Erik Torenberg's Thoughts
I previously wrote about how higher education is too expensive and that their dominance can be partly explained by regulation. In this piece I will focus on the structural reasons for why institutions like universities remain dominant for so long — mainly because they’re more defensible than we think.
Curation businesses — universities, bootcamps, accelerators — are incredibly powerful.
At first glance, they wouldn’t seem to be as powerful as tech companies, in the sense that they don’t have data moats or tech leverage. And yet, when you look at how long these institutions can dominate without being disrupted, they start to look that much more impressive. The last time a new university cracked the top 10 was over 100 years ago, whereas most tech businesses get disrupted every few decades or so. Indeed, curation businesses last centuries.
Curation businesses create socially acceptable context to build close relationships. For example, saying you met someone at Harvard is more powerful in terms of reinforcing the strength of a relationship than saying you met someone randomly at an event. It’s hard to deny that as a brand gets stronger, pride in the credential grows over time, reinforcing relationship strength even further. Intentional communities, fellowships, bootcamps, and “circles” are all trying to unbundle this age old paradigm, hoping to produce a similar effect on relationship building.
So, how do these “curation businesses” work?
Curation businesses attract the best people in the world to apply for them. Their alumni then go on to be immensely successful, which improves the flywheel and further attracts the best people at an even bigger scale. Because the feedback loop is often so long between their acceptance and their success, it’s often very hard to build a competing brand of similar integrity.
It’s unclear to what extent certain curation businesses actually help the people become more successful beyond the credential that they bring, which only emphasizes the strength of their brand. Their brand serves as a credential for the people who join, which helps them convince other people and organizations of their worth.
Indeed, if you’re building a curation business, the main (if not only) moat you have is brand. Your biggest specific vulnerability is alumni NPS — if it’s strong, the business is unbeatable; if it’s weak, the entire edifice is at risk.
Unlike with consumer products, a curation business’s brand can be a durable moat. Alumni are incentivized to promote the credential widely and speak highly of it, as to strengthen their own status accordingly. Their blind loyalty is rational: if they invested a lot to get that credential, and it becomes diluted, then they wasted their time and money.
Which is why once you get curation businesses off the ground, they are very difficult to disrupt, because everyone has incentive to keep the whole charade going. Like money, a credential is an illusion that everyone who has it or wants it is incentivized to keep perpetuating. If your status in life was partly acquired by going to the right nightclubs, you’re going to want to defend those nightclubs even decades after you attended.
To build curation businesses, you need to offer genuine new value to get the best people to join, since you can’t rely on the proof of credential. After you do, they’ll graduate and then over time be role models and the flywheel will begin. Until then, you need to bootstrap a 10x better value proposition to justify people choosing your curation business over a more established one. It could be aligning with pre-existing brands (like if a venture capital firm were backed by luminaries, e.g. Village Global), or a new value add approach.
What might a new approach for a new university look like? We think about that a lot at On Deck.
Byrne Hobart wrote a piece saying the future of education isn’t Lambda, it’s Y-Combinator. He says the real problem with universities isn’t that they’re just about signaling—though signaling is an important function!—it’s that they provide signaling value very inefficiently.
“No wonder college students spend so much time partying and protesting. They’re bored.”
“If you were reinventing the Ivy League as a signaling-focused product, your stripped-down version might look like this: you invite a small cohort of talented people to move to a city for about three months, you host some social events so they get to know each other, you have them work on projects and you advise them on those, and afterwards you introduce them to a bunch of savvy rich people.”
In other words, you’d invent YC or Village Global or other startup accelerators that provide a more focused version of the elite undergrad experience in about 95% less time, but also for adults.
Why hasn’t there been startup accelerator-like experiences for other categories? Why is this education limited to startups? It shouldn’t be.
Kanye West, of all people, tweeted that there should be a YC for music.