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Smart entrepreneurs seek large, underserved markets and have a special interest in those rare markets that are “evergreen” – markets that refresh themselves. They leverage (or exploit) the competitive advantage of their product(s) or service(s).  And smart entrepreneurs also use “other people’s money” (aka OPM) to launch and grow their operations.

These three factors – market opportunity, competitive advantage, and OPM – strike me to be the appropriate reference points for framing InStride, ASU’s new, online, for-profit, “learning services company.” Information about ASU’s plans for this new for-profit first broke on March 19th.  Then on Friday, April 5th, there was the ASU-InStride press release, three days ahead the annual gathering of education entrepreneurs, innovators, and investors at the ASU GSV Summit in San Diego.  The press release announced the new company and formally proclaimed ASU’s goals for this venture:

“Too many people have been left out of higher education for reasons such as cost, time, or family circumstances,” said Michael M. Crow, president of Arizona State University. “Many forward-thinking employers are already leading the way in the movement to provide learning opportunities for employees that result in life-altering benefits. We have created InStride to accelerate that movement and partner with more employers who seek to provide flexible learning options for employees no matter what stage of their career they are in.”

As previously reported, ASU will be a minority partner in this venture.  The university will contribute key assets – online courses and content, plus its managerial experience and expertise with online education.  Money to support this venture comes from The Rise Fund, a social impact fund that like all social impact funds proclaims to “do good” for society, while also “doing well” for investors.  And the target market is large corporations that will direct employees eager to finish college degrees directly to ASU’s online program via agreements to be negotiated by InStride.

Here’s how my hyperactive inference engine assesses the ASU-InStride venture.

Market Opportunity

The world of online education is large, growing, and increasingly competitive. It has also become strategically important for a rising number of institutions eager to increase enrollments and revenues as operating support for public institutions remains flat or has declined in many states, and as US colleges and universities confront a decline in the population of traditional-age college students. 

Recent data from the National Center for Education Statistics (NCES) reveal that while overall postsecondary enrollment dropped by 90,000 students between 2016 to 2017, the number of students taking at least some of their coursework online grew by 350,000 during the same period (up 5.7 percent).  In 2017, students enrolled exclusively in online programs or courses accounted for 15.4 percent of total enrollments, up from 14.7 percent in 2016.  These percentages translate into some 3.1 million students enrolled exclusively in on-line programs and courses in 2017, out of a total enrollment of some 20.1 million students at degree-granting postsecondary institutions in the United States.

However, in the context of InStride, ASU President Michael Crow has his eyes on the 35 million adults who started college but did not earn a degree – “75 percent who work for a company and have no pathway [back] to college.” (That’s some 26 million adults currently in the workforce). To borrow from hockey great Wayne Gretzky’s quip about “skating to where is the puck is going, not to where it is,” Crow, his ASU colleagues, and his InStride partners are looking beyond the trajectory of the “puck on the ice” to the thousands watching the game from the other side of the glass in the arena or on television.

Moreover, the working adults who might be interested in going back to college constitute an “evergreen” market. What’s significant here is that, in aggregate, baccalaureate degree completion rates have been stubbornly flat for several decades despite significant institutional efforts and expenditures to improve retention and graduation rates.  This means, of course, that large numbers of students who start college subsequently leave college after year or two. Consequently the “some college” population refreshes itself each year even as many working adults with prior college experience and credits pursue and eventually complete baccalaureate degrees or other certificates.

So the market opportunity here is significant and the logic simple: mindful of Willie Sutton’s quip that he robbed banks “because that’s where the money is,” ASU and InStride will target the “some college” population of adults employed by companies and corporations – because that’s where the big numbers are.

Competitive Advantage

Earlier this year US News and World Report ranked ASU’s on-line baccalaureate program as No. 2 in the nation.  The online program at ASU is large – some 40,000 students according to public statements last week at the ASU GSV Summit.  ASU also offers a large, rich, and diverse portfolio of online bachelors degrees, taught, as President Crow emphasized in our conversation, by “regular ASU faculty.”

In addition to its highly ranked online degree programs, ASU’s competitive advantage includes experience and expertise with a large corporate partner. Launched in 2014, the Starbucks College Achievement Plan (SCAP) “provides all eligible U.S. partners the opportunity to receive 100% tuition coverage to Arizona State University” (original emphasis).  SCAP has allowed ASU to gain direct experience working with a large population of “some college” corporate employees interested in completing their baccalaureate degrees.  According to the numbers discussed last week at the ASU GSV Summit, some 12,000 “Starbucks partners” are currently enrolled in online degree programs at ASU.  As of 2018, some 2,400 Starbucks employees had completed online degrees since the program launched in 2014, a number ASU officials estimate will rise 3,000 this spring. 

So as above, the logic here is clear:  InStride and ASU will leverage ASU’s online programs and draw on ASU’s experience with Starbucks to develop (many!?) additional corporate alliances that will send more members of the “some college” workforce directly to ASU for online courses and degrees.

Other People’s Money

Smart entrepreneurs use OPM – other people’s money.  In this case the OPM that underwrites InStride comes from The Rise Fund. Crow previously characterized the Rise Fund’s (initial?) investment as in the “low tens of millions.” Additionally, Crow stated explicitly during our conversation in San Diego last week that ASU would not invest cash.

But interestingly, there is a second strategic OPM factor at work here – corporate reimbursement for the tuition of employees enrolled in ASU’s online programs.  So ASU and InStride benefit from two pots of OPM – the Rise Fund to support InStride’s operations plus tuition reimbursement from Starbucks and future corporate partners funneling students to ASU.

More About the ASU-Starbucks Relationship

Last week in San Diego we also earned just how important the Starbucks relationship is for ASU’s online headcount. The 12,000 Starbucks partners currently enrolled in ASU’s online program account for almost a third (30 percent) of ASU’s 40,000 online students.  That’s a large number of students who are directed to ASU by Starbucks and who also benefit from tuition support from Starbucks.

We know less about the metrics of success for the ASU-Starbucks initiative.  The conventional cohort tracking models used for entering freshmen do not apply here. However, the aggregation of both public statements and ASU’s public data provides some insight. The 2,400 Starbucks partners who completed online baccalaureate degrees at ASU through 2018 account for about a sixth of the 15,711 students who earned online degrees at ASU over the past three years (2016-2018).  (Note that online degrees at ASU effectively doubled from 2016 to 2018, from 3,669 to 6,939)  

Appropriate Analogies

If the appropriate reference points for the ASU-InStride initiative are market opportunity, competitive advantage, and OPM, what then are the appropriate operational analogies? 

To me, InStride looks a lot like a medical PPO – a preferred provider organization.   But rather than contracting with a network of physicians and other health care providers, major firms will contract with InStride (and ASU) for online courses and degree programs for their employees.  These partnerships will direct large numbers of prospective students directly to Arizona State.  And although President Crow affirmed that the InStride students will have to meet regular ASU admissions requirements, the partnership arrangements should help expedite the admissions process for the students who come to ASU via InStride’s agreements with various corporate partners.

There is a second analogy, one that is a bit less “semantically enhanced.” The ASU-InStride relationship with client companies is an educational funnel that will channel employees to InStride and ASU.   The movement into the funnel of the “some college” workforce to ASU is fueled by students’ aspirations to earn a degree and the financial incentives (corporate tuition remission) that underwrite their costs.

The funnel strategy has some clear benefits for ASU and InStride.  For example, one of the major front-end costs for most online programs is “client acquisition” – the radio and cable TV ads, online marketing, and other activities required to promote programs and to recruit individual students.  The ASU-InStride strategy would appear to bypass individual recruitment to target “pre-qualified” groups – the employees at Starbucks and at other firms who gather in break rooms or who check their HR benefits on corporate web sites. In other words, the funnel strategy is targeted recruitment, at scale, with significant financial incentives. Additionally, ASU and InStride will no doubt benefit from the peer-to-peer conversations among these employee groups: those who have successful experiences at ASU will likely share information about that experience with their work associates.

On the other hand, critics comment that the funnel strategy limits educational options by channeling employees to preselected educational providers. For example, the Starbucks College Achievement Plan (SCAP) directs employees only to ASU, although it places no limits on a student’s choice of major.  In contrast, Amazon’s Career Choice initiative does not restrict which college or university an employee may attend, but does limit program choices, providing tuition support for “education only in areas that are well-paying and in high demand according to sources like the U.S. Bureau of Labor Statistics.”  There is another very important difference between the two programs:  Amazon will only underwrite technical and vocational training, but not bachelors degrees; the Starbucks program is focused on helping baristas earn their baccalaureate degrees.  Notably, neither Amazon nor Starbucks require that the education program be directly related to current or future career opportunities at the sponsoring firm, nor are employees at Amazon or Starbucks obligated to remain at the sponsoring firm once they complete an educational program. 

Cash, Command, and Control

Among the chattering digeratti (like me), some of the big questions about InStride involve corporate control and decision-making.  Rise is the banker and ASU is a minority partner.  And as I noted in my March 27th blog post titled ASU Goes For Profits, “ceding control of a new venture to the ‘money people’ violates a cardinal rule of entrepreneurship: ALWAYS. RETAIN. CONTROL.”

Consequently, it was interesting to hear Michael Crow explain why ASU needed to create InStride and how ASU “has control mechanisms” even as the university is a minority partner in the InStride venture.

Crow said that InStride “creation story” reflected ASU assessment, based on the Starbucks experience, that the university would benefit from an “intermediary” organization to recruit corporate partners and manage the corporate relationships.

As for control, Crow said that ASU, although a minority partner, has multiple “control mechanisms” over the InStride arrangement and the relationship with the Rise Fund.  These mechanisms include half the seats on the InStride board, veto power over the CEO appointment, approval of any additional university participants, and also approval over the key terms of a financial exit for equity partners.  So even as it is a minority stakeholder, ASU appears to have the controlling hand on critical strategy, partnership, financial, and operational issues.

Crow also framed InStride as another example of ASU’s entrepreneurial culture and the university’s many (“maybe 150, but that’s not the exact number”) equity and technology partnerships.  Yet he acknowledged that InStride is different from the usual agreements to commercialize patents, products, and processes.  Those agreements typically involve and (financially) benefit the creators (often individual faculty and research groups) as well as the university and the technology or equity partner.  In contrast, the salaried Arizona State faculty and instructional designers who created the online course content that ASU contributes to InStride are not likely receive a direct financial benefit the way faculty and researchers do when their lab work finds a commercial market.  

Indeed, at this early very stage the investor (and by extension InStride employee) equity issues appear to present some interesting (if likely longer-term) challenges. Equity investors typically seek a 3-5x return on their investment within 5 years.  For the Rise Fund, that would mean a $30-50 million (or more) payout on what Crow previously characterized as an initial investment in the “low tens of millions.”  But because ASU has significant (but not total) control over the financial exit options for equity investors, it may be difficult for Rise and other equity holders to sell their equity in the company.  

Too, there is the issue of the potential equity payouts for the InStride executives who helped launch and manage the company.  Ahead of the ASU GSV gathering in San Diego, the backbuzz about InStride was that part of the recruitment pitch to the initial group of senior executives was a “five year exit and your gonna be rich.”  The usual way that founding executives at a start-up “get rich” is when the company is bought by another investor or goes public. Does the “gonna be rich” recruitment pitch suggest that ASU and/or Rise ultimately anticipate an InStride public stock offering, which would then allow equity investors and other equity holders, including ASU, to cash out?  (Alas, this is an afterthought question I did not ask Crow during our conversation.  And for the record, Crow stated that the “gonna be rich” recruitment pitch, if true, did not come from anyone associated with ASU.)

Other University Partners

During our interview Crow stated that he hoped other universities would join ASU as part of the InStride initiative.  His requirement for potential InStride academic partners, over which ASU has final approval, is that they are “research grade universities” with “research grade faculty.”  Confirming Crow’s statements about other university partners, InStride’s home page proclaims that the company “provides an exclusive network of the highest-quality global universities, with a proven track records for working adults,” followed by an ASU logo and two white box placeholders for an “additional university to be announced.”  

But why would ASU want to other universities to join InStride?  And why would other universities want do so? 

Additional university partners might compete with ASU’s online programs.  And adding partners would probably contribute to managerial complexity and challenges.   As Crow tells it, ASU is clearly primus inter pares in this arrangement; other academic partners will have to play by ASU’s rules if they align with InStride.

The incentive to join InStride might be access to the corporate partnerships that will (efficiently) funnel large numbers of students to online programs. Too, Crow said that ASU might give up some equity to other (qualified) academic partners, but he stated explicitly that ASU would not cede control to other academic partners – either positions on the InStride board or other key aspects of InStride’s management and operations.  Moreover, the equity might not be all that valuable if ASU controls the terms of a potential cash out/exit/sale. 

So the potential participation of other academic partners now becomes one of those “this will be interesting to watch” issues.  Over the next 3-6-12 months we will learn if other “research grade universities” decide to align with InStride, or alternatively, if they pursue other options and alliances to grow their online initiatives.

Early Days

Admittedly, these are, as the British might say, “early days” for ASU and InStride.  Much will be revealed in the coming weeks and months. InStride enters the marketplace for the “some college” population with great aspirations and with significant assets from ASU.  Everything else remains to be revealed.

The key early indicators of success will be announcements about additional corporate participants and academic partners.  And then, over time, the “metrics of success” become a matter of numbers: the number of corporate partners, the number of enrolled students from each partner corporation, and, ultimately, the number of baccalaureate degrees that the “some college” population Crow, ASU, and InStride seek to serve eventually earn through this new initiative.

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