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Computer engineers and designers work at coding. Kim Kulish/Corbis via Getty Images

In this eye-opening exclusive Social Capital Q and A with Lambda School’s visionary CEO Austen Allred, he reveals how the market taught him what students really needed – and how to deliver it in an economically feasible way.

In November we honored Austen Allred as one of our Top 10 Social Capital CEOs for building a brand new school from scratch that is compelling, practical and affordable – actually it’s essentially free. His coding trade school features a top-notch education with no upfront fees then makes sure its graduates get well-paying jobs.

In the process, Allred and Lamda School are changing generations of lives and families, as well as transforming our society. And he is just getting started because he believes his model can change the entire education system for the better

This is just the beginning of our series of ongoing articles and interactions with Allred who will be sharing many more of his insights on how to do business right in today’s complicated and challenging environment where Social Capital is becoming more and more important.

Chris: Austen, so nice to meet you, and congratulations on being one of our Top 10 Social Capital CEOs. Every month we recognize 10 different leaders in different industries or different parts of some industry. So this month we were looking at companies that really set out to empower people in some way. You were one of the first ones that stuck out because of this whole idea of giving more power back to the student. And the idea that this educational system that we have has really in the last 10 or 20 years, when you look at the cost of education, has gotten ridiculous. I mean, I went to Arizona state university in 1986 and it was $300 a semester. That's achievable. Now even state university is somewhere between 10 and $20,000 a year.

Austen: And that's on the cheap end.

Chris: Exactly. That's clearly not in line with the average rising inflation. So you're powerless as a student unless you have that money, first of all. And then even once you have that money, it's such a system that, you know, you just have to get into the system and do what they say, and then hopefully you get your degree and then you're still powerless when you get out because you don't know if you're going to get a job. So we love what you're doing. So first of all, just thank you for doing this. So I want to start out with that great story that you've talked about when you first started this school, there was an individual that you met who wanted to go to school. And they were talking about coding school being $10,000 to get in, and you unwittingly said, "Why can't you make that happen?" And, he explained, well, he only made $20,000 a year, and that would be an enormous commitment to actually sign up to and commit to. How much of an influence was that to you?

Austen: Originally I started Lambda School saying, doesn't it seem like there should be a code school that's really good, that's online? And we felt like there really wasn't one. It started out being $10,000 up front, like any other school would be. But what I pretty quickly found out from talking to would be students is where the idea for the modern Lambda came about. We would say, hey, why don't you pay us $10,000? And then again and again, the answer was because I don't have $10,000. So I had that conversation multiple times a day. And then, you know, selfishly, just thinking through, how do we get people to pay us more money? You realize it's not going to happen unless you have a better way to fund this or unless you can find a way to take the risk out of it for students. So we were already up and running and charging $10,000 before we were smart enough to realize that that was the limiting factor for most people, and not even necessarily, do you have the $10,000, but does it make sense for you to risk cash at that level. Even if let's say you can get a loan, does that make any sense for you? Probably not. So I think the conversation you're referring to, I'm not even sure who it was because I had that conversation a hundred times over the course of 18 months.

Chris: So you did not start out with this concept of not making people pay until they graduated?

Austen: No, we adopted that about two months in, so we started being paid upfront and then realized that wasn't going to work. But we didn't envision we were going to start a new school where people don't pay up front. But it was, let's do something that's good for our students, and that can help people join our school that already existed. Then once we did that, it just took off, like in a way that we wouldn't have ever imagined. So it took on a life of its own from there. So originally we didn't set out to build a school that's free upfront. It just was the right way to do things. And we were stupid enough to say, OK let's just make it free upfront. What could possibly be different?

Austen Allred, CEO, Lambda School
Austen Allred, CEO, Lambda School, says they look at every student as an investment they make. Lambda School

Chris: So that's so fascinating that you quickly adapted and figured that out within a couple of months. What specifically made that happen? Did you just have a lot of students saying they couldn't afford it?

Austen: Yeah, I mean, so we started out teaching some free classes, just to get people interested. Then we reached out to the people in the classes and said, “You seem like you're doing really well and you seem to have a knack for this. Do you want to do it full-time?” For every, every student we talked to, it was, I would love to, but I can't. So originally it started out by saying to a couple of students that I personally said, "I'll cover your tuition. Then if it works, you pay me back." It gradually became more institutionalized. Normally we would send that email to our list and you'd get an application or two from people who are interested, and we started saying, "Hey, what if we can cover most of the tuition for you?" And all of a sudden, one person applying turned into a hundred or 200. Then when we finally said let's figure out how to make this completely free up front, all of a sudden we were getting thousands of applications. Now we see a thousand applications a month. The challenge now isn't in bringing in students, but it's making sure that students are successful and get hired, which is probably the right place for us to focus our time and effort and energy now.

Chris: That's amazing that you guys responded so quickly to that situation, and kudos to you for that. Were you personally loaning people the money at first?

Austen: Well in the early days, it was really just me and my co-founder. So he was teaching the classes, and I was doing everything else. So there were a few students that weren't able to make the payments. And we said, "Just don't worry about it, pay us back later. We think you're really smart. And you seem like you'd work really hard." So it wasn't coming out of my personal checking account, but we owned a hundred percent of the company and instead of collecting revenue from the student we said we aren’t going to upfront.

Chris: So going forward how did you convince your funders? That must've been an interesting conversation: "Oh, by the way, we're not going to charge anything upfront." How did that transpire or work, and was that an easy conversation, a tough conversation? How did that happen?

Austen: That was interesting to funders upfront. But the real question to them wasn't so much could that work. They certainly asked questions about the logistics of how that happens. But the question was really if you do this, won't every other school just copy you and do the exact same thing? That took a while for everybody to wrap their mind around the fact that actually it's a totally different business. You have to run everything in a totally different way in order to have your incentives aligned with the student. So it was obvious to everybody from the beginning that more students would join. The question was, is it hard and will other people copy it, which was not what I would have expected.

Chris: Tell me a little bit about that because that’s very interesting. Why can't everybody do this? Not everybody is doing it. You're very unique in that regard.

Austen: Yeah. It's just really hard to make work. If you have a hundred students and you have a 75percent graduation rate, and then 75percent of those get hired, and now you're already at the point where about half of your students are paying you and they're not paying you today, they're paying you over the course of three years. You have to front the cost for a hundred percent of the students in order to get paid by 50percent. So managing all of that and making it work is a totally different business than collecting a tuition check up front, which is why most companies don't decide to do it. And then it's such a compelling offering for the student that if you offer it, everybody wants to do it. So all of your people, the people who would have paid tuition, generally speaking, start to ask for the income share agreement, because it's just a better deal than paying up front. So your revenue goes kind of to zero. You have to bridge that gap with either VC or different methods of financing. So it's 10 times as complex as just collecting tuition upfront. And I would argue it is probably more than 10 times more difficult to make it work from a business perspective because so many of the students love it and want it.

Chris: Obviously, if this is that much more difficult, you've got to have another reason to want to do this. And it seems like it's just not a business decision for you. It seems like you're compelled to want to be able to give these students an opportunity. I'm assuming you're pretty invested in this personally from an emotional point of view as well.

Austen: Yeah. You know, I mean, we could've sold the company and I could be on an island somewhere. So it's definitely about more. I don't think any rational person would start a company like this to make a quick buck. It's not a very easy way to make money. I could be making more money faster elsewhere. But it seems like it's a missing piece of education and more broadly, I feel like it's a missing piece of capitalism, honestly, that there's nobody who will find you and say, “Hey, you should be making more money at doing X, Y, Z, and I'm going to help you get there.” It feels like something that should exist. It took me a while to figure out why it doesn't. We learned it's really hard, but still it's fundamentally something that should have been around for awhile.

Chris: Well, what's the most gratifying part of that for you? When you sit back at the end of the day and you say, why am I doing this, what's your answer?

Austen: Definitely the students and seeing their success. Yesterday as an example, we had a dozen students get hired. Our average student increases their income by $50,000 a year. So you see generational change happen multiple times a day. There aren't many places where that's possible. That's millions of dollars over the course of your lifetime.

Chris: And it's utterly life-changing right? That's almost like winning the lottery, but you're doing it with your own abilities. That's so incredibly cool. Obviously you are not just looking to educate these people but a huge integer in this process is you helping these people to get the jobs, not just for them, but so you could economically survive. Tell me a little bit about that part of the process. Because I know you guys work hard at that, but how is that different than it is with traditional schools? When I graduated from college, there was a career center, but it was kind of a token more than anything else. You go there and you talk to somebody and they give you some advice. And they've got some job listings up there, but it's not active. I'm getting the impression that yours is a lot different.

Austen: Yeah, if you ask the average university and what percentage of their time is focused on education versus helping their students get jobs, the average university maybe is 1 percent focused on helping their students get jobs. You know, there's a person with a binder and maybe a job board. And that's pretty much it. For us, it's probably 50 percent of our effort and energy that goes into helping students get their first job and succeed in their career. We're a career focused institution generally. If you were to look at even where our money goes, it's about as much toward helping students get hired as anything else. And some of that is building it into the school and building it into admissions, making sure you're finding people who are able to get hired, but the incentive alignment matters a lot. So it's a pretty unique situation that we have here. We have frankly, some of the smartest people in the world and some of the best minds of Silicon Valley or elsewhere, and they could be making a ton of money doing something else, but we all know it's pretty rare that you have someone like that focus on how can I get that person a job. So it's pretty cool.

Chris: Tell me a little bit more. Are there some specific things that you do or specific programs that you have to help people find jobs that are particularly different?

Austen: Yeah, recently we launched a program called fellows, which is basically we will actually pay the student's salary for a month, while they go and work at a company. So kind of give the company a free trial. And then if the company decides to hire that student, then they pay that salary back. That's, as you can imagine, extraordinarily expensive and risky for us, but I think that's a hole in the market that employers don't want to take risks on talent that is kind of uncertain if it will be successful. So somebody needs to stand behind that and say, no, I will take the risk and we'll take risk where companies aren't ready to yet. Because we know a lot more about the student than the company ever could. We spent almost a year with them. And that's been wildly successful. It's only been running for a couple of months but we've seen enormous success. And I think that's the model that our average student will follow by about a year from now. At the end of Lambda school, you just walk right into a job that Lambda School is fronting the cost, and our job is to make sure that on average, that works and the company decides to make it full-time.

Chris: That's incredible. That's a no-brainer for a company. You know that reminds me of how when I graduated from college many years ago many of my friends would go to companies and say, "Hey, I'll work for free for you for a month. Just let me prove what I can do for you"

Austen: And that's illegal now. I absolutely think the average undergrad would be net better off if that were possible. And there were the right guidelines around that. But I understand why that's fraught and tricky and it's a risky path to go down generally speaking. So we enable that at scale basically.

Chris: Which is extraordinary so hats off to you. Now, you talked about the admission process as well. And that's another interesting question. You have a pretty extensive process to really make sure that the people that are applying to your school are the people that can get jobs.

Austen: Yeah, we look at it as every student is an investment that we make. So we want to make sure that we're going to get a return on that investment. Students see it as I'm trying to prove that I'm worthy of being invested in, and of course it works if you pay it back. So we spend a lot of time figuring out how to measure and predict who will be successful but in a different way than a university would. So universities obviously want a student to be successful, but they don't necessarily need a student to be successful. So we do work studies, we do short trials, we do testing. There's a variety of things we have tried and we'll try over time, but the goal is just we don't want to enroll you unless we believe that the process will be successful for you, because if it's not, then we lose our money.

Chris: So you mentioned a couple of those processes. Are there a couple more you might be able to offer up?

Austen: Well, first of all, after the first month of Lambda school, if you decide it's not for you, you can leave and you'd pay nothing, which is not normal. But outside of that, we have free pre-course work. We have free classes that people can take. And we try to give you as much free as we can to see if it's really right for you before you have to make a decision, both for us and for you, right? Because if not going to work for you, it's not in anybody's best interest for you to be here. You know, you don't want to spend months and months here and have it not be successful. And we don't want to spend months and months of our time and our money and have it not be successful. So we try to ease into the relationship and have ways to test it out on both sides. It's been pretty effective so far. We're constantly testing and modeling and tweaking and figuring it out.

Chris: You know, that's so aligned with this concept of Social Capital. You're giving something free but you're getting a greater understanding of the student. And it's enabling you to be able to make better decisions by giving that away because you know which of these people are going to be right in the first month. That's such a great idea.

Austen: We say that it looks foolish in the short term, but we think it makes sense in the long term.

Chris: Yeah, we talk about that all the time. It seems like accountants took over a lot of companies and they're all looking at the bottom line and blinded to the big picture sometimes. Maybe you're going to lose money for a month or two or six months, but in the long run, you're going to make more and you're going to have a greater impact on society. So that's a win-win. Lauren, did you have a couple of questions you wanted to ask?

Lauren: Yeah, I did actually. I know that restructuring school and making a new one is an interesting thing going against the status quo. I was curious what the process was to get you to be an accredited school and why you chose to do that when you're trying to revamp the school system.

Austen: So there are different levels of regulatory approval. Accreditation, which means you give college credit and you can get federal funding, is something that we have not done. That requires you to submit any change that you're making to the school a year in advance, and there's a regulatory body that goes through it and decides what they would like it to be. I don't think it makes much sense for modern computer science to fit into those guidelines because things change too fast. We can't have a year of feedback between us and a regulator to make changes to our tuition. But in almost every state, there are divisions of higher education that have different regulations around how you can charge tuition and or how you teach. And all of a sudden we have a giant legal team and that's their only job, but a piece of that is just keeping up to date with all the different state registrations. So we have to apply for and update every state individually and every state looks at something different. So it was obviously a program that was not designed for a world where teaching happens online and everyone's trying to figure out what that means, but it's basically a big regulatory headache that we go through both because we get the regulations are there to protect consumers, even if they're not perhaps perfectly designed. So that's just something we do.

Lauren: I went to high school online. It was a really interesting way to do it. Did you guys model after other online schools that have been around for a long time when you started it?

Austen: Yes and no. So we had a bunch of people who came from traditional education and then a bunch of people who came from software experience products. We kind of mashed the two together. We felt like a lot of the online schools have taken in some instances the worst of both worlds. So it was pretty clunky software and pretty mediocre experiences. So we had to create a lot of that from scratch. I think now everyone's starting to understand for unfortunate reasons why building an online school is different than building an in-person school and what the differences are. We kind of had to figure that out from scratch because I felt like nobody had really done it that well.

Chris: Yeah, definitely that leads me to another question. If you could nail down what differentiates your online school and your coding school in the actual teaching, is there something that's different about the way you do it from a teaching perspective?

Austen: Yeah. So there, there are two big differences between running an online school and running an offline school. The first is that you can't look around the classroom and see how people are doing. So you don't get all of the really implicit social cues that normally teachers cue off of. So a one-hour lecture where an instructor says something and there's no response just doesn't work. So we have to use a lot of data so we can figure out how students are doing in real time. There has to be more back and forth then there usually needs to be in an offline environment. Then the second piece, which I think you alluded to is that everybody is one tab, one button away from being on Netflix at any given time, which was partially true in some of my college classes, than it is today.

Chris: I want to ask you one last question about the future. We think you are a really important part of this movement of making capitalism work better and showing the possibilities of capitalism. What do you see in the future for Lambda school in general and its social relevance? If you were to look at it from a big picture, point of view, do you have other plans for expansion or anything like that?

Austen: Yeah, we, we have a couple of goals. One is to make trade school a thing again. It's been around for a long time in the United States, but we've been kind of moving away from it for awhile to a world where it was either you go get a four year university education or you can't get a job, or at least that was the perception. We feel like there are a lot of folks for whom four years is not the right amount of time and university education is not the right level of education at that time. So we want to bring back more of that trade school, vocational school thing.

And the second is that it's going to be a really long, hard road, but I think there's a path to eliminating student debt entirely. So we have to get to the next level of where we're working more directly with the employers to help pay for tuition. But I think there's actually a world where the average student has their tuition paid for by the first couple of employers and you don't have to worry about taking on student debt. Making those ends match up is really difficult, but that's what we're trying to do is move to a world where the employers cover the cost of tuition, because the tuition was valuable enough to the employer, rather than taking out hundreds of thousands of dollars of student loans and hoping it works out on the other side. So the long-term vision is eliminating the need for student debt.

Chris: Wow. That's, that's huge. I mean, that's such a relevant and timely topic now student debt. People are coming up with all kinds of government solutions to it. But I love your essentially capitalistic solution to that, which you're potentially coming up with now.

Well, thank you so much for taking some time. We're really pleased to have you as part of this movement that we are chronicling.

Austen: Thank you for doing what you guys do, and I'm glad that someone's looking into ways of making the world better. It's always good