We all know about India’s demographic bonanza of 600 Mn young people under 25 years of age. These are all targeted consumers of the fast-growing education sector in India, which has a CAGR of up to 25% per annum and is currently valued at a whopping $105 Bn — an open opportunity for Indian edupreneurs.
Added to this is the view that education in India is recession-proof, as there will always be a demand for good schools regardless of how the economy is doing. It also provides great cash flow as revenue is generated (school/college fees) before the costs (teaching kids) are borne.
So, from the outside, getting into the business of education seems to be an easy way to make it big, but things are never what they seem. This sector is plagued by weak government regulations, high investment requirements, and other factors that make this area a minefield for the unwary entrepreneur.
Hopefully, this article could serve as a primer for any of the edupreneur planning to set up an education business in India. Let’s start by categorising the three types of education businesses you can look at. They are:
- Core Education: This comprises of K12 schools and undergraduate or post-graduate colleges.
- Parallel Education: This segment consists of organizations that supplement core education like coaching classes, vocational training, pre-schools and hobby classes.
- Ancillary Education: This covers companies that provide products and services primarily to the core and parallel education segments like e-learning courses, smart classes, software for schools, student housing, school uniforms etc.
Each of the above segments have their own characteristics which require unique strategies to succeed in them.
The schools and colleges that comprise this sector usually need to give a government recognized qualification to their students, like an I.C.S.E. certificate or B.Com. Degree. Hence, this is the most regulated area of education in India.
Edupreneurs need to operate their schools and colleges only under a non-profit trust or society. This means that equity investors cannot fund these entities as they cannot buy shares or get dividends.
Additionally, government regulations require the trust to own the land & building on which the school or college has been set up, which requires a large investment. Some states also limit the fees that can be charged to students.
If an edupreneur would like to setup a new school or college, ideally you should locate this in a Tier 2/3 city or new township near a major metro. This is because the costs of land will be much lower than those in a big city like Mumbai or Bengaluru and there is less competition from large incumbents.
It is difficult for a new school or college to become a preferred destination for students in a big city which already has old education brands operating there. Setting up in a smaller location without much existing competition will help an edupreneur gain student admissions quickly and help you break even sooner.
Additionally, parents in smaller cities are willing to pay almost as much as those in large cities for their kid’s education.
Typically in India, a new school or college which provides good quality education takes about 7-8 years to achieve operational break-even and then it provides a consistently profitable revenue stream after that. If you do not have the deep pockets needed, you can raise funds through bank debt or grants from rich individuals who may be willing to donate to get a prestigious institution named after their own family.
There are many regional examples of entrepreneurs who have successfully set up chains of schools or colleges like Ryan International Schools and Amity University. So, this is a very viable business for those with access to patient capital.
This sector allows an edupreneur to operate a for-profit company and currently faces minimal government regulation. It requires some investment in leased infrastructure as classes need to be held somewhere, although this is much lower than what is needed for Core education. Like schools & colleges there is an existing demand for coaching classes and pre-schools.
However, it is usually difficult for a new entrepreneur to differentiate their offering from the existing companies in the market. For example, how do you show that your coaching class has better quality teaching than the existing incumbents?
The ideal strategy is to set up in a smaller city which has sufficient student demand but does not have strong brands already operating there. Another viable option is to become a franchisee of one of the larger groups like NIIT or Kidzee pre-schools.
This gives you a ready-made brand and business know how. If executed well, this sector can give you predictable revenues and business growth. However, as a bricks & mortar based model, growth will not be exponential so equity investors will value your company at a very low multiple of your annual revenue.
Companies in this sector have the widest range of models and tend to be the easiest to set up as the investment costs are very low. However, this low barrier to entry means that there is a lot of competition in each segment of this area.
For example, there are dozens of small companies offering animated videos mapped to the syllabi of Indian K12 schools. If you run a business offering online content, it is usually very expensive to get customers directly through online promotions, as the market is crowded. Although there are some companies like Byjus, Toppr, Embibe & Cuemath that have managed to raise significant investment & scaled up via a B2C model.
However, most entrepreneurs in this space tend to work on a B2B2C model where they have sales representatives offer their products to schools and colleges directly, which then offer it to their students (sometimes on a revenue sharing basis). This is true for other tech-enabled education companies like school SAAS software providers or smart classes.
The upside of this business is that you can quickly generate revenues at a low cost if you have a strong sales team as your investment in infrastructure would be minimal. This means that you can also run without needed much from outside investors.
There are non-tech enabled models in the ancillary education space like becoming a school uniform provider or student accommodation provider. Another option is providing e-learning content to corporates. All of these would also require a feet-on-street salesforce.
As you can see, there are a wide range of models you can explore if you want to become an edupreneur. Meeting & learning from other edupreneurs, in peer learning platforms will give you a stronger understanding of how you can create educational institutions that could last for generations!