Byju’s, once the pride of the Indian ed-tech industry, is now struggling to stay afloat. The company, which was once loved by all, is now facing heavy criticism. How did this downfall happen? Was it sudden? What lessons can we learn from this collapse?
Byju Raveendran’s journey from a small-town teacher to the founder of one of the world’s largest ed-tech platforms is a tale of passion, innovation, dedication, mistakes, and failures. This is the story of Byju’s, where heavy marketing, accounting practices, sales methodology, fast-paced acquisitions, and a term loan created massive challenges for the company.
The Beginnings
Byju, from Azhikode, a coastal village in Kerala, India, pursued a degree in Mechanical Engineering. His exceptional problem-solving skills became evident when he helped friends prepare for the CAT (Common Admission Test) for the Indian Institutes of Management (IIM).
The Turning Point
In 2006, Byju cleared the CAT with a perfect score. Instead of pursuing a management career, he chose to share his knowledge. Armed with a whiteboard and a marker, Byju started conducting free workshops for CAT aspirants in different cities, earning a reputation as a brilliant and unconventional teacher.
Tech-Driven Teaching
Byju’s unique teaching style, combining simplicity with deep insights, attracted many students. Recognizing the potential to reach a broader audience, he turned to technology. In 2011, BYJU’S — The Learning App was born. It aimed to make learning personalized, engaging, and accessible to students across the country.
Innovation in Learning
BYJU’S disrupted traditional education by incorporating interactive videos, animations, and adaptive learning techniques into its curriculum. The app personalized lessons based on individual learning styles, making education enjoyable and effective.
Scaling Heights
As the platform gained popularity, Byju’s vision expanded globally. Partnerships with schools, extensive marketing campaigns, and strategic acquisitions fueled BYJU’S rapid growth. The app’s success attracted significant investments, making it one of the most valuable ed-tech startups globally.
In 2016, the company claimed its app was downloaded over 5.5 million times in one year, with 250,000 paid annual subscribers. By 2019, their user base had exploded. By 2021, hundreds of millions of students were using their resources. Major celebrities endorsed them, and they became the epitome of the booming Indian ed-tech industry.
As per the last audit, their revenue stood at ₹3,569 crores in 2022. This revenue came from three sources: sales of tablets and SD cards, sales of reference books, and tuition and service fees. During this time, BYJU’s valuation skyrocketed to $2 billion, hitting $22 billion in October 2022. India’s most valued startup at $22 billion, the golden boy of the Unicorn Club, CEO Byju Raveendran, said, “BYJU’S is now at that sweet spot of its growth story where the unit economics and the economies of scale both are in its favor.”
Downfall
While they were earning thousands of crores in revenue, their losses also shot up from ₹49 crores in 2016 to ₹249 crores in 2020, and then skyrocketed 18 times to ₹4,588 crores in 2021, as per the most recent filings. During this time, their valuation dropped from $22 billion in 2022 to below $3 billion today.
Reasons
So, how did this company incur such heavy losses, and how did its valuation drop from $22 billion to $3 billion?
1. Marketing Budget:
Their advertising and promotional expenses were their single largest cost in FY21. Business promotion expenses alone accounted for 32% of their total expenses. From title sponsorships in IPL to the FIFA World Cup, from bringing Shahrukh Khan as its brand ambassador to even getting Lionel Messi, they spent more on advertising than on employees and operations. In 2021, they spent ₹2,509 crores on marketing while their revenue was ₹2,483 crores. This revenue-to-marketing expense ratio was risky and led to a financial catastrophe.
2. Sales Methodology:
BYJU’s faced a loss of reputation and trust due to their sales tactics. Some parents accused BYJU’s marketing personnel of instilling fear about their children’s future in this highly competitive world. These tactics eroded trust and created a negative perception of the company.
According to Frontline (The Hindu) news agency, sales associates were under immense pressure to make weekly sales targets. As a result, they made misleading statements to parents and frightened them into believing that their children would fail if they didn’t purchase a BYJU’s course.
There are many incidents where sales person can be seen threatening parents over purchase.
Many people with low incomes ended up taking loans to buy these expensive courses. BYJU’s lending partnerships, which used a First Loss and Deposit Guarantee strategy, made it easier for low-income people to get loans. This led to more sales but also created trust issues and financial strain for customers.
3. Accounting Practices:
The CEO, Byju Raveendran, is blamed for mismanaging the firm’s growth. The once high-flying startup failed to file its financial accounts on time. Investors accused BYJU’s of hiding half a billion dollars. The company faced mass layoffs, mounting losses, valuation cuts, and several other issues, including allegations of foreign exchange violations.
4. Acquisitions:
During the COVID lockdown, while many students left the course and went back to offline classes, BYJU’s revenue declined by 38% from 2020 to 2021 in India.
Despite this, BYJU went on a shopping spree, acquiring companies like WhiteHat Jr. and Akash. These acquisitions increased expenses and brought more losses.
5. Term Loan B:
In 2021, BYJU raised $1.2 billion of Term Loan B. The loan required small installments followed by a large bullet payment at the end, increasing the risk for the lender. Stringent terms and conditions were applied.
Due to the Russia-Ukraine war, interest rates in Western countries skyrocketed, increasing the installment amounts for companies that borrowed during low-interest times. This brought BYJU’s back to the negotiating table. Recently, BYJU’s said that its Term Loan B would be repaid by March next year, but the outcome remains uncertain.
On top of these challenges, their auditor delay and the resignation of three board members, sponsorship issues with BCCI, and accusations of foreign exchange violations have further complicated their situation.
Lessons from Setbacks
- Marketing: While it may drive revenue growth, if not managed properly, it can lead to heavy losses. A company should be mindful on marketing spends.
- Focus on Value: Great businesses focus on uncompromised value and impact while scaling. Value is permanent while valuation without value is temporary.
- Ethical Standards: Upholding ethical standards is non-negotiable for sustainable success.
- Regulatory Complexities: Understanding and navigating regulatory complexities is crucial for long-term stability. A startup should never try to oversmart authorities.
- Building Trust: Building and maintaining trust with investors, customers, and employees is pivotal for long-term credibility.
Warren Buffett once said, “It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you will do things differently.” In the case of BYJU’s, its practices have led to trust issues with its investors and customers.
The story of BYJU’s serves as a powerful reminder of the importance of ethical business practices, maintaining trust, and managing growth responsibly. Now, it remains to be seen how BYJU’s will navigate these challenges and reclaim its position as a market leader in India.
