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Jan 13

EdNet’s International Face Time: ePals’ Miles Gilburne on China and Beyond, Part II

International Face Time: ePals’ Miles Gilburne on China and Beyond, Part II

Nelson B. Heller, President, HellerResults — Friday, January 13, 2012

Globalization

In day-to-day business, focused mainly on domestic sales, we tend not to notice the tectonic shifts in the education market taking place globally. I mentioned in my “Catbird” presentation at last September’s EdNET Conference, there’s now at least one education firm in China with a market valuation of over $4 billion and one in India easily over $1 billion. While their ripples have barely reached the U.S. market they, and other fast-growing firms around the world, tell us that education is increasingly a global business. In this article, the second in a seriesbased on conversations with Miles Gilburne, CEO of ePals, Gilburne shares further insights into doing business internationally. Read whyGilburne asserts that for a firm like ePals, whose products live in the cloud and relate to communication and collaboration skills, the Internet is making international sales critical to its future. Then check out his strategic and tactical insights to see how well they fit your own firm.

Tips on Doing Business in a Market Like China

Let’s look under the hood of ePals ’ new initiative in ChinaePals China will provide a PreK-12 cloud for the growing Chinese market in homes and schools. A big driver is the demand for English language learning. While competitors are focused largely on basic grammar and writing skills, ePals plans to build on some of its early work with partners such as Cengage Learning to discriminate their offering by having more of an authentic language-speaking and practical use instructional focus, wrapping online social learning around real cross-cultural learning projects supported by more traditional language learning materials. Native language students will be paired with non-native language students in another country to teach each other through these projects. This is somewhat analogous to the wayLiveMocha, a popular adult language learning service, pairs learners in different countries. Gilburne told me, “LiveMocha is a great concept, but I see serious limitations in its pedagogical impact and it can sometimes resemble a ‘dating service.’ It isn’t structured or managed in the way collaborative learning should be to make it most effective as a language learning resource. Students need a more structured curriculum on top of the collaboration platform.”

ePals China will use a “News Desk” format to motivate student communication as they trade messages about current events, such as the Japanese tsunami and the “Arab Spring” uprisings in the Middle East. An early target will be the Pre-K ESL home market, due to Chinese cultural priorities on education and English language skills, driven in part by China’s one-child policy. It will also target schools where the adoption process in Chinese education is more top-down than in the U.S.Gilburne sees an awakening appetite for learning communities in Chinese schools.

Moving curricular content internationally can be a major issue for publishers, particularly for disciplines other than science or math. It’s far less relevant for ePals, Gilburne told me. “Type of content matters for all media trying to cross international borders. Think about movies—not every movie made in the U.S. will be okay in any given foreign market.” In terms of cultural mobility, he added, “Education is a business that can be both more and less complicated than other types of media.” For example, he said, “At ePals we deliver our K-12 products through the cloud. The advantages are substantial compared to delivering physical products—no packaging, inventory, or shipping concerns. But regulatory issues often constrain what can be owned and the data that can be stored by foreign firms.” Local privacy issues, however, important in every country, are less of concern for ePals, he said, “Since our platform is specifically built to protect student data and provide role-based access so we can easily accommodate any country’s needs in terms of who can talk to whom for what purposes.” But in China, a non-Chinese firm would be an unlikely choice to host an education cloud. As a practical matter, doing business there in the education space requires a domestic partner with at least 51% ownership of the venture. Teaming up without a majority stake obviously puts an exceptionally high premium on finding the right partner.

Gilburne ’s maxim for finding a prospective partner is “find the entrepreneurs first, the companies second. Experienced entrepreneurial management talent is key.” In the U.S. it’s much easier than in other countries to find young management talent able to bring small businesses to scale, “That’s why for China we picked Dr. Jiren Liu,Chairman of Kaleido, and his organization. Dr. Liu has built China’s largest public IT company, as well as three private universities there, which are churning out lots of students and using project-based learning. He’s also building design schools. His experience as an entrepreneur who has successfully turned vision into realty was critical for spawning our Memo of Understanding (MOU) with Kaleido and will no doubt prove of immense value in realizing our goals in the Chinese market.”

Along the same lines, Gilburne added, “We’ve just announced ePals Europe as a wholly-owned subsidiary of ePals U.S., with Dr. Thomas Middelhof, former CEO of Bertelsmann, as CEO.” He’ll join ePals’ board of directors along with other heavy-hitter media executives.Bertelsmann was a key partner of AOL Europe. Among his responsibilities, Middelhof will hire the ePals Europe management team; which will, in turn, set up the native language version of its Global Community in countries throughout Europe and work on deploying its cloud-based collaboration platform adopted by European schools.

Considering how education and politics intertwine, Gilburne also wants a partner that can navigate the political waters of the country. “We want to aggregate international demand globally. Proper attention to education policy and formal adoption at the school level provides added insurance—even though for web-based offerings like ours, viral growth can operate outside of the regulatory environment—governments can later impose regulation, especially in sensitive areas, such as the use of technology in the classroom.

In any new country, Gilburne begins his search for partners by scanning for prospects among telecom firms, traditional media and educational publishing companies, and system integrators. “My goal is to be able to build a scalable organization with high-impact personnel.”

Being Multi-National

Gilburne has very definite ideas about operating multi-nationally. “You’ve got to set ‘rules of the road’ like franchisers do. Does ePals work the same in every country? Multi-national sponsors and products that have to fit everywhere make things complicated. Build globally specialized organizations as opposed to replicating the same model in every country. Think about what resources will be shared and what you locate where. For example, we’ll be creating soon something like ‘ePals Studio’ to produce great collaborative content and provide assessment tools. In a multi-national organization, I’ve lots of choices about where to find creative and engineering talent to generate content that will be available in countries around the world. It’s like a more traditional manufacturing company asking where you locate your factories, what has to be in Germany, in the U.S., and so on.” Gilburne says it’s essential to have a strong in-house staff with past international venture experience. “I did all the AOL international ventures,” he said, “and David Meredith who heads ePals’ international team has done business around the world. Ted Brodheim, our new CIO, who was CIO for the NYC school system, came to that job from international banking.”

Financing presents its own issues. “Do you want local capital for each country, which means giving up a great deal of control at the local level, or do you get it centrally but face higher fund-raising hurdles at home? These same issues confronted previous multi-national industries but are now present in digital age format. For international markets, money tends to come from strategic partners more than financial firms.”

Scaling and Replicating in International Markets

I asked Gilburne if in some countries it’s easier to raise money than in the U.S., as sometimes seems to happen in India and China. “It’s never easy to raise money,” he said, “you always need a very good product, plan, and team. There’re some interesting dynamics in international markets. Investors do like foreign opportunities with a U.S. track record, skilled team, and model that are a foreign version of the business. But it gets harder every day. More entrepreneurs around the world, once they see the model, are doing local versions without the participation of the originating U.S. firm. At ePals our barriers to competition are the mother ship’s assets—the global user community and our sophisticated policy-control platform. You don’t have to succeed at the same level in every country. But multi-cultural exchange and global English language learning are big motivators around the world.”

Gilburne advises connecting with U.S. government resources like USAID and the State Department for help in scoping out markets and partners. When I asked him about international trade shows, he responded that it’s always useful to walk floors to see competitive offerings, though not so critical for ePals because of its unique offerings. He uses international shows to recruit executives for his business and to “kiss frogs.”

Gilburne expects the majority of ePals’ revenue in five years will be from international business and wouldn’t be surprised if it’s as much as 90%. He envisions ePals’ LearningSpace as a delivery platform and marketplace for others’ software and services. Global, national, and local communities built on it will be ideal for testing new products with lots of students. What’s more, he feels it’ll be easier to get platform adoption at scale outside the U.S., because education is more centralized and ministries of education want role-based policy management. “That makes us a great fit for countries like China and in the Middle East and North African (MENA) region,” he said. After China and Europe, ePals will roll out its platform in Brazil and India. “The international market is just now coming around to this kind of learning. It’s like the force of gravity. You know where it’s going though it won’t be easy getting there. I want to play a part and want ePals to play a part too. Someone will succeed even if we don’t.”

“How hard it is to scale depends on the business,” said Gilburne. “With curricular products it’s harder than with a communications platform like ours. For ePals, international expansion is critical; for others, it isn’t important.” Of 20 firms in his portfolio, some two or three are right for international as an integral part of their early strategies, as opposed to waiting on international as an expansion strategy after first establishing its business in the U.S. “It depends a lot on the executive team in the U.S. firm too,” he added. They have to be willing and skilled enough to be intimately involved with their international partners. For ePals right now, that means a lot of time for our executives in China and Europe, and it’s essential that I bond personally with my counterparts in our international partners. You’ve to “kiss a lot of frogs to find a great partner,” and once you find a prince in key markets, you need to keep talking to them about the value case and continually modify your model as you learn what works best in different cultures. You continually reassess what parts of the value chain your partners can help with and backfill if necessary with resources and expertise from the mother ship. No partner will bring all you need, but a good partner will bring at least some essential capabilities for their local markets. Sometimes in an unusual case you can just start and grow slowly, feeling your way, without partners. And often I find I can get valuable input from investment bankers working the markets we’re exploring. Even with the best insight, you have to be prepared to spend real time, money, and energy on an international initiative. Just travel costs to China, for example, for me and three or four of my people are seriously high. It’s different for us smaller entrepreneurial firms than for the GEs, and not many are banking on getting 90% of their revenue from international in five years as we are. Our commitment includes a full-time president for our international operations, David Meredith, who has considerable experience in this.

For markets and partners that pass all the filters, the first acid test of a good partnership is the ability to jointly create the business plan and a pro forma P&L that works for you and your partners. That process will not only drive customization of business models and strategies to fit different market realities, but it will also force the parties to confront and plan for difficult issues likely to spring up during the early stages of rollout. For example, highlighting different ongoing cash needs based on different levels of success in the market will mean focusing on who has to contribute more cash to the company down the road, if necessary. And a jointly developed plan will also make it more likely that both sides will be able to agree on the job description for the CEO of the venture.

Conclusion

When I asked Gilburne for a brief summary of why U.S. education firms need to be more aware of international developments, he said, “Education is increasingly a global market, and companies focused on education should focus on international markets earlier in their life cycles than companies in many other industries. For a U.S. company such as ePals that’s building a global learning community, going international isn’t just good business, it’s a way to enrich its products in the U.S. Learning about other cultures by working collaboratively with students from around the world is after all as important for students in New York, Chicago, and Los Angeles as it’s for students in Beijing, Berlin, and Egypt.”

You’ll be reading more in this column about what’s happening internationally over the coming months. I’ve been at BETT in London this week, probably the world’s largest educational technology conference, talking with education entrepreneurs, and international growth has been a hot topic. More on this in future columns.

For those of you who want a deeper dive than these columns offer, save the date of June 3, 2012, for the new international business forum , preceding the AEP/AAP Content in Context Conference in Washington, D.C., which I’ll be chairing. A knowledgeable advisory board and I are already engaged in planning it, so let us know what you’d like to see in the way of programming, speakers, and networking. I’m happy to hear from you at nelson@hellerresults.com.