“In 15 Years From Now Half of US Universities May Be in Bankruptcy.” Such was the quote of Clayton Christensen followed by, “… in the end I’m excited to see that happen. So pray for Harvard Business School if you wouldn’t mind.”

Who else does Clayton pray for? Apple. Yup! Watch the 30-minute interview to hear why but summary notes below.

Let me start by saying that Clayton is one of the most influential people on my thoughts about markets that led to both the concept behind my first startup and my main theses in investing. I have written about Deflationary Economics (one of my most read posts ever) & The Innovator’s Dilemma before. In a discussion I had with Fred Wilson at the Invesco LP meeting Fred said the same about the influence of Clayton.

So it was a real pleasure to be asked by Derek Anderson of Startup Grind to be able to interview Clayton for an audience of thousands (many in person, others by live broadcast). Startup Grind was a truly awesome conference and Derek the consumate host. I hope to be asked back for next year’s event.

Clayton Christensen certainly didn’t disappoint. It was one of funnest discussions I’ve held with a senior leader and he was surprisingly open and frank. If you have some time I highly recommend watching it.

So what did he actually say?

Disruption of Education

He talked about how for centuries education had “no technological core” (meaning it was bound by physical locations) and thus disruption was very difficult. Obviously that barrier has been brought down with low-cost ability to capture, stream and distribute content over the Internet.

Today’s higher education is responding by making more courses online and available to people outside of physical boundaries.

But while universities are developing online content they are not fundamentally disrupting learning because the method of delivery is not a new business model. “Online education is truly going to kill us.” He talked about the need to have content delivered closer to those in the work force who could immediately apply what they’re taught and then immediately be back in the classroom to discuss the implementation.

We spoke about how there needs to be a change in how employers view educators. This is why I am such a big fan of General Assembly both because they’re teaching more tangible skills but also because they’re working directly with employers to fund classes as well as to onboard the more successful GA students directly. In my discussions with GA I know we share a vision for where practical education in the US needs to go.

Back to Mr. Christensen, “We subsidize their education in fields for which there are no jobs” he said in referring to the fact that many courses at universities are still taught with skills that aren’t relevant to the 21st century needs of the US workforce.

It’s not that I don’t believe in liberal arts, humanities and the like. I do. In many ways I think general purpose writing & thinking skills are as valuable as math skills. I believe, though, that they need to be taught more in the context of helping people develop meaningful careers that position them to succeed financially in the changing world in which we live.

We talked about how business school historically hasn’t positioned entrepreneurs well for success. I wrote about that before in a post about “whether MBAs are necessary for entrepreneurs.”

But I pointed out a professor at HBS (Tom Eisenmann) who teaches a course where blogs are a part of the classroom reading material. His class reading lists could be a primer for any entrepreneur, not just MBAs.

And I have been impressed with Steven Kaplan and others at University of Chicago (my alma mater), who have been encouraging entrepreneurship through the Polsky Center for Entrepreneurship, through angel investing, seed conferences and changes in teaching.

Internationalization of Technology

We spoke about what succeeds early in technology market evolutions. Clayton spoke about how in early phases Proprietary architecture often wins. As markets grow, the more open and modular systems win. Proprietary systems are pushed to the ceiling (in terms of having more complexity / features) and the open systems capture volume. That’s why he “prays for Apple” because in envisions a world in which Android captures much more market share even if the open system it provides may not be as quality or feature-rich as Apple’s.

We also spoke about technology systems in the perspective of global competition. He believes that one of the financial metrics taught at business schools and reinforced by Wall Street has accelerated offshoring of industries. He spoke about ROCE (return on capital employed). The numerator (return) encourages more sales, which is fine. But “on capital employed” encourages companies to push more off balance sheet and thus into offshore & outsourced situations.

I reinforced this view by referring to a very interesting article I had read by Andy Grove (co-founder & former CEO of Intel) on car batteries, china manufacturing and the problem of US outsourcing.

Freemium

We had a brief chat on his views of “Freemium.” He spoke about the early days of Napster & Kazaa where free music as open system thus hard to use. Apple came along with proprietary infrastructure, which made it easy. So they could monetize and people would pay.

Venture Capital

We spoke about the disruption of VC through crowd funding. I don’t believe it. Neither does Clayton. Unsophisticated money pours into a system as it did in the 90’s through AIM, Neur Markt, Nouveau Marche, etc and burned many investors. We talked about Liquidation Preference, Voting Rights, and all of the other valuable terms crowd-funding investors don’t understand. I think I’ll save a deep dive on this topic for another post.

By he did bring up a very interesting other area of which I had never heard. He talked about a unique model where you don’t have to become liquid in venture capital and can target singles & doubles. VC can’t don’t invest in these kinds of companies because they can’t get out (no liquidity event). New company in Boston with a model called “royalty capital.” Money is not debt or equity but a “license to use their capital.” No royalty paid until there is revenue. Then there is a royalty rate. The faster the ramp, the more the royalty comes down. As royalty hits 3x value then we say it’s paid in full. No minority shareholder. Pay it off with pre-tax money. Liquidity is a process not an event. Some money out of every investment. Not 1’s and 0's.

How You Measure Your Life

And finally, a very interesting discussion emerged at 25:30. Mr. Christensen has published a new book, “How Will You Measure Your Life.”

I told Clayton how influenced I was at a young age by “7 Habits of Highly Effective People” because it dealt with life skills.

In Clayton’s new books he takes on similar themes with the three major ideas being:

How to be sure ….

1. Have a Happy with Career

2. Your Family is a Source of Joy, Not Pain

3. Stay Out of Jail

He said shocking number ended up divorce and family situation was a source of real pain with kids being raised by other people in new families.

I thought he was joking about the last one — he wasn’t. Two of Clayton Christensen’s classmates spent time in jail — one was Jeffrey Skilling who was implicated in the scandal of Enron.

It will be the next book I read and a bit thank you to Derek Anderson for sending me a copy!

By the way, if you want to watch Clayton Christensen’s other video from Startup Gring where he speaks about Innovator’s Dilemma it is here. He was interesting, as usual.