Lessons From BYJU’S

From an inspiration on how to scale up, BYJU’S has become an example of what startups ought not to do Dark clouds have circled BYJU’S all through the past two years. The edtech giant, once heralded as a beacon for Indian tech and innovation, has had a monumental slip and cofounder and group CEO Byju Raveendran is facing his biggest test so far. While there is growing pressure on Raveendran to reduce operational involvement as per reports this week, the company is also battling a huge image crisis.

Today, instead of being an example of how to scale up, BYJU’S has become an example of what startups ought not to do. But before we delve into these lessons for startups from the BYJU’S journey, let’s take a few minutes to look at some of the top stories from our newsroom this week: As if months of stories and speculation about dealing with lenders, cash crunch, layoffs, departures of key personnel and other corporate governance lapses were not enough, three separate reports this week have worsened the year for BYJU’S: By themselves, these developments are not significant in nature, but given what has transpired in the months prior, the question is how long Raveendran can withstand pressure. But more importantly, what can startups learn from the edtech giant’s slide? We spoke to industry stakeholders to get an idea of what went wrong and how other startups can avoid these pitfalls.

Here are five things we learnt: There’s a world of difference in scaling up using technology, rather than throwing people at the problem. Tech companies are supposed to have great economies of scale, but BYJU’S banked on tens of thousands of employees to support the scale, which broke this promise. “It also created immense pressure on the sales teams at BYJU’S to keep selling more and more to justify their own costs.

The company should have seen much earlier that this was unsustainable in the long run and looked for a tech-based solution like they did in late 2022,” says one Bengaluru-based fund manager for a US-based firm. The pressure also resulted in accusations of toxic work culture, a badge that BYJU’S has not been able to shake off even now, in its now leaner avatar. Some reports indicate over 10,000 employees have been laid, though the company insists it has only laid off 2,500 employees Another 4,000 are expected to be let go in the next few months.

Of course, BYJU’S is not the only company to lay off employees since last year, and most companies have rationalised hiring since then, so in some ways, this is one harsh lesson that startups have already learnt. Another major problem was BYJU’S failure to integrate the acquired companies Aakash, WhiteHat Jr, Great Learning and others well into the main business. This has created a lopsided reliance on one or two companies such as Great Learning and Aakash and these are pretty much the only lucrative part of BYJU’S for investors.

The reports of the edtech giant putting up Aakash , Great Learning and US-based Epic on sale shows that these acquisitions are merely assets and not an indispensable part of BYJU’S. This also resulted in massive marketing costs for BYJU’S as these individual products had different acquisition channels and strategies. As many have pointed out in the past, a monolithic infrastructure would have enabled a better mix of unit economics and improved economies of scale for BYJU’S.

One can even say that the founders of the acquired companies were not brought into the leadership fold as one might expect after an acquisition. This meant those who were closest to the original business were left without a say. It’s one thing to miss a filings deadline by a few weeks or months, another to be two years behind the ball, as BYJU’S has.

“Look at most big startups today; even those who were always a few months late have pulled up their socks. And many have streamlined their financial reporting to eliminate delays. And now founders cannot stall VCs for MIS numbers either as that is seen as a red flag,” says a Bengaluru-based corporate accounting and audit expert.

In other words, no one wants to be in a position like BYJU’S where even the government has asked for filings and investors have been left in the dark about the financial performance of one of their biggest investments. A fellow Benglaluru-based edtech founder told us investors now tend to paint edtech companies with the same brush as BYJU’S and tend to suspect claims even when there is adequate reporting. Individuals need to plan for a rainy day, companies need to plan for a rainy few years.

In 2021, BYJU’S — like Pharmeasy — made a bold bet at a time when bank lending rates were low (zero interest rate policy or ZIRP) and took a $1. 2 Bn loan. Most of this money went to acquire Aakash for nearly $1 Bn.

But as we said above, the acquisition has not exactly been a success. Like BYJU’S, Aakash has also not filed its FY22 and FY23 numbers, so we don’t know its financial state for certain. Plans to raise funds by selling stake in Aakash have also hit a wall due to this gap.

But what we do know is that the debt has become a burden on BYJU’S. It has resulted in a long-drawn battle with lenders in the US and plenty of allegations of impropriety, leading to more pressure on Raveendran. The uncertainty around the closing terms of the deal have left Aakash’s original promoters with several doubts about the Raveendran’s leadership capabilities.

There was even speculation that Aakash Chaudhry would return to his role as CEO of Aakash, and wrest control of the company. In other words, BYJU’S best bet to get out of the capital crunch has also lost faith in the company. “Whenever you spread yourself too thin with many verticals, you defocus on your core and that’s exactly what BYJU’S did in 2020 and 2021,” said the edtech founder quoted above.

When there was a new trend or theme in edtech, BYJU’S went out and acquired someone that fit the bill. The core platform of BYJU’S stagnated and barely saw any innovation as a result. BYJU’S had a first-mover advantage in online learning in many ways, but this lead was squandered as the company went chasing the shiny new thing, repeatedly.

As it became clear that online coding was picking up, it acquired WhiteHat Jr, even though the platform which was said to have rather basic features might not have justified the $300 Mn price tag. Similarly, when offline coaching was bouncing back in 2021 or when higher education was gaining traction, it acquired Aakash and Great Learning. Instead of building slowly and with the right principles, BYJU’S went in with wads of cash and no real plan.

Truly, the lack of vision has been a major problem for BYJU’S and this question also needs to be posed to investors in the company. “Raveendran was the brand that pulled in people in the early days, but who was thinking about the long-term? Shouldn’t investors have asked for a plan beyond acquiring XYZ company?” added the fund manager quoted earlier Is it too late for BYJU’S to answer these questions? Perhaps the new India CEO Arjun Mohan can change things. But BYJU’S missteps are unlikely to be forgotten soon.

Indeed, they can be a guiding light for thousands of other startups looking to scale up. As 2023 draws to a close, it’s time to reminisce about everything that shaped this year for the Indian tech & startup ecosystem— from the key deals to breakthroughs from trends to controversies galore and more. As every year, Inc42 is back with the 10th edition of its annual review series — 2023 In Review! Bookmark this page to see what we have in store ! That’s all for this week folks.

We’ll be back next week with another roundup as we close the curtains on 2023. Don’t forget to stay tuned to our social media channels during this time of the year. Join Inc42 on Instagram , X/Twitter and LinkedIn for the latest news as it happens.

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