Growth is the Only Moat

The Road to 500k Students

Warren Buffett popularized a term called “economic moat” intended to represent a company’s ability to utilize a competitive advantage to keep their competitors at bay.

For Apple, one could argue their moat is the cost/friction of leaving their ecosystem.

For Uber, it may be that they were first to folk’s phones; and individuals are less likely to utilize multiple ridesharing apps, meaning they’ll stick with the first one they download.

And for Amazon, well, their moat is their scale. After-all, much of the benefits they tout (e.g., low prices, fast shipping) originate from their ability to do what they do at a level no one has ever operated at before.

So when it comes to higher education, a question worth considering is:

In an industry rife with disruption, how can a college or university best keep their competitors at bay?

The truth is, the higher education industry is a highly complex and competitive space. Demand is up, supply is down, and closures, mergers, and acquisitions are all on the rise.

While many in our space are rightfully focusing their efforts on academic advances (e.g., microcredentials, stackable credentials, competency based education) the truth is that:

In a mature, consolidating market, growth is the only moat.

It’s not to say these advances in learning aren’t critical - they absolutely are - but it’s important to understand that more than differentiation, sustained scale is the path to competitive advantage.

In a mature market the only way to grow is to take marketshare from someone else.

In fact, even just remaining flat means you’re acquiring a disproportionate amount of the shrinking student population, all at the expense of a peer who is realizing the reality of enrollment decline.

So what’s the big deal about being big?

Well, when it comes to scale, the bigger you get the the bigger the advantage:

• Increased operational efficiencies provide the ability to increase your acquisition costs

• Increased appetite for acquisition cost means you can outbid your competition on our industry’s top bidding platforms (e.g., Google, Facebook, etc.)

• Increased scale means increased service, in the form of expanded student support services, as well as hours of operation

But most importantly, if you can actually deliver on the promise you make to students, what you create is an economic flywheel fueled by word-of-mouth.

When there are 850 online MBAs no one is going to price compare

As supply continues to increase, the ability for prospective students to meaningfully evaluate and compare offerings is diminishing.

That means prospective students are increasingly relying on referrals from individuals they trust, whether it’s family members, friends, coworkers, or members of their community.

It might surprise you, but for institutions at scale (e.g., SNHU, WGU, ASU) despite their mammoth marketing spends, a huge portion of their incoming student population isn’t coming from ads, but rather coming from referrals, in the form of incoming organic inquiries through their .edu.

So what does this mean for the rest of us?

The truth is, how we handle the next 3-5 years may very well determine our success in the next 10 - 20. As critical as academic advancements are - and believe me, they are - nothing will determine our future success more than our ability to scale today.

As small, private tuition dependent institutions continue to struggle, the large-scale online players continue to grow. And whether it’s being talked about or not, the MegaU’s of our industry are in a very real race to scale and the road to realizing a 500,000 student institution is closer than many of us might think.

It is unlikely the future higher education industry will be home to the thousands of colleges and universities it is home to today. In fact, it’s possible that in the next 10 - 20 years we may see our industry reduced to well under 1,000.

The unfortunate reality is that in addition to striving to be the best, it is critical to strive to be the biggest, because…

In a mature, consolidating market, growth is the only moat.

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Editor’s Note

Let’s be honest, conversations like today are tough. The best aspects of education are about the growth of the individual, not the institution. But there are some economic realities creeping into our space that require our attention.

The reality is, market share is the strongest defense to uncertain market conditions.

As always, I appreciate you hearing me out and am grateful for your time and attention.

Hoping you’re well,

Seth