Literally investing in education

Taking a page out of the entrepreneur’s handbook to save higher education 

Higher education is broken

In addition to the problems with the K-12 education in the US, its abysmal world ranking and the dire consequential impact on the future of our country, our higher education models are similarly struggling.
 
One of the largest problems with higher education is that prospective students don’t understand the expected benefit of the various types of available degrees, can’t properly assess value and end up overpaying for degrees or otherwise make misinformed decisions about which field to study.
 
With this fundamental problem, our current higher ed models leave much to be desired. Not surprisingly, for profit institutions tend to take advantage of the vulnerable students and traditional institutions tend to disregard the problem entirely. Because profiteering is more sinister than negligence, for-profits get a lot of flack but both models are causing significant damage to the lives of students and the economy as a whole. 

A closer look at why this is happening

The silver lining for for-profits is that their shortcomings are a natural part of free markets. In new industries, it’s not uncommon for capitalism to favor businesses over consumers. Over time, as consumers become more informed, the poor-performing and/or pernicious institutions get weeded out, leaving surviving companies to duke it out over shrinking profit margins (a.k.a., more innovation comes at lower costs). Unfortunately it can take decades for an industry to mature to this level.
 
In the case of traditional higher education, solving the situation is much more complicated and, in my opinion, much more difficult. Its problems stem from a distorted market caused by government subsidies and monopoly-esque behavior:

  • State government subsidies support an environment in which schools compete with each other based on the perception of the “highest quality” education, a.k.a., “most expensive” education. In other words, it becomes an arms race instead of allowing schools to differentiate in a free market fashion. Costs rise unnaturally making degrees elitist and overvalued.
  • Research grants from the federal government also play a role in deforming the focus of traditional higher education. During the WW2 era, the federal government began taunting universities with very large research grants which fundamentally diverted the focus of universities away from mainstream education.
  • Finally, in order to compete in this market (i.e., qualify for subsidies), new universities must play by the traditional model’s rules (accrediting agencies, external rankings, etc.) or not play at all. It’s a sort of deranged barrier to entry…which perpetuates monopoly-like behavior in which fewer goods are produced (market driven degrees) at greater prices.

After many decades of this dynamic, it’s no wonder that “there are … disturbing signs that many students who do earn degrees have not actually mastered the reading, writing, and thinking skills we expect of college graduates. Over the past decade, literacy among college graduates has actually declined”, according to the Spellings commission. 

A crazy idea

Have you heard of Ycombinator? They are an organization with an interesting take on seed funding that focuses mostly on web startups. Traditionally, the scope of seed funds is limited to a simple exchange of cash for equity. Ycombinator (“YC”) takes it a step further by infusing elements of classic higher education into its investment offering.

  • Instead of classrooms and libraries, YC provides tech startup office space / atmosphere.
  • Instead of professors, YC provides mentors (already succesful tech entrepreneurs).
  • Instead of career services departments, YC offers connections (partners, investors and press contacts).
  • Instead of a degree, YC offers the notoriety that comes from having been through its program.
  • Since YC accepts participants in groups, it even has “graduating classes” from each 3 month long program.

YC has become so successful that thousands of applications are submitted for 60 available spots (although this number is growing). Even more indicative of their success is that their current holdings are valued at over $140M after having invested approximately $6.5M.
 
All things considered, YC could be viewed as an extremely profitable higher education institution. Where traditional universities utilize a vendor/client model (i.e., a student pays a university for their product—often taking out a loan to do so), YC utilizes an investor/entrepreneur model (where both parties are on the same side of the table).
 
Could this model be broadly applied to traditional higher education?

Let’s look at an example

Assume that the annual tuition for a university is $5K and that there are 20,000 students enrolled at any given time. This yields an annual revenue of $100M. Compare that to a university with the same number of students that uses a more YC-like revenue model where instead of tuition, students agree to remit 5% of their income (which is on the low end of the typical percentage of income that should be set aside to pay off student debt) for the first 10 years immediately following graduation to the university (the average amount of time that it takes students to pay off their debt).
 
If alumni make an average of $70K / year over that period of time, annual revenue would be $175M*. Maybe this particular structure is too steep of a deal or maybe the alumni earning assumptions are off, but there is bound to be a sweet spot where the school makes more money and the deal is still more palatable to potential students because of the lack of risk (in fact, the university would still be making money if the average income was just over $40K / year or if the revenue share percentage were 2.6% instead of 5%).

Consider the benefits

Think about what happens when you’re very survival as a university is dependant on the financial success of your students. The pressure to innovate would be unprecedented.
 
Model changes
Would we see a shift of professor incentives from tenure to something more like becoming a partner at a law firm? What about an increase in student propensity assessment to see where students are likely to have the most potential?  New and personalized learning models? Rapid infusion of technology into the classroom?
 
Long term commitment 
Sustained and fruitful alumni employment would be top priority for schools for years after graduation. Career services departments would exponentially increase in size and efficacy and would be constantly pushing graduates to be the best they can possibly be long after graduation. Maybe schools would act more like top tier recruiting firms: negotiate salaries, maintain employer connections, etc.
 
Feedback from employers 
Think of the massive effort that would be undertaken to find out what skills employers are really looking for. The shifting of resources, adjusting of curricula and introduction of new degrees would occur quickly and frequently to the highest areas of demand.
 
Self-perpetuated accountability 
All of the flawed regulations and minimum requirements, the slow bureaucracy and the evasiveness of those who are the object of the regulations would be unnecessary because the interests of the student and the school are perfectly aligned. Schools would be incentivized to implement extensive business data tracking and analysis to know how to improve. The side effect of this is that, finally, prospective students will have the data necessary to make the best choices.
 
Greater output
Yes, revenues will immediately increase in the short term; but the uncapped opportunity for revenue will have an expansionary effect in the long term yielding greater output for the school, the student and the economy.

Criticisms of this model

Loss of well roundedness
Could hyper focus on salary maximization pigeonhole graduates? In other words, would schools start to cut time honored subjects like art history or philosophy? If so, how big a deal would this really be? It seems like the classic educational model allows students to take a deep dive in a particular field only after there has been a basic education across a breadth of subjects. It’s hard to say if cutting or limiting subjects that don’t seem to be as directly tied to financial success would put students at a disadvantage, but if it did, schools would be incentivized to quickly reintroduce these subjects.
 
Student selection 
Another side effect would be that great effort would be taken in the student selection process. It could be argued that a model like this favors the affluent because based on the data, this the demographic that tends to succeed the most financially. I believe it could also be argued that once schools’ assessment capabilities mature, higher education will be more inclined to the ambitious and hard working (regardless of class, race, background, etc.).
 
Certain market segments could be ignored 
In pursuit of highest dollar, will schools ignore certain segments? It’s hard to say what the lowest hanging fruit for schools would be with this business model. Will it be with fields like law, medicine or engineering or in fields like security, logistics or healthcare support? Capitalism has a way of squeaking out every last dollar starting with the low cost / high revenue fields. It’s safe to say that schools will not address the high cost / low revenue fields, but maybe those fields shouldn’t be serviced anyway?
 
Considering that some fields will not be addressed by schools, will students be encouraged into fields that they don’t naturally love because there’s more money to be made elsewhere? Maybe. But if a student truly desires to pursue this type of path, I’m sure there will be a niche to fill by higher education institutions that have vendor / client revenue models.
 
Students won’t have any skin in the game 
Because the university is assuming all of the risk, will students still take their education seriously? It’s a valid question. There have to be repercussions for dropping out after having received a portion of a degree. You can’t get something for free. Part of the agreement should be that if they drop out, they will be required to pay for services received (imagine that would do for graduation rates). 

So, will the model actually work?

At the very least, it seems worth looking into. It would likely take an ambitious entrepreneur a la Paul Graham to give it the ol’ college try (couldn’t help myself).
 
 
* the total value of a graduate is $35K which can be normalized to $8,750 / student school year

For the love of synchrony

As I mentioned in my last blog post, my startup is centered around real time (synchronous) communication online, specifically as it pertains to groups. Although versions of synchronous group communication platforms have been around for quite some time, it’s never taken off as a mainstream communication format (when was the last time that you participated in a real time conversation with more than one person at a time? If your answer is “on AOL back in the 90s”, you know what I’m talking about).

On the surface, it would seem that internet society tried and ultimately rejected this communication format. But if you take a look at the real world as a model for communication online, this just doesn’t make sense because unless you live in a cave, you’re most likely participating in group conversations on a daily basis. How is it possible then, with all of the advances in communication online that we don’t have a mainstream tool for this thing that happens everyday for everyone?

At least part of the answer is that we became enamored with an alternative to synchrony online: asynchrony. Asynchronous communication is the act of creating messages that are intended to be consumed by audiences at a later time than the moment of their creation. Before asynchronous communication existed, the exchange of information required the shared presence and attention of both the producer and the consumer of information; scale depended on the reach of a person’s voice and the ability to gather people together in the same place at the same time (which is a very cumbersome process).

Asynchrony makes it possible for people to exchange information without needing to share time or space. The author can devote attention to message production at his/her own pace; likewise, the consumer can devote attention to message comprehension at his/her own pace and at a time of their choosing (even centuries later).

Fast forward to today. With the independence and freedom of asynchrony, it’s no surprise that we now live in a Twitter world online. People broadcast messages without the slightest regard to that which their audience may currently be devoting their attention and media consumers pay attention to the messages they want, when they want. So, the golden question is “is this asynchronous world missing anything?”

I think the answer is “yes”. This becomes clear when we realize that communication is a means to an end. The reason we communicate is to understand (identify the meaning of) the things around us (information).

Asynchrony is ideal for spreading information because time, effort and thought can be devoted to high quality information transmission, but synchrony is ideal for the second part of this process where quick back and forth between people seeking understanding is conducive to the pursuit of shared meaning (a.k.a., convergence).

The take away from all of this is that the two types of communication are huge complements to one another. A world absent of either type keeps us from being able to use communication to its fullest potential.  We have the asynchronous platform pretty well nailed (Twitter)…now it’s time to nail the synchrony side of things.  And let’s make sure it integrates tightly with Twitter so that we can let synchrony and asynchrony work together to unlock an even richer world of communication than we currently know.

Why do I do this to myself?

I have recently begun working with a good friend on a business idea.  We are fascinated by the move towards the real time web.  Our business and product is based on the assumption that there is/will be an opportunity as real time becomes the rule online, allowing how we interact with each other and our interests to evolve. 

Spending a very good portion of my time at the expense of sleep, exercise, social life, etc. to bootstrap a startup gets me to asking every once in a while “how did I get here?”  Don’t get me wrong…I love it, but the “neurotic me” can’t help but want to figure out why I sacrifice so much for such a bumpy road.

Is there something about my upbringing that has driven me to startups?  It seems like people like to look at the parents to see if they fostered some sort of hyper capitalist culture with their kids.  My dad dabbled as a stock broker before ultimately ending up doing large gift development for a non-profit organization…nothing about that screams startup culture.  But, this isn’t the whole story because my mom wasn’t your typical stay-at-home mom; she was the don’t-stop-til-it’s-perfect/don’t-hire-it-out-unless-you-have-to house fixer upper extraordinaire.  Her DIY/penny pinching/systematic approach to family rearing and home ownership can probably take credit for at least part of my inclination toward startups. 

What about my personality?  Is there something about my personality that drives me towards startups?  For one, I crave efficiency…anything that I can do to make the world more efficient is appealing to me.  Also, I am not one to want the spotlight, but I do want credit…I want the glory of doing something that people know about and from which they derive value.  Another thing is that I work hard and am ambitious, but only as a means to an end; ultimately, I want life balance and freedom.  All of these aspects of my personality are satiated by working on startups.  Build a product that makes the world more efficient, gets used by everybody and that financially allows me to have balance and freedom.  Check, check and check. 

Funny thing is that I didn’t recognize these aspects of my personality very much until after dabbling in startupmanship.  I suppose all the way up until my first startup (when I was 25 yrs old), I always figured that I would climb the corporate latter.  Turns out that the corporate latter thing was cut down to size after a case of bad timing with my obligatory rebellious phase.  You see, I was a late bloomer.  Most people get their rebelliousness out of their system in high school; it didn’t hit me until my junior and senior years of college.  Fooling around and being a bum helped my GPA tumble from 3.9 at the end of my sophomore year to 3.4 when I graduated.  This wasn’t helpful for my “climb the corporate latter” plan.  Above average intelligence and an average GPA isn’t nearly as good as stellar intelligence and a stellar GPA and for a connectionless youngster, corporate ladders weren’t in my future and, honestly, the idea of climbing the corporate ladder was just some nebulous thing anyway.  I had no idea what career path made sense for me (a degree in economics was stimulating but not helpful in terms of direction).  All of this was frustrating for someone who had high hopes for himself.  Bottom line, I knew I needed to make up for lost time and I wanted to fix it fast. 

It dawned on me one day when I was sitting at a café in Spain (the perfect place to receive your life’s calling) that startups are the perfect way to make up for college transgressions and speed up my experience getting.  It just hit me and in an instant, I had firmly decided that I would try to build my own empire.  It just felt right. 

Once I made that decision, I was met with some serendipity to keep me walking down the path and I haven’t looked back since.  Funny thing is that once you do startups and the more that you do them, the more you realize how stupid it would be to do anything else.  It’s a self-reinforcing phenomenon:  you give yourself the chance to have very singular professional experiences which open the door to more, even greater experiences; you also start to cross paths with very choice people which in turn opens the door to crossing paths with even more choice people. 

You ultimately realize that aside from the financial opportunity (which every entrepreneur seems to downplay…as if it is dishonorable to admit that part of why you’re doing a startup is for the financial prospect), you wouldn’t be happy unless you were swinging for the fences.  Which is a great segue to what I believe is the biggest reason that I am a startup guy:  fear.  My engine is fueled by the fear of reaching the latter parts of my life, looking back and wishing that I wouldn’t have let opportunities pass me by. 

Comprehending me

I tend to ask “Does this work?” about everything from my own research efforts to prevailing social norms.  I feel like I am able to combine imagination and reliability in whatever I happen to be building. I derive my value (in part) through the things that I build. 

I am analytical. I am most comfortable working alone and tend to be less sociable than most; however, I am prepared to lead if no one else seems up to the task. I tend to be pragmatic, logical, and creative. I have a low tolerance for spin or rampant emotionalism.

I seek new angles or novel ways of looking at things. I enjoy coming to new understandings. I am a very determined person and I trust my vision of the possibilities, regardless of what others think. I am at my best in quietly and firmly developing my ideas, theories, and principles.

I crave efficiency. I work best when given autonomy and creative freedom. I express myself by conceptualizing my intellectual designs. I have a talent for analyzing and formulating complex theories. I am aware of my limitations and what I don’t know. 

I am always on the lookout for others with similar character traits and ideologies. Agreement on theoretical concepts is an important aspect of all of my relationships. I can be demanding in my expectations, and approach relationships in a rational manner. I generally withhold strong emotion and do not like to waste time with irrational social rituals, but I am loyal and am prepared to commit substantial energy and time into relationships to make them work.

I trust my intuition when it comes to people.  I can be hard to read and may seem cold, reserved, and unresponsive which may create the impression that I am in a hurry—an impression that is not always intended.

Selected/modified excerpts, Wikipedia.org:INTJ