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SPEAKER_00
Okay, so Austin Alred, is that the way you say your last name? Yep. Yeah, so Austin Alred's here, he's the founder of Lambda School, which I've just been shamelessly pimping on the podcast for like a year, so you probably already know about that. He's an interesting dude, and I don't know which Austin we're gonna get.
There was controversial Twitter, Austin, that was around for, I don't know, like a year, and then like, cleaned it up a little bit, tightened it up as the company was growing, so I don't know, are we gonna get tightened up Austin or are we gonna get Lucy Goosey?
SPEAKER_02
Why is that, you can request. Oh, for Lucy Goosey for sure. My calm team isn't listening right now, so we're good.
SPEAKER_00
Right. Dude, I'm in it for the clicks and the listens, so the more controversial and interesting things you say, the better.
SPEAKER_01
So can you give Sean and Austin, can you get background? What is, his business is called Lambda School, what is that?
SPEAKER_02
Yeah, so we train people to be software engineers and data scientists in live online classes, but we don't charge anything until you're making more than $50,000 a year after the program. So the idea is if we can de-risk education for people, then you can kind of go for the education that you ought to. I mean, incentives are aligned between the school and the student, so we don't get paid unless, and we don't make money unless you're successful.
And that's kind of how we think it should be.
SPEAKER_01
So like a free school and you get a percentage of their, of the revenue that the student, percentage of the salary that student makes to a certain point and that's how you get paid back.
SPEAKER_02
Yep, that's right. So basically we get 17% of salary if and only if you're making more than 50k a year. And then once you've hit $30,000 or 24 payments, monthly payments, whatever comes first, it's done.
So it's either two years or 30 grand, whatever comes first. And if you don't get hired making more than that amount, then we never make anything.
SPEAKER_00
And give people a sense of the sort of scale, because it's been pretty wildly successful so far and kind of just getting started, but give people a sense of how land to school has grown over the last few years.
SPEAKER_02
Yeah, I mean, we started, what was it, three years ago with our first 20 students. And now, we enroll 300 or 400 students a month. So we're talking in the realm of, we're like, that's a lot of software engineers actually.
It's not the biggest university by any stretch, but we're placing more software engineers and we're thinking about like the UC system, right? All the UC schools, we're a little bit bigger than that as far as software engineering goes.
SPEAKER_00
Then all the UC schools combined? Correct. Wow, that's kind of awesome.
SPEAKER_01
Wow. So the math is, if you're adding 300 a month, that's 3,600 a year if it just stays the same. You can earn, I think you said $36,000 off of that.
So that means you're adding $130 million of revenue or a potential lifetime revenue.
SPEAKER_00
Sam, you're just flexing that mental math right now.
SPEAKER_02
Yeah, I mean, I wish it were that simple. Okay. But yeah, I mean, so let's say our average student gets hired making 70K, right? So that student will pay back just less than 25K, but we'll round it to 25 for a sake of simplicity. So if we're getting 4,000 students a year hired, then that's 100 million a year kind of over time run rate.
But you have to finance those ISAs. So we basically borrow against them and we pay a lot for that. And then every student that either drops out or doesn't get hired, we don't get paid for.
So those cuts are, that's a difficult thing, right? And so you think about like a university that had like a 75% graduation rate and a 75% hiring rate, those are pretty good numbers. But really quickly, you're at 50% of the students who enrolled were successful. So those multipliers eat in really quickly.
And that's the name of the game is making it so that as many of the students who you can possibly make successful are successful.
SPEAKER_00
That's why the incentive align matters, right? Because traditional school you enroll and, you know, whether you get a high paying job or not, you know, of course they'd like you to get a high paying job, but they don't need you to get a high paying job. They got their money either way. And so for you guys, it's not that you're nicer people than everybody, it's that the business model actually depends on you successfully getting people high paying jobs, which is what they want to.
And so like when everybody gets excited about Lambda School, they always talk about ISAs, which is like, you know, this mechanism, it's income share agreement. But that's kind of missing the point. It's more about the fact that your success is tied to the success of the student in a way that a normal university is not.
And that's why your product is going to be better. That's why you're going to train them better. That's why you're going to hustle harder to get them jobs.
That's why you're going to filter candidates better because you need that to work for your business to work. And that's not the case for a traditional school.
SPEAKER_02
Totally. Yeah, there there have already been a few points where we've kind of, you know, looked around the room at my executive team. And, you know, our executives are like, they're the best in the world at what they do, you know.
And you look around and say, you know, we are at a point right now where we're doing a pretty damn good job. And if our only incentive was to like, you know, we produce a report at the end of all this or something, like we would be patting ourselves on the back, but we're looking at our business model and saying, oh my gosh, no, we need to drive so much harder. We need to do so much better to get to where we want to be.
So, yeah, I think you're right. The ISA is cool, but the ISA itself isn't that interesting. I mean, it's nice to, you know, it's a more flexible financial instrument for students, but the incentive alignment really is the key.
And we'll dump millions and millions of dollars into getting our hiring right up a couple of points if the math works like that.
SPEAKER_01
How old are you, Austin? I'm 30. You're only 30. Wow. Okay. How much money has the company raised?
SPEAKER_02
Just over 120 million.
SPEAKER_01
And so you guys have only been around for three years. How the hell does that happen so fast?
SPEAKER_00
When I first talked to Austin, I remember you had, at the, you know, we were talking, I was like, I want to invest in this company. And at the time I remember you had in total graduated 80 students. I was like, there was like 80 students total in the pipeline, including graduated and not graduated yet.
And I remember that same math you just did where you got to like, takes about 4,000 students to get to about 100 million in revenue. That was the math I did. I think I got all of the variables wrong.
Like the wrong, I had the wrong assumption of how much you keep. I had the wrong assumption of whatever. But I also got to 4,000.
I was like, oh, he's going to get to 4,000 for sure. And you've, you know, you're on your way now. But anyway, sorry.
That's how great that wasn't that long ago when it was like 80 was the total number of students who had even experienced the goddamn thing.
SPEAKER_01
Dude, Austin being 20 wasn't that long ago.
SPEAKER_00
Like Austin losing his virginity wasn't that long ago. And that's really what everybody needs to know.
SPEAKER_01
Now they're talking like the hundred million dollar range business.
SPEAKER_02
Well, I mean, to be clear, that's like 100 million dollars of like, you know, I almost think about it like GMV, right? Like we don't, it's cute to say, look, if we get 4,000 students hired, then we'll eventually get that. A, we're not getting 4,000 students a year hired. We're a fraction of that.
B, the financing mechanism is probably the most important and most misunderstood aspect of Lambda School because the cost it would, you know, if we could raise half a billion dollars and then just sit there and wait for that 100 million to come in, we could do that. But that's not, that's not how it works, right? Like, so our equity investors do not want to put in, you know, a bunch of money to buy ISAs. They want to, they want to build a technology company.
And so we have a different, different pools of capital that are for basically borrowing against the ISAs. And you have to, you know, so you kind of take what is the expected revenue per student at, you know, early on in the program. And then you discount that a little and we can borrow against that.
And then after that, it starts to trickle in over time.
SPEAKER_01
But- How big will this get, you think? I mean, multi-billion dollar a year business?
SPEAKER_02
Yeah, for sure. I mean, so I think in terms of students, right? So- So casually. I mean- Yeah, holy.
It's not going to be easy to get there by any stretch, right? Like there's a reason no one's done this before. And that's because it's just really freaking hard. But from a kind of macroeconomic standpoint, right? Think about how many people there are in the United States who are making $30,000 or less, who could be making 50,000 or more.
And you can move those numbers to 40 and 70 or 30 and 50 or whatever, right? Like the number is outrageous. And think about how many companies would hire those people if they had the right skills. That number is outrageous too.
So the difficult thing is you have to close that full loop. So you have to take someone from having never heard of you to hired and repaying, which is like three different businesses baked in there. And then you have to have that right match, right? So it's not too dissimilar from a two-sided marketplace in some instances where you have to find the right person.
You have to find the right company. You have to train the person and then you have to get the person there. And they're different mechanisms of doing that.
But it's really difficult to do, but if it works, it's really, really powerful.
SPEAKER_01
And last question for me on this, how many people work there?
SPEAKER_02
Right now, 170 in change.
SPEAKER_01
Sam, that's just a lot of stuff to do in three years. Sam, you know, we're getting tired.
SPEAKER_02
That's full time. We have full time, or part time kind of TAs. We've got about 300 or 400 of those.
So it's a big organization for sure.
SPEAKER_01
What are we saying, Sean?
SPEAKER_00
Sam, when we were going through the acquisition process, I was like, oh, it's either gonna be this big company, this big tech company, that big tech company, or this big tech company. And I was like, damn, where would I actually wanna work? And I was like, the only company I'd wanna go work at to earn out of any deal would be Lambda School. That was like the most exciting, it was like top of my list.
So I emailed Austin, I was like, hey, you wanna buy my company, it has nothing to do with what you guys do, but we've done some live video stuff, and we're pretty smart. And he's like, all right, well, you know, what do you think? We like that it? Oh yeah, you like that it. And then I was like, you know, we'll take, you know, 7% of Lambda School.
And he was like, yeah, no reply. But I was like, that would have been, you know, I think every kind of five years, there's like a handful of companies that are really interesting to work for. When I moved to Silicon Valley, those were like Stripe and Angel List.
I thought were the two most interesting companies to work at, they were small at the time, but I thought they might get big. And right now I would put Lambda School in that bucket with, I don't know what else I would put. What do you think, Austin? What are the other like, kind of like?
SPEAKER_02
I'm super curious, who else are you gonna name? Let me think. Like I think about who like the hot companies are.
SPEAKER_00
I think Flexport's kind of interesting.
SPEAKER_01
Dude, I don't wanna hear that anymore. That's been there, done that. We all know, we all know that's badass.
SPEAKER_00
Yeah, four years ago, it would have been the one. Like Airbnb and Uber at, you know, in the 2009 range, 2010, 11, whatever, that was like the time when those were really exciting.
SPEAKER_02
Yeah, I think, I mean, when I was starting Lambda School, so, you know, a couple of years ago, the ones that I was like, oh my gosh, these are gonna be incredible companies. Air table, I was just like, oh, that's gonna be a winner. You could already tell.
Same with Notion, for, I mean, for different purposes, super human, I was just like, oh, finally someone's making a great product in this super, super obvious space. I'm in love with Rome Research. I don't know how big the business gets, but I think it's super interesting.
It's still super early.
SPEAKER_01
I don't wanna hear about Rome Research. I can't stand this shit, man. I like, because like, it's like, I'm sure the creator seemed cool, the product seemed cool.
It just doesn't make sense to me how a note taking app can, so I'm a small time, I'm a part owner in a small note taking app, and it does 80K a month in revenue, which is probably what Rome does. And I'm like, wait, what? How does this company raise at a multi-hundred million dollar valuation? I don't get it. I don't get how you could do that with a five dollar a month thing.
SPEAKER_00
Well, companies that VC, companies that VC's understand in general, get like a 30% premium on everything. You know, because they can explain it better to each other. And so they all get it.
But yeah, Sam, this is good. The more you, it's like when you insulted Gen Z and they all came for you and they all discovered our podcast, this is the same, insult the Rome Research cult and they'll all be here to defend themselves up in arms.
SPEAKER_01
It's crazy, man. I don't get it. Like here's what your community gets by pen and paper.
I don't get it, but whatever.
SPEAKER_00
Awesome, you should tell people about, I know you probably told the story a bunch, but frankly, it's kind of a great story, which is you're like, I was sleeping in a car before I started Lambda school type of thing. So explain that story. So you come to San Francisco, you wanna live the dream and you, how the hell, why were you sleeping in a car?
SPEAKER_02
Yeah, so I mean, going back a little bit further, I was going to college, I was at BYU in Provo, Utah and I was just kind of like, I always knew I wanted to do something entrepreneurial and I'd always loved technology. And for some reason it didn't click until I was like 20, that that was like a thing that you could just like go run tech companies. And I was like, oh my gosh, that's awesome.
And there's this place called Silicon Valley. And so I would, you know, and the Provo scene, like the Utah startup scene is, you know, it's getting there now, but at the time there had been kind of omniture and there was word perfect, but it was a very sales driven culture for a variety of more many reasons. But I found that like everybody was just like, hey, let's build a marginally better crappy product and let's just go sell it like crazy.
Sell shit out of it, yeah. And I mean, that works, right? Like that totally works. But I wanted like, I had a real love for product and design and like the way things worked and like, you know, changing the world in a way that you can't just like, you know, let's make a new SaaS app for dentists and like, let's sell it like crazy.
SPEAKER_01
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SPEAKER_02
So I was pretty frustrated that I couldn't find that there and I wanted to be a part of that. So it was even more than just Silicon Valley. It was like, I want to be in somewhere where they make great products, they make great stuff.
And the culture in Utah was like, yeah, we'll find a developer off the shelf and they can like build the thing so that we can go sell it. And like that was where the excitement was. But I didn't have any money.
I didn't really have a job. I didn't really have any super tangible skills. And I saw on like Hacker News, there's some guy who had reworked his Honda Civic to live in it.
And I was like, oh my gosh, I have that same two seater Honda Civic. And crazy as it sounds, like I started looking at like rent in the Bay Area and it was like 800 bucks a month. And I was like, I can't afford 800 bucks a month.
That's ridiculous. Right, for one month. Yeah. So I just put an air mattress in my car and drove out there and said, I'll figure it out. And eventually did and it worked out.
SPEAKER_01
What was your job before Lambda?
SPEAKER_02
I did like some marketing agency stuff, like some SEO stuff when that was a thing that people, like that was a career path for a while. It was like you could do SEO.
SPEAKER_01
In San Francisco?
SPEAKER_02
No, just freelance. Like there's actually a company that I got connected into randomly that they needed like SEO copywriting, right? So it wasn't like real SEO. Just like, hey, we need content about this thing and we don't even care what it says.
So we just need like, we just need a monkey to pound out some words and I'll pay you like $5 for every 500 words that you pump out.
SPEAKER_00
We need 2000 words and 25% of them need to say the word email.
SPEAKER_02
Totally. And I was working with a buddy on it and he probably had the better methodology. He would get super high and just like crank stuff out like crazy while he was tripping.
And nobody cared because it said the right amount of words and the right phrasing. But I never...
SPEAKER_01
But then you like thought of this idea and then you went through white commentator and that's kind of how you got to it.
SPEAKER_00
Was there an in between? So you go to San Francisco, you're in your car. What happens between there and Lambda school?
SPEAKER_02
Yeah, so actually I started another company between there and Lambda school. So that was a, we're saying, hey, social media is all over the place but it's not fact checked. And we're still relying on these reporters who are at the end of the day just like random people on social media trying to like figure out what's going on.
So we built like a crowdsourced newsroom kind of a Wikipedia for journalism basically where you can go in and the product would let you like haul in sources and fact check them and kind of try to do that in real time. It was semi working, but it didn't... I mean, it was so far from actually working. We had a bunch of users, but far from a revenue model, which turns out is, you wanna be close to a revenue model.
So it raised a little like half a million dollars burned through that and there's a long story and it ended up going to zero. And then went to work at a company called LendUp, which was a kind of YC company in San Francisco. So that was basically me moving from, hey, I'm like 10 steps away from money changing hands.
I wanna get as close to the money as I can. And so I kind of went down the FinTech route, which is a lot of why Lambda school worked because I was always thinking about risk in capital markets and how you can move money from one place to another and what the IRR needs to be to make that happen and how securizations happen and stuff like that. And then when Lambda school was just getting started, I was like, wait, there's gotta be a different way that you could think about this risk and shift it around and pool it and that kind of thing.
SPEAKER_01
And you, you're Mormon, right? From, I just went and lived in Utah for, I mean, I lived in San Francisco. I gave up my place. Now I just live on Airbnb's and I picked Utah because the Mormons fascinate the shit out of me.
You know, Sean and I, our friend, sometimes when I'm out or Sean's out, he's our friend named Stu subs in for one of us and he converted to Mormonism, which is weird because no one in his family's Mormon. Like I've never heard of that. And so he kind of like taught me about it.
And then I also had a friend of a friend with Josh James, the guy who started on the chair and he like would tell, and so I'm like crazy fascinated with Mormons and the culture there was so unique and interesting. What is it that makes this so, this high penetration of interesting startup entrepreneurs?
SPEAKER_02
Yeah, I mean, it's a few things. Like for me, the most formative period of my life and by a lot was serving a mission. So for those of you that don't know Mormons, when they're, it used to be when they're 19, when they're 18 now, you basically put in your papers and you say, hey, send me somewhere and I'll go teach people about Jesus and do service all day basically.
So I put in my papers when I was 18 and then what they called a mission call. So basically a letter comes and you gather around with all your family that says, you've been called to serve in this area. So for me, it was Donetsk, Ukraine.
So Eastern Ukraine kind of up against the border of Russia. So you spend a little while trying to learn the language and kind of getting your feet wet and then you're basically just shipped out and you have to figure it out. So I had to learn to speak Russian.
You know, I went on my mission in like 2000.
SPEAKER_00
Isn't that kind of a crazy ask to be like, yo, just learn to speak Russian. You only have two years on the mission anyways, right? So it's like,
SPEAKER_01
it's not that crazy dude. What happens when your family immigrated here? Like that's just what you do, right? I mean, so many people have to do that.
SPEAKER_00
Well, it's one thing to do it like kind of on your own choice in your own accord. Like I want to go to America. That's why, you know, and I speak a little bit of English, I'll improve it.
Versus like you're told, hey, an organization, Ukraine it is for you. Start brushing up, you know, you want to, even if you wanted to spread the gospel, you literally have to first learn a language which takes months. So what did you even do the first few months when you don't know how to speak Russian?
SPEAKER_02
Yeah, so you go to the missionary training center and that's like, like Lamb School is kind of modeled after that actually. So it's like, you show up on day one and by the end of the day, you're like, you shouldn't know the alphabet and you should be praying in Russian, right? And obviously it's terrible. And you don't understand cases, you don't understand the grammar, but like you just-
SPEAKER_00
So what's the Lamb School equivalent of day one? What do you know, day one of Lambda?
SPEAKER_02
I mean, day one, you should be submitting your first pull request, right? Like, and I don't think that's actually day one anymore. That's, but like, yeah, you're going to build your first website using HTML and CSS, like you're going to go. And the pace is intense and it's very much like, you're going to get thrown into the deep end and figure it out because that's the only way anybody learns anyway.
I mean, like, so I, you know, I came back, you know, spoke Russian fluently and went and took a couple of college classes and they had, you know, a way that you can like test out based on what your level of Russian was. I think I got like three years of full, like I got like a hundred credits of Russian. And, you know, you still go into the Russian classes of the people who weren't living in the country and they're like, you know, try and figure it out.
And you're like, oh my gosh, there's no way, there's no way. So there's definitely something to immersion and just like getting thrown in.
SPEAKER_00
Mormon question, do you keep track of how many people you convert? Like, do you know how many people, you know, sort of heard the message and actually like sort of went down the path?
SPEAKER_01
Yeah, what's your like your quota?
SPEAKER_02
Yeah, I mean, so it depends a lot, right? If you're in South America or Africa, it's very different than Eastern Ukraine. So in my mission, if you converted anybody, like over the course of two years, that was a win.
SPEAKER_00
Like, like one is a win.
SPEAKER_02
Yeah. And like my friends in South America, like, you know, two or three on a weekend is normal. So it just totally depends.
SPEAKER_01
And the Ukraine's don't need Jesus. They're just not into it.
SPEAKER_02
I mean, take 25 years of government forced atheism and then layer on, hey, where this American church you should join, like there's not product market fit there,
SPEAKER_01
to say the least.
SPEAKER_02
And that's how you got good at sales. Yeah, stop drinking and smoking and only have sex with your partner who you're married to. Like that's just not, it's not interesting to the average Ukrainian.
SPEAKER_00
So what was your approach? And how did you go about it? What's the sales funnel?
SPEAKER_02
Yeah, it's a really good question. There are a couple of ways. First is English classes.
So I taught an insane amount of English. And for a couple of reasons. First, that tends to bring out people who are a little bit more open-minded about, like if you're like hardcore Russian Orthodox, which you go back to the Soviet Union, like you're not gonna come to an English class.
And a lot of people, I mean, it's just different culture, right? Like people thought we were spies. People did not like Americans. They did not trust Americans.
They were kind of bummed that capitalism was a thing because their version of capitalism is basically run by the mafia. So just super, super different, right? And then the other one is just sheer brute force numbers. So there were probably six months at a time where I would spend 12 hours a day knocking on doors or approaching people in the street.
And your top of the funnel is huge. And it doesn't, your funnel is not very efficient. And if you have a sales funnel like that, at most companies you would get fired.
But that's just what you did.
SPEAKER_00
So were you like extremely motivated every morning when you woke up, like I'm gonna do this? Or was it like, well, I'm gonna enjoy the Ukraine and I'm gonna do a little bit of this.
SPEAKER_02
No, it's super sucked. And there are times like months at a time when I was kind of depressed, honestly. And that's not unique to me.
I think that's just like when you, so yeah, you keep a really intense calendar and you follow the calendar to the letter. We call them planners. You set goals every week and you report on those goals.
So everybody in the mission reports their numbers up to the mission president. And so you're keeping really, I mean, Stephen Covey was...
SPEAKER_01
This is business school.
SPEAKER_02
Yeah, I mean, Stephen Covey like it basically took the Mormon missionary planner system and turned it into seven habits like that.
SPEAKER_00
This is like, you know, when I hear somebody's time in the military and I'm like, wow, that's an incredible amount of adversity, resilience, and sort of like you really developed yourself during that time. But this is that with, you know, less of some things, but more of other things, which is like sales, human psychology, marketing, you know, you have to develop those skills in order to be successful here. So I may only work with Mormons going forward.
SPEAKER_01
Yeah. Well, I think McKinsey or Bain, they used to have a joke where it was like military, what was it? No, military McKinsey or Mormons.
SPEAKER_02
Yeah, I think that's how... I think that's Harvard actually.
SPEAKER_01
Was it Harvard?
SPEAKER_02
Harvard Business School. Is military McKinsey and Mormons. Yeah.
SPEAKER_00
Yeah, that's how my school also, that's how I now believe.
SPEAKER_01
So is that okay if we just jump right into some ideas because you tweeted something, there's two ideas that I wanna bring up to you. The first is levels, because I see you're wearing it. I know.
And Sean and I were beta testers for it and it was cool. The second is college applications. So you tweeted out something today that was crazy fascinating.
You said that colleges earn close to $500 million a year, I think, from college applications. What's that? What's that about?
SPEAKER_00
Yeah, such a strong build up. Just like you gave up at the end, say things.
SPEAKER_01
Like what's that about? So you're like the $40 application I fill out, there's $500 million worth of it.
SPEAKER_02
Yeah, I mean do the math on that, right? And you actually look at it broken down by school and it's like UCLA will have 100,000 people apply and they'll all pay 80 bucks, right? Like that starts to get crazy money.
SPEAKER_01
Isn't there like a common application?
SPEAKER_02
Yeah, so there is something called the common application, which I mean the interesting thing is if you're UCLA, like you don't wanna use a common application because then-
SPEAKER_00
Where's that $8 million?
SPEAKER_02
Yeah, you do and you don't. So the common application, you can basically like set a trigger and be like, yeah, I will accept applications from the common application. The problem with it is everybody who's using the common application is just spray and praying to everywhere.
SPEAKER_01
It's like nd.com.
SPEAKER_02
Right, and yeah, exactly. It's or like the LinkedIn like one click apply unless LinkedIn is a sponsor and then it's a different- No, they're not.
SPEAKER_00
They're either a sponsor or an enemy as far as I'm concerned.
SPEAKER_01
Yeah, unless they wanna pay us $5,000. And then in that case, yeah, we'll talk about it.
SPEAKER_02
Yeah, but it's like, so the way you use the common application is to get your acceptance rate down. Cause you're gonna get 100,000 applications of people that aren't really interested in going to your school. They're just gonna check everybody and hit submit.
And now you have a 2% acceptance rate because 100,000 people who are never gonna go to your school applied and for some messed up reason, that's like the main metric that the school rankings use. Like the US weekly school ranking, like the first thing it looks at is the acceptance rate, which is a weird set of incentives to be like the school that turns down the most people must be the best school. But that's, yeah, that's the other game that people play.
SPEAKER_01
So there is no business down this path is what you're saying.
SPEAKER_02
I don't know, like the incentives are just messed up, right? So you have to like, you have to work backwards from the incentives of like, what does the school want? The school wants a ton of applications. It wants those applications to be as expensive as possible. And it wants to be able to broadcast as low of an application percentage acceptance as possible.
So maybe they're like, that's who you really need to serve at the end of the day. Like you can serve this, the would be applicant in that world, but like the schools have the quasi monopoly. So if you don't please the schools somehow, there's nothing in there.
SPEAKER_00
So the business that I saw that was in this space, I've talked about this before, this was the company I was, I could have invested in at the seed, it's now a billion dollar plus company. And it's called Apply Board. And what they do is they went to the colleges and they basically realized this one insight, which is colleges make three times more from international students than domestic students.
SPEAKER_02
Oh, that's a killer business.
SPEAKER_00
And so they went to the schools and they said, hey, you know, if I'm sitting in Malaysia right now or in the Philippines and I want to apply, you know, what do I even, I don't even know that Brown is a university. I think it's a color. So, hey, why don't you pay me $3,000 for every student that you admit that's international and I'll just up your international volume for you.
And the school's like, all right, sure it's success fee based, right? I'm making 30 K off this person, I'll give you three. And so then they went and signed all these deals with all the universities. And then they went to the students in Malaysia, the Philippines who wanted to come to the US and they're like, hey, we will, we'll make it super easy to apply.
Right, you do a common app here. I will send that common app everywhere. And it's like this international student, like, you know, what are those like human trafficking things? It's like that, but with a, you know, with less evil.
And that business is amazing.
SPEAKER_01
With Ivy Leagueers.
SPEAKER_02
Yeah. Yeah, that's super smart. Yeah, I mean, the thing that makes money more than anything else in higher education is international students.
And that's one of the reasons that so many universities are struggling right now is, I mean, A, yeah, the desire to come to America, to go to college is lower than it has been in a while. But they're, I mean, not even because of COVID, the Trump administration is basically, I think at times intentionally being like, okay, if we, you know, stop this revenue flow, then all the universities hurt and tell those guys basically.
SPEAKER_00
Just fuck them. So why do schools charge three times more for international? Like, what is their shitty justification for that?
SPEAKER_02
They can. I mean, like, That's crazy. It's like, yeah, you guys want to come here so much more than we want you here.
So you're paying full freight. We're like an in-state student. We're going to cut our tuition in third or whatever.
Basically, it's international students subsidizing local students.
SPEAKER_00
So I think there's probably an opportunity there to cater to international students who would like to not pay the three X rate. And so maybe there's an opportunity to either, as a university, differentiate by not doing that or like come up with some shitty system that like, you apply as a domestic, you create like a body double that sort of like gets them in at the domestic rates.
SPEAKER_02
Well, I must have been kind of fascinated by this, but like, I mean, you hear about in the old, olden days, people would get into all sorts of colleges and like, I mean, I've heard the number of stories of people applying under a fake name or like, I mean, now I'm sure they've locked it down, but for a while you could just tell a school you had like a perfect SAT and they'd be like, Oh, awesome, like please come here. And they never check. Like that's crazy.
Anyway, I actually think there's something to schools moving away from the SAT and ACT that's gonna be really interesting.
SPEAKER_01
So a new SAT, a new ACT?
SPEAKER_02
Yeah, I don't totally know what the right angle is, but basically, if you look at the UC is one of the, they're kind of like the same way California from a regulatory standpoint, whatever California does a lot of other states tend to follow, the UC is kind of that for colleges. So the UC kind of sets expectations and they're moving away from the SAT and ACT entirely. And basically what they're saying is, hey, these tests are racist because different populations perform differently.
So we need to find a different measure that, you know, matches that. And they, so they went back and they did a study and the study came back and said, okay, yes, that's true, but it's also a leveling feature because if you're a poor student who's really smart, there's no way in hell you're gonna have the same extracurriculars as someone who came from money. So your only shot is these standardized tests.
So net net, you know, it's going to hurt diversity, but the pushback against the SAT was so strong that they killed it anyway. And so now there's like this, there's this black hole of like, what is the right way to evaluate, you know, who should become a student? And, you know, one of the main reasons in my opinion that employers are like, it's really easy to hire a Stanford grad because you know they're gonna have a high ACT score. They're gonna have a high AQ, they're gonna come from wealth.
They're like, all the risks are gone, generally speaking.
SPEAKER_01
Wow. So check this out. Okay, so I'm just Googling this while we're talking.
You know all about this, I imagine. So is this how it works? The college board owns the SAT, is that correct?
SPEAKER_01
That the company's called the college board. And then educational testing service, that's the one who administers the test, is that right? I don't know what that means, administers. What's the difference between administer and-
SPEAKER_00
I think they run like the brick and mortar like proctoring of the test.
SPEAKER_02
Yeah, the college board like creates the test and then you show up at like, for me, it was like you go to a high, a local high school and there's people there making sure you don't cheat and like handing out your scantrons and stuff.
SPEAKER_01
Okay, so educational testing service, that's the name of the company, ETS, right? That, wow. They did $2.1 billion in revenue last year.
And then the company, the college board, it's a nonprofit, so this is all public. In 2018, they did north of a billion in sales and something like $200 million in profit. It's fucking crazy.
And all they do is make the test. That's nuts. I mean, that's a lot, but that's pretty crazy.
SPEAKER_02
I mean, what they really did is got all of the universities to agree that that was the thing, right? Like if you have that, then you can do whatever you want on the other side.
SPEAKER_01
And the revenue has almost doubled in 10 years. Yeah.
SPEAKER_02
I mean, it's- Now, like that, and they kind of started this meme that like the reason some kids aren't getting into good schools is because they never take it. So they kind of, they're trying for like a bill that like government would fund taking the SAT or the ACT. So like any high school student just signs up and they get a check from the government.
Now they've kind of forced it into like a, hey, school districts, you should really find a way to pool money and like guarantee that every student takes it. So it's, yeah, that's good business.
SPEAKER_01
Is there a world where somebody, and by the way, I didn't even look up the ACT. I have no idea how big that is. It looks like it's a little bit smaller, but in the same ballpark maybe.
What about, is there a world where this, where a new standardized test could exist?
SPEAKER_02
Well, so I think the pushback against standardized test is going to be big enough and broad enough that I don't know if that's the angle you can take. I mean, there are companies like Criteria Corp has a test called the CCAT, the Criteria Cognitive Aptitude Test. It's basically think SAT for adults, right? For adults entering the workforce.
And there are enormous companies with hundreds of thousands of employees that will use that as one of their criteria for deciding whether or not to employ you. Now, there's some legal footwork that you need to do because in the US, for basically everybody, other than the military, it's illegal to hire based on IQ alone, for obvious reasons. For some reason, the military just does what it wants.
And like, so you can't really get into the military with an IQ of below 85. And the military tests that rigorously and it's fine. And everywhere else, the argument is made that IQ is a suboptimal measure, which I agree with.
But it's also a really easy way for employers to rule people out or to find the diamond in the rough. So there's, I don't know, there's still something around, how do you test and how do you find the right type of talent that is interesting? I don't know what it is.
SPEAKER_00
So I have a half-baked idea here. When I was in the seventh grade, I took this test. I don't know if you guys took it, but it was called the TIP, the Talent Identification Program.
Did you guys ever do this?
SPEAKER_01
We did something similar. Ours was called the Iowa.
SPEAKER_00
I took the Iowa. Yeah. So the one I took was actually, it was called the Duke TIP Program. And it was basically Duke University's endowment had created this thing called the Talent Identification Program.
They did it for seventh graders, which is kind of like earlier in the funnel before you even take your PSATs. That sort of thing. And they created this and it was their own little test.
And if you took it, you basically got this certificate that was like, congratulations, you're like in the program just for taking it. And your parents were all happy because like, oh, this university says you're talented potentially. And then if you did good, if you were like in the top 20% or 10% or whatever, you would get this like special thing, which was like, we have identified you as a talented person that we would love to have you someday come to this school.
And it was there like way of just getting a whole bunch of people to know about Duke and then apply to it. That's kind of what I... Lead Gen. Yeah, and it worked on me.
Like I literally went to Duke and I remember getting like recognized in this thing back in seventh grade and it planted a seed. And so I wonder if you could create a new tip program. And maybe you do it like for, you know, minority students or in lower socioeconomic classes where you go to certain neighborhoods and you basically host these free things that you can come take.
And then that's your lead for, colleges will actually potentially pay to have access to these leads and to market to these students because they wanna, you know, hit their quotas, have diversity, but be able to surface out who are the most talented students in these groups.
SPEAKER_01
It's like your bomb system.
SPEAKER_02
Yeah, that totally works. That totally works. Here, all of the minority kids who test really well on this thing that you probably want to come to your school, you're gonna pay me 500 bucks a lead to start marketing to them now.
Exactly.
SPEAKER_00
I know what the pricing is. You can pay me 25,000, I'll do the marketing for you even better, right? And you basically just create this like this engine, that just functions for the universities. Now, I don't know if some people are gonna probably think that's a little predatory or whatnot, but I think, you know, I'm just throwing out ideas here.
SPEAKER_01
You wanna hear something crazy that I had, I knew guys who ran GMAT quiz companies like GMAT study supply, you know what I mean? It teaches you how to do well in the GMAT. Yeah, and they would tell me that a qualified lead, like someone who is X smart or, you know, like whatever, I don't know how they qualify the lead, but like they would charge or they would pay Harvard and many other schools, something like $2,000 or $3,000 per lead, is that accurate, Austin? For what? Like what was the- Like an MBA school lead. Like someone to get on the phone with you about why you should apply to Harvard.
SPEAKER_02
For a while, there was like the education like hot swap market. So like, if you could get someone who is on the phone, who is willing to like sign up for a student loan to go to University of Phoenix, like yeah, easily couple grand, right? And like, there's some schools, if your tuition is $45,000 a year and you're like an online school, you'd have a $15,000 a cac per student and not care, which is like messed up, right? But the reality is-
SPEAKER_01
What's that messed up? I mean, the- I mean, it's just math.
SPEAKER_00
Yeah, but like the value that they're giving-
SPEAKER_02
The willingness of people- Yeah, the willingness of people to sign up for $45,000 of student loans after a phone call is what's messed up, right? Like that shouldn't be true.
SPEAKER_00
The reason it works is cause these guys, like University of Phoenix, they were able to tap into the government financial aid. So if I had to give you $45,000, I wouldn't do it. But if I just get to go to school and I'm gonna take out this loan and it kind of feels like this later problem that I don't have to worry about, and then you don't deliver on giving me a diploma that helps me get a good job, then that's fucked up.
SPEAKER_02
Yeah, I mean, there are- So this kind of caused this environment where for a long time, there were a bunch of schools that had like higher student loan default rates than graduation rates, right? So like 40% of the people who are taking out loans to go to your school are defaulting and 20% of them are graduating. And that's just like, oh my gosh, that's a travesty. But yeah, I mean, the reality is if you can, we've created this weird world where it doesn't phase people, the thought of paying $40,000 a year in tuition, and the fact that that, like people definitely don't understand the interest on that, right? Like if you're, you know, if you go to NYU and you have $100,000 in student debt and you're paying off $1,000 a month, you can pay that for the rest of your life and you won't even touch the principal.
And that just like doesn't sink in with people. So that's the tough part.
SPEAKER_01
Austin, this whole idea of these tests, I find to be just like crazy fascinating. Another test that I was obsessed with for a little while, and I just consider, you probably know a lot about this, is Strength Finder, Strength Finders. Is it Strengths? You know what I'm talking about, Strength Finder? It's owned by Gallup, which is most famous for their polling, but they own this thing.
Do you know anything about that?
SPEAKER_02
Yeah, and there are a few different versions of it.
SPEAKER_01
Basically to the listener, it's like a $50 test, right? It's a personality test. It's a $50 personality test, and it's famous for the book, Strengths Finders, but sorry, go ahead.
SPEAKER_02
Yeah, and there are a few different versions of this, and there are some, like every ATS has their own little version, right? So Hired has their own version, and LinkedIn has their own version, and it's just like, if you as an employer think that you can get a person to take the test, and then it will make you end percent better at hiring, then yeah, what's a $50 test? Who cares? But then you do the math on the other side of that, and like, oh my gosh, for doing nothing, you have to develop the test, and that might cost you $100,000, but then anything on top of like 2,000 people taking it is just gravy. That's a great business to be in.
SPEAKER_01
How big do you think that Strengths Finder thing is? I've been trying to figure that out. They're privately owned. If you told me that that $150 test makes $200 million a year, I wouldn't be surprised.
SPEAKER_02
I would guess it's in that. Let's see, Strengths Finder. What's the name of it? I guess it's Gallup, so usually I can like, It's all my Gallup.
SPEAKER_03
It's like bundles, I believe.
SPEAKER_02
It's privately owned company. Yeah, usually you can like try to back into it by number of employees or something.
SPEAKER_01
I've been trying. I've been trying to figure this out. I've used web, I've used everything.
On their website, they'll say like, this many people took it, and I'm like, okay, I guess that's the only guest estimation that I have.
SPEAKER_02
What's that number? How many people?
SPEAKER_01
Over 100 million people have tried it, it says.
SPEAKER_02
Oh, it's gotta be, I guess, 200 to 500 million a year business. I have no idea, I'm totally guessing, but like.
SPEAKER_01
That would be nuts. Because they do it one time.
SPEAKER_00
So Austin, I'm curious, before you came on the podcast, I don't know if you had any time to think about one or two ideas that are interesting to you that you think that, you know, so the audience might be interested in. Or just, you know, half-baked startup ideas that you can't pursue because you're running Lambda School. We'll give us some ideas that are cool to you.
SPEAKER_02
Yeah, there's one that I've been thinking around the edges of it, and I can't quite like, so it came partially from my experience running Lambda School partially from, if you read the blog post of Frank Slutman, who is the CEO of Snowflake that just went public. You know, he talks a lot about how much like, activity at companies is wasted. Yep. And then, you know, there's a whole kind of lean thinking and lean methodology and lean manufacturing and all this stuff. And I've been reading a bunch of books about that because I'm, you know, I wanna run a very efficient organization at Lambda School.
So I've been trying to figure out like, is there a way that you could parse out like, how much? And, you know, again, everybody that works at Lambda School, I'm sure is working on really hard stuff. They're working really hard. But I'm not sure that if I knew what everybody was working on at any given time, and I were playing God, that I would be focusing that amount of time and effort on that thing.
So I'm trying to figure out, I mean, I know some companies will use like Asana in a way that will like, figure out what everybody's working on and make sure the prioritization makes sense. But I feel like there's a missing product there, especially in a remote world, where everyone's just kind of doing their own thing and everyone's working long hours. But I guess something like 90% of the effort is just unnecessary.
It's like, finding a way to channel that.
SPEAKER_00
Right, how do you find all the slack in the system? That's not laziness. It's some combination of laziness plus just not being focused on the high priority things or chasing down the wrong, going down the wrong rabbit holes.
SPEAKER_01
This idea that I'm gonna say is definitely extreme. And I might get roasted for bringing it up, but let's just like play it out and listen to what it is. Which is there's this guy named Joe Lamont.
You know who Joe Lamont is? Yeah, really well. You heard of him? Yeah. Oh, I don't know.
Yeah, I know, crossover. Okay, so then it sounds like you have some type of experience with him, but you can talk about if you want. But basically Joe Lamont, some billionaire guy who has his company, software company, he buys software companies and outsources the jobs to India.
And then he was, he got in trouble because he would install this keystroke software into the Indian employees' computers so you could see their screen and where they type at all times. And like that sounds evil, sounds crazy,
SPEAKER_02
but like, would it work? Oh, I mean, obviously it would work, right? Like, like that's when, and I've seen there's a company, I think there's an YCE called Squiggle or something where it would basically like, the idea was, hey, you want to like keep and, it's trying to find a non-invasive way of doing that. And I think they ended up like, they would take like pictures of your screen and a picture of you and like share it with everybody else at random periods, but like, and I think they were legitimately trying. Yeah, they're legitimately trying to do like, you're working remotely with a group of people, video conferencing is really high bandwidth, what's like a lower bandwidth solution to that thing.
And I don't think that's the right solution necessarily, but there's something there, right? Like the coordination problem, and you know, the crossover thing, you can debate whether or not you would want to work with a company that puts a key logger on your computer. And I think you'd have-
SPEAKER_01
Well, the answer is no, you would not want to, but like, I would want to objectively see the results to the experiment.
SPEAKER_02
I would not be surprised if they are phenomenal. I would not be surprised one bit. I know a tiny bit about crossover and Joe-
SPEAKER_01
So then you'd have to ask yourself, why? And like, is there a way where this is, you feel more comfortable doing this that is something similar?
SPEAKER_02
Right, so there's two questions, right? First is, is Joe, or is crossover just willing to pay people that wouldn't have that job any other way? And like, I mean, they're being open to everybody who will take a programming test to decide if you'll be a programmer and then paying them like 30 bucks an hour. Like, yeah, you're gonna find people that do not love the idea of that software being installed on their computer, but for 30 bucks an hour, I'll do whatever you want, because I'm in Bangladesh and I will live like a king if you pay me that. And just because I know someone's gonna take that context, I'm not talking about paying Bangladesh.
I'm not, like, the fact of the matter is there are places with lower costs of living and lower salary expectations that you can pay those people more. So now that I've dodged that bullet, the other angle-
SPEAKER_00
Our trick is we just step in so many muddy puddles that people can't pick which one. We paralyze people who wanna cancel us by saying so many things that, you know, off the cuff that it just becomes a safe space, actually.
SPEAKER_01
Austin, do you know what WAP is? Yes. Last episode, we put the lyrics of WAP into the GPT-3 thing, the A I think, it had it right more songs. I did it today.
It came up with a great new song called, Walk the Plank. I'll tell you what it's about.
SPEAKER_02
I don't know what that's a euphemism for, but okay. So anyway, the other way is you could find a way to get the same effect for the employer or the organizer without being quite so like, you know- Traconium. Keylogger in the US would not work, but is there something that's a little lighter weight? I think Sam Lesson was working on a company that was doing something like that for operations heavy companies, where the idea was you have people who are like doing very rote regimented operations heavy stuff all the time, but they don't think like a programmer, so they can't be like, okay, here's exactly how you should automate it.
So the idea was, you know, the software will watch you do the thing and then we'll kind of spit out the instructions or the playbook or what that is, and then you can have a programmer running in behind them and automating it, which is a lot. But I mean, companies like Flexport, there's a whole lot of that happening, right?
SPEAKER_01
There's this company called CS Grocers. It's based in somewhere up here where I am in New York. It's maybe the third or fourth or fifth largest privately held company in America, and it's a grocery, they wholesale groceries to stores, and they made a change in the 80s where they started paying their workers by, their warehouse workers, they would give them a small hourly rate, but then they had to hit a quota for boxes packed.
Oh, I need to get rid of that, it's fascinating. I wrote all about it on my Twitter thing I'll share to you, but if you Google CS Grocer, warehouse workers incentives or something, it's a pretty famous case study, I believe, but they like built all this great technology to try to automate a lot of stuff, and then for the workers, they just changed how they paid them and like revenue like went through the roof. They're like, all right, we're not like, this is just fair guys, we're not just gonna, like people just start packing like so many more boxes.
SPEAKER_02
I mean, that's the old like Charlie Munger like analogy of when he, there's a guy who's working for FedEx and they're trying to like get these airplanes packed on time and every night they're failing, they're trying all these different things. And finally it said, you know what? We're gonna show up on Friday or whatever, and as soon as this plane is packed, everybody can go home. And it was like, okay, two hours, they're out of there.
Incentives. I mean, that's supposed to be his analogy, yeah, about the importance of incentives, but I'm trying to figure out if there's a way to do that within Lambda school, it's not Draconian, I haven't found it yet, but I'm super interested in that.
SPEAKER_00
I've told this story before, but I worked at this place with this kind of crazy billionaire guy, I worked under him in Indonesia, and he bought this software from Boeing, that Boeing used, either it's Boeing software or the same software Boeing used, and they used it to like manage their factory. So the same sort of thing, whenever you have this like kind of assembly line process, you can kind of just measure inputs and outputs quite, you know, it doesn't feel like, it's like a human question, it's like, you know, how much are you inputting and how much are you outputting? And he used it in our office with people on their computers, and basically like everybody on a giant wall, next to everybody, it was this huge projection, and everybody got one, every square represented one person in the company, and it would just have this like color and like this like meter basically. So like green and red based on the product that you're being.
On how productive you're being, and nobody really even understood what is measuring and how it all works, you just knew it was something installed on your laptop, and you would just like furiously try to do shit because you just didn't want your shit to go red. And so like it was like placebo productivity, you know, in a way, but you know, he could do it because he was, you know, pretty crazy. He had all kinds of crazy, like if you got pregnant, he was like, the woman needs to be at home, so you no longer have a job here.
Like he was like pretty wild and is now actually in jail for, you know, different frauds he committed, but it was a very interesting work experience, nonetheless. I have two more quick ones, and obviously you guys want to be Lambda school for many things, all the valuable ones, and let everybody chase all the not valuable ones. So, look, what do you think when you just see a new Lambda school for X come out, and what do you think are the ones that you guys are gonna pursue, and what do you think is something you're not gonna do that other people should?
SPEAKER_02
I mean, my first answer is always like, oh, good luck. Like, for a while it was just like, oh, Lambda school, that's like, I ran the math on that, that's easy, I'm gonna do that. And a year later, they're like, oh my gosh, like I have to get five things working and none of them are going to work.
So this sucks, I don't really, yeah. Can I tell you that? Has anyone successfully done it? I haven't seen anybody make the model work yet, which is saying something, because there have been, I don't know how many, I mean, the one model that does work is like, hey, you're gonna owe us 10% of your income for five years, and here are a bunch of videos, like it's hard not to make that work, but it's not like, it's not gonna get big either.
SPEAKER_00
What does it cost you all to educate somebody?
SPEAKER_02
Us, like north of 15K.
SPEAKER_00
15K, right, so you have to basically make sure that you're able to recoup that, whereas if you put the videos up on a website, okay, your cost of educating.
SPEAKER_02
Yeah, and then you might, your average successful student might pay you $30,000 and you might make $2,000 a student, but if it costs you 500 bucks a student, who cares? That's just a very different business than the one that we're running. And I don't think it would grow very well, because people, eventually you're gonna find a different way to do that. But yeah, the intensive, expensive, high quality one is pretty difficult to make work.
SPEAKER_00
I had a guy pitch me one this morning, give me your instant reaction to it. So he said, it's Lambda School for mortgage loan officers or something like that. It's basically like the loan officer who issues mortgages.
And what he was saying was that, there's this large, same thing as software engineers, like there's more capacity for hiring folks who can do this than we have folks who are trained to do it. The current model for how it's done is kind of broken. It's like run through a bank, you have to get certified in this slow process by the bank or something like that.
And basically he was like, in two months you can get trained and certified to be issuing these. The people who are high volume at this are making like 300K a year at the bottom end, they're making like 70 to 100K a year. And with interest rates being so low, there's just a high demand for people to be mortgage lending professionals.
So what's the Austin Allred official quick take on that?
SPEAKER_02
I mean, my first response is just a lot of nervousness around macroeconomic environment. Like, I mean, that feels like a short-term arbitrage that might work for a little bit and then go away. A part of that is because I don't believe, I mean, I don't believe that mortgage officers add like an insane amount of value versus like an quasi-automated process.
So I'm nervous about the long-term. And the short-term you could probably, I don't know enough about the industry, you could probably spin it up and get some cash spitting off. Like the interesting thing about that is like, you can't like fail at becoming a mortgage officer very easily, right? Like the reason Lambschool is so difficult and so powerful is because you can, it's really hard to become a software engineer, but when you are, you get paid really well.
And so that's just a different end of the market.
SPEAKER_01
What's the likelihood that you guys are gonna just fail miserably? I mean, is this a company that like, if this works, it's gonna be the biggest thing ever and it's gonna be massive? Or is there a likelihood that you just go to zero? And I mean, you know what I mean?
SPEAKER_00
There always is a probability. What do you pay your probability of failure at?
SPEAKER_01
A few percent. That's a pretty good, I mean,