Capitalizing on College: Mission, Money, and Survival in Higher Ed with Joshua Travis Brown

Alex Usher: Hi everyone. I'm Alex Usher and this is the World of Higher Education Podcast. The economics of higher education are tricky. It's a labor intensive industry, and generally speaking, the cost of producing labor intensive goods will always increase faster than the price of producing capital intensive goods 'cause the latter have more scope for increasing productivity.
That's not a problem if you're a public institution in a country with bottomless pockets or if you're a prestigious private institution with almost unlimited ability to raise prices. But if you're among the other 99% of the world's institutions. You may have to find ways to balance rising costs with new sources of income. But every moneymaking scheme comes with problems and costs. So which one to choose?
Today's guest is Joshua Travis Brown from Johns Hopkins University's School of Education. He's the author of a new book called Capitalizing on College, How Higher Education Went From Mission Driven to Margin Obsessed, which follows the fortunes of a number of institutions who try out different strategies to try to keep themselves afloat.
Some try to double down on a historic place-based residential mission and charge higher fees. Others try to find ways to generate revenue that can cross-subsidize their historic place-based activities. But what's particularly intriguing about this book is that the subject institutions are all private religious colleges.
Not only does that mean they've got no core public funding, it means that decisions about how to find new business lines all really have to pass a test of God versus men. This really is one of the best higher education books of the year, and I was so pleased we could get Josh on the show.
I won't spoil the fun anymore. Here's Josh.
So Josh your book is one of my favorite kind of higher education books. Lots of real if disguised institutional case studies. I, I get the impression what you were trying to do was to look at different financial strategies to cope with the phenomenon of ever-rising costs in higher education, Baumol's disease, basically. How did you choose those eight uh, institutions for case studies? Why and why did you use only religious institutions, which I thought was a really intriguing choice.
Joshua Travis Brown: Yeah, thanks Alex. That's an excellent question to open with. I was looking around at the world and a lot of what we in higher education base our norms off of are the best practices that are maintained by elites, right? Those institutions that only accept about five to 9% of students. And then there's the other 95 to 91% of institutions who don't have the resources that the elites have, and the world looks radically different.
One of those types of institutions or what are called tuition driven institutions in the American sector. And that's actually a very diverse sector of schools that I would argue are the backbone of American higher education, at least it's diversity. Those types are the Hispanic serving minority serving HBCUs, predominantly black religious women's, Asian American, vocational and regional colleges. And there's many others.
Within that group, that really rich and diverse group, the largest by far are the religious colleges and universities in the United States. There's roughly a thousand of them. Protestant, Catholic there's some Buddhist, the Mormon there's even some um, Muslim institutions and Jewish institutions as well.
I chose the largest to sample from, from that group. And the reason why I went with specifically Protestants was, I was looking at behavior, not belief.
The perspective that I argue that is most valuable is, is can you look at behavior that cuts across institutional types rather than staying within these silos and making the erroneous assumption, I would argue, that this sector operates this way, this sector operates this way, and this sector operates this way.
I argue instead that everybody is in competition with one another, and that you really need to truly understand the sector is to look at behavior across all types.
Alex Usher: So based on your work at these institutions, you developed a, a, a four part, a, a topology that had four types, you call them a institutions following a Traditional Strategy, a Pioneer Strategy, a Network Strategy, and an Accelerated Strategy. How did you come up with those four? Were they in the back of your head when you selected the cases, or did they emerge organically from the research?
Joshua Travis Brown: Yeah, this is purely grounded theory. This is straight from the data. I'm arguing here that I'm, I'm looking within the missing middle, right? A lot of higher education research is focused on what I call the bookends, the students on one end, or the, the government, the the state at the other end. And we really don't dive in well as researchers to, to get the voice of those that are actually running and leading the institutions.
And so as I started to look at the data and pull out the themes and, and put them into buckets, these four strategies emerged and there was a fifth that, that was even emerging called Accelerated Networks, where the accelerated institution was trying to crack the code to go to, even to the next level of market oriented behavior. Yeah, so that they did, they, they surfaced organically.
Alex Usher: So let's talk about that Traditional Strategy. What, what does the Traditional Strategy entail? What kind of resources does it take to to implement? And how easy it is, is it to, you know, for lack of a better word, win using this strategy?
Joshua Travis Brown: Yeah, so the Traditional Strategy is your typical higher education institution that values prestige. They are constantly looking to the elites. There's a whole sector of little Ivys and public Ivys and mini Ivys that are just at this strata right below the Ivy institutions and, and they're really trying to leap forward into them.
These institutions, not only do they value prestige, but they value, and the assumption here is an in-person education, right? And so as one president told me, you come to a tradition. And these institutions will rely a lot on um, building brand, climbing in the rankings, making sure that their athletics are top notch, that they're getting mileage and exposure nationwide from their athletics, that they become a household name.
The problem with the traditional institution and with all institutions, right, is that the residential model, the on-campus, the in-person model of higher education in the United States operates at a deficit. It must be subsidized. Must. And the traditional institutions look to endowments, the spinoff from endowments to subsidize that, that residential model.
And the key takeaway in the, in the book and these strategies is, is that everybody's looking to subsidize the residential core, how they subsidize it is radically different. The traditional model has philanthropists, they have wealthy donors, they have prestige as the wind in their sails, and they can call on this two, three, four, five, six, $800 million endowment and the revenues that those spin off in order to make this thing sustainable or at least so they think.
Alex Usher: Okay, so tell us about the second strategy then. You've got a Pioneer Strategy. what does that mean? And, and where does that how do you get your subsidies, if you wanna put it that way, from the, the Pioneer Strategy?
Joshua Travis Brown: From this point forward in the book, everything turns entrepreneurial, right? These institutions from this point forward, no longer look to the endowment 'cause they don't have it.
Alex Usher: Right.
Joshua Travis Brown: They do not have an endowment. And so every president for the next six schools in the book is basically saying, I, I don't have an endowment. I need to find margins. I need to find them somewhere. And what they do is, is they, they turn to students. They turn to students to find those margins. In the Traditional Strategy, I told you that it was assumed that you come to the institution for the tradition, to receive the tradition, to get inculcated. In the Pioneer Strategy, they turn that on their head and they think, and they say, what if we took the classroom to the students? And that's the innovation there. Every single one of the next strategies has some form of innovation about it. And this really, this book is a story, a playbook of innovation. That's what I hope that folks take away from this.
Not just strategies, but it's about the innovative practices that they did. So these institutions took to classrooms to hotels, they took classrooms to schools, high schools, they took classrooms to shopping malls. They took classrooms to military bases, right? They went to where the customer was and the classroom became reconceived and portable and they, they picked a type.
And so I take you through three different types in that, in that chapter, and then they replicate it. So whatever region they're in, what you end up seeing is a giant sort of branch campus model of this one specific type. You've got multiple sites, but it's all one type. And what's happening is, is all of those revenues that are coming from those branch campuses, let's say there's a 20% profit, all of those revenues are coming back to the core, and that's how they're building the core. And they raise anywhere from 200 to $500 million over the course of a decade. And they used those monies to physically transform, to physically rebuild the residential campus.
Alex Usher: But all those markets you're talking about, it's really just, I mean, they're, they're mature students, right? Like are, are there other pioneer markets you can go to other than mature students?
Joshua Travis Brown: Right. And so the story, the principle here is, is that these institutions were first movers. They were first movers in adult education at the time. For those that are reading for today, right? If, if I'm a leader and I pick up this book and I say, okay, what's the draw? What's the takeaway here? Think badgification, think microcredentials. Think some sort of new market that needs, that is about to be spun off or is moments away from being spun off. Anybody who would go all in on that specific market, that new market that they're going to establish, they would be a pioneer institution. They would be adopting the Pioneer Strategy for that new market, just as these folks did about a decade ago.
Alex Usher: Right. And does it work? I mean, it takes money to make money, right? Like you gotta rent the hotel rooms, you gotta pay the prof to, to go to the hotel room and, and, and teach. I mean, it just sounds to me like, I mean, you have to be extremely margin conscious and at a certain point it's easy to overshoot right?
To over commit to these kinds of things. So how many of the institutions that you looked at, how, how did they, how did they fare? Did they manage to reinforce the residential court?
Joshua Travis Brown: So they did, but as I arrive on campus, the folks in the traditional bucket are saying, oh my gosh, we need a new strategy. The folks in the pioneer institutions are saying, hey, this has worked for about five to seven years, but the competition is so intense, it's eating into our margins. Other institutions are eating into our margins. It's really hard to recruit. We need to add a new market, right? And that's the principle of the Network Strategy, which is rather than one type, they add multiple types. And that's the, that's the real big difference between the two, uh, those strategies is Pioneer has one type with multiple sites, whereas Network has multiple types, multiple sites, and it's global.
Alex Usher: We're gonna take a short break. We'll be right back.
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Alex Usher: Okay. So let's talk now about that Network Strategy. Just as you were ending there, I think you were saying something about you know, the, the difference between Pioneer and Network as being how many new markets you go after. Is it more than that, or, or is that really the only difference between the two?
Joshua Travis Brown: No, it, that's the big difference because again, what we're trying to figure out here is, is how are you subsidizing your residential model? It never makes enough money. And where are you getting those margins? And those margins are always coming from the periphery.
So for the Network Strategy, the president, one of the presidents basically says, I have the tabletop strategy of, of running this place. He goes, the, the residential core is the tabletop, and all of my periphery markets, whether it's online, whether it's international, whether it's transfer, whether it's adult ed, those are my legs. And he says, I'm constantly looking for new, new legs. I'm constantly looking for new sources of revenue to support this tabletop.
And he says, but that tabletop is what gives the legitimacy to the entire model. And he said, you can't do this without the tabletop. And this is the difference between say, network and University of Phoenix, right? University of Phoenix was one giant long leg. And what they really were lacking and what people attacked them for was their legitimacy of not having that traditional, they didn't look like the typical college, but they also weren't going after typical students.
And that's why this book and this perspective is so valuable is, is because when nonprofits start going after other students that institutions like Phoenix have gone after, or when they start behaving or when the practices really do blend across institutions, that's why this perspective is so valuable because you, you need to be able to cut across types and sectors and focus strategically and on the behavior itself.
Alex Usher: And is that a, an easier strategy to pull off than Pioneer may— I mean, it sounds harder to me, but also it might have bigger rewards because it's, it's spreading the risk across different types of markets.
Joshua Travis Brown: That is absolutely key, Alex. And that was one of the words of the presidents, where they basically said, hey, I'm looking to, build a stock portfolio here of enrollment, right? Where if I have one sector go down, I still have another, you know, three or four sectors over here that, you know, we're not going to sink the ship based on a drop in enrollment in one of these legs.
And that's what they strove for, was balance. Both institutions into their fervor for getting new legs, both institutions made the mistake of actually securing a second tabletop,
Alex Usher: Okay.
Joshua Travis Brown: And so they ended up absorbing another institution or building a massive campus over in Asia. And they ended up having, instead of funneling all of those margins back to the residential core, they actually had to start funneling margins to peripheries to that second tabletop. This became really complex and morale really went down. And as I'm arriving on campus at the time, they're looking to find a new form of a market that they said they could take, this they could take to scale. And what the Network Strategy folks couldn't figure out was, how do we take all this to scale? And that's what the next school cracked.
Alex Usher: Okay, so let's talk about that last strategy or the, what you call the Accelerated Strategy. Because the, the, case, I mean, look, it's an amazing case study because I think, you know, particularly 'cause it's a religious institution, I, I think you get at the issue of you know, as you put it, I think you where, where God and Mammon start to start to really duke it out.
You know, this is an institution which I, which seems like it crossed the line from being merely margin conscious to acting like a full on for-profit college. And that's wild for a faith-based organization. Tell us about this institution and, you know, how does, how does going down this route change a university?
Joshua Travis Brown: You know, it's, what's crazy is, is I, I change all the names in the book of the actual schools, but when a school names other competitors in the strategy, I leave those. So as I'm interviewing the accelerated leaders, they're like, Hey, we're like ASU, we're like Penn State. We're like the Maryland system. We're like Western Governors, UCF. We're like Florida, we're like Southern New Hampshire University.
Alex Usher: Right.
Joshua Travis Brown: And they viewed this sector of schools that I just named as their competitors. And the way that they took this to scale was, they thought about process and product innovation. I'm sitting across from the provost and he says, I, I had a vision.
And he said, I, I was looking down this old country store and down this side of the store was one product and down this side of the store was another product. And this store only had two products to sell. And he tells me what those products were. It was an MBA and an interdisciplinary studies degree.
At the time at that institution, if you wanted to purchase a degree online, they only had two options. And he has this transformation way of thinking where he says he takes, I think it's 35 or 80 courses, somewhere in there, residential courses, he converts them online over the course of a summer. And what happens is, within three to six months, that store now has 35 different products in it. And the innovation at the time was, and this is where they were the first mover, everybody else at the time was selling online classes. This institution became one of the first, outside of Phoenix, to sell online degrees. They fundamentally sold a different product, which radically blew up their market, and overnight they went from 8% to 42% growth.
Alex Usher: Wow. And, but surely it changed the culture of the campus.
Joshua Travis Brown: It did. Folks talked about the tension between the residential and online. The student population ballooned such that it went from majority residential to for every 10 online students, there was one residential student. And so it, it radically transformed. They were able to hold costs flat.
The other institutions in this, the other entrepreneurial schools that were funneling money back to overhaul the residential campus. It's what I call margin capitalization, right? Instead of looking for donors and venture capitalists, they turned to students. This school made so much money to the tune of little north of 200 million a year.
That they were not only able to physically transform their entire campus, but they were able to put hundreds of millions of dollars away in the endowment. And so what this institution invents is a new form of philanthropy that I call margin philanthropy, where instead of turning to alumni or students or individuals who have graduated from your institution and thus moved on and made their money, you're actually leveraging the loans of the students who are presently enrolled in your institution, and they become your new philanthropists. So the risk of the construction and the risk of the endowment isn't on the institution. The risk is actually on the students and themselves that walk away with a degree in one hand, and a student loan anywhere from, you know, 50 to a hundred thousand dollars in the other hand.
Alex Usher: So the problem of ever rising cost, right? Baumol's disease basically is, is one that plagues every educational institution. Only by spending more money every year can you hope to stay in place. But achieving that means raising more money every year. And I read your book as actually being fairly pessimistic about any institution being able to achieve this in the long run.
Right? You can have all the strategies you want to increase revenue, but they all require hiring more staff and becoming more complicated. And, you know, they require hiring and Baumol just reappears further down the line. Is that a fair summation? Do you think one of these strategies is actually more promising than the others, or does Baumol's law come for all of us eventually, no matter what?
Joshua Travis Brown: So I think one of the big takeaways of the book is, is that this sector, right, is constantly marching upward in its market behavior, right? All of the schools, as I'm arriving on campus, they're all saying, we've gotta sustain. We need more, we need more revenues, we need more margins. And while Baumol as an economist has a way of looking at the world, I don't think it's entirely accurate.
He's an economist. A number of generations ago, what spun out of economics was this field of strategy and management that began to look at the agency of actors within organizations. And the strategy management folks started to look at that agency and, and explain the world in a bit more nuanced way. And this book differs from Baumol in that it is backed by organizational theory, strategy, and management.
And what you end up seeing is, and the focus is, we hear a lot about these public policies that, that the Fed, at least in America, has created where we believe that if we can just increase competition and give students choice, a natural outgrowth of that is that quality, right? As you force institutions to compete, quality is, the natural outgrowth or the output of that competition. What this book shows you is that as you incentivize students to be more self interested and make choices, you actually incentivize institutions to be more self interested as well. Which is why you see these institutions going after the student loans and the margins from the students, right? Because they also have choice. They're also functioning in a highly competitive market.
And so what this book shows you is, is that the trade-offs between mission and money that college leaders are forced to make when we choose to design a national system of education based on the market principles of competition. And that's what I, I would contend it's a bit bigger than Baumol himself.
Alex Usher: Right. Do you think your book has, I mean, you've focused obviously on, on one, you know, on the, the non-research intensive privates, right? And, and a particular sub-sector in there. How much can you generalize from this book, do you think, to other types of institutions, secular institutions, or public institutions?
Joshua Travis Brown: Yeah, that's a great question. So the reason that I, I narrow down so tight on institutions, because in case studies, what you want to try to do is control for noise, right? And so as opposed to mixing the tuition driven institutions, I choose one type again, and I look at the behavior across the types.
But what I would contend is, is that because I'm looking at one phenomenon, which is tuition, two things, how do students get their money, and what do they do with it? And because I've controlled for all of that other noise, I would contend that everybody right now, in the last six months specifically, is becoming tuition driven. We're seeing a decrease in research funding revenues. We're seeing a decrease in endowment revenues because of the higher taxes. This morning's headline, the Secretary of Commerce, says that he wants to go after 50% of all patent revenue, and yesterday it was announced that all MSI funding was going to be decreased.
The only stable thing left is tuition revenue. And what Capitalizing on College offers you is a roadmap for what these institutions did to survive in a highly competitive environment, and now everybody's becoming tuition driven. So yes, I, I believe this is highly generalizable because this is the roadmap forward.
This is, this is the environment we're headed into.
Alex Usher: Joshua Brown, thank you so much for joining us today.
Joshua Travis Brown: Thanks. Pleasure being here.
Alex Usher: And it just remains for me to thank our excellent producers, Sam Pufek and Tiffany MacLennan, and of course, you our listeners and readers for joining us. If you have any comments or questions about today's podcast or you have any suggestions for future podcasts, please don't hesitate to get in touch at podcast higheredstrategy.com Join us next week when our guest will be Luiz Augusto Campos. He is a professor of sociology and political science at the Instituto de Estudos Sociais e Políticos, at the State University of Rio de Janeiro, and he's the co-author of a new book on the effects of racial quotas in Brazilian universities. Join us next week. Bye for now.