Newsletter 64: Startup Ideas - Education
Startup Ideas #1
Welcome to another edition of the Struggle.
The Struggle is a bi-weekly newsletter where I share my thoughts and learnings from running a startup in Southeast Asia.
As a thought experiment, I will be releasing a few articles breaking down problems I would be addressing if I am to start a new company tomorrow.
I have always been passionate about education. The idea of enrolling in a new learning program truly excites me like few other things in life. In turn, reflecting on poorly designed degrees that wasted my time bothers me a fair bit.
Growing up in Bulgaria, I went through an educational system that rewards memorization, respect towards your teachers, and following whatever it’s written in school books. Unfortunately, the internet was not deemed a credible source of information at the time, which led to poor engagement, lack of inspiration, and overall low memory retention on my end.
I was not satisfied with my studies there. Thinking back, that caused other problems as I was definitely not the most obedient student and engaged in too many debates with my teachers. Rather than looking forward to learning something from them, I was busy thinking about how to confront and prove their approach as outdated and wrong.
Upon graduating from high school, I concluded that my experience thus far should not reflect on how I view learning in general. So I sought education abroad. Hoping that other countries offer an educational system that’s a better fit for my character.
In the fall of 2009, I moved to Denmark to pursue higher education. My first impressions were shocking. Teachers insisted on being addressed by first name; we were allowed to bring study books at exams, memorization was not important, and the education system focused on teaching us how to identify problems and constructively solve them.
The difference between what I was used to and what Denmark proposed was like night and day. I found myself enjoying a lot more the Danish approach, truly putting effort into my studies.
The fact that teachers in Denmark are paid considerably better than the ones in Bulgaria helps. Having said that, the most important thing, in my opinion, was their approach to education, i.e., independent thinking, constructive problem solving, and openness to new ways of solving problems.
Unfortunately, as I was going through my Bachelors's and Master's studies, I started noticing the shortcomings of the educational system in Denmark too. By the time I graduated with my bachelor's, I had six years of experience working in the hospitality field and a bit of experience as a founder. Meaning I did have a sense of the demands of the real world outside the university.
The more time I spent as a founder, the more I realized how little the educational system prepares me for what’s going on in the outside world.
Even the Danish approach, which was focused on problem-solving and teamwork, did not prepare me fully for what it takes to run a startup or work in a highly demanding business environment. For example, no one taught me how to hire or fire people, how to run ads, what it takes to build a good product, how to identify and experiment with acquisition channels, the importance of healthy unit economics, how to sell, and everything else that I am facing every day as an entrepreneur.
Innovation in the education space
While software is eating the world and impacting pretty much all industries, education seems to has been quite resistant to technology’s attacks.
“Test scores, earning potential, employment rates, teacher salaries, and student satisfaction have stayed flat over the past 20 years while college tuition, revenues, and student debt have sky-rocketed.”
Opportunities in Education by Erik Torenberg, CEO and Founder of On-Deck
Nowadays, it’s tough to think of any industry that has not been impacted by technology. The world’s largest bookseller, Amazon, is a software company. The largest video service platform Netflix is also a software business. Apple and Spotify have transformed music, commerce by Shopify, movies by Pixar, photography by Instagram, recruitment by LinkedIn, automobile by Tesla, retail investment by Robinhood, and even legacy companies like Walmart and FedEx are increasingly using more technology in their operations.
Yet, education seems to be somehow protected from all that; consider the following:
As highlighted earlier, while there are plenty of available institutions out there, the experience of going through a study program is not necessarily remarkable.
Further, public school teachers have an NPS of -17, teachers say 10% of other teachers are unsatisfactory educators, 55% of Americans think that K-12 education is heading down the wrong track… And yet there’s no innovation — only seven of the top 100 colleges were founded in the last 100 years.
Opportunities in Education by Erik Torenberg, CEO and Founder of On-Deck
Given that the system has been around for a while and there is no shortage of educational institutions, the question of what makes it so hard to innovate in that space has been on my mind for a while.
The more I studied the matter; the more constraints started shaping up:
Reputation matters big time in education - if you have the ability to choose a degree at Harvard vs. a local unknown university, most probably you will choose Harvard. Yet, for an educational institution to get a reputation like Harvard, it must produce many success cases. But for a student to grow into a successful and well-known person, it may take 10, 20, or even 30 years. It isn’t easy to compete with institutions that have been around for a while and have remarkable alumni networks.
Education is complex - we all have different reasons to get a new degree. Some of us do it to secure a good job, others as insurance if nothing else works out, some of us to meet incredible people and build relationships, and last but not least, some people are truly curious and enjoy learning. So it’s tough to create a solution that caters to all that.
To be successful, one must put a lot of effort - to get value out of Netflix; you can watch a movie whenever you feel like it. That’s a low effort, high entertainment activity. But to get value out of a university degree, you need to study hard. It’s not easy to disrupt a model that has figured out a way to charge you a lot of money even though the user is the one putting in most of the effort.
No matter how flawed the system is recognized worldwide - even if you come up with a much better solution than what universities offer, it will be hard to convince people to bet on you. The majority of people go through education when they are young. Early on in people’s lives, their parents are very influential, especially when choosing one’s education. Most parents have great intentions for your future, so they will do everything they can to provide you an education they perceive as your best bet to maximize success in life. Novel solutions will lack the necessary reputation in your parents’ circles, making it incredibly hard to compete with incumbents.
“Attending university has become more of an insurance policy than a true education. It's an insurance policy that's overpriced but purchased out of fear of the unknown.”
Opportunities in Education by Erik Torenberg, CEO and Founder of On-Deck
While it won’t be easy to make impactful changes, I am optimistic about the future of education and lifelong learning as a whole. This is because the current system has been designed for a different time - the industrial age. Back in the days, standardized learning was important as it helped prepare the labor force for the demands of their time. But today’s knowledge-based and dynamic economy requires a different approach to learning, and we have seen early signs of success already. Additionally, the costs of good degrees have gone through the roof, making it harder for many capable people to get the best education out there. At the same time, the market is so big that no matter how you estimate the total addressable market, calculations seem fake.
Deconstructing education
While we have not experienced a ton of innovation, several major leaps took place in the last decade.
Massive Open Online Courses (MOOCs) - aggregating a lot of online content. Great examples under MOOCs are edX, Coursera, Udemy, MasterClass, and the Khan Academy.
The passion/creator economy - allows anyone to monetize their skills. As a result, we see more and more people starting YouTube channels, newsletters, podcasts, courses, or marketplaces to connect experts with people who need help. That results in a ton of affordable and relevant content that helps people gain the skills they need.
Niche programs - given the high demand for developers, several startups have been creating programs for people who want to pivot their careers to tech. Think of Career Karma, Practicum by Yandex, InterviewBit, and Lambda School. It’s interesting to note that their model is quite different than regular schools as often the programs are free (i.e., career karma and lambda school); you will need to pay only after finding a great job. That’s what I call well-aligned incentives.
Accelerators - companies like YCombinator and Surge provide incredible resources and education for founders at no cost. Once again, the model has been designed so that you do not need to pay anything upfront.
Cohort-based programs - there has been an increase in cohort-based learning programs; my favorite ones are: Reforge, On Deck, altMBA, Maven, and other similar platforms.
Community-driven programs - organizations like DemandCurve and Pavilion (former Revenue Collective) are doing a great job building communities of like-minded people and then offering educational programs on relevant topics.
Thought leaders turned educators - it gets more common to see thought leaders in the tech space monetizing their following by sharing their knowledge. Think of Lenny Rachitsky’s Product Course and Chris Fralic’s course on Building Relationships. It turns out you can use your influence to teach people useful things, rather than posting pictures of your food.
Alternatively, check out the graph by Akash Bajwa on all emerging categories in lifelong learning:
What’s next?
Jim Barksdale (CEO of Netscape) famously said that the only way to make money is bundling and unbundling. The same applies to education.
Most of the examples above illustrate the unbundling of learning as it relates to upskilling yourself. I have not even touched on other aspects of the educational sector, such as campus life, language, scientific research, and everything else bundled under today’s universities.
That’s because I am personally most interested in Cohort-Based programs like Reforge and On Deck. In the past few years, I have been following such programs closely and find them remarkable. If I am to focus my efforts on a new business, I would consider cohort-based programs because:
Digitally native - the programs are born on the internet and leverage social media and the reputation of the people who run the programs to create demand and find supply (students).
Cohort-based - not only that you learn the most recent best practices of running a business, but cohort-based programs enable you to build a community with like-minded people who attend the course because they truly want to learn. In my experience, such programs engage mainly people who are done with their university degrees and want to either pivot their career or become really good in their field. In turn, their parents did not push the choice; it was a personal decision. Hence, the commitment is much stronger, resulting in a higher quality of the community.
Costs - Compared to regular degrees, the cost is considerably lower, ranging between 2000 to 5000 USD. Yet, you can still build a viable business because you do not have the overheads of real estate or the limitations of a classroom.
Curation - the programs are built in-house and do not rely on the aggregated supply of instructors like in the case of MOOCs. The more curated the program, the better the quality.
As COVID has forced the world to change like never before, education will change with it. But, of course, new startups will keep on unbundling what is now too expensive and outdated approach to learning. So, if I start a new business tomorrow, I will seriously consider what else could be unbundled, what aspects of the value chain have the lowest NPS, and how to take advantage of a remote-first world.
“The next new Stanford won’t look like Stanford. It will be digitally native, global, and constantly evolving.”
Packy McCormick, Founder and Author at NotBoring.co
Sources:
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
https://eriktorenberg.substack.com/p/opportunities-in-education
https://eriktorenberg.substack.com/p/why-are-institutions-failing-us
https://boundless.substack.com/p/network-legibility-and-status-125
https://hbr.org/2014/06/how-to-succeed-in-business-by-bundling-and-unbundling