MOOCs and Entrepreneurship – Running the Numbers

For my 100^th post at Degree of Freedom, I wanted to look at some numbers that can be used (or at least considered) by those thinking about trying their hand at some form of entrepreneurship connected to the rapidly expanding momentum of free learning.

When I ran my own business oh so many years ago, one of my mentors taught me that the only information that travels up the decision chain is numeric.  So no matter how brilliant your sales presentation or how beautifully designed your proposal, as your project moves closer and closer to final sign off, you should expect all information relating to it to be ignored except for the numbers.

Naturally, the numbers that have brought MOOCs so much attention are the huge enrollments associated with individual classes as well as the total enrollments at sites like Udacity, edX and Coursera.  For under the rules of Internet arithmetic, several million people signing up to a site in a short time period automatically equates to the “Next Big Thing.”

While higher rolling investors have some leeway to speculate based on the latest big-number fetish, those trying to get their own business off the ground have less room for error.  Which is why big totals need to be broken down to see where (or even if) a market exists.

For example, let’s say you’re going to start a business that helps high school students get credit for finishing a MOOC class, assuming that the tens of thousands of students who have enrolled in a course represents a big enough market for this service.

But if you look at final number of certificate holders for a specific class (say my Coursera class on Einstein’s Theory of Relativity with a five-figure enrollment), your customer base now drops to four figures (1,939 students in the case of Einstein).

Ignoring arguments over completion rates for now, if we look at that 1,939 total and assume 10% of MOOC enrollees are of high school age (an anecdotal, but reasonable assumption), that means the real market for this credit service (at least for this one class) would be less than 200.  So if you could sell half of them your services for $100 (itself a stretch of an assumption), this one course has the potential to pull in under ten grand.

But as my buddy in the financial industry keeps telling me, it’s not what you earn but what you keep that counts.  And even if your profit margin is closer to that of a church (66.43%) or golf course (76.80%) vs. a liquor store (25.30%) or motorcycle dealer (23.09%), it could very well turn out that your long-term financial picture would be better if you spent your time working at a minimum wage job vs. chasing this particular business.

Given that those millions of MOOC signer-uppers have yet to prove they are willing to pay for anything (including the MOOC courses they’re taking), you can generate similarly depressing arithmetic for any mediation business if you assume that the market for your product or service already exists within this base of online learners.

But most entrepreneurs understand that big numbers demonstrates big interest (in this case, big interest in high-quality online learning) vs. a big market currently slavering to find someone to whom they can fork over their credit card.

Which means that new businesses need to create a market that taps this interest, rather than assume a market already exists just because lots and lots of people have been willing to part with their name and e-mail address in exchange for something valuable (like a Harvard course).

To cite a real-world example, the folks behind MOOC Campus are probably not assuming that 10% or 1% or even .001% of the folks currently taking one or more MOOC courses are going to pack their bags and move to North Carolina where we can take our classes in someone else’s house.  Rather, they are cultivating a new market (independent learners look for an alternative to the traditional college experience) and plan to leverage MOOCs and other free learning resources which will allow their organization to invest in things like facilities and mentors vs. a faculty.

Similarly, the many categories of products I mentioned yesterday (online learning portals and review sites, note-taking or portfolio services) will each have to create a market vs. simply tap into a ready-made one.

To pick another example, in theory everyone enrolled in a MOOC should be interested in a learning portfolio.  But in practice, such portfolios are only valuable for people who want to use them to demonstrate their achievement to someone else (like an employer).  Which means that developers of portfolio products need to cultivate relationships with an employment industry that can establish value in their offerings, rather than just reach out to current online learners.

After all, the number of people who put together a portfolio solely for self satisfaction is likely to be small or at least made up of people unlikely to exchange good money for naches.  But if it can be demonstrated that a portfolio can lead to a paying job, then suddenly this service takes on a monetary value.

And in a MOOC world where no one pays to learn art history or philosophy, but tens of thousands shell out $99 to learn Excel, businesses that want to sustain themselves need to understand that people are willing to do different things with their time (like spend 100 hours learning Greek literature) than with their money.

So far, I’ve only been talking about businesses that want to sell directly to consumers. But the Internet economy also provides different ways to earn a dollar, ways I’ll discuss as this series continues tomorrow.

Next – Business Models