The Edge: What Killed a Venture-Backed Education Company?

American Honors once sought to improve transfer opportunities for community-college students. A new analysis explains how those efforts went awry. [The Edge] Was this newsletter forwarded to you? [Please sign up to receive your own copy.]( You’ll support our journalism and ensure that you continue to receive our emails. --------------------------------------------------------------- I’m Goldie Blumenstyk, a senior writer at The Chronicle of Higher Education covering innovation in and around academe. Here’s what I’m thinking about this week. What killed this VC-backed education company? Researchers count the ways. A fascinating new analysis on the rise and fall of an education business called American Honors didn’t start out as an autopsy. It became one after the venture, by then ailing and fully into its “pivot” to a different strategy, was sold late last year. Bad news for them — but useful to anyone interested in learning its many lessons on why businesses like these can fail. And no, it wasn’t just the collision of academic and start-up company cultures, although clearly, that was a factor. As [researchers from the Community College Research Center found,]( the problems were also rooted in the company’s failure to fully understand the complexities of the colleges — and the needs of the students — it was aiming to serve. ADVERTISEMENT Yet as I read through the report, I also wondered how much of the failure was due to colleges’ unwillingness — or inability — to take advantage of what a start-up company could offer to higher ed, an argument that a former American Honors executive made to me as well. But first a little history: American Honors, owned by a company called Quad Learning, began in 2012. It ran honors programs at community colleges, complete with additional counseling and other services. It then facilitated students’ transfers to selective four-year colleges. (We never wrote much about it, but we did mention it in [this piece about college-company partnerships]( By 2014, American Honors was working with 650 students at seven two-year colleges and districts, with a goal of serving 3,000 by 2016. It never hit that target. Instead, by 2017, it began shifting its focus away from domestic students toward recruiting students from overseas. By the time Quad Learning was [sold in November 2018, reportedly for “a fraction” of the $40 million in investment capital it had raised,]( American Honors was working exclusively as a “pathway” program for international students. The researchers began studying American Honors at the invitation of the company and with its cooperation, but the analysis, [“American Honors: The Life and Death of a Public-Private Partnership”]( was completely independent. (The researchers didn't know the company was about to be sold and got their last batch of data on students just before the sale.) The work was funded by a three-year, $600,000 grant from the Bill & Melinda Gates Foundation. What went awry? Partnerships like this are likely to keep on coming, so for many college leaders and their would-be business partners and regulators, the full report — all 70-plus pages — could be well worth the read. It looks at a number of factors that undermined American Honors, not just as a business but also as a venture that aimed to improve opportunities for students. Below I’ve highlighted three of them: Misaligned financial incentives between the company and its college partners. Students in the program paid about 150 percent of the regular tuition, with the colleges and American Honors splitting the revenue roughly 50-50. So the college partners received less tuition per student (75 percent) than they would have otherwise. For them, the partnership would make financial sense only if the American Honors program brought in substantial numbers of new students who otherwise would not have attended the colleges at all. Under the planned business model, American Honors would make a small profit on every student enrolled in the honors program, whether a current student at the college or a new one. But the program never became the kind of enrollment booster the colleges were counting on, and over time, tensions developed between the company and some of its partners over the company’s recruiting priorities. “Make it up on volume” might work in some industries, but it’s often a dangerous strategy in higher ed. Unrealistic dependency on a standardized online honors curriculum. As with most education start-ups, profitability at Quad Learning depended on technology and scale. The company had designed the program with plans to create a national online honors curriculum that could be used by all of its campus partners. That, it hoped, would keep its per-student costs low and make it easier to systemize transfer agreements and pathways with selective four-year colleges. But faculty members at the colleges resisted the idea — because it was online and because, according to the report, the curriculum “would be guided by a for-profit company that had no experience with community-college students.” Ultimately, that made the American Honors academic program more expensive to operate, and its plans for a seamless transfer operation — it’s prime selling point — were never fully realized. I can’t count the number of times I’ve heard education companies base their growth plans on a standardized, online something or other. It often sounds like a reasonable idea, but it ignores the reality on the ground: Higher education isn’t a commodity. While there are certainly ways to make it more efficient, even in the classroom, a business strategy that that relies on getting hundreds of community-college professors to agree to abandon their teaching approach in favor of some common curriculum really should have had a Plan B in its pocket too. The report also notes instances where American Honors overstated the nature of its transfer ties to four-year colleges. At the same time, the fact that American Honors had to work so hard to create admissions and credit-transfer pathways for its students seems to me a continuing indictment of the many barriers inherent in transfer from community colleges to four-year institutions. Lack of foresight about unintended consequences. By all accounts, American Honors succeeded in supporting students and raising their aspirations for transferring to a four-year college, thanks to its extensive advising offerings (with ratios of 100 students to one counselor, versus typical ones of 1,000 to one), and its emphasis on building community among the honors students on the campuses where it operated. But as the researchers noted, some of the students who enrolled in the program might have actually been better off financially if they had just enrolled directly into a four-year college after completing high school. That’s because four-year colleges are typically more generous with scholarship money for incoming freshmen than they are for transfer students. In other words, the very students the community colleges were most looking to attract were the ones who could have been most hurt by going. In all fairness, that one was unexpected. Even Shanna Smith Jaggars, one of the researchers who did the analysis, told me that finding was surprising to her “and would have surprised American Honors” too. Jaggars is director of student-success research for the office of distance education and e-learning at Ohio State University. (The other two authors are Maggie P. Fay at the Community College Research Center and Negar Farakish at New York University.) Some of the fault here lies with the screwy way colleges treat transfers in the awarding of scholarship money; in other words, another problem with higher ed, writ large. But if companies are looking to work in this system — and profit from it — they need to also be responsible for the impact of their efforts, whether intended or otherwise. Jaggars, who expects to publish additional analysis based on the data American Honors shared with her, says one of the conclusions she drew from this study was that many of the company’s efforts and programs were worthwhile and well-executed, but because community colleges need to keep costs low, the company was never going to earn the investors the 10 times the returns that venture-capital funds typically expect. “It could have worked at a cost-recovery model,” she said. But “this whole ‘move fast and break things’ does not work in a community college, where if you move too fast, you might break a student.” LeRoy Pingho, a former chief executive at Quad Learning, who came into the company after it pivoted away from the honors-college model, called the report’s assessment “a little bit harsh.” He offered a different lesson: American Honors should have made better use of the colleges’ expertise and resources, he said. But he also faulted the colleges for failing to value the energy, flexibility, and ideas that American Honors brought to the fore. “It could have been to the schools’ benefit,” he said, ”to try to absorb and take advantage of that kind of spirit.” Pingho said it would be “really unfortunate” if the American Honors experience scared other companies away from seeking partnerships with colleges. Considering the flood of investor capital flowing into the higher-education market, that’s unlikely. But at the very least, I hope analyses like this one will help lend a dose of reality to ventures to come. Got a tip you’d like to share, or a question you’d like me to answer? Let me know, at [goldie@chronicle.com.](mailto:goldie@chronicle.com) If you have been forwarded this newsletter and would like to see past issues, or sign up to receive your own copy, you can do so[here.]( Subscribe Today Get insight into critical issues and the actionable analysis you need with a subscription to The Chronicle of Higher Education. Get instant access to in-depth articles, faculty and staff salaries, and much more. [Subscribe Today]( Goldie’s Weekly Picks [Why Are SAT Takers Getting an ‘Adversity Score’? Here’s Some Context.]( By Eric Hoover Dozens of colleges are using a new tool that measures students’ socioeconomic disadvantages. It’s an attempt to quantify the challenges many applicants encounter. PREMIUM [Do Tech Companies Inflate the Cost of Online Education? A CEO Responds]( By Goldie Blumenstyk Recent news articles have criticized the companies that help colleges build online-degree programs. The chief executive of one such firm answers questions about how his company operates. [Everyone Wants to Measure the Value of College. Now the Gates Foundation Wants a Say.]( By Katherine Mangan The need for college degrees, says its new commission, is matched by the skepticism about whether they’re worth the cost. Paid for and Created by St. John’s University [MAD Lab]( A centralized, multipurpose, and collaborative learning space, the Technology Commons prepares students for career opportunities in game design, marketing, and network security. Latest Jobs Visit [ChronicleVitae.com]( to view the latest jobs in higher education. [The Chronicle of Higher Education]( [Stop receiving]( this email. [Sign up]( for other newsletters. [View]( our privacy policy. © 2019 [The Chronicle of Higher Education]( 1255 23rd Street, N.W. Washington, D.C. 20037