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Innovators Worth Watching: Catalyte

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Mar 6, 2018

Welcome to our “Innovators Worth Watching” series, spotlighting interesting and potentially disruptive players across a spectrum of industries.

Things weren’t looking great for Tim. He was dropping out of college. Again.

Tim had been pursuing a degree in electrical engineering for five years when things went south the first time. He performed well on exams, but that didn’t matter when he couldn’t pay his bills. “The struggles came hard and fast, all at once,” he recalled. “Money was the big problem.” He then tried for an associate’s degree at a community college, but the end result was the same.

He now had to face the job market with no degree, no money, and no easy explanation for why degree-loving employers should overlook his dropping out of college twice.

While looking online for entry-level work, Tim kept stumbling across the same advertisement for software developers. No experience required. We’ll train you. Initially skeptical but ultimately intrigued, Tim applied. Three months later, he started his training at Catalyte.

Catalyte, a software engineering services firm, is excelling in the surging “domestic outsourcing” segment of the IT consulting market. Traditionally, outsourcing companies have looked abroad for inexpensive IT and software talent. Domestic outsourcers like Catalyte buck this trend by “onshoring” jobs for their enterprise clients, sourcing American employees that can rapidly and locally iterate on high-touch projects. “The nature of software building is changing,” explained Catalyte CEO Jacob Hsu. “The process is more product-oriented with continuous releases. It is really important that services firms like us understand our clients’ contexts and customers better.”

Catalyte is distinguishing itself most clearly in how it finds and trains talent. Catalyte casts a wide net, posting advertisements on several job listings and exploring partnerships with nonprofit and workforce development organizations. Interested job seekers take an online assessment, and Catalyte’s proprietary predictive analytics algorithm identifies promising candidates. These candidates are invited to a 20-week training program, during which Catalyte provides a turbocharged and project-centered equivalent of an associate’s degree in computer science.

The best part for candidates like Tim? No upfront costs and no loans. Candidates who successfully complete the training join Catalyte’s consulting and engineering teams as “associates” for two years, with mentorship throughout and the option to stay on afterwards.

Catalyte is growing quickly and recently announced a $27 million funding round, its acquisition of software development consulting firm Surge, and the intent to expand to multiple new cities this year. As it grows, Catalyte aims to help more individuals like Tim sidestep the traditional degree, offering an alternative—and affordable—pathway to a software development career.

But is Catalyte’s training model disruptive to traditional computer science degree programs? We put Catalyte to the test with six questions for identifying disruption.

1. Does it target people whose only alternative is to buy nothing at all (nonconsumers) or who are overserved by existing offerings in the market?

Yes—but not for everyone. Disruptive innovations increase access, and Catalyte certainly provided Tim with an option that he wouldn’t have had otherwise. But Catalyte is highly selective, ultimately admitting only 2% of applicants.

2. Is the offering not as good as existing offerings as judged by historical measures of performance?

Yes. Traditional colleges that offer associate’s degrees are typically accredited, and compete on high student completion rates and on helping students transfer to bachelor’s degree programs. Catalyte is not an accredited education provider, focuses on retaining only the strongest candidates, and does not issue traditional degrees.

3. Is the innovation simpler to use, more convenient, or more affordable than existing offerings?

Yes. Catalyte’s training program entails no upfront costs to Catalyte associates, and only lasts five months. This is considerably shorter than traditional degree program, and is simpler and more affordable than the system of credit hours, tuition and fees, and student loans.

4. Does the offering have a technology that enables it to improve and move upmarket?

In the IT consulting market, yes. Not in higher ed. Catalyte has been refining its predictive analytics capabilities for well over a decade now. Its algorithm, which analyzes more than 3,000 variables, is continuously updated with program completion data to track which candidate characteristics lead to better performance. Catalyte is also adapting its algorithm to better understand the skills of the more experienced, self-employed developers that are joining the team as part of the recent Surge acquisition. Going forward, Catalyte will not just be training those without technical experience to be developers; it could also begin recruiting and upskilling experienced developers, providing more advanced training.

Catalyte’s predictive analytics technology enables a disruptive trajectory in the IT consulting market, where Catalyte can look upmarket and take on premium consulting brands like Accenture and IBM. And really, Catalyte’s main business is IT consulting, not workforce training. Given that Catalyte isn’t competitively targeting traditional computer science degree programs, an upmarket move to take on more prestigious institutions is unlikely.

5. Is the technology paired with an innovative business model that allows it to be sustainable?

Yes. The upfront investment in training is hefty. However, Catalyte focuses on hiring individuals that are likely to generate positive returns quickly, and makes sure to cover its training costs by the end of the two year contract. Catalyte’s business model is, in part, predicated on continuing to successfully identify strong talent through its screening process.

Also, Catalyte has positioned itself well in this recent onshoring wave by providing local talent from untapped pools at a fraction of the cost that major IT consulting firms charge. The acquisition of Surge gives Catalyte access to another market tier as well. Catalyte has the tools to disrupt the broader IT consulting market, and crucial to that business model is a potentially disruptive training program.

6. Are existing providers motivated to ignore the new innovation and not feel threatened by it at the outset?

Yes. Traditional computer science degree providers have been slow to provide faster, cheaper credentials and to integrate with employers, but Catalyte is recruiting from a pretty small slice of the potential degree holder population. Colleges and universities are unlikely to feel threatened. That said, Purdue University struck up an interesting partnership with Infosys last year. Whether this serves as a harbinger of things to come at the intersection of higher ed and IT consulting is unclear.

Catalyte’s business model checks off several of the “disruptive” boxes relative to computer science degree programs. Ultimately, however, if Catalyte disrupts an industry, it will be IT consulting—not higher ed.

Catalyte is nonetheless providing an example of how to successfully integrate postsecondary training and good jobs, and it recognizes the role it can play in the lives of Tim and many others. “Every story here at Catalyte is a transformation story,” noted Hsu.

Tim’s transformation continues. He finished his two-year contract earlier this year and plans to stick with Catalyte. He speaks warmly of the collaborative atmosphere, of the opportunity to organize self-driven professional development initiatives, and of a big boost that Catalyte gave him last year. “Catalyte provides $1,500 per person for educational expenses related to our industry,” explained Tim. “I used it to finally finish my associate’s degree.”

As a research assistant on the Christensen Institute's higher education team, Richard helps investigate novel business models in postsecondary education, professional development, and lifelong learning.