This is Part 2 in a series deconstructing Lambda School’s growth. I have no affiliation with Lambda — I just think it’s an interesting business.
In Part 1 of this series, I answered the question: “Can Lambda School become a $100M business?”. Given strong signals of all “four fits,” I argued why Lambda might be successful. In this post, I’ll focus on how they might pull this off.
One mind-expanding moment for me as a growth marketer came when I was introduced to the concept of growth loops. While funnels are great for breaking a growth model down, loops do a better job of showing how acquisition, product usage, and monetization are interconnected parts of a growth system. Lambda is a prime example of a business where understanding these interconnections is crucial, and that’s why a loop is a great way to think about how they grow.
“[Funnels offer] no concept of how to reinvest what comes out at the bottom to get more at the top to continue to feed growth over time. In other words, no compounding effect… Understanding the connection of how you reinvest to get more growth changes the way you think about where to focus and what to invest in.”
Reforge (emphasis mine)
This compounding effect — getting more out of the system than you’re putting in — is one of the coolest things about growth loops. And as we’ll see, harnessing this compounding effect will go a long way in helping Lambda achieve its mission.
Part 2: Lambda’s Loop
So, how can we represent Lambda’s growth engine as a loop? As I alluded to in Part 1, I believe this loop is rooted in word of mouth (WOM) amplification:
- New students are acquired through ads and WOM.
- Students make progress in their learning track.
- Students get hired, and employers get access to talent.
- Students and employers tell others.
1. New students are acquired
Acquiring student leads
The loop is sparked by acquiring student leads from paid channels like Facebook ads. As covered in Part 1, Lambda’s product allows them to use this channel effectively, and their business model allows them to do it profitably. Money earned from hired students can be reinvested into paid acquisition to feed the loop. And this will be done at increasingly cheaper rates (lower CAC) as Lambda improves their student selection criteria and curriculum, builds credibility as a school, and benefits from organic WOM.
My biggest concern here would be the payback period on their ad spend. The 12+ month wait between acquisition and employed grad makes their business cash-intensive. If Lambda can find ways to get paid back sooner — for example, by eventually charging employers for access to their talent pool — they could mitigate this.
Qualifying leads into official students
After acquiring student leads, the next step is maximizing how many quality candidates become official students. To do this, they have students complete free intro courses or “pre-course work,” which accomplishes two things:
- It builds trust by helping candidates learn something right away. This prevents quality candidates from churning (because they think it’s a scam, etc.).
- It acts as a filter for candidates who wouldn’t succeed in the official program. This prevents further investment into students who would drop out later or fail to meet the standards of employers.
Intro courses are a clever way of improving their candidate selection criteria at scale. Over time they’ll want to collect data on exactly what turns quality candidates away (for example, not being able to afford nine months without a paycheck) and what indicates that a candidate will be a successful student. The latter may defy our intuitions: Austen claims that some of Lambda’s top performing students don’t have any college education at all (vs. those who’ve spent time in college or have a degree already).
Success in intro bootcamps is followed by a phone interview before an offer is extended. Streamlining this part (or eliminating it, if possible) would help reduce costs, but it’s probably a necessary evil to keep student quality high. The emphasis on quality can’t be understated, because poor filtering would wreak havoc on the rest of the loop — good WOM would be replaced with bad WOM and hiring rates would plummet. It’s a delicate ecosystem.
“A key lesson of feedback loops is that things are connected—changing one variable in a system will affect other variables in that system and other systems.”
Universal Principles of Design (via Farnam Street)
2. Students make progress
Now that quality students are in the loop, it’s time for Lambda to do everything in their power to groom these living, breathing investments into quality developers. Their goal here is to maximize the number of students who master the curriculum.
As an outsider looking in, this is the part of the business into which I have the least visibility. But I’m convinced it’s the most important. Lambda is not the first company to use Income Share Agreements (ISAs), and they won’t be the last. What makes them a force to be reckoned with appears to be their ability to train students into job-ready talent. The day they neglect their curriculum is the day they crumble. Aligned incentives are a beautiful thing.
While the quality of their curriculum hinges on their ability to harness principles of learning science, here are some facets of the Lambda curriculum that are interesting from a growth perspective:
- Students must repeat sections of the course if they fail to master a concept. This delays graduation but maximizes grad quality.
- Student motivation is a top priority. Recognizing that dropouts are costly, they inject each day with a feeling of community (via student “standups” and Slack channels) and achievement (via daily challenges and projects). These feelings also foster WOM. More on that later.
- Student feedback is collected to improve the curriculum for incoming cohorts. This allows them to rapidly test and learn so they can build a better product.
“[Our] curriculum is literally changing every day… we’re going in and making little tweaks literally, I don’t know, 20 times a day our curriculum will change… We’re talking to our users, really understanding what’s lacking. That makes a big difference over time.”
Austen Allred, Lambda School CEO (via Indie Hackers)
Since Lambda’s curriculum might be their biggest competitive advantage, they’ll need to be careful. Is their best move to focus on software development until that market saturates or can they safely expand to other disciplines? How must their training methods adapt to create experts in different fields and job markets? Do they risk becoming a jack-of-all-trades and master of none? (Let’s discuss: @LloydaAlexander).
3. Students get hired, and employers get access to talent
Now that students have mastered the curriculum, Lambda’s payday is only one step away. The goal of this stage is to maximize their average revenue per graduate (ARPG), which is a function of their graduate hire rate, the average salary grads earn, the ISA rate Lambda charges, and the duration of the ISA. The more they can maximize ARPG, the more they can feed their growth loop with paid acquisition.
Hire rate is easily the most important of these metrics. Placing students into jobs they love with employers that need their talents is essential for driving the WOM loop forward. It builds Lambda’s credibility, attracts new employers who want to work with Lambda grads, and lures in new students who see that Lambda is the real deal.
Optimizing hire rate comes down to building an employer network, integrating their talent needs into the curriculum, and providing students with job search support.
4. Students and employers tell others
Whether it’s completing the pre-course work and getting accepted…
…finishing parts of the core curriculum…
…or the holy grail — landing your first developer gig…
…progress feels good. It makes us proud, and it’s something we want to share.
Lambda students are no exception. If Lambda delivers, students’ friends, family, and colleagues (old and new) are likely to hear about it.
Lambda should increase this commotion by finding ways to make students’ journeys more visible. This was the genius behind the ALS Ice Bucket Challenge: the creators were able to take something that was normally private (donating to charity) and make it very public. Virality ensued.
Closing the loop
So there we have it — a compounding loop that just might be the key to Lambda’s growth. If they continue to make students successful, every dollar spent on acquisition will be reinvested via WOM and keep the loop going.
I hope it works. By tethering themselves to student outcomes, Lambda is forcing higher ed to care about something they’ve neglected for far too long.
How would you model your growth loop? Want to see more growth case studies like this? Let me know @LloydaAlexander or in the comments below.