We talk with Chad Johnson, Managing Partner in Cherry Tree & Associates’ investment banking practice, about the state of the edtech market and how education companies are managing the current climate. You can enjoy engaging insights into these important topics during the CEO Keynote Panel: Strategies for Leading Through Market Uncertainty at the upcoming EdExec Summit, taking place September 10-11 in Chicago.
Chad Johnson is an investment banker with a focus in education and former Manager of Business Development for PLATO Learning (now Edmentum). He’s been in the education market for 25 years, primarily helping entrepreneurs or private equity firms who are selling education companies, and suggests that the current market seems to be leveling.
“The last few years, renewals were tough, new business was challenging,” Johnson says. “There's a few companies that are doing really well—certain pockets like STEM curriculum, career and technical education—but most companies are happy just to be flat this year.”
Although Johnson sees that as an encouraging sign, he notes that the market always has been cyclical.
“Education is driven by state and local budgets primarily,” he says. “As the economy goes up and goes down, that tends to impact schools in a lag. There was so much money pumped into the system during the start of COVID that when that money went away, there was a resetting of expectations in terms of budgets for schools. We're going through a down period right now, but we fully expect eventually it will turn around. I don't think that will happen in the near term, but at least it's flattening out.”
Changes in the market aren’t just about finance, but can translate to a direct effect on the classroom experience.
“What really matters is what's going to be the impact on teachers and students,” Johnson says “The easier question to answer is how it affects the administration, because with fewer resources they're just having to make do with less.”
Budgets are smaller and enrollment continues to drop, which is also having an impact, especially on large urban districts.
“Teachers might have to handle more kids,” Johnson says. “They've got more demands put on them. There’s certainly still a problem with teacher retention. Part of what the admin is focusing on is making sure that they have enough teachers. These issues also filter down to the students. You will probably see fewer options, fewer alternatives in terms of programs that these schools are able to offer.”
To pare their edtech investments, schools have been much more focused on engagement.
“Schools are looking at who is using this product that they bought and have been paying for every year. If it's half the kids, is that good, is that bad?” Johnson says. “You can argue that there's a lot that a good teacher can do without a lot of resources. You don't necessarily need all the bright, shiny objects to teach children. The most important thing is having good teachers.”
A back-to-basics, tech backlash is gaining popularity.
“Some states with large districts are talking about limiting the amount of time that students can spend on screens,” Johnson says. “WIth these challenges in play, there’s only so much time in the day, and there's just not enough time for every edtech vendor to make an impression.”
Effects of a Down Market on Edtech Companies
“There is no doubt that there are some great products out there that are just having a much harder time getting face time with the schools, getting implemented, making the sale because of the market pressure,” Johnson says. “They just are not in as strong a position as companies with more resources to have those conversations with decision-makers and with educators. That's bound to happen in a down market, which is unfortunate.”
While this could hinder smaller companies or startups, it’s a natural result of tougher competition.
“At the same time, let’s bring the taxpayers into the room,” Johnson says. “From their standpoint, have there been solutions that were purchased and never implemented or poorly implemented so only a very small subset of the intended population is actually using it.”
Schools are thinking outside the budget-box to save the programs of which they are passionate and in which they believe, such as high-impact tutoring.
“It's one of these things that you can do with kids to have a markedly positive impact,” Johnson says. “But it’s not part of the main core budget of schools. You have to come up with additional money for it. Some places are getting creative, applying for grants or even getting nonprofits (or in some cases for-profits) to sponsor elements.”
4 Pieces of Actionable Advice to Weather a Flattened or Downturn Market
Johnson offers advice to navigate the current edtech market.
Do an audit of the tech you already have. Look for any underused elements within existing tech that could work to replace programs being phased out. Analyze how many students are being served by the program, and whether additional professional development could aid educators in finding greater value for their classrooms.
Focus on what schools need. It sounds basic, but at the end of the day, delivering an engaging solution that really works and helps kids—which teachers find useful and administrators find they can talk positively to parents about—that’s what is going to make it through this downturn and come out on the other side in a much stronger position.
Strengthen your relationship with your schools. Spend the time to check in with your customers, make sure that they're getting what they need. Blocking and tackling is really important. Some companies are growing through this market. If you’ve got the right solution at the right time, take advantage of that. Not everyone is in a position where they can easily invest in that kind of time to make sure they are giving their customers everything that they need, but you have to try to do so.
Get in front of the stakeholders. Prioritize customer conferences—the ISTEs and FETCs of the world—even if attendance has been down at those conferences as a natural reflection of budget tightening. Whatever you can do to get in front of customers and teachers is the smart thing to do right now.
What to Expect From CEO Keynote Panel: Strategies for Leading Through Market Uncertainty
EdExec Summit panelists joining Johnson offer a broad spectrum of unique perspectives on the market. Johnson will speak about how the market's doing both from a business standpoint as well as his role as an M&A advisor in the capital markets. One panel member is an investor in a private equity firm that focuses on education and owns a number of companies in different market segments. Another is a sales and marketing pro who advises education companies. One panelist is the head of product for a very large education assessment and curriculum company, who sells nationwide to both small and large districts. This talk will offer curated insight aimed at CEOs, senior executives, owners of education businesses, as well as superintendents and school administration heads.
