Opinion
Byju's startup lesson: Don’t get carried away with winner-takes-all dreams
Summary
- Think and Learn’s insolvency case offers a cautionary tale for tech startups keen on explosive expansion on the back of fabled ‘network effects’—which could prove tantalizing but elusive, as the rise and fall of Byju Raveendran’s edtech unicorn shows.
Edtech major Think and Learn (T&L), which offers online education under the brand Byju’s, is headed for the wringer of bankruptcy now that a case moved by India’s cricket board to recover its dues has been admitted by the National Company Law Tribunal. Under our insolvency code, Byju Raveendran, its prime mover, must make way for a panel of creditors to run the business while its fate is chalked out.
As creditors await whatever money they can retrieve, the rest of us could draw lessons from the fall of an enterprise that once held the promise of taking quality school education global. There’s a slim chance that T&L works out a deal with the cricket board over the ₹158 crore it owes for its team-jersey sponsorship, given that it just struck one with another operational creditor that was suing it.
But no matter what happens next, its story of rapid expansion amid a truly rare global opportunity forms a cautionary case-study for tech startups of the Information Age.
Also read: Mint Explainer: NCLT admits insolvency plea against Byju’s. Here’s what it means
News on Byju’s over the past year or so has mostly been about its grim struggle to keep going, with its finances in a mess, valuation crashing from a peak of $22 billion in 2022 to a tiny fraction of that, creditors baying for their money and investors trying to oust Raveendran in a bid to revive the venture.
However, why was this business was so prized? This must not escape scrutiny. T&L’s early success at signing up students was thanks to its value proposition: It offered a useful way to study. Moreover, talented teachers taking classes over the internet could address a far larger market than any school could, and as digital teaching aids got better, talk arose of a hybrid model of pedagogy.
Once covid forced schools shut, demand for edtech services zoomed, with Byju’s storming a market that looked set for a global boom. Even as it rushed to ride this wave, the investor buzz around its potential went sky-high. As a digital play, its cost of acquiring each new student was negligible.
So, in theory, it could scale up cheaply, limited by little other than how widely it could fan out, even as fixed costs getting spread across a wide base would lend it an edge to keep rivals at bay. Given its head-start, it looked like a likely beneficiary of the winner-takes-all dynamics that mark online platforms for multitudes.
Also read: Byju’s downfall: From being startup star to filing insolvency
It just had to snuggle its brand into the mind-space of as many folks as possible, an exercise it duly invested in. The dynamo of such dominance, though, is often what tech mavens call ‘network effects.’ After a point, the appeal (and value) of a leading network tends to overtake its pace of expansion.
As people join because others are members, such a platform can spiral up quickly (as we saw happen with WhatsApp). Do network effects apply to edtech? Students are subject to peer pressure, no doubt, and Byju’s enrolments made it seem as if similar effects were in play: If their friends joined, they did too.
But then, the limits of this dynamic showed up in anecdotes of an aggressive sales outreach, with several parents put off by the fear-of-missing-out they felt the brand’s approach stoked. Critics spied a risky dash to wrap up an edtech market on the back of a strategy that over-relied on the appeal of its network (and advertising) for expansion.
Today, the edtech wave set off by the pandemic has ebbed and Byju’s frantic scale-up looks distinctly reckless, although it has given investors and startups plenty to think about and learn from. Above all, winner-takes-all dreams mustn’t lose touch with reality.
