Series on Tech, Disruption (and Chess)

Welcome to my series on technology, disruption (and chess). I explore concepts like hidden knowledge, open knowledge and set out to explore the right mental models founders can use for identifying the hidden Thielian secrets of the world. We cover the unbundling of the university, of venture capital and other disciplines throughout. Due to my years as a tournament chess player no doubt, I of course had to weave the evolution of this ancient game as a thread & metaphor throughout the series :)

Hope you enjoy!

Hidden Knowledge: Chess & Tech

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This post is part of my Series on Technology, Disruption (and chess), as well as my Mentorship Series. This series is in large part about the phenomenon of technological disruption and its effects and consequences. Throughout I will use the ancient game of chess and its evolution/disruption vis-a-vis technology/software as an allegory. Chess represents an excellent prism through which to study the disruptive effects of technology/software when integrated and/or superimposed upon any discipline.

Recently Fred Wilson wrote this post about a short video piece featuring Peter Thiel and former World Chess Champion Gary Kasparov. It was the second blog post in the last few weeks in which Fred covered chess in some way- the last one being this one about Brooklyn Castle.

Fred's posts inspired me to finally kick-off this Series as it's a subject I've been thinking about for years.

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The short version of the story is that I got into chess probably at age 8 but didn’t get very serious about it until I went to Stuyvesant High School in the early eighties- yes, in the “old building” – the same Greenwhich Village building on 15th Street off 1st Avenue that James Cagney attended when he was a kid. Even my buddy Mike Z, the guy who runs Stuyvesant’s computer science classes these days was around back then- as a student! Now his kids go to fancy "new" Stuyvesant off the west-side highway.

(Here's the old building & James Cagney for good measure)

stuyvesant
stuyvesant
james cagney

james cagney

Anyway- the Brooklyn Castle film that Fred recommended about those young chess players reminded me of my own chess team back in those days. With zero budget and no coach- our chess team managed to win 4 city, 3 state and 2 national high school championships while I was there. I just found one NY Times article about us here where they called us the "Kings of High School Chess". It was exhilarating and propelled me into the world of tournament chess which was a fun part of my life until I settled down with a family and kids. I have a lot of stories to tell from those days.

Thinking back on those early years, it occurred to me that I really learned the most about chess not from books- but from the Russian guys who played on the team that I met in our school cafeteria when I was a lowly freshman right off the boat from Brooklyn.

You see, back then all the action was in the cafeteria and it would really go on all day long. Parents these days would no doubt be outraged. It was literally like a casino. You could gamble relatively openly- and choose between one or two games of seven card stud or plenty of folks playing blitz chess, ping pong- whatever you were in the mood for. These were serious, intense games with good players and no messing around and it was worth participating just for the sheer brilliance of the insults and banter.  Every once in a while some ancient relic of an administrator from the James Cagney days would storm into the cafeteria and yell a little bit and try to break up the poker games- but people would just hold their hands below the table make small talk and suppress laughter until the old geezer would run out of breath and hobble out. The games would resume unabated. Periodically players got up and cashed-out to go to class- but when they got back they re-entered the games seamlessly. There was no-need for a pit-boss- we all were one community of players and without ever discussing it the whole group of us- whether you played poker or chess or other money games, were watching out for each other. To use the language of tech- you could say that we had established very sticky network effects- pre-Internet!

When I entered this carnival-like atmosphere for the first time in my life as a 15 year old kid- the environment shocked and intrigued me all at once. Of course I gravitated towards the tables where speed chess was being played. The language was exclusively Russian and though the players were in high school they seemed like grown men to me. After weeks of just quietly watching the games, one of the best players- a Senior named Oleg- gruffly told me that my presence was annoying to him and that I may as well play a game so he could crush me. Indeed he rolled through my primitive game like a wrecking ball multiple times. Many a term of ridicule and mockery were levied in my direction in Russian- followed by unsuppressed laughter. I knew at whom they were directing it. To put it mildly I was not pleased and went right to the old Chess Shop on Thompson Street (see photo below) after school and picked up some opening books which I devoured at the expense of any school reading for the entire week.

The following week I arrived at the cafeteria only to have Oleg and others steamroll me. But the more I got my ass-kicked, the more I learned, the more I studied and the better I got. In time I was holding my own. Over the course of many months this closed group of Russian players took me under their wing. In time, I qualified to join the team and we all became good friends. While I was there, Stuyvesant's chess team literally became a wrecking ball. Our closest competition not only locally, but at the Nationals, was actually only one other school: Madison High School from Brooklyn. Why? You guessed it- they were captained by a guy named John Litvinchuk- who was also "off-the-boat" from Russia and close to grandmaster strength.

When I think back on those pre-Internet days- it occurs to me that making progress in any field required *real* mentorship with people who had access to special knowledge. My chess mentors really had proprietary knowledge known only to "the few" and they knew it.  They also cared a lot and invested in me once I proved myself to them, spending countless hours training me to great effect. I remember them going so far as to lend me their old-school Russian chess books and showing me the important words I needed to know so I could follow the thread when I studied on my own. They didn't do this for just anyone.

In those days only pockets of people in any given field or discipline had "the knowledge" and it wasn't easily accessible. Some people never found it and were always on the outside looking in. It was like some kind of magic- invisible, cloistered- and you had to somehow hunt for it. In chess, it so happened that the Russians had that "specialized knowledge" because for decades the Soviet Union had prioritized excellence in chess. They formalized chess study in the schools, had sophisticated trainers, and invited the best young competitors throughout the USSR to elite training camps. The most well known was run by a legendary former World Champion, Mikhail Botvinnik and was named after him. This approach led to a near century of dominance. Players received real methodological training and had the benefit of a great deal of “proprietary work” that had been performed on opening theory and other aspects of the game. But make no mistake- this knowledge was "hidden" to the rest of the world. Perhaps only 100 people in the world possessed this arcane knowledge! It was literally like being in possession of the Holy Grail. The names of players that passed through Botvinnik's training academy is literally a list of World Champions and elite Super-Grandmasters: Kasparov, Kramnik, Karpov, Shirov, Akopian, Ehlvest and many others, some of whom still are active today. (see photo below). It gives me chills to think about how powerful that knowledge was. It was an immense competitive advantage. You can still trace its influence to the students of Soviet Grandmasters who defected or emigrated after the collapse of the USSR. The students of these Botvinnik students themselves possessed huge sustaining advantages.

BotvinnikSchool
BotvinnikSchool
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kasp_botvinnik

Of course the web and software opened up all of this arcane knowledge to a large extent. And in the same way that almost every industry has been laid bare, (including venture capital!)- the mysteries of chess have gradually been exposed by the web and by powerful chess-playing engines. Now you have both the phenomenon of younger and younger Grandmasters and a parallel phenomenon of immensely strong players emerging who have never had a serious coach/trainer but rather have learned everything from computers and practical experience. The youngest Grandmaster in the world today is not 20 years old, not 15 (as Bobby Fischer was in his day), but 12!! In fact, the strongest player in the world is not a Russian but actually a young Norwegian, Magnus Carlsen!  This is simply extraordinary and needs to be discussed in coming posts.

Chess is somewhat unique in that we have a universal rating system. So it goes beyond saying- "wow, that fellow Peter Thiel or Elon Musk is a genius". Now we can say- wow- Magnus Carlsen is already among the strongest chessplayers in human history- as his rating just eclipsed that of both Fischer and now Kasparov at their peak.

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carlsen

So what can we derive from this? Well, quite simply- tech/the web/software is just making the best of us- well.... better. It's clear. Something extraordinary is happening. What does this imply for the potential for human achievement in a diversity of fields? I think we are already seeing better entrepreneurs, better athletes, better venture capitalists, better engineers than there have ever been in human history. And yes, of course if Nicola Tesla had had our tech he too would have been even better (if that's possible)... but it's probably true.

We'll also explore just what this "open knowledge" in chess and other industries/disciplines has led to in more detail. In many cases, the effects are not what we might think they are or logically should be. One of the main things I've observed is that despite this great 'opening up' of hidden knowledge, the mystery has only deepened in some respects and "secrets", (as Thiel eloquently defines them), abound.

Click here for the next post in this Series

Open Knowledge: Hunting for the Next Layer

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This is part of my ongoing Series on Technology, Disruption (and chess). In the first post of this Series, entitled: Hidden Knowledge, I talked about the phenomenon of software hitting its stride, disrupting and "laying every industry bare" - opening up knowledge and know-how that in the past was hidden and only known to "the few". If you see me talking a lot about chess throughout this Series, it's because its evolution through the centuries is a terrific allegory to illustrate the unexpected effects and opportunities that arise when technology/software transforms or disrupts industries and disciplines.

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In the "closed world" you had to be lucky to fall-in with those that possessed 'the knowledge' either through happenstance and/or apprenticeships. But generally, if you were on the outside looking in- you had no recourse. As an example, most immigrant families in the United States had to labor for a generation or more for the opportunity to "break-into" certain fields and access the right networks (or establish their own). The almost century-long dominance of the Soviet chess machine I described in the previous post is another perfect illustration of this principle.

In this post I want to explore how we, as entrepreneurs, technologists and investors should operate in this new world of "Open Knowledge" as opposed to the "closed world" model. How should we think about launching new ventures in a world in which all photos we've ever taken or all music or movies we ever wanted to listen to or all recorded events in human history again are a click away on our cellphones or desktops? It's a world where soon, the greatest courses in any discipline taught by the leading minds at great universities will be available to anyone in the world with an internet connection. What kind of mindset do we need to equip ourselves to operate amidst such a landscape? It's my observation that a lot of us are still wired for the closed world.

The founders of Andreessen Horowitz call the phenomenon of disruption I'm describing as "software eating the world". It's clear that this is happening. As Ron Conway puts it- just think "Music:Apple, Radio:Pandora, Magazines/News:The Internet, Animated Film:Pixar, Direct Marketing:Google, DVD/Video:Netflix/Youtube, Tickets:Eventbrite, Mail/Fax:Email", and on and on.

But the assumption that many fledgling entrepreneurs make in the wake of this phenomenon- is to further assume that now that 'such and such' industry has been laid-bare and transformed by software so we should 'move on' and rush to participate in the laying bare of the next industry- as if software's disruption had had the final say. The assumption is that there are now no more secrets or so-called "hidden knowledge" and once certain startups have "eaten the space" and grown larger- it's a 'case-closed' situation devoid of new and mind-blowing opportunities. Peter Thiel has lectured eloquently about this mistaken assumption people make.

So whether you're an entrepreneur, tech investor or technologist- I think it's a good move to take some time to determine the following for yourself:

  • what will "the next layer" be within your industry or discipline, for it will surely come, and
  • what does the commoditization and availability of formerly hidden knowledge now allow me to try and do?
  • what secret do you know or can you uncover? don't underestimate the human component in this equation. 

This last bullet is important I think. Software is really about making processes more efficient, saving time, cutting waste out of various systems- it does not mean that the human element is eliminated. As an example- you can use a massive parallel processing chess-playing computer to check over your games- but it can't help you yourself calculate better when you're on your own! It's a tool- a resource to complement your own efforts and ingenuity. Why not use all the tools available to uncover the 'new hidden knowledge', the secrets Thiel talks about- and become a "layer hunter"?

In chess, for example, despite the proliferation of incredibly powerful chess-playing software upon which an entire new generation of grandmasters have been raised, why did the strongest young player in the world, Magnus Carlsen, feel the need to hire former World #1 Kasparov for a period of time as a coach some years ago? One major reason is that the fruits of 40+ years of world-class tournament competition, the enormity of a world champion's wisdom, experience and subtlety- is not yet 'available in silicon'. This is no different than a fledgling entrepreneur having a great CEO as mentor or a super-accomplished Board or Advisory Board around him/her.

Another big reason Carlsen hired Kasparov is that Kasparov was one of the great early adopters of chess software to aid his own preparation and training. He is also in possession of a database of 'secret' opening novelties and opening repertoires that he has assiduously cultivated and refined over decades with the help of strong computer analysis driven by his own insights. This database has achieved mythic status in chess circles and is believed to have been a massive competitive advantage for Kasparov during his playing days. It still looms large for those that seek him out as a coach.

Here we also see the phenomenon of the best in their fields always hunting for the slightest edge over their competition and becoming early adopters of the newest platforms and technologies. They are often the best layer hunters of all. We will see this pattern repeat itself again and again.

Germany, 1985  Working w/ Atari ST, 1987  Training World #1 Carlsen, 2009

Hunting for the Next Layer:

So how to go about hunting for the "next layer"?  I think one good technique is to look at what the people at the very top of their fields are experimenting with. They always seem to be on the bleeding edge, uncovering new approaches, new secrets. So if you're into education- what are the cutting-edge professors and entrepreneurs trying? If you're in VC, what are the best practitioners talking about amongst themselves? The same for sports, energy, healthcare, cloud, government- you name it. Find the best and get to know them. This was almost impossible a quarter century ago. Now there are no limits to who you can reach. Get in the same room with them. Period.

If you were in the room with Kasparov, (see the black and white photo above), in 1985, you would have been on the cutting edge of the development of the next layer of chess' thousand-year ascent.

If you were in conversations with Fred Wilson and/or Brad Feld when they started blogging about VC in 2004 you would have been privy to the first layer in the unbundling of VC.

If you were in the room with Sebastian Thrun when he first decided to open his Introduction to Artificial Intelligence to the world, you would have seen the coming of the next layer in .edu when 160,000 students in 190 countries enrolled.

What are the top people in your field talking about right now? Perhaps you are one of them yourself? Whatever the case- find out.

The other way to go is to do what Thiel suggests and go after very hard problems that have scared people off. But you have to do it without accepting other people's definition of the landscape. You need to do a lot of the core re-thinking. As Thiel says:

"The basic challenge is to find things that are hard but doable. You want to find a frontier. But don’t simply accept others’ definitions of the frontier. Existing priorities and ways of thinking need not be your own. Think things through and go find some secrets. There are many of them out there. Just remember that they are concealed not just by nature, but also by the people all around you."

In the next post we'll use this framework to assess the unbundling of the Venture Capital arena and apply these principles. Let's see what we come up with.

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The Great Unbundling of Venture Capital

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This is the third post in my ongoing Series on Technology, Disruption (and Chess). In the previous post I contrasted the old world of closed or hidden knowledge with the new landscape of open knowledge in which we are living. I also described a framework that I think is helpful for entrepreneurs, investors and technologists as they search for opportunities within sectors that have been or are in the midst of being disrupted by technology/software. In this post we will examine the world of venture capital- an industry that is well along in experiencing this phenomenon of "software eating the world". It's being unbundled before our eyes. Here's my effort at describing this evolution, layer-by-layer:

 

First Layer: VC Bloggers, The Funded

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fredwilson
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I see the first layer of the 'laying bare of VC by technology' as the phenomenon of VC's actually blogging about their business. This essentially started in 2003 with guys like David Hornik, Naval Ravikant at August Capital and then guys like Fred Wilson and Brad Feld as the pioneers. (Again we see the phenomenon of some of the most respected and talented practitioners having the confidence to embrace change and experiment with new platforms). Venture Hacks (by Ravikant and Babak Nivi) was also excellent but came later. Many followed when it was considered "safer" to blog and they figured their LP's wouldn't incinerate them. As always, the laggards came in at the end when they realized they "needed to blog to exist" and compete- and of course most were terrible at it and just imitating the leaders and often ended up just lazily pimping their portfolio companies. There was also Adeo Ressi's "the Funded" in this first layer- a site that had the nerve to let people rate VC's anonymously. It enraged many a grumpy investor. How dare they! But it was definitely one of many influences on VC behavior that emerged during this new era of "exposure".

So what exactly did those blogging pioneers do? They actually talked  explicitly about what they were looking for, what a term sheet was all about, how to get in touch with them, and all the formerly hidden tricks (such as 3x liquidation preferences & taking the option pool out of the entrepreneur's hide) that VC's and their counsel employed so often against uninformed and unprepared entrepreneurs. There was a massive knowledge gap that had been used against entrepreneurs- but the more this knowledge was disseminated during this "First Layer", the more the power dynamics shifted away from the VC's.  The "black art of VC" was being 'laid bare' in this sense. And what exactly did this lead to?

  • Entrepreneurs were no longer in the dark and suddenly knew what the game was. Few before them had ever known.
  • Low-life VC's asking for 3x liquidation preferences were exposed for what they were and became dinosaurs.
  • Bad VC behavior was discussed openly on the Web and exploitative, rude, arrogant actors were now exposed.
  • VC's with no strong voice/perspective on the web languished in obscurity wondering what had happened.
  • There was a power shift. More power shifted to the entrepreneur (although this was not the only reason for this dynamic).

Second Layer: SuperAngels Emerge

kopelman
kopelman
clavier
clavier
conway
conway
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cenkut
mike maples

mike maples

naval ravikant

Due to the inexorable advance of technology, the cost of launching companies was dropping precipitously during this time and entrepreneurs no longer needed large checks from VC's to get going. This paved the way for the emergence of the SuperAngel or MicroVC. These investors emerged in great contrast to traditional large funds. Founder-friendly, no board seats needed, easy terms with a "lets do this together mindset". Also, some respected law firms started using their websites to publish standard term sheet templates openly that the industry began to adopt. I see the highlights as follows:

  • With VC blogging platforms seeding the field, the precipitous drop in costs to launch companies opened-up a 'Second Layer'
  • A new breed of superangels/microVC's emerged: Kopelman, Clavier, Conway, Ravikant (again!), Senkut, Maples & others
  • The meme of founder-friendly investors (often entrepreneurs themselves) emerged, open discussions, open personalities, no board seats, friendly terms, convertible notes.
  • Law Firms start putting out "standard term sheet models" openly and deconstructed the terms to which entrepreneurs were so often oblivious

 

Third Layer: VC as Service-Provider,  the emergence of AngelList, Secondary Markets, Accelerators

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kopelman

naval ravikant

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andreessen horowitz

barry silbert

barry silbert

Even though some firms had been providing some of these services here and there in the past, First Round Capital and then Andreessen Horowitz took the concept of VC as service-provider to an entirely new level. Using software to streamline the networks of all their portfolio companies was a big start. One CEO could now get instant information about any given problem (s)he had by pinging the system. Andreessen then put this all on steroids by hiring pr/bus dev/finance and other professionals in-house to provide services to their portfolio companies. They have set a standard so far out ahead of anyone else in the field that their fund has become known as one of the best in the world despite having been in existence only for several years.

The JOBS Act has also now enabling true crowdfunding. AngelList (founded by names that should be sounding familiar by now: Ravikant and Babak) is at the forefront of this movement and has become preeminent as the place for early stage investors and entrepreneurs to go for an "online" solutions to raising money. AngelList's Syndicates have now been released which opens up fascinating possibilities. Prominent angels can already "raise" their own mini-venture funds on that platform within days. It's truly a huge shifting of a tectonic plate.

But it must be said- whereas now people are 'suspect' if they don't have an AngelList profile, a few years before this many people thought Naval Ravikant (the CEO) was spinning his wheels or worse. Many people didn't understand what he was talking about and couldn't imagine VC being done via a platform. He kept talking about the "unbundling" of the venture process: capital, advice, referrals, etc. He had already seen "the next layer" before most.

Lastly, in this third wave we saw the emergence of secondary platforms like SecondMarket and SharesPost, companies that emerged to provide liquidity to founders and early employees of companies that had reached escape velocity. I remember how alien this concept (and frankly unpopular in certain circles) seemed when Barry Silbert launched his company. Now these entities seem like long-time fixtures of the venture ecosystem.

Very recently I heard of a company called ExitRound that is attempting to create an anonymous marketplace for founders to discretely "explore acquisition opportunities", (read: acqui-hires). Some people are already questioning the validity of this approach- who's to know if they're right or wrong. There's no question this could become another viable micro-layer in this category.

 

Fourth Wave (yet to come): An algorithmic approach?

vinod khosla

vinod khosla

It's my view that the disruption of VC is still in its early innings. And this is an example of where I think we need to be most alert for new developments and opportunities when we look at any industry being re-invented. As an example, Vinod Khosla, tweeted the comment and link below the other day. He's talking about the early frontier of VC's adopting algorithms to help them make their investment decisions and gives several examples of emerging players in that space. His point is that this sort of data-enabled approach will be standard in the future whether people can stomach it now or not.

Vinod Khosla @vkhosla  11/3/13, 12:55 PM
VC in age of algorithms: if algo say's “yes” there’s human screening; VC's subject to a litany of cognitive biases

This is probably going to comprise yet another layer of disruption/innovation to what may or may not be called "venture capital" by then.

 

Very Speculative: Potential Fifth Wave: Investing in People's future earnings: Athletes, Entrepreneurs, Celebrities

vernon davis

vernon davis

Some entrepreneurs believe they are on the vanguard of creating a new asset class. Upstart and Pave are two players in the early innings of moving entirely beyond funding companies but going right to investing in people themselves. Fantex is another emerging company that allows you to invest in the future earnings of professional athletes. Vernon Davis, pictured above, has recently put 10% of his earnings up into such an investment pool.

I actually think this loan stuff  will get destroyed as well. I think that if this is to become a "wave" the cutting-edge stuff two years from now will be just funding people, mentoring them, getting them ultra-networked and sharing in their upside. If they can't pay you back- there will be no consequences. Here again algorithms will be used to identify the best people to back and there will be an ultra-elite layer of human curation on top of it all. I think I know the guy who will make this happen. I was in the same room with him discussing just this today.

 

Summary

So here is the inexorable advance of technology/software (designed by human innovators of course) doing its thing and running its course in VC. It's opening up and transforming a formerly closed industry. Old players that were taking advantage of entrepreneurs and relying for their livelihood on the information advantage are dying off. New players with 'next-gen' approaches have come-in and eaten up many of the older players. The AngelList platform is now on the cutting edge of what may well be the next wave of change. As mentioned, an investor without an AngelList profile has already become 'suspect' in the same way that a professional without a LinkedIN profile is suspect and perhaps irrelevant.

But to my point earlier- so what? If you are interested in VC or are an angel or VC yourself- or are an entrepreneur looking at this space- what can you derive from this understanding? Where are the "secrets" Thiel has described? Where do the opportunities lie? Where is the hidden knowledge/next opportunity of today and of tomorrow? How can entrepreneurs and investors "roll with this" instead of becoming irrelevant?

Here are some thoughts as to where to look for the Hidden Knowledge- the so-called secrets:

  • What are the best investors doing to reinvent themselves right now?
  • Who is generating the best process/manual for judging early stage investment prospects and how?
  • What will be the key to being able to form and build a great syndicate on AngelList? (Social Algorithms?) :)
  • How to identify the new breed of low-life  investor who uses these platforms? What's the new camouflage they wear?
  • On the other side- quality investors who didn't have a knack for social media and blogs but were good with entrepreneurs and added massive value are now obscured from view and can only be found through the old ways, ie. practitioners who respect them "bigging-them-up" and making warm intros to them. How to find and identify them?
  • I have speculated about two subsequent tech/software led waves (four and five above) that may further disrupt the VC industry. Where do you see it going?
  • Will there be a new breed of superangel that sucks up all the air in the room due to their huge social profiles? Will they emerge from AngelList Syndicates or elsewhere?
  • Will most funds get raised on AngelList in the future?
  • With SEC rules loosening how will this transform the fundraising landscape for funds?
  • As Thiel would put it, where are the remaining hard problems to solve in this space? Are convertible notes on their deathbed? What will the newer structures and instruments look like?

Let me know your thoughts.

Click here for the next post in this Series

The Great Unbundling of the University

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This is the fourth post in my ongoing Series on Technology, Disruption (and chess). In my previous post we discussed what I called the Great Unbundling of Venture Capital and it led to a fascinating conversation on Twitter, in the comments, in personal conversations and on various blogs.  People have strong feelings about venture capital and the topic of its evolution, and unbundling definitely touched a nerve with many.

In this post, we'll examine the phenomenon of an ancient and venerable institution, the university, which is in the initial phases of its own disruption.

The "too long, didn't read version" of this post:

  • 4 of the 5 value propositions of the university *are* being and *will continue* to be disrupted/unbundled;  
  • we are in an immense bubble of 'education debt' that is unsustainable. Students will not, and cannot, afford to continue to burden themselves with crushing debt in the decades to come;
  • universities have evolved over the centuries into siloed institutions where inter-school/inter-departmental cooperation neither comes naturally or easily;
  • research and teaching (now coupled) will likely require unbundling over time;
  • the unstoppable force of entrepreneurship, as it pertains to schools, faculty, students, alumni and the curriculum, will be one of the major "tips of the spear" or "bunker busters" in leading this transformation; and
  • how universities acknowledge and adjust to the realities of #1 and #2 will determine their futures

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I've heard it said by many that the university has not changed its essential approach and structure for the last 1,000 years. Despite the evolutions of curriculum and despite many significant nuances and types of universities (about which entire books have been and will be written), I believe this to be in large part true. What I mean by this is that the iconic model- a professor standing before a room full of students and delivering her lecture as they scribble notes and ask questions- has been a constant for a millennium.

So, in keeping with our model of examining the phenomenon of unbundling and disruption in multiple industries, below is an 'unbundled list' of the various value propositions many Universities currently bring to the table. I'm using a slightly revised version of an excellent model that I believe was created by David Wiley:

VALUE PROPOSITIONS OF THE UNIVERSITY

1) teaching - content provisioning

2) research (exploration of knowledge and understanding for its own sake)

3) helping students w/ questions  (ie, office hours, master classes, review sessions, etc.)

4) camaraderie (exposure to like-minded people, a social life, networks, and alumni)  

5) issuing credentials (degrees that connote skills/achievement that historically have portended preferred access to jobs)

Together these represent a remarkable range of value and bring to mind the romanticized image of the idyllic university environment that is so much a part of our collective consciousness and culture. For those of us who were fortunate enough to have experienced it first-hand, it often brings some of the fondest memories of youth and can engender a great sense of loyalty to alma mater.

My own college, Williams, was founded in 1793, and the escutcheon reads: E liberalitate E Williams, Armigeri. It's a tiny college with 2,000 students total per year but the endowment is close to $2 billion. Why is this? It definitely has to do with the immense school spirit and loyalty the place engenders. We have #4 above (camaraderie) in droves.

Though I loved the experience of the classic, sprawling university and have devoted the last eight years of my professional life to another world-class institution, Columbia University, I hate to agree with the broad contention that it is no longer sustainable for *most* institutions to provide *all* of the above value propositions above "under one roof". Professor Clayton Christensen has pointed out that there are too many divergent business models at play here, and as a result, "in the absence of philanthropy, no university would survive". That's good news for institutions with world-renowned brands and huge endowments but is a huge wake-up call for most everyone else.

It's also well-established that we're in an immense bubble of 'education debt' that is similarly unsustainable, and it just seems inconceivable that students will continue to burden themselves with crushing debt in the decades to come. Check out this graph that Peter Thiel has shared in the past, comparing soaring student debt to a commensurate decline in median income. Simply devastating.

thielgraph
thielgraph

MY THESIS

Before diving further into the "University Stack" below,  my thesis is that:

1) it's widely accepted that the various value propositions of the university *are* being, and *will continue* to be, disrupted/unbundled;  

2) the unstoppable force of entrepreneurship as it pertains to schools, faculty, students, alumni and the curriculum, will be one of the major "tips of the spear" or "bunker busters" in leading this transformation; and

3) how universities acknowledge and adjust to the realities of #1 and #2 will determine their futures

So with this backdrop in mind, let's examine the five components of value Universities provide, (the "University Stack"), and how they are being disrupted in more detail:

THE UNIVERSITY "STACK" (unbundled)

1) Teaching- content provisioning:

Disruptive Force: Online Learning, MOOCs 

Online Learning:

It's interesting to note that Williams College was also the breeding ground of one of the first big-time efforts to deliver online learning. Professor Mark Taylor, (then a professor at Williams, now Chairman of the Religion Department at Columbia), had a vision for a global network of university online learning and raised $20+ million from Williams alum Herb Allen (of Allen & Co.) for the Global Education Network in 1999. It turns out that Taylor's vision, (which he elaborated upon years later), was a few years ahead of its time.

But his effort was far from the first. Check out the remarkable timeline just below or click on it to enlarge.

History of Distance & Online Education Infographic

Online learning is a game-changer that is radically transforming university education into what can only be described as what will be the "new incarnation of the University" in this century and beyond. The wealthiest, most established university brands will be just fine, but they too are already embracing the use of online-delivery of content at their own pace and in a manner to their own individual taste. MIT went "all-in" early on with 

MIT Open Courseware

 and others jumped in also with modified and hybrid approaches. As many others believe, I too think these attempts will evolve accordingly and that these renowned brands will endure.

It's "everyone else" that's been presented with an existential question: Why will students continue to pay or take loans for university degree from a less prestigious institution where there is a high likelihood of not being able to secure a well-paid job upon graduating? Unless these institutions embrace 'the online model' (and many are), they will eventually go the way of traditional print news organizations.

Thinking ahead, I believe the great story of online learning and MOOCs will ultimately be: access.  If you think about it, this is the ultimate disruptive force in this equation. Imagine a world in which people from all corners of the planet have access to education by accessing free online resources on every subject.  A much larger percentage of humanity's talent pool will eventually be tapped and the talent, creativity, ambition and industry of millions of talented people hungry for knowledge and access will be unleashed on the world. The great Universities, as well as a host of new institutions, will be at the forefront of this.

As Clay Shirkyput it not too long ago, "MOOCs expand the audience for education to people ill-served or completely shut out from the current system, in the same way phonographs expanded the audience for symphonies to people who couldn’t get to a concert hall, and PCs expanded the users of computing power to people who didn’t work in big companies."

There are so many amazing stories, (this one about Khadija Niazi of Lahore photograped below and this one about the young boy genius from Ulan Bator), about the 'unearthing of talent' in what have been the most "unexpected places". I believe that over time the inexorable advance of mobile/smartphone connectivity will drive the adoption of  MOOC-like courses and demonstrate that there is no such thing as an "unexpected place". These forces will unleash a much larger percentage of the world's total available talent.

Khadija Niazi
Khadija Niazi

2) Research (exploration of knowledge and understanding for its own sake):

Disruptive Force: Pressure from MOOCs, decline in gov't funding, entrepreneurship curriculum & need for adjunct professors, new startups that "open-up" a closed system & increase collaboration 

For universities that are also research institutions, there is an enormous tension between the requirement that professors, who are seeking tenure, to both publish their research and concurrently serve as excellent teachers. The tenure system here is certainly at the core of this dynamic. Does a great researcher make a great teacher or vice-versa? We know this not to be necessarily true.

Like Christensen, I believe this too will be unbundled. Research and Teaching will eventually be split apart. In an increasingly competitive environment, given the advent of MOOCs on the one hand and the dearth of federal funding for research, the demands for excellence in each will be too great to keep the two forced together.

I think the need to increasingly rely on practitioners operating as adjuncts will also be transformative to the curriculum as well as the tenured ecosystem at universities.  As departments realize that information technology and entrepreneurship/applied learning is not only applicable but indispensable and core to all disciplines, this will result in the awareness that practitioners from outside academia will need to be recruited in greater numbers, and the whole edifice of tenure, hidebound curricula and the structure of departments will have to evolve accordingly. Think about it: what journalist, lawyer, physician or executive can succeed in the digital world in which we all live without an understanding of technology, entrepreneurial disruption and basic digital literacy?

Government Spigot Running Dry: another huge issue is that government funding for research is ebbing in a huge way. In the realm of applied research, this has led to a) a huge premium for research faculty and grad students "building things" in the lab to receive entrepreneurship education; and b) awareness of what it really takes to bring products to market via spinoff companies. This requires a sea change in attitudes and approach. It also requires a openness and liberalization of university IP policies. The good news is that some government agencies are getting smart and adopting Steve Blank's lean startup philosophy and offering faculty and graduate students training in the arena of commercialization.

Closed Environments:  new startups will over time "open-up" the often siloed environment of the university lab, and there will ultimately be less repetition/overlap and more collaboration/efficiencies introduced. As funding continues to be sparse, there will increasingly be a need for more openness.

3) Helping students w/ questions on the content  (includes office hours, master classes, review sessions, etc.):

Disruptive Force: the "flipped classroom", online student interaction, MOOCs, etc.

Here's an area that certain online learning companies are also trying to penetrate with local centers and peer-driven sessions. We also are seeing the adoption of the "flipped classroom" in many contexts, very notably in entrepreneurship classes/labs at universities. I also see entrepreneurship mentoring programs as a relatively new entrant into this arena. They can be incredibly effective and help students in all disciplines.

In short, increasingly we are seeing the blending and overlap of the university with its local ecosystem, more adjuncts, more mentorship programs, more flipped classroom settings. The transformation is gradually occurring.

4) Camaraderie (exposure to like-minded people, a social life, networks, and alumni):

Disruptive Force: Nothing Good Yet!

This is a piece that the traditional university has a great hold on. Here again, I think the established universities with large campuses, long histories and dedicated alumni bases add massive value that will not go away. Universities without this advantage will just be more vulnerable as online learning becomes firmly established. Yes, we are seeing the advent of great co-working environments of late- but it's hard to see these chip-away significantly at schools that have especially rich histories of community and school spirit.

5) Issuing credentials (degrees that connote skills/achievement that historically have portended preferred access to jobs): 

Disruptive Force: new breed of skill-based trade schools (GA, Flatiron School, etc), organizations seeking to create new kind of achievment/skill-based recognition (Coursera, YC, TechStars, 500 Startups and others), large corporations moving more heavily into training their own  

There are immense forces at work here that pose challenges to universities and colleges on many fronts and they are too numerous to catalogue in this limited space. Nonetheless, we see of late many trends arising such as the return to real-world "apprenticeships", to the sense of value (real or perceived) in certificates, (as in a Coursera certificate), and, (on the extremes), to the renegade appeal of the Thiel Fellowship whose cheeky tagline from Mark Twain reads: "I have never let my schooling interfere with my education".

Immense challenges and questions present themselves to the Academy. How, for example, will universities perceive and react to the market demand for digital literacy that new organizations like General Assembly and the Flatiron School have tapped into? Or, what does (and should) entrepreneurship education at the University look like in five years? On the entrepreneurship front, it is not uncommon to see students quit college with little hesitation if accepted by the likes of a YCombinator or TechStars, which are now harder to get into than most Ivy League institutions. I have listed other questions in the last section below.

Paul Graham, founder of YCombinator, penned this excellent piece on the steady evolution of the whole complex of academic/business credentials from their antiquated provenance of maintaining the status and power of wealthy families, to the unselfconscious protection of seniority, all the way to the rapidly emerging paradigm of measurement and performance. It's a must-read. He believes that the paradigm of "credentials" peaked in the late 20th century and we've entered a new era where skills, aptitude and talent can be and are measured and are the new currency. Of course he is right.

How American universities adapt to this reality and the market forces at play will be the story of their success or failure in the new century.

Summary/Next Layers/Open Questions

So to summarize- the university landscape looks like this:

  • it appears that 4 out of the 5 value propositions of the traditional university are moving swiftly towards disruption/transformation
  • we are in an immense bubble of 'education debt' that is unsustainable. Students will not, and cannot, afford to continue to burden themselves with crushing debt in the decades to come.
  • as Clay Christiansen has stated: "in the absence of philanthropy, no university would survive"
  • universities have evolved over the centuries into siloed institutions where inter-school/inter-departmental cooperation neither comes naturally or easily
  • research and teaching (now coupled) will likely require unbundling over time

So given this landscape as I stated in my last post about the unbundling of VC: so what? Well, if you are interested in the university space for any number of reasons, i.e. you are an alum, a prof, a student, or you are wondering what options your kids will have when the traditional time "for college" arrives, or you are an entrepreneur or investor in the .edu space, etc. below are some of the big questions you'll have to confront and consider.

And once again, I ask you: where is the "hidden knowledge" or "the secrets"  Thiel encourages us to look for?

As I mentioned above I believe one of the big secrets is this:

Entrepreneurship is leading to a great transformation of the academy, both from within and without.

The digital/information revolution is firmly upon us and the creative/entrepreneurial impulse is the ultimate silo-buster, cutting across all disciplines, affecting every fiber of institution and curriculum. The University has entered the era of Entrepreneurialism.

But what are the other secrets? If one postulated that the following aspects of a university are either subject to radical transformation or doomed, massive opportunities abound. Beside each please help me add to the lists of potential replacements and by all means add your own in the comments section.

  • Tenured Faculty vs. ??
  • Massive Tuitions vs. ??
  • Research Status Quo vs. ??
  • Government Funding vs. ??
  • Traditional Campus vs. ??
  • Camaraderie of Campus vs. ??
  • University/College Degrees vs. ??
  • Classroom Teaching vs. ??
  • University Libraries vs. ??
  • General Population Dorms vs. ??
  • Classrooms vs. ??
  • Closed Laboratories vs. ??
  • 3rd Year of Law School vs. ??
  • Keg Parties vs. ??  :)

Would love your thoughts and comments. Until next time...