Almost every startup that launches today in the career education space offers no-cost up front service in exchange for a percentage of their graduates revenue during the first year or few years of employment. From an article about MissionU:
After completing MissionU, a student still doesn’t owe any money until they land a job that pays at least $50,000 a year. Then, students pay 15% of their pre-tax income each month for three years. The bigger their salary, the more they’ll pay.
Sound like indentured servitude to you? Me too, though this is actually well intentioned idea I think. Young people don’t have much money and so putting the price on the backend helps lower the barrier to entry for potential customers. But I think it’s a bad idea overall for a business and for customers for one overlapping reason: your customers have no clue what they are getting themselves into when they agree to such an arrangement.
This is not hard to understand. If you’re in the early career education space, you’re probably well aware of the fact that young people today have been failed by the education system and they enter their twenties totally unequipped for the real world. The lack of experience however doesn’t just extends to hard skills that the workplace needs, but to self knowledge and financial intelligence.
That last bit is particularly important but often underestimated. Having worked in this space for over three years, I can tell you that most young people today have never had to seriously deal with real financial decisions in their lives. They’ve never paid bills. They’ve never paid taxes. Most of their wants have been provided by others, not through their own work. And as a consequence, they have no concept up what, let’s say 15%, of your salary really means.
Are you seeing the problem yet? It’s very easy for anyone in their late teens and early twenties to commit to giving away 15% of a salary because all they really see is that they get a program for free and will pay it at some later, undefined date. That 15% is not “real” until the moment they get a job. This is the same reason students take out $100,000 loans for English degrees. They don’t have to pay them until they graduate and they have no concept of what that payment means in terms of lifestyle changes. And when you’ve got your first paycheck 15% suddenly sounds like a lot of money. The young person who was once so eager to sign away a big percentage of their her income is now face to face with the consequences of that decision.
This is not smart business. These companies are doing what colleges do and roping a kid into a program because they don’t have the proper knowledge or experience to evaluate your offer rationally and then you’re left trying to collect money from a customer who has a bad taste in their mouth about suddenly owing a big chunk of money after they just got their first paycheck and after the product has already been delivered. And then one day they realize they really don’t need you anymore and rationalize excuses to avoid paying you entirely. You’re left with a customer who avoids you and no money to show for it.
If you’re a startup in the space, collect your money in advance. Charge an amount that is fair to both parties and which has no hidden variable costs like a percentage cut of your graduates incomes. Your customers will be happier long term and you won’t have to deal with chasing them down for cash after you’ve gotten them a great job.