved purchases. In early June, Nevada Gov. Brian

Sandoval signed into law a universal ESA that would provide low-income families with, on average, $57,000 of student funds in a restricted bank account to cover tuition fees, textbooks, online courses, or other education services. Unused funds roll over year to year, in some cases rolling over into a college savings account.

ESAs offer entrepreneurs the opportunity to sell direct to students and parents beyond the institutional sales that has traditionally defined the education market. Doug

Tuthill, the president of Step Up for Students, which manages the Florida ESA, calls it “a funding mechanism aligned to customization."17

A third reform trend of expanded student options is coming from a somewhat unexpected source - Silicon Valley entrepreneurs. Impatient with the pace of reforming the traditional system and the political fights involved, they are working to create their own school models outside of the traditional system. Brian Singerman of Founders Fund remarked, “From SpaceX to Airbnb to Oscar, today's strongest entrepreneurs are creating

DRAFT: Do not cite without permission from the author. technology-enabled models to transform some of the oldest and most established industries in the world. We believe the time has come to reimagine education.”18

General Assembly is reimagining higher education and job training and in the process has trained more than 10,000 people with 99 percent of graduates securing a job within a year. The app Duolingo has 20 million active users learning foreign languages with an early evaluation suggesting that using the app for 34 hours could generate the reading and writing skills of a first-year college semester (which could be as much as 130 hours).19 Students have access to thousands of courses through EdX, Coursera, and other

MOOC platforms. And there is the growth of new school models. Former Google head of personalization Max Ventilla launched AltSchools which offers a new private school model where students receive weekly “playlists” of individual and group activities customized to their specific strengths and weaknesses. Their efforts have attracted over

$100 million from private investors, including Founders Fund, Andreessen Horowitz,

Facebook CEO Mark Zuckerberg, eBay founder Pierre Omidyar, and venture capital investor John Doerr.

THE HEADWINDS FACING TODAY’S ENTREPRENEURS

Entrepreneurs also confront formidable headwinds that slow their progress and keep some from embarking on the journey all together.

The Headwinds of Incumbent Protections

Policy can remove barriers to innovative approaches or it can stifle them with restrictions, red tape, and insistence upon traditional approaches. It can accelerate reform or it can

DRAFT: Do not cite without permission from the author. further entrench the status quo. It can allow innovators to serve students in novel ways or it can protect incumbents. It can make funding more flexible for new solutions, or it can reinforce traditional approaches.

Education investor Michael Moe says, “Increasingly, we're worried that a generation of entrepreneurs is facing a ‘new innovators dilemma’ -- where innovation is stymied by regulatory and political environments focused on outdated needs and the wrong set of customers. This isn't about the classic political divide of right versus left.

This is about policies and regulations written in a different era that are not easily translated to modern technology. It's no secret that the challenge stems, in part, from the motivations of regulators and the politics of protecting the status quo.”20

Former Chairman of the Federal Communications Commission (FCC) Julius

Genachowski and Zachary Katz, a Senior Fellow at the USC Annenberg Center on

Communication Leadership, have noted two forces that are engaged in an ongoing struggle with tensions arising from new technologies and business models that regulators never anticipated. The first force is the wave of new startups that leverage new technology platforms, the Internet, and mobile devices to challenge traditional players.

Airbnb is challenging hotels, Uber is challenging taxis, and Zipcar is challenging car rental companies.

The second force is government entities and regulators who often have deep relationships with established industries. This is not just the federal government but extends to state houses and city halls. Genachowski and Katz observe, “across the country, new laws are being proposed and enacted—and existing but out-of-date laws are being enforced—to protect incumbents from new Internet- and mobile-based competitors.

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Our point isn’t that new services present no new issues. But far too often policymakers are invoking consumer protection but acting without a meaningful analysis of the real effects on consumers.”21 As a result, we see states like Colorado consider laws to ban

Uber and North Carolina debate whether it should prohibit Tesla from selling direct to consumer instead of going through car dealerships.

Government regulations and laws create additional risks for entrepreneurs (and their investors) beyond the core problem they’re trying to solve. Donna Harris, Founder and Co-CEO of the innovation incubator 1776 puts it this way: “The generally accepted strategies for scaling consumer startups are harder to apply when government plays a role that mucks up the works. Whether government is the buyer, controls access to the market, holds the data or oversees the rules that govern market behavior, it adds complexity that makes scaling a startup all the more risky.”22

Nick Gillespie of Reason.com is even blunter. “If mobsters were pulling these sorts of stunts, we’d recognize the attacks on new ways of doing business for what they are: protection rackets, with state regulators rather than professional hit men creating and enforcing rules to benefit well-connected businessmen. The real losers are not just the next generation of innovators but also customers who lose out on more ways of getting what they need or want.”23

These same dynamics are even worse in education. The fragmented system of education monopolies throughout the country has created a scenario where the traditional system is able to use that dominant position to stack the rules and maintain their favored status.24 Charter entrepreneurs, for example, confront the reality that 945 of the 1,045 authorizers are school districts. Online schools can hypothetically serve students

DRAFT: Do not cite without permission from the author. anywhere in the country but instead confront student eligibility restrictions, enrollment caps, or policies that require a certified teacher to be in the “line of sight” of a student in order for that instructional time to count.25

An illustrative case is Ivy Bridge, a project between Tiffin University and Altius

Education to provide an affordable higher education option by improving the transfer rate of two-year students to four-year institutions. Ivy Bridge students were primarily low- income, first generation college students, and often women who cared for dependents.

Altius combined several innovations to develop the model, including a personalized learning platform, a suite of student support services such as personal success coaches, and diverse educational pathways to help tap into student interests. Ivy Bridge could provide students with a more customized education offering that produced completion rates double those of community college averages. More than 140 well-respected institutions of higher education signed transfer agreements allowing Ivy Bridge graduates to enroll into four-year programs.

Despite Ivy Bridge’s apparent success, the Higher Learning Commission (HLC) - one of the agencies that govern access to federal student-aid funds - revoked their accreditation, and the model shut down a few months later. It’s the most recent story in a long saga of accreditation serving as a barrier to new players. It works great for existing colleges and universities, but works against models that buck tradition in order to serve students differently.

This is a cautionary tale for those who see disruptive innovation as inevitable.

Government and regulators can disrupt the disruptors. Higher education scholar at the

American Enterprise Institute, Andrew Kelly says, “even the most revolutionary

DRAFT: Do not cite without permission from the author. innovations are hard-pressed to break up entrenched monopolies that are protected by government policy. Making higher education affordable doesn’t require more technology.

It requires that policymakers be brave enough to break up the higher-education cartel.”26

Michael Horn, author of Disrupting Class, argues that these regulatory burdens actually create an incentive to for innovators to “plant themselves outside of the reach of the regulations. …The reason is that although regulations tend to be put in place to protect consumers initially, over time they become ways for existing institutions to protect themselves, often at the expense of consumers.”27

Elementary and secondary education is an even more challenging environment for entrepreneurs. The system is almost perfectly designed to repel innovation since the road to adoption goes through gates guarded by those with vested interests to not be disrupted.

Frederick Hess and Checker Finn note, “This closed ecosystem alienates creative problem solvers while erecting bureaucratic barriers against those who would devise new solutions.” Entrepreneurs eager to help fix the system eventually have to accept the fact that, “the public-school establishment is itself their principal client, customer and sometime regulator. Innovation normally occurs only when that establishment allows it— and only up to the limits that it allows.”28

Mark Andreesen, whose investment experience includes consumer and enterprise services said he wouldn’t back a business “that's selling to public schools or characterized by public financing, unions or government-run institutions. Those institutions are incredibly hostile to change.” Regulatory barriers, resistance to innovation, and reluctance to embrace new models creates too much risk. “For a startup to sell to a school district or in a union or bureaucratic environment, your odds of failure go way up,”

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Andressen says. “It just takes too long. The important starting point is to have direct relationship with the customer—and a financial relationship around that."29 No wonder that when asked to identify the perceived obstacles for investment in education, investors ranked “too bureaucratic an industry” (81 percent) and the “role of government” (79 percent) as the highest barriers.30

The Headwinds of an Institutional-Based System

The challenge confronting education reformers is not a lack of options, but a system that does not formally recognize those options. The Aspen Taskforce on Learning and the

Internet observed that:

Learning networks not only provide access to a virtually endless array of learning opportunities, but they can offer learners multiple points of entry—both inside the classroom and beyond it—that provide highly individualized pathways toward career, civic and academic success. … The current reality is that many learner networks are fragmented, organized within silos and not interconnected. Our education system is organized primarily around the learning that occurs within a school and does not capture or recognize the learning that takes place outside of school. New learning networks connect it all.31

Indeed, there are more learning opportunities appearing every day. Consider that the Florida Virtual School offers more than 120 courses. The Khan Academy offers a library of over 3,900 video tutorials on everything from arithmetic to physics.

BetterLesson’s database holds more than 450,000 files and 100,000 complete lesson plans. There are more than 3,900 children’s ebooks available on Scholastic’s Storia app.

And the OER Commons offers more than 42,000 open education resources and tools.

The issue confronting education is becoming less about a lack of access to instructional opportunities and more about a system that struggles with formally recognizing student learning that occurs outside of school. Student credit is nearly always

DRAFT: Do not cite without permission from the author. based on the learning within the school or from opportunities that the school has approved. The system was never designed to formally award credit for a student who learned French through Duolingo and computer science through a Harvard MOOC. This can frustrate the entrepreneur who may design a cutting edge learning experience and get it into the hands of thousands of students, but in order for the learning to “count” they must still confront approaching 15,000 school systems to secure approval.

The Headwinds of Regulations

Everyone recognizes that there is a need for regulations to ensure student safety, support civil rights, and protect students. But the growth in the number and complexity of regulations, along with their compliance costs, can make it difficult for entrepreneurs to launch or scale new startups. Just as particles of sediment become layers of rock fossilizing plants and animals, so too layers of regulation harden existing ways of doing things and fossilize the underlying models. According to the Mercatus Institute, overall

Federal regulations alone on elementary and secondary education schools have increased

158 percent since 1997.32 (See Figure 3.) Another analysis of 34 regulations issued by the

U.S. Department of Education estimates the total compliance cost to be $4.8 billion with more than 22 million hours of paperwork.33

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Figure 3: Federal Regulation Growth from 1997 -2012

Technology based models of learning confront additional regulatory barriers.

Legacy laws that have been on the books for decades never imagined a modern day model of a competency-based model facilitated with sophisticated technologies that blend online and face-to-face. Besides seat-time requirements, blended-learning and competency—based models of education clash with class size policies which may unintentionally limit a school’s ability to implement personalized learning that places students in large groups for certain parts of the day with more intensive one-on-one instruction or small group work at other parts of the day. The Family Education Rights and Privacy Act (FERPA), which guides the protection of student data in education, was passed in 1974 – five years before the invention of the cell phone. The legislative drafters

DRAFT: Do not cite without permission from the author. could not have possibly imagined today’s world of students carrying a phone in their pockets more powerful than a Cray supercomputer, connected to data network, and where they could access thousands of resources.

An underappreciated regulatory barrier is the byzantine procurement system that rarely works well for schools or entrepreneurs. Freemium adoptions eventually reach a point where to secure a school-wide or district-wide adoption, the provider needs a contract with the central office. However, school systems have become more conservative and excessively cautious as they seek to avoid embarrassment from failed initiatives and perceived misuse of funds. While some regulations are needed to protect schools and taxpayers from fraud, patronage, and other forms of waste or abuse, there must be easier and simpler ways to achieve the same goals without the cumbersome processes currently in use. State and federal government rules can further complicate matters with requirements such as contracting preferences for certain groups, requirements to favor entities with an established track record which disqualifies many startups, or requirements for physical storage that make it difficult to embrace cloud- based systems. As a result, procurement decisions are shifting away from users and into a central office function that is more often than not focused on compliance instead of securing the best solution needed by teachers and students.

It’s no surprise that only 4 percent of providers say today’s procurement processes meet contemporary needs and less than 50 percent of teachers say they were involved in purchasing decisions.34 The risk adverse culture leads to long decision cycles of 12-18 months, which in turn scares off investors, favors large providers who can afford to wait, and disadvantages smaller start-ups who lack the salesforce army needed to compete. 35

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No regulation or procurement requirement by itself is the single problem. Rather, it is the cumulative effect. AEI’s education research fellow Michael McShane notes, “No raindrop thinks it is responsible for the flood. Individually, each regulation could be sensible and meaningful, but when combined with hundreds of other requirements, the sum becomes incoherent and onerous.”36 This is daunting not just for schools, but also for new startups which face a patchwork of federal, state, and local laws that demand compliance.

The Headwinds of Misaligned Incentives

Incentives matter. To understand why, consider a lesson from the 1800s when the British

Empire transported prisoners to penal colonies in Australia. Captains were compensated based on the number of prisoners each ship carried, creating the financial incentive to stuff as many prisoners on a ship as possible. As a result, prisoner survival rate was dismally low, outraging citizens who believed a prison sentence should not be a death sentence.

The British government responded by pulling the typical levers of government.

They added regulations requiring captains to carry lemons and limes to combat scurvy.

Doctors were required to be placed aboard the ships. Salaries were raised for some captains. Inspections were increased. Even the clergy tried appealing to the captains’ better nature. None of it worked and survival rates still disturbing clung to 50 percent.

Then in 1862, economist Edwin Chadwick suggested a change to the incentive structure. Ship captains were no longer compensated for each prisoner who boarded in

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England, but, instead, received payment for every prisoner who got off the ship alive in

Australia. The survival rate jumped from 50 percent to 98 percent.

This same incentive issue is present in our system of education funding. We stuff students onto Title I ships and hope they make it through their education journey and arrive ready for college or a job. But many do not make it. Some urban schools face 50 percent dropout rates.37 Even those students who beat the odds arrive at colleges needing to take remedial courses. The government’s response has mirrored the British government's failure in the 1800s -- pulling typical policy levers that do not address the underlying failure in the incentive structure.

We mostly pay schools based on the number of kids that enroll at the beginning of the year, not based on the outcomes we want to see. The funding formulas at the state and federal levels suffer the same design flaw as the much-maligned “fee-for-service” healthcare payment system. Not unlike Medicare, elementary and secondary schools receive a payment based on the number of students served regardless of the outcomes, quality of services, or efficiency through which the services are provided. Grant programs typically award the purchasing of additional services or interventions that are then layered on top of existing approaches rather than incentivizing coordination of instruction or reallocation of resources. And just as in healthcare, there is little incentive for the consumers – in this case the students and parents – to seek lower cost services or compare costs. Charles Hugh Smith provides an apt analogy capturing this dilemma: “In effect, fee-for-service is open-ended: It's like going to an auto mechanic and agreeing to pay for whatever services he deems necessary, at whatever price he chooses, with no penalties to the provider if the service is poor.”38

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This broken funding mechanism can also perpetuate current practices, models, and institutions. There are no incentives for school systems to embrace disruptive innovations or use technology to provide a more cost effective ways to accomplish a goal. If funding rewarded student success, then schools would have greater incentives to seek out new technologies and other innovations in order to capture the additional dollars.

The Headwinds of For-Profit Suspicion

Launching a for-profit enterprise in education tangles one up in deeper cultural values that have been hesitant to fully embrace private enterprises in public education.

Public policy reflects and reinforces this. Traditionally policy supports efforts seek to engage the private sector in solving large, complex social challenges.

Policymakers use grants, loans, loan guarantees, and tax credits to not only incentivize private-sector supply of solutions but also stimulate demand for them.

In federal policy alone, more than $4 billion in loan guarantees are available to support the development of “technologies that are catalytic, replicable, and market- ready,” a generous tax-credit is available to stimulate demand among consumers to adopt solar, NASA makes billions available to cultivate commercial space programs and replace the vehicles serving the International Space Station, and $22 billion of incentive payments are supporting the adoption of secure, portable, electronic health records – provided by hundreds of for-profit companies - for every American.39

Those policy levers are virtually nowhere to be found in the education sector. But before exploring why, it is important to emphasize that there is – and should be – a vigorous debate about the appropriateness and merit of these various government

DRAFT: Do not cite without permission from the author. investments and funding mechanisms. Many federal programs are too vulnerable to political influences over rigorous due diligence, others distort the market by picking winners and losers, and other subsidies can quickly become corporate welfare propping up companies or sectors that would have been disrupted long ago. The point in referencing them in this discussion is to illustrate how government policy invites, encourages, and celebrates one set of entrepreneurs in a way unimaginable within the world of education.

Instead of engaging the private sector, policymakers actually create regulatory and funding barriers that skew support to nonprofits and prevent for-profit entities from participating in programs aimed at improving student achievement. For example, the

Investing in Innovation competitive grant program was described by Secretary Duncan as searching for the best innovations to tackle a host of educational challenges from dropouts to helping students achieve higher standards.40 But instead of being open to the best solutions from the best entrepreneurs regardless of their tax-status, the program channeled funding only into non-profits and traditional school-based institutions due to eligibility limitations embedded in the authorizing language.41

For those in education, that kind of eligibility restriction seems natural and unsurprising. But taking a step back shows how unusual this is. No one could imagine a

Secretary of Energy challenging the country to develop renewable energy technology – but only through non-profits. John F. Kennedy didn’t challenge the country to send a man to the moon without the help of for-profit innovators. Big challenges are occasions to summon all hands on deck, not just an isolated group based solely on tax-status.

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This bias plays out on the higher education stage as well. There is broad consensus that rapidly rising levels of student loan debt and poor program quality are having an adverse impact on college success, economic activity, and individual prosperity. However, instead of addressing the problems as a sector, the Obama

Administration targeted action only on one sliver of the sector, based mostly on their for- profit status. Protecting students from low-quality programs and unwieldy debt burdens should absolutely be a priority. But these are protections that should be extended across the entire sector. Not all for-profit institutions are bad actors and not all public institutions are good actors as the U.S. Department of Education’s own data shows.

But this is more than just eligibility for government programs. There are broader cultural trends that reflect a discomfort with reconciling profits with serving kids.

Attaching “corporate” to a reform has become a message-tested way to attack certain reforms and school models. The American Federation of Teachers’ Randi Weingarten characterized her efforts as fighting back on the “unholy alliance of austerity-pushing politicians and the corporate reformers, hedge fund managers and others who want to destroy public education and profit off kids.”42 These lines of attack used to be reserved just for Republicans but Democrats are increasingly finding themselves on the receiving end. Even education entrepreneurs, who often are center-left politically, are surprised to find their motives questioned as a “scheme” to simply profit off the backs of schoolchildren.43

This sends the collective signal that for-profit innovators are welcomed (even celebrated) for breakthroughs in other sectors, but are demonized and kept at arm’s length if they try to tackle education issues. Consider the example of entrepreneur Elon Musk.

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Few entrepreneurs can claim to have disrupted one industry, yet Musk has disrupted three. He founded PayPal, which paved the way for electronic payments and ecommerce.

He launched SpaceX in 2002, leading to a new, lower-cost space vehicle. And he introduced Tesla Motors that offers an innovative electric automobile, one that was rated the safest car ever tested by the National Highway Traffic Safety Administration.44

Musk’s pioneering ideas were supported by the government through direct subsidies, loan financing, and deregulation. Federal funding from NASA helped support the Falcon 9 rocket delivery system and Dragon spacecraft. Tesla received a $465 million loan from the U.S. Department of Energy to build a nonunion electric auto assembly plant on a former NASA base. The Nevada state government offered Tesla a 20-year package of incentives valued at $1.25 billion in order to attract their new gigafactory.45

Government supported and even courted Musk as he tackled big challenges. But if Musk wanted to apply his entrepreneurial brain toward an education challenge, he would find no government incentives or invitations. Instead, he would find government imposed disincentives through a system of regulations and structures that would make it difficult for him to bring about a disruptive solution. So it isn’t surprising that when it came time to send his children to school, Musk decided to create his own private school rather than change the school they would have attended.46

One path that has emerged for entrepreneurs are “B Corps.” More than 27 states are granting this new legal status and business classification to more than 1,000 for-profit companies such as Etsy and Patagonia who set out to achieve social goals as well as business ones.47 The status is more than just symbolic. While a traditional company can abandon social goals when times get tough, in theory B Corps can’t. Shareholders could

DRAFT: Do not cite without permission from the author. challenge their board of directors for not fulfilling the business’s social mission, just as they can sue directors of traditional companies for violating their fiduciary duty.48

However B Corps are still in their infancy, leaving debates among the education system that often question the motives of for-profit entities while giving the benefit of the doubt in spades to non-profits.

CULTIVATING AN INNOVATIVE ECOSYSTEM

Tomorrow’s education innovations require a supportive climate for education entrepreneurs. This climate isn’t just a new program or boost in funding. Rather it requires multiple actions by multiple actors, including government and school leaders. It will also require some restraint, particularly from policymakers. Just as government doesn’t create jobs, government also can’t create entrepreneurs. Michael Trucano, the

World Bank's Global Lead for Innovation in Education, observed that “When it comes to making accurate prognostications about the future of technology use, education officials do not generally have a track record of great success, and there is always a danger that ill- conceived or overly ambitious policies can stifle, rather than support, the emergence of technology-enabled innovations within various parts of an education system.”49

Policymakers instead must focus on creating conditions that lead to a healthy ecosystem that addresses policy and funding, encourages risk taking, and creates smarter supply and demand with education. State, federal, and local policymakers all need to create the legal, privacy and financial incentives to nurture these budding start-ups and the new models that arise.

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Creating Room for Innovation

Many have observed that our public education system is simply not set up to demand, reward, and incent greater and faster innovation as many other sectors have done.50 The goal for policymakers and regulators should be to create the conditions to allow for a vibrant and self-sustaining entrepreneurial ecosystem that supports student success.

Former FCC Chairman Genekowski suggests that “policy should begin with admiration for new ways that citizens can build their lives, not with hostility to profits or the impulse to protect entrenched industries.”51

1. Clear Out the Regulatory Underbrush: Policymakers play an important role in

what AEI scholar Frederick M. Hess has dubbed “trust busting,” to enable

“promising new providers to challenge education monopolies, [work] to correct

the legacy of federal micromanagement, and [help] to free state and local

reformers from the burden of their predecessors’ bad decisions.”52 It is a simple

grand bargain of providing regulatory relief in exchange for a commitment to

results-based accountability based on rigorous academic standards and student

outcomes.

 Policymakers should create a more open education system that invites new

entrants to serve students, supports new approaches to learning, and empowers

new models. The 10 Elements of High Quality Digital Learning, unveiled in

2010 after consultation with more than 100 diverse leaders, offers a roadmap

for policymakers.53

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 Policymakers should streamline and modernize procurement regulations to be

more accommodating of startups. Part of this will involve procurement

processes recognizing that the rapid development cycles used by many

startups today will lead to a constantly evolving service rather than purchasing

“finished” products in the traditional software sense. States and schools

should use Requests for Information (RFIs) ahead of a procurement to explore

the solution landscape and facilitate more interaction between entrepreneurs

and teachers.

 Policymakers should incorporate stronger sunset clauses into regulations to

shift the burden of proof from those advocating termination to those

advocating continuation.54

 Policymakers should allow for new authorizers, particularly with charter

schools and online learning providers, who can deliver oversight functions but

also be open to innovative models. These authorizers should themselves be

held accountable by state policymakers, such as the example set by the Ohio

Department of Education in evaluating and rating the state’s charter

authorizers.55

 Policymakers should use reciprocity agreements to formally recognize other

state authorizations and approvals. For example, states are using state-level

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reciprocity process to make state authorization in higher education more

efficient, effective, and uniform.56 Such an approach could be used to

automatically recognize approvals granted in other states or provide a “fast

track” process, saving time and resources both the state and entrepreneurs.

This could be applied a variety of K-12 segments that require state approvals,

including charter schools, supplemental instructional resources, textbook

adoption, and online courses, as described by the Foundation for Excellence in

Education and Education Counsel in Course Access policies.57

 Policymakers should have a relentless, unwavering commitment of

accountability based on student outcomes and quality. Regulatory flexibility

does not mean a reduced commitment to quality. Nobody wants zero

regulation. But our regulatory system needs to be flexible enough to

accommodate new approaches that can be evaluated against student

performance. That would require approval, authorization, and adoption

processes to focus more on student outcomes and less on inputs. Quality must

be earned by delivering results for students, not completing mounds of

paperwork. And those that fail to improve outcomes should be closed or have

their approvals revoked. This approach would also allow states to be more

agnostic toward non-profits and for-profits. With a “no labels" approach,

policymakers can focus solely on outcomes, not corporate structures.

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 Policymakers should release outcome data using open-data formats, bringing

not only transparency but also fueling other entrepreneurs. Consider what

GreatSchools could do if every state reported the outcome data for all online

learning and Course Access programs.

 Philanthropies should invest in the advocacy needed to create the supportive

regulatory environment entrepreneurs need to try out their ideas as well as

scale promising models.

 Investors should develop a deeper understanding of the education regulatory

landscape, particularly in assessing the risk involved with different business

models that could be disrupted by a law or regulation. For example,

Andreesen Horowitz hired former Washington, DC Mayor Adrian Fenty and

former Facebook General Counsel Ted Ullyot to help their portfolio

companies better understand and navigate regulatory gray areas. They are also

creating a more open dialogue with policymakers around new technologies

and emerging models. Learn Capital has employed a similar approach in

education. Better informed investors will lead to better informed investments

and a better supply of solutions.

2. Build Trusted Learning Environments: The world of on-demand learning will

require deep connections of trust. As the Aspen Taskforce on Learning and the

Internet noted, “Realizing the benefits of learning networks will necessitate a

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commitment to establishing trust with teachers, parents and students that children

will have safe experiences online and that sensitive personal information is

securely protected. … Without trust, the ultimate success of networked learning

could be in jeopardy.”58

 Policymakers, school leaders, and technology providers should use a “trust

framework” to guide the use of technology in instruction. The Aspen

Taskforce offers a useful list of actions to guide this approach: 59

o Transparency and Openness: Require easy-to-read disclosures to

enable teachers, parents, and students to what data is collected and

how it is used.

o Participation: Provide opportunities for individual and stakeholder

group participation in the development and deployment of connected

learning solutions.

o Data Stewardship: Find ways to protect data that may include

mechanisms to reduce the risk of harm, such as clearly delimiting the

permissible uses of data, de-identifying sensitive data and/or deleting

data once it no longer has value for learning.

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o Technology Innovation: Create and deploy technologies that support a

trusted environment, such as privacy dashboards that indicate what

information is shared with whom.

o Accountability: Adopt policies and procedures or a code of conduct

that support responsible learning environments.

o Oversight and Enforcement: Establish regulatory arrangements to

protect the integrity of learning networks with competent and

appropriately-resourced bodies in place to enforce these principles.

 Schools should support teacher and leader practices that build trust with

parents. It will require not just training teachers in how to comply with

privacy regulations, but also transparently sharing with parents what data is

collected, how it is used, and who it is shared with, perhaps through a web-

based portal or dashboard. Parents should also be able to access their child’s

education records as easily as they can electronically access their child’s

health records.

 Technology providers should design their innovations with trust in mind,

which means privacy and security features being included upfront and not as

an afterthought. This will entail not just stronger security measures but also

giving users more control over their data and being clear how the provider is

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using the data. The industry Student Privacy Pledge and the iKeepSafe

certifications offer industry the change to visibly show actions they take

relative to protecting student privacy.

 State Departments of Education, school systems, and technology providers

will need Chief Privacy Officers who can coordinate not only regulatory

compliance but review vendor agreements, assess security risks, provide

training and support to teachers, and investigate potential violations. 60

Catalyzing Innovation

The innovation ecosystem relies on the high-risk, high-reward R&D that often only government can support. This extends to the expensive, but important evaluations that use rigorous methodologies to evaluate programs and models to measure effectiveness and the conditions under which success is achieved. Prizes can help cast a wide net for the best ideas, often originating from unlikely sources.

3. Invest in Research & Development: The innovation pump must be primed with

Research & Development.

o The federal government should make focused R&D investments to propel

America forward.61 This is most needed in education, where only $300

million is invested annually by the U.S. Department of Education, less

than one percent of the National Institutes of Health's $30 billion research

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budget. Targeted, long-term investments in basic but expensive research

can provide the breakthrough findings that drive new educational

advancements. There is broad bipartisan support for focused investment in

R&D, ranging from Education Secretary Duncan and former Deputy

Education Secretary Jim Shelton to a growing list of conservatives such as

George Will, Ben Bernanke, David Brooks, Mort Kondrake, Frederick

Hess, and Andrew Kelly.

o Policymakers should fund the expensive, rigorous evaluations that

measure program and model effectiveness. The complexity and cost to do

these evaluations well often make it difficult for boot strap startups to

afford them.

4. Leverage Prizes: There is also the overlooked policy lever of prizes, which have a

long history of attracting innovators to solve complicated problems. The British

established the Longitude Prize in 1714 to reward a reliable way for mariners to

determine longitude. Napoleon offered a prize to preserve food for his army,

which led to canned food. The Orteig Prize for the first nonstop flight between

New York and Paris resulted in Charles Lindbergh’s famous flight. The Ansari X

PRIZE helped catalyze the development of the personal space travel market. The

$7 million Barbara Bush Foundation Adult Literacy XPRIZE is a competition

challenging teams of software developers, educators, engineers and innovators to

create mobile literacy learning applications for the adult learner.62

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 Policymakers, philanthropies, and even schools themselves, should use prizes

to catalyze innovative solutions to pressing challenges. The mechanism is

attractive in that it casts a wide net for solutions that often extends outside the

traditional players. Prizes are an extremely efficient strategy for mobilizing

diverse talent that may be impossible to locate using conventional approaches.

It also offers a fiscally conservative solution for policymakers since the funds

are only paid out once the goal has been achieved.63

5. Grow Program Related Investments:

 Philanthropies should consider greater use of Program Related

Investments (PRIs) which allow for investments as loans, loan guarantees,

or even equity stakes with the expectation of recovering the investment

plus a reasonable rate of return. Greater use of PRIs will help provide

additional capital to scale entrepreneurial entities, particularly in later

stage investment rounds.

Funding Anytime, Anywhere Learning Based on Performance

Transforming education requires rethinking our antiquated funding system to make it not merely fairer, but more supportive of emerging innovations. Policymakers should adopt policies that are student-centered and acknowledge the evolving system of public education that allows learning to occur not just anytime, but anywhere. Greater options

DRAFT: Do not cite without permission from the author. inside and outside of traditional education institutions require flexible funding that can follow the child to those options.

6. Modernize Funding Streams to Accommodate Mobile Learners:

 Policymakers should reform funding streams to reflect the following

principles:

o Weighted funding: each child’s school receives a certain amount of

funding based on the student’s characteristics and the cost factors that

accompany those characteristics.

o Flexibility: dollars aren’t restricted or designated for particular uses.

Teachers and leaders are given more autonomy in determining how funds

are spent.

o Portability: ensure dollars can follow students to the school or course that

best suits their individual needs – including fractional funding for full-time

or part-time options. This portability should also extend to opportunities

outside schools.

o Performance-based: incentives are tied to student outcomes and schools

are rewarded based on reward student outcomes.64 Rewarding

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performance will in turn create incentives for schools to think more

creativity about selecting and using innovations in order to capture the

additional dollars by reaching the performance goals.

For example, Stanford University School of Public Policy and the Foundation for

Excellence in Education suggest this very approach be used for online learning. Course providers would decide how much of their payment they are willing to have tied to quality metrics identified by the state. The providers will only receive this incentive portion of their payment if the academic performance of their students meets the bar the state has set. While states may decide to focus on different criteria for evaluation (i.e. proficiency, growth, completion, etc.) this payment system will allow them to hold providers accountable for quality.65 (See Figure 4.)

Figure 4: Visual Framework for Selecting Quality Course Providers at Competitive Prices

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7. Allow for Dynamic Pricing: Setting fixed prices in statute distorts the market by

overpaying some providers and pricing others out. Inflexible pricing structures

also fail to take into account different cost structures in different models. A pure

online course may cost less than a blended-learning model that has some online

instruction combined with some face-to-face interactions.

 Policymakers need to ensure there is flexibility for providers to charge

different prices that reflect different levels of services. Louisiana’s Course

Access program is a model in this regard. The program allows for dynamic

pricing so courses cost from $275 for online elective courses such as

Sociology to $1,325 for more resource-intensive in-person welding courses.66

(See Figure 6.)

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Figure 6: Louisiana Course Access Program

 Policymakers could use auctions could to assist with price discovery while

also incentivizing performance. A diverse coalition of the Center for

American Progress, the American Enterprise Institute, and New Profit

entrepreneurs suggest that entrepreneurs bid on the level of funding they

would need to provide a given service, and the proportion of the fee they are

willing to have determined by the outcomes they achieve. From this list, states

or schools could select the providers that offered the lowest price with the

highest confidence in outcomes. This shifts the risk from the state or district to

the provider.67

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8. Leverage ESAs to Provide On-demand Funding For On-demand Learning:

 Policymakers should user ESAs as a vehicle through which to provide flexible

funding to support the growing ecosystem of education services inside and

outside the traditional system. Parents could use the accounts to purchase

online courses for their child or pay for the testing fee of an online AP course.

It could help with funding online tutors or securing other student supports,

including special education services.

Supporting Models, Not Just Technology

9. Create Pathways for Competency-Based Learning: As schooling becomes more

dynamic, it only makes sense for policymakers to revisit rules that measure

learning in terms of time spent sitting in a classroom and instead favor laws and

regulation that measure whether students have mastered content and skills.

 State and federal policymakers should provide more flexible assessment

schedules and offer regulatory relief from funding streams and policies that

are grade-based.

 Schools and policymakers should create the policy infrastructure to support

students who want to transfer learning done in one location to another.

Students need a system where their learning of French in Duolingo, calculus

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at the Khan Academy, and computer programing at Code.org can be

recognized, credentialed, and credited appropriately within their formal

education.

10. Support School-based Incubators and Technology Transfer: Technology transfer

programs are already a common requirement in many higher education programs

as well as some government agencies such as NASA.68 School systems should

adopt a similar mandate and adopt processes that intentionally contribute to new

innovations.

 Federal and state governments should invest significantly in the growth and

expansion of highly successful networks of charter schools. These continue to

be vehicles through which a number of entrepreneurial innovations are

combined to create new school models. Rocketship Education, for example,

took the human capital innovations from Teach for America, combined it with

personalized learning tools, and created a new blended-learning school model.

 Schools should consider partnering with the emerging group of incubators that

aims to help startups build out their products or services. This would allow

teachers and students to help define and express their needs, provide continual

feedback to the startup, and allow for more rapid cycle improvements that

have a greater likelihood of not just working, but meeting the needs of the

actual users. This approach is being modeled by an unlikely candidate. Eton

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College, a 512-year-old school in the United Kingdom, has partnered

with Emerge Venture Lab, a London-based accelerator, to support tech start-

ups.69 While he was Chancellor of New York City Schools, Joel Klein also

launched a version of this called the iZone that worked with schools, the

technology marketplace, and policy makers to design and scale promising

learning models.

 Policymakers need to free schools of legacy regulations that make it difficult

for schools and companies to collaborator or transfer technology. A case in

point is the saga in which Joel Rose found himself when attempting to take

one of Time’s Innovations of Year, the School of One, and spin it off.

Regulations made it nearly impossible to spin off the new model and handcuff

the role that Joel could play in negotiating the terms.70

CONCLUSION

America is unique in the world for cultivating the conditions that lead to breakthrough, disruptive innovations. Those innovations bring about not just economic growth, but improvements in the way we work and live. Now more than ever we need to lower the barriers of entry for entrepreneurs to apply their creative problem solving abilities to work in helping teachers and students succeed.

The cornerstone of this movement is less about the tools and services and more about being open to rethinking the traditional approaches and models. This is not a threat to public education but rather an opportunity accomplish the purpose of public education

DRAFT: Do not cite without permission from the author. with a system of more dynamic solutions, institutions, and services oriented around student success. There is also an opportunity to tackle these issues from a bipartisan center. This could not be any more clearly demonstrated than in a paper on education entrepreneurs written by CAP, AEI, and New Profit who stated:

Opening the marketplace to a diverse set of new—including private, for-profit and non-profit—providers is not a veiled call for privatization of our education system. Instead, it reflects our recognition that within a public system we must still remain open to various methods of delivery—and a spirit of innovation, whatever its source. Given the crisis in our nation’s schools, we must put aside ideological predispositions to support a rational conversation about which providers and approaches have the greatest potential to solve the problems that public education faces.71

The United States faces major challenges with global economic trends and addressing economic mobility. The country needs to support the next generation of entrepreneurs who are bringing new ideas to solve old problems. Engaging and supporting these entrepreneurs will help unleash the innovation needed to ensure every child is able to meet his or her full potential though a rich, exciting, and rigorous education.

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1 Joel Rose, “How to Break Free of Our 19th-Century Factory-Model Education System,” The Atlantic, May 9, 2012, http://www.theatlantic.com/business/archive/2012/05/how-to-break-free-of-our-19th-century- factory-model-education-system/256881/. 2 “What is a social entrepreneur?” Schwab Foundation for Social Entrepreneurship, http://www.schwabfound.org/content/what-social-entrepreneur. 3 William D. Eggers and Anna Muoio, “Wicked Opportunities,” Deloitte University Press, April 15, 2015, http://dupress.com/articles/wicked-problems-wicked-opportunities-business-trends/. 4 Julie Landry Petersen, “For Education Entrepreneurs, Innovation Yields High Returns,” Education Next, spring 2014, http://educationnext.org/for-education-entrepreneurs-innovation-yields-high-returns/. 5 Michael Winters and Tyler McNally, “2014 US Tech Edtech Funding Hits $1.36B,” edSurge, December 23, 2014, https://www.edsurge.com/n/2014-12-23-2014-us-edtech-funding-hits-1-36b; “Ed Tech Investment & Exit Report - 2014 On Track for New Funding Record,” CB Insights, September 8, 2014. https://www.cbinsights.com/blog/ed-tech-investment-report-2014/. 6 Danielle Morrill, “2015 Startup Funding on Pace to Reach Highest Levels Since 2000,” MatterMark, June 12, 2015, http://mattermark.com/2015-startup-funding-on-pace-to-reach-highest-levels-since-2000/. 7 “Key Facts on U.S. Foundations,” Foundation Center, 2014, http://foundationcenter.org/gainknowledge/research/keyfacts2014/foundation-focus.html 8 Jennifer Carolan, “Why Direct-to-Consumer Models Matter in Education,” New Schools Venture Fund Blog, April 25, 2014, http://www.newschools.org/blog/dtoc. 9 “Edsurge Exclusives View from the Top,” edSurge, September 14, 2011, https://www.edsurge.com/n/edsurge-exclusives-view-from-the-top. 10 George Anders, “How to Launch a Billion Dollar Startup on a Shoestring,” Forbes, May 2, 2012, http://www.forbes.com/sites/georgeanders/2012/05/02/thrifty-startup/; Mark Suster, “Why It’s Morning in Venture Capital,” Slideshare, June 29, 2014, http://www.slideshare.net/msuster/why-its-morning-in- venture-capital. 11 Marc Andreessen, “Why Software Is Eating the World,” Wall Street Journal, August 20, 2011, http://www.wsj.com/articles/SB10001424053111903480904576512250915629460. 12 Eric Schmidt and Jonathan Rosenberg, How Google Works (Grand Central Publishing, 2014), https://books.google.com/books?id=fEJ0AwAAQBAJ&pg=PP18&lpg=PP18&dq=how+Many+incumbents percentE2 percent80 percent94aka+pre-Internet+companies percentE2 percent80 percent94built+their+businesses+based+on+assumptions+of+scarcity:+scarce+information,+scarce+distrib ution+resources+and+market+reach,+or+scarce+choice+and+shelf+space.+Now,+though,+these+factors+a re+abundant,+lowering+or+eliminating+barriers+to+entry+and+making+entire+industries+ripe+for+chang e.&source=bl&ots=OZTCG20Lnz&sig=SRW750DJPbZQYNoNS1BXWoCA- mM&hl=en&sa=X&ei=pXVZVZ2TJ8HToATg34OYDQ&ved=0CCsQ6AEwAg percent20- percent20v=onepage&q=how percent20Many percent20incumbents percentE2 percent80 percent94aka percent20pre-Internet percent20companies percentE2 percent80 percent94built percent20their percent20businesses percent20based percent20on percent20assumptions percent20of percent20scarcity percent3A percent20scarce percent20information percent2C percent20scarce percent20distribution percent20resources percent20and percent20market percent20reach percent2C percent20or percent20scar#v=onepage&q=how percent20Many percent20incumbents percentE2 percent80 percent94aka percent20pre-Internet percent20companies percentE2 percent80 percent94built percent20their percent20businesses percent20based percent20on percent20assumptions percent20of percent20scarcity percent3A percent20scarce percent20information percent2C percent20scarce percent20distribution percent20resources percent20and percent20market percent20reach percent2C percent20or percent20scar&f=false. 13 Jonathan Shieber, “SchoolMint Takes $2.2 Million to make School Enrollment Easier,” TechCrunch, September 19, 2014, http://techcrunch.com/2014/09/19/schoolmint-takes-2-2-million-to-make-school- enrollment-easier/. 14 “Education Savings Accounts (ESA): Innovation and Customization,” Foundation for Excellence in Education, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEcQFjAD&url=http

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percent3A percent2F percent2Fexcelined.org percent2Fdownloads percent2Fpolicy-summary-education- savings-accounts-esa-innovation-customization percent2F&ei=rMR0Va7bJNG2yATp5IKoDg&usg=AFQjCNEoB9LmFu_WwySO- 9RCoqnEa8c8Tw&sig2=gLdiyp5iZlzWEzCq_nJK_Q&bvm=bv.95039771,d.aWw 15 Eli R. Stoltzfus, “Access to dependent care reimbursement accounts and workplace-funded childcare,” Bureau of Labor Statistics, Beyond the Numbers, January 2015, http://www.bls.gov/opub/btn/volume- 4/access-to-dependent-care-reimbursement-accounts-and-workplace-funded-childcare.htm. 16 “Grants for Implementing Individual Training Account (ITA) Approaches through the ITA Experiment,” U.S. Department of Labor, January 8, 2010, http://www.bls.gov/opub/btn/volume-4/access-to-dependent- care-reimbursement-accounts-and-workplace-funded-childcare.htm. 17 Arianna Prothero, “Some States Put Parents in Charge of Student Spending,” Education Week, February 24, 2015, http://www.edweek.org/ew/articles/2015/02/25/some-states-put-parents-in-charge-of.html. 18 “Technology industry leaders like Mark Zuckerberg, Pierre Omidyar raise $100 million for startup AltSchool,” The Economic Times, May 6, 2015, http://economictimes.indiatimes.com/small-biz/small-biz- usa/technology-industry-leaders-like-mark-zuckerberg-pierre-omidyar-raise-100-million-for-startup- altschool/articleshow/47173964.cms. 19 Hamish McKenzie, “Say what? Duolingo points to data’s important role in online education,” PandoDaily, May 30, 2013, http://pando.com/2013/05/30/say-what-duolingo-points-to-datas-important- role-in-online-education/. 20 Michael Moe and Ben Wallerstein, “The New Innovator's Dilemma,” The Huffington Post Business, October 29, 2013, http://www.huffingtonpost.com/michael-moe/the-new-innovators- dilemm_b_4173283.html. 21 Julius Genachowski and Zachary Katz, “The New Innovation Battlegrounds Are City Hall and the State House,” Forbes, August 6, 2013, http://www.forbes.com/sites/ciocentral/2013/08/06/the-new-innovation- battlegrounds-are-city-hall-and-the-state-house/. 22 Donna Harris, “Hacking Regulated Markets to Drive Scale,” 1776, May 7, 2015, http://www.1776.vc/insights/hacking-regulated-markets-to-drive-scale/. 23 Nick Gillespie, “The Government Is a Hit Man: Uber, Tesla and Airbnb Are in Its Crosshairs,” TIME, March 20, 2014, http://time.com/31828/the-government-is-a-hitman-uber-tesla-and-airbnb-are-in-its- crosshairs/ 24 Frederick M. Hess and Andrew P. Kelly, “A Federal Education Agenda,” National Affairs, fall 2012, http://www.nationalaffairs.com/publications/detail/a-federal-education-agenda. 25 Robin L. Flanigan, “State Laws Lift Virtual Ed. Enrollment Caps,” Education Week, August 27, 2012, http://www.edweek.org/ew/articles/2012/08/29/02el-enrollment.h32.html. 26 Andrew P. Kelly, “Tomorrow’s online schools: Let’s get them here today,” American Enterprise Institute, October 15, 2013, http://www.aei.org/publication/tomorrows-online-schools-lets-get-them-here- today/. 27 Michael Horn, “No Surprise: Accrediting Agency Opts to Stunt Innovation,” Forbes, August 8, 2013, http://www.forbes.com/sites/michaelhorn/2013/08/08/no-surprise-accrediting-agency-opts-to-stunt- innovation/. 28 Frederick Hess and Chester E. Finn, Jr., “What Innovators Can, and Cannot, Do,” Education Next, spring 2007, http://educationnext.org/what-innovators-can-and-cannot-do/. 29 “Marc Andreessen on the Potential Promises of EdTech Investments,” EdSurge, December 2, 2011, http://www.fastcoexist.com/1678918/marc-andreessen-on-the-potential-promises-of-edtech-investments; and “Edsurge Exclusives View from the Top,” EdSurge, September 14, 2011, https://www.edsurge.com/n/edsurge-exclusives-view-from-the-top. 30 Deborah H. Quazzo et al., “Fall of the Wall: Capital Flows to Education Innovation,” GSV Advisors, July 2012, http://gsvadvisors.com/wordpress/wp-content/themes/gsvadvisors/GSV percent20Advisors_Fall percent20of percent20the percent20Wall_2012-06-28.pdf. 31 Task Force on Learning and the Internet, Learner at the Center of a Networked World, The Aspen Institute, 2014, http://csreports.aspeninstitute.org/Task-Force-on-Learning-and-the- Internet/2014/report/details/0046/Task-Force-Introduction-and-Challenges. 32 RegData, Mercatus Center, George Mason University, http://regdata.org/?type=regulatory_restrictions®ulator[]=0. 33 Regulation Rodeo, American Action Forum, http://regrodeo.com/?year percent5B0 percent5D=2007&year percent5B1 percent5D=2008&year percent5B2 percent5D=2009&year percent5B3 46

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51 Arthur C. Brooks, “Start Helping the Helpers,” The New York Times, October 17, 2014, http://www.nytimes.com/2014/10/18/opinion/arthur-c-brooks-start-helping-the- helpers.html?_r=2&assetType=opinion. 52 Frederick M. Hess and Andrew P. Kelly, “A Federal Education Agenda,” National Affairs, fall 2012, http://www.nationalaffairs.com/publications/detail/a-federal-education-agenda. 53 10 Elements of High-Quality Digital Learning, Foundation for Excellence in Education, 2010, http://digitallearningnow.com/policy/10-elements/. 54 Reforming Regulation: A Conference Sponsored by the American Enterprise Institute for Public Policy Research and the National Journal, ed. Timothy B. Clark, Marvin H. Kosters, and James C. Miller III, American Enterprise Institute, 1980, http://www.aei.org/wp-content/uploads/2014/03/-reforming- regulation_162552508012.pdf. 55 “Media Releases: Ohio Department of Education Rates Community School Authorizers,” Ohio Department of Education, June 9, 2015, http://education.ohio.gov/Media/Media-Releases/Ohio- Department-of-Education-Rates-Community-Schoo#.VYNGfflViko. 56 “About,” National Council for State Authorization Reciprocity Agreements, http://nc-sara.org/about. 57 Leading in an Era of Change, Making the Most of State Course Access Opportunities, Foundation for Excellence in Education, July 2014, http://excelined.org/2014/07/21/leading-era-change-course-access- whitepaper/. 58 Learner at the Center of a Networked World, The Aspen Institute, 2014, http://csreports.aspeninstitute.org/Task-Force-on-Learning-and-the-Internet/2014/report/details/0051/Task- Force-Findings-Recommendations-Students-Safe-Trusted-Environments-Learning. 59 Learner at the Center of a Networked World, The Aspen Institute, 2014, http://csreports.aspeninstitute.org/Task-Force-on-Learning-and-the-Internet/2014/report/details/0051/Task- Force-Findings-Recommendations-Students-Safe-Trusted-Environments-Learning; Student Privacy Pledge, Future of Privacy Forum & Software & Information Industry Association, 2014, http://studentprivacypledge.org/. 60 Student Data Privacy: Building a Trusted Environment, The Foundation for Excellence in Education, http://excelined.org/student-data-privacy/. 61 George F. Will, “Rev the Scientific Engine,” The Washington Post, January 2, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/12/31/AR2010123102007.html; Ben S. Bernanke, “Promoting Research and Development: The Government’s Role” (presented at the conference on “New Building Blocks for Jobs and Economic Growth,” Washington, DC, May 16, 2011), http://www.federalreserve.gov/newsevents/speech/bernanke20110516a.htm; David Brooks, “An Innovation Agenda,” New York Times, December 7, 2009, http://www.nytimes.com/2009/12/08/opinion/08brooks.html; Morton Kondracke, “Morton Kondracke: Our Economy Can’t Stay on Top without Change,” CantonRep.com, January 3, 2010, http://www.cantonrep.com/article/20100103/NEWS/301039882/0/; Jim Manzi, “The New American System,” National Affairs, spring 2014, http://www.nationalaffairs.com/publications/detail/the-new- american-system; and Reihan Salam, “Rick Hess and Andrew Kelly: ‘The Federal Role in Education Is Not Going Away,’” National Review, September 24, 2012, http://www.nationalreview.com/agenda/328427/rick-hess-and-andrew-kelly-fed; Nick Schulz, Oiling the Innovation Machine, American Enterprise Institute, January 18, 2012, http://www.aei.org/publication/oiling-the-innovation-machine/. 62 “Overview,” Barbara Bush Foundation Adult Literacy XPRIZE, http://adultliteracy.xprize.org/about/overview. 63 John Bailey, Carri Schneider, and Tom Vander Ark, Using Prizes and Pull Mechanisms to Boost Learning, Digital Learning Now, June 2014, http://digitallearningnow.com/site/uploads/2014/06/Advanced-DLN-SmartSeries- PrizePull_09June20141.pdf. 64 Stimulating Excellence: Unleashing the Power of Innovation in Education, The Center for American Progress, the American Enterprise Institute, and New Profit, May 2009, https://www.americanprogress.org/issues/education/report/2009/05/05/6097/stimulating-excellence/; John Bailey, Carri Schneider, and Tom Vander Ark, Funding Students, Options, and Achievement, Digital Learning Now, April 2013, http://digitallearningnow.com/site/uploads/2013/04/Funding-Paper-Final.pdf.

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