Austin, Texas

As early-stage ed-tech startups build their products and try to bring them to the market, many fall victim to a common set of mistakes — oversights that make potential backers more cautious about investing in them.

On a panel at SXSW EDU on Monday, three investors in the education and workforce development space delved into the most common stumbling blocks they see as they’re evaluating companies.

The panelists were Jessica Hinkle, senior vice president of strategic investments at social impact organization Strada; Angela Jackson, managing partner of labor market intelligence firm Future Forward Strategies; and managing director of the Techstars Workforce Development Accelerator Taylor McLemore.

Many times the investors said they work directly with founders to help them address these issues and improve them over time to increase their chances at success, but companies that come in without these potential problems looming overheard will help them standout among the crowd and boost their ability to secure funding.

1–Relying Too Much on One Anchor Client

One of the largest issues Hinkle sees in talking to potential portfolio companies at Strada is that founders who have already landed their first anchor client work to design their product to the customer’s specifications, and become convinced that the initial success is proof of product-market fit.

“You really need to make sure that you’re casting a wide enough net to ensure your solution is addressing the needs of multiple customers,” Hinkle said.

Relying too heavily on the feedback and approval of one large customer is especially concerning because big buyers in the education market are often trying out an array of new products without necessarily being wedded to any of them.

“Go find a smaller institution that is not constantly piloting and testing new solutions, and then you’ll impress me a little more,” she said.

2–Falling in Love With the Solution, Not the Problem

In a similar vein, Jackson, from Future Forward Strategies, says company founders can be too inflexible with their product approach and design. This typically happens after they receive feedback, including from one of their first large customers, and are laser-focused on responding to that feedback as they continue to build and market the product.

“The number one mistake founders make is falling in love with the solution. I tell them to fall in love with the problem,” she said.

She means the problem that customers are facing. There are usually many ways in the education market to solve that problem, even if the core challenge for schools is the same. 

“The solution you came up with is one way. But there are other ways, and you really need to investigate those,” she said.

If you don’t, Jackson added, you could be ignoring approaches that are more efficient, more cost-effective, and easier to scale.

3–Not Speaking Directly With Customers Early or Often Enough

One of the first questions that McLemore, of Techstars, asks founders is how much time they’re spending with their actual customers or users.

“[The answer] is usually highly indicative of if you have a chance of figuring out what the real problem is, and then getting to that solution,” he said. “If it’s just [the founders] swinging by and speaking to some learners or groups once a month, you’re just not going to get there.”

If, instead, a founder says they spend 60 percent of their week on customer calls and truly enjoys learning more about their experiences, “that sort of energy and motivation stands out,” he said.

The number one mistake founders make is falling in love with the solution. I tell them to fall in love with the problem [to be solved].Angela Jackson, Future Forward Strategies

One of the many reasons it’s critical to gather as much information from potential users and buyers is because in the education industry, those two groups are not always the same.

“In so many cases, you are selling to employers or institutions, but it’s students and employees who are using it,” he said.

Jackson is a lecturer at Harvard Business School, and in her class on entrepreneurship in the education marketplace, she often hears from founders who have a lot of ideas and access to funding, but they’ve never spoken with their potential customers.

She recalled occasions when her business school students have told her they’re building a product for teachers, but when she asked them how many teachers they had spoken to as they developed their ideas, the answer was none — despite the access her students have to educators in Harvard’s graduate school of education and to K-12 schools in the Cambridge area.

Making those conversations a top priority will help startup founders better understand the issues they’re trying to solve, she said.

“I’m always pushing their boundaries on this,” Jackson said. “You’re solving a problem, but who is it really a problem for, and what type of problem is it? Is it a nice-to-solve, or is it one that’s essential?”

If it’s the latter, she said, it will pave the way for that company’s success — and make it an easier decision for investors to get behind it.

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Image by Getty

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• K-12 Dealmaking: Schola Raises $10M Series A; SEL Provider Acquires BASE Education