No Business Strategy Lasts Forever
Jeff Bezos’s Amazon has lasted 28 years and still galloping ahead. It is only two years less than a typical corporation’s current life. More than 50% of the corporations from the Fortune 500 list of 1990 were gone 10 years later. Mergers & acquisitions, split into smaller companies or simple bankruptcy was the fate and these companies. This is the warning Jeff Bezos often talks about regarding his own company Amazon. He is convinced of the company’s eventual demise. A fear of failure, and talking about that fear of failure, propels Bezos on. He knows that companies come and go. For a few years or decades, they shine like the North Star such as GE, Kodak, Blackberry and Nokia but eventually they fade away. Bezos is afraid of the complacency and bureaucracy which sets in after a successful inning. In a 2017 letter to shareholders, Bezos talks of an eventual "excruciating, painful decline” followed by death. His prime concern is to delay that day as long as possible.
Today, the big tech’s long-running recruitment boom is fading out. The companies, which couldn’t hire enough HR professionals to help fill all expanding positions as late as a year ago are fast shedding these workers. Meta, Twitter, Amazon, Google and other mega tech companies have been shedding workers in large numbers. In India too, this trend is seen in many successful tech startups such as edtech platforms.
No business strategy lasts for ever but the hubris and hyperbole unleashed by the tech boom of the last 30 years makes us believe that the promoters have discovered the winning formula. In India, most layoffs this year were reported in the edtech companies like Byju's, Unacademy, Vedantu, WhiteHat Jr, etc
Byju’s hogged the most headlines during 2022. Most of it was bad. It fired the largest number of employees in 2022. Over 2,500 workers of the company were laid off in October. Its accounting methods was also questioned and the company had to redo the financials. The business model consists of gaining large enrolments through incurring massive marketing costs, showing that the ever-expanding customer base would bring enormous revenue. Towards that objective, the company hired football star and sports icon Lionel Messi as the global brand ambassador. Earlier, it has sponsored FIFA and ICC’s Cricket World Cup, hired Shahrukh Khan as its brand ambassador, all at astronomical figures. As a result, Byju’s reported a net loss of Rs 4588 crores in FY21 compared to Rs.232 crores in the previous year. After covid, the company should have taken a breather, get insights on the buyer behaviour post-covid and recalibrated their strategy to consolidate and create a sustainable profitable business model which can take the peaks and troughs in its stride.
However, it’s not just BYJU’S that has profitability issues. Nearly every other large edtech start-up in the country, barring a few, is a loss-making company, funded by VC. We see an astronomical rise in valuation but little to show in profits and there is little evidence of light at the end of the tunnel. A single-minded approach to gaining high enrolments is linked to attaining higher valuation prior to IPO so that the promoters and their investors can make a killing. There is little to show whether these companies, including Byju’s have had any lasting success on the average students. Did they helped High School failures to score better or the results of their students were significantly higher than the state or national board averages. They only publicise toppers and time and again it has been shown that many students who don’t take tuitions also top Boards’ examinations. These are exceptional students who would fare well in any case. It is the improvement in average or failed students which matter. Here, edtech companies must show factual results to sustain their business.
Byju’s claims to have enrolled 115 million students but its revenue in India, where most students come from is only $290 million after being in business for over 12 years. This comes to a revenue of $2.5 per student, an extremely low figure. This mismatch between revenue and its massive enrolment numbers could be explained by showing those who enrolled for free classes too, a majority of these did not convert to the paid classes. High cost of acquiring a customer pushes the tuition fees to an unaffordable level for most middle-class families.
In a VUCA world, we are witnessing more and more black swan events and future cannot be taken for granted. We take temporary unvalidated trends to be the firm and future stable trends. This what happened during Covid. As people were totally dependent on online resources , their usage rose astronomically. All tech companies including edtech companies expanded indiscriminately. Higher enrolment alone became a benchmark for a successful company. Covid business environment was considered the new normal.
Professor Daniel Buurus in his book The Anticipatory Organization identified hard and soft trends which should influence business strategy. A hard trend refers to future facts that will happen based on measurable, tangible evidence. Declining population, rising increasing bandwidth and processing power — these are examples of Hard Trends. They are future facts. A Soft Trend, by contrast, is something that might happen: a future maybe or as a fad it can shine and fade away. Business strategies based on hard trends are grounded in solid fact while those based on soft trends like covid & post-covid behaviour should be willing to re-calibrate strategy or even change course as more data & insights are received. Covid was a soft trend and there was no evidence that behavioural changes would be permanent, though some sort of hybrid trends such as in the case of Work From Home are emerging.
To operate in a VUCA environment, there has been little learning from the past. Retail startup Subhiksha went down after it commenced a massive retail store expansion to get a bigger IPO valuation as discussed in our book The VUCA Company. Rapid expansion has been the main cause of downfall of startups, as experienced by another successful startup Stayzilla. For edtech, online enrolment frenzy may not continue after Covid. Since these new startups are funded by VC and PE, there is a sustained pressure to reach a higher valuation as fast as possible.
India’s edtech sector, which was valued at $750 million in 2020 is poised to grow at 15% per annum. Edtech is a reality and not a fad. It has a great future, but promoters must be ready to put sustainability of the business as the first priority. Profits will come only if edtech is able to show tangible measurable outcomes.
