Created using ChatGPT

The launch of ChatGPT in November 2022 ignited public interest in generative AI. A little over two years later, we’ve seen the impact of large language models (LLMs) from companies such as OpenAI, Anthropic, Google, and Meta as they help millions of people with everyday “AI Assistant” tasks including writing emails, summarizing documents, and brainstorming ideas. We’ve also seen an explosion of application layer tools built on top of LLMs tailored to the needs of consumers and users in those industries. Examples include ChatGPT, Perplexity, character.ai, and Claude.

All the buzz is now about “AI Agents” as the next great frontier. These agents go beyond the current AI assistants by enabling AI to proactively work towards goals without constant human prompts. Assistants handle tasks that are prompted by users, while agents handle a set of tasks or workflows without the need for human direction. Capabilities can include strategizing, problem-solving, and executing tasks autonomously. Early examples include Anthropic’s “computer use” to operate online interfaces like a human; Salesforce’s AgentForce automating workflows in customer service, marketing, and sales for their customers; and Replit’s agent for software development.

AI Agents in K12 Education

We’ve seen an explosion of task-oriented AI assistant tools in education across a wide range of use cases. Some founders are pursuing the holy grail of student-facing edtech: an affordable personalized tutor for every student. Other tools assist teachers with assessments and feedback, teacher practice support, instructional materials, teacher professional learning, and more. The most adopted tools to date (like MagicSchool and ChatGPT) save teachers time and effort in daily and weekly tasks that are an integral part of the job of teaching. With hundreds of AI assistant tools on the market now, many of these first-generation tools are useful but are limited point solutions. With increased competition and rapid changes to AI technology, many of these tools will struggle to reach meaningful scale and will likely be replaced in time by more advanced tools.

As I write this, none of these assistant tools act as AI agents and autonomously handle workflows yet. I expect that to change and have a strong feeling we’ll see attempts at autonomous classroom agents in the near future. A widely accepted belief in traditional K12 schools and districts is that the teacher is a critical, indispensable resource in the teaching and learning process and that learning is a uniquely human and social activity (I agree with this belief). With that, it’s an open question as to if/how autonomous AI agents will be adopted in traditional schools and districts, especially those that would replace a teacher in the workflow. I certainly have my doubts. What’s more likely is that we’ll see classroom AI agents emerge on the edges of education in areas such as the homeschool and microschool markets and direct-to-consumer options where resources are more limited and the opportunity to reimagine education is more open.

AI in School/District Administration and Operations has Yet to Emerge

While we’re seeing AI innovation in classrooms, innovations in the back office functions of K12 schools and districts have been slower to emerge. There have been add-ons to existing administrative software tools such as PowerBuddy from PowerSchool, but we have yet to see AI-native tools emerge that address systems and processes in school administration and operations. Many school administrators and staff handle daily and weekly jobs in human resources, transportation, food service, facilities, procurement, and finance using basic off-the-shelf tools (e.g., spreadsheets, forms, or paper and pen) or rudimentary software from the 1990s or 2000s. With limited software budgets for some of these functions, the addressable market has been too small to attract much in the way of investment capital or talented technologists to build consumer-grade software.

That could change with AI agents that serve as digital labor. While software budgets account for just 3% of school district spending, labor budgets can be as much as 75–80% of the budget. If you have AI agents that handle workflows traditionally done by human labor, then you can imagine a much larger market opportunity. By way of illustration, if agents are able to save just 6% of the labor costs that districts incur, district budgets for software/AI agents would nearly triple from 3% to 9% of spend. That presents a large opportunity for AI founders.

Another aspect that makes the opportunity for AI agents in school/district back office functions intriguing is that school districts are under heavy budget pressures and many are short-staffed. Pressures on local, state, and federal revenues that fund school districts along with declining enrollments provide little hope that budgets will meaningfully increase in the years ahead. Staffing cuts are happening in K12 schools and districts and the prospects are dim for reversing that decline. Often, the remaining staff are overburdened by the number of tasks/jobs they have to complete. When I was an operator serving HR departments in K12 schools and districts, a common refrain from staff was that they had many more things on their to-do list than they had time to do during the day. AI agents could help ease that burden without replacing human labor; the humans would be free to handle the more important, higher-function tasks while leaving the AI to handle the repetitive drudgery inherent in most all jobs.

For example, some of these administrative tasks are highly repetitive and relatively low stakes if and when an error is made, meaning they could be tailor-made for an AI agent to step in and complete them. In this scenario, the AI agent could complete the workflow autonomously while a human oversees the agent and makes corrections as needed. Imagine a school employee overseeing a series of AI agents that complete various workflows in human resources. One agent automates job postings, pre-screens resumes, and schedules interviews with human supervision while another agent handles the onboarding process for new hires and a third agent prepares payroll and handles employee benefit inquiries all under the supervision of a human HR manager. School districts can accomplish much more with fewer dollars in the back office, which frees up more funding to go directly into classroom instruction or more skilled staff needs.

A simple Venn Diagram for thinking about opportunities for AI agents in K12 education

Challenges and Considerations

As with the public at large, school leaders struggle to accept AI as part of the workforce. There are concerns about AI displacing workers in schools. Successful initiatives will position AI as an augmentation for existing staff that helps them do their job more effectively and efficiently but does not replace staff. I firmly believe that AI is much more likely to change jobs than replace them entirely. Rightly, there are also concerns over student and employee data privacy in schools. Finally, there are legitimate concerns about bias in AI that need to be addressed. We must ensure that the AI is trained to eliminate bias, which requires transparency in the data used for its training. Those issues need to be addressed before widespread adoption of AI agents will happen in K12 schools.

Conclusion

Industries such as sales and marketing, coding, and customer service are poised to be transformed by AI agents. Whether AI agents come to K12 schools and districts depends on how we balance technological advancements with human workforce, data privacy, and data bias concerns. Certainly, there are many use cases where AI agents could help teachers and students advance teaching and learning and help school administrators and staff operate schools more efficiently and effectively. Schools that adopt responsible AI agents as they emerge could simultaneously address challenges they face including budget deficits and staffing shortages. The business opportunity for talented education technology founders could be immense, especially if they’re able to move beyond traditional software budgets and tap labor budgets with their “digital labor” AI agents. If you’re thinking about and/or building AI agents for use in K12 schools, I’d love to hear from you.

Over the years, I’ve spoken with many edtech founders about go-to-market and many of them have expressed a reluctance to do outbound selling. They cite long sales cycles, high costs, and low success rates among the reasons they don’t want to do it. After all, selling to schools and districts is challenging in the best of circumstances, so why put up with all the pains in building an outbound sales function? They argue for just focusing on driving more inbound. As a long-time edtech operator turned early-stage investor, I believe outbound is still an essential function for K12 edtech startups and that a modern approach to outbound selling can be a highly successful way to scale your sales.

First, what’s the difference between inbound and outbound?

Outbound sales refers to a selling dynamic where the seller actively initiates the sales conversation. Inbound sales, on the other hand, uses methods to get prospects to initiate a sales conversation. Outbound activities include cold calling, emailing, referral marketing, events, and more, while inbound activities include search engine optimization (SEO), content marketing, online ads, social media, and other lures that draw prospects to engage with the startup. Outbound works to establish contact with prospects who may or may not be interested in the solution the startup provides, while inbound serves prospects who are signaling that they may be looking for what you have to offer. In my experience, conversion rates on inbound are almost always higher than conversion rates for outbound because inbound prospects are more likely to be “in the market” for what your startup has to offer.

Why do outbound then?

We just established that conversion rates on inbound activities are better than outbound activities, so why not just do more inbound? The challenge is that startups can’t really control the amount of inbound they get, they can only influence it. It takes time to nurture leads into inbound opportunities.

In the early days of a startup, you should focus on what works and do more of it. If you have inbound leads, inundate them with sales and customer success love. If you have inbound leads, then focus on driving more inbound in the early days. If you don’t have leads, you may have to start with outbound anyways. That’s the reality for many K12 B2B founders, especially if they sell to C-Suite leaders in K12 school districts and/or have reached a certain level of scale and are trying to grow quickly. Even if you have some inbound, to grow your startup to the next level, you’ll need proactive, outbound growth because organic growth via inbound reaches a saturation point. For most startups, the majority of K12 buyers who have a problem aren’t actively looking for a product to solve that problem. That makes scaling inbound extremely challenging as your startup grows larger. Most startups in our portfolio generate less than 30% of their leads from inbound as they scale.

That being said, outbound is hard and it’s been getting harder in recent years. According to Jeremy Donovan of Insight Partners, in the early days of SaaS, the ratio of the number of outbound touches to units sold was somewhere between 200:1 and 400:1. This metric resonated with me because my last operating company measured this and our ratio was 300:1. To us, this meant that every 300 outbound call attempts on average yielded one new sale (These numbers are from the early 2010s; we sold the company to private equity in 2015.). Today, according to Donovan, a typical outbound sales organization makes 1,000 to 1,400 touches per sale. Sales has gotten “nosier” as there are more and more K12 startups selling products and school districts have cracked down on spam after being inundated with sales offers and phishing scams that lead to ransomware attacks.

Clearly, it’s become more challenging to do outbound selling. So how can entrepreneurs create leverage for outbound sales in a modern, efficient way? Here are four things you can do now to modernize your outbound and make it more efficient.

1. Get really clear on your Ideal Customer Profile (ICP) and relentlessly focus on those prospects.
   
   Start by segmenting your market and get specific about your perfect customer. Insights can come from what you understand about the characteristics of your most successful customers. What type of school or district are they? What’s the persona of the buyer/user at the perfect customer? Evaluate the different segments you serve and the attractiveness of each segment. Once you’ve identified the most attractive segment and your value hypothesis for that segment, focus there and your outbound response rates should improve.
2. Once you validate some initial product/market fit, create a strong playbook.
   
   You don’t need an outbound growth team until after you’ve found product/market fit. As a founder, you must do the first 10 or so sales yourself. Focus on product first, but once you find at least one segment that loves your product, you can start creating the playbook. For outbound team members likes SDRs and AEs, I love the idea of starting with persona training rather than product training. Make sure the team you’re building deeply understands the persona of the buyers you’re trying to reach. Connect your solution to the pain points of the buyer you’re serving. Key things for a playbook include ideal customer profile (ICP), key indicators for a successful customer, storylines from your most successful customers, and campaigns (content sequences for outbound).
3. Build a multichannel approach to warm up prospects.
   
   The goal of any efficient, modern outbound sales organization is to never do cold outbound unless it’s a last resort. Cold outbound is the lowest productivity activity. Warmed up outbound is much more effective. A strong multichannel approach includes email marketing, content marketing (e.g., case studies, white papers, interactive B2B marketing via surveys and quizzes and more), phone calls, social selling (e.g., LinkedIn), community management, referral marketing, and events (e.g., conferences, lunch and learns).
   
   Another key component is combining these channels to add value in each outbound touch via campaign sequences. It’s important to always have a reason to reach out — make a compelling offer or have a light call to action. Intent data, which provide insights into who is engaging with your outbound channel efforts, will help you prioritize your targeted outreach. Platforms like Hubspot, Marketo, and Pardot help you manage your multichannel approach and shine light on who is engaging with your channels. Product led growth (PLG) startups have access to intent data via sign ups and usage of free versions of their products. Product usage data are an excellent way to warm up prospects for outbound campaigns if you have it.
4. Be helpful, become a trusted advisor to customers, and make it personal.
   
   The goal for 2024 is to have people receive fewer emails and for each email to be more relevant, more engaging, and thus, more valuable. One way to do this is to develop valuable content that buyers want to consume. For example, one of our portfolio companies recently developed a useful buyer’s guide that helps their ideal personas evaluate the range of options they have, how to select a solution that’s best for them, and then how to access funding to pay for it. For your top-tier prospects, personalize emails that make them feel like the email was created just for them. We can all tell when an email has been crafted with a group of recipients in mind and when the sender has made it so personal that it can only be meant for the recipient. Sending fewer emails is being enforced by the email clients starting February 1, 2024 as Google and Yahoo! are imposing stringent requirements to curb unwanted mass emails, especially from sellers using sales engagement platforms.

At its core, sales is about solving people’s problems. Remember that most of your prospects are looking to solve a problem, not looking for a specific product. Prospects want to know that you’re highly credible, understand them and their domain deeply, and can help solve their problems. A modern outbound sales organization is built around targeted outreach to prospects that fit the ideal customer profile(s) you’ve identified and designed to provide trusted advisory support to those prospects. Ideally, these prospects find you before you find them, but that’s certainly not always possible. Building a thoughtful, modern outbound sales organization might be a “necessary evil” as one operator described it to me, but it’s still the best way to scale your sales organization, especially if you sell large ACVs to C-Suite decision-makers within K12 schools and districts.

P.S. In a follow up post, I’ll share some of the learnings from conversations with a half dozen top K12 revenue leaders I spoke with about modern outbound selling. Stay tuned.

It’s no secret that it’s more challenging to raise funding for an edtech startup than it was just a year or two ago. Venture capital in the sector is down significantly over its peak in 2021. I believe that early-stage fundraising (pre-seed, seed, Series A) in edtech is still relatively active and has been impacted far less than growth or late-stage fundraising (Series B+). In fact, as an early-stage K12 edtech investor, I’ve been more active over the last six months or so than I was in 2021 or 2022. I continue to meet incredible founders and evaluate some amazing investment opportunities even in the midst of the current downturn.

As fundraising has gotten more challenging, one question I’m getting from founders is, “what metrics or milestones should I achieve to be fundable in the early stages at pre-seed, seed, and Series A?” This post is an effort to provide some context for what investors in general and what Edovate, in particular, likes to see at the various stages. We invest primarily in seed investments, but have also initiated investments at the pre-seed and Series A stages.

Pre-Seed Stage

At the pre-seed stage, metrics play a minimal role in a fundraising narrative. For investors, key indicators to support an investment include a sound idea, an MVP (minimum viable product), a great and experienced founding team, and early signs of traction and the potential for revenue. Since there isn’t a business to evaluate at the pre-seed stage, the capabilities of the founding team are at the center of any investor evaluation at this stage. Founders who are well networked or who were successful with a previous venture have an easier time fundraising at this stage. With pre-seed startups, funds are typically provided by the founders themselves, friends and family, and angel investors. Incubators and accelerators like Y Combinator or Techstars are valuable sources and, perhaps, a few micro edtech VCs. Bootstrappers raise funds from early paying customers, which is the best way to raise early-stage funding.

At Edovate, we’ve invested a few times in founders who a) we’ve worked with in the past or b) founders who we believe are extraordinarily well suited to build the company they founded.

Seed Stage

At the seed stage, metrics are more important and investors expect data, although many uncertainties and risks remain to the business being successful. Chief among investor inquiries are questions related to product-market fit. Some important questions to address with data include:

• Are users active and highly engaged with the product? For example, how many monthly, weekly, or daily active users do you have?
• What kinds of retention rates are you achieving with your users and/or paying customers? If you’re selling to schools and districts, strong answers are less than 10% churn on a unit basis and negative churn on a dollar basis.
• What’s your monthly recurring revenue (MRR) or annual recurring revenue (ARR) and what’s your growth rate? MRR of $10K-$100K or ARR of $100K to $1M is common at the seed stage. For SaaS growth, I’m a fan of the T2D3 approach for early stage SaaS growth, which has startups tripling their revenues in their first two years, then doubling their revenues for the next three years.
• What’s your market size (based on a bottom-up analysis) and do you understand the nuances of the different market segments you’re selling to? Many smaller investors look for addressable markets in the hundreds of millions at a minimum, but larger funds will look for addressable markets greater than $1B in order for the investment to be worthwhile for their fund.
• What’s your burn rate? (e.g., how many months of cash will the fundraise give you?). This should be 18–24 months at a minimum.
• What’s your vision for the company and the product? Investors are looking for how you can gain a strategic advantage against competitors and how you might create a defensible moat around your startup.

There are more nuanced questions that you’ll get from investors at this stage, but knowing the answers to the questions above are table-stakes for having credible conversations with institutional investors, many of which are active at the seed stage. As for Edovate, some of the other things we look for include strong PMF (Product Market Fit) Survey scores or NPS (Net Promoter Score) for your product (i.e., do you have product love from customers?), accessing reliable K12 revenue streams for customers to pay for your product, and founder honesty and transparency when it comes to discussing the key risks that face their startup. When Edovate invests at the seed stage, we understand that significant risks and uncertainties remain as to whether or not the startup will ultimately be successful, but we need to understand the risks well and have conviction that they can be mitigated with the seed funding round. We support founders in managing these risks and in putting the pieces in place that position them for a Series A round. We’ve been fortunate that about 80% of our pre-seed and seed investments to date have gone on to raise Series A and beyond.

Series A

In Series A funding, key metrics take center stage in an investor evaluation of whether or not to fund a startup. The business is still in the early phases, so experienced investors will respect that the data you have is a work in progress. The more rock solid the data, the more validation you have for the assumptions you’ve made in your startup’s path to successful growth. The less data you have, the more investors will have to use their pattern matching skills and experience to make a determination about your model assumptions. Here are important metrics for you to know along with benchmark measures that will provide you with standards that you’ll want to achieve to optimize your Series A fundraise.

The numbers above are annual numbers since most B2B edtech SaaS providers sign annual contracts with their institutional customers. If you sign monthly contracts with your customers then your churn rates will likely be higher (1–3% monthly churn) and your MRR retention numbers will likely be lower (there’s typically more churn with monthly than annual contracts), but the rest of the benchmarks above should apply to your startup.

One clear takeaway from the scorecard is that you’ll want to achieve more results that are on the right side of the graphic to improve not only your odds of raising a Series A, but getting the most optimal outcome from your fundraising round.

For Edovate, bonus points go to founders who have strong PMF survey scores (40%+) or high customer NPS (70+) and who also track culture data for their organization, such as employee NPS. We’re also interested in your ability to recruit and attract top talent to your startup. One good proxy for this is looking for at least one outstanding VP that you’ve hired and retained.

Conclusion

With all the turmoil that’s taken place in fundraising over the last 12–18 months, the metrics you need to measure and milestones you need to reach at the early stages (pre-seed, seed, and Series A) have not changed as dramatically as the shake up to growth and late-stage funding rounds (Series B+). By the time you raise Series B, your fundraising success will be largely predicated on the data you can provide to investors who are evaluating your business. By putting a data model in place early on in the life of your startup, you’ll be improving your chances of success should you decide to raise a growth round in the future. Hopefully, by the time you’re ready to raise a growth round such as a Series B, the funding environment will have improved dramatically. I’m a strong believer in economic cycles and that it’s just a matter of when, not if, things will improve again for growth-stage startups. In the meantime, stay focused on building your early-stage business and measure the things that matter if you’re interested in raising venture rounds.

Recently, I had a conversation with a founder who asked, “How do I get the most out of a K12 conference?” It’s a great question and one that I think is important for edtech founders to consider, especially since it’s becoming increasingly difficult for startup teams to break through the digital noise and reach customers effectively. Many founders I’ve spoken with have observed that digital outreach such as email and social media has plateaued as a means of engaging K12 buyers, especially cabinet-level administrators in school and districts. With the explosion of edtech tools that are available, administrators and teachers are bombarded by digital outreach from edtech vendors and deal with a regular onslaught of ransomware attacks. As a result, entrepreneurs are finding it harder to reach K12 prospects via email as school and district IT leaders are turning away more messages from startups via spam filters and firewalls.

I’m not advocating for founders to stop trying to reach K12 prospects via email, social media, etc. Startups must continue to experiment with digital outreach and lean in where they see results. However, since there’s more digital noise than ever before, I believe that K12 startups, especially those selling to administrator buyers, should look to conferences and other in-person events as an effective way to engage with administrators and teachers in K12. As we’ve emerged from the COVID pandemic, K12 leaders are re-engaging with their national and state trade groups and returning to conferences in strong numbers. Marketing and sales via conferences is an old school approach, but it can work.

While conferences are valuable events for connecting with K12 buyers, they require significant resources both in terms of time and money for startups. It’s impossible to justify the time and money required to attend conferences without clear goals and expectations. That’s why the first step for any startup is to take some time to think about what you and your team want to achieve and to set clear goals. Are you looking to network with potential customers or partners, learn about a specific industry trend, or find new investors? Having a clear idea of what you want to accomplish will help you prioritize your time and focus on the right activities.

For most startup teams, connecting with potential customers and partners is at the top of list. So, how do you get the most out of a conference with potential customers and partners? As an edtech operator for 15 years, I attended hundreds of conferences and learned over time how to maximize the outcome. Importantly, I learned that there’s no such thing as a magic bullet for making conferences work in your favor. If you just show up with your booth and exhibit, you might get lucky and have a key prospect or two to drop by, but the odds are not in your favor.

Instead, I found that developing a portfolio of activities and stacking them together at a conference is a much more effective way to optimize your chances of a getting a great ROI. Here are some of the most impactful activities that I’ve seen startup teams use to optimize their conference time and money.

1. Use lures/incentives to invite and attract people to your booth. There are some obvious ways to do this including raffling off a trendy prize, incorporating a fun game in your booth, or giving away free stuff. Those tactics help lure the right people to your booth. One of my favorite less obvious ways to attract people is to arrange “office hours” in the booth with a few happy customers. Ask a few of your most enthusiastic, well-networked customers to spend at least 30 minutes with you in the booth (60 minutes is twice as good!) during prime traffic time at the exhibit. You might offer the customer some benefit or incentive to do this, but it’s often not necessary for your most enthusiastic supporters. As attendees walk up and down the exhibit hall, you’ll be amazed at how many warm introductions you’ll get to prospects when a well-regarded colleague of theirs engages them in conversation in your booth. Prospects that used to pass by without a thought will now drop in to say hello to their colleague and you’ll get to visit with them as well.
2. Host a mini-event with customers and prospects. Plan an interactive event where you can build relationships. It can be a breakfast, lunch, dinner, or happy hour. Invite a nice mix of current customers and prospects and schedule it when there’s a gap in the conference schedule so you won’t be competing with too many other events at the same time. I like to keep these events relatively small at around two dozen attendees or fewer so that you and your team can spend some time with everyone who attends. A well-planned breakfast, lunch, dinner, or happy hour can last 90 minutes or more and give you lots of time to build relationships. If you have an SDR (sales development representative) team, this is a fantastic way for them to reach out to and engage prospects. Let customers and prospects know you’re attending the conference and would love to invite them to hang out with colleagues over a nice meal. Keep the program short and not too focused on your product/service. The event is about building relationships and establishing credibility with your audience. The right prospects will be happy to engage in a more product-focused conversation when you follow up with them after the conference.
3. Schedule 1:1 coffee or drinks. This is my favorite way to de-risk a conference investment. Have your sales team begin outreach three or four weeks prior to the conference and invite attendees to have coffee or a drink during gaps in the conference schedule. Half an hour is great, but even 15 minutes is enough to establish rapport with the school/district leader, learn about their priorities, and share a little bit about what your startup does. In my experience, they’re easier meetings to set up (as opposed to cold requests for a Zoom call) because you and the prospect are both attending the same conference (which establishes some credibility) and it provides a little break from the conference action. Meeting interesting people and learning about new products and services are reasons many prospects attend conferences. A solid outreach effort can yield six to ten of these meetings even before you show up for the conference. When your team shows up with a solid set of meetings already scheduled, they are in a much stronger position to get the desired ROI.
4. Co-present with a successful customer. If you have successful customers already, work with them to submit a presentation proposal. K12 leaders want to hear from other K12 leaders, not salespeople. Make the proposal about the good work that the K12 leader is doing at their school or district. Find a way to integrate how your product or service helps make the work of the district possible, but don’t make that the main point of the presentation. Once you secure the presentation, invite prospects to attend and learn more about the great work of one of their trusted colleagues.
5. Attend the lunches/dinners/parties provided at the event. It may seem obvious, but go to where the attendees are going to be and you’ll meet more people. If you can spend time with your happy customers at these events, you’ll likely get introduced to their colleagues who could become prospects.

Finally, I know the ultimate goal is to measure conference success in terms of the number of customers and the amount of revenue signed up as a result of the conference. However, measuring success based on new customers and revenues alone typically takes many months (perhaps even a year or more) to determine, which makes it hard to judge whether or not the event was a success. Instead, consider measuring the success of the conference by the number of quality meetings you had with potential customers. This provides some immediate measure of the conference’s success and the best indicator of whether or not you should prioritize returning to that conference in the future. Few conferences are a home run the first time out, but with repeated attendance, your audience will become more familiar with you and your customer numbers will grow. As connected as we are via digital means, in-person conferences and events are still a go-to way to connect with K12 buyers and grow your business. Edsurge tracks K12 conferences and events and that’s a good place to start your conference plans.

This article originally appeared in Education Technology Insights magazine.

As an operator and investor in edtech for more than 20 years, I have heard about and discussed the need for edtech “efficacy” for as long as I can remember. The vision was simple — let’s find out what products/services work and for which students and teachers. Efficacy in edtech is about the ability to produce (and prove) an intended result for students and teachers, and momentum around the concept got a boost with the passage of No Child Left Behind in 2001. Just a year later, the U.S. Department of Education started the What Works Clearinghouse, which established national standards for measuring efficacy in education. Two types of studies — quasi-experimental (QED) studies and randomized controlled trials (RCTs) — were allowed and the ecosystem was energized to gather robust, actionable data on efficacy. Unfortunately, the reality of proving edtech efficacy was much more difficult than the perception since the “gold standard” of educational research — the randomized control trial or “RCT” — turned out to be more difficult to execute in education than in other fields, such as medicine. Educational conditions are more complex than those in a medical clinic, and RCTs can take several years and be cost-prohibitive for the vast majority of edtech companies, especially those at the early stages. On top of that, many school and district buyers preferred to make buying decisions based more on testimonials from peers than the research bonafides of edtech providers. That has changed in recent years and we’re at an inflection point where an increasing number of well-researched, effective edtech products are now available to schools and districts. I believe this is the moment for edtech efficacy and there’s a confluence of factors driving this momentum.

1. The ESSA Tiers of Evidence. Under the Every Student Succeeds Act (ESSA) passed in 2015, schools and districts are encouraged to choose evidence-based interventions that have been shown to improve student outcomes. ESSA’s Tiers of Evidence give schools, districts, and edtech providers a framework for determining which programs, practices, strategies, and interventions work in which contexts and for which students. Importantly, the Tiers of Evidence recognize a continuum of efficacy appropriate to each stage of the product. Early stage products are more likely to meet basic requirements (such as having a logic model), while more mature products are vetted by deeper research (such as one or more well-designed, well-implemented randomized control experiments).

2. Demand from educators is more than just compliance with ESSA. Educators value research and increasingly ask for it as they evaluate edtech products. I see more and more evidence requests from administrators and teachers who are evaluating different products. U.S. Department of Education leadership and guidance on the importance of evidence has helped increase awareness and demand, which has trickled down to state departments of education and local education agencies across the country.

3. With so many edtech tools to choose from, evidence is a way to differentiate. As schools and districts have digitized their learning environments, there’s been an explosion of edtech tools available to them. There are now more than 1,400 (!) edtech products in use in a typical school district (source: LearnPlatform). With so many tools to choose from, educators increasingly sort through the pack by demanding evidence-based products.

4. Access to affordable research partners. RCTs are still the gold standard for research, but they’re complex, intensive, time-consuming, and can cost hundreds of thousands of dollars. They’re accessible for mature, later-stage companies and products, but less so for early stage companies with fewer resources. This is why companies such as LearnPlatform have stepped in and provide rapid-cycle evaluations through services like evidence-as-a-service. Other leading companies serving the research needs of edtech providers and schools include WestEd and SRI. The work of the Edtech Evidence Exchange has also been instrumental in promoting evidence and accessible research.

5. More entrepreneurs are baking research and evidence into their products from the start. Jennifer Carolan and Molly B. Zielezinski wrote an outstanding article entitled “Debunking the ‘Gold Standard’ Myths in Edtech Efficacy” where they argue that the concept of an “efficacy portfolio” is a better frame for demonstrating efficacy over time. They write, “An efficacy portfolio is a collection of evidence gathered over time that captures different elements of whether and how a product is ‘working.’ Some of the evidence may include a QED or RCT — but those approaches no longer bear the full weight of demonstrating efficacy than a QED or RCT alone.” This framing is useful because it helps enable entrepreneurs to think about how to include research and evidence in their products from the beginning. We see more and more early stage companies such as Bamboo Learning, Boddle, and Levered Learning committing to research and evidence from the start.

In conclusion, edtech efficacy is still in its early days and there are still edtech companies that dress up anecdotes or testimonials from customers and call them “evidence,” but such tactics are fading as educators demand research and evidence and as research becomes more accessible and affordable to entrepreneurs. The bottom line is that efficacy is good for school districts, edtech providers, educators, students, and the entire education ecosystem. As an active edtech investor, my thesis is that the most effective tools will be the most used by educators and students and become the best businesses over the long run. It’s not a guarantee of success, but it’s an advantage. The means to demonstrate product efficacy are not out there in the future, but accessible now. For founders just getting started, make sure to build evidence of efficacy into your product from the ground up, take advantage of existing research, and build an efficacy portfolio over time. You and your company will win in the long run and, most importantly, your educators and students will be better served.

Growing evidence shows that the path to sustainable, scalable growth in K12 B2B is through product-led growth (PLG). While not for everyone (for example, enterprise systems with lots of configuration, implementation, and training required), PLG has emerged as a key strategy for companies to scale faster and more efficiently while keeping costs low. That’s why leading K12 B2B companies such as Pear Deck, Seesaw, Newsela, Mystery Science, Remind, Nearpod and more have adopted product-led growth.

A prerequisite to becoming a product-led company is internal alignment around the metrics that drive sustainable growth, such as customer lifetime value, engagement, and retention.

As Mark Roberge, Managing Director of Stage 2 Capital, points out, there are four sequential North Star metrics to align your team around. Mark beautifully lays out how to do this in the broader B2B context. The good news is that this is a playbook any K12 B2B team can follow to successfully implement PLG. The bad news is that it’s hard to do, is best done early in the lifecycle of a startup, and often requires some major organizational changes to do well. I’ll discuss this sequence of North Star Metrics in the context of K12 B2B startups and share my thoughts on readiness to raise capital and from whom at each stage of the process.

North Star Metric #1: Establish Flow of Free Users for Experimentation (i.e., new users per day)

In K12 education, a startup needs to have a large number (N) of potential users to establish this flow of free users, so it’s smart to focus on students (50M+ in K12 schools) and/or teachers (3.5M+ in K12 schools). Since there are relatively small numbers of administrators (e.g., ~150K Principals), it’s much more challenging to focus a free product on administrators with the expectation of acquiring a large number of free users. There’s no exact number a startup needs to hit to achieve this flow, but whether you measure it on a daily or a weekly basis, you’ll want enough flow to be able to perform a variety of experiments. Obviously, the more free users you attract the better, and startups in this phase often use viral and/or paid marketing tactics to accelerate user adoption in the earliest stages.

At this stage, startups are typically self-funded. Some fortunate founders can tap friends and family in a pre-seed round to raise the funds needed to reach metric #2. Individuals who invest at this stage will need to have a lot of conviction in you and your team and/or the market you’re addressing because it’s still too early to know if your product-led growth plans are going to be successful.

North Star Metric #2: Prove Retention of Free Users (i.e., new user → % Daily Active Users (DAU) or % Weekly Active Users (WAU))

Once you establish a free flow of free student and/or teacher users, you’ll need to prove you can retain them to show that the product consistently delivers on its value proposition. There are two approaches that are helpful here.

First, you can assess the usage retention of users using cohort analysis. Brian Balfour elegantly illustrates how to evaluate user retention. The process starts with a definition of usage retention such as Daily, Weekly, or Monthly Active Users (DAU/WAU/MAU), but other metrics tailored to the startup’s value proposition can be used. Essentially, you’re looking for “quality sign ups,” which are free users that correlate with long-term usage. This LinkedIn article sums up how to think about and determine quality sign-ups.

Once you have data on usage, Balfour suggests that you organize the data by cohorts where each color represents users acquired during a specific period of time (monthly in the examples below). The shape of the curve represents the percentage of those users that remain active over time. If the curve, flattens out like in the first illustration below, then free active users are going to zero over time and growth will flatten out. If the retention of free active users levels out at an acceptable rate, then free active users will continue to accumulate and growth will accelerate like in the second illustration below. This is the result that you want before moving on to metric #3.

Second, another great way to prove retention of free users is to measure the importance of your free product by user. This approach, which comes from Sean Ellis, involves asking users a simple question — “How would you feel if you could no longer use the product?” — and lists three possible responses, which are Not Disappointed, Somewhat Disappointed, or Very Disappointed. Ellis recommends focusing on improving the product until your survey results yield at least 40% of respondents would be very disappointed if they could no longer use the product.

As Mark Roberge points out, it’s important to note that customer user segmentation is vital. The goal isn’t necessarily to reach the point where 40% of all respondents would be disappointed if they could no longer use the product, but instead to achieve this with some sizable portion of the user base. For example, if the audience is K12 teachers, you could achieve this goal by getting 40% of some significant segment of teachers. Perhaps you reach 40% with math teachers or K3 teachers, which would enable you to move on to metric #3.

Remind, an education communication platform, is an exemplar in K12. The team focused their energy in the early stages on retaining customers who used the product for the first time. Through a continuous process of experimentation with their users and diligent cohort analysis, they’ve grown to serve tens of millions of repeat users of their messaging platform. Impressively, they still retain a large percentage of users from their early cohorts shortly after they launched the business in 2011.

With retention working and an increased number of free users who get value from your product, it’s at the metric #2 level that some K12 founders can test the waters in raising a pre-seed round outside of friends and family. Founders with a successful track record and investor relationships are likely to have more success at this early stage than those who are working in their first startup and/or don’t have an investor network.

North Star Metric #3: Prove Acquisition of Quality Users at Scale (i.e., Low Cost per Quality User)

This is a critical metric. Once you demonstrate that you can acquire users freely and retain them, now you want to prove that you can acquire more at a low cost. So, we have a product that 100 teachers love. How do we reach 500, 1,000, 10,000 and more? You’ll want to develop at least one scalable user acquisition channel that acquires more teachers that love the product at a reasonable Cost of Acquisition per Customer (CAC). Because low-cost channels are needed, many of the most successful K12-focused firms have used virality or word of mouth (e.g., Remind, Kahoot!, Blooket, Zoom) or content marketing (Pear Deck, Nearpod, Khan Academy) to achieve this metric. Other channels such as paid marketing and cold outreach are rarely used because they’re more expensive.

As the COVID pandemic began, Zoom saw an unprecedented increase in the number of quality users, all without any meaningful marketing spend. After reporting 10 million users in December 2019, the company reported 200 million users in May 2020 and 300 million users the following month. This growth was achieved without the need for paid marketing or cold outreach. Virality powered this amazing, low-cost user growth. As one user created a Zoom meeting and invited others to attend, those meeting attendees learned about Zoom and, in turn, started their own accounts and hosted meetings for other attendees. This viral process spread Zoom’s usage throughout education institutions, startups, corporates, government organizations, and even families and friend groups.

Pear Deck also benefited from viral word-of-mouth for their free teacher product; however, they added a second low-cost customer acquisition channel to accelerate user acquisition — clever content marketing. Through successful initiatives including the Pear Deck Inspearational Educator Program, Share the Pear, and Coaching Programs, Pear Deck used and continues to use the power of community + content marketing to build a larger and larger base of quality teacher users.

From a fundraising standpoint, it’s at metric #3 that teams often raise pre-seed and/or seed rounds from early-stage investors including angels, family offices, and some institutional investors. Investors are attracted to startups that have demonstrated the ability to sign up quality free users in a scalable way at a low cost with a large segment(s) of users. One final metric remains — monetization.

North Star Metric #4: Prove Monetization (i.e., Quality User → % Paid or ACV)

In K12 B2B, it’s common that early monetization efforts focus on signing up teachers with low-cost licenses on a monthly (<$15) or annual basis (<$150). Companies such as Pear Deck, Kahoot! and Blooket followed this path. Despite their early success, many companies find that scaling and retaining paid teachers is very challenging and they pivot to offering licenses to schools and districts to increase ACV, reduce churn, and create opportunities for expansion revenue. Companies like Pear Deck, Seesaw, and Newsela are successful at both acquiring and retaining free, quality users and selling to schools and districts. This is their formula for rapid growth. It’s difficult to do because it requires the willingness and capability to build both an excellent free user product and a paid, organizational product with a high-performing sales organization behind it.

With early, promising data on monetization, startups are in a strong position to raise a seed round or Series A round from institutional investors. In my experience, product-led growth companies can raise capital at higher valuations relative to their MRR or ARR than traditional top-down sales organizations. That’s because the PLG model is more efficient and productive at generating quality leads and turning them into revenue as the organization scales. The benefits really kick in for PLG at greater than $10M in ARR as illustrated by the chart courtesy of Open View Partners.

In conclusion, product-led growth is difficult to get right, but it’s not a black box. When committing to product-led growth, it’s important to do so while the organization is still relatively young in order to align teams around the four north star metrics described by Mark Roberge. The earlier your teams align around this playbook (right from the start is optimal), the better. I have yet to meet a K12 team that’s successfully implemented PLG after they’ve exceeded $5M in ARR, but it’s not impossible if the team commits to the organizational changes needed to execute. By implementing this playbook, you can put your startup on a path to an efficient, high-growth sustainable business.

I wrote a post several years ago entitled “Six Observations on the Future of K12 Edtech” that now seems like a lifetime ago. Since that post so much has happened: social unrest and a national conversation about racial justice, a new U.S. administration with a very different vision for the future, and the most disruptive pandemic in U.S. history. There’s also been an explosion in demand for technology solutions in education and venture capital invested in edtech as a result of the pandemic. In the wake of these major developments, here are five observations on the future of K12 edtech.

1) K12 edtech will fuel more engaging learning experiences.
Thankfully, our classrooms are becoming more active and less passive. Big trends include gamification and interactive learning experiences. Duolingo’s app is an example of a gamified app that’s hooked users; with more than 40M active users and growing, Duolingo is changing the way people learn new languages. Their 2021 IPO was a watershed moment for companies serving the education market and I expect other companies will try to emulate their approach. Epic! is another gamified platform built for early readers that gets them excited to read more books and develops their literacy skills.

Edtech tools that provide more active learning experiences are now mainstream in schools. Once considered “nice-to-have,” such tools are now absolutely essential. Pear Deck, which helps turn passive lectures into active learning experiences, is now in 66 percent of schools in the U.S. and growing. Nearpod is an interactive lesson and video platform that’s popular with teachers and students, and tools like Inspirit are changing the way that students learn science by allowing them to experience science through 3D simulations.

2) Edtech will help educators tailor learning experiences to individual student needs.
We’ve been talking about the “personalization” of education for years and there are more signs pointing to schools moving away from the one-size-fits-all approach of years past. Technology is a critical part of the movement towards personalization. Adaptive learning tools such as Dreambox help tailor personalized math education for students. Literacy tools such as Newsela and ThinkCERCA provide reading content leveled to the needs of different emerging readers and teach critical thinking and argumentative writing skills that are vital for 21st-century knowledge workers. Next-generation platforms provide high-dosage tutoring on demand for all students who need it (Paper) and guided literacy instruction with small group and 1:1 reading support (BookNook).

3) Edtech will provide flexibility and anytime/anywhere learning.
While many parents and students struggle with remote/hybrid school environments, some thrive because they have the flexibility and the resources to add supplemental learning opportunities built around their passions and interests. Outschool has become a leader in flexible, supplemental online learning with more than 50,000 courses available online. When freed from the fixed schedule of a school day, these students can dive into projects that energize them and pursue subjects that don’t fit into the confines of normal curriculum. These include apprenticeships and internships, which are critical formative learning experiences for students particularly as they progress through high school and prepare for life beyond school. CareerWise Colorado is a leading organization in my home state that supports apprenticeship opportunities in high-paying industries that don’t require a college degree. Big Picture Learning connects students to local internships by identifying and sharing existing connections within students’ families and communities. I hope we’ll see more flexibility in seat time for students so that they can continue to pursue learning opportunities outside the walls of school, and that more entrepreneurs will enter the arena to enable these types of flexible, anytime, anywhere learning opportunities.

4) Equitable edtech will be a top priority for impact investors and entrepreneurs serving K12 schools and districts.
The discussion around equity has been amplified by recent events surrounding racial justice and the persistent opportunity gaps facing underserved students and families.. With the rise of venture investment in consumer-focused tools that tend to cater to wealthy families, investment in solutions that serve all K12 public schools (where the playing field can be leveled for all students) is more important than ever. Entrepreneurs interested in serving K12 public schools should focus on how their solutions deliver equitable outcomes. In the wake of social unrest, many schools are adopting culturally responsive teaching approaches that incorporate students’ identities, cultures, mindsets, and personal experiences as part of their equity plans. As students cope with trauma from the pandemic and recent racially related conflicts, schools are leaning into social emotional learning (SEL) like never before. Educators recognize that SEL is an integral part of education and human development and that students need more than academic achievement to become healthy, engaged, successful adults. Rhithm is one company that’s leading the way in social emotional learning.

COVID interrupted learning for so many students, especially in low-income communities. That’s why the Elementary and Secondary School Emergency Relief Fund (ESSER), which includes funding signed into law by both the prior and current administrations, prioritizes tutoring as a strategy to help learners make up for interrupted learning due to the pandemic. Equity-focused platforms including Paper and BookNook are stepping up to help schools provide tutoring support to their students at scale. So is LearnPlatform, which helps teachers and administrators evaluate and discover a whole host of equity-focused edtech tools.

5) Successful edtech solutions will enhance and leverage human capital, not replace it.
Finally, the broader labor market is experiencing shortages as restaurants, local governments, and other small businesses struggle to find enough qualified candidates to fill their vacancies. Schools are also affected by teacher shortages and other staff shortages for roles such as paraprofessionals and bus drivers that are both common and essential in K12 school districts. I believe we’ll see more solutions focused on leveraging vital human capital in schools, not replacing it. Artificial intelligence and machine learning will become more prevalent in classroom tools and will be used to improve, not replace, the work that highly trained teachers do. For example, tools like Formative, which automatically captures student answers and grades them to save teachers time, will become more commonplace. Quizlet is an online destination for studying and learning tools. One of its newer products, Quizlet Learn, is a smart study resource that provides adaptive plans and helps take the guesswork out of what to study. The platform uses machine learning and data from millions of study sessions to show students the most relevant study material.

In conclusion, COVID has shifted the edtech landscape from being a nice-to-have set of tools to must-have solutions. Many of the changes brought on by the pandemic will be lasting changes, while others will fade as we move towards whatever the “new normal” will be. There’s too much uncertainty now at the beginning of the 2021 school year to know how it will all shake out, but one thing is certain: innovators will continue to develop new products and build on existing solutions to meet the needs of students, teachers, parents, and administrators in K12 schools and districts.

I wrote a post entitled “Next Generation Go To Market Has Arrived for K12 B2B” and received thoughtful feedback from many readers. Not only did the ideas resonate, but entrepreneurs are eager to unlock this type of growth in their startups. Plus, investors like me are excited to back more startups that figure out product-led growth (PLG), so it makes sense to dig in more on the topic of PLG.

Before I go deeper, this is a longer post than usual, so in the spirit of saving readers time, I’ve prepared a TL;DR summary to hit the highlights. I hope that you find this topic valuable and will read on for more details about key PLG measures and benchmarks for leading SaaS and K12 edtech companies.

Key Takeaways — aka TL;DR

• Traditional outbound enterprise sales to K12 schools and districts are becoming more challenging and expensive. It’s always been a slog, but an increase in ransomware attacks have schools dialing up their spam filters, which makes it more difficult to reach school administrators and teachers via email and phone.
• An alternative approach — product-led growth (PLG) — is now mainstream in K12 edtech and many of the fastest-growing companies serving schools and districts are product-led.
• Key product-led measures and benchmarks vary depending on a startup’s context, but there’s a set of measures that are common across most top-performing PLG companies in SaaS and K12 edtech. Some combination of these measures might be right for your startup.
• Key measures include user growth and (more importantly) retention, activation rate, time to value, engagement, conversion to paid subscribers, average revenue per user, net revenue churn, and customer lifetime value/customer acquisition costs.

For more on these measures and the benchmarks set by leading SaaS and K12 edtech companies, keep reading below.

Why PLG?

There are lots of good reasons to adopt a PLG model. For one, it beats the traditional slog of top-down enterprise sales. It also enables your startup to reach more users faster and realize the impact you want to achieve with your edtech startup. Coupled with the $190B in additional funding for education from the Federal Government, one could argue there’s a moral imperative to grow quickly and financial resources are available to make it happen.

One additional benefit of a PLG approach includes a valuation premium on your startup. A study by Openview Partners comparing public B2B SaaS companies with traditional top-down enterprise sales models to those with a product-led growth model revealed that PLG companies had a 50% valuation premium over their traditional enterprise sales counterparts. PLG includes a valuation premium for your startup that honors the rapid growth motion. That’a big reason to adopt PLG!

Another reason to pursue PLG is that research shows that companies with product-led growth outperform traditional enterprise sales companies, especially as they grow in size. The reason is that as PLG companies scale, they’re not as limited by their ability to hire, onboard, and serve up leads for their sales representatives, plus they generate significant goodwill from their users, which translates into more sales.

As more companies look to product-led growth as a way to accelerate adoption of their products in K12, it’s important to get a sense of the key metrics and benchmarks for top-performing companies. In the next section, I shed light on those key measures and what great performance looks like, drawing examples from leading SaaS companies as well as leading K12 edtech companies.

Key Metrics and Benchmarks

What are the key metrics used by top PLG companies? The short answer is that no two companies use all the same metrics, but many top companies use several of the same metrics. It’s up to your team to determine what the best metrics are for your specific startup context, but here’s a list of the most common metrics based on my research and the benchmarks reported by some of the best companies today. (Note: names of private companies are withheld below to keep their data confidential).

1. User growth and (more importantly) retention. User growth is one of the most common early metrics for PLG progress. It’s a measure of top-of-funnel performance and represents the total number of people who have signed up to use the product in a recent time period. Regardless of the acquisition channel, this metric includes all the users who could potentially become active and move further down the funnel to convert, making this metric most meaningful to growth teams. The user growth rate is highest for very early stage startups that have a small base to start.

Common early stage measures are week-over-week (WoW) and month-over-month (MoM) user growth rates. Among early stage startups, user growth rates of 10% WoW and 30% MoM are outstanding and attract the interest of venture investors. Newsela, a leading venture-backed literacy-focused edtech startup, had better than 15% week-over-week growth after its launch in 2013. Pear Deck, which is now used in more than 66% of schools in the U.S., reported better than 30% month-over-month growth for their first several years after they launched their freemium product. User growth rates tend to ramp down over a period of time as companies accumulate larger and larger user bases. According to Mixpanel’s Benchmark Report, SaaS growth of 4% MoM is the median for SaaS companies in the survey (the survey includes many scaled companies that have slower MoM growth rates). Duolingo, which is among the most scaled PLG education companies, reported monthly user growth of around 3% MoM (34% on an annualized basis) in 2020. They have more than 40M active users, so at 3% MoM growth they’re still adding more than 1M active users per month!

User growth without considering retention is a vanity metric. A user who has registered but is not actively using the product is not getting value from your product and is not a sign of product/market fit. Plus, they’re also highly unlikely to recommend your product to others or subscribe. Top founders focus more on retention of users by cohort over time. One leading edtech founder shared that 40% of free users remain active on the platform eight years after that cohort started using the product (!)

2. Activation Rate. As important as user growth is, it’s more valuable to have active users who regularly use the product. Activation rate is the percentage of users who actually use the product and begin to realize your product’s value. A higher activation rate means better efficiency in customer acquisition, and it’s also important in determining revenue because active users can experience the value of the product (whether it’s via a free trial or freemium offering) in order to convince them to pay for it. According to Mixpanel’s Benchmark Report, the median for a SaaS company is 17% of users who activate or begin using the product within the first week. OpenView Partners has done some great work on activation rates. In their experience, best-in-class product-led companies average activation rates of about 33%. Companies in the top 10% activate 65% or more of users within the first week.

3. Time to Value (TTV). Another metric related to activation rate is Time to Value (TTV). TTV is the time it takes for users to reach their aha moment and realize a product’s value. The shorter the TTV, the better for effective product-led growth. Users have limited capacity and short attention spans when trying a new product, so it’s critical to get them to their aha moment as quickly as possible. The longer it takes a user to activate your product and experience success in using it, the less likely they are to achieve an aha moment. Duolingo does an excellent job of allowing users to interact with the product prior to registering (known as deferred account creation), thus shortening the time to value. Duolingo guides users through a quick translation exercise of their choosing and users can monitor their progress as they complete exercises, showing how quick and easy it is to begin learning a new language. As a result, a high percentage of Duolingo users reach their aha moment quickly and register on their first day. Remind is an outstanding example of quick TTV. Teachers spend just a few minutes creating an account and adding contacts to their list before sending out a first message to parents and/or students. The moment they receive a response back from a parent or student (which is often within seconds) is their aha moment and they’re hooked.

Some SaaS products require more set up than others for a user to achieve success in using the product. One leading classroom app takes a little more time for teachers to achieve their aha moment because they want to set it up with some content and get to know it well before sharing it with their students. So the 28-day activation rate is their standard measure, not the 7-day. Even so, their activation rate is an impressive 30%+ by the 28-day mark, which is a testament to the quality of the product and the onboarding experience.

4. Engagement. PLG companies use a variety of metrics to determine engagement, which is an important way to determine the value that the product is providing. Common measures include daily active users (DAUs), weekly active users (WAUs), and monthly active users (MAUs). These measures are a next step beyond activation rates because they provide intelligence on repeat and continuous usage of the product. One of the best ways to measure engagement is product qualified leads (PQLs). PQLs are a measure of activated users plus users who completed certain key actions within the product. For the popular business communication platform Slack, free users become PQLs when they’ve sent 1,000 messages. That’s a lot of usage and sends a strong signal to the Slack sales team that the user is more likely to convert to a paid subscription. These are the warmest leads that a sales team will get!

For one top classroom app, the number of engaged users (teachers) was an early indicator of the school’s readiness to pay for schoolwide licenses. With just five active teachers, the sales team started outreach to each school’s principal about a schoolwide subscription. Their success rate in closing accounts with five or more active teachers was more than ten times that of standard, traditional cold outbound closing rates.

5. Conversion to Paid Subscribers. The beauty of product-led growth is that it enables companies to widen the top of the funnel dramatically with engaged users and create a lot of goodwill among their user base. As valuable as this is, the business must be able to convert free users into paid subscribers in order to build a sustainable business. That’s why the conversion rate of free to paid users is critical to track. Among consumer-focused freemium products, paid conversion rates of 2–4% are common. Examples include Evernote (2%), Dropbox (2.5%), and Typeform (3%). Within edtech, Duolingo is again a good example, and their recent IPO was a watershed event for U.S. edtech. Per their S-1 filing, Duolingo had 1.5M paid subscribers in June of 2021, which is 4% of their active user base (up from 3% a year earlier). There are breakout successes among consumer-focused freemium providers. Notably, as of Q1 2021, Spotify has converted 44% (!) of their freemium users to Spotify premium subscribers. Among freemium products geared towards the enterprise, conversion rates tend to be higher than with consumer-focused companies. I suspect this is because as the number of free users across an organization increases, the probability that the organization converts to paid goes up considerably. Then, when the organization converts to a paid subscription, 100% of users within that organization are covered by the subscription, which further increases the overall conversion rate. For example, Slack has a 15% conversion rate from active free plan to paid plan. Among leading K12 companies, I’ve heard through the grapevine about rates as high as 60% of users covered by a paid plan.

6. Average Revenue Per User (ARPU). Another important measure of business health is average revenue per user (ARPU). It’s a closely watched metric, especially for companies that pay content licensing fees or royalties to partners (thereby reducing their gross margins). For Spotify, ARPU was $5.25 per month ($63 per year) in 2020. Duolingo had 40 million active users and $190M in revenues in 2020, which yields about a $5 average revenue per user (ARPU). When you consider that just 4% of their active users are subscribers, there’s a tremendous opportunity to increase ARPU over time. For one leading, private, gamified edtech tool, ARPU was just over $1 per user, but given that they had amassed more than 100 million users with ~2% paying about $60 annually, the business had annual revenues in excess of $100M. Not too bad.

7. Net Revenue Churn. Net Revenue Churn is an important financial metric for both PLG and non-PLG companies that essentially measures the customer retention rate on a dollar basis.

The gold standard in SaaS is negative revenue churn, meaning that the numerator is greater than the denominator in the above formula as a result of customer expansions (expansion revenue) and upsell/cross-sell revenue that more than replaces dollars lost from churned customers. In other words, even after they lose a few customers due to churn, these companies actually net more revenue, not less revenue, with each cohort of customer renewals. In fact, top-performing companies often have negative churn of 30% or more, which is another way of saying they renew customers on a dollar basis of 130% or more. There are many outstanding examples of companies in this category within edtech. Within the Edovate portfolio, we’re fortunate that the majority of companies have negative churn, which ranges from -2% to more than -40%. Slack and Zoom (-40%+) are standouts in this category among public SaaS companies.

8. Customer Acquisition Costs (CAC) and Customer Lifetime Value (CLTV or LTV). I’ve written about this before in “Growing Your Edtech Venture: How efficient and effective is your growth engine?,” but let’s review and put it in the context of product-led growth. Simply put, customer acquisition costs (CAC) are the costs associated with convincing a customer to buy a product or service. CAC consists of all marketing and sales costs, such as labor, travel, CRM, and conference expenses. With PLG companies, the product itself is the primary driver of top-of-the-funnel customer acquisition, so these companies have reduced marketing and sales costs and generally lower CACs than companies that rely on marketing-and-sales led growth. This is important to keep in mind as we think about the CLTV/CAC ratio below.

Customer lifetime value (CLTV or LTV) is the total amount of revenue a venture can expect from a single customer account over the lifetime of that customer relationship. For most K12 edtech companies this is either the monthly price multiplied by the expected number of months you retain the customer or the annual price multiplied by the expected number of years you retain the customer. In a startup, this is typically a projection of expected value because of a lack of renewal cycles. Over time, CLTV becomes an actual number as you build a track record over multiple months or years of renewals.

A key ratio for entrepreneurs and investors alike is CLTV/CAC. As a general rule of thumb, investors are looking for businesses that have a CLTV/CAC ratio of 3:1 or greater. These businesses generate enough value to not only cover customer acquisition costs but also to cover other aspects of the business including product development, service, and operations, and still have enough left over for profit. A business that has a lower ratio will struggle to become profitable and will require more capital to reach that point. On the other hand, a business with a much higher ratio (say 5:1 or greater) is operating very efficiently. This is an incredibly positive sign for your growth engine! It might also be a sign that you’re underinvesting in growth and that you could grow even faster with some additional investment.

Now, we established earlier that PLG companies tend to have lower CACs because their products include capabilities that help the company market, sell, and onboard users through the product thereby reducing marketing and sales expenses. Well, all things being equal, companies that have lower CACs will have higher CLTV/CAC ratios. As the denominator gets smaller the ratio goes up and so does the financial muscle of your startup!

More than any other metric, the CLTV/CAC ratio determines the viability and growth trajectory of your startup over time. It essentially measures how efficiently you’re able to invest capital into the business and receive cash as an output to fuel the growth of the business. High CLTV/CAC businesses reach breakeven and profitability more quickly and can afford to reinvest more in growth than low CLTV/CAC businesses. Because PLG companies tend to have lower CACs, they also tend to have higher CLTV/CAC ratios and can afford to reinvest more in growth. Yet another plus for PLG companies!

Conclusion

There’s no one set of metrics that can capture all contexts that PLG companies face in K12 edtech, but I believe the metrics above are the most critical for K12 edtech companies working to become best-in-class PLG companies. I hope that seeing benchmarks set by leading PLG companies both within and outside of K12 edtech gives you a sense of the standards you’ll want to hit to become a best-in-class company.

Certainly, there are additional metrics that are valuable (the virality coefficient, also known as “k factor” is one), but for most startup teams a combination of the above metrics will be sufficient for getting you on the right track to measuring and improving your product-led growth efforts. As legendary author, sales coach, and motivational speaker Zig Ziglar said, “You don’t have to be great to start, but you have to start to be great.” I hope this helps you get started down the path of becoming a better PLG company in K12 edtech.

Are you building a PLG company? Are you thinking about PLG in similar or different ways? Do you use other metrics or benchmarks? If so, we’d love to hear from you.

There’s a tremendous amount of energy and enthusiasm around K12 edtech companies in 2021. This is partly a result of the disruption wrought by the pandemic as schools were forced to adopt new technologies overnight in an effort to move to emergency virtual learning. Edtech went from being a nice-to-have tool to a must-have necessity and demand spiked. It also stems from the fact that digital tracks in schools were put down in the 2010s with broadband adoption in schools reaching 99% in 2019, ready access to inexpensive devices led by Google Chromebooks, and the emergence of cloud computing as a platform that allows entrepreneurs to reach countless users almost instantly (no more packaged, shipped software necessary).

With the convergence of these macro-trends in K12, we have predicted a technology revolution in schools for years and it now is upon us. But is the technology revolution due to these macro-trends alone or is there more to the story? I argue that there’s more to the story and that innovation in go-to-market models is the big reason why. To set the stage, allow me to reflect on where we’ve come in K12 B2B in recent years.

Earlier in my career, I was a VP of Sales, Marketing, and Business Development across multiple SaaS companies during the 2000s that served education institutions — both K12 and Higher Education. We built and sold software that served teachers, administrators, and staff and it was sold top down into schools and districts. We met with administrators who approved the purchase and then we introduced it to end users and trained them across the school or district. To market the software, we attended conferences and other events, sent emails, and made phone calls to set up meetings with administrators.

This process got the job done, but frankly, it was a slog. We made countless outreach attempts to set up meetings with school leaders and, typically, just a tiny percentage of them were successful in getting a meeting and even fewer were successful in securing a sale. It’s hard to set up sales meetings with school leaders who don’t really want to be sold in the first place. We long searched for faster, more efficient ways to engage with customers and we made incremental improvements, but no major breakthroughs. We kept at it and over a period of many years we amassed thousands of school district customers through perseverance and massive investments in marketing and sales. In my operating days, we built several successful businesses at scale, but again, it was a slog. This was the era of marketing- and sales-led growth.

Good K12 businesses were built during this era and there are good businesses still being built with this model. But as we look across the K12 landscape today, there are numerous businesses who’ve grown to serve tens of thousands of schools, hundreds of thousands of teachers (even millions in a few cases), and tens of millions of students in just a few short years. On top of that, these transformative companies amassed these customer bases with relatively modest investments in marketing and sales. For companies like Seesaw, Nearpod, Newsela, Remind, Pear Deck, Duolingo, Kahoot!, and others their scale is not just a result of the technology macro-trends of the 2010s that I mentioned earlier. If the sole reason was the technology macro-trends, then why isn’t every startup in K12 reaching massive scale?

I believe there’s a more fundamental reason why these companies have unlocked this explosive growth in such a short amount of time: It’s because they’ve figured how to delight a large number of end users (teachers, students, parents) with products that are consumer-friendly, frictionless to adopt, and create instant value. In a nutshell, the emergence of successful product-led growth (PLG) models in K12 is replacing marketing- and sales-led growth in many of the fastest growing companies. These K12 entrepreneurs have essentially built products that sell themselves by developing products that users can activate, use, and get instant value at no cost.

So, for K12 entrepreneurs interested in unlocking this explosive go-to-market model (and who wouldn’t be?), let’s look at the conditions necessary for this type of explosive product-led growth. Here are five conditions that need to exist for a successful PLG model:

1. A large “n” or addressable universe of end users who can use your product. There are ~3.7M teachers and ~55M students in K12 in the U.S. and many more internationally. Ideally, the “n” is large enough for you to amass 100,000 or more users in a single year. All the most successful PLG companies in K12 focus on a user base with a large “n.” Seesaw, Pear Deck, Nearpod, and Newsela focus on the teachers and students while Remind focuses on teachers and parents. If the “n” is large enough, you can activate 100K or more users in a single year and still only engage a small fraction of the overall market. I would argue that the “n” is not large enough for a PLG go-to-market strategy with school administrators. For example, there are about 140K school principals in the U.S., which is too small for you get the kind of PLG adoption needed for massive scale.
2. A great onboarding process. Every product’s onboarding experience is different, and it should be. In general, the most important elements of a onboarding experience are shortening the time to value, leading a user to their aha moment, and getting them to activate faster. In K12, Kahoot! is an example of a great onboarding process. Kahoot! has a simple sign-up process (with optional Google, Microsoft, or Apple SSO) and then you go instantly to entering a PIN to play a game or to create your own. For most users, the aha moment comes quickly as one plays the game, answers fun questions, and learns new facts. For more insights on creating a great onboarding experience, check out this Appcues article.
3. A delightful experience for the end user. Like a great onboarding experience, a delightful user experience takes many different forms across different products. Some of the best ideas for creating a fantastic user experience include incorporating behavioral design and new technologies, gamification, and the creativity of your team. A great user experience is simple and intuitive and the interface itself appears to anticipate our needs. In education, Duolingo provides a delightful user experience. It’s a gamified learning platform where all visual and game elements are part of a fun, meaningful user experience. All elements are designed to help turn learning into a joyful and exciting experience. For more insights on creating delightful user experiences, take a look at this article.
4. Tapping into viral growth by empowering users to share the product with other users. For some products, viral growth happens naturally with products whose value is enhanced by sharing with others. Essentially, when virality is baked into the product, you’ve got a built-in growth advantage. Some of the best examples are Slack, which powers internal communications in organizations, and Dropbox, which provides cloud-based file sharing. In K12 edtech, Remind and Kahoot! are excellent examples of products that users love to share with others because they get more out of the product when they share it. For other startups that don’t have a baked-in reason to share the product with others, product leaders can develop referral incentives such as product payment credits or discounts, unlocking additional features, or an exclusive experience for sharing the product with other users. Referral incentives are more effective when both the referrer and the recipient are rewarded for taking action. It’s not easy to do, but when you discover it, viral growth is a huge advantage for companies, because it’s free (or close to it) and compounds. It creates a flywheel — more users will bring more exposure, which in turn will bring more users. Companies that have developed great referral incentive programs include Google (Google for Work), Uber, and Airbnb. For more insights on how to develop a world class referral incentive program, check out “9 Best Referral Programs That Went Viral & Helped In Exponential Growth.”
5. Access to data. The best PLG companies are serious about their data. You’ll want to plug in a data tool that tracks sign ups, activations, usage, viral growth (the metric is called K-factor), and more. They are also relentless experimenters. You’ll want to conduct A LOT of experiments. PLG leaders are constantly running A/B tests to try out different ideas and interpret the results to inform future product development. In my experience the A/B testing mentality is especially important as entrepreneurs work to move beyond offering a free end-user product to paid conversions. This is a topic we can explore in a future post.

As much success as we’ve seen recently with PLG companies in K12, I believe it’s still early days. I think we’re going to see more and more companies come to market in K12 with product-led growth, and those that figure out how to do it well will be among the fastest-growing, most impactful startups in our space. If you haven’t brushed up on PLG and what it takes to build a product that sells itself, I encourage you to take a closer look. For more on this topic, check out “Product-Led Growth: How to Build a Product That Sells Itself” by Wes Bush. It’s a pragmatic, actionable book on how to create PLG from the ground up. If you’re running a PLG company in K12, I’d love to hear about any lessons learned that you’d like to share.

In recent years, platforms like Roblox and Minecraft have exploded in popularity. These platforms deliver rich, engaging, immersive worlds that captivate their users. They allow users to engage with content, create their own content, and interact with other users on the platform. My eight-year-old son would like to spend every waking minute playing Roblox, but his stubborn dad won’t let him!

Unfortunately, most digital learning content is not nearly as engaging and interactive. In fact, it can be downright boring. It’s often passive and non-interactive with a teacher using a whiteboard (whether digital or analog) and lecturing to students. It’s no surprise then that student outcomes in STEM subjects are abysmal, with about half of students who start a STEM course (online and offline) dropping out before they finish, 70% of instructors looking for better ways to engage learners with science content, and 65% of learners feeling unhappy or dissatisfied with their STEM content.

In STEM subjects, the research shows that learning is best done when it’s experiential. By utilizing the best of XR and 5G, Inspirit founders Amrutha Vasan and Aditya Viswanath are building a platform that’s both interactive and immersive — think virtual labs and simulations. Moreover, their approach to content democratizes teaching and learning by providing users with powerful no-code creator tools that allow them to create their own simulations — both teachers and students. Anyone can either drag-and-drop 3D content and build their own experiments or select an existing template from the growing library of user-created labs. Users can also integrate assessments and quizzes and can customize them to their needs.

The ability to turn students into creators (instead of consumers) is an important aspect of Inspirit’s differentiation as there are other interactive platforms on the market that focus on student consumption. As the popularity of Roblox and Minecraft demonstrate, we believe the market is ready for powerful no-code creator tools like these and that students will drive much of the expected adoption. Indeed, students and instructors are taking notice, with more than 50,000 users signed up since the September launch for access to a private beta. One 12-year-old student used Inspirit to build a quantum funnel with pre-made modules. The bottoms up, product-led growth motion that Inspirit uses has become a successful approach for companies that are looking to scale rapidly and efficiently in education technology and so many other software verticals. We’re hopeful that with an outstanding product and their product-led go-to-market strategy, Inspirit will enable millions of K12 students to create their own simulations and learn from other creations, inspiring many to deepen their knowledge of science and some to pursue STEM professions. With any luck, I’ll get my son to switch from Roblox to Inspirit!

Early impact data is encouraging as well. Through pilots with hundreds of students across two K12 districts and two universities, Inspirit showed large improvements in critical thinking and student engagement time on the platform. The pilots also demonstrated increases in self-efficacy and confidence in learning science, which is a critical indicator for students to continue their science education.

With a fast-growing and highly engaged user base, we see tremendous opportunity for Inspirit to deepen engagement and improve STEM learning outcomes for millions of students, especially for at-risk and marginalized students who don’t have equal access to these kinds of experiential learning opportunities. In the short term, they’re solving the problem of student engagement in STEM education in a virtual environment (forced upon schools by the COVID pandemic) and in the long run they’re democratizing access to quality STEM resources so that anyone can learn science in a fun, experiential way. Inspirit’s ambition is to become the community, the platform, and the marketplace for immersive and interactive STEM tools.

We at Edovate Capital are excited to team up with a talented line up of investors led by Sierra Ventures, with participation from our partner Red House Education and others including Unshackled Ventures, AME Cloud, January Ventures, and Roble Ventures. We believe Inspirit is the rare opportunity to build a large, impact-focused company while providing better education resources that can inspire millions of students to learn STEM subjects and are thrilled to support them at this early stage. I’m excited to work together!