Sramana: Once you realized your business was not making a revolutionary change, what were your first reactions and steps?
Aaron Skonnard: The most immediate was a feeling that I did not want to continue doing what I was doing. I did not want to spend the rest of my life doing something I had lost the passion for. I called all of my partners, and we met in Boston over a weekend and I expressed my desire to do something different. That is when I had the idea to do an online training module for software developers.
The concept was to take everything we had done well in the classroom and package it into something that we could sell around the world. This was dramatically different. It was a very low price point and a product that we could offer through subscriptions. It was scalable with controllable costs. We could take the knowledge of the subject matter experts whom we employed all over the world and package it into a product we could sell anywhere.
We were early with that vision. There were only a few other training companies heading down that path, but they were in different markets. We felt we could do it for the world of software developers. It was hard to get started. It took us a year to get the first 10 courses published.
Sramana: When you were trying to decide what courses you were going to offer, what were the processes you used to select?
Aaron Skonnard: We based it on our most popular classroom courses. We already had a team of instructors who had built phenomenal courses. The material was already there, we just had to reformat it for online delivery. It was based on what we already had. It was not based on market research. We knew we had content that the world wanted because we already sold it.
Sramana: What were some of your biggest initial challenges?
Aaron Skonnard: In the beginning, the biggest challenge was convincing our instructors to buy into this. They felt that if they recorded the course, they would never get to teach it again in the classroom. They were getting paid $7,000 to $10,000 dollars a week to teach the classes. They just felt like they were giving up their crown jewels. It was tricky to convince them to move to this model. We had to convince them that even if they never taught a single classroom version again, they could actually make more money with the packaged solution.
Sramana: What were the 10 courses that you started with?
Aaron Skonnard: They were Microsoft .NET related courses. The founding partners authored four of the courses ourselves. There was also a course on ASP .NET as well as one on web security. Courses were primarily designed around Microsoft technologies and associated frameworks.
Sramana: Your instructors were getting nervous about the new model. How did you circumvent those concerns?
Aaron Skonnard: We did a lot of talking, convincing, and persuading. We held a retreat in Park City, Utah, and flew our top instructors out to present the new vision to them. It was a matter of helping them understand how big this could be.
Sramana: Let’s talk about the business model and how that model would benefit the instructors.
Aaron Skonnard: Because it was subscription based, we developed a royalty model that would tie into that. We wanted them to feel there would be a profit-sharing relationship with them as the product grew. If the course took off, they would benefit as much as we did as a company. We wanted to offer royalties on all of the titles they published with us.
We figured we could have a 25% royalty pool that we would share with our author team. We would take our top line revenue, shave 25% off the top and figure out how to split that among the instructors, who were now actually authors. That was the tricky part because it was subscription based. We only sell access to the entire library of courses. Today if someone pays $29 a month, he or she gets access to more than 300 courses in our library.
The trick is figuring out how to pay our people. Today we look at activity across our entire library of courses. We basically take that revenue and attribute it across the titles based on popularity. If one course received 10% of all views that month from paying subscribers, then 10% of the top line gross revenue would be attributed to that course. We would pay them their royalties based on that model. If they were paid a 25% royalty, they would get paid 25 times the attributed revenue earned by their courses. Once they realized how much money they could make on the courses, they got excited about the model.