Building a Life-Changing Business with Austen Allred of Lambda School

Courtland Allen 8s

What’s up, everybody? This is Courtland from IndieHackers.com and you’re listening to the Indie Hackers Podcast. On this show, I talk to the founders of profitable internet businesses and I try to get a sense of what it’s like to be them and to walk in their shoes. How did they get to where they are today, how did they start their companies, and how do they make the day-to-day decisions that keep their companies running?

Today’s guest is Austen Allred, one of the creators of Lambda School. Austen is the founder’s founder. He’s been doing this stuff since he was very young, and he’s not afraid to open up and share some stories about times that he failed, rough patches that he hit, and how he pulled himself out of it, as well as open up about the strategies that he used to succeed.

Lambda School is one of the fastest-growing companies I’ve had on the podcast hands down. A year ago they did not exist and today they are killing it; but also one of the most inspiring and revolutionary and helpful companies that I’ve had on the podcast, so I cannot wait to get into this episode.

But first a little message. If you are listening and you’ve not yet been to IndieHackers.com, what are you doing? You should check it out. There are full transcripts of every podcast episode, including this one, at IndieHackers.com/podcast. And if you are an aspiring founder or somebody who’s otherwise interested in running or starting a business, you should check out the community forum. Just go to IndieHackers.com. You can talk to other founders, ask them any questions you want, get help building your business, help them build their businesses, and generally, just avoid the trap of trying to build a business completely on your own. Once again, that’s IndieHackers.com.

And without further ado, let’s get into the episode.

Austen, thanks for coming on the show. It’s great to have you.

Austen Allred 1m 38s

Yeah, thanks for having me. Good to be here.

Courtland Allen 1m 40s

You are one of the cofounders behind Lambda School, which on your website you describe as, “The computer-science education of the future.” Tell us a little bit about what that means and how it all works.

Austen Allred 1m 51s

Yeah. So Lambda School is a very different take on higher education, I suppose. So we’re kind of a combination of the school and an investment fund. And what that means is students study at Lambda School completely for free. They never pay us a penny unless they get a job that pays $50,000 per year or more in the field that they studied. If they reach that level, they’ll pay us a percentage of their income for two years up to a maximum of $30,000.

So basically, what it is is we’re trying to create the best school in the world that anybody can attend at zero risk. So if it doesn’t work out for you, you never pay us anything.

Courtland Allen 2m 29s

That’s super cool; easily one of my favorite business models of any companies that I’ve had on the podcast so far. So we’re definitely going to come back to that, discuss it in more detail.

But in the meantime, I first discovered you about a year ago, over a year ago actually on Twitter. I was just digging through our history this morning, and we first started tweeting each other back in November of 2016, although I couldn’t figure out why because Twitter really sucks at letting you see the context of your past conversations.

Had you guys started Lambda School back then?

Austen Allred 2m 58s

I hadn’t, no. So we started actually – well, we officially started it April of this year, so it’s been a little less than a year, which is kind of wild because it feels like much longer than that for me.

Courtland Allen 3m 10s

Yeah, it feels like longer than that for me, and I’ve just watching from the sidelines. But before we jump into Lambda School, it strikes me that I don’t really know anything at all about what you were up to before you started Lambda School, even though, apparently, we were tweeting each other.

So how did you decide to get into tech, to get into startups, to become an entrepreneur?

Austen Allred 3m 30s

Yeah. So I’m one of those guys that have always been in tech. I got started on eBay kind of hacking the eBay search results when I was 13. So back at the time, it was a simple text search for a title. So if you searched for iPods, you would get 15 million results. And the only way to narrow that down would be to enter more keywords.

So I figured out that if you plug in “iPod” and then you start to minus out all the other possible keywords – eventually, I had this five-page-long search – you would get to this page that had the stuff that was only listed as iPod and no other words. It turns out nobody would see those because of the way eBay’s search was filtered. So I would just buy all of those and flip them, and that’s how I got started. (Laughter.)

Courtland Allen 4m 19s

Whoa, that’s pretty genius. What did your parts think of this 13-year-old who’s flipping iPods on eBay? (Laughter.)

Austen Allred 4m 25s

Well, they were intrigued, I guess. They were concerned. I’ll tell this story because it’ll be fun for the podcast.

So I was selling stuff on consignment, which would basically mean I would take stuff from people that didn’t know how to list on eBay, which was not hard. It was filling in forms. But I would list that for them and then I’d take a cut. And I was doing that – I was probably not making very much, but for a 13-year-old, who cares?

And then I had one guy that wanted to pay me in E-gold, which was the precursor to the precursor of Bitcoin, way back in the day. So I did some research on it. I was like, “Oh, cool, an internet currency. That sounds interesting. Sure, pay me in that.” And it turns out that the guy that wanted me to do that was one of the biggest credit card thieves in the U.S., and I had been unknowingly fencing all of his stolen stuff.

So one day my mom was driving me to soccer practice and we got pulled over by five unmarked cars and they had a warrant for our house. And that was the end of my eBay escapades for a little while, but then eventually got back into it.

Courtland Allen 5m 33s

That’s hilarious. When you first mentioned eBay, it reminded me of being a 12-year-old in the late ’90s and asking my mom if she’d put her credit card in so that I could buy something off of eBay. And I still remember her response to this day, which was, “Are you crazy? I’m not putting my credit card on the internet.” (Laughter.) I was like, “What’s the worst that could happen?”

Austen Allred 5m 53s

It’s hard to remember those times. I actually started out – I had a little checking account and I would just mail people checks. (Inaudible) I got a PayPal account before PayPal put in the security to verify that you were over 18 or whatever. So I had a PayPal account, and I had somehow through that got my own credit card, which I’m 99% sure is technically illegal and was a security loophole somewhere, because yeah, it was not linked (ph). I had a credit card in my name that was somehow linked to my mom’s credit score and her Social Security Number and whatever else.

But yeah, so that was how I got my early start. And then that turned into basically scalping event tickets on eBay; kind of buying in advance and waiting until the day before the show and selling them and overnighting them. Eventually, I got a relative who was wealthy to sponsor us with a bunch of capital and he paid me an hourly rate to do that for him. And he made a couple million dollars from it, and that’s where I learned about equity. (Laughter.)

Courtland Allen 6m 51s

Give me some of the details behind that scalping business. What were some of the things that you learned, and how did you make millions of dollars for your already wealth relative?

Austen Allred 7m 0s

eBay back in the day – I don’t even know. I haven’t used eBay in a long time and Amazon kind of swallowed it. But you could just see all of the past auctions and where everything ended, so it was the easiest way to do market research ever. You could just literally look at what everything was selling for, who was selling it, that kind of thing. So my family went to Wicked, which at the time was a hot new musical in New York. It’s kind of the Hamilton of its day, I guess you could say.

So we were like, “Okay, I bet we can find tickets on eBay.” And I looked on eBay, and sure enough they were 3 to 4x retail. And just trying to figure out why that happened and why that was possible, I learned that, basically, people were just buying them a couple months in advance, waiting until the day of the show, and then they’re selling them to the stupid people like me that didn’t plan ahead. And you want to go to Wicked today, you’re going to pay for it.

So for a while, it was just that. We would just buy Wicked tickets in New York and then ventured out into Chicago and just buy them in advance and sell them. It was pretty straightforward ticket scalping. And then, eventually, it got more sophisticated and we had some people that would determine which shows would do best and we’d look at the capacity of theaters and figure out where we thought that the tickets were underpriced based on the capacity of the theater and the demand for a show and all that stuff.

So we lost a bit of money for a while buying stupid stuff that we ended up just holding the tickets. But yeah, after a while we had it pretty well nailed down. And we would buy a lot of tickets and sell them, and it was pretty straightforward. As long as you didn’t buy something bad and take a $100,000 bath, you’d make a lot of money.

Courtland Allen 8m 42s

So at this point in time, did you realize that you were doing market research and exploiting market inefficiencies? And were you reading business books, or were you just like, “This makes sense, so I’m going to do this”?

Austen Allred 8m 52s

Yeah, it was very causal, I would say. I remember I liked the idea of being an entrepreneur, being in business, but I had no idea what that was actually like. And I remember I got invited to some chamber of commerce lunch or something with – a little city – because I was the 15-year-old. “Hey, look, I do business.” And the guy was like, “Oh, that’s an interesting form of arbitrage.”

And I was like, “Yeah, that is an interesting form of arbitrage.” So I’d go home and look it up. I was like, “Oh, arbitrage. That’s interesting. It turns out that’s a thing and that’s what some people try to do on Wall Street.” And that all leads into today in a really funny way.

But I started another company that was VC-backed that totally failed and blew up. That was probably about a year before we started talking on Twitter.

Courtland Allen 9m 48s

Well, let’s talk about this one too. Why don’t I just force you to relive all of your failure stories in excruciating detail while I’ve got you here?

Austen Allred 9m 55s

No, it was a bad idea in the first place, and I didn’t realize that at the time. But I had never lost in business before, so I thought I was invincible and had a lot of hubris and was really smart.

So yeah, we wanted to crowdsource the news. So kind of Wikipedia for the news, but with a bunch of fact-checking stuff built in. And Facebook was hot at the time, and I figured, “If Mark Zuckerberg can get a bunch of people to sign up for this thing, then, hey, news is a big thing too. We can get a bunch of people signed up, and somehow money will magically appear on the other side. I don’t know how, but” --

Courtland Allen 10m 29s

You were hoping for some of that hocus-pocus revenue.

Austen Allred 10m 32s

Yeah. Classic 20-something entrepreneur that has no idea what he’s doing that gets somebody to give him half a million dollars in VC, and then tries desperately for a couple years to make it work out and it doesn’t. Turns out there’s not much money in fact-checking.

So the longer story is we had quite a lot of traffic. We had probably a quarter-million, half a million views a month, which would be a lot if you were actually selling something. In a completely untargeted advertising world, who cares about that kind of traffic?

But we were showing enough potential that we thought we would raise another round. We had a lead VC that was this billionaire media mogul that liked the idea. And we were doing all the paperwork for our quote/unquote “Series A.” That media mogul billionaire decided he didn’t like the deal after due diligence was done, after paperwork was done, after everything, and just never sent the wire and that was it.

So yeah, I ended up personally in a lot of debt trying to make our employees whole and our contractors whole, because we were really pushing it to the wire. “Because the money’s coming in any day, right? So we’ll just wait for that” and it never came.

Courtland Allen 11m 49s

That’s one of the most important lessons to learn, whether you are contracting or you’re selling a product or raising funds. The money’s not in the bank until it’s in the bank.

Austen Allred 11m 57s

People told me that, and I knew that, hypothetically, that was the case. But this was different because come on.

So actually, the way that we met is coming out of that, I was pretty deeply in debt, I had no job. We were remote, so I was living in the middle of nowhere in Utah. And I had some pretty successful blog posts about user acquisition that I turned into a book to try to get out of debt. And the book is now – we self-publish everything. It’s electronic-only for the most part. We just started doing print books, so it’s just been pure revenue.

But yeah, we did about a quarter-million dollars in sales of that book in the last year, which has just – I mean, my only costs are sending an email now. So I think that’s how we met. I was really into the anti-VC scene, as you can imagine.

Courtland Allen 12m 52s

So you just sort of stumbled onto Indie Hackers at that point?

Austen Allred 12m 55s

Yeah, yeah. I thought it was a really cool idea. I talked with Bryce about it. Bryce is another Utah guy, Bryce Roberts.

Courtland Allen 13m 2s

Yep, from Indie.vc.

Austen Allred 13m 3s

Indie.vc, yeah. And I was very, very anti-VC. When you go through that phase, you realize how often incentives are misaligned, you realize how dangerous VC can be. I think it prevents you from solving the right problems. Sometimes it blinds you. You solve problems with money that shouldn’t solved with money. And I was determined never to raise VC again, so that’s how I got into the whole scene.

Turns out now I’ve raised again, but – (laughter) – it’s different.

Courtland Allen 13m 41s

Of course, it’s different this time. But let’s get into that story since that’s why you’re here. How did you decide to start working on Lambda School?

Austen Allred 13m 48s

Yeah. So my little brother had worked at a code boot camp. He was one of the early employees. And I’ve always been – I was a college dropout, so always really interested in education. And I thought nobody was ever doing a good job, but I also thought, surely, a hundred million people have tried and failed these kinds of companies. There must be some reason why that’s the case. So I never bothered to try, because surely, some Ph.D. who understands the academic space better than I ever could is the right person to start that company. Not me, a college dropout, because I don’t know anything about education.

But it got to the point where I was talking to a friend who had a couple hundred thousand dollars in student loans for a career that is nonexistent. And at the same time, I was working at LendUp, which is a lending company to people with less than perfect credit.

So I’ve always been immersed in this thinking about risk and return, and fascinated by the financial industry and how all of that works. And just slowly realized that what is missing in the education model – the real problem with the education model is people have to take just outsize risks. And the people that need to take those risks the most are in the worst position to take that risk.

So I’m talking about $100,000 in student loans that you can’t bankrupt your way out of. If no one in your family has never made more than, say, 40k, that’s just a huge, huge risk. Even if it might work out for you on the other side, the potential of it not turning out is big enough that you’re just not going to do it. And having lived in a rural community, you talk with people that you know that if they spent 10 grand on an education, they could increase their salary by 40k a year, but they won’t do it just because that’s too risky.

So we started looking at education from a risk-first approach. And seeing the problem with boot camps was really they promise a lot and deliver not very much most of the time. And there’s a lot of really accurate criticisms of code boot camps. And just trying to think about: What if you could take the risk out of that model? What if people wouldn’t pay if it didn’t work? How would that incentive structure change things?

And yeah, that’s kind of how Lambda School started. We started out just people would pay us, just classic business just to get things off the ground because we were determined to never raise VC. And we were just getting enough revenue to keep me and my cofounder alive, and then extend as much risk as we could. So we would invite as many people as we could to take the course for free if we thought they were promising as long as we had enough money to support that.

It turns out after a while that you realize the opportunity could be much bigger with just a little bit of capital. And that’s why we joined YC, and the opportunity is way bigger than even we had realized in our wildest dreams. So we’re just acting like a normal company. We were never targeting VC-like returns, and I think that’s why we’ll get VC-like returns, ironically.

Courtland Allen 17m 14s

It’s cool to hear you talk about being sort of an outsider to education, you’re not a Ph.D., you don’t research this. All you really see as an outsider looking in is all these education startups failing and trying these things and not working out. And I wonder why it is that no one has really hit on the business model that you’ve decided on in such a big way.

And one of the things that strikes me from your story is that you were living in a rural community. You were actually around people who needed to take a huge risk in order to educate themselves, whereas somebody who is living in San Francisco doesn’t really get very much of that. And I’ve talked about this on the show before, but sometimes just changing up your environment and not being in the same place as everybody else can really contribute to, I think, coming up with unique and fresh ideas and coming across problems that other people aren’t really seeing.

Austen Allred 18m 6s

Definitely. And I think everybody that I spend my time with now in San Francisco, if they needed to find $10,000, they could find it somehow overnight. Even people that are just working a normal job, 10 grand is not a big deal in San Francisco. In the rural community that I was living in, the median income is 30,000 a year. The most frequent criticism we get is, “Well, there are community colleges. There’s not much risk anyway.” And I think people just don’t understand what it’s like to be psychologically in that place.

And so we graduated our first class of 20 students about three weeks ago. And now almost 75% have jobs, so about 15 of them have jobs or contracts. And the first guy that got a job actually got a job at Uber. So he’s a React native developer there, and he never made more than $15 an hour.

So he told us that the reason he joined Lambda School is because he literally didn’t believe that what we promised was possible. So he didn’t believe that he could ever get a job for 50k a year. So why not? If he wants to learn, that’s a free way to learn. And he figured that he would show us why we were wrong and it wouldn’t work out, and then free education.

And now that it did work out, he’s like, “Oh, my gosh. That’s better” – a lot of people have been promising that success is on the other side of an education. And that has been the case for some people, and for some people it has not been the case.

So really, I think some of the secret of Lambda School is that we are the true advocates for the student. So we take the risk for them. We view them as not revenue, but as a portfolio of investments that we make. So we’re constantly – we have a data science team that’s trying to analyze the markets to figure out exactly where the shortages are that we can plug, what the real skills are that employers want.

So we’re kind of a very full-stack approach, where our job is to get you a job, and education is only a small part of that.

Courtland Allen 20m 22s

Do you think that you being in debt from your past business failure and that whole VC investment blowing up and you having to recoup your employees, do you think that you would have been able to come up with an idea like Lambda School if you hadn’t been in that place yourself and really understood the mindset of someone who really needs to financially recover?

Austen Allred 20m 40s

No way. So I was out of a job and feeling pretty down on myself. It’s a hard place to be. And even when I wrote the book, I was like, “If I could make somehow $2,000 from this book, then I’d be that much closer to being out of debt and all of my problems would go away.” And I didn’t think that that was possible. It seems silly because now I’m making more than $2,000 a month just from the book not even – I literally don’t touch it. But I didn’t realize that that was possible.

I distinctly remember talking with my brother, who had lost a job at one point in his life. And we were driving by a golf course and there was a guy that was out there picking up golf balls. And I was like, “Maybe I’d be qualified to do that for a living. Maybe that’s something that I could manage.” And I don’t think people understand the psychological aspects of not having a lot of money. It’s just a very different world.

Courtland Allen 21m 40s

Yeah. I think you have to really be there. And it’s good that – in a way it’s good that you were, because if you weren’t, then we wouldn’t have Lambda School. And I think what you guys are doing is really helping people. I mean, the story that you just shared about the guy who’d never made more than 15 bucks an hour who’s now a full-time engineer at Uber. That’s life-changing stuff.

Silicon Valley in general gets kind of a bad rap for not doing things to improve people’s lives. And you always hear these platitudes about, “Oh, go out into the world and do things that make the world a better place.” But very rarely do I talk to someone whose company is actually doing that, so kudos.

Austen Allred 22m 14s

Thanks.

Courtland Allen 22m 15s

As much as I hate to say it, I’m glad that you were broke and in debt for such a long time if that’s what it took to create Lambda School as a result.

Austen Allred 22m 22s

Yeah, me too. Sometimes you learn really hard, expensive lessons.

Courtland Allen 22m 25s

Yeah. So one thing that I’ve seen you tweet about that I love is that you tweet about Charlie Munger. And for those who don’t know, Charlie Munger is Warren Buffett’s business partner, longtime business partner. And he’s the subject of one of my personal favorite books of all time, Poor Charlie’s Almanack.

So the fact that you’re tweeting about him and that you’re also a fan means I cannot resist asking you questions about Lambda School that come from a perspective of Charlie Munger and what he calls his elementary, worldly wisdom. So maybe there’s a --

Austen Allred 22m 56s

I’ve got it (inaudible) on my nightstand.

Courtland Allen 22m 59s

Oh, do you? Do you have the big, blue hardcover?

Austen Allred 23m 2s

Yeah, it’s the most annoying book in the world to read.

Courtland Allen 23m 4s

Isn’t it? It’s huge. (Laughter.) So one thing that Charlie Munger is very big on is mental models. Just this idea that if you just try to remember isolated facts, you’ll never get anywhere because there’s way too many isolated facts and you can’t make sense of them. But if you have some sort of underlying models or theories that describe how the world works, then you can hang any facts that you come across on top of these models and reason about them much more effectively.

What kinds of mental models would you say have served you well in running Lambda School and throughout your entrepreneurial career?

Austen Allred 23m 36s

Yeah, so I think Lambda School is kind of built on a couple of them that drive everything we do. I think this is the reason Lambda School has really been successful. So we look at everything from a risk standpoint, and that comes from my experience working with LendUp and buying and selling tickets. Really, we are looking for sure bets to move people from low income or medium to high income.

First of all, if you talk to most education companies, the idea that you are creating an education for the purpose of making people money, that’s bad, that’s anathema, that is evil. The purpose of education for most academics – and this is something that I didn’t realize was as extreme as it is – is academics do not view their job to get you a job. That’s something that happens by accident as a result of you becoming a better person and being educated; where we are very much – our goal is to get you a job, and we will do anything and everything and whatever we can do get you a high-paying job. And that’s all we do.

So the first mental model is kind of the – if you think about Clayton Christensen has talked about the milkshake. People used to buy milkshakes from McDonald’s in the morning not because they wanted a milkshake but because they wanted something that they could eat while they were driving. He asks the question, “What job is that milkshake really doing?” And we ask the question, “What job is your education really doing?”

And we think that the role of education is not primarily, but our role as Lambda School is to get you a better job. So we look at it from that standpoint and then we look at it from a risk standpoint.

So every student that comes in Lambda School’s doors, we’re actually losing money day one. And we’ve lost money on them by the time they start. So if we can’t get them to a job, we will lose money by definition. And those incentives are incredibly important and structure everything else we do at Lambda School.

Courtland Allen 25m 51s

Give us some specific examples of that. How have you structured Lambda School differently based on your thinking about these risks and incentive structures?

Austen Allred 25m 58s

So one example of that is last month we had four or five people that came to us and said, “Hey, we want to learn videogame development. We have $15,000 we’re willing to pay upfront. Will you teach us how to build videogames?”

So we have our data-science team go through, look at the videogame-development market, and realized that 15 grand and what we could provide would not be enough to get you to a job in that field. So because we view it not as, “Hey, who’s willing to give us money,” but “Can we actually we actually get you to the end result,” we’re not going to build a videogame-development curriculum because we don’t think that we can actually get you a job there.

And I think that’s very, very different than anything that has ever been built by education companies in the past. So we work backwards from that, and that’s really important.

Courtland Allen 26m 53s

Yeah. It’s interesting because academics certainly see their job as teaching and don’t much care what happens after you graduate, I guess, unless you go on to become a professor or something. And yet they’ll accept any tuition and it doesn’t in any way connect to their confidence that you’ll be able to make it up in the future through your education.

And yet on the other side of the equation for average people out in the world, we do look at education as a way to get a job. It’s sort of like this fuzzy connection where it’s like, yeah, you go to school and then something happens, and then you come out the other side employable and ready to be a successful adult.

And I think what you guys are doing is you’re making it very explicit to people what they’re going to get out of it. And it’s not this fuzzy, mysterious thing. It’s, “Come to Lambda School. You will make 50k or more a year or you pay nothing.”

How much do you think being so direct about the numbers helps your message resonate with people?

Austen Allred 27m 42s

Very much so. Our biggest problem is people think that it’s too good to be true. They think that, clearly, we must be scamming people somehow because that business model wouldn’t work. It causes red flags to go up, which is something that is frustrating to me because it’s like, “Man, we’re taking on all the risk. You should just be jumping at this opportunity.”

And people are right to be skeptical. There have been so many ITT techs and University of Phoenixes of the world, which have not had your best interests in mind. I mean, I was looking through – I’m fascinated by University of Phoenix recently, and found that for several years they would have more students default on their student loans than graduate. If that happened to Lambda School, we’d be out of business overnight.

Courtland Allen 28m 30s

Jesus, that’s terrible.

Austen Allred 28m 32s

And that’s pretty egregious. So we just view it in a very different lens. And even little stuff. There are code boot camps mean the best, but if your incentives aren’t directly tied to whether or not a student gets a job, eh, it’s really to not care on the other side. That mental model, ironically, comes from Charlie Munger, where I think incentives are so much more important than people give them credit for.

Courtland Allen 29m 3s

Yeah, they’re huge. My favorite Munger story on that is – do you know the FedEx one, where they changed how they paid their employees to sort of get the planes loaded?

Austen Allred 29m 10s

Yep.

Courtland Allen 29m 11s

It’s a great one. So for listeners who might not have heard it, it’s basically a core part of FedEx’s business model is they needed to at some point during the night shift a bunch of packages from one set of planes to another. And they could never get it right. It would always take too long, it was always inefficient, and they tried everything.

And then one day someone had the bright idea of, “Oh, why don’t we pay everybody per shift instead of paying them hourly?” And overnight all the employees were able to get the packages transferred from one plane to another and then go home with time left to spare.

So it’s a really good example of the power of incentives. And I think with what you’re doing at Lambda School, your entire business model is about incentives. You’ve aligned your incentives as a company with the things that you or your customers or your students that you’re investing in are trying to do, because you’re investing in them rather than just educating them. And so if they don’t make money, you don’t make money.

Austen Allred 30m 3s

Yep, that’s exactly right. And I’ve been shocked at the number of times when we’ve had to make a real investment or do something that we would only do if our incentives were aligned in this way. Little stuff like, “Hey, there’s this expert instructor. He’s going to be 20,000 a year more than the other person. But we know that he would do this much better at helping our students get a job.”

And for us, it’s not like we’re trying to be really good so we’ll pay more money. Theoretically, we could create a model where, okay, how many more people will that person get a job because he’s a better instructor? And the math is worth it for us. So we’ve structured everything in such a way that we have to do good by our students.

Courtland Allen 30m 56s

And it’s so important. It’s one of these decisions that gets made upfront, or oftentimes doesn’t get explicitly made or even considered. But then you have to live with that decision or that non-decision for years, and it affects every decision you make at your company. It affects the big decisions and the strategic direction you head in, but it also affects the hundreds of tiny, day-to-day decisions that you make. And those add up over time, and that’s the difference.

That gap widens to be the difference between a company like Comcast, where pretty much everything that you do is hostile to your customers and everybody hates you, and a company like Stripe where Stripe literally makes more money if there are more companies on Earth and those founders are more successful. So they can do cool things like buy Indie Hackers, for example.

So I just think it’s worth people taking the time to sort of do what you did: think about their incentive structures upfront and create a company that’s not going to make themselves and everybody else miserable if they end up being successful.

Austen Allred 31m 51s

Some of that also comes from when I wrote the book. For the first few months, it was just an eBook and I could see the number of people that had purchased it and the number of people that had actually downloaded it. And it was something like 50% of people that purchased the book would ever even download it. And with Lambda School, if we sign up 40 students to start and they don’t graduate, we still don’t make money. It would be really easy to say, “Yeah, well, that’s on them. They weren’t trying hard enough. They weren’t disciplined enough. They weren’t whatever.”

But for us, that’s a problem. And a lot of what we do is actually working around those human psychological problems that we have to make people do things that they wouldn’t otherwise be able to do. So if we just had a self-paced course that we threw up online, it wouldn’t be enough to get our students to get jobs. It just matters.

Courtland Allen 32m 46s

So let me ask: Are you a programmer yourself? Because none of the businesses that you mentioned earlier really seem like they’re very technical.

Austen Allred 32m 53s

I’m a bad one. (Laughter.)

Courtland Allen 32m 56s

How did you --

Austen Allred 32m 57s

Our students are all better than I am.

Courtland Allen 32m 58s

How did you learn or first start learning to code? Was Lambda School sort of your first attempt at dipping your toe in the water, or did you have some experience before that?

Austen Allred 33m 6s

My first company was. So I built out the frontend until we could afford to pay somebody who actually knew what they were doing. And originally, I built out a really bad backend. But yeah, so I still build a lot of our site on the frontend to this day, which is not healthy. We’re moving away from me doing that. Because when you’re 30 people, you shouldn’t have the CEO building the website anymore. But yeah, so I’m a really bad programmer.

Courtland Allen 33m 36s

Are you really up to 30 people?

Austen Allred 33m 38s

Yeah, it’s insane.

Courtland Allen 33m 39s

That’s nuts. You guys just started in, what, you said April or --

Austen Allred 33m 43s

Yeah. So April was our first class. We incorporated in June.

Courtland Allen 33m 48s

Geez. That is crazy. Let’s talk about this crazy growth, because I don’t talk to very many people who go from one or two people to 30 in just eight or nine months. So what are some of the biggest growing pains, if any, you guys have had with Lambda School and how have you handled those?

Austen Allred 34m 5s

So the funny thing is we kind of unlocked this business model, where the demand is just way bigger than our internal supply. In the beginning we would get 3,000 applications and we would accept the top 20 students. And that’s frustrating because you know that on the other side, that’s what drives your revenue. But we didn’t want to outpace our own growth.

So it’s funny, because to me I feel like we’ve grown really slowly. And I know that sounds insane to anybody who’s looking at the numbers. We just started adding a new class and a couple new instructors every month, because another thing we wanted to do was learn really quickly and iterate from class to class. So even though we’re only a few months old – basically, less than a year old – we’re already on our ninth iteration of our CS curriculum. And it is really freaking good now and it’s just going to keep getting better because we start a new class each month.

It was funny; going through YC, we got the point where we were like, “Okay, we could double the number of students if we – we want to keep a really good ratio, but we would need another $100,000.”

And I was talking with – I’m so risk-averse now that I was talking with our YC partners. I’m like, “Okay, we could add more students, but if we can’t raise after YC, then it’s going to be as sub-optimal experience for those students. So we want to make sure that we can actually raise before we make those hires and let the student count bubble up a little bit.”

And the YC partner was like, “Seriously? You’re profitable, you have a huge market; you’re worried that you won’t be able to raise $100,000 after YC?” So he said, “You know what? I will personally give you $100,000 if you can’t raise,” and that was the assurance that I needed to make those hires.

So yeah, it was really – I moved from teaching every day to not teaching at all really quickly, really quickly. And as you can imagine, now that we’re 30 people, most of my time is just management. And that sounds like a really lame word, but making things happen. And there’s so much stuff that only I can do. And at that point, it becomes really, really, really important to have the right people hired.

Because I don’t – I’m not over the curriculum anymore. I look at it and I think it’s interesting, but I’m not the one day to day making decisions. I’m not the one day to day dealing with students’ little problems, which are endless. I’m not the one – we’ve got 300 students. I’m not managing user acquisition, which has been my thing for a really long time.

I think that was the hardest thing for me, is that’s my specialty. So passing off something that you view as your baby is really hard. And you have to find a very special person who is – because I can – with, for example, our VP of finance, I don’t know if he’s making mistakes. I don’t know if he’s doing a good job nearly as well as with our head of growth. So I had to learn to delegate a little bit more and step back a little bit so I’m not doing his job for him and driving him insane.

Courtland Allen 37m 28s

It’s tough, but it helps so much if you hire somebody who’s better than you.

Austen Allred 37m 31s

Oh, yeah.

Courtland Allen 37m 31s

Not only because he’ll do a good job, but because you won’t be tempted to butt in and make small corrections and drive them insane and distract yourself from doing your own work.

Austen Allred 37m 40s

Yeah. And it’s also weird that we’re now at the point where there’s literally somebody who’s better than me at any single thing. I don’t have a skillset that is – I’m not the go-to for any skill one the team anymore. I’m just trying to get the ship driving in the right direction and try to make data move around and make sure that we have enough money in the bank to support everything.

But I’m not the best at anything, which is kind of hard in a really stupid prideful way, but it’s also really important because you just can’t. And we’ll probably double again in the next six months, and you can only do so much as one person, right?

Courtland Allen 38m 25s

Yeah. So going back to Charlie Munger, one of the things that he talks about it’s the psychology of human misjudgment. He discusses some of the things that cause all of us humans to make bad decisions from time to time without really recognizing it. So these are the kind of mistakes that to you don’t feel like a mistake, but to everyone else watching, they’re like, “That’s obviously asinine. Why are you doing that?”

One of the patters of misjudgment that he talks about is called over-optimism tendency. So we’re overly optimistic as human beings about pretty much everything that we do. We buy lottery tickets, we start startups, we think it’ll only take us two weeks to get this feature out the door when it really takes six months. What, if anything, are you overly optimistic about with Lambda School?

Austen Allred 39m 6s

Everything. (Laughter.) I mean that in a literal sense. I’ve learned now that when I decide what I want, I set our internal goals for 10% of that basically. And the nice thing is that at the end of the day, this is the business model that is very data driven. So it doesn’t matter what I think. It matters what the numbers are actually coming out as.

But actually, (inaudible) I’m underestimating most of what we do. I did not think that we would have 75% of our students hired within three weeks. So I very consciously try to underestimate and be very risk-averse, because this is a very financially, data-driven company. And if I’m wrong, it gets very bad very fast. So we each have to consciously – our model said something like we will get 50% of students hired within six months at an average salary of $60,000 a year. And in my mind I’m saying, “Okay, but there’s no way. Because I look at this boot (inaudible) numbers, and if they can beat that, our students are way better.”

So anecdotally, I know that that’s pretty unrealistic, but for the sake of model setting, we have to overcorrect and make sure that we’re not overpromising and under-delivering, because that could really quickly turn into a multimillion-dollar swing and a miss.

Courtland Allen 40m 42s

You mentioned doing Y Combinator, which I also went through a number of years ago. What are some of the most impactful things that you got out of that period of your company’s history? And what’s the story behind how you changed your opinion on whether or not it’s good to raise money?

Austen Allred 40m 56s

I was definitely so biased against VC that I went into YC in the interviews and I was like, “Look, we probably will never raise again after YC.” And that is a huge red flag. But at the same time, I think that mindset of being – it’s funny because – so we’re almost profitable. We’ll be profitable in a couple months here.

And as soon as you have that level of revenue and that level of profitability and you’re that young, it’s incredibly easy to raise money, which is – it’s funny; the more you need to raise money, the harder it is. And because we don’t need to raise money and we have our own destiny ahead of us, we can raise infinite amounts of money at ridiculous valuations. And so you have to make sure not to get drunk on that.

But YC was really, really good for sitting us down and saying – the way they got us to raise money – and I’m also super skeptical of VCs because I now, after having been burned so bad, I understand their incentives and where our incentives are misaligned. And if I could take a 100% chance at making $10 million or a 10% chance of $100 million, the VC would take the latter every day, whereas for me, the difference between $10 million and $100 million doesn’t really move the needle.

So we actually – we had to sit down and model out our assumptions like a financial model. And they have to prove to me mathematically that it was better to raise VC than to not. (Laughter.) And that was a turning point where I love being independent and making my own decisions and I still control all of the board and me and my cofounder can do whatever we want, technically, but you have to do what’s right for the business given the circumstances at hand.

I think YC was really good about pointing that out to me and saying, “Look, you can’t learn by just watching what everybody else is doing because your circumstances are very unique and you need to respect that that’s the case. Not to say that you should just – VC and a lot of tech is so commoditized that people have thought for longer than you about almost everything. But you’re the only person in your unique circumstances.

So there were quite a few times where we would go in for a partner meeting like, “Okay, we’re doing this and this and this.” And they just say, “Why? Do this and this and this instead.” And you’re like, “Yeah, you’re so right and I’m an idiot.” And it was obvious as soon as they said that.

Courtland Allen 43m 56s

It’s so valuable to have knowledgeable mentors that you can kind of rely on to catch you when you’re making dumb decisions and steer you in the right direction, or just bounce your ideas off of them and get a second opinion. It’s just so much better than trying to do it all by yourself.

By the way, I met Daniel Gross, one of your YC advisors the other day. He suggested that I have you on the podcast and I actually already had you scheduled.

Austen Allred 44m 18s

Oh, really? Yeah, Daniel’s a good guy.

Courtland Allen 44m 20s

Yeah. So let’s talk about Daniel and your other advisors. How important has it been for you to get advice? And in general, what kinds of advice have you found the most useful to get from your advisors and your mentors?

And I’m asking this just as much for me as I am for the audience. Because with Indie Hackers, what I’m trying to do is create a place where anyone can go and ask any sort of business question. “What do you think about my idea? What do you think about my landing page? What do you think about my growth strategy?” And other founders will chime in.

So I’m curious: How important has this been for you, and what categories of advice have you found the most helpful?

Austen Allred 44m 50s

Yeah, I think it’s incredibly important. Often our advice is more along the lines of, “Hey, stay focused.” So we have a model that empirically works. And we’re going to make a lot of money from it, we’re going to do a lot of good from it, and I want to do the same thing in every other industry and make a thousand times as much money as we currently are. We’re in a really good place for a startup, where it’s not very often that a startup is able to be growing as quickly as we are and be profitable and have good results. I keep waiting for something to come kick us in the teeth, and whatever it is hasn’t come yet.

Because of that, I want to grow really quickly, I want to innovate in 10 different places, I want to do all these things. And we only have the resources and – money is not an issue for us. It’s more the right people. So our people can only do so many things and try so many experiments without being overwhelmed and overloaded and without having to neglect the really, really important things that they do.

So we actually set up an informal board even though we don’t actually have a board. We still have four people that I meet with monthly just as a sanity check. I send out religiously monthly updates even though that’s more than most people would send to investors just because I want to be held accountable, which is something that’s hard and scary to do. But I think it’s also really important. And that’s another thing I learned from my first company, is not to have as much hubris.

They’re hard on us sometimes, especially with little things that aren’t – just being buttoned up is really, really important for our kind of a company. And things are moving so quickly that I would rather launch a new product or a new program or a new feature than button up the one that we have really well. And we have to be buttoned up.

Courtland Allen 47m 3s

Exactly why it’s good to get a different perspective. I mean, we all have our unique tendencies and biases and blind spots.

Austen Allred 47m 10s

Yeah. I’ll tell you a story about Daniel Gross. So basically, we have these – so our students sign income-share agreements and we hold them on our books. And one of the things that I want to do eventually is create a robust market where anybody can invest in anybody else. And so you could say, “Hey, I will pay your tuition and you pay me x percent of your salary after you graduate” and make a real liquid market to invest in other people’s educations.

And so I was talking to my cofounder about how you could best enable that, I was like, “Oh, duh, this is easy. Blockchain. You put it on the Blockchain, you create a token, you make everything able to move around, and we have real assets and real securities unlike most of these fake ICOs. So, oh, my gosh. We could do this. We could have everything on the Blockchain and we could create this marketplace.”

And we basically sat down with Daniel Gross and we were like, “Okay, here’s what we’re going to do.” And he’s kind of like, “What the hell? What are you guys” – he’s like, “Don’t get me wrong. I believe in the Blockchain, I believe in crypto, I am a huge fan of all this stuff, I understand it all, but you guys need to be focused on hiring good teachers and the core thing that you do, not off here building Blockchain something or other because it’s really sexy and really revolutionary.”

I think that’s one of the things that YC is really good at, is just getting you to focus on the stuff that’s really important, which is – I mean, YC could basically be just a record player that says, “Focus on your users and talk to your users” and that’s it. And it would be incredibly valuable because it’s really easy to forget that

Courtland Allen 48m 56s

It’s so easy to get off track from that stuff.

Austen Allred 48m 59s

Oh, my gosh, yeah.

Courtland Allen 49m 0s

Having someone in your face telling you or specifically having someone listen to the decisions that you’re making and then tell you exactly how you’re not focusing on your users and how you’re not listening to them is so eye-opening.

What would you say is the hardest part of running an education business like Lambda School? What are some of the structural challenges and obstacles you have to overcome to actually make this business work in the long run?

Austen Allred 49m 24s

Yeah, there are a couple big things. The first is that the world is not created to support businesses like these, and I’m talking about the regulatory environment, accreditation, degree granting. What people know and expect ad the education system is not – we don’t match up with what that is.

And so when we talk to people, the number-one question we get is, “Are you accredited?” And then we talk to accrediting bodies and they say, “Okay, if you’re going to be accredited, you need to have a librarian on staff full time, your program has to be at least four years long.” And you’re like, “Why?” They’re like, “Because that’s just what it is. You need a librarian.” So there are a lot of schools that are online that have a librarian that they pay to sit in some room all day.

Courtland Allen 50m 17s

That is ridiculous.

Austen Allred 50m 18s

We’ll do that, but the regulatory framework is not built for a company like ours. So we’re figuring out: Where is the right – where we just throw all that away and say, “We don’t care. We’re going to do our own thing” and where we try to fit into that and maybe buy a college or buy a university and just gut it and remake it from the inside out.

There’s also just endless people problems. I mean, an education company – it’s really easy to have a program, but there’s so many edge cases. Our biggest problem right now is people that have to drop out for financial reasons. Because we’re not lending people money, we can’t just lend them more money if their spouse loses a job or whatever and they can’t sit in our classes all day. And just people die.

And we had in our second class, we had, I think nine or 10 people just randomly happen to be either in Texas or Florida at the same time as the hurricanes hit. And just random stuff like that, you can’t control it and it’s just a lot of people issues. And especially where our business model is based on return percentages and investing and knowing the spreads, that stuff really matters.

So it was well within our models, all that stuff, but just dealing with that endless, day-to-day, small things that can hold people back. Especially it’s insane dealing with people that come from lower-income backgrounds, how the deck is stacked against them in so many different ways. And we had to – and they’re problems that we didn’t even anticipate.

So for example, one of our students that got hired, they got a six-figure job and they went to the job. And they were like, “Hey, we need your bank account information so we can have direct deposit.” He’s like, “Oh, I don’t have a bank account.” And he started running around to all these banks and they’re like, “Yeah, you need a $500 minimum deposit.” And he’s like, “I don’t have $500”; a problem that I would never care about, but it’s real. So we had to find a bank that would work for him that would get an account up and running overnight so that he would have a place to deposit his six-figure paycheck.

Just little stuff like that that --

Courtland Allen 52m 51s

That’s nuts.

Austen Allred 52m 53s

I mean, who would even think that that is a problem? Or another student that got hired as a React native engineer that couldn’t afford a smartphone, and he learned everything on an emulator. But when he got to the job, they’re like, “Wait, what? You don’t have a test device?” And of course, they’re fine with it. And a lot of our students are programming on crappy computers that we have to replace, and there’s just a lot of little, little things like that. Homelessness we deal with every now and then.

So yeah, we’re hoping to get to the point where we can invest more in people than we already are. But we’re kind of leveraged right now, so we can only do so much per student. So those are the big problems.

Courtland Allen 53m 40s

So let’s talk a little bit about learning how to be a founder and let’s bring Charlie Munger back into this. One of the things that Charlie is big on comes from his own role model, Ben Franklin. And that’s this idea that it is better to learn from other people’s mistakes than through your own set of miserable life experiences. So yeah, learning from your own experiences is effective and it’s memorable, but life is too short to spend it repeating everybody else’s mistakes when you could just read a book instead.

Who are some of the role models that you look up to, what have you learned from them, and how have they shaped your career as a founder?

Austen Allred 54m 13s

The biggest one is definitely Jeff Bezos. I have been fascinated by and studied Amazon religiously, basically, since the lasts company failed. And I think the way that – and the funny thing is if you look at all these people that create ridiculous, outsize returns, whether it’s a Warren Buffett or a Jeff Bezos, nothing that they do is hard in the sense that it doesn’t take an IQ of 160 to be a Warren Buffett. It’s just hard in the sense that it takes a lot of discipline and analysis and patience that most other people don’t have. And everything else is pretty straightforward.

I’ve learned a lot from – the thing I like the most about Amazon is their long-term outlook. And especially if you look at their business model and their returns, they had a unique business that was spinning off cash pretty quickly. But they were basically reinvesting every penny and being incredibly frugal and creating more long-term cash flow.

And that’s what we’re trying to do as well. We’re pretty close to profitability. We’ll be in the next few months wildly profitable. And finding ways to experiment and reinvest and kind of give yourself a bigger moat and a better flywheel with that money, that’s what drives a lot of my thinking day to day.

Courtland Allen 55m 54s

I like that you mention the flywheel. So I’m sort of on an Amazon kick too. I don’t know how, but I only recently discovered that Amazon is this amazing company that I should probably learn more about. And one thing they have is this famous flywheel concept.

And so in the Amazon flywheel, the inner circle starts with happier customers. If they have happier customers, then they’ll get more traffic to their site. And if they have more traffic to their site, they can use that to bring more sellers to their platform. And if they have more sellers, then they have a larger selection of good, which feeds right back around into having happier customers. So it’s an entire loop that sort of feeds into itself.

And there’s an outer loop as well. So when they get more sellers, they can take advantage of economies of scale, acquire more goods in bulk at lower expense, and then pass those savings onto their customers in the form of lower prices. So now they have happier customers, and we’ve fed right back into that inner loop. And the idea is that because this is a loop, improving any one metric will automatically improve the others.

Do you have anything like this flywheel or anything resembling it at Lambda School? And how do you think about growing your business and the metrics that you should be tracking?

Austen Allred 57m 1s

Yeah, we actually literally have a flywheel printed up, the same way that Amazon does.

Courtland Allen 57m 9s

What’s on your flywheel?

Austen Allred 57m 10s

Yeah. So our inner flywheel, it starts with better students. And that kind of started with – so the unique thing about our business model is if you look at code boot camps, where you’re paying 10- to $30,000, that market size is inherently very limited by how many people have that kind of cash or can afford to move to those places, or more often, do both.

So our original market is the 90% of the U.S. that doesn’t have $10,000 in cash to go to code boot camp. So the students that we start with are just better, and we turn down students that, if they had $10,000 and walked up to another code boot camp, every one of them would accept. And hopefully, we can expand to have more impact later on, but we have to be pretty exclusive in the beginning.

So the beginning of our flywheel, and then it goes to happier employers. So because our incentives are different, we are more than twice the length of code boot camps, we have three to four times as many programming hours, we learn more lower-level stuff. So our students are writing in C and not just JavaScript. They’re learning architecture and operating systems and we build a state machine, and stuff that you don’t necessarily need to get a job day one, but that underlying knowledge is really, really important and helps you down the road immensely.

And that’s one of the reasons our students were getting hired so quickly, is because they just know stuff that other students don’t. And it’s a very, very practical curriculum, so we use it every day. And CS out of some colleges somehow don’t use git, which is baffling to me.

But that stuff creates better students, better students causes happy employers. We’re now at the point where employers are reaching out all the time saying, “Hey, who are your best students?” We actually just launched a program yesterday we call “Trials,” which is basically as an employer you come in, you click one button that you select and hour, and then we in the background will arrange back-to-back interviews during that hour. And if you select the student, you can try them out on a contract at a set rate. We hire them; you just pay us an invoice. There’s no paperwork. We’re trying to make it really, really easy for employers to start hiring our students, even if it’s on a short contract kind of trial period.

So stuff like that will cause us to have better stats and better outcomes, and that causes more good students. Then there are couple other flywheels that have to do with getting the best instructors. That’s related to all those things. So the core of our business is actually people that are really good teachers, and a really good teacher will have an outsize impact on the rest of the organization.

And then the other side, which is harder to explain to people that don’t understand, the backend of what’s happening at Lambda School, but it’s the capital markets. So the better our students are, the more jobs they get, the cheaper it is for us to borrow money or the more we can sell securities for, which will let us drive down our prices. And so the better data we get, the cheaper money is essentially.

Courtland Allen 1h 0m 55s

That’s fascinating to hear. How do you know which of those metrics to press on the hardest, or you’re sort of focusing on all of them at the same time?

Austen Allred 1h 1m 2s

Yeah. At the end of the day, it all comes down to how good our students are. So we’re working on all of these things simultaneously, so we have a career-development team that is trying to create more and better relationships with our hiring partners. I’m kind of the capital-markets team. I’m always talking to hedge fund and banks and seeing how much we can possibly invest in our students and at what rates we can get money at so we can give our students better and better deals.

I think within a couple years, we’ll be able to up our minimum salary to 70- or 80,000, which will just – I think that will crush other boot camps and other educational institutions even further than we’ve already crushed them.

But yeah, it really all comes down to better students. So the vast majority of what we can do better is in the classroom, getting them to the place they need to be to get jobs. And that’s where we have the most leverage.

Courtland Allen 1h 2m 4s

You mentioned earlier that you guys are your ninth iteration of your curriculum and how you teach students, which is great, because I think one of the biggest shortcomings with traditional educational systems is that they don’t evaluate their curriculums. And even when they do, they don’t iterate on them with any sort of speed or rigor. And I myself have taught quite a few people to code. It’s one of my hobbies, and it’s not easy to do. It’s very time-consuming, there’s a lot to teach, and the concepts can be difficult to learn.

How would you describe the approach you guys take to teaching at Lambda School, and what have you found works best for people who want to learn how to code?

Austen Allred 1h 2m 35s

Yeah. So this is another way that we differ from academics very drastically, is we take what we call a top-down approach. So if you’re looking at the stack, we start on the frontend and we want – the hardest thing for us – well, not for us but just in general is motivation. And if you can get a student motivated and excited, they can learn anything.

So we start with the frontend. They’re building just basic HTML and CSS, and we have them program one project all the way throughout. So they’ll start out by building out the frontend. And then that’s something you can see and you can play with and you can deploy. And it might not do much, but it’s there. And then from there we just kind of work our way down the stack until by the end, you’re managing memory management in C. And it’s a completely different level than most of the web stack you started with.

But we try to get people excited really quickly. And then some of the answer is we just hire the best people and we have a really solid ratio.

So one of the big ways that we’re different from everybody else is anytime you’re stuck on anything, we have somebody available instantly to one-on-one with you and walk through why you’re stuck. And that’s expensive to do, but again, it comes back to our returns. If that moves the needle for that student, then they get a job, we can mathematically show that that’s a good investment for us to make.

And then the other thing we do is we have for each section – and a lot of it is just really good pedagogical standards where we show you something, and then we do it together, and then you try it on your own and we critique it, and the kind of “I do, we do, you do” approach. But then if anybody is ever stuck, we have intentionally created courses that start so frequently that you can easily bump back and do something over again or you can – it’s actually really, really flexible.

And we take feedback at the end of every lesson and at the end of every week, and we gather all of that as data. And if we ever see any problems starting to flare up, we can patch them and fix it immediately.

So our curriculum is literally changing every day. And we have, basically, this big database. We use Airtable on top of our database to manage all of our curriculum. So we’re going in and making little tweaks literally, I don’t know, 20 times a day our curriculum will change. And it’s subtle, but that’s another one of those things. We’re talking to our users, really understanding what’s lacking. That makes a big difference over time.

And I think our first class had it better than most other students did at other institutions, but I look – our ninth class is about to start and it’s like, “Man, they are just – I don’t think there’s ever been anything quite like what they will experience.” So it’s really cool.

Courtland Allen 1h 5m 49s

Yeah, your measuring it and making these tweaks based on actual data. It just seems like the bigger and bigger that your program gets, the more students who go through it, the better your program is going to get as a result because you’ll just have more data to make better decisions. Yeah, I think what you’re doing for education is great.

I hope this really catches on and that other schools start doing similar things, because it’s just ridiculous to me how bad we are at teaching and how inflexible our teaching systems are, and how we will leave all these things that exist elsewhere in the world. Any tech company measures their metrics and they look at what their users are doing and they try to make their products better. But for some reason, education just doesn’t give a shit, so I’m a huge fan of your approach.

Austen Allred 1h 6m 32s

It’s incentives. I’m telling you, it’s incentives.

Courtland Allen 1h 6m 34s

Yeah, because you guys have no other sensible financial choice other than to care about your students’ outcomes, so you have to do a good job.

So a lot of people listening in want to start an online business. But they have no idea how to code, they aren’t technical, and for some people this is a really stressful situation because it feels like they can’t get started unless they learn how to code.

In your completely unbiased opinion as the creator of a programming school, should aspiring entrepreneurs take the time to learn to code before they start a business, or should they just jump in right now?

Austen Allred 1h 7m 4s

I don’t think they should. I think they should learn along the way, but we didn’t write a single line of code for the first three months, which is – other than in our class because that’s the actual product. But we basically – I mean, for almost (inaudible) there’s a product that exists that for very cheap, you can tie a bunch of pieces together and get started and get started talking to people.

So I think in the long run, it’s incredibly important to be able to program, to test an idea and to know if there’s a market for something. I don’t think it’s true that nowadays you need to be able to code. I think really quickly it’ll get to the point where you’ll wish you had somebody technical on your team, but I’m a big believer in the idea that the biggest thing holding most people back from doing stuff is making excuses about why they can’t do something instead of just figuring out what they could do to work around it.

And if you don’t program, that’s a really easy thing to solve once you get to a certain point and you can just hire somebody or hire a freelancer. You should learn it just out of principle so you know what people are talking about. It’s not easy to learn, but it’s not rocket science either. I should say that because it’s really hard, but it’s possible to learn.

One of the things that we’re realizing is – so we have a machine learning and data science class, so it’s kind of artificial intelligence. And that stuff requires a pretty heavy math background if you’re going to do it at a serious level. And so we started with the assumption of, “Okay, we need people to understand calculus, we need them to understand statistics.” And the farther we got in it, we realized, actually, we can just teach people calculus and we can teach people statistics. And when you’re teaching people in that context, it’s hard still. It’s always hard, but everything is so doable. You can learn anything.

And that’s really what your full-time job is as an entrepreneur. It’s just learning stuff that you didn’t know. And you’ll probably run into somebody who’s an expert in it and you’ll feel dumb, but you have to learn it.

Courtland Allen 1h 9m 28s

What do you think is the strongest opinion you’ve had that’s changed as a result of things that you’ve learned by being an entrepreneur over the last five or 10 years?

Austen Allred 1h 9m 38s

One of the big things – going in as an entrepreneur, I came in just like, “Okay, I can learn how to do everything better than anybody else. And so we’re just going to start from scratch and we’re going to do everything awesome.” Now I am of the opinion that there are people that are really, really good at some things and solutions that exist that are really, really good for some things. And you should pick one or two areas to innovate and innovate like crazy there, and use really boring solutions for everything else.

So we’re not innovating on – we use Salesforce, which is super ghetto, clunky, really enterprisey software. We use a lot of enterprisey solutions for what you would expect for a hot tech company or whatever.

So we find stuff that works that other people have already done and plug that in in the places where we don’t need to innovate, because you can only innovate in so many places. And then as you get bigger, sure. When I went into the Uber offices, they’ve built their own internal version of Slack, because if they can save six minutes per engineer, they save a billion dollars a year. So it makes sense to hire 15 engineers and build their own version of Slack instead of paying for it, which is just – that’s a different kind of scale.

So they can innovate on anything and everything. But for us, we have a very limited scope and we try to do the things that we do incredibly well; and the things that we don’t care as much about, use really boring solutions.

Courtland Allen 1h 11m 19s

It’s so tempting to want to just build everything in house from scratch. You mentioned earlier that you guys use Airtable. I use Airtable as well, and it’s super flexible. But I bet you anything that you guys do in Airtable, you’re tempted to build out a custom user interface that you’ve designed yourself.

Austen Allred 1h 11m 33s

Oh, every day, yeah.

Courtland Allen 1h 11m 34s

And it would be such a loss of focus to constantly give into that temptation, but it’s also so easy to convince yourself that you should.

Austen Allred 1h 11m 41s

I think especially engineers fall into that trap, where you know how to build something that’s better that’s more suited for your particular circumstances. But if you do that, there’s opportunity cost to everything. And that opportunity cost is huge for us.

Courtland Allen 1h 12m 0s

And I think that’s one of the actual advantages that you get if you are an entrepreneur who doesn’t know how to code. Because I talk to so many programmers whose businesses go off the deep end because they get sucked into building feature after feature just because they can, whereas if you don’t know how to code, sometimes you are a little bit more likely to be focused on the actual challenge at hand, just because hiring someone to program your pet feature just doesn’t make financial sense.

Austen Allred 1h 12m 25s

Yeah. I’ve never seen a company that’s struggling and has tacked on one more feature and that’s solved it. If your core thesis is wrong, an engineer just wants to build more stuff. I’ve seen that death spiral so many times, where something core to the business just clearly isn’t working, but it’s so much easier to build stuff around the outside and see if you can compensate for that.

And I think that was a lot of what my first company was. The core problem we had is that people don’t actually want to go to one specific location to see fact checking. Everybody thinks they like fact checking. Nobody will say, “I wish my news were inaccurate.” But they don’t care that much. So we would build all these features to make crowdsource fact checking better, but at the end of the day, the core value prop wasn’t there.

Courtland Allen 1h 13m 22s

Yeah. To the man with a hammer, pretty much every problem looks like a nail.

Austen Allred 1h 13m 26s

Yeah, exactly.

Courtland Allen 1h 13m 27s

I think it helps, if you’re a programmer, to just be suspicious of any inclination to solve a problem using code. And the same goes if you’re heavy on any other skill. If you’re a product designer, you should be wary of always thinking that the solution is fixing the product.

I read this book last year written by this marketer who was talking about different businesses from the 20th century. And he analyzed every success or failure by attributing it to branding. Toyota didn’t sell enough cars, that was branding. If their CEO didn’t retain enough employees, that was branding. And it seemed ridiculous as a reader, but I’m sure from the author’s perspective it made a lot of sense because that was the area that he knew and he always saw how any problem could relate to branding. And of course, we’re all capable of making the same erroring judgment.

Austen Allred 1h 14m 8s

Yep.

Courtland Allen 1h 14m 9s

So let’s wrap up with another Mungerism. One of the essential pieces of Charlie Munger’s wisdom is inversion. And that’s this idea that instead of always asking what you should be doing, every now and then you should flip it around and ask what you should not be doing.

So instead of sharing with us what you think entrepreneurs should be doing to succeed, why don’t you tell us your thoughts on what a new or aspiring entrepreneur should avoid doing if they want to build a successful business?

Austen Allred 1h 14m 34s

That’s a really good question. I think there’s this weird – I don’t know what the right way to describe it is. There’s this weird hype cycle, especially around Silicon Valley. And I see the competitors we have that I worry about the least are the ones that get the most press and they’re the ones that are the most beloved by the people that don’t matter. And VCs can fall into that category. For us, they do at least.

Keep your head down and keep innovating on the stuff that actually matters, especially when nobody sees it. Nobody actually knows: Is our experience better than some other school? And they won’t see that for years until we have a lot of data. And I think by then, it might be too late for our competitors to create something better.

So just keep your head down and focus on the stuff that matters. I think that’s the hardest thing for any entrepreneur to do, but just really, really, really nail your core value prop.

Courtland Allen 1h 15m 43s

Cool. Well, it was very fun talking to you, Austen. Thanks a ton. I really appreciate you coming on the show and sharing your stories and strategies and your advice so candidly with everybody.

Can you tell listeners where they can go to learn more about what you’re up to at Lambda School and what’s going on with you personally?

Austen Allred 1h 15m 57s

Yeah. Lambda School is LambdaSchool.com, although if you forget the “b,” we own that one too so it’s not a problem. And then I am @AustenAllred on Twitter.

Courtland Allen 1h 16m 11s

All right, Austen. Thanks a ton for coming on the show.

Austen Allred 1h 16m 13s

Cool. Thanks, Courtland.

Courtland Allen 1h 16m 14s

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