The Education Business Blog

Another entry in our sporadic series on bad marketing.

This video is hilarious. I love the "my daughter didn't get it" and "we've love it but have some minor tweaks." I've been known to say the latter.

From the target market definition to the creative it skewers slack thinking and over-engineering.

If this is how you manage your marketing - please stop.

http://view.break.com/542649 - Watch more free videos

This is why small companies will do OK in tough economic times - their available resources force them to make tough market driven decisions. The company in this video is anything but market driven.

Can a new product enter the education market and generate organic growth in the market? Not really. This is one of the core issues new entrants have to wrap their heads around as they think about how to sell and market to schools. Education is (mostly) a zero sum game.

Today we tackle issue #3 in our series on selling and marketing to educators.

Part 1 - Obey the Calendar
Part 2 - Education is not a target market - it is an industry
Part 4 - Design for Teachers

In normal times education budgets grow at 2%-5% a year. Most start-ups or new products need to grow at a huge multiple of that - 30% to 300% or even more. Mathematically in order for you to grow someone else is must lose out. Normally in a market that is over $500 billion you would think that there is plenty of room for growth. There is - but it is less than you might first assume.

The Challenge

In a business market, if someone comes up with a new widget that dramatically improves productivity, growth can come from increased profits and/or rapid market expansion. Three underlying facts about education funds make this much harder to leverage.

1. Education funding comes from four primary sources. States provide about 46%, local taxes another 37%, the Federal Government chips in 8% and the final 9% is from private sources (mostly private schools). Over 90% of this is government spending which does not have the volatility (up or down) that one can see in a business or consumer market. Lower volatility is a good thing in bad times - kids still show up in school every fall no matter what (for more on my take on who will do well in the current climate follow the link).
2. Most of the $500 billion + that schools spend is for people and services. Education is people intensive business and roughly 80% of school district budgets go for staff. So take off $400 billion. Of the remaining 20% almost all of that goes for services - buses, food, athletics, accounting, etc. At the end of the day only 1-2% is spent on instructional materials and technology ($5-$10 billion). Another $1-$2 billion are spent on education enterprise systems and services (Student Information, Accounting, etc.).
3. Within the instructional materials market many funds are dedicated to a specific purpose - further limiting the scope of what you may be able to compete for. These are called categorical funds. Examples include textbook adoptions at the state level and Perkins funds for career education at the federal level.

It seems kind of funny to say that the market is only $5-$10 billion. This is roughly the same size as Hollywood or consumer Video Games. But I have seen many business plans from people outside of education who trumpet the $500 billion number. It just aint so, don't be a n00b.

What all of this means is that your amazing new learning widget or software is going to have to steal market share from someone else. You may be thinking to yourself - "this doesn't apply to us since no one else does what we do - we don't have competition." Wrong.

I once heard a Principal tell a technology vendor that he didn't need computers to teach - he just needed a pencil and a pad of paper. At the most basic level he was right. If you are selling instructional materials you are competing with a teacher simply talking. You are also competing for their time and effort. At a more practical level some other vendor or product is going to loose out if you succeed.

Lessons
There are three lessons to take way from this.

First - be clear about who you are going to take market dollars from and where those dollars come from. This will help you focus your product offerings so that they meet the specific requirements of the funding source you are are going to tap.

Second - you must do your competitive research - too many companies are so in love with their own products that they don't spend the time to understand why customers are already buying competitive/alternative products. Assume you are going to be in a dogfight. You might avoid this - but don't plan on it.

Third - this market grows more slowly than others but once you have customers it is less volatile. When you have grabbed a piece of the market it is often solid for years - if not decades (see Plaid Phonics at 50 years and counting). The downside is that some investors will push you to grow at an unrealistic rate given the time it takes to build a position.

Other Options

At the outset I said that education is (mostly) a zero sum game. The "mostly" is because there are a couple of extrinsic sources of growth.

One option is to bring in sponsorship dollars from corporations and non-profits - essentially making your products free to schools. Channel 1 and Whyville (client) are both good examples of this approach.

Another option is to lobby for additional government spending - earmarks. This is usually more opportunistic than deliberate - policy makers decide on a priority and companies work to bend it to their advantage. Voyager and Dibbels fueled a lot of their growth this way.

Foundation grants are a good way to get started - but with rare exceptions they do not provide a sustainable business model and in most cases they are restricted from overtly supporting commercial ventures. If your product happens to get purchased as part of a larger initiative that is fine, but outright support would be extremely unusual.

Conclusion

Once you have selected a target market (see #2 on the series) you need to do additional homework and determine how those customers are meeting their needs today and who your competition is. Driving the kind of rapid growth a new product or start up demands requires that you know who you are displacing. Your products and messaging can only be tailored to the situation when you have this level of awareness.

Part 1 - Obey the Calendar
Part 2 - Education is not a target market - it is an industry
Part 4 - Design for Teachers

The global economic meltdown is going to affect education budgets. States and School Districts will react to a drop in tax receipts and a credit freeze. This entry is an attempt to map out some of the possibilities for how the slowdown will play out in schools.

First - some good news. No matter what happens in the economy kids still show up in school needing an education. The market is not recession proof but it is also a core service of civilization. Unless we end up in some Mad Max dystopia there will be a market.

Second - any market will have losers and winners. There are several market trends that will be accelerated by a budget crunch and companies that are poised to take advantage of them will do just fine. If your strategy isn't focused clearly on core funded needs you will struggle (strategic focus is a service I provide).

Normally the education market lags the general economy by 12-18 months. This cycle has already been different - many of my contacts at education companies saw the market step back as early as the summer of 2007. My theory is that falling property values which drive 30%-40% of tax receipts, are much closer to education decision makers than the usual macro-economic trends that drive the economy. Several significant states also led the way with severe budget shortages (notably Florida and California). Educators could see this one coming and acted early.

In the survey of education executives I conducted last May on Education Spending & the Economy the consensus was that the impact would be mild.

But what has unfolded over the past 3-4 weeks has the potential to have a much more dramatic affect on spending for education across the board. The good news - if it can be called that - is that educators have already acted pre-emptively to address a downturn and so many of the hard decisions have already been made. The incremental impact of the most recent developments will not be as significant as they would have been on their own.

The most immediate prospect is for a dramatic slowdown in capital spending. This will be the result of a combination of voters rejecting new levy's and bonds because their own pocketbooks are strained and the credit freeze in the banking world. If your business is oriented around new school construction prepare to hunker down for a while.

States will have to make some hard choices. California - which has been in a budget crunch for several years - has seen dramatic increases in class sizes and an underfunded market for instructional materials. Categorical funds and lawsuits have kept the markets for basal textbooks supplemental materials that address specific populations healthy. Outside of these areas it remains a tough market. Florida has delayed adoption cycles - forcing schools to use older materials for a year or two more. If you are targeting specific states you should be building relationships with policy makers at the state level because their decisions will have a direct impact on your business.

Districts are going to be a tough sell. They will buy, but they are going to demand more proof that what you are providing will deliver benefits. They are also going to pull more decisions centrally to keep a tight rein on spending. Your sales force needs to be comfortable calling on district decision makers and you should be hiring for this skill.

In tight times districts are also going to prioritize keeping people on staff. Many states (but not all) have specific money set aside for instructional materials and these funds will still be available. But, districts are always pressing for more flexibility in how they allocate funds - and where they have the ability to shift funds towards salaries they will.

The Federal level is a bright spot - particularly for technology. It is doubtful that we will see significant cuts for education at the Federal level. In the past Federal budgets have funded up to 50% of technology spending, despite being only 10% of overall education funding. See my note below on the candidates positions or read this post on McCain vs Obama on education. Obama is still proposing a $19 billion increase in Federal education spending.

Meta Trends a budget crisis plays into

Technology for efficiency

If you can show that your products save time and/or money because they make learning more efficient you can make a case to budget conscious administrators. You will have to make a clear and compelling case - there won't be a lot of room for experimentation.

Since 70-80% of education spending is for staff anything that can improve productivity will help districts run lean. Products like GradeCam (client) which can save hours of teacher time while improving the feedback loop to students should thrive in this environment.

See this series of posts on technology substitution in the education market for more quantitative analysis on this topic.

Accountability mandates and standards focus on core subjects

Tough times will force decision makers to focus their resources on the core subjects of Reading, Math, and Science. They will still spend money on other subject areas but it will be tight.

That said - accountability is here to stay. NCLB is a balloon payment coming due in a few short years and schools will continue to invest in resources that keep them ahead of that curve.

Career & Technical education

The Perkins renewal in 2006 has brought a renewed focus on career education and a real shift in the priorities in this area over the past few years. In an economic slowdown policy makers will place a budget priority on this area - and the affects will be felt in both secondary and post-secondary institutions. If your products serve this market you should be OK - but only if you are in sync with the new career clusters and priorities.

New business models that shift the economics (freemium, sponsorships, etc)

There is a great deal of innovation going on with business models (see the panel discussion on this I moderated at AEP this year). Schools may be more receptive to advertising and sponsorship driven models in this economy than they might otherwise have been.

The Election The outcome of the election will also have a significant impact on how the Federal Government responds to this crisis. The candidates have very different priorities for education. Obama is inclined to take the long view with regard to learning and is prioritizing Early Childhood Education and Lifelong Learning in his plans. Whether these priorities survive a brutal budgeting process next year is an open question, but you can make a pretty clear economic argument for investing in people in a recession. McCain places more emphasis on state control and privatization - but states are already deep in the throes of this crisis and he is not proposing any new spending on education.

This post is a starting point. If you have insights to add or disagreements with anything I've written here please respond in comments or submit a guest post. In the series on the economy and spending I did back in May Doug Stein and Charlene Blohm added a lot of value to the conversation with their guest posts.

Next up - who will thrive in a down market and who will struggle?

In my post about Barack Obama's focus on early childhood education I noted that the gap between low performers and high performers gets much more difficult to bridge as students get older. Obama's early learning proposals are pragmatic because they aim to close the achievement gap when it is easiest and most effective.

Michelle King, today's guest blogger, makes the important point that it is the relative gap not the absolute gap that presents a challenge to teachers. Michelle is an administrator at a large urban school district and a former 1st Grade bilingual teacher.

Michelle's insights amplify the urgency for intervening in the early grades. She also points towards a Response to Intervention (RTI) program that is addressing this challenge here in Texas.

The original post "Obama and Early Childhood Education" is here.

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Guest Post by Michelle King

As stated in Lee's post, oral language may be “hard wired” but it is still very much in development at the primary grade levels, especially for English Language Learners that are building oral language skills in their native and second language.

Retaining a student is never a decision that is taken lightly. The original post states that “When a student drops out in 10th grade the cause can be traced all the way back to 2nd grade or even Kindergarten”. The fundamental struggle faced by primary grade teachers is how to close the gap for a struggling learner lacking the foundations of literacy while still promoting him to the next grade level? Most educational research today discourages the practice of grade retention.

In Barack Obama’s backyard, a 2004 research study from the University of Chicago indicates students that were retained, regardless of the grade in which retention occurred, have a higher likelihood to drop out in 10th grade when peer pressure is at a particularly heightened level and academics are increasingly rigorous.

The gaps of struggling students at the K-2 level may seem small compared to the widening trend in the upper elementary and middle school levels, however, teachers in Grades 1 and 2 have real challenges in the achievement gap from day one. 

I taught students that didn't know how to spell their own name (or even recognize the letters) sitting next to students that were reading the latest Harry Potter book.  Couple that challenge with the fact that kids don't get naps or extra recess as they did in Kindergarten, they are expected to sit at an assigned desk with their assigned textbooks, and have nightly homework while still trying to learn how to tie shoes and keep track of their favorite pencil. 

Although I agree the primary focus in K-3 is on acquiring basic skills in reading and math, teachers in K-3 are expected to teach Science and Social Studies while promoting literacy and math skills development.  A good teacher knows how to integrate curriculum to get the most bang for their instructional buck (think Johnny Appleseed) but that means less time for rote skill building and core subject instruction.

With the focus on high stakes testing and AYP, the shift in public schools understandably moved towards reading and math intervention at the upper elementary level and middle school levels.  Yet what we are seeing now is the achievement gap is actually growing at the middle school level because the K-2 teachers were left behind to pull up struggling learners with limited outside help (aside from gracious volunteers and the occasional tutoring opportunity for the highest of high-need students).

Enter the state's Response to Intervention program.   Here in my Texas school district, our 2008-09 RTI efforts are in initially in the Language Arts domain with a particular focus on grades 1, 2 and 3 (with other grades and content areas being phased in over time).  This is coming not one day too soon.
 
It all starts with the basics and the amazing teachers in early childhood education.  These teachers may not be the data leaders of the school but they certainly play a major role in setting the stage for student success in the years to come.

The original post "Obama and Early Childhood Education" is here.
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Michele King is the Administrative Coordinator of Instructional Support for a large Texas urban school district. Ms. King oversees the district's instructional management system and serves as the C&I liasion for a variety of technology-driven district initiatives. She taught as a first grade bilingual teacher while earning her Masters in Education from Texas State University. Prior to entering the education profession, Ms. King spent ten years as a manager and consultant for a variety of technology-focused companies.

The views expressed in this column are the personal beliefs of Ms. King based on her teaching experience and do not necessarily reflect those of the district for whom she is employed.