Seller's remorse, sprinting marathoners, and frustrated students

To Be And To Last #45

This week we dive deep into the mysteriously unprofitable world of EdTech, uncover a possible world record for repeated acquisition, and are reminded to live for the future.

🏘️ TFW you buy the same hotel for a 3rd time

An apparently strong proponent of “buy low, sell high”, Blackstone and a partner have agreed to buy Extended Stay America for $6 billion.

It’s the third time that Blackstone has bought Extended Stay in less than 20 years.

Originally purchased in 2004 for $3.1 billion, Blackstone merged it with other hotel holdings and sold the group for $8 billion in 2007 in a leveraged buyout (a fancy way of saying the purchaser paid mostly with debt).

Just three years later that debt became unsustainable during the 2008 recession. So Blackstone swooped in to purchase Extended Stay out of bankruptcy court for just $3.9 billion in 2010.

When they IPOed in 2013, the stock initially traded at ~$24 a share, but dropped steadily over the years and more steeply during the pandemic. The latest buyout deal offers $19.50/share, a premium over the current trading price.

It’s a classic Wall Street story of buying low, selling high, and leveraging high-risk debt for consequence-free fun. Don’t try this at home.

🏃 Why are you sprinting in a marathon?

Many people live for the present, more live in the past, and a very few manage to live for the future.

Sahil Bloom’s wonderful thread of competitive advantages reminds the power of living for the future (low time preference). But while being patient, don’t forget to make the most of what little time we each have left on this planet.

🎓 The secret EdTech doesn’t want you to know

As a once-upon-a-time EdTech startup employee, I still have a soft spot in my heart for education. It is perhaps the highest leverage area for effecting real change in our world.

And yet… EdTech finances rarely tell a healthy story.

So when Coursera filed their S-1 ahead of a planned IPO, I was thrilled to see Dhawal Shah summarize the 240 page report.

In general, EdTech in the adult learning sector must solve one or more of three problems:

  1. Education (I want to learn something new)

  2. Certification (I want to convince people that I learned something)

  3. Networking (It’s who you know, not what you know)

As an uninformed outsider, here’s how I’d grade Coursera on these three EdTech jobs to be done:

  1. Education: meh. Learning online requires massive self-motivation, which many students don’t have. We need to change education, not ask people to magically manifest self-motivation.

  2. Certification: E for Effort. From partnering with Google to degree programs with actual universities, Coursera has tried here. But they only have 12k degree students. By comparison, just one of their partners (University of North Texas) has ~40k enrolled students. So on their degree business, Coursera is a very small regional university, seeking to be valued at tech multiples.

  3. Networking: Yeah, they’re not even trying here. As a Coursera community manager responded to a student who asked “How do I actually land a job after completing Coursera Courses?”: “These are really great questions…”

So where does this leave Coursera?

  • Consumer (66% of rev): Their core consumer business has flat-lined, growing just +13% YoY in 2019. Sure, 2020 gave them a 59% YoY spike, but will that pandemic-powered cocaine bump be enough to get them back on track for healthy growth?

  • Enterprise (24% of rev) has long been the cash cow in education, but even here Coursera only grew 47% in 2020 (down from 80% the year prior).

  • Degree programs (10% of rev): At just $30M in 2020 revenue, the entire program is at risk of being swallowed by a single Mr Beast video.

What’s more promising than Coursera?

  • Education: To be fair, I’ve not seen any truly inspiring work on this pillar lately.

  • Certification: I’m a big fan of Lambda School. If certification is really just a means to an end (employment), Lambda’s Income Sharing Agreement largely skips past branding and solves directly for employability. If you don’t get a job, they won’t get paid.

  • Networking: While I’m probably the worst fellow On Deck has ever had (bit off more than I had time to chew), their program does a wonderful job of unbundling the sort of networking previously reserved for elitist MBA programs.

If I were doing college today, I’d probably combine something like Lambda School (bachelor’s education + certification equivalent) with On Deck a few years later (master’s networking equivalent).*

*What I actually did was an online bachelors for education + certification followed by Tradecraft for education + networking, and then years later an online MBA for education followed by On Deck for networking.

To Be And To Last: Thinker Nate Desmond’s weekly roundup of long reads, contrarian thoughts, and hidden jewels that aren’t getting enough attention.

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