#117 Austen Allred - Lambda School's Founder Brings His Best Ideas
Okay, so Austin Allred, is that the way you say your last name? Yep. Yeah, so Austin Allred'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, you know, 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 loosey-goosey?
Wait, what's that? You can request.
Oh, for loosey-goosey, yeah, sure.
My comms team isn't listening right now, so we're good.
Right. Dude, I'm in it for the clicks and the listens, so, you know, the more controversial and interesting things you say, the better.
So can you give Sean and Austin, can you give background? What is, his business is called Lambda School. What is that?
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.
So like a free school and you get a percentage of the revenue that the student— a percentage of the salary that student makes to a certain point. And that's how you get paid back.
And give people a sense of the sort of scale of— because it's been pretty wildly successful so far, uh, and, and kind of just getting started. But give people a sense of, you know, how Lambda School has grown over the last few years.
Than all the UC schools combined?
Correct.
Wow, that's kind of awesome.
Wow. So the math is, if you're adding $300 a month, that's $3,600 a year if you— if it just stays the same. And you can earn $36,000— I think you said $36,000 off of that. So that means you're adding $130 million of revenue or a potential revenue, lifetime revenue?
Sam, you're just flexing that mental math right now.
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 $25K for sake of simplicity. So if we're getting 4,000 students you're hired, then that's $100 million a year kind of overtime 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, you know, 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. 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.
Right. That's why the incentive align matters, right? Traditional school, you enroll, uh, and, you know, whether you get a high-paying job or not, um, 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, um, 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 too. And, uh, 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 you— 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. Uh, 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.
Totally. Yeah, there, there have already been a few points where we've kind of looked around the room at my executive team and our executives are like, they're the best in the world at what they do. And you look around and say, we are at a point right now where we're doing a pretty damn good job. And if our only incentive was to like, we produce a report at the end of all this or something, 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— it's a more flexible financial instrument for students, but the incentive alignment really is the key. We'll dump millions and millions of dollars into getting our hiring rate up a couple of points if the math works like that.
How old are you, Austin?
I'm 30.
You're only 30. Wow.
Okay.
How much money has the company raised?
And so you guys have only been around for 3 years. How the hell does that happen so fast?
When I first talked to Austin, I remember you had grad— you know, we were talking, I was like, hey, I want to invest in this company. And at the time, I remember you had in total graduated 80 students. I think 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 4,000, it 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 like 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 gonna get to 4,000 for sure. And you've, you know, you're on your way now. Um, but anyway, sorry, that's, that's how crazy— that wasn't that long ago when it was like 80 was the total number of students who had even experienced the goddamn thing.
Dude, Austin being 20 wasn't that long ago.
Like, Austin losing his virginity wasn't that long ago, and that's really what everybody needs to know.
They're talking like in the $100 million range business.
Yeah, well, I mean, to be clear, that's like $100 million of like I almost think about it like GMV, right? Sure. 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— 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, our equity investors do not want to put in a bunch of money to buy ISAs. They want to, they want to build a technology company. And so we have different pools of capital that are for basically borrowing against the ISAs. And you have to, 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.
But how big will this get, you think? I mean, multi-billion dollar a year business?
Yeah, for sure. I mean, so I think in terms of students, right? 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, 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, 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 3 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, then you have to get the person there. There are different mechanisms of doing that. It's really difficult to do, but if it works, it's really, really powerful.
Last question for me on this, how many people work there?
Right now, 170 and change.
Damn, that's just a lot of stuff to do in 3 years.
Sam, you know when we were getting— That's full-time. We have part-time TAs. We got about 300 or 400 of those. It's a big organization for sure. What are we saying, Sean?
I was saying 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, we'll look at it. Oh yeah, he looked at 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, uh, you know, it— I, I think every kind of 5 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 AngelList I thought were the 2 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, uh, I don't know what else I would put. What do you think, Austin? What are the other like—
I'm super curious who else you're gonna name.
Let me think.
Like, I think about who, like, the hot companies are.
Um, dude, I don't want to hear that anymore. That's been there, done that. We all know, we all know that's badass.
Okay, yeah, 4 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, when those are really exciting.
Yeah, I think, I mean When I was starting Lambda School, so a couple years ago, the ones that I was like, "Oh my gosh, these are going to be incredible companies," Airtable, I was just like, "Oh, that's going to be a winner." You could already tell. Same with Notion for different purposes. Superhuman, I was just like, "Oh, finally someone's making a great product in this super, super obvious space." I'm in love with Roam Research. I don't know how big the business gets, Um, but I think it's super interesting. It's still super early.
Um, I don't want to hear about Roam research. I can't stand this shit, man. I like, because like, it's like, I'm sure the, the, the creators seem cool. The product seemed cool. It just doesn't make sense to me how a note-taking app can. So I, I'm a, I'm a small time, I'm a part owner in a small note-taking, taking app and it does $80K a month in revenue, which is probably what Roam does. And I'm like, Wait, what? How does, 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 $5 a month thing.
Well, companies that VC— yeah, companies that VCs understand in general get like a 30% premium, uh, on, on everything, um, you know, because they can explain it better to each other, um, and so they all get it. But, uh, 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 Roam research cult, and they'll all be here to defend themselves up in arms.
It's crazy, man. I don't get it. Like, here, like, here's what you're competing against, my pen and paper. I don't get it, but whatever.
Um, awesome. You should tell people about, um, I know you probably told the story a bunch, but frankly, it's kind of, it's kind of a great story, which is you're like, I was sleeping in a car before I, before I, you know, started Lambda School type of thing. Uh, so explain, explain that story. So you, you come to San Francisco You want to live the dream and you— how the hell— why were you sleeping in a car?
Yeah, so I mean, going back a little bit further, um, I, I was going to college. I was at BYU in Provo, Utah, um, 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. I was like, oh my gosh, that's awesome, um, 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 WordPerfect, but it was a very sales-driven culture for a variety of Mormon-y reasons. But I, you know, 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 the shit out of it, yeah.
And they, 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. 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 build a thing so that we can go sell it. And 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 Hacker News, there was some guy who'd Re— like, reworked his Honda Civic to live in it. And I was like, oh my gosh, I have that same 2-seater Honda Civic. And crazy as it sounds, like, I started looking at like rent in the Bay Area and it was like $800 a month. And I was like, I can't— who can afford $800 a month? That's ridiculous, right? For one room. 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.
What was your job before Lambda?
I did some marketing agency stuff, some SEO stuff when that was a thing that people— that was a career path for a while was you could do SEO.
In San Francisco?
No, just freelance. There's actually a company that I got connected into randomly that they needed SEO copywriting. So it wasn't real SEO is 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, 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.
We need 2,000 words and 25% of them need to say the word email.
Totally.
Well, and I, I, yeah, 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 words and the right phrasing, but I never did.
But then you thought of this idea and then you went through Y Combinator and that's kind of how you got there.
Was there an in-between? So you go to San Francisco, you're in your car, what happens between there and Lambda School?
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 random people on social media trying to 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 pull 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 if you want to be close to a revenue model. So I'd 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 want to get as close to the money as I can. And so I kind of went down the fintechy route, which is a lot of why Lamb School worked. Because I was always thinking about risk and capital markets and, you know, how you can move money from one place to another and what the IRR needs to be to make that happen and how securitizations happen and stuff like that. Um, and then when Lambda School was just getting started, I was like, wait, there's got to be a different way that you could, you know, think about this risk and shift it around and pool it and that kind of thing.
And you You're Mormon, right? From, um, I just went and lived in Utah for, I mean, I, I lived in San Francisco. Uh, I gave up my place. Now I just live on Airbnbs 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, no one in his family's Mormon. I'm 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 Amateur, 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?
Yeah, I mean, I think it's a few things. Like the, 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 call it a mission call. So basically a letter comes and you gather around with all your family and it 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 and like—
kind of a crazy ask to be like, yo, just learn to speak Russian. Uh, you only have 2 years on the mission anyways, right?
So it's like, what do you— it's, it's not that crazy, dude. What happens when you're, when your family immigrated here? Like, that's just what you do, right? I mean, so many people have to do that.
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 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?
Yeah, so you go to the missionary training center, and that's like— like, Lime School is kind of modeled after that, actually. So it's like, you show up on day 1, and by the end of the day, you're like, you should know the alphabet and you should be praying in Russian, right? And obviously it's terrible, um, and you don't understand cases, you don't understand the grammar.
But like, the school equivalent of day 1, what do you know? Day 1 of Lambda?
I mean, day 1, you should be submitting your first pull request, right? And I don't think that's actually day 1 anymore, but yeah, you're going to build your first website using HTML and CSS. 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, so I came back spoke Russian fluently and went and took a couple college classes and they had a way that you can test out based on what your level of Russian was. I think I got 3 years of full— I got 100 credits of Russian. And you still go into the Russian classes of the people who weren't living in the country and they're trying to figure it out. 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.
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, and actually like sort of went down the path?
Yeah, what's like your quota?
Yeah, I mean, so it depends a lot, right? Um, if you're in South America or Africa, it's very different than eastern Ukraine. Um, so in my mission, if you converted anybody like over the course of 2 years, that was a win, right?
Like, one is a win.
Yeah. And like, my friends in South America, like, you know, 2 or 3 on a weekend is normal. Um, so it just totally depends.
Um, and the Ukrainians don't— the Ukrainians don't need Jesus. They're just not into it.
I mean, take 25 years of government-forced atheism and then layer on, hey, we're this American church, you should join. Like, it's— there's not product-market fit there, right? To say the least.
Good sales.
Yeah, stop drinking and smoking and only have sex with your partner who you're married to. Like, that just is not— it's not interesting to the average Ukrainian.
So what was your approach then? How did you go about it? What's the sales funnel?
Yeah, that's a really good question. There are a couple 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, you wish you could go back to the Soviet Union, like, you're not going to come to an English class. And a lot of people, I mean, it's just a 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? Then the other one is just sheer brute force numbers. So, you know, there were probably 6 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— you know, your funnel is not very efficient. And if you have a sales funnel like that, in most companies you would get fired. But that's just what you did.
So were you like extremely motivated every morning when you woke up, like, I'm gonna do this? Or was it like, well, no, I'm gonna enjoy the Ukraine and I'm gonna do a little bit of this?
No, it super sucked. Um, and there were times, like months at a time, when I was kind of depressed, honestly. And, you know, 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. I mean, 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—
This is business school.
Yeah. I mean, Stephen Covey basically took the Mormon missionary planner system and turned it into 7 Habits.
This is like when I hear somebody's time in the military and I'm like, wow, that that's an incredible amount of adversity, resilience, and sort of like, um, you really developed yourself during that time. But this is that with, um, you know, less of some things but more of other things, which is like sales, human psychology, uh, marketing. You know, you have to develop those skills in order to be successful here. Um, so I may only work with Mormons going forward.
Yeah, well, they're, uh, I think McKinsey or Bain, they used to have a joke where it was like Uh, military, uh, what was it? No, military, McKinsey, or Mormons. Yeah, I think that's who they wanted to hire.
I think it's Harvard, actually. The—
Harvard Business School is military, McKinsey, and Mormons.
Yeah, yeah, that's, that's now my, my school also. That's how I, I now believe.
So is that okay if we just jump right into some ideas? Because you tweeted something. There's two ideas that I want to bring up to you. The first is Levels, because I see you're wearing it. Anyway, and Sean and I were beta testers for it, and it was cool. The second is college applications. You tweeted out something today that was crazy fascinating. You said that, uh, colleges earn close to, uh, $500 million a year, I think, from college applications. What, what's that? What's that about?
I mean, that's such a strong buildup, just like you gave up at the end.
Say things. Yeah, like, what's that? What's that about? So you're like, the $40 application I fill out, that there's $500 million worth of it?
Yeah, I mean, do the math on that, right? And you actually look at it broken down by like school, and it's like, you know, UCLA will have 100,000 people apply and they'll all pay $80, right? Like, that starts to get crazy money.
Um, isn't there like a Common Application?
Yeah, so there is something called the Common Application. Um, which, I mean, the interesting thing is if you're UCLA, like, you don't want to use a Common Application because then where's that $8 million? 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.
Um, it's like indeed.com, 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, uh, no, they're not.
You're either a sponsor or an enemy as far as I'm concerned.
Yeah, unless they want to pay us $5,000, and then in that case, yeah, we'll talk about it.
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, um, 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. Um, but that's— yeah, that's the other game that people play.
Um, so there is no business down this path is what you're saying?
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— and 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, um, but like, the schools have the quasi-monopoly. So if you don't please the school somehow. There's nothing there.
So the business that I saw that was in this space, uh, 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, um, and it's called ApplyBoard. And what they do is they, they went to the colleges and they basically realized this one insight, which is colleges make 3 times more from international students than domestic students.
Oh, that's a killer business.
And so they went to the schools and they said, hey, uh, 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 $30K off this person, I'll give you $3K. 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, 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.
Like Ivy Leaguers.
Yeah. Oh, 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, it's there. The desire to come to America to go to college is lower than it has been in a while. Um, but they're— I mean, not even because of COVID the Trump administration is basically, I think, at times intentionally being like, hey, if we, you know, stop this revenue flow, then all the universities hurt, and all of those guys basically, um, just fuck them.
So by the way, why, why do schools charge 3 times more for international? Like, what is their shitty justification for that?
It's a can.
I mean, 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. Or like an in-state student, we're gonna cut our tuition in third or whatever, right? Basically, it's, it's international students subsidizing local students.
So I think there's probably an opportunity there to cater to international students who would like to not pay the 3x rate. And, um, and, and so maybe there's a, there's an opportunity to either as a university differentiate by not doing that, or, um, like come up with some shitty system that like you apply as a domestic— you create like a body double that sort of, you know, like gets them in at the domestic rates.
I've always 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, they're— 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'd 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.
So a new SAT, a new ACT?
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. 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. 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 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 going to have the same extracurriculars as someone who came from money. So your only shot is these standardized tests. So net-net, it's going to hurt diversity, but the pushback against SAT was so strong that they killed it anyway. So now there's this black hole of what is the right way to evaluate 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 IQ, they're gonna come from wealth. They're like, all the risks are gone, generally speaking.
Um, wow. So check this out. Okay, so I'm just Googling this while we're talking. You know all about this, I imagine. The, uh, the— so Is this how it works? The College Board owns the SAT, is that correct? Yes. 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?
I think they run like the brick and mortar, like proctoring.
Like creates the test and then you show up at like a— for me it was like you go to a high school, a local high school, and there's people there making sure you don't cheat and like handing out your Scantrons and stuff.
Okay, so the, uh, 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, um, nonprofit, so this is all public. In 2018, they did north of a billion in sales and something like, uh, $200 million in profit. Yeah, fucking crazy. And all they, all they do is make the test. That's nuts. I mean, that's a lot, but that's pretty crazy.
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, you know, you can do whatever you want on the other side.
And the revenue has almost doubled in 10 years.
Yeah, 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, 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 kind of force it into like, hey, school districts, you should really find a way to pool money and like guarantee that every student takes it. So it's— that's good business.
Is there a world where— 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, but in the same ballpark, maybe. Um, what about, is there a world where this, where a new standardized test could exist?
Well, so I think the pushback against standardized tests 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, um, 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 are 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 military tests that rigorously and it's fine. 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 or whatever. So 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.
So I have a half-baked idea here. When I was in the 7th grade, I took this test. I don't know if you guys took it, but It was called, uh, the, the TIP, the Talent Identification Program. Did you guys ever do this?
We did something similar. Ours was called the Iowa.
Yeah, so, 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 7th graders, which is kind of like earlier in the funnel before you even take your PSATs, that sort of thing. And Um, they created this and it was their own little test, and if you took it, you basically got this like 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, you're talented potentially. And then if you did good, if you're 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 their like way of just getting a whole bunch of people to know about Duke and then apply to it. That's kind Yeah, and it worked on me. Like, I literally went to Duke. I remember getting, like, recognized in this thing back in 7th grade. 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, you go to certain neighborhoods and you basically host these free things that you can come take, and then that's your leads for, uh, colleges will actually potentially pay to have, uh, access to these leads and to market to these students because they want to, you know, hit their quotas, have bigger have diversity but be able to surface out who are the most talented students in these, uh, groups.
It's like your farm system.
Yeah, that would totally work. That would totally work. Here, here are all of the, you know, minority kids who test really well on this thing that you probably want to come to your school. You're going to pay me $500 a lead to start marketing to them now. Exactly. Actually, 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 like, uh, this engine that just functions for the universities. Now, I don't know, some people are gonna probably think that's, you know, a little predatory or whatnot, but, um, I think, you know, I'm just throwing out ideas here.
Yeah.
You want to hear something crazy? That I, that I've— I had a, uh, I knew guys who ran, um, GMAT quiz companies, like GMAT study supply, you know what I mean? Teaches you how to do well on the GMAT. Yeah. And they would tell me that a qualified lead Um, 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?
Uh, for, 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?
For a while there was like the education hot swap market. So if you could get someone who is on the phone who's willing to sign up for a student loan to go to University of Phoenix, yeah, easily couple grand, right? And there's some schools, if your tuition is $45,000 a year and you're an online school, you could have a $15,000 CAC per student and not care, which is like, messed up, right? Um, but the reality is, I mean, the—
it is— I mean, it's just math.
Yeah, the value that they're giving 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's— that shouldn't be true.
The reason— the reason it works is because 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 I'm going to 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.
Yeah. I mean, so this kind of caused this environment where for a long time there are a bunch of schools that had higher student loan default rates than graduation rates. 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 it'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 faze people, the thought of paying $40,000 a year in tuition. And the fact that people definitely don't understand the interest on that. 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 That's the principle. And that just doesn't sink in with people. So that's the tough part.
Austin, this whole idea of these tests I find to be just 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 StrengthsFinder. StrengthsFinders. Is it Strengths? You know what I'm talking about? StrengthsFinder. It's owned by Gallup, which is most famous for their polling, but they own this thing. Do you know anything about that?
Yeah, there are a few different versions of it.
Um, 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 StrengthsFinders. But sorry, go ahead.
Yeah. And there are a few different versions of this and there are some, um, you know, like every, 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 that it will make you N% 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.
How big do you think that StrengthsFinder thing is? I've been trying to figure that out. They're privately owned. If you told me that that one $50 test makes $200 million a year, I wouldn't be surprised.
I guess it's in that. Let's see, StrengthsFinder. What's the name of— I guess it's Gallup. So usually I can like—
It's owned by Gallup. It's a privately owned company.
Yeah, usually you can like try to back into it by number of employees or something.
I've been trying. I've been trying to figure this out. I've used web archive, 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 guesstimation that I have.
What's that number? How many people?
Over 100 million people have tried it, it says.
Oh, it's gotta be, I guess 200 to 500 million a year business. I have no idea. I'm totally guessing, but like.
That would be nuts because they do it one time.
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 us or the audience might be interested in, or just half-baked startup ideas that you can't pursue because you're running Lambda School. Give us some ideas that are cool to you.
Yeah, there's one that I've been thinking around the edges of it and I can't quite— So it came partially from my experience running Lambda School, partially from— If you read the blog posts of Frank Slootman, who is the CEO of Snowflake that just went public, He talks a lot about how much activity at companies is wasted. And then 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 want to run a very efficient organization at Lambda School. So I've been trying to figure out, is there a way that you could parse out how much 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 don't— I feel like there's some 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, right?
How do you find all the slack in the system that's not laziness? It's, uh, you know, some combination of like Laziness plus, you know, just not being focused on the high priority things or chasing down the wrong— going down the wrong rabbit holes.
This idea that I'm going to 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, okay.
Yeah, I know Crossover.
Okay, so then it sounds like you have some type of experience with them, but you could talk about if you want. But basically, Joe Lamont, some billionaire guy who has this 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, but like, I mean, I mean, obviously it would work, right? Like, like, that's Well, and I've seen there is a, there's a company, I think it was in YC called Squiggle or something where it would basically like, the idea was, hey, you want to like keep in, 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, 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? 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, you can debate whether or not you would want to work with a company that puts a keylogger on your computer. And I think you have—
well, the answer is no, you would not want to. But But like, what— I would want to objectively see the results to the experiment.
I would not be surprised if they are phenomenal. I would not be surprised one bit. Um, I know a tiny bit about Crossover and Joe.
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, 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 an hour. Yeah, you're going to find people that do not love the idea of that software being installed on their computer, but for $30 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 going to take that out of context, I'm not talking about Bangladesh. I'm not— The fact of the matter is there are places with lower cost of living and lower salary expectations, and you can pay those people more. Um, so now that I've dodged that bullet, um, the other angle—
our trick is we just step in so many muddy, you know, puddles that, you know, people can't pick which one. We paralyze people who want to cancel us by saying so many things that, you know, off the cuff, that it just becomes a safe space.
Actually, Austin, do you know what WAP is?
Yes.
Last episode we put the lyrics of WAP into the GPT-3 thing, the AI thing, and had it write 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.
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 like effect for the employer or the organizer without being quite so like You know, like keylogger, keylogger in the US would not work, but is there something that's a little lighter weight? I think Sam Lessin 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 the software will watch you do the thing and then will kind of spit out the instructions or the playbook for 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?
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, uh, it's a grocery— they, they wholesale groceries to, you know, 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 know, like that. This is fascinating. It's, uh, I wrote all about it on my Twitter thing. I'll share it to you. But if you Google CS Grocer warehouse workers incentives or something. It's a pretty famous case study, I believe. Um, 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.
I mean, that's the old like Charlie Munger like analogy of when he, you know, he's— 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 were failing and they were trying all these different things. And finally he said, "You know what? We're going to show up on Friday or whatever, and as soon as this plane is packed, everybody can go home." And it was like, okay, 2 hours, they're out of there. Incentives. I mean, that's supposed to be his analogy, yeah, about the importance of incentives. But I've been trying to figure out if there's a way to do that within Lambda School that's not draconian. I haven't found it yet, but super interested in that.
I've told this story before, but I worked at this place with this kind of crazy billionaire guy. I worked under him, uh, in Indonesia, and he, um, 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. Uh, 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 the— on a giant wall next to everybody 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.
And red based on— yeah, you're green or red being—
yeah, on how productive you're being. And nobody really even understood what it's measuring and how it all works. You just knew something's 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. Uh, 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, you no longer have a job here. Like, he was like pretty wild and is now, is now actually in jail for, for, you know, different frauds he committed. But, um, it was a very— it was a very interesting work experience nonetheless.
Um, Interesting.
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 going to pursue? And what do you think is something you're not going to do that other people should?
I mean, my first answer is always like, oh, good luck. For a while it was just like, oh, Lambda School, I ran the math on that. That's easy. I'm going to do that. And a year later, they're like, "Oh my gosh, I have to get 5 things working and none of them are going to work. So this sucks." I'm like, "Yeah, could have told 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 going to owe us 10% of your income for 5 years and hear a bunch of videos." It's hard not to make that work, but it's not like— it's not going to get big either.
What does it cost y'all to educate somebody?
For us, like north of $15K.
$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—
Yeah, and then you might, you know, your average successful student might pay you $30,000 and you might make $2,000 a student, but if your costs are $500 I lost 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 would— Eventually you're going to find a different way to do that. Yeah, the intensive, expensive, high-quality one is pretty difficult to make work.
I had a guy pitch me one this morning. Give me your instant reaction to it. So he said it's Lambda School for— uh, mortgage loan officers or something like that. It's basically like the loan officer who issues mortgages. Um, and what he was saying was that, you know, there's this large, um, uh, same thing as software engineers. Like, there's more, uh, capacity for hiring folks who can do this than we have folks who are trained to do it. Um, the current model for how it's done is like kind of broken. It's like run through a bank. You have to like get certified in this like slow process by the bank or something like that. Um, and basically he was like, you know, in 2 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 $70K to $100K a year. Um, and with interest rates being so low, there's just a, you know, high demand for people to, to be mortgage lending professionals.
Um, so what's the Austin Allred official quick take on I mean, my first response is just a lot of nervousness around macroeconomic environment. That feels like a short-term arbitrage that might work for a little bit and then go away. Part of that is because I don't believe that mortgage officers add an insane amount of value versus a quasi-automated process. So I'm nervous about the long term. In 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 Lambda School 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.
What, what's the likelihood that you guys are going to just fail miserably? I mean, is this a company that like, like, uh, all— if this works, it's going to be the biggest thing ever and it's going to be massive? Or is there a likelihood that you just go to zero? And I mean, you know what I mean?
There always is a probability. What do you pay your probability of failure at?
That's a pretty good—
and I mean