So, Instructure CEO Dan Goldsmith is “stepping down.” Going to “spend more time with his family.” “Hiking the Appalachian Trail.” Choose your euphemism. He has been forced out. Don’t shed too many tears for him; he made about $12 million during his roughly 14-month tenure as CEO. That’s enough to pay maybe 25 decent software engineers for 5 years in the Salt Lake City area.
The truth is that nobody would have paid much attention to how much Goldsmith was getting paid had he been doing a good job. But in the education market, people tend to pay attention to who is getting a big payout if they worry that their vendor is not putting the students first. I hope that is a lesson that Thoma Bravo is taking note of. (More on that in a bit.)
That said, the Goldsmith era is now water under the bridge. The more important question is what happens at Instructure going forward and how it impacts the students and educators who depend on the company.
Short-term
The acquisition of Instructure by Thoma Bravo is not dead. If anything, it is considerably more likely now, for a variety of reasons, including but not limited to a higher bid by the private equity company. As usual, Phil has a terrific breakdown of the financial drama. The short version is that there is likely to be a bit more drama that will take a bit more time, but the acquisition looks close to a done deal at this point.
In the meantime, there is no CEO. Instead, the company is being run by a team of its senior executives, some of whom are the veterans that I’ve been complaining have been stifled. Within hours of the announcements of Dan’s departure, I began seeing private signs of aggressively renewed outreach from this team. The bunker mentality is gone. We’ll see how well this team coordinates that outreach, but the horse is out of the barn on this one. I think it will be hard for the next CEO to go back to a classic corporate command-and-control customer interaction style. That is one good outcome from the interregnum (though it is possible to go too far in the other direction if they don’t all pull together).
The bigger question for customers, assuming that the deal does go through, is what happens afterward.
Medium-term
My position has always been neutral-positive on Instructure being acquired by a private equity company in general and neutral on being acquired by Thoma Bravo in particular. Instructure needs some time to move past its current growth plateau. There is a reasonable argument to be made that they could focus on doing that with fewer distractions that could harm their core work for customers if they were under private ownership rather than under the quarter-by-quarter performance pressures of the public stock market. Instructure’s acquisition could be good or bad for education, depending on two major factors.
The first factor is Thoma Bravo’s plan. I am quite confident that they already have one. And as Phil wrote in the aforementioned post, it is likely an ambitious one:
One other note – with these aggressive moves, I have to believe that Thoma Bravo has much bigger plans than simply buying a few more Portfoliums while divesting Bridge. Bravo is sitting on a pile of cash ($12+ billion in their latest round), and there are likely bigger plans that depend upon this Instructure acquisition.
The post by that other guy
The danger is that the typical private equity merger and acquisition playbooks have a decidedly mixed record in EdTech. At best. Education is a weird market. Combinations that look good based on the spreadsheets are often terrible ideas IRL. I can think of one or two possible big combinations that might work—Coursera comes to mind—but by and large, the impulse to combine two EdTech giants more frequently results in the destruction of value than in the creation of it.
Private equity folks are rarely stupid. On the contrary, the ones that I’ve met have generally been incredibly smart. They simply lack education market domain knowledge. They apply their disciplinary skills in an area where those skills don’t translate straightforwardly. That can work out if they have a partner in the form of an excellent CEO who does understand education (or can learn it quickly) and is a strong advocate for customers. Dan Goldsmith wasn’t that person, which meant that private equity ownership under him was virtually guaranteed to be disastrous. Assuming the Thoma Bravo acquisition does go through, then the CEO that Thoma Bravo brings in to replace him will be critical.
They almost certainly have somebody already lined up. Private equity companies tend to keep stables of CEOs that they rotate from company to company. That is probably just fine in the short term. While I have a lot of respect for Instructure’s management team, managing a company of that size through a committee will only work for so long. So bringing in a caretaker CEO quickly is a good idea. But that person may or may not be a good long-term solution. I would argue, for example, that somebody who comes from running an enterprise software company, like Goldsmith did, is not likely to be a good long-term fit. The market dynamics are very different, which is one reason why Goldsmith was completely blindsided and seemed slow to learn.
There are major opportunities in EdTech. The education sector is entering a period of massive and uncharacteristically rapid evolution. That represents opportunities for a company that can identify new, unmet needs, engage in innovative, user-informed product development, and keep good relations with a particularly demanding customer base. Leadership matters in this kind of situation.
I see two possible candidate profiles. The first is somebody from EdTech. There is now a generation of executives who have grown up in the space, seen all the many mistakes that have been made, know the customers, and have an eye for the market shifts as they happen. The ideal candidate in this mold is one who is old enough to be seasoned but young enough or unorthodox enough not to be stuck in the first-generation mindset from the established product categories like LMS or textbook publishers (which is where they will likely have earned their stripes). The second possibility is somebody more like Josh Coates, by which I mean a strong product-oriented CEO from the consumer software space who knows how to listen to—and speak to—customers. This person would have more of a learning curve, but since Instructure has a seasoned management team, it could work. But it would take more time before such a person could provide good guidance on acquisitions.
Those awkward teenage years
In the summer of 2018, I wrote that Instructure was entering its awkward teenage years. We just survived eighth grade. After a year of monosyllabic responses and long periods in the bedroom with the door closed, the pale young thing has emerged into the sunshine.
But now comes high school. There will be new friends and new temptations. There will be strange ideas of what it means to be cool and how to get to the top of the ladder. Instructure didn’t become popular by being the cool kid that everyone had to be with. They became popular by being the kid that was fun to be with. That was good at making friends. That listened to you, cared about your problems, and laughed at your jokes.
It’s that kind of popularity that makes the company valuable and that will enable the right leadership team to build value going forward. Whatever clever plans Thoma Bravo may have, they need a CEO who can provide them with ground truth, push back when necessary based on an education-informed perspective, and keep faith with the customers.
Beth Crook says
As a current customer, I have full faith in the current executive leadership team. They are strong and they are passionate, therefore they will be just fine while the right CEO replacement is found. And I emphasize “right”. That part is crucial! I remember a conversation that I had with Dan last year at InstructureCon, in which I ended with: You think you know how special this “thing” (company/group/community/customers) is that you’ve acquired. But you actually have no idea just how truly special this is.
Andrew says
What happened to the Chief Strategy Officer?
Michael Feldstein says
Reportedly gone, but not officially confirmed.
Pat Miller says
I would point out that there are several companies in Thoma Bravo portfolio that have done well — including in the Higher Ed space — we use software from both Hyland — document management, admissions workflow — and Planview which acquired Innotas project management software used in our IT project planning extensively. So TB seems to have successful companies who have some higher ed focus albeit not in Ed Tech as far as I know.
Michael Feldstein says
Pat, Bravo’s experience with Hyland is precisely the kind of thing that I see as a warning sign. The fact that Hyland touts high-quality ERP integration as the very first benefit listed on their web site is a strong indicator that they are selling a very different product to a very different customer base than Instructure is. The skills and lessons learned are a lot less transferrable than may be assumed by somebody who is not deeply familiar with the dynamics of the market.
goliadranger says
Who in their right mind hired Dan to replace Josh? What WERE they thinking? We saw this two decades ago when Bb bought out WebCT and dismissed the golden boy Murray Goldberg.