Lambda School trains people online to be software engineers, and CEO Austin Allred joined us for an incredible session at SaaStr Annual.
Rather than paying tuition, students agree to pay a percentage of their income once they are employed and making over $50,000 a year. Hear from Austen Allred how and why you should be stepping on the gas when your CAC is low.
Want to come to the VIP BBQ at 2020 SaaStr Annual for Free? Sign up here:
Austen Allred | CEO @ Lambda School
FULL TRANSCRIPT BELOW
Please welcome Austen Allred, Lambda School co-founder and CEO.
Hey, how’s it going? Wow, there’s a lot of furniture. That’s interesting. I am Austin Allred, the co-founder and CEO of the Lambda School, as they mentioned. Who has heard of Lambda School, out of curiosity? All right, send a picture of that to our growth team. There’s a little bit of work to do still, but you know, tonight the title of my talk is how to make user acquisition practically free. I came from a background before I started Lambda School where I was in a company called LendUp. Before that, I was at a company called Grasswire, and in both of those companies we had to acquire customers for about 1/10th the price of our competitors. Grasswire, it was because we had no team and no monetization strategy, which I do not recommend. At LendUp, it was because we were in the subprime lending space and we were trying to not screw people over, unlike the rest of the market.
So I have thought for a really long time, and I wrote a book about this, but the more I think about how to drop the cost of user acquisition, the more clear it becomes to me that it’s not about the typical model that people have in their mind when they’re thinking about this, and the typical problem set that people are trying to solve.
So to illustrate this, I want to talk about getting deep product/market fit, and specifically one story of a founder that I admire by the name of Parker Conrad that he has told in the past. So he had a company before he started Zenefits, and now he’s started another company after that, where fundraising was a slog. It was just really difficult. They went out to market, investors were saying no, and he was meeting with an investor one day and he said, “What’s going wrong? What am I missing?” The investor said, “You know, if you were the Twitter guys, you could just walk in here with a halfway done pitch deck. You could be missing all of your metrics, but you know, you’re not the Twitter guys. You have to come in here, it has to be very buttoned up. All of your data has to be right. The story has to be perfect,” and the lesson that Parker took away from that was not the one that the VCs expected. It was this: how can I be the Twitter guys? How can I get to a point where I can just walk into a VC, call it a partner meeting, and walk out with a check? How can I make life a whole lot easier?
And having run these … Well, run a couple companies and worked at another company, I realized that I worked just as hard and I tried just as many things at my first company, Grasswire, as we do now at Lambda School, but Lambda School does more revenue in a month than the first company could even raise from VCs. It’s not even close. So I realized during that time … Let me take one more step back. When I moved from Grasswire, my company that failed, to LendUp, it felt like moving in a video game from extra hard killer mode to easy mode. All of a sudden, all of the stuff that you tried just worked, and I was on the growth team. All of the cool ideas that you had, you would get really clear feedback about what was going on, but if it was a good idea, it would really move the needle in revenue and volume.
I realized that I was missing something fundamental in that first company that was deep product/market fit. We did everything we could to force it. I mean, my background is growth and we tried all of the growth hacks in the book, including the book that I wrote. We literally did all of them, but it wasn’t working well enough, and I realized it was because I was missing a fundamental philosophy of how to build products and of how to build companies. And when I started to take a step back and listen to the great product minds of this generation, I realized that they had all stumbled upon a few learnings that I had missed, and those were the learnings that allowed their companies to be successful.
I also kind of, when you’re investing or when you’re building an algorithm to invest in the stock market, you always try to apply that same algorithm to historical data and see if it plays out the same way, so I’ve been thinking a lot about if that framework applied in the past works well enough that you could also apply it in the future. But I think there are a few people that are really close to just figuring it out, to figuring out the universal theory of what makes companies blow up and what makes them struggle.
The first thing that I think about is Ev. So Ev, the founder of Blogger and Twitter and Medium, he described it this way. “Take a desire that’s been around for a really long time, and take out steps.” So the first aspect of obtaining that deep fit and driving CAC down is to find a need that is very, very visceral, that is fundamental to the human experience, that is just at a very, very low level. So, for example, when I was at LendUp, we can think about our product in terms of credit. Or loans, we could provide loans to people that couldn’t otherwise get them. But at the end of the day, that’s not what people were optimizing for. What people were optimizing for was, can I get to the next paycheck? Can I make it through this rough patch in my life? Can I overcome the hurdle that’s in front of me? And we noticed that our messaging and our product had to reflect that.
So we saw huge lifts in acquisition when we moved from money that you can get in 12 hours to money that you could get in five minutes in your bank account, and that’s because some people didn’t have 12 hours to wait and stress. They needed something now. And even if there was a small fee attached to that, it just doesn’t matter.
I want to talk about how we got to the business model that we have at Lambda School because it’s one of the things that separates us from other schools. We are definitely the fastest growing code school probably of all time. We’re now one of the biggest, despite being about 18 months old, and our students are seeing more success than anyone else has ever seen in that very small space. But we started out no different than anybody else. We were just another code boot camp three months long. We put it online, $10,000, and we started talking to our customers. It was me and my co-founder, we got four or five people to pay us up front. Great. We can quit our jobs. We taught a free class, got 7,000 people in the free class, and I started emailing everybody in that class individually, personalized emails, one by one, a thousand a day. And we asked them basically, what is it that’s holding you back? What is it that’s holding you back from loving Lambda School? And that’s a trick that the Airbnb folks use all the time, that the only question they asked their users for years was, “What’s holding you back from being in love with Airbnb?” So we tried something similar.
We found that, again and again, our customers were saying, “I don’t trust you or I’m not sure about what’s going to happen,” or most frequently, “I don’t have $10,000 to spend.” And as we kind of broke that down in this framework, take a human desire and take out steps, we realized that what folks were really looking for was a new job. They were looking for a new career, and we were offering them something that was tangentially related to that. We were offering them the ability to learn to program. We were offering them a new skillset. And the marketing that was effective was, here’s how we can get you to a new job. We realized that if that’s what those people want, how can we actually give them that? How can we make sure that people get a job? And the other thing that we realized is that they were optimizing for doing so in a risk free manner. How can I take that step without the opportunity to fail? How can I go to a code school without knowing that if it doesn’t work out on the other side, I owe them $10,000 plus 7% interest compounding again and again and I may never get out of it unless I get a better job some other way?
So our customers thought about two things: new careers and risk. And when we got to that point, the solution was really simple. If we’re a school, we can hold the risk, and we can say, “You only pay us if you get a job, and you only pay us if you get a job in the field that you study for making more than some small number, so right now the minimum is $50,000 a year, and if we don’t get you there, we don’t get paid.” That simple shift in the business model, it forces us to think entirely differently as a company than most other schools do, but now we get more application volume than Harvard. We see more students applying in an hour than we used to see applying in six months, and that is something really special.
And then on the other side, once you have that, you’ve basically turned the internet or turned people’s phones or whatever it is into a button that gives people what they wan, and I think that model applies whether you’re thinking about SaaS companies, whether you’re thinking about consumer. For us, the entire goal is, how can we abstract everything else away? How can we eliminate the difficulty, the risk, the complexity, and make it so that a student can walk up to lambdaschool.com, push a button, and get a job?
Of course, that’s not trivial. There’s a whole lot that goes into that, but I find that most companies tend to follow a similar model. So for example, you can look at Uber. Uber is a classic marketplace company. It’s a two-sided marketplace. And interestingly, nothing really on Uber is new. You had town car services before. There were taxis before, but Uber knew that I want to push a button and get a ride, and if I want to eliminate the complexity and I’m Uber, I have to focus on the other side of the marketplace, I have to get people to sign up. So they abstracted that away until it’s, “I want to push a button and make money.” The confluence of those two forces creates a market that’s kind of unlike anything else the world has ever seen.
Now I think Uber is taking it to the next step where when people say, “I want a ride,” they’re really saying, “I want to get to that place. I want to push a button and be here, and then later be over there as quickly, as cheaply, as efficiently as possible,” and that’s what led them to acquire JUMP bikes and scooters and things like that. So they’re taking a fundamental human desire of movement, and they’re abstracting it until it’s a button push, and I think that’s fascinating.
You can see that in all of their marketing. So this is their landing page. This is uber.com today, and clearly they’ve solved out the consumer side of the business better than the supplier side. So it’s a simple pitch that is, “Earn money on your time. Push a button, earn money.” And I think even if you can see the text up here, the first toggle is, “I have a car/I need a car.” So they’ve not only solved it to the point where if I have a car, I can go push a button, but I can push a button even if I don’t own a car. I think that’s pretty fascinating. If we look at Lyft’s marketing, it’s still working on the consumer side, and its solution is, “A convenient ride with a simple tap.” Again, push button, get what I want.
Facebook is an interesting example, but you can see the, again, in the marketing messaging, “Connect with friends and the world around you.” So, connection. I want to know what my friends are up to. I want to be connected to other people. There were a lot of social networks around the same time as Facebook, and we don’t talk about them anymore, which shows how much Facebook dominated everybody else. But I think Zuck was one of the first people to realize that his product wasn’t a social network. His product wasn’t a webpage where you could put a bunch of information about yourself. It wasn’t a course listing, necessarily. It was a way to connect with other people, and he wanted to abstract all the complexity away and make it so you can push a button and connect. Clearly, that’s a fundamental human desire.
I think one of the things that’s most interesting is if you think about kind of the stack of fundamental human desire, where the top is the most ephemeral and the bottom is the most animalistic, the most pure, the most whole, the further you get down that stack, the more simple that human need that you’re solving, the bigger the business can be. We’ve taken a step back as Lambda School, and we started out focusing 50 people full time on how to build the best code school there’s ever been. We, I think, got there to the point where our students are studying computer science. They can write code that CS grads can’t write. They spend longer in class than a CS grad will spend in the core CS portion of their undergrad degree. They’re writing incredible code, but that still didn’t solve the problem for us because what our students were really there for wasn’t just the best code school. They were there to get a job.
So now we spend most of our time and our effort and our energy focusing on, what would the world look like if every student had their own headhunter, if they had somebody to go out and beat all the doors down and set up interviews for them? What would the world look like if not only did you have a career coach that could help you review your resume and review your portfolio, what if you could just push a button and job interviews popped up on a calendar? There’s a whole lot of work that goes behind the scenes, but as we get there, that’s something that other code schools can’t touch.
And then even further, that’s not something that’s unique to code. What people are really looking for is income mobility. How can I push a button and earn more money? How can I push a button and get a better job? And that engine that we’re building in the code school space, in the software engineering space, it turns out you can abstract that into other industries, into other fields. The details may change, but the model’s the same, similarly to how Uber moved from push button, get a ride, to push button, get somewhere, and now with things like Uber Eats, it’s push button, get what I want, push button, move something somewhere, and I think that’s fascinating.
If we look at Twitter, we see what’s happening in the world right now. It’s push button, get connected to the world. YouTube is push button, get entertained, and even more than push button, find the specific video that I’m looking for. It’s all there. They’ve spent an outrageous amount of time and effort and energy in machine learning resources, figuring out what it is that you want to watch. So you go to youtube.com, you don’t think, you click, and you’re there, but I don’t think this just applies to enterprise companies either.
If I look at something like Stripe, and Stripe is an investor in Lambda, but they originally started out as an API for business payments. Clearly, that was something that was fundamentally missing in the infrastructure, but they have worked until the point where they’ve moved to push button, get paid. They have all sorts of products all across the tech stack, across from consumer to terminal to whatever else, to where you just push a button and you can make money. That’s a pretty compelling product offering.
And then I wanted to close out again talking about Parker Conrad. So when Parker Conrad thought about the problems that he was trying to solve, he realized that there was a pretty big problem in the HR space. How do I get my people benefits? It’s a huge pain. What would it look like if I could create a world where people could just push a button and benefits were there available for them? He created Zenefits, and Zenefits was … There’s a long story there, but after Zenefits, I think he realized that there’s another step to take it even further, because the problem that Zenefits was solving wasn’t necessarily, “I need to get people benefits.” It was, “I need to just be able to hire people and not think about the rest.”
So he moved, in my opinion, one step down the stack so that when, if you use Rippling, which is his new company, you put in somebody’s information, it creates accounts, it orders computers, it sets everything up, it creates payroll benefits. The entire thing just done for you with a click of a button. As you can imagine, that’s a pretty big business.
So more than anything, I know we started out talking about how to decrease CAC and how to increase conversion, I think the best growth people in the world are the people that understand this framework and attach themselves to a product that solves a problem in that way and know how to really drive it. So I, yeah, I think if we all spend our time thinking about how to use technology, how to use these tools that we’ve been given, how to use the internet, whether it’s just an application or whether it’s machine learning and AI or whatever else to solve fundamental human needs, that’s a pretty cool thing. We have the opportunity as founders and as employees and as creators within this industry to solve fundamental human desires in a way they’ve never been solved before, and I think that’s a pretty cool thing, and that’s all I’ve got. Thank you so much.