Having worked in a similar space/company, there are a few fundamental flaws in the business model that make me very bearish on companies like Lambda:
1/ Taking VC money requires hyper growth. That’s fine if your product is software where the marginal product gets better over time. In their model, you get the early adopter students, who are talented/motivated and juice up the placement stats. But after some critical mass, the marginal student is not as talented or as motivated. It pushes the company to lower its bar and erodes the overall experience for everyone. Same thing happened to General Assembly.
2/ Iterating your business model and making tweaks to the product is fine when you’re dealing with software. It doesn’t go well when you’re dealing with students. People inherently don’t like change. They have feelings and don’t like being lied to. Sure, some people will drink the typical rah-rah startup Koolaid, but over time, most people will see right through it and will assume that management is either incompetent or lying (or both). It’s especially bad when companies use the “do things that don’t scale” PG motto. That’s fine in software but in education you die through death by a thousand cuts when your unit economics don’t work and you need to fix them in a way that deteriorates the student experience.
3/ ISA’s, like communism, sound nice in theory but don’t work at scale and in practice. They’re essentially unsecured student debt. Even student debt — which has long arms and can garnish wages for nonpayment has recently taken a hit from loan forgiveness. ISA’s have none of those protections. They’re also tied to a student’s performance and career luck — which has many factors outside the quality of education. Student debt doesn’t care how motivated you are or how unlucky you are — the security holder must get paid. In ISA’s the security holder is stuck with an IOU that may never get paid.
Education sorely needs reform but I don’t think Lambda is the way. Entrepreneurs also need to think about it a bit differently than how normal startups are built. The software model doesn’t translate well.
1/ Taking VC money requires hyper growth. That’s fine if your product is software where the marginal product gets better over time. In their model, you get the early adopter students, who are talented/motivated and juice up the placement stats. But after some critical mass, the marginal student is not as talented or as motivated. It pushes the company to lower its bar and erodes the overall experience for everyone. Same thing happened to General Assembly.
2/ Iterating your business model and making tweaks to the product is fine when you’re dealing with software. It doesn’t go well when you’re dealing with students. People inherently don’t like change. They have feelings and don’t like being lied to. Sure, some people will drink the typical rah-rah startup Koolaid, but over time, most people will see right through it and will assume that management is either incompetent or lying (or both). It’s especially bad when companies use the “do things that don’t scale” PG motto. That’s fine in software but in education you die through death by a thousand cuts when your unit economics don’t work and you need to fix them in a way that deteriorates the student experience.
3/ ISA’s, like communism, sound nice in theory but don’t work at scale and in practice. They’re essentially unsecured student debt. Even student debt — which has long arms and can garnish wages for nonpayment has recently taken a hit from loan forgiveness. ISA’s have none of those protections. They’re also tied to a student’s performance and career luck — which has many factors outside the quality of education. Student debt doesn’t care how motivated you are or how unlucky you are — the security holder must get paid. In ISA’s the security holder is stuck with an IOU that may never get paid.
Education sorely needs reform but I don’t think Lambda is the way. Entrepreneurs also need to think about it a bit differently than how normal startups are built. The software model doesn’t translate well.