Terms of Service: we believe they're good for everyone

Prospective customers sometimes ask us to sign papers that would—whether instead of or alongside our own legal documents—govern our business relationship with them. Schools with the cash to have lawyers draft stuff for them are lucrative prospects, and we should be happy sign whatever if it'll bring them aboard.

But we decline to sign every single time.*

Why? What could Isaac's signature on another piece of paper do to our business?

The answer is, We don't know. Some of these documents outsize our own by an order of magnitude. They're written by lawyers working in other states. They contradict or negate our own Terms. They oblige us to requirements totally foreign to college software. For all we know, they could cripple the way we do business, and so make things sticky for all the rest of our customers.

They're just full of potentially expensive unknowns.

We do know this: our relationship with that customer would be very different from what we enjoy with everyone else. And that's just not worth it for anyone.

The Terms of Service define our relationship with our customers, and we want that to be a relationship of trust, adaptability, and common sense. The Terms protect both Populi—our property, employees, and business—and our customers: your data, your rights, and your enjoyment of the service. They permit our ongoing release of new updates that improve the value of the service. They let us update the Terms so no one is bound to what worked in 2008 but doesn't in 2013. And they give us the leeway to not enforce the Terms in a given situation—because we wanted the right to not be hardnoses about everything.

But it's not just the relationship that's valuable. It's also the fact that the relationship is the same for everyone: every school and every user is on the same footing as every other school and user. We cherish that. It's simpler in terms of administration—managing different agreements with different customers just doesn't scale. It's simpler in terms of knowing what to do when situations arise—support issues, pricing questions, data challenges. And it's simpler in terms of development—we're not bound to develop Populi to satisfy the requirements of someone's unique contract.

In a nutshell, we like the Terms of Service because we like the relationship they foster between us and our customers.

And that's why you won't catch Isaac's signature on some other piece of paper. Trust, adaptability, and common sense are just too valuable to this relationship.

* Do pardon the rhyme.

The Washington Post on "Maximizing Shareholder Value"

Steven Pearlstein writing for the Washington Post in "How the cult of shareholder value wrecked American business":

In the recent history of management ideas, few have had a more profound — or pernicious — effect than the one that says corporations should be run in a manner that “maximizes shareholder value.”

Indeed, you could argue that much of what Americans perceive to be wrong with the economy these days — the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods — has its roots in this ideology.

The funny thing is that this supposed imperative to “maximize” a company’s share price has no foundation in history or in law.

The focus on "shareholder value" effectively replaced long-term thinking with an obsession over short-term gains—and reconfigured the the structure of American business around that:

This infrastructure includes business schools that indoctrinate students with the shareholder-first ideology and equip them with tools to manipulate quarterly earnings and short-term share prices.

It includes corporate lawyers who reflexively advise against any action that might lower the share price and invite shareholder lawsuits, however frivolous.

It includes a Wall Street establishment that is thoroughly fixated on quarterly earnings, quarterly investment returns and short-term trading.

And most of all, it is reinforced by gluttonous pay packages for top executives that are tied to the short-term performance of the company stock.

A related article provides a case study: IBM, which through layoffs and outsourcing (among other things), has maximized shareholder value at the expense of the people and communities that once depended on it:

The main street, once swarming with International Business Machines employees in their signature white shirts and dark suits, is dotted with empty storefronts. During the 1980s, there were 10,000 IBM workers in Endicott. Now, after years of layoffs and jobs shipped overseas, about 700 employees are left.

Investors in IBM’s shares, by contrast, have fared much better. IBM makes up the biggest portion of the benchmark Dow Jones industrial average and has helped drive that index to record highs. Someone who spent about $16,000 buying 1,000 shares of IBM in 1980 would now be sitting on more than $400,000 worth of stock, a 25-fold return.

The software startup industry is deeply afflicted by this mindset: the shareholders whose value most startups are designed to maximize are known as venture capitalists.

As we've said before, we have no interest in maximizing shareholder value. We're in it to make life better for our customers, families, and employees.

Ben Thompson on Adobe's move to subscription pricing

Ben Thompson, at his fine blog Stratēchery, goes into the economics behind Adobe's recent (as of last May) move from the "packaged software" business model to subscription pricing.

The packaged software model:

Consumer A rarely edits photos, which means a photo-editing app is worth maybe $20 to him. Yet, he buys Photoshop anyways for $499. In this case, Adobe is, in effect, charging $479 too much. The consumer is getting a bad deal.

Consumer B is a graphic designer. She uses Photoshop every day, for hours a day. Without Photoshop,she couldn’t do her job, for which she is paid $60,000 a year. In this case, there is a consumer surplus of $59,501. Adobe is getting a bad deal.

Consumer C is a student. He has aspirations for being a photographer, but is just getting started. He buys Photoshop, but finds it very hard to use; in fact, he is losing time trying to figure it out. Yet, over time, he becomes proficient, and eventually an expert. The economic surplus shifted from producer to consumer, even though there was no transaction.

... and the subscription model:

The price is much more approachable for Consumer A. He can “try out” Photoshop, and if he ends up not using it, he can simply end his subscription. More importantly, there will be a lot more Consumer As, and some of them will stay subscribed.

Consumer B will get a great deal right off the bat, but as she uses Photoshop throughout her career, Adobe will be along for the ride, making revenue every month as opposed to every few years.

Consumer C is similar to A: Photoshop will be much more approachable, and there will be a lot more Customer Cs. As they become real users, Adobe moves with them.

Moreover, Adobe is well-incentivised to maintain the app to reduce churn, and users always have the most recent version. It really is a win-win.

The whole article is full of good insights on why subscription pricing is ideal for professional productivity software. Even Microsoft, sitting atop their giant pile of packaged-software-derived cash, is moving that direction with Office365.

We've always viewed the subscription model as a win-win ourselves.

Radical Education Plans

President Barack Obama recently shared his "ambitious new agenda to combat rising college costs and make college affordable for American families". The agenda is meant to make higher ed institutions more accountable for their performance and help keep the reins on soaring tuition costs. Its centerpiece is a proposed new rating system for colleges and universities to which Federal financial aid would be directly tied. The agenda touches on other matters, including several encouragements towards "innovation": blended learning approaches, three-year degree tracks, MOOCs and other learning technology, and so on.

President Barack Obama measuring something in Buffalo, NY.
Photo: Keith Srakocic
First, the rating system

By 2015, the Department of Education will develop a ratings system for higher ed institutions that evaluates colleges based on their "value". It will look at a given school's...

  • Access, defined in terms of the percentage of students receiving Pell grants
  • Affordability, such as average tuition, scholarships, and loan debt
  • Outcomes, such as graduation and transfer rates, graduate earnings, and advanced degrees of college graduates

...and rate them accordingly. Schools will have to publish their scores, giving applicants, students, and their families an objective, standard of competition by which to judge an institution.

Then, the money

By 2018, the President hopes to tie Federal Aid dollars to a school's score, funneling more funds towards those schools with better scores—to the end of making those schools more affordable. To-wit: students at higher-scoring schools could get higher Pell Grants and be eligible for student loans with lower interest rates than at a lower-rated school. Meanwhile, schools and students would be subject to more oversight regarding their use of Federal Aid money: students would need to make continual progress towards their degrees to remain funded, Pell disbursement cycles would change, and schools would have to keep closer tabs on their Aid-funded students.

And the value

The scores rate schools on their "value": the cost of the education as compared with what the student ends up getting from it. One half of this equation is the outcome—what does the graduate go on to earn? The other half is the cost of the education that led to that outcome. So, the waitress that spent a hundred grand on a B.A. got a bad value; the Automotive Tech graduate with a successful import car repair business got a good value.

The agenda suggests that "innovation" will help both sides of the value proposition. Education technology, for example, can lower the cost of the education while simultaneously improving the outcome. Three-year degree tracks are surely less expensive than four-year degrees. Blended learning reduces the need for expensive facilities like classrooms and campuses. And so on.

Some observations

We serve a wide variety of smaller schools that focus on easily-misunderstood facets of higher education—liberal arts, Oriental medicine, theological seminaries, performing arts (to name a few)—and this plan, we think, portends ill for our customers.

1. What does this agenda assume?

The agenda is based on particular assumptions about higher education. Here are a few:

  1. Higher education is fundamentally just job training for high-end jobs
  2. College graduates should step directly into those high-end jobs
  3. The essence of higher education is measurable
  4. Data, technology, and administration are the solutions to pedagogical, social, and economic problems
2. More money for wealthy schools

It's hard to see how funneling federal money towards highly-rated schools will do anything but subsidize schools already wealthy enough to generate those high ratings. The amount of reporting involved alone would place an untenable administrative burden on smaller schools. Big Federal efforts always favor the big, entrenched players.

3. The rating system disregards educational quality

The ratings are based on quantifiable economic factors—low-income students, earnings of graduates, affordability—and not on the other results of a college education. Also, once you have a rating system with money attached to it, those who are rated will learn to game it. For example, if graduation rates have to rise, so will statistic-juicing things like grade inflation.

4. Tracking graduate earnings is a hard nut to crack

So, your graduates need to step into well-paying jobs that their degree trained them for, and your ability to attract more Pell and Stafford funds depends in part on how well they do. Let's even assume in the first place that you can A) collect data on your graduates' earnings and B) meaningfully report on it. Assuming that, what if...

  • They graduate into a denuded, depredated job market in a depressed economy?
  • Your school developed in them such commendable civic character that they commit to living in a region with lower wages?
  • It takes fifteen years of development and maturation for their career to net them a tony salary?
  • Graduates from other schools land sweet jobs because they're well-connected?
  • They get a fine job in a field their degree prepared them for in a non-quantifiable way?

Rating a school based on factors outside of their control is, in a word, nuts. Forcing schools to "compete" based on these ratings—given the wild disparity between one school's resources and another's—is pointless and unfair.

5. If this goes anywhere, it's not nearly as bad now as it will turn out to be

To enact this, the President will need some far-reaching legislation. And there's nothing like a long, drawn-out legislative process at the Federal level to make a bad idea even worse. Lobbyists for online for-profit schools (one of the likely targets of this agenda) won't go down without a fight. Faith-based schools, looking back at the HHS mandate from the Affordable Care Act, likely have additional ratings based on "religious inclusion and diversity" to look forward to. Liberal arts schools will watch as the solons on both sides completely misunderstand the liberal arts. Faculty will find targets painted on their foreheads.

Whatever the case, the strings currently attached to Federal financial aid will multiply into a wall-to-wall spiderweb. If this agenda makes progress and grows some teeth, smaller schools that rely on Federal dollars might wonder if it's really worth it.

Selected further reading on the subject and some related matters:

Here's a video of the President's speech on the whitehouse.gov site.

Time Magazine has the official talking points.

The Wonkblog at the Washington Post has a thorough write-up of the agenda.

Inside Higher Ed has a thorough and irenic article on the ratings system.

The American Association of University Professors has no love for the President's proposal.

First Things shares some thoughts on faith-based schools that take Federal financial aid.

The acerbic Timothy Burke has some very long sentences about the technocrats that come up with stuff like this.

This guy looks forward to lots of professors being laid off because they've been replaced by MOOCs. I'm not sure his predictions will come to pass, but their contours aren't unreasonable.

Matt Yglesias, called out by Mr. Burke as a technocrat, loves the agenda and hopes its modest implementation will bring good and meaningful changes to higher education.

Money and priorities

Ever wonder what we do with those dollars you send us every month? Wonder no more: here's a pie graph of how we divvied up the income we received in the first half of 2013:

An observation or two

1. 56 percent of every dollar we receive goes to Customer Service or Development (which includes any kind of programming meant to improve, maintain, or update Populi). In other words, we're not using that money to go after other opportunities; rather, we're using it to pursue our customers.

2. A bit over 10 percent goes to running the company—paying rent, buying office supplies, keeping the books, etc. Another 10 percent lets us go after new customers and communicate with the world about Populi (via this blog, for example).

3. The big purple "non-operating" wedge shows what we devote to making Populi a sustainable business. It includes net profits, stock purchases, preparation for new hires, and so on.

4. One tenth of every penny is converted into coffee. Coffee, in turn, is converted into the other 99.9%. Definitely our most efficient expenditure.

What we spend on what we do

There are two ways to look at what we spend. One way looks at the particular things the money goes to: compensation, servers, software, insurance, and so forth. But that doesn't say much; what if we were using servers to host pirated video games?* An itemized list of expenses doesn't necessarily say much about our priorities.

What the above graph represents is the other, more helpful way to look at our spending: it portrays what we do with our income, and, therefore, better illustrates our priorities. Judging by the chart, we think it's important to improve Populi, help our customers, and establish a stable business.

And that's what we've been hoping to do all along.

* Don't worry, we're not doing that!

A helicopter carrying a dinosaur

Maybe you've heard the basic "Startup-Takes-Venture-Capital" story. A new software company attracts VC funding, uses it to fuel meteoric user growth, uses that growth to attract more VC, and finally ends up cashing out—usually by selling—and leaving its users in the lurch. There's a lot that's worthy of commentary that often accompanies this storyline—slimy business decisionsa surreal easy-money culture, and a bewildering lack of profits—but the thing on our minds right now is stability.

Basically, this storyline rarely results in long-term, stable businesses. That's only one of several dozen reasons we never want to touch the stuff.

See, most of us are family men. Those of us who aren't yet are planning to be. When we say that we work here so we can support our families, part of that means getting home for supper every night. Our industry looks at that and sees a candle we oughtta burn at both ends. We'd rather have our kids look back on these years and remember how much time we spent with them.

Thus, our employees own a majority share in Populi (the rest is held by employees of the company that spun us off). Our business plan is designed to maintain or increase that stake. We're averse to outside investment of any flavor. We have no desire to sell the company. We seek steady, manageable growth over wild, stratospheric moonshots. That means we pursue certain customers and tell others that we're not right for them. Our workplace is intentionally designed without shackles on our desks.

Sound boring? Who cares? When your business is to help small colleges run themselves, who needs exciting? We're in a great position here: without outsiders with a narrow financial interest calling the shots, we can focus on our customers and get home in time to build Lego airplanes for the boys, to read the girls a couple stories, to unwind with the wife and a glass of red wine. Are we leaving money on the table? Who knows? We know what is on the table, though: dinner, at home.

But venture capital pursues excitement. It throws money at higher-risk investments that other investors won't back. It flings stuff at the wall just to see what sticks. It does this in the quest for an out-of-proportion payday; if it puts in a dollar, it'll want three or four or fifteen back this time next year. And it doesn't care what gets in the way of that. Alex Payne sums it up:

The funding for startups – that is, the money that pays your prospective salary – comes from somewhere. Wealthy individuals and institutions invest in startups as just another asset class. The futurist Bruce Sterling recently quipped that “start-ups are full of [young] people working hard to make other people rich – Baby Boomer financiers mainly”. While that might be an overly general and cynical take it’s by no means untrue.

In broad strokes and excluding areas like biotech, venture-backed startups are a machine into which relatively small amounts of capital are inserted in one side and, ideally, quite a lot more comes out the other… The salient point, though: what’s in the middle of the machine is you. You make it go.

The machine doesn’t care about you.

What would have to happen to Populi to make it happen for the VCs? Some of the possibilities: We'd have to surrender major product decisions. We'd have to change the direction of the service. We'd have to turn away smaller schools and go after the big ones.

We'd have to start eating supper at the office.

And if none of that worked—that is, if those changes didn't translate into Maybach money—we'd have to shop Populi around to companies looking for something to buy. Whatever the case, we'd have a new, alien pressure on us to satisfy the demands of something that's invested neither in our families nor our customers, but solely in getting a lot more out of us than it ever put in.

Think of it this way: If we took VC, we'd be like a helicopter carrying a dinosaur: unstable, nervous, and one thin strand away from dropping a big oily brontosaurus on everyone.

Helicopter carrying a dinosaur
Delivering a dinosaur to the Boston Museum of Science - Arthur Pollock - 1984

Who's invested in your company? That's who your company has to serve. That's why the only investment we're after is from ourselves and from our customers.