Category Archives: Deep Thoughts

Why We Aren’t Looking for Venture Investors for CodeLesson

On the heels of Kirsten’s excellent post summarizing the state of venture investing for education startups, I had a few thoughts. (OK, I actually had many thoughts.)

In Kirsten’s post, she provides four main reasons why educational technology investments aren’t happening at the same pace as investments for other kinds of startups:

  • The cost of doing a startup is low and continues to decline. I agree with this; however, this factor isn’t unique to education startups. And in some respects education may have higher costs than advertising-driven products, particularly once the business matures (see below for an example). Also, the cost of entrepreneurs’ time remains fixed, which suggests an obvious optimization for entrepreneurs: don’t waste your time by meeting with VCs.

  • Edtech founder teams tend to work on “small ideas.” Sure, although there’s certainly no shortage of small ideas in social or ecommerce, and very often the ideas that seem smallest turn out to be the biggest businesses. I think the “small ideas” notion is really a bias against the fundability of a content-driven business; it misjudges the effort required to develop a minimum viable product versus the amount of time it takes to develop a minimum viable curriculum. The amount of effort it takes to develop a minimum viable product is necessarily limited. The amount of time it takes to develop a minimum viable curriculum is potentially unlimited.

  • The rise of edtech incubators. I actually think it’s too soon to see much of an impact here. It’s true there are certainly a lot of incubators now, but we may be confusing activity with results; I don’t know of any incubated companies that have gone on to raise a Series A (although I’m sure Kirsten will correct me here). Also, the vast majority of edtech incubators seem to be focusing on K-12, which is a much tougher row to hoe from a business and traction perspective. Like most incubators I think that 90% of the effort here will (unfortunately) go nowhere.

  • Investors moving into their child-rearing years and prioritizing education (at least K-12 education) as a result of this. Maybe, sure, although you don’t see investors invest in nursing homes and catheter factories just because they’re starting to get old.

One of the ironies that I noticed when I was taking meetings with investors is that a typical venture investor who lists “education” as one of the industry categories he’ll invest in will actually invest in between zero and one actual education companies. I talked to several investors who wouldn’t invest in more than one education company because of the perception that the two companies would be competitive or otherwise conflict. This situation persists even though investors who fund ecommerce or social companies will add dozens of ecommerce and social companies to their portfolios.

(Related: more than 90% of the VCs I spoke with when I was doing VC meetings reacted with surprise when I told them that education is the #2 industry in the US. Really? You have an MBA from an elite school and you don’t know what the #2 industry is? Hmm.)

The cost issue is an interesting one, although it affects every tech startup. The cost of doing an education startup may be lower than the cost of other kinds of startups, at least in the beginning, but I’m not sure that will continue to be case for the life of the business. At their core, most education startups (including my own, CodeLesson) encapsulate some kind of custom content management system. These aren’t too difficult to build (we didn’t even build our own — to get to market quickly we used an existing open-source learning management system). We are currently in the process of replacing this with our own system (or, to use the Sand Hill Road catch phrase, some “original intellectual property”).

But there are costs, particularly in K-12 and higher education sectors, that other startups don’t have to incur. For example, it’s very challenging to rely upon traditional web-based distribution models (either organic or paid) for K-12 or higher-ed products. Teachers adopt products based mostly on recommendations from other teachers, and students adopt products that are given to them by teachers.

One way for ed-tech companies to get around this is to act like a traditional enterprise software company and hire a national sales team. Sales teams are expensive to start up, which is one reason why the cost of running an education startup could diverge greatly from other kinds of startups.

It may seem like insanity to spin up a national sales team for a company that essentially sells content, but the fact remains that there is one and only one home-run success in venture funding for professional education this year, and it’s Lynda.com, which took a $103 million investment earlier this year. Outside observers of the company credit its simple, subscription-based business model and high-quality video content, but I’m not sure these are actually the main factors in Lynda’s success. Just from looking at Lynda’s penetration into higher ed (which is substantial, and almost certainly did not occur organically), I have no doubt that a large part of Lynda’s traction came because they spent the last decade using feet on the street to sell their product on a site-license basis to hundreds (if not thousands) of universities and businesses across North America.

For us, there are a lot of risks to dealing with unqualified prospective investors. This can be expressed in terms of wasted time and opportunity costs, but also in terms of psychic costs; getting up at 4am to have some dick on a conference call tell me my business can’t possibly scale is not what I’d call life-affirming. CodeLesson has been bootstrapped (and ramen-profitable-ish) since we launched it. We have big plans for expanding the service, adding new subject areas, and growing over time. But it’s my expectation that we won’t pursue any meetings with investors for CodeLesson through the end of this year, at least. If we can’t quickly attract an investment that’s 1) greater than what we can earn bootstrapping or 2) at least as big as investments that comparable companies in our space are attracting, there’s no sensible investment deal to be made, at least from our perspective. It would be insane for us to bring a plastic knife to a bazooka fight; much better to live under a rock for a while until our better-heeled competitors with wayward business models run out of money.

(I should mention that the other reason we won’t talk to investors this year is that the work we’re doing on the site now should make a material difference in our traction and it wouldn’t make sense for us to deal with investors until we can demonstrate that traction. But even then, since we’re a paid service, if we do achieve greater traction, we still may not need investors, because to us, more traction equals more money, and it’s far more appealing to fund business operations from recurring customer revenues rather than one-time investments.)

So, to Kristen’s four reasons for lack of investment in ed-tech, I’d add two more:

  • There simply hasn’t been a Google-esque home run in the educational technology space yet. If lack of past large exits is indeed a deterrent to ed-tech investment as I suspect it is, that means that investors are actually more concerned about potential returns than startup costs. And this seems natural to me, particularly if you’re forced to invest on a 3-5 year timeline. It’s easy for an investor to see why Contextual Advertising Network #945 is worth funding because other contextual advertising networks have done well in the past. But it’s not easy to see how Video-Based Learning Site #945 is going to do since there haven’t been any billion-dollar exits in video-based learning yet. (The word “yet” at the end of the sentence is key.)

  • The perception that education startups can’t get to an exit on a timeline that venture investors are comfortable with (which is to say, 5-10 years). The gold standard here is, once again, Lynda.com, which took 12 years just to go from bootstrap to series A. That means that their current investors will be waiting another 5-10 years (at least) to see a return their $103 million. The number of venture investors who have the patience to bet on this situation is, unfortunately, small, particularly when they feel they could do as well or better in a 3-5 year timeline betting on Contextual Advertising Network #945.

So. We aren’t looking for venture money right now and we won’t be pursuing any anytime soon. We’re more or less content to bootstrap indefinitely. I’ve been coding since I was a teenager and teaching professionals to code for 20 years. It’s my expectation that I’ll continue to do this for another 20 years, with CodeLesson as my vehicle. You can follow us on AngelList if you want, but don’t expect us to post another up-and-to-the-right chart there until next year at the earliest.

In closing I should mention that I’ve used Lynda.com is an example for a number of points I’ve made here. I’m not critical of them at all; I’m a great admirer of their business and their success, and I think they’re worth emulating (particularly the part where they didn’t take an investment until they’d been around for 12 years). I also consider their business to be complimentary, rather than competitive, to that of CodeLesson (since Lynda sells pre-recorded videos while we sell access to expert instructors who interact with students).

Free Advice: How to Save Journalism

On Twitter this morning I was getting cranky at an organization that desperately needs to retain me as a consultant but won’t for whatever reason. I approached the point where I was about to dispense free advice (which violates rule #2 of consulting).

Amy thought that I was putting out a general call for free advice, so she asked me to provide some free advice to fix journalism. That is something I can sink my teeth into. So here are some quick thoughts:

Eliminate the distinction between “mainstream media” and “blogging”. Blogging is mainstream and has been for years now. What we’ve been referring to as “mainstream media” is really “large corporate media,” and that model is finished.

The newsroom is dead. The near future of journalism will involve small, self-organizing teams that pursue their own business models and resemble networks of cooperating small businesses more than monolithic institutions like the New York Times, the AP or NPR.

The days of picking fights with men who buy ink by the barrel are over; the web server is the new printing press. Reporters need to educate themselves as to the implications (business, technical, social, etc.) of this. One important implication is that the “news hole” is now infinitely large.

People who get their news from one source (particularly if that source is television) get what they deserve. But conversely, if TV news is the path of least resistance for news consumers, that’s our fault.

We need to find a place for the thoughtful, informed editor in the new order. (It’s not Wikipedia.)

Eliminate middlemen. All of them, if you can. Even the ones who want to give you something for free in exchange for fractional control over your printing press.

Understand the difference between “objectivity” and reporting the side of the story that happens to be bullshit.

Make alliances to achieve critical mass. This flies in the face of the stereotypical reporter who spends all day fighting city hall and hammers out a screed on deadline. That model is dead (to the extent that it was ever true to begin with).

Eliminate the divide between reportage and technology, and figure out a way to bring technologists closer to reporters.

Figure out what technology product managers do, and emulate them or retain the services of one.

Eliminate the divide between editorial and the business side of news reporting.

Eliminate the divide between “hard news” and what people really want to read about. The part where newspapers permitted stuff like sports and celebrity news to become the bailiwick of sites like espn.com and tmz.com was a colossal error. One Perez Hilton could fund a team of investigative fireballs.

Figure out a way to make “citizen journalism” a first-class citizen.

Look at PBS and NPR as one possible model for funding, but make sure you ultimately have more than one revenue stream. (Note the case of Ana Marie Cox, one of the few political commentators worth reading, whose magazine folded in the final weeks of the presidential campaign and who staged a one-person pledge drive to raise the funds so she could continue covering the campaign.) And never stop looking for new revenue streams.

Think about new taxonomies for news that will enable new syndication opportunities.

Make buying professional news as easy and as cheap as buying an MP3 online.

I Don’t Think That “Business Model” Means What You Think It Means

Continental Cuts 3,000 Jobs as It Grounds Planes – NYTimes.com

Continental’s move, which equals a 16 percent reduction in its capacity, had been rumored in industry circles on Wednesday. The details came in a message to employees from Continental’s chief executive Lawrence W. Kellner and its president, Jeffrey A. Smisek.

“The airline industry is in a crisis,” the two executives said in the message to employees. “Its business model doesn’t work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response.”

It is about time that these airlines realize that charging for tickets is a horribly outdated business model. I’m looking forward to the airlines switching their business model to a pure CPC advertising model, where you click on a flight attendant when you see an ad you like, or perhaps a freemium model where you board the plane for free and can pay halfway through the flight if you like the service. If you choose not to pay, you must complete the rest of the flight while seated in the lavatory, or perhaps they eject you with a parachute (which is also sold onboard for a nominal additional charge).

In British Library Reading Rooms, Flirting and Even Giggling

Link: Shh! In British Library Reading Rooms, Flirting and Even Giggling – New York Times

Researchers have been grousing about the boisterous atmosphere and crowded conditions at the British Library for years. But the dispute — a philosophical battle, really, over who should be allowed access to a great national library — spilled out in public last week when The Times of London published an article quoting various distinguished figures complaining about the out-of-control mood over spring break.

The article described how the author Lady Antonia Fraser had been obliged to wait for 20 minutes in freezing weather just to enter the building, and another 20 minutes to leave her coat at the mandatory check-in desk.

It described how another writer, Christopher Hawtree, had been “forced to perch on a windowsill” because he could not get a desk.

To my way of thinking this has far less to do with British schoolgirls annoying people by giggling in a hallowed institution of learning and far more to do with the way that academics seek to impose their mores on students. It is a fact today that most students have mobile phones and a lot of them have laptops. Would it be unreasonable to adapt to this? It seems natural that the “net native” generation would turn to collaboration more readily than previous generations (and why is this necessarily a bad thing?). The problem isn’t these boisterous kids, it’s that our academic institutions (once again) haven’t caught up to the way that people want to learn, communicate and collaborate. The institution of the library clearly isn’t serving these students’ needs. That doesn’t make it automatically the students’ fault; it may not even be Lady Antonia Frasier’s fault. It seems more likely that we are actually in need of a new kind of institution, one with some aspects of a library but without its monastery-esque structure and mindless bureaucracy.

I’m running into this kind of thing myself as I take a community college class this semester (which I know I haven’t mentioned here yet — I’m planning on saying a lot more about this once the semester is over). Suffice it to say that when you see a huge sign outside a campus media center that says NO COMPUTERS ALLOWED and doesn’t permit students to photocopy out-of-print texts under the principle of academic fair use, there’s something fishy at work there — it certainly isn’t the interests of students that are being served.

Hoopty Rides: How To Be A Professional Amateur

Link: Hoopty Rides: The Long Road to the Cover of Make Magazine.

"As an amateur in all things, I have found great commonalities to approaching subjects as a newbie. I think the greatest skill that could be taught in schools is how to be a professional amateur as that is the single skill set that unlocks everything. Nobody likes to assist a know-it-all, but there are lots of stone killer experts that get a kick out of sharing knowledge with thoughtful individuals that are deeply curious, respectful, have a firm handshake, don’t interrupt and will meet your eye."

Veteran blogger Mister Jalopy has some poignant thoughts to commemorate getting on the cover of Make Magazine. We learned long ago to respect Mister Jalopy’s wisdom, which is why we had him officiate at our wedding back in 2000.

“We’d All Like To See California Be Carbon Free.”

Link: Officials Reach California Deal to Cut Emissions – New York Times.

The Assembly speaker, Fabian Núñez, who sponsored the bill along with Assemblywoman Fran Pavley, said at a news conference here, "We feel that California has always been a leader in protecting the environment."

"We now have moved it to the next level,” said Mr. Núñez, a Los Angeles Democrat. "We’d all like to see California one day be carbon free."

This makes me a little nervous, particularly in light of the ban on liquids on airplanes. I mean, if they’re not going to allow my body fluids and they’re not going to allow my carbon, there’s not going to be much of my body left to do anything with. I suppose it’s only a matter of time before they find calcium harmful and start banning peoples’ skeletons, etc.

Tim on the Death of Oil

Tim posts on a talk given by somebody who is seriously trying to convince us that all the oil is running out.

Some people (including Chuq) posted in Tim’s comments that this sounds farfetched, and if it weren’t for the war and some short-term supply problems driving up the price of gas, this kind of talk wouldn’t get much play since it’s been on people’s minds for many years now. I vividly remember going through the Los Angeles Museum of Science and Industry during the oil shock of the 1970s and seeing a futuristic electronic countdown of how much oil the world had left. I seem to recall the countdown was at about thirty years or so. It’s now thirty years later, so clearly the doomsayers made a boo-boo.

It’s easy to freak out about this kind of stuff because people react more to bad news than good news. But I’m more of an Ultimate Resource 2 guy (the idea is that no natural resource will really ever run out as long as the real ultimate resource — the human mind — can figure out ways to synthesize more of the resource, or invent our way around the need for it).

That said, we obviously do need to get off the oil anyway. If stories like this prod us in the direction of pebble-bed reactors cracking hydrogen or big fusion tokamaks churning out the cheap and clean juice so I can run 20 more servers under my desk at home while I whiz to work at 150mph for a total monthly energy charge of $0.85, then I suppose it’s just as well.

(This is the second post tonight that I started writing as a comment on someone else’s blog, hm, wonder what that means.)

Pope Blue Ribbon

I was wondering how to say "pope" in German yesterday and I noticed in a news photo today that it’s "Pabpst". That means for you trucker-hat-wearing hipsters who are re-discovering America’s worst lager, you’re really drinking Pope Juice, ha ha. I’m thinking this also means that we should be able to come up with a better nickname for the big guy than "Ratzo" or "Ben".

For some reason I can’t fathom, I’m obsessed with the ritual of papal succession. I don’t really follow il papa’s doings when he’s not dying or being elected, and I’m not Catholic or anything, but for some reason, I could not get enough pope news in the last month. I realize that may make me weird, but as I mentioned yesterday I’m generally weird when it comes to news consumption.