Guild Education is an education marketplace that connects employers and universities to provide employees with “education as a benefit.” The Denver-based company is transforming traditional tuition-assistance programs by facilitating direct payment by the employer to the academic institution and by supporting students with coaching and advising. Now CEO and co-founder Rachel Carlson must decide how to manage the company’s future growth. Should she focus on expanding Guild’s core education marketplace, or extend the business model to include the career placement market?
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BRIAN KENNY: In addition to the staggering and growing number of deaths caused by COVID-19, the pandemic has also taken a toll on jobs. 22 million were lost by November of last year. The sudden job loss was a shock to the system, and it shines a light on the growing gap between the skills sought by American employers and those offered by the vast majority of the American workforce. It was the central theme of a research report published by faculty at Harvard Business School in 2015, which cited, “While millions of aspiring workers remain unemployed and underemployed, employers across industries and regions find it hard to fill open positions. The market for jobs that require more education and training than a high school diploma but less than a four-year college degree is consistently failing to clear.” That failure, they said, is inflicting a grievous cost on the competitiveness of American firms, and on the standard of living of American workers. Today on Cold Call, we welcome professor Bill Sahlman to discuss his case entitled, “Guild Education: Unlocking Opportunity for America’s Workforce.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents network.
Bill Sahlman’s research focuses on the investment and financing decisions made in entrepreneurial ventures at all stages of their development. He’s been writing and teaching about entrepreneurship at Harvard Business School for decades. And in 1985, he introduced a new course called Entrepreneurial Finance, which has become one of the most popular elective courses in the history of HBS and he’s written a boatload of cases as we were just talking about before we went live. Bill, thanks for joining me today.
BILL SAHLMAN: Thank you. Nice to see you, Brian.
BRIAN KENNY: And it’s great to have you back on the show. I teased a little bit in the introduction the impact that COVID has had on job loss and the job skills gap that has been a problem for a while, and this entrepreneur may have found a way to help solve some of that. So I think people will really enjoy hearing about it. Let me ask you to start by telling us what your cold call would be in the classroom to start this case?
BILL SAHLMAN: What I’ve typically done is to ask a simple question, which is, what is the secret sauce of Guild Education? And that gets to the issue of what’s the nature of the problem they’ve identified. What is their solution? Who’s on the team? Why did they find this? How do they build scale economies? How do they build a moat, a competitive to maintain their superior position? And we dig through each of those components during the discussion.
BRIAN KENNY: Having written so many cases and having studied entrepreneurship for so long, why did this one strike you as one worthwhile, one worth writing about?
BILL SAHLMAN: I’ve introduced a new course called, “Entrepreneurial Solutions to World Problems”, and the basic idea is there’s an infinite supply of problems. And fortunately, entrepreneurs view problems as opportunities. And I focused on healthcare, education, and the environment. And in particular, in healthcare and education, costs are high, and outcomes are bad or mediocre. And so the question is, how are people addressing that gap? How can they deliver superior outcomes at lower cost? And in the case of Guild, how do they help millions and millions of people who aspire to get better job opportunities or to move up in their company or move geographically, whatever it is, and how do they help them fulfill their dreams?
BRIAN KENNY: Let’s dive in a little bit to Guild Education. Describe who they are, what they do, and what makes them a marketplace? Because we’ve talked with other guests on the show about platform companies, and we’ve talked about marketplaces, and there’s a lot of discussion about that these days, so tell us how Guild Education fits that model?
BILL SAHLMAN: Well, go back in history a little bit. Companies have often agreed to assist their employees in getting education, so they have a tuition assistance program. But the employee is supposed to go out and from all of the choices that are out there, pick the one that they think will maximize their likelihood of achieving their outcome. That’s a pretty inefficient process. Companies, on the other hand, want to recruit, retain, upskill, re-skill, and help move on employees in an increasingly competitive environment. And then academic institutions want access to students, and in particular, they don’t want to have to go through quite inefficient search engine optimization programs, which have gotten very expensive. And so what Guild does is it helps employers, typically large employers, it gives their employees access to a highly curated set of academic possibilities. Could be skilled programs, could be degree programs. And then it negotiates with the academic institution so that they have access to those employees. And essentially, they create this marketplace that works for each of those three constituents.
BRIAN KENNY: Are there other firms that people might recognize? They may not have heard of Guild Education, but are there other sort of retail marketplaces, others that people can sort of grasp that idea as well where they’re performing the same function of bringing multiple groups together in a way that benefits everybody?
BILL SAHLMAN: The nature of platforms… If you think of an eBay, eBay would be something where, if there are lots of sellers, then lots of buyers want to be there. If there are lots of buyers, sellers want to be there. Amazon has created a platform where they can sell from their own stores, but they also enable other people to sell on the page that Amazon lists for a product. And what that does is it increases dramatically the retention of people in those marketplaces, and they get better and better as they learn how to do things, as they attract more clients on both sides. And in this case, on all three sides, the employers, the employee, and the academic institutions.
BRIAN KENNY: Yeah, and the case goes into the complexities of building a marketplace, so we’re going to talk about that too, because I thought that was interesting, the kinds of challenges that they face. But I want to just talk about the term unicorn. You use that sort of a descriptor in the case. I think people kind of know what it means. But what makes Guild a unicorn?
BILL SAHLMAN: Well, Aileen Lee, who happened to have been an investor in the first round at Guild Education coined this term for venture-backed companies worth over a billion dollars. I think the better way to describe it is, people who’ve found compelling solutions that have some network effects built into them, and they’re addressing large markets. So, if there are 35 million Fortune 1000 employees, many of whom might aspire to get an associate’s degree, a bachelor’s degree, even a master’s degree, then that’s a very large market. And the academic market is also very large, and they’re trying to attract the best students and do the best job for them. So, you find unicorns when there are compelling solutions to very large problems. Part of my idea in “Entrepreneurial Solutions to World Problems” is that to solve big problems, you need to have flows of human capital and financial capital. So you need really smart people like Rachel, the founder of Guild Education. You need investors who are prepared to take that early risk that they won’t find a solution that is going to enable them to capture value over time. And that process of bringing those two things together is what creates change in the economy, whether in education or in healthcare or anywhere.
BRIAN KENNY: Yeah, that makes sense. Tell us about Rachel. Rachel Carlson is the… She’s the protagonist in the case. She is the founder of the firm. She’s an interesting person. Tell us a little bit about her background.
BILL SAHLMAN: She grew up in a political family in Colorado. Her grandfather was governor. Her father was involved in politics in various ways. And I think she’s always had a bent towards trying to make the world a better place. As an example, she’d been a student at Stanford, and she left Stanford to go off to work for the Obama administration for a bit. She came back because I think she needed or thought she needed some skills and some connections and a variety of things you get out of business school, and so she went to Stanford Business School. Like everyone during those years, in the mid-2015 period, she created an app. That was what you did.
BILL SAHLMAN: The app was not particularly compelling, and she was able to sell it, so it got a home. But in the process, she discovered this misfit. She had also worked with her father on helping students get access to higher quality education, to get tutoring and support. And that was a viable product, but that was not a compelling economic solution that benefited from some of the things she did when she created the marketplace. I often describe entrepreneurship as a set of hypotheses where you believe you can create and capture customer value and you structure a test to see whether or not your ideas are correct. You interpret the test, and then you go about getting a little bit more money, a little bit more human capital, and run the next test. And Guild Education, a perfect example. They got a couple of million dollars to figure out whether there was a pony in there, and then they were able to build a platform, attract an early customer, Chipotle. Based on that, what they discovered from the employees who used the system to find educational opportunities, then they’re able to expand, attract other customers. And so entrepreneurship is a continuous process of creating hypotheses, testing them, and acting on the basis of the information you get.
BRIAN KENNY: Yeah. And part of Rachel’s awareness of the problem that she is now trying to solve started when she was working at Bloomberg. I think you talked about that a little bit in the case. And she recognized that there was a large portion of the American population that wasn’t participating in the higher education space at all. I was surprised at some of the numbers in the case. Can you describe a little bit what that looks like in the US? How many high school graduates go on to college and earn degrees?
BILL SAHLMAN: Well, today in the US we have 55 million kids in K-12. We have 22 million in higher education. And we’ve had an explosion in people taking, adults taking courses of various kinds. So you have platforms like Coursera or edX. You have lots of universities like Southern New Hampshire or Western Governors who are offering courses, but it’s a bit of the wild west out there in the sense that what you’re able to find that you think and is truly going to help you in your career or in how you feel about yourself, that’s a hard system. So it’s like organizing all of that information. In Rachel’s case, she discovered that academic institutions were spending over $5,000 to acquire a student. The employers were having trouble getting their employees to take advantage even of some tuition assistance, and often, it wasn’t a very good outcome. They didn’t finish the program. They didn’t do what they were trying to do, and it didn’t really benefit the employer. And so she created this solution where she changed who bears the risk, so she bears the risk at Guild Education for the student, the learner finishing their certification or degree, and it turns out to be a terrific way to make it work for everyone in the marketplace.
BRIAN KENNY: I love the way that she sort of had insights along the way as she kind of went down this path. And I think she saw early on that part of the reason that people don’t succeed and don’t complete this educational process is because they’ve got other stuff that they’re dealing with, right? They’ve got family issues. They’ve got financial issues. Some of them have to work jobs while they’re going to school. So, for many of our listeners, it might be that their experience was more like I graduated high school. I went to college. I graduated, I got a job. That’s not the norm for a lot of people, and Rachel seemed to understand that and the importance of counseling as part of it.
BILL SAHLMAN: So, a common finding in healthcare and education is that throwing students or patients into the open raging river and thinking that they’ll navigate to the other end is not a very good way of accomplishing what you really want to accomplish, better health, better career prospects and the like. So she had discovered early on, particularly in working with her father before, that you need tutoring. You need people to help you understand what would enable you to get a better job within the company you’re working for, at a different company, and a different place. So, it turns out a human touch is critical to all of these processes, and she figured out how to scale that. And so I think she found the secret sauce to that particular problem.
BRIAN KENNY: Can you talk a little bit about… I’m trying to wrap my brain around being Rachel, it’s 2014, I have this idea. I’ve got a hypothesis, like you said. I get somebody who believes in me enough to give me a little bit of funding, and then you get that first client. That’s got to be a moment of joy and panic at the same time because that’s your opportunity, right? If you don’t deliver on Chipotle, it’s hard to sort of restart after that. What does that… I don’t know if you spoke with Rachel about that, but what’s that like?
BILL SAHLMAN: In Rachel’s case, I think she had the ingredients to understand what Chipotle was going through, how they were competing with Starbucks and other companies that were trying to improve their employee recruitment and retention and upskilling. And so they work with her as a partner. That’s almost always the case in these early customer acquisitions stories. You get a partner, they help you develop the software. They understand they’re going to be some glitches. And fortunately, she and her team were able to execute at the high level, which then leads to the next customer and the next one.
BRIAN KENNY: Yeah. And constantly improving the model as they go. And they had rapid success. It was only a few years in where they landed Walmart, which I would imagine is the biggest fish in the ocean with all their employees.
BILL SAHLMAN: Everyone aspires to get Walmart until they get Walmart, but in her case, she’s able to help Walmart employees find educational opportunities and they may be directly related to their career. They may be learning more about digital if you think of the transformation going on at Walmart. Think about Walmart being interested in healthcare. So could you take people at the frontline in the Walmart store and help them transition and understand how to be healthcare workers or providers? So I think that was an example of a match made in heaven at a moment in time, if she had done this two years later, someone else might’ve gotten that opportunity. If she’d done it earlier, there might not have been the competitive pressure on hiring and retention. That was true during the period that she… Because remember, she comes after the financial crisis and before COVID, and that was a period of fairly rapid growth.
BRIAN KENNY: She made an interesting decision early on to locate everybody in Denver, which is not where you might think that you’re going to locate sort of a tech play marketplace company, but that turned out to be an important decision on her part. Why is that?
BILL SAHLMAN: May also have been a prescient decision in the sense that I think she wanted a place that was easier for employees to get to work, easier for them to go home. San Francisco, Northern California is an unbelievably productive place, but a lot of workers are in a bus two hours plus per day. And the primary characteristic of the bus is it has high speed internet access. And so Rachel thought, “Well, if I can move to Denver, I can get the key people on my team.” There are lots of good schools and lots of people who want to move to Denver, the inflows to Denver are extraordinary, then she can build a real company in the same way that Jeff Bezos or Bill Gates built real companies or Howard Schultz in Seattle. So, Denver is like those places, it’s got all the right ingredients. And I think she made a terrific call to go there.
BRIAN KENNY: I’m sure this didn’t go without hiccups along the way. Are there issues that Rachel ran into, things that surprised her, that she had to work her way through?
BILL SAHLMAN: She is an outcomes-oriented person and that’s the nature of her firm. So, I think she’s discovered for example, that people who go through the program at a Walmart or Chipotle or Disney, they on average over a relatively short period of time, end up making more money. The graduation rate, completion rate for the academic institutions is higher. The customer acquisition cost is lower. The cost of the overall education is lower. And in terms of brand identification, if you think of Walmart, their ability to say to each and every employee, “For a dollar a day, you can get a bachelor’s degree, or you can get a degree in Python, is a terrific thing to be able to do.
BRIAN KENNY: Yeah. And I was going to ask about that, just sort of the brand enhancement for the firms that are involved and then for Guild Education, that they are essentially a purpose-driven company. Everything that they do is to solve this problem, like you said, and in your new course, this is kind of what you’re looking at.
BILL SAHLMAN: I believe out there, there are companies who simultaneously create and capture economic value in the traditional sense of profits and free cash flow, but they create social value that is far greater than the economic value. So, imagine that you had hundreds of thousands of employees who could reskill or upskill, who were going to thrive in the marketplace you described at the beginning where the nature of jobs, the nature of work is changing, transition from analog to digital. And so I think the benefits to the economy are a tremendous, almost difficult to calculate. If you think about the lifetime earnings of someone who has a bachelor’s degree worth against someone who has just a high school degree, much less not having graduated from high school, then it turns out it’s a massive economic effect, $500,000 over a lifetime, a million over a lifetime. Think about she’s capturing a small proportion of that, but society is benefiting mightily.
BRIAN KENNY: Let’s fast forward a little bit in the case, she’s sort of proven the efficacy of this. They’ve been honing the model as they go. They’ve been building out the marketplace and along comes COVID, and rather than letting that sort of cripple what they’re doing, Rachel sees a new opportunity and pivots.
BILL SAHLMAN: I think the best way to think about it is that her base business also continued to expand, the demand for education, the trying to be resilient in the face of a challenge like COVID or a financial crisis before, I think that continued, though many people were laid off. So, she said, “Well, how do I create opportunities for those people who had to be laid off or who had to be fired?” And so she enabled them also to take advantage of the marketplace, which involves lower cost to access to education, some support from their employer, former employer. And I think she’s trying to create the virtuous cycle, if you will, of human capital management. How do you get the right people? How do you stand out in the crowd so that the right people want to come work at your firm? How do you handle everything that occurs during the lifetime value of an employee? As you may know, in a lot of situations, it costs five to $7,000 to recruit an employee. So now imagine that Walmart is rehiring. Walmart actually hired lots of people, but suppose it was some other organization. Well, they have people who feel good about their former employer. And I think that makes it easier to have this virtuous cycle. So Rachel has been able to do things that make sense for everyone participating in the marketplace, but also expand the nature of her opportunity.
BRIAN KENNY: It was one of those things that just seemed seamless. It was the perfect sort of, I guess, adjacent move to what she was already doing. So, it leads me to another question. I had Sunil Gupta on the program once and we talked about Amazon and Jeff Bezos and the way that Amazon has morphed into so many different things over time. And with each one you can say, “Oh yeah, that makes sense.” And I wonder if someone like Rachel and Guild Education can continue to find ways to morph into the next sort of logical thing? Is that something that you see a lot with entrepreneurs?
BILL SAHLMAN: There’s a complicated response to that because one of the problems that employees and employers had was there’re so many educational choices out there, there are 6,000 educational institutions. So, her job is to say, “Here are the 100 or 200 who deliver outstanding outcomes.” So if you think about it, she has to constrain the market a bit in order to create value for everyone who’s participating. Growth options exists when because of your success in one market, you see another service you can sell to existing customers or to new customers or to new geographies. And I think in many ways, she’s able to explore those adjacencies and develop a product that’s compelling. And she’s got a lead because she has these relationships, trusted relationships with everyone in the circle. I’ve always said of Amazon, that Jeff Bezos is the greatest experimentalist in the country, if not the world. He’s able to get his people to try things. If they fail, great, shut them down. If they work, step on the gas. And he has a simple operating system, does it decrease price, increase choice, or decrease the time it takes to get a customer? Rachel has a more complicated process, but she also is an experimentalist. She gets her people to try things because if you don’t, if you’re not trying things, other people are going to come around you and discover those opportunities. And so I think she’s built a great culture and a great team at Guild Education.
BRIAN KENNY: Let’s talk about the kinds of investors who are interested in a firm like Guild Education. From the investors’ perspective, does it matter to them that this is purpose-driven or are they just looking at the bottom line and saying, “We just want to make sure that this is going to be a successful venture from a financial standpoint?”
BILL SAHLMAN: Brian, we could have a whole discussion about whether people get up in the morning saying, “How can I create shareholder value?” And I just don’t know many companies like that. It’s how can I do something that customers and suppliers and employees all are prepared to participate in willingly? And so I think investors are trying to do things where they can make money. I think they were looking at it and saying, “She’s a great entrepreneur. She’s got a great team. It’s a huge market, she’s got a lead, she’s got some barriers to entry.” And that’s exactly the kind of bet you’d like to make.
BRIAN KENNY: So, what should Rachel be thinking about now as the case. As we get to the end of the case, she’s thinking about moving the firm to the next stage of its evolution, what should she be thinking about?
BILL SAHLMAN: Well, Brian, let me step back a second, because in the beginning you introduced and were talking about shifts in employment, also, the consequences of this current job loss situation which I hope and believe will be temporary. But I’ll say that education, high cost, poor outcome education is one of the greatest taxes on opportunity and equality in the United States. So if you think about it, if we can design a program that has much better outcomes and gets the right people to be able to do the thing that they want to do in their career, in their lives, then it increases access to opportunity for everyone. So, I think what she’s doing is so critically important, which is why Ken Chenault and others agreed to be on the board and to invest because she’s really an opportunity engine. She’s an opportunity engine for people inside Walmart and for people who are outside who may want to go there because they have access to this value-added educational system.
BRIAN KENNY: So one more question. This has been a great conversation and I think people have really enjoyed hearing about Rachel, but what’s one thing you’re hoping that people remember as they think about this case? What’s one thing you’d like them to take away from it?
BILL SAHLMAN: I believe that entrepreneurs with the right kind of capital, often we would call it venture capital, not in a rapacious sense, but in a supportive sense, can solve the world’s problems. And in fact, without that sector being as effective as it possibly can be, without 200 great entrepreneurs taking a shot on goal in education or healthcare or energy production, then we have no hope as a global economy because governments often can’t do some of the things that people like Rachel do. I think that the broad sense, Rachel is in a position where she can grow the company, she can do these growth options and adjacencies. And the main thing is to continue to supply value to everyone she needs, including her employees, and her investors. And the system is just going to work. I have great expectations for Guild Education and for the team there.
BRIAN KENNY: Yeah. I can tell. It’s a great case and I want to thank you for sharing it with us on Cold Call, Bill. Thanks for being here.
BILL SAHLMAN: Always nice to be here and to share a story like this.
BRIAN KENNY: If you enjoy Cold Call, you should check out our other podcasts from Harvard Business School, including After Hours, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Thanks again for joining us. I’m your host Brian Kenny and you’ve been listening to Cold Call, an official podcast of Harvard Business School brought to you by the HBR Presents Network.