Giant EdTech that lost 90% valuation in one year
The Story behind Byju's $22B to $3B valuation fall and lessons for business and product leaders
Let us get right into it.
If you haven’t heard of the edtech brand Byju’s before. Let us do some introductions.
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First things first..
In December 2021, Byju’s was world’s 13th most valuable start-up in the world and was valued at $21 billion (as of data by CB Insights in 2021). At that time, there were 936 unicorn companies (each valued at >$1 billion).
Mark Zuckerberg’s Chan Initiative was one of Byju's first and largest investors, having contributed around $500 million to the company in 2016.
Byju’s became the poster boy of India in the education tech domain. It reached the peak valuation of $22 billion in October 2022.
Recently, BlackRock (the world’s largest asset manager) slashed Byju’s valuation by more than 95%.
That means, as of Nov’23, Byju’s is valued at below $3 billion.
This story has many facets, but we focus on 5 key takeaways that you can apply to any tech company chasing valuations.
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So, What happened to Byju’s?
Marked by favorable economic and market conditions (cheap money from investors and banks to Indian startups, huge Indian market, covid trigged online education push and more), Byju’s continued to grow aggressively.
Byju's has also made a number of smaller acquisitions, including Toppr, Eduncle and some more.
Phew! - all of those acquisitions in a span of <4 years.
But who was funding this craze? More than 50+ global investors.
The list of investors is so long that Byju’s runs a stock market like ticker stream on Byju’s About Us page. The investors include Tiger Global (American Hedge Fund), Mark Zuckerberg’s Chan Zuckerberg Initiative, Sequoia amongst many many more.
Byju’s was a perfect investment in 2016-2021 as it ticked all boxes of a business case:
→ Massive market opportunity (>250 million students in India)
→Innovation in Education (Personalized Education)
→Byju was growing >100% in revenue in some of those years
→ Profitable until 2021-2022
Who would not want to invest?
But all those crazy multibillion dollar acquisitions and no control on financial downfall led us to completely different story.
Poster boy became the Wanted Criminal that couldn’t pay employees their salaries.
Lesson 1: Do not take cash flow for granted. Manage it.
Byju’s was profitable till 2021-2022.
And then it took two financially unsound decisions :
1) Byju's aggressively pursued acquisitions and partnerships in an effort to expand its reach and product offerings. We just saw in previous section how crazy it was.
2) Aggressive advertising and marketing strategy that means ACQUIRE CUSTOMERS AT ANY COST. It also pushed so hard on sales push that it irritated customers (more on that next).
Byju's overall operating expenses were also high due to the company's large workforce and the costs associated with maintaining its extensive infrastructure.
All this started straining finances.
Allegations of inflated revenue emerged, casting doubt on the company's financial performance. These allegations were denied by Byju's, but they contributed to investor concerns and a decline in the company's valuation.
So, what’s the takeaway?
Expansion should be well-planned and financially sound. Companies should carefully assess their financial capacity before pursuing acquisitions or partnerships.
Focus on core products and services. Diversification can be a risky strategy, especially if it comes at the expense of core products.
Maintain transparency and accountability. Companies should be transparent about their financial performance and avoid actions that could raise questions about their integrity.
Lesson 2: Never lose focus of your core products
Byju's diversified its product offerings too quickly, expanding into areas such as coding, early childhood education, and test preparation for overseas universities. This diversification distracted the company from its core product, which was K-12 learning.
The company's focus on acquiring new products and services made it difficult to scale its operations efficiently.
The different products had different target audiences, learning methodologies, and marketing strategies.
Remember each diversification comes with a huge debt of culture, product integration, sales coherence, legal and contractual and so much more.
If you buy 10 companies, you buy 10 different cultures too.
So, what’s the takeaway?
Focus on a few core products and services that align with the company's mission and strengths. Diversification can be challenging to manage effectively and can dilute the company's brand identity.
Invest in the development and improvement of core products. Continuously enhancing core products can help to maintain a loyal customer base and attract new users.
Prioritize operational efficiency. Streamline processes, optimize costs, and invest in technology to improve operational efficiency.
Lesson 3: Customer is king. Do not de-throne.
Byju's faced criticism for its aggressive sales tactics and high-pressure sales environment. Some customers reported feeling pressured to sign up for expensive packages and were unhappy with the cancellation process:
High-pressure sales calls: Byju's representatives have been known to make high-pressure sales calls to parents, often without their consent. They may use scare tactics or guilt trips to coerce parents into signing up for expensive courses.
False promises of academic success: Byju's marketing materials often make exaggerated claims about the company's ability to help students achieve exceptional academic success. These claims are often misleading and do not reflect the reality of the platform's effectiveness.
Manipulation of cancellation policies: Byju's has been criticized for its complex and confusing cancellation policies. Customers have reported being misled about the cancellation process and having difficulty canceling their subscriptions.
Pressure to sign up for long-term plans: Byju's often pressures customers to sign up for long-term plans, sometimes with threats of escalating prices or loss of access to content. This can be difficult for families to afford, especially as their children's academic needs change over time.
Misrepresentation of fees and discounts: Byju's has been accused of misrepresenting the fees for its courses and the discounts offered to new customers. This can lead to confusion and frustration for families trying to make informed decisions about their education choices.
Others were disappointed with the quality of the company's curriculum and teaching methods. Some users felt that the lessons were too repetitive and not engaging.
Arun was excited to enroll his son, Arjun, in Byju's online education platform. But Arjun found the lessons repetitive and the recommendations unhelpful. He lost interest in learning and his grades dropped. Arun tried to get help from customer support, but they were unresponsive. He canceled the subscription and was frustrated by the process. Byju's needs to fix these problems to regain customers.
So, what’s the takeaway?
Maintain ethical and transparent sales practices. Avoid pressuring or misleading customers into making decisions.
Prioritize customer satisfaction. Gather feedback, address concerns promptly, and strive to continuously improve the customer experience.
Ensure the quality and effectiveness of products and services. Regularly evaluate and refine products to meet the needs and expectations of users.
Lesson 4: Competition is like an object in your car’s side mirror - it is always closer than it appears.
The edtech industry has become increasingly competitive in recent years, with new entrants challenging Byju's dominance. These new companies have brought fresh ideas, lower prices, and innovative approaches to the market.
The increased competition has put downward pressure on prices, making it more difficult for Byju's to maintain its profitability. The company has also been forced to cut costs and lay off employees.
Lower prices: Many of Byju's competitors have undercut the company's prices, making their courses more affordable for consumers. This has put pressure on Byju's to lower its prices, which has reduced its profit margins.
Differentiation: Byju's competitors have differentiated themselves from the company by offering a wider range of products and services, focusing on specific niches, or adopting a more personalized approach to learning. This has made it more difficult for Byju's to maintain its competitive advantage.
Technological innovation: Byju's competitors have been investing heavily in developing innovative technologies, such as artificial intelligence and augmented reality. This has allowed them to create more engaging and effective learning experiences for students.
Customer focus: Byju's competitors have placed a greater emphasis on customer satisfaction, providing better support and offering a more positive user experience. This has made it more difficult for Byju's to retain its customers.
So, what’s the takeaway?
Stay ahead of the competition by continuously innovating and adapting. Identify new trends, explore emerging technologies, and develop innovative products and services.
Understand the evolving needs of customers and market dynamics. Adapt pricing strategies, marketing approaches, and product offerings to remain competitive.
Embrace data-driven decision-making. Use data to understand user behavior, identify market trends, and optimize operations.
Lesson 5: Regulation scrutiny is a reality to manage
In recent years, there has been increased scrutiny of the edtech industry, particularly in India. This scrutiny has focused on concerns about the quality of education being offered by these companies and the amount of data that they collect about students.
Byju's has faced regulatory challenges in India, including allegations of data privacy violations and unfair trade practices. These challenges have tarnished the company's reputation and made it more difficult to attract investors and partners.
In 2023, the Indian government's Central Consumer Protection Authority (CCPA) initiated an investigation into Byju's for allegedly collecting excessive personal data from children without their consent.
The CCPA also raised concerns about Byju's sharing this data with third parties without proper consent.
These concerns stem from allegations that Byju's has been collecting data from students, including their academic performance, browsing history, and family details.
The company has been accused of using this data to target students with advertisements and to sell their data to third-party companies.
So, what’s the takeaway?
Adhere to data privacy regulations and protect user information. Implement robust data security measures and obtain informed consent from users
All that points me to one thing: rot at the top. In that situation theres nothing a product manager can do.