The Great Coding School Rollup of 2015

I just saw my first proposal for a Coding School Rollup. As you are probably aware, 2014 saw the explosion of coding schools all over the US. These are typically four to 12 week programs. Some are full-time, others are part-time. Many are immersive and include internships. A few are longer than 12 weeks.

I know several people who have gone through the with great success and gone on to have excellent software development jobs. It’s a powerful model that university education has generally missed on. In fact, I know a few companies that put computer science grads through these types of programs as an on boarding process. I’m a big fan of coding schools.

When I saw the proposal, I immediately thought of the web consulting rollups of 1999. Do you remember US Web, iXL, Scient, and Viant? Companies were being bought (and valued) at 10x forward revenue only to be valued at between 0.5x and 1.0x revenue several years later. I’d argue the 0.5x and 1.0x revenue were the correct valuations since these are generally 5% to 10% net income businesses that are 30% – 40% gross margin and heavily dependent on (a) transitory labor and (b) favorable supply/demand conditions.

But let’s go back a little further in time. Anyone remember the web hosting rollup? Or the ASP rollup? I was in the middle of that with Interliant (I was a co-founder) – we bought 20+ companies, at one point has an almost $3 billion market cap (on $200 million of revenue – recognize the multiple), but went bankrupt in 2002. A few companies got bought before the whole Internet-bubble thing fell apart, and we almost managed to get bought (for around $500 million, but that’s another story for another day.)

Or the ISP rollup before that? Yeah – Verio was the big winner there (and they overlapped with the web hosting rollup since they evolved into that) and their timing was epic being bought by NTT for $5 billion in cash just before everything blew up. I will forever be in awe of the exit execution and timing there by the board and investors (some of whom are friends.)

Or the systems integration rollup of the 1990s. I was involved in that also. My first company, Feld Technologies, was bought by AmeriData, which bought 40 companies in three years. We were bought for a more reasonable 1x revenue (and about 4x pre-tax income) when the value of the AmeriData stock, options, and cash we took out were factored in. GE Capital bought AmeriData for $500 million two years after Feld Technologies was acquired, so that was a great exit, but there were plenty of other system integration rollups that ended up in the dust bin.

Office supply consolidation? Anyone remember that one? I wasn’t involved but some of the players ended up in the systems integration rollup game.

My good friend Phil Weiser often says to me “history doesn’t repeat itself, but it does rhyme” which I always thought was a Mark Twain quote but apparently there’s some confusion about that in the world of Wikiquotes.

In this case, Coding School Rollup definitely rhymes with all the rest. And for those clever entrepreneurs and investors who try to use the word “consolidation” instead of “rollup”, don’t bother, we already tried that. Consolidation and rollup rhyme also (well – actually they are synonyms.)

  • DaveJ

    Any categories of roll-up that you think can bring long-term sustainable value? Note, Standard Oil was originally a roll-up, though acquisition prices were reduced due to unsavory and now illegal tactics.

    • I haven’t made a study of it but I imagine that there are examples of foundational companies that emerged from this. However, I’m much more intrigued by what I’d view as the Warren Buffett approach which feels much closer to what Google and Facebook are now doing.

      • DaveJ

        You mean what I’d call a “heterogeneous rollup” where you focus on different products / technologies that serve a market and have overlapping customers, rather than homogeneous where all the companies look pretty much alike?

        This is also what IBM does, IIRC from what you have told me.

        There is of course the conglomerate, such as GE or in the past ITT, where the focus is on management process. Seems like this is much more appropriate for mature lines of business than tech.

        • Yes – IBM has executed this role well over time.

  • secureccloud

    Good times in the roll up. One thing you left out, what about all the great people you meet ;-

    • That’s a huge benefit. And you are one of them!

      • secureccloud

        I was thinking the same thing about you 😉

  • It is great to have older people that have been in tech for a long time to remember things. History rhymes. I like that. I’m talk about the cycles: client server, internet, social, mobile, they all have their ebbs and flows but people always say this time it will be different.

    It is good to be in the rollup if you are the one rolled up for cash.

  • Rick

    Everyone needs to be careful about coding training. I see many experienced coders who can’t find work. I see people complaining all the time about it.
    .
    I thought they were just bitching and moaning so I checked. I have 15 years experience with programming, design, and database development. I’ve done whole projects myself that really should have had a team of three+ work on. When I call about software dev jobs they don’t call back!
    .
    Some way this is really scam level stuff. But I don’t know for sure what the scam is. I know anytime I was needing a programmer they were easy to find and ready to work.

    • Rick

      I’ll actually even give you an example – Gateway Ticketing Systems in PA. I saw them post job openings multiple times over a few months. The experience they were looking for is hard to find. I have it and so I contacted them. They interviewed me and said they would get back to me either way.
      .
      They didn’t get back to me so I called and left messages for the three people I talked with during the interview process. No one has ever returned my calls.

      .
      When companies complain they can’t find programmers and programmers say they can’t find jobs there is something wrong going on.

  • James Mitchell

    Rollups/consolidations can make sense from the point of view of the sponsor/promoter. They often do not make sense from the investor’s point of view.

    As for coding school rollups, to me a key issue would be, “Can you build a brand?” There are some trade schools that operate on a national basis that have created a valuable brand. Until a decade or two ago, Katherine Gibbs (a secretarial school) definitely had value — one knew that a Katy Gibbs grad had certain skills.

    As for coding schools themselves, I am skeptical. There are things that can be taught in several months, such as being a dental technician. I don’t think software development is one of those things. In addition, almost every gifted hacker I have met became interested when he was a teenage and was highly proficient by the time he graduated high school. So if one is 25, was never bitten by the programming bug, and is now enrolled in a coding school, I would say it’s a long shot at best that he will ever be a gifted hacker. He might be just a competent programmer, which of course is a much lower standard.

    I’m sure many of the coding school are doing a great job given the amount of time they have. The fact that colleges and universities are not trying to copy these schools shows how clueless the colleges and universities are.

  • Brad, great thoughts. I’m with the Software Craftsmanship Guild (http://www.swcguild.com/) and we’re proud to say we were one of the earlier entrants to this young field, when it was as much about finding a better way to teach coding than it was about seizing on the economic opportunity. 2014 was the year the industry exploded and with it came the “me too”‘s and cowboys looking to capitalize on the wild west nature of the industry. We’ve seen Kaplan buy the market leader and there have been other acquisitions and certainly some interesting investor activity of late. Never a dull day!

    As you say, if a roll-up happens in 2015, it won’t quite be history repeating itself, but it may be history rhyming. Unlike the industries you mentioned though, its worth pointing out a couple key differences-

    1) We’re dealing with highly engaged customers. These are life changing decisions they are making and they are savvy shoppers who read and write reading reviews, GOOD – (http://www.quora.com/Reviews-of-Software-Craftsmanship-Guild) and BAD – (http://www.quora.com/Has-anyone-had-a-bad-experience-at-a-programming-bootcamp). This vocal group is armed and ready to deliver retribution if disappointed.

    2) Scaling infrastructure in this B2C environment threatens the quality delivery of the educational experience. The in-person model rests in identifying experienced coders who can teach and want to teach; they make up a very small sub-set of an already stressed workforce. You cannot roll up a book of this business and drive greater efficiency in the same way that you might with hosting providers.

    We’re taking a longer range approach to growth and sustainability. We believe brands will be built over years, based on quality, ROI for the students and happy employers. Reputation takes time. Roll-ups may be attempted but value will evaporate as it has in your rhyming industries if the new owners fail to deliver quality at scale.

  • I’m still on the fence about the “real” utility of these bootcamps but there was some interesting discussion on HN about them yesterday – https://news.ycombinator.com/item?id=8844848

  • I agree. I think there will be a small number of dominant players left at the end. I also think that the multiple of a larger entity will be larger than the multiple of the small entities combined. Hence the ROI case. Given the strength of the cash flow, I think this is a play with (some limited) leverage.

  • “that’s another story for another day” –

    Seems like another book for another day.

    I remember salivating over all those web hosting customers for AppsOnline… sigh. 🙂

    • Indeed it’s a book. Maybe someday.

  • lunarmobiscuit

    Another rollup story was Mforma, “buying” up dozens of the first wave of mobile web companies (WAP) back in 2001-2004. Buy in quotes as most deals were all stock. That was a near successful story, but alas another anecdote to add to this list.

    Is there a rollup success story from the 21st Century? Any from the modern part of the 20th?

    Cisco’s “spin ins” led nowhere. The acquisitions by Microsoft, Yahoo, Google, Facebook have made no dent in those companies since Microsoft purchased QDOS, and even that was just a product purchase, not a rollup.

    Is this a business model, like the global conglomerates, that sounds great on paper, but doesn’t work in practice?

    • I think Google and Facebook’s acquisitions have actually had some real impact, but it’s a long discussion about the real leverage and capital allocation dynamics.

      • lunarmobiscuit

        Certainly we can’t say YouTube had no impact. Nor other similar large acquisitions. But those are far from rollup strategies. Historically, the most similar might be Microsoft buying up the pieces which were bundled to make Office. But by then they were already the dominant OS company, and didn’t rollup CPM and others to get there.

  • I see the economies of scale with the back office, admissions and recruiting functions in coding schools. I see the utility of having a larger war chest to build brand equity. Those pieces make sense for a coding school roll-up.

    But, unless we are talking about a digital delivery model of the curricula a la Kahn Academy, I don’t see the scaling in the biggest cost and biggest value driver to the students: Human-driven, in-person, high-touch instruction.

    At the end of the day, I suspect the scarcity of truly kick-ass instructors vs. the efficacy of low student / teacher ratios is what matters. I predict any roll up trend will make a few people rich, it will boost the earning potential for outstanding coding teachers (good for you guys!!), and it will destroy a lot of capital for the majority who will miss on timing or execution.

    In the long run, cyclical proliferation / consolidation patterns bow to outcomes and value delivered.

  • All social websites had an impact on this but thats all to do with todays world

  • doesnt mean it wont happen…likely will

  • marc1919

    Stark evidence of this trend coming true just two weeks after this post was published: http://www.hackreactor.com/press/hack-reactor-acquires-coding-school-makersquare