The estimated global corporate learning market size is around USD 350 billion. That sounds attractive for any consolidation player interested in amplifying its international footprint by combining scale and scope levers. Nevertheless, after decades since its genesis around the 1960s, this market has remained significantly fragmented worldwide. Some major players - Google and LinkedIn included - have failed to build dominant competitive positions.
Roughly anyone with a laptop and a deck of slides can become a contestant anytime. As content gets extremely dispersed and atomized, and tech tools have been transformed into basic utilities, brave entrepreneurs face promising positive odds in managing small niche companies. Globally, an estimated 80% of corporate learning vendors are below USD 2 1/2 million in annual revenue.
That phenomenon can be seen both in the premium and low segments. In other words, niche premium players can leverage their unique, specialized expertise in high-margin offerings to sophisticated clients. And low-end providers can always be considered convenient partners for low-budget simpler on-off endeavors. From an entrepreneurial perspective, consolidation might be unnecessary if someone wants a wonderful lifestyle corporate archetype.
That’s important to highlight that some demand-supply effects are also responsible for market fragmentation. Buyers often prefer to hire small niche vendors committed to full customization for their on-off initiatives. Sometimes local/regional operations prefer to partner with local/regional players instead of national/global suppliers. Buyers are not always fully equipped to optimize their pool of partners, struggling with information asymmetries and compliance requirements. Finally, many buyers prefer to keep higher bargaining power in price negotiations with new kids on the block.
Small firms can always develop and deliver valuable solutions to clients. That’s easier when offerings mostly rely on content and services instead of platforms. The so-called glass ceiling refrains revenue growth due to the inability to scale people-centered solutions indefinitely. The technological arena is a completely different game setup: small firms will try to invent and sell new tools, always having their exit in perspective.
Big global corporate learning firms are between USD 300 million and USD 1 billion in annual revenue - notably far below the usual size standards for other service and tech industries. Fragmentation forces limit potential growth for consolidation players around the globe. Still, large vendors mostly build their dominant market position based on platforms, considering content and services as useful value-added solutions.
Corporate learning solely refers to b2b educational offerings. And that is different from continuous education courses and platforms, though entrepreneurs, corporate leaders, and professionals can always improve their skills through educational experiences. One vendor might try integrating both, but that doesn’t mean they have similar operational-financial reasoning - considering them as the same stuff is a common mistake.
Even inspiring and impactful corporate learning companies might struggle to create shareholder value for their partners. This short essay addresses key value drivers.
I – Sweet Spot Might Taste Bitter
Again, it is wonderful to play niche business strategies: not so capital-intensive, clear definition of truly core competencies, lower client acquisition cost, higher client lifetime value, lower client churn, no need for financial leverage and higher dividend yield.
Finding a sweet spot is ultimately the beginning of all corporate learning vendors. Farming that spot also requires discipline, talent, and resilience. Moving beyond that initial attractive spot often requires different skills and resources. Thus, sweet spots must be celebrated, developed and protected by all means.
However, diversification is tougher for niche players. Small companies usually serve few clients in selected territories, with few offerings delivered by few consultants. Annual revenues are highly concentrated in some special projects, usually designed as on-off initiatives. Deploying cash into new capital investments and talent acquisition for future growth cycles is challenging. Over the years, sweet might taste bitter, increasing insolvency risks driven by client concentration and insufficient cash flow.
Consistent growth is undoubtedly critical for value creation in perpetuity. Niches are attractive as entrepreneurial starting points but risky as end games. Companies must diversify their top line through different offerings, consultants, currencies and industries.
II – Cash Is (Almost) Everything
Professional service firms usually maximize shareholder value by optimizing P&L and working capital. Balance sheets might be considered in this equation too, but tend to play a secondary role due to lower needs for significant capital deployments.
It is true that capital structure definitely drives value creation by determining the weighted average cost of capital. Nevertheless, since the amount of invested capital is less expressive than annual revenue and recurring EBITDA, P&L and working capital run the show in corporate learning firms.
Cash-burning platforms can also drive enterprise value based on cohort performance and software evolution. Over time, however, some positive free cash flow might be expected. Again, P&L and working capital are pivotal in sustaining the equity story.
III – Network Effects Really Matter
Investors usually increase enterprise value metrics for large companies with promising future perspectives. Size means diversification of clients, products and industries. Perspectives mean that the company can move beyond any existing cash cow.
A diversified client base and a broad portfolio of winning solutions are critical to any successful vendor. Developed distribution channels are another value-creation lever. Small corporate learning companies usually rely on their own founders and senior associates for sales performance. Winner companies develop a powerful network of sales partners and distribution channels to sustain continuous revenue growth.
Once this network of clients and partners is consolidated, positive cash flow will leverage intellectual property investment, human capital development, brand reputation, management controls and client relationships initiatives. It is another league of competition.
IV – Flex And Fluid By Design
Corporate learning firms are essentially knowledge-based companies. Any knowledge endeavor needs to foster innovation anytime, anywhere. That’s paradoxical because these firms also must stabilize operational processes and consolidate methodologies.
For those corporate learning companies focused on content and services, flexibility is the mandatory rule of the game. Corporate clients will never simply pay premium prices for off-the-shelf stuff - that’s a commodity setup for large-scale sales priced in dollar cents. So the quintessential competency would integrate flexibility, consistency and profitability. That is challenging for both face-to-face workshops and self-service digital learning objects. Carefully designed management systems and operational workflows are vital to growing professional service firms.
For other vendors focused on platforms, fluidity should be their ultimate goal. Any advanced platform must be based on flexible architecture and bullet-proof infrastructure, capable of infinite connections through micro applications. Flexibility doesn’t mean a commitment to software customization. It means fluidity for users and self-manageable possibilities for managers. That’s hard to execute!
V – Outside-In, Bottom-Up
The corporate learning market is segmented in different ways: product-service offerings, target client size, industrial specifications, and target audience profile, among others. Essentially corporate learning companies are b2b vendors.
However, an outside-in perspective means that organizations are increasingly influenced by external factors and willing to change internal behaviors, structures and processes. Henceforth, even though set up as b2b2 vendors, corporate learning firms might choose to develop some b2c breath, such as special open-enrollment programs and self-learning digital libraries available on e-commerce and online publications (reports, magazines, blogs). By building a strong market reputation among individual customers, corporate learning vendors might reduce their corporate client acquisition costs.
At the same time, a bottom-up perspective challenges vendors’ usual preference to focus on top management in positioning offerings. Sometimes it is easier to climb from the basis than sliding from the top. Few corporate learning companies develop capabilities and networks required for performance when facing interactions with top management, board of directors and shareholders. It is a highly complex space occupied by a few seasoned consultants. That’s why most vendors should simply focus on middle management, first-line managers and teams, gradually conquering share of wallet as successful projects leverage future larger engagements.
Corporate learning is a farming game with limited opportunities for transaction hunters. Thus, in the long run, high-quality drives market share and share of wallet, optimizing value creation based on contract renewal and cross-sell opportunities.
Education, by all means, is a noble territory. All educators should feel proud of themselves for enhancing human capabilities, self-awareness and positive impact. But that doesn’t necessarily drive outstanding financial performance for learning companies.
Maximizing value-creation in corporate learning companies requires more than passion for educating others. Firms have to unlock value streams and overcome glass ceiling restrictions. And that’s good news for everyone aspiring for better societies.
