How PhysicsWallah solved the profitability equation

I continue to point out more astounding facts. What makes Pandey’s story as an entrepreneur incredible is when you contrast his report card with the big boys of the edtech world who had a massive headstart in terms of funding, and valuation. Byju’s for instance, is struggling to hold on to its peak valuation of $22 billion. It has had a series of mark downs over the last 12 months (investor Prosus slashed it to $5.1 billion in June this year), posted a gigantic loss of Rs4,564 crore against a revenue of Rs2,280 crore in FY21 (it’s yet to file FY22 and FY23 numbers), and has laid off around 5,000 employees, according to Entrackr, and has reportedly raised $5.78 billion in funding so far.

Also read: Work, Force, Energy & PhysicsWallah: Meet 'Robinhood' Pandey, and his freshly minted edtech unicorn

Another Peak XV-backed biggie, Unacademy, posted an operating revenue of Rs719 crore and a loss of Rs2,848 crore in FY22, and has fired around 2,000 staff members, according to Entrackr. Third in the list is edtech unicorn Vedantu, which had an operating revenue of Rs169 crore and a loss of Rs696 crore in FY22.

PhysicsWallah, in contrast, has raised $100 million, and has had zero layoffs. “I don’t believe in comparisons,” says Pandey. But are comparisons not the norm in the business of coaching and education? And if PhysicsWallah happens to be the only profitable edtech unicorn in India, is it not expected that its report card will be compared with its peers? “Is the edtech world collapsing,” I ask Pandey. “A battery of edtech startups have shuttered over the last 18 months," With rivals either losing potency or dying, it must be good news for PhysicsWallah, right?

 Pandey has a different take. “Dying of competition is bad friction,” he underlines. “What makes Alice in Wonderland a terrific read?” he asks. Apart from an interesting plot, strong characters and a gripping narrative, the fictional novel had one more powerful element: Formidable challenges.  “There is no hero without a villain,” he says, adding that he is praying for all edtech competitors to survive and grow. If there is only one big player in PhysicsWallah, he reckons, then it would spell trouble for ecosystem, students and PhysicsWallah itself. “Competition is good. It keeps us agile, it helps us grow,” he adds.

Interestingly, it was inertia that played a big role in the early success of PhysicsWallah. “My ignorance was my inertia,” says Pandey, explaining his point. The founder had a rough upbringing, which was devoid of privilege, entitlement, and comfort. “My family always struggled for money,” he says. Though the journey was arduous, it inculcated one of the biggest traits that most edtech startup founders in India seem to have ignored: Value of money. “Every penny was like a dollar,” he says. “For us, oxygen was saving money,” he adds. For somebody who has worked hard to earn money, the burning of cash is an alien and obnoxious term, the entrepreneur says.

But is it not true that burning cash helps in scaling? That’s how most loaded edtech players bought scale and valuation. Pandey is mum for a few seconds. “I was not aware of such things. It was my inertia,” he smiles.

Inertia also helped him in another way. At a time when his rivals were cracking the expansion, valuation and funding code, Pandey was trying to figure out how and what students want to learn. “I was always talking to them, replying to their messages in live online classes, and factoring in their feedback,” he says. It wasn’t an easy task. Sometimes, the students roasted him. Take, for instance, when Pandey decided to start running advertisements on his YouTube channels. 

“They didn’t like it,” he recalls. “Aacha, ab tum aisey paisey kamaogey (Okay, so this is how you will make money now),” commented one of the furious students who disliked the commercial break. “Ads hatao, padhaney pe focus karo (remove ads, focus on teaching),” came another nasty dig. Pandey pleaded helplessness. “I don’t charge a penny from you,” he reasoned. “How can I continue if I don’t earn.” Gradually, students realised the merit, and PhysicsWallah continued to grow.

Till 2020, the year when PhysicsWallah rolled out its paid app and started monetising, a frugal lifestyle came handy. Advertisement money from YouTube channels started pouring slowly and steadily after a few months in 2016. For the teacher, who had built a kitty of around Rs10 lakh from his years of teaching at coaching centres in Prayagraj, Uttar Pradesh, getting Rs8,000 per month as ad money was not a bad beginning. After a year, the amount jumped to Rs14,000. Then came the hockey-stick growth. “It became Rs 40,000 per month, and then after a few months it was Rs2 lakh,” says Pandey, who was profitably running a well-oiled YouTube teaching machinery and amassed a massive following among students. Money, though, didn’t change his aspirations or lifestyle. His family in Prayagraj moved from a rented accommodation of Rs3,000 to Rs7,000, and the teacher bought a bunch of products that he deemed would upgrade his life: An inverter, fridge and washing machine.

Fast forward to July 2023. In terms of lifestyle, nothing has changed. Though his headquarters operates out of three expansive floors, the office is devoid of fancy interiors, swanky furniture and an extravagant feel. One can only spot a few posters plastered on the plain walls reading ‘Never have a plan B,’ ‘Fail fast and try again,’ and ‘turant se pehle (immediately before).’

Inside his small cabin that has photo frames of Bhagat Singh, BR Ambedkar and Rani Lakshmibai, Pandey starts talking about velocity and momentum especially over the last calendar year.  The founder decodes two of his audacious gambits. First is the offline expansion in the form of Vidyapeeth. The first coaching centre was opened at Kota, Rajasthan, in June 2022. Over the next twelve months, the juggernaut rolled at a frenzied pace: 67 centres across 38 cities. The pace has matched the speed at which students have enrolled and gone back to the offline world of coaching. In academic year 22-23 (March 2022-Feb 2023), 65,600 students enrolled in Vidyapeeth. In just little over a year, revenue from offline coaching stood at Rs300 crore. (See box)

“We want to take Vidyapeeth to tier III, IV and beyond,” says  Prateek Maheshwari, co-founder of PhysicsWallah, who complements Pandey by taking care of the operational part of the business. “We are on track to close FY24 at a revenue of Rs2,500 crore,” he says. The rate of growth, he adds, is likely to be over three times of what it was in FY23. “We will have an initial public offering (IPO) on our minds,” he says, explaining that as the company grows at a faster clip over the next few years, tapping into the public market would be yet another milestone. 

But Pandey is not banking only on Vidyapeeth and online teaching as revenue engines. Inorganic growth through acquisitions is also crucial. Over the last 15 months, PhysicsWallah has acquired and bought stakes in nine education players. All are profitable, have a diverse geographical reach and appeal, and are designed to fuel Pandey’s ambitions of building a massive edtech empire pan-India.

Take, for instance, Kerala-based edtech firm Xylem Learning in which PhysicsWallah bought a 50 percent stake in June this year.  “We will also invest Rs500 crore over three years to scale Xylem's business in south India,” says Pandey. Xylem has over 3 million students via 30 YouTube channels, there are over one lakh paid students in online courses, offers coaching for entrance exams such as Joint Entrance Examination (JEE) and the National Eligibility cum Entrance Test (NEET) in a hybrid model, and recently forayed into commerce and Kerala PSC test prep.

Then there is Jaipur-based FreeCo, which was bought to beef up content building, doubt resolution, counselling and mentorship capabilities of PhysicsWallah. While Delhi-headquartered OnlyIAS gives the edtech unicorn an opportunity to make an entry into UPSC test segment, two-decade-old Bothra Classes in Ahmedabad gives PhysicsWallah an opportunity to spread its wings in Western India.

Investors are elated to have an edtech outlier in their portfolio. “The journey of PhysicsWallah (PW) has been nothing short of extraordinary,” says Deborah Quazzo, managing partner at GSV Ventures. “Notably, PW boasts the highest growth rate among all VC-backed edtech unicorns and soonicorns,” she says, adding that the edtech startup has experienced a four-fold growth since securing external capital just shy of a year ago.

Quazzo says that the secret sauce lies in close to zero CAC (customer acquisition cost). “It is the key to a non-bleeding education business.” The startup, she explains, extends far beyond JEE/NEET, and encompasses over 19 examination categories. “This expansive reach allows millions of students to access affordable, high-quality, tech-enabled education,” she adds.

Also read: Decoding ConveGenius's 'common sense' edtech playbook

Quazzo goes on to explain the aggressive offline strategy. The philosophy behind expansion, according to her, was driven by the substantial increase in students flocking to Kota for JEE/NEET preparations as well as spike in the number of students who were already enrolled in other courses and were using PW as a supplementary resource. Recognising the rising demand, PW made a strategic move to be closer to the students and solve pain points they faced at traditional centres with its tech-first approach.

Its offline centres are now home to more than 1.3 lakh students preparing for JEE/NEET exams. The company, she maintains, plans to enrol about 1.75 lakh students in its offline courses. “This would be a testament to the company's clever decision-making and understanding of offline market dynamics,” Quazzo adds.

Industry analysts and edtech funders, however, sound a word of caution. “PW is on the same blunder trajectory that Byju’s was a few years back,” reckons one of the VCs which has backed Byju’s and has investments in a bunch of other edtech players. PW, he points out requesting not to disclose his name, is only looking at one side of the coin, and that’s why aggressively expanding and entering into as many spaces as possible. From flirting with K12 to school programmes to UPSC and entering into over dozen new segments, the edtech giant wants to be something for everybody. “There is definitely an opportunity, but it also comes with a heavy price,” he says. The reality of PW not having loads of venture capital means that all expansions and acquisitions have to be funded by the company.

The second big challenge will come in the form of integrating acquired companies. “Cultural integration is one of the top reasons why most of the buyouts don’t work out,” says another edtech venture capitalist. “It’s easy to buy but hard to maintain,” he says. “Every brand stands for something,” he says, explaining that IIT stands for engineering, and IIM stands for MBA. When the core of the brand happens to be engineering and medical test prep, like in the case of PW, would it be easy for students to accept that the edtech startup would be equally effective in other verticals. “There will always be an overhang,” he says.

Pandey, though, continues to back his audacious bets. At times, he underlines, there would be excessive friction resulting in heat. Take, for instance, the public drama which unfolded in March this year. A bunch of teachers resigned, formed a separate YouTube channel and company, and ranted their angsts against PhysicsWallah. The incident went viral. Pandey terms the incident as an aberration. “It’s (news going viral) is the flip side of being an insanely loved brand on the social media,” he says, adding that the students are hooked to the brand not for theatrics or discounts, but for the quality of education.

On the quality front, Pandey talks about his innovative experiment. Domino’s not only tracks quality and speed of pizza delivery, but also is focused on NPS (net promoter score). In the online and offline classes, the founder has inserted a QR code, which students can use to rate the teachers. As expected, there was friction.

Many protested and termed the experiment demeaning, and there were many who underlined that teachers can’t be treated like Uber drivers. Pandey stayed adamant. “What’s wrong in being an Uber driver,” he asked. “They are doing a job, and their self-respect is intact,” he tried to explain to the ones opposing the idea. The protest petered out in a few weeks. Students, underlines Pandey, have a right to be satisfied and taught by the best teachers. Teachers, he maintains, too have a moral obligation to give their best. “It’s (teaching) an immensely satisfying and rewarding profession,” he says.

Indeed, it is. But then why is no edtech player making money? Pandey, though, prefers to tell us how he has been posting profit. “Has Newton’s laws of motion changed over the decades,” he asks. If not, Pandey continues, then why should the definition of business change.  “A business has to make money. If not immediately, then after a while,” he says.