Almost 100 days ago I challenged myself to do a daily thread on something going on in European tech, and for every miss I would donate $100.
It was a forcing function to learn more, get myself out there, and increase my production cycle from weekly (this newsletter) to daily (the threads). But it also took me through a couple of wonderful paths I would have never anticipated.
This is the story of one of those things.
Strive School is, for lack of better terms, Lambda School for Europe. It trains students to become software engineers and helps them get great jobs. Education is for free until they get hired, and then they pay 10% of their income for 4 years, up to €18,000.
Strive School is a coding bootcamp that trains students to become software engineers and helps them get great jobs. They pay absolutely nothing until they get hired, at which point they pay 10% of their income for 4 years, up to €18,000.
Strive School sits right at the intersection of my obsessions and my skills – education, marketplaces, incentives and positive change so, naturally, I did a thread about it.
The thread wasn't super bullish though. It pointed at two things I thought could derail Strive School – Europe's free education model and different unit economics than American competitors.
But Twitter is a magical place. A few days later, Tobia De Angelis, Strive School's founder, reached out. We jumped on a call, had a fantastic conversation around education, incentives and why Europe needs this. At the end of that call, I decided to invest.
This is why.
The Problem: Europe and 2 million underemployed
Europe's education system is, famously, "free". But is it?
Even though higher education in Europe is extremely affordable compared to the United States and sometimes tuition can be $0 per year, it's definitely not free.
Leaving aside the opportunity cost of committing 4 years on something with, there are some real, tangible costs associated with obtaining a degree. Rent, public transport, books, leisure and other expenses end up being €10,000 to €20,000 per year for the average student.
This is a particularly hard obstacle to overcome for students moving away from home to attend university (like many Europeans do as a choice or because they live in smaller cities with no higher education available), children of immigrants and low income house-holds.
But even if higher education in Europe is (somewhat accessible) attainable, accessibility doesn't equal effectiveness.
In Europe, the "free" education model creates 4.4 million graduates every year. 10% of those graduates are unemployed, and 30% are underemployed and earning less than they should earn.
That's over 2 million people who are well-educated, trained, and hungry but ultimately unhappy because the promise of "Study and you'll get a great job" didn't materialize for them.
I've seen friends with the right education and €80,000 two-year MBAs struggle to find a €28,000 per year junior job at Michael Page.
But if 2 million underemployed Europeans is not a big enough market problem (or a big enough market), then keep reading because there’s another side of this coin.
Software is eating the world and the technology industry is thriving. Even through a global pandemic, the NASDAQ is up 30% YTD and European technology companies have raised €18.5 billion in 2020 so far.
A growing industry like tech is a furnace with embedded growth obligations – it needs a constant flux of talent to function, keep growing to maintain their honest positions and satisfy the growth financiers need.
Tech is hungry (starving, really) for great candidates and these candidates are hard to find.
How do I know? As a function of my roles doing Growth, I’ve been talking to Human Resources teams every single week for the past four years. And their biggest problem is finding the right (technical) talent.
Everything they do – how they think about employer branding, the relocation policies they set, the software they buy, the coffee they drink – everything is pointed towards solving that problem.
So on one side you have 2 million underemployed, and on the other, companies ready and hungry for talent. If it looks ridiculous, that’s because it is.
Now enter Strive School.
The Solution: Strive School and incentives
Aligning incentives with students and being a Grower
I've written about the power incentives in the past and how they drive business. This means that aligning incentives with your customers is key to capturing the value you create.
One of the fundamental questions of incentive alignment that companies must ask themselves is whether their primary relationship to their customers' growth is passive (“Enablers”) or active (“Growers”).
From a previous essay with Brett Bivens:
Enablers are companies whose purpose is to make it possible for other businesses to operate. The most successful enablers, like Stripe, often create the opportunity for entirely new business categories to emerge or cross the chasm.
Growers help their customers take the next step. With offerings and business models positioned to increase the value of their end customers, these companies often have the potential to capture the most value."
The more your incentives are aligned with your customers', the more value you can capture.
Strive School falls nicely under the Grower label – it shifts risks from the customer to the company and then plays an active role in securing positive financial outcomes for its customers.
Remember: they train students to become software engineers and then they charge nothing until those students get a job. Once they do, they pay 10% of their income for 48 months for a maximum of €18,000.
Even though students attend university to get a job after the four years, the university business model doesn’t reflect that. Quite the contrary.
Their model is predicated on positional scarcity conferred from a limited number of seats at the table (Harvard wouldn’t be Harvard if it admitted 1,000,000 students per year) and maintaining the status quo of the graduation machine to maintain public funding (most European educational institutions).
The rational thing for these institutions is to focus on increasing the value of their credentials by artificially limiting the number of enrolled students, and make sure that students keep graduating and doing well on their exams.
Strive School wants the same things the student wants and has skin in the game because it assumes the risk of students finding a good job upon graduation. This incentivizes them to serve the maximum number of students possible and invest in their success.
Otherwise they won’t get paid. And not getting paid is a damn good incentive.
A unique curriculum, incentives and classes as a moat
Strive School has a fantastic learning curriculum that spans 8 months and follows all the best practices you’d expect from a great education –
- Full-time curriculum, 8 hours per day for 8 months
- Cohort-based, real time classes
- Project-based learning (to accelerate hiring)
- An active community of engaged students
- Agile methodologies, including pair programming, code reviews, etc.
- Soft skills and interviewing skills
They are not reinventing the wheel there. But they are going the extra mile.
First, they are structuring classes in a very unique way. They are starting small and growing at each batch but as they grew, they discovered that big classes (if structured correctly) produced more engaged cohorts and better educational outcomes.
The trick is being able to pull it off because running big classes the right way is a delicate balancing exercise that can backfire. But they are learning from the best – their Y Combinator batch had 500 people from all over the world doing stuff together.
Second, they are working on a point-based system that maximizes the right behavior and promotes a proper learning environment. Learning is a positive-sum game so if you establish a Give First approach and incentivize the right actions, learning peers become active teachers.
I’m not going to reveal too much about it right now (we have to keep some cards for us, right?) but if you find the incentive alignment that ISAs generate as elegant as I do, then you’ll love this.
These changes might seem subtle but what they actually do is allow to enlarge the size of a cohort (and therefore, the student base over time) without consuming additional resources.
In a business that requires upfront capital to train students (because you only get paid after you train them and only if they get a job), a larger class size that maintains quality over time and a lower-cost-per-student that maximizes capital efficiency are moats hard to disrupt.
Brand-building and partnering with HR teams
The last piece of the puzzle is HR teams.
After Strive School trains someone to become a software engineer, they need to help them find a high-paying job. There are two things you can do assuming a rock-solid education – (1) teach them interviewing skills, and (b) build relationships with HR teams both directly or indirectly.
We have the “learn to interview” part covered already with their project-based curriculum and their emphasis on soft skills. So check.
But let's go back to the inefficiency I mentioned before. Remember those talent-hungry HR teams that need talent?
Well, they are so hungry that they frequently pay 20% of a hire's first year salary to a recruiter just for bringing the candidate to them. A €10,000 finding fee seems ridiculous to anyone with common sense but it is a standard practice in the recruiting world.
What if you gave these gluttons who are struggling for talent so much that they are willing to trade them for a small car, great candidates? And what if you do it for free?
First, you build indirect relationships with companies by creating a brand around the quality of your education.
If you start small, put a heavy emphasis on quality, and tell this story to the world, hiring managers will recognize incoming Strive School students and think: “Oh, yeah this candidate must be good if it comes from Strive School.”
Whether you want it or not, a brand is moat. But building one is a long-term, ongoing exercise. The shortcut is building partnerships with HR teams across Europe.
This is a win-win proposition for them. Strive School places their students and by virtue of not having to (remember, the business model is aligned with incentives) charge a 20% recruiter fee, it becomes an “almost-too-good-to-be-true” proposition for hiring managers.
The Strive School loop
All great businesses have a positive feedback loop that reinforces the dynamics that powers their growth. And by virtue of having perfectly aligned incentives with their customers, Strive School's loop is just beautiful.
Everything starts with recruiting and training the right students (which they already did). As you do that, you move to securing better outcomes for those students - you want as many of them placed so they start paying.
The way to securing better outcomes (other than selecting the right people during Admissions) is to improve the quality of the education by upgrading the curriculum and enhancing the community on one side, and create a brand and build hiring partnerships with HR teams on the other.
This produces two things – it increases the amount you are owed from those Income Share Agreements (i.e. you get paid) and improves your public reputation.
The constantly improving reputation is great because referrals and word of mouth are the most powerful ways to recruit new students, and building a brand voice is a fantastic way to place more students and establish new hiring partnerships.
But most importantly, you can then use the extra cash to do more marketing, invest in education and remove as many barriers to access as possible. Some potential examples: a student can't join because they don't have the money? Try living stipends. They don't have a computer? Send them one. Some students need health care while they study? Partner with a provider.
The elegance of this self-reinforcing loop is that the more it spins, the deeper the moat that gets created around Strive School by virtue of reputation, revenue and capital efficiency.
Fragmentation and a bottom-up approach
Income Share Agreements are not new. Lambda School raised $74 million last year on some fantastic traction in the United States. Microverse raised $3.2 million to focus on remote jobs and emerging countries. But in Europe they kind of are (at least the real ones).
Lambda School tried but withdrew after a test cohort and other regular bootcamps that have ISAs use it just as a marketing ploy. A well-known 9-week-long bootcamp with campuses across Europe has ISAs but the core of their revenues still come from charging students €5,000 upfront and not securing them a job later. There’s no incentive alignment there.
On top of that, Europe is not one country. It's 23 and it's fragmented across borders, cultures, language, salary bands and even payment methods.
This means that you need to solve a bunch of different problems than just education – you need to become a culture expert, a language expert, even an immigration expert.
But I’m not concerned. Quite the contrary, I’m really excited for this.
Strive School is a European team with European operational expertise doing a bottom-up approach and building out the product, courses and curriculum over time based on the students’ needs. Their incentives are perfectly aligned with their customers and their flywheel is already in motion.
On the other side, the top-down approach with predefined classes, a static curriculum and no incentives to help students get jobs, like existing educational institutions, is a thing of the past.
If you want to learn more about how Strive School is fixing the European education problem and get involved in any way, let us know.
Disclaimer: Startup investing is very risky. This is a public memo and I'm investing personal capital but you should do your own diligence and don’t invest any money you’re not comfortable losing.