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Innovators Worth Watching: Lambda School

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Apr 3, 2018

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

The software development industry is in a bit of a bind. The number of software developer jobs is expected to grow 24% between 2016 and 2026, and there are currently over a half million job openings. Traditional colleges and universities aren’t pumping out enough computer science graduates to keep up, and even if they were, employers complain that too many of them struggle to actually code.

Coding bootcamps have grown in popularity as a result, aiming to train software developers more pragmatically and prepare them for the hiring process, all in three or four months. However, many employers complain that while bootcamp graduates can code, their theoretical foundation is found wanting.

Lambda School aims to address those concerns. Founded last year, Lambda School has worked with employers to generate a curriculum that is both a deep-dive crash course in software engineering and a practical, streamlined computer science degree program. Complementing this curriculum is an apprenticeship structure that simulates a professional environment.

Lambda School programs last six months for full-time students, and one year for part-time students. All courses are entirely online, live, and competency-based, meaning a student won’t progress to a new week of material without demonstrating mastery of the previous week’s topics. Students pay nothing upfront for these courses, thanks to the use of income share agreements (ISAs).

“Bringing together all these features—zero-down, entirely online—is tricky for colleges and bootcamps,” explained CEO Austen Allred. “They see the benefits, but worry about cannibalizing revenue from their traditional programs. It’s the classic innovator’s dilemma. We’ve managed because we had no golden goose to protect.”

Lambda School announced a $4 million funding round in January, has graduated its first two cohorts, with 20 students in each, and hopes to enroll 1,000 students in 2018. But is Lambda School disruptive to providers of traditional computer science bachelor’s degrees? We put them 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, though selectively. Lambda School appeals to those who don’t want to pay so much for all the bells and whistles of the full, four-year college experience. What they really want is a good job, and soon. Eliminating upfront costs also brings in students with limited capital and/or an aversion to loans. That said, Lambda School currently admits few of its applicants. “It’s not about being exclusive,” clarified Allred. “Given how much we invest in our students, we set a high bar and focus on the students we believe are most likely to be successful in our program.”

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

Yes. Traditional bachelor’s degree programs compete on prestige, and confer their graduates with a degree from an accredited institution. Lambda School does not intentionally compete on institutional prestige, is not accredited, and does not provide a degree.

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

Yes. In terms of simplicity and convenience, Lambda School wins. It can reach students anywhere, as long as they have an internet connection, and both the full-time and part-time programs are substantially shorter than a four-year degree.

In terms of affordability, the use of ISAs requires a closer look. If an employed graduate earns an annual salary of $50,000 or more, Lambda School charges 17% on pretax income for two years, up to $30,000. The total payout therefore ranges from $17,000 to $30,000 once a graduate’s salary exceeds the minimum threshold, and is $0 otherwise.

The cost of college varies as well, depending on the institution and the student’s financial situation. Lambda School could be more expensive than a public institution for an in-state student that receives generous financial aid packages, but might be less expensive than a private, non-profit university for a student that receives little financial assistance.

That said, Lambda School students take on substantially lower risk. Graduates who earn low salaries or who aren’t able to find jobs will owe nothing—which is far from the case with student loans. Further, their opportunity cost is six months of employment, not four years. If all goes well, Lambda School grads start earning a competitive salary years before debt-laden graduates of traditional institutions even get started.

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

Yes. Lambda School has worked out a 100% online solution that can accommodate monthly cohort sizes of over 100 students. With that flexibility, they already offer a machine learning program in addition to the computer science program. Online learning, when done well, allows expansion into many of the disciplines that traditional colleges currently teach, if Lambda School chooses that route.

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

Yes. The first cohort just graduated in January, and outcomes data should start rolling in soon. Until Lambda School starts receiving tuition money from its employed graduates, it’s difficult to make strong claims on sustainability. However, the use of ISAs does align Lambda School’s incentives with those of its students, motivating the program to craft its curriculum around employers’ needs and to create a network of 75 hiring partners.

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

Yes. Traditional institutions are still locked into the four-year degree paradigm. Programs like Lambda School do not directly threaten them on the prestige axis.

It hasn’t all been smooth sailing for Lambda School, with initial cohort completion rates under 60%. That rate is improving, however. “It’s challenging when students have no skin in the game upfront,” said Allred. “But our last graduating cohort had a completion rate of 80%, and we are aiming higher, with dramatically improved first month retention numbers.”

Lambda School has already brought several innovative features together. If Lambda School consistently helps its students graduate and get hired, it will have also brought together all the ingredients of a disruptive innovation.

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