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Backer Jacob  envy

The next verse of the epic poem “Year of the MOOC” will almost certainly be a recounting of a fall from grace if I am correctly reading my recent discussions with dozens of institutional leaders. Whether there will be enlightenment and ultimate redemption is less clear at this point, but what should be a path forward for thousands of institutions could just as easily lead to despair and ruin.

Not because MOOCs are a bad idea, mind you. If there were ever a confluence of innovations that could perfect learning, the simultaneous maturing of  MOOCs, social networking,  and big data are it.  Daphne Koller makes the point in her now ubiquitous Coursera speech: We have known for thirty years (since Benjamin Bloom’s landmark paper “The Two Sigma Problem”) that the master classroom is a way to universally improve learning when compared to traditional classrooms.  The only thing holding us back was the cost of personalizing the learning experience for each student.  MOOCs allow master classrooms be operated effectively for large numbers of students.  I just spoke with edX’s Anant Agrwawal, and he cites a half-dozen other research results confirming better learning enabled by MOOCs.That’s the innovation, and that’s what makes MOOCs such a great idea.

The very existence of MOOCs could be a pathway to think about value in a new way, to looking at the constraints that existed before Udacity, Coursera, and edX and wondering what the next world would be like. It may not turn out to be paradise but it will be a world without those constraints. Instead, too many institutions are reverting to the seven deadly sins of higher education.  Beginning with envy.

In Abelard to Apple I blamed envy for many poor decisions by otherwise insightful academic leaders. Higher education has opted into a destructive, needlessly competitive class system in which schools at the top of the hierarchy are chased by everyone else in a rigged game that ultimately hurts students. If you are a state school, you envy one of the famous public research universities. Technical universities envy MIT and CalTech, Liberal arts colleges envy whichever institution is  at the top of the pyramid whose riches they covet. It is institutional envy pure and simple.  It has been the ruination of hundreds of otherwise promising colleges and universities and has helped drive American higher education to the brink of unsustainability.

Here is an excerpt of my recent conversation with someone in a senior leadership role at a college — in the Middle to use Abelard to Apple terminology –  that is beginning to produce its own MOOCs:

Q: Why are you producing your own MOOCs?

A: Why should we let [deleted] do all the MOOCs? We are just as good as them. Why let them get all the credit?

There are a lot of reasons why this is a bad idea, but the common thread is that this school is trying to buy its way into a game that is rigged against them.  At the very least they will spend a lot of money (that they do not have) to produce a lot of MOOCs (that are not very good).  Yes, there will be a few that are really great, but those few do not justify the level of spending they are thinking about.  Most importantly they will fail because they have defined success as enrolling 100,00 students or more. Why is this an important number:  because [deleted] enrolls 100,000 students in its courses.

It’s a small leap to consider the effect of other deadly sins:

  • Lust: “100,00 students?  Wow!”
  • Gluttony: “I want them all”
  • Greed: “That should be worth a lot of money.”
  • Pride: “No one can do it better.”

There is no agreement on the the sins that belong on the list. I took theology courses from Thomistic scholars who had a decidedly medieval view of these matters. Aquinas for example was not a big fan of including sloth (“I don’t have to teach?”)  in the list preferring instead to go for a more popular malady afflicting monks who spent their lives in prayerful isolation (“I am so tired of dealing with unprepared, unmotivated undergraduates”).

Nor is there agreement on how tightly bound together these things are.  Can you have envy without pride?

Who is virtuous in this new world? At the risk of promoting unwanted scrutiny, I would have to say that San Jose State University is doing the right thing.  San Jose State decided to conduct an experiment in blended learning using the edX version of the MIT 6.002 course entitled Circuits and Systems. It could not have been an easy choice.  SJSU faculty had to sacrifice their hallowed position on the stage and redefine their roles in the classroom:

SJSU students have been viewing and using online materials as homework, including lectures, quizzes and virtual labs available through the edX platform. Then they go to class to work through problem sets with their instructor, thereby flipping the conventional approach of lectures in class and problem sets at home.

Initial reports are encouraging.  A course that historically flushes out 40% of the enrolled students in the traditional format, retains 90% in the flipped format.  Professors and students alike had to adjust, but maybe that is the price of virtue.  It is a price worth paying, because simply lusting after the 100,000 students is not a strategy that will be rewarded in this pre-MOOC world  or the next.

Time for the 2013 Edition of ACTA’s What Will They Learn?™ report.

In last year’s edition, ACTA followed the curricula at over 1,000 undergraduate institutions to see whether there was any correlation between desired learning outcomes in liberal arts programs and topics actually covered in the classroom.

Last year’s results were shocking enough.

Most high-tuition institutions — including the Ivies — failed to provide even the most basic coverage of topics promised in published course descriptions.  You would think, for example, that a humanities curriculum that promises courses in the sciences and mathematics would design courses in which students could actually learn both science and math. No so, for a shocking percentage of the institutions who ask students to pony up $40,000 per year for the experience of bypassing pretty much every useful mention of physics, chemistry, biology, algebra, and computer science.

This year’s survey results were no more encouraging: From the report’s Executive Summary:

What Will They Learn?™ evaluates every four-year public university with a stated liberal arts mission as well as hundreds of private colleges and universities selected on the basis of size, mission, and regional representation. All schools in the What Will Will They Learn™ study are regionally-accredited, non-profit institutions. Combined, the 1,070 institutions in the What Will They Learn?™ study enroll over seven million students, more than two-thirds of all students enrolled in four-year liberal arts schools nationwide.

Overall, the results are troubling. The grade tally tells the story:

A 21 (2.0%)

B 393 (36.7%)

C 338 (31.6%)

D 229 (21.4%)

F 89 (8.3 %)

Less than half of the schools studied require:

Literature – 37.9%

Foreign Language – 13.7%

U.S. Government or History – 18.3 %

Economics – 3.4 %

The Seinfeld Show

Most discouraging to me is the F grade that Amherst earned this year by requiring literally nothing. Sacrificing at the altar of curriculum flexibility, Amherst has no core requirements. This leads to an extremely high completion rate with no guarantee that a  student knows anything at all about math, reading, history, or composition.  It doesn’t have to be that way; you can dispense with a core curriculum and not sink into the academic version Jerry Seinfeld’s “show about nothing.” [See, for example, my chapter on the Threads curriculum in Abelard to Apple].

As I was writing Abelard to Apple, I became increasingly skeptical that accreditors could  get it together.  I suppose there is an argument to be made that the federal and state governments need a rudimentary ability to separate clearly reputable educational institutions from store-front operations. That was the original motivation for the current system of accreditation, but the accreditation industry wants so so much more.

The industry wants to measure quality, for example.  And if — as is almost always the case — your institution comes up a little short, they are happy to sell you quality improvement consulting services.  It’s a case of mission creep run amok.  Accreditation when stripped to its core mission is costly, intrusive, and largely ineffective. Highly regarded and and influential undergraduate programs are nudged toward the mean. Clearly ineffective and dishonestly marketed for-profit programs are rubbers-stamped so that they can offer federal aid to their students.

The case I make in A2A is that the very idea of accreditation is based on a world view in which higher education is like manufacturing.  In this view, universities are like factories and accreditors are the quality control department.

Every time I see another incursion by accreditors into a space beyond their core mission, alarms go off.  So when I I saw this statement by AAUP and the Council for Higher Education Accreditation that ties accreditation to academic freedom (and therefore tenure) I came out my chair.

AAUPCHEAFINAL

Let’s imagine a best-case outcome for this exercise in mission creeep:

  • accrediting teams will get to evaluate processes that exist to protect academic freedom
  • negative tenure decisions will be subject to review
  • there will be pressure to adopt proactive rules that guarantee the outcome of decisions that are best made on a case-by-case basis
  • there will be lots of expensive documentation requirements
  • everyone will figure out how to work around the system.

The key  AAUP/CHEA proposal is:

Affirm the role that accreditation play in the protection and advancement of academic freedom.

Beyond the traditional role of ensuring that academic governance is transparent and free from undue external and political influences, I think that accreditation’s role in the protection of academic freedom is marginal. If the “accreditation community” wants to think about the future, how about this:

How can we make our core mission relevant in a world that has moved beyond the regulated, paper-based quality control methods of the factory floor?

MOOC platforms are the new startups. Nobody really knows how it will all turn out, but  these are experiments that need to be given time, space, and dollars to to incubate innovation.  But what exactly does that mean?  And what models are available to institutions that want to try to create such safe spaces for innovation?

The vision of  Al Capp’s Skonkworks, perched on the edge of Skunk Hollow, belching the byproducts of producing exquisite joy juice has been a metaphor for three generations of inventors. When it comes to skunkworks, there are ideas to try out and ideas to avoid.    New developments like MOOCs exist to bend perceptions and blur boundaries, so using traditional perceptions and boundaries to explore MOOC potential doesn’t make a lot of sense.

This is the third in a series of reposts that talk about lessons learned from other startups — in particular startups that are born within existing organizations.  The first post put us face-to-face with an oftentimes hostile culture.  In today’s post we talk about successful exits from hostile environments and how to make sure that what began in a skunkworks has a chance of succeeding once the thrill of invention has subsided.

What constitutes a successful exit in Online Education? The question that is always asked is “How will all this investment in online courses be monetized?”  I think most people who ask don’t really know what they are asking for.  They are really asking a different question: what is the value of what you have created?  How do I extract value? A successful exit needs to answer this question.

***

It’s not only the clash of investment cultures that tends to doom internal start ups. At least that’s what I told the Bellcore and SAIC CEOs at the post-mortem for the internal division that we had tried to run as a venture-backed business.

It’s also what I said to Bob — who you will recall – wanted to incubate an internal venture inside his Fortune 10 company that would match in excitement and star power the coolest gang of Sand Hill Road funded misfits. He would have to be willing to sacrifice a boatload of management principles that had served him well in his career. I didn’t think he would do that.

Like a generous parent, Bob was in a position to give the new kids everything they needed for success: mentoring, time to succeed, and ample resources. What he did not have was a clear idea of which exit to take. Bob’s idea of a venture failed the value test.  A new venture succeeds when the right leadership team focuses on a market need with staged funding.  The idea was doomed as soon as Bob said,“Look, I’m in charge of new technology and platforms and I’m going to be the venture capitalist funding a new product, so that when it succeeds we’ll be able to fold it back into our current business.

The moment someone in a large company forms a thought like this, the options for maximizing the value of the investment are narrowed to one.  The only exit is one in  which access to internal resources can be used to shoehorn a fit into existing businesses. I had seen the danger of this kind of investment strategy at other companies, and the results were not encouraging. This thinking had infected our Bellcore start-up, but I have been in the executive suites of a dozen West Coast technology companies when the discussion turned to how the value of an internal start up was going to be captured by an existing business line.  It always turned out the same:  because there were no choices to a successful exit, backers literally threw money at the new company. They were thinking way down the line about how to succeed.

There are other options, but they do not necessarily align well with Bob’s goal of internal commercialization:

  1. Sell the technology: it’s always possible that the upside does not justify continued investment.  But if you’ve made a large up front commitment–as opposed to small increments that are tied to market tests– it is hard to execute this option and capture value.
  2. Licensing: the main reason for choosing  licensing as an exit is that there are differing value expectations in the marketplace.  The technology may be used in many different applications by many different players, for example.  You can maintain a central IP position and benefit from this diversity.
  3. Resell your R&D effort: if the technology is a critical product component, there may be other vendors who would like to benefit from your near-term “deliverables.” An R&D contract gives up a little IP in the short run, but you not only recover your development costs, you also continue to expand what you know about the technology and its applications. This is such an interesting–and seldom used–exit strategy that it deserves a post all by itself.  Watch for it!
  4. Sell the right to market or form a joint venture to market and sell: this is a range of exit possibilities that allow you to keep the option of bringing the technology in-house at some later point.  Of course, the attractive thing about such partnerships is that they generate revenue while spreading the risk around several players.
  5. Spin-out/IPO: the obvious counterpoint to the internal start up is to kick the baby bird out of the nest to see if he can fly on his own. I don’t know why our Bellcore start up was not conceived from day one as a spin out.  Bellcore, after all, had a history of spinning out companies to commercialize research technologies.  Some of those companies (Telelogue for voice menus, Elity for CM analytics, and a host of companies for communication network traffic monitoring and tools) were quickly picked up by angel and venture investors who went on to ride the businesses to their own successful exits.

Why Bob was determined to retain ownership in an incubated business says as much about internal corporate culture and priorities as Bob’s own approach to innovation. What seems to be missing when managers fixate on internal startups is the recognition that there are other worlds involved in the success of a new business, and they often  have very different rules.The internal start up is an opportunity for worlds to interact rather than collide. Here is the value chain that Bob had to work with:

  • Creative engineering: internal R&D interacts with a larger, external innovation community.  It  is very good at coming up with gap-filling concepts that need to be externally validated
  • Venture funding: is useful for establising performance metrics based on value and focusing funding to meet performance goals based on those metrics
  • Corporate resources: the company itself is in the driver’s seat.  It sets out the strategy for value capture and makes the option calls that start chains of transactions that are key to success. And by the way, the creative engineers call it home.

This all started because Bob was worrying that normal, internal product R&D would not lead to  “breakthrough product ideas that do not align well with their core business.”  It is a common problem, but there are three fatal errors that doom most attempts to solve it. Here’s how to avoid those errors.

First, don’t set the new venture up for failure by limiting the end game to only those ideas that align well with the core business.  That was what got you in trouble in the first place, and can be avoided by considering up front the full range of exit options.

Second, don’t pretend that you are a venture fund.  The fundamental belief systems are different, and it is simply not possible for a large corporation–one that has to worry about quarterly results and long-term growth–to capture value in the same way that a VC does.

Finally, recognize the role that interacting worlds will play in the success of your venture.  External innovation networks, market-validating communities and the relatively heavier weight corporate resources and processes have a tendency to collide, when what is really needed is a strategy for working together.

MOOC platforms are the new startups. Nobody really knows how it will all turn out, but  these are experiments that need to be given time, space, and dollars to to incubate innovation.  But what exactly does that mean?  And what models are available to institutions that want to try to create such safe spaces for innovation?

The vision of  Al Capp’s Skonkworks, perched on the edge of Skunk Hollow, belching the byproducts of producing exquisite joy juice has been a metaphor for three generations of inventors. When it comes to skunkworks, there are ideas to try out and ideas to avoid.    New developments like MOOCs exist to bend perceptions and blur boundaries, so using traditional perceptions and boundaries to explore MOOC potential doesn’t make a lot of sense.

This is the second in a series of reposts that talk about lessons learned from other startups — in particular startups that are born within existing organizations.  The first post put us face-to-face with an oftentimes hostile culture.  In today’s post we see the conflicting agendas of important stakeholders.

***

Internal start-ups have all of the usual new business challenges.  They need products, customers, and a profitable way of getting customers to pay for the products.  But above all, they need cash, because even the best strategy will crash and burn if money runs out too soon.

[Production note: at this point investors should enter, corporate investors stage left, venture capitalists stage right]. They speak the same language and are genuinely interested in incubating  great new businesses, but don’t let that fool you.  They are from different worlds.

promised to talk about some of the things that doomed the Bellcore internal start-up which I briefly led.  There is no way of  knowing whether a VC-funded company would have fared any better. In fact, one of the companies that we might have merged with was a venture-funded operation that lasted only a few months longer than we did.  Nevertheless, we did learn a lesson or two about corporate sponsorship of start-ups:

Corporate sponsors of new ventures and VCs have different belief systems.  They are fundamentally incompatible, and without early, explicit steps to stop it, corporate attitudes, practices, and beliefs will overwhelm the fragile culture of the start-up.

Let me set the stage a bit.  In 1999, Bellcore (now Telcordia Technologies) was a small company (revenue creeping up on two billion dollars) that was trying to ride the internet wave, but it had inherited a corporate style from its previous owners that was, well, hierarchical.  Big deals dominated the business mix, and internal investment decisions were obsessively analytical.

Bellcore’s new owner was SAIC, a big company serving a hierarchical marketplace that was paradoxically entrepreneurial. Bob Beyster, SAIC’s founder, had insisted on a flat corporate structure in which managers were encouraged to develop independent business.  When my little start-up failed, I  made my wrap-up presentation to the CEOs of both companies.  One of them tended to believe that Bellcore’s internal investment machinery was the right way to grow a new business.  Here’s how it went.

  1. We spent a lot of  money on extensive analytics to gauge market potential.  It was how the investment decisions for Bellcore’s big operations support systems were made and every new round of funding was based on a rosy prediction of a complex market study. In reality, market behavior was unpredictable.  We should have evolved our concepts in the market.
  2. Except for the few top  technologists that I could steal from my own research staff, corporate investors would not permit top talent to be redirected from existing projects — where the  big customers were –  to this risky venture with uncertain prospects. Once both scale and success were clear, we could recruit internally, but until then, we had to rely on good-natured volunteers to help us out.  The only thing we could do was hire externally, but there was little upside to attract the kind of business team that we needed.  A VC sponsor would have known that new ventures do not succeed without a highly talented team.
  3. Speaking of success: the corporate sponsors were only interested if the likelihood of success was high, so we spent a lot of time on the success factors that would be convincing to them.  An angel investor or a VC would have known that, since the likelihood of success of a given venture is quite low, it is better to fail earlier rather than later.
  4. Corporate culture was a culture of ownership, so many business planning meeting focused on patents and intellectual property rights that would build walls around the business.  It was an unfortunate mindset.  This was a time of open standards and sharing, but shared ownership was not part of the equation for our start-up.
  5. Internal sponsors wanted to see scale.  Niche markets were simply not interesting. The business had to embrace all of telecommunications, so part of the operating strategy was to place many product bets simultaneously, a disastrous choice given the meager resources for product development and the lack of real experience on the part of our business development team.  A VC would have told us that a narrow, easily explainable, product focus was key to success.
  6. The corporate sponsors were all senior Bellcore executives, and they were focused on building the core businesses.  They believed that value creation had to be demonstrated by earnings. A VC would have told them that the market recognizes value well before earnings are even possible — it’s the single most obvious characteristic of early-stage investors to constantly seek those kinds of  market signals.

There were ways through this thicket.  That is one of the lessons for corporate leaders who want to launch internal start-ups: avoid colliding worlds by choosing the right corporate role.  Corporate sponsors need to be responsive to the needs of the new venture, but proactive support is just one more opportunity to infect the start-up an alien culture.  An internal start-up needs to be managed, but managing for value makes much more sense than managing to artificial revenue and earnings targets. And freaking out over the possibility of failure is also not helpful.  New business creation is a portfolio game, and any corporation that does not take a portfolio approach is betting against high odds.

An overlay to the story of every internal start-up is corporate machinery.  The milestones that mark the calendar for corporate sponsors are timed to fit the needs of much larger — and more visible — core businesses.  No billion dollar company can afford make its processes dependent on external business and market events.  But that is exactly what a start-up needs to do.  So, even if the new venture survives the Investor vs. Investor duel, it needs protection from the calendar, the  topic for my next post.

Next: Heading for the Exit

This post was originally published on When Worlds Collide on 9/29/2010

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