Burn It Down

After I sold my first company, NetGravity, I taught elementary and middle school for three years. Before starting my second company, Rocketship Education, I spent about a year as an entrepreneur in residence with the NewSchools Venture Fund. NewSchools was started by John Doerr, Brook Byers and other high profile Silicon Valley’s folks to catalyze non-profit investment in the k12 public school system.

A lot of Newschools investment was in charter schools because although they were subject to a lot of political interference by the incumbent school districts and teachers unions, they still had some autonomy and had the benefit of being free to students. That allowed entrepreneurs to create scalable businesses assuming that a lot of the upfront work could be funded through philanthropy and there was a unit model that worked for each school. That was ultimately what I built with Rocketship. Rocketship was a scale up of my own classroom to a school and network level. Rocketship is still growing, not nearly at the rate I originally intended, hampered by the political interference I referenced above, but it does serve over 10 thousand students each year.

NewSchools was founded to try to fix the public schools. Charters were a political compromise which allowed some progress, while not truly threatening the incumbent political powers. During the time I was there, NewSchools had become frustrated with the difficulty of starting new charter schools and was experimenting with working with school districts to take over and fix district schools directly.

One day, I was invited to a meeting at Kleiner Perkins about this strategy. Ted Mitchell, a great leader for NewSchools and future undersecretary of education, was walking through the strategy, when he was interrupted by John Doerr. Doerr said ‘in my world (startups), turn arounds are about 10x harder than starting something new. In your highly regulated world, how much harder do you think they are?’

As predicted, turn arounds had far too many variables that could lead to failure and never worked at scale. Rocketship taught me an even deeper lesson. Fixing institutions is even harder than fixing their components. Over and over, we would create schools which doubled the outcomes of nearby schools, but the district reaction was hostility instead of curiosity. So even if school turn arounds were hard, would there have been another 10–100x difficulty to turn around districts?

This has informed my entire investment philosophy. Assume that these highly political and highly regulated institutions are 1000x harder to fix than to replace. Instead of investing in things that can fix the institutions, you should invest aggressively to burn them down. Burning down the system is far easier than improving it, because what rises from the ashes isn’t built on the compromises that created the original system.

Venture capital investment in scalable and high growth startups are the perfect model for creating this kind of change because we can make hundreds or thousands of investments until some of those companies find a wedge and scale up to replace the incumbents. When companies get large and successful in venture, they have almost infinite capital available to keep expanding, putting them at a significant advantage over existing government and non profit institutions.

While highly regulated fields like education, jobs, health, energy, and finance are politically resilient, change will ultimately come as we grow a new ecosystem of companies that are better for customers.

To me, there are four or five areas that we fail in education and jobs — affordable childcare for all, excellent and inspiring k12 learning experiences, affordable college degrees, programs to find people jobs in growing sectors, and a better way for people to learn and improve themselves throughout their lives.

At the end of the day, I would rather invest in one hundred companies taking shots at these areas who fail completely. I would rather do that than invest in companies making the existing systems stronger, because I don’t believe in turning around complex systems, and I do believe that founders can achieve astounding things when they start with a single insight and excited customers.