Toilet Paper in a Pandemic

This probably isn’t the best use of my time right now,  but maybe there’s a teaching moment here.

In the face of the COVID19 pandemic, folks in the US (and apparently most developed nations) have gone on a toilet paper buying spree.  One result besides the appearance of empty shelves, has been a lot nasty commentary in social media and news media attacking people for alleged “hoarding” of TP. The comments have come complete with  all the cheap puns and childish humor talk of toilet paper invites. (I will probably fall prey to that too!)

In store after store, the shelves often appear empty and denuded of toilet paper. This is a rather sudden and unexpected development for most people accustomed to a first-world life where a fundamental fact of like is assumed to be: there will always be toilet paper.  People and pundits have proclaimed a shortage of toilet paper brought on by irrational “idiots”. Social judgements and pejoratives have been flying since.

Even economists are not exempt. Justin Wolfers has likened the toilet paper shortage to a classic run-on-the-bank (couldn’t resist the pun, eh, Justin?) which might be individually rational but becomes a systemic failure. Justin considered the possible need for a national strategic toilet paper reserve.

I’ve read several pyschologists speculate on the “meaning” and “underlying psychological needs” driving the “hoarding” of toilet paper. I’ve read that it’s a controllable first-world comfort when people are faced with a sudden, scary uncertainty. Maybe there’s a tiny bit of truth in that, but it’s not enough to IMO to move that much TP. Other psychologists have speculated that it’s herd behavior. Some people bought up some more TP than normal, so they did too. Soon the shelves were bare and panic has ensued. Again, maybe a little sliver of truth, but not enough.

I’m going to weigh in on the topic, too. I think I have a bit more experience with toilet paper than the average person and more so than the average economist. It’s not because of my diet. Not only am I an economist and things like “supply” and “demand” are my basic tools, but early in my career I was the business planner/strategist for a very large industrial distributor/wholesaler. A distributor that distributed – you guessed it – toilet paper.  A lot of it. We didn’t supply much to the retail channel. We supplied businesses, factories, restaurants, hospitals, schools, and hotels.  Thanks to us, the nether regions of millions of people from GM factories to Florida resorts were kept clean and hygienic. I learned a lot about the economics of toilet paper back then. I’m sure it’s changed some since, given the better inventory management tools available today, but the essence of analysis still holds.

I think what we’ve seen has been a fairly rational response, at least initially, and I don’t see any great toilet paper crisis of 2020.  Yes, there has been some individual hoarding behavior, but probably a lot less than people think. What I see is a sudden shock to one of the most incredibly stable supply chains around. You see, there really isn’t any toilet paper inventory as you think of it.  Let me explain some of the economics of getting dried squares of wood pulp from a mill to your butt without discomfort.

TP-nomics: More than you ever wanted to know

Consumption drives the demand toilet paper.  Even in a crisis, there is not really any speculative value to toilet paper, nor is there any value to just owning a bunch of it. There is no ongoing use value either. Use two squares, and it’s done. It’s not like paintings which give ongoing value just for having them. It’s not a good store of value like cash, or gold, or bonds. It’s not a capital asset like a house, furniture, or a car.  It’s a single use value.  True, the perceived use value is high (at least in non-bidet using developed countries), but it’s very utilitarian. It doesn’t even bring social status, despite all the Charmin advertising.

I can tell you this from having analyzed and modeled the consumption and demand for toilet paper all those many years ago. It’s stable. Rock stable. Easy to forecast. If you know how many butts you’re dealing with, you can predict the consumption. That’s it. (and no, local cuisine or tastes don’t matter). People x days = TP needed.

The second fact of TP economics is that there’s a giant distributional mismatch. It’s produced in vast quantities in a very small number of places (mills) but consumed in a mind-boggling number of very specific locations. There are two in my house alone. When the need for it arises, the inventory MUST be in each location. When I want TP in the downstairs bath, I’m going to be really annoyed if it’s not there and I have to go source it from the upstairs bath or the basement pantry. I’ll be even more annoyed and greatly discomfited if I have to go to the store before I can use the toilet. Know what I mean?

In contrast, toilet paper is produced in a small number of places called mills in very, very large quantities on very, very large machines. So while we might indeed know how much TP is used each day – and that’s pretty much how much TP will be produced each day – we still have a problem. We produce just enough each day, but it’s in giant quantities in a few places when what we really want is a few squares in billions of places.

The third fact about TP economics, is that despite whatever its use value is, the dollar value per cubic foot of space it occupies is very low. It’s bulky. That means for a store or distributor it takes up a LOT of shelf space but doesn’t generate that much sales revenue or profit margin compared to other higher-value, smaller items.  At home, you only keep a roll or three in the bathroom. Nobody builds a bathroom cabinet to accommodate the giant Costco carton. For the store, the only way to survive those economics is to turn-over the inventory rapidly. That means that relative to demand, there’s actually very little in inventory. The large bulk makes it look plentiful to the consumer, but it’s not really. It’s simply being restocked, re-ordered, and replenished faster than just about any item in the store.

So how does our vast national TP distribution system work? It’s a network of very high turnover inventory locations, each one serving to “break bulk” in the distribution from mill to your butt.  The mill produces today and puts it on trucks or rail cars immediately and ships it out.  As soon as the truck/trains can get to the distribution centers (like the ones my ex-employer owned), it’s unloaded. A train car load is split up and becomes stacks of pallets or stacks of cases but they don’t sit still. That inventory is turned over very fast -meaning the cartons are loaded onto trucks and delivered to stores, factories, hospitals, and smaller wholesalers. Even back in my day 40 years ago, we emptied and shipped out that whole rail car in less than week. I wouldn’t be surprised if these days, turnover in some distribution centers could be measured in hours.

There really isn’t any toilet paper buffer inventory anywhere. As a nation, we haven’t really had a reserve of TP to buffer fluctuations in demand or supply – because we don’t need it.  Forests keep making wood fiber at about the same rate every day. People keep wiping their butts at the same rate everyday. What appears to be inventory is only temporary spots of relocated stuff that we turnover as fast as a possible. We have just-in-time production.

To recap:
Made in mill by train load –> whse in cases/pallets –.>store in multipacks –> home by carton–> bathroom cabinet by the extra 1-2 rolls –>dispenser roll

As soon as the minimum viable quantity runs out at each stage, we replenish. It’s a TP flow, not a TP inventory.  In reality, the slowest moving inventory is at the household.  Most households tend to buy one to a few weeks worth of TP at a time. They don’t want to waste space storing more. Assuming they don’t wait till they totally run out, that means they may have, on average, let’s say 10 days worth of TP on hand. When it gets low, they buy more. The grocery or big box where they shop knows that thousands of customers are doing the same predictable thing and the store only stocks enough for maybe 2-3 days worth of sales in inventory, maybe even less, knowing they’ll get more shipments.  The shelves always look nicely stocked with TP, but it’s all fresh, new stuff – unlike that jar of pickles you bought that was actually produced a year ago and been sitting in the store ever since.

So What Happened?

Everything is fine, until the Centers for Disease Control or other public health authorities try to gently prod people to “prepare” for possible isolation and quarantine because of COVID19.  It’s rational and it’s needed. The point of the isolation, social distancing, and quarantines is to minimize social contact. That means being prepared to go awhile without going to the store.  A necessary implication is that everybody’s household supply of TP is inadequate. If they typically run a 10 day supply on average, they need to temporarily increase purchases to actually create what they haven’t had before: a buffer stock.  So people started buying more. Rationally buying more.

Buying a buffer stock is only a temporary increase in demand.  Once you have your buffer, you go back to buying just enough to match usage, keeping the buffer stock in place. You might think that having households add some buffer stock shouldn’t be a big deal, but it was – because that’s how fast TP inventory turns over.

Initially the guidance late last February was for households most at risk to prepare (buy buffer stock) and two weeks was suggested.  But the pandemic has spread faster than most people expected. We now know from Italy’s experience and China’s that extremely broad based and possibly longer  isolation  – meaning minimizing trips to store – is needed. So it’s been an unprecedented and unexpected bump up in purchasing.

But it’s temporary. It  may take weeks for the production chain to catch up, but  purchasing will slow down too. Mills will ratchet up production some.  Nobody is going to truly hoard TP. Contrary to Justin Wolfers’ analysis, TP isn’t like cash. People can keep hoarding cash without limit. TP has some physical limits. Remember it’s high bulk/low value. Where would they put it all?

The dynamics on some other products is a little different. But even with something like hand sanitizer, where the shortages reflect a large sudden increase in consumption and demand, I expect part of the sudden shortage is because we generally have a high-turnover product distribution system. In hand sanitizer, eliminating the shortages depends largely on the ability of manufacturers to switch production facilities away from other products and into more sanitizer production. I expect that to be feasible, but I don’t really know that industry well enough to predict how soon it will restore equilibrium.

There are products in an apparent irrational short supply due to hoarding/panic behavior. I attribute a lot of that to Americans’ fascination with zombie apocalypse movies.

But toilet paper?  It’s a temporary shock to a stable supply chain.

SO relax. Wash your hands and stop being so nasty and judgemental of people.   If you’re going to criticize people, try criticizing them for standing so close in line or not covering their cough.

 

 

Learning in a Pandemic – 2

poster saying keep calm and keep teachingOPEN LETTER: Planning to Make “the Switch”

This is part two of my posts about teaching in the COVID19 pandemic amidst the possibility that we (faculty)  may have to switch on short notice to teaching at a distance what were originally face-to-face classes.  If you haven’t already, please start by reading my first post about getting in the right frame of mind about making “the switch”.

In my first post, I emphasized that making switch isn’t the same as “teaching online”.  Teaching online implies a much bigger, more complex undertaking that involves a designing and conceiving an entire course differently.  You aren’t doing that. Your goal now is to take finish the course as best you can without doing face-to-face meetings because those now endanger people’s health in the community.  You’re trying to improvise and fill-in a very specific gap in a very specific course in a very specific course.  I’m going to write this as if I’m speaking to professors preparing for their own individual classes and as they make contingency plans as a group for their program/department. I’m trying to consider both full-time and part-time.

Mind the Gap

I really mean “analyze the gap” but this sounds better. The key to preparing to make the switch is going to be understanding that gap – the gap in your course.  There is no magic formula. There is no universal rubric. Each class-instructor combination is likely unique.  Depending on circumstances, you might want to consider thinking in terms of 2-3 scenarios instead of phrasing it all as “going to online for the remainder”.  For example, scenario 1 might be “we are told to make the switch a week before final exams”.  That’s going to be different thing than “we are told around mid-semester to make the switch” or being told at the 3/4 mark. I’m going to ignore here the possibility you are told to “convert an entire summer session class to online with only 2 weeks notice in advance”.  That last scenario is a lot more complex and really does resemble trying to design/create a whole online class. I’m going to focus on finishing a f2f without actually meeting.

I would start with your existing syllabus and plans for the remainder of your course. In your own words, what’s the gap between what the students have already learned and what they need for the final exam or capstone assignment or just what’s remaining to be covered. In other words, what’s missing?

  • What assignments & topics haven’t been started and will need to be done entirely in the revised approach?
  • What types of work do students need to do to learn that material/concepts/skills and what is the critical aspects of how they can effectively learn it?  For example, suppose I were teaching my f2f macro econ course. If the gap contains the stuff about how Keynesian theory vs Classical theory works, that can be handled fairly well through readings and lectures. New, additional reading can substitute for some lecture fairly well in my experience. But on the other hand, if money  & banking is what’s missing and in the gap, then there’s really no good substitute for doing some problem sets related to it.
  • What assignments are have been started and now need to be redefined or altered? I expect this would include most kinds of project work. Students have already started it with a vision of the goal or output.  If that output/result is a paper to be turned in, then all’s good. You can do that easily via the LMS.  But if it involves in-class presentation, then you need to focus on alternatives.
    • Flexibility works wonders. Consider giving students options for completion or presentation: perhaps a selfie-video, perhaps a written paper instead, a small video conference, etc.
  • Is there group work planned or in progress?  Your challenge here is help them find a mode of communicating and working together remotely.
  • Assessments:  how many and what type of assessments/graded stuff is in the gap?  Final exams come to mind.

Once you focus on your gap, you’ll start having a good idea of what your needs are. In general,in my opinion, courses that are the closest to traditional lecture-and-test or lecture-and-write paper are likely to have the clearest gap. There’s specific topics to be covered and it’s mostly an “information provision” problem.  In my opinion, the project stuff, assignments already underway, group work, and classes that are heavy on in-class seminar/active synchronous discussion  work are the most challenging and will require the most creativity.

What’s In Your ToolBox Now

Next, consider what specific resources or preparation you already have.  I’d start with your faculty and any existing online classes you have. Then I would consider what tools/technology/materials you already have available. Finally, consider what people you can contact to fill in your toolbox if needed, such as faculty you could consult in another program/college, or your Center for Teaching Excellence, or your LMS management department.

For example, in my program we’ve discussed this and largely done our contingency planning. We’re fortunate. The gap is largely about several topics, some problem sets, and the final exam mode (we have proctored exams of a departmental final). But, every faculty member in our program has taught or is teaching their courses in both online and f2f formats.  So we each have both the experience in online, in using the LMS, and we have alternative approaches and materials already ready and available.  Our school has a robust LMS and we don’t need the video options much.  Our toolbox suits our gap pretty well.

In another program I’m familiar with, they’re close to the same situation, but they have experienced online+f2f full-time faculty but some part-time faculty don’t have the online experience and would lack some materials.  Their tentative plan would be for the experienced full-time online profs to share what’s needed from their existing resources and assignments.

In our case, it’s the final exam that’s the issue. It’s proctored in person on paper for both online and f2f classes. We decided that our contingency plan would be to go to an all online delivery of the final exam using the LMS without proctoring but with a time limit. Not wanting to risk the exam contents “getting out” (it changes each semester, but not dramatically), we decided that if “the switch” were necessary, we would collectively, the five full-timers, write new questions for this semester, hoping to return to the old format later. We discussed and recognized that this will make semester-to-semester course assessment analytics impossible this time. (we actually do those analyses!) but this would be an emergency exception. That’s key. Be flexible and adaptable.

BTW: For those concerned about cheating in online exams, especially at the community college level. I am intimately familiar with a faculty member who has taught the same course online at two different schools for many, many years. The same final exam (or virtually the same) has been used at both schools. One school requires in-person proctoring of the final exam, the other allowed unproctored online exam taking in the LMS anytime during finals week.  This professor’s experience is that there is no significant difference in scores, distribution, or changes in median scores over time between the two schools and two methods of administering the tests.

This is consistent with research about cheating that identifies it as more pronounced risk in situations that are higher-reward/higher-stakes such as in gatekeeper courses at elite universities.

There was one major difference experienced between the two schools/methods.  In the school where students could do the final online unproctored – and they knew that when the course started – there was a tendency for some (a minority) of students to fall into a dependence on open book for answering quiz questions and then the test, with result that learning become more short-term oriented and not as deep.  This was addressed over time by limiting formative assessments/quizzes to two attempts with unlimited time, but then narrowing midterms to a timed period so they began to realize they couldn’t look everything up, and then having the final be timed and questions carefully written to not be “simple look up stuff”.  Time limits were set so that 98-99% of students can complete the test, but there’s not enough time to look up a lot stuff.

I’ve got some more thoughts and some ideas from my colleagues, but this is enough for now. I’m tired tonight. I guess there will be another post soon.

Learning in a Pandemic – 1

Now, new and improved with proofreading!

poster saying keep calm and keep teachingOPEN LETTER to MY FACULTY COLLEAGUES

There’s a pandemic happening and it’s called COVID19 just in case you’ve been under a rock and haven’t heard. It’s going to have starting to have a big impact on higher education, not to mention a lot of ordinary lives. We are starting to see schools having to close their campuses to face-2-face classes and make the emergency switch to “online” to complete their terms. University of Washington and Stanford have already closed their classes and “flipped the switch”. I’m reading lots of commentary about it. And now I’m going to add my $5 worth (enormous inflation perhaps?)

Spoiler alert: it’s not really as simple as “flipping a switch”.  It’s also not really a switch to “online”. It’s completing a f2f class without having to meet f2f under emergency circumstances using available tools, many of which are also used in online class.  Remember that. It will help you.

I’m going to speak from my role as a professor of economics, my role as a faculty developer and open learning/OER champion in my school’s Center for Teaching Excellence, and my role as a faculty old. As an old, I’ve been teaching a long time. I’ve also been learning a long time. I’ve also had two careers and planning/strategizing has been a big part of  both.  I’m mostly going to share my thoughts based on my experiences in the hope of helping others.

A disclaimer first: I am fortunate. I work with an incredibly functional group of faculty in my program. We’ve largely already discussed the possibility and figured out our contingency plans. My school isn’t faced with an imminent threat of needing to make the emergency switch, or at least we aren’t as of today, March 8, 2020. But things happen fast in a pandemic.  I also teach mostly online and everything I’ve taught f2f, I’ve also taught online, much like my ECON colleagues. So an emergency switch will be relatively easier for us should it be necessary. But even for me, a switch will necessitate changes since my online class’s final exam is currently proctored.

More disclaimer: This is likely to be the first of multiple posts. Don’t expect my normal thought-out structured writing. This is likely more stream of consciousness. I’m going to write as if I’m talking directly to a fellow faculty member who isn’t as prepared or who hasn’t been as obsessed as me with studying this thing for weeks.  It’s a lot of tips and questions to ask yourself. This first post is more about getting your mind right. The next post will be more about class planning and actions. If that sounds like a teaching approach, well, good. I’m mostly talking to fellow community college and teaching-oriented colleges/universities. This is because it’s what I know and most familiar with. If you’re at a big, prestigious research university, I hope some of what I say is useful, but I can’t vouch for it. I don’t have enough experience with your situations to say. Time is of the essence, and I’ve already wasted a lot of words here, so here goes.

Put Your Own Mask On First

By “mask” I mean your own mindset and attitude – how you are thinking and relating to this whole COVID19 pandemic.  You are an academic. Trust your own intellect. Be curious. Question things and think things through, including what I tell you. In other words, be an academic but don’t be argumentative just to argue.

  • Keep calm.  The essence of a pandemic is uncertainty. Don’t let that uncertainty overtake you or your students. There will be difficulties. There will be things you can’t plan for. We’ll all deal with it together. You may have fears about the pandemic and your health, your community, your finances, your school’s management of the situation. Don’t pass those fears onto your students. They have their own difficulties. You need to be an adult in the classroom.
  • It’s in your class now. No, the odds that you have an infected student in your classroom right now are extremely, extremely low. That’s not what I mean. I mean that whether or not your school is making “the switch” or not, from here on for at least the rest of this semester/quarter/term, the idea and thoughts of COVID19 are in your classroom. It’s in every classroom. These thoughts will hang around like the proverbial “elephant in the room”.  They will take up space in your students’ minds reducing cognitive resources for regular learning. A good teacher recognizes, adapts, and responds to the elephants in the room and doesn’t ignore them.  Your students will be concerned, afraid, confused, dismissive, and maybe even argumentative. It’s the new social reality for this year. I know.
  • Be a Model Academic.  Academics learn. They deal with uncertainty by researching, sharing information, evaluating claims and evidence. They use their minds and don’t just repeat stuff. They develop informed judgements. They use science and evidence and logic. Pandemics cause fear and confusion in the society. You may be feeling uncertain and uninformed yourself. Or your school might be taking a “don’t say much and they won’t panic” approach. Students look to you as a model. They don’t really expect you to be the all-knowing oracle, but they will absorb your example. Try modeling how to find good answers and how to calmly deal with uncertainty.
  • Your Bosses Aren’t Your Parents.  They won’t have the answer or the magic key. The college president or dean or provost or VP of whatever may not even truly understand the complexities of what needs to happen or when to “make the switch”. Colleges are hierachical socio-economic organizations. There’s  a widespread myth in our society that the best leader is the boss who “takes charge” and “issues commands”. It unfortunately plays into people’s inner child that wants an all-powerful parent to act in crisis to protect them. That same inner child gets angry and throws a tantrum when the boss isn’t an all-powerful, protective parent. Either way, those reactions hurt yourself.  “Take charge” leadership isn’t really how people or orgs survive in a crisis. It doesn’t work that way. I’ll comment on that in another post. For faculty, this means that you have to figure out the nitty-gritty and your own solution to how to finish the semester. Your best resources are your fellow faculty, your students, and the faculty-support entities in your college (like the Center for Teaching Excellence where I work). Talk with them. Don’t expect them to solve your problem for you. But they can help you understand what you really need to do. They can help focus what will be scarce time and resource.
    • Aside to administrators and leaders on campus: Don’t play the great in-charge hero here. This is a time to call attention, keep people focused on the essential, and ASK THEM HOW YOU CANT HELP!  It’s time for servant leadership. Run errands for questions.
  • Remember it’s not Online. You are NOT preparing to teach online. You are planning to finish a f2f class or hybrid class or online class that required f2f proctoring without meeting f2f for the remaining days. That’s revision of a class. It’s not “going online”. Why do I make the distinction? Lots of people will bombard you with lots of things you need to create a “successful online class”. Most of it is irrelevant to your immediate situation, much of it is wrong or poorly supported anyway, and it won’t help you. It will likely make you feel worse and distract from the real stuff.
  • You Need Thinking, not Materials. If you’re making an emergency switch to online, you need to start thinking first. That’s your biggest task. Don’t fall for the temptation to immediately worry about and create “materials” to put online in some LMS.  That’s a tempting distraction. But online materials do not make an online course and they sure aren’t the completion of a course that started f2f. Yes, you’ll need to put somethings online or on the web. But think it through first. The real issues are:
    • redesigning/reimagining assignments so they don’t rely on f2f time
    • figuring out how to adapt assignments like that group project that’s already been started but now needs to finish with some artifact other than an in-class presentation.
    • alternatives and accomodations for things like exams.
    • how to add flexibility to schedules
    • how can some? all? of the planned remaining synchronous activities be made asynchronous and still be valuable learning experiences.
    • I’ll write more in the next post
  • Plan Now. If you teach any classes this semester/quarter/term, it’s time now to start planning for how you will do this. Yes, pray to your God or whatever guides your life that you don’t have to do it. Because if you don’t have to make the switch it means your community is being spared the worst  of this pandemic and human lives matter most.  But IF you need to do it, you won’t get much notice. Likely you will  have no notice. Then you’ll be in crunch mode. It’s so much easier to plan calmly and know what you’ll need to do. Start thinking about it now. Start casually sharing and talking with your colleagues. Division of labor is a real thing, but it works most effectively when done in small groups by those in the group themselves.
  • Be Flexible. If you have to make the switch to finish, then flexibility is essential. This is no time for posturing about “academic rigor” and deadlines for deadlines sake because “it builds character”.  Your students are human. They are in a community that is stressed. Lives are literally at stake. Some students won’t be able to access the LMS. You might think they have web access and resources because you see that new iPhone 11 they have and your stereotype says they’re privileged. Think again. You don’t see the limited pay-as-you-go plan with little data, or see the fact this phone just replaced the 5 year old phone that broke and is being paid for $20 a month by cutting out lunches on some days. Sure students might have web access at home. But then, there’s a good chance they don’t beyond the phone. If you think the phone is useful web access, try reading  that pdf you’re writing on the phone before you send it. Maybe they do have so-so web access at home but they share it with 4 other family members including a parent who now has to work from home online too while all of them watch the two little kids who can’t go to school.  It’s a tough time. Be human. Be kind. We get through it together.
    You can make the choice whether to see your students as slackers or see them as heroic folks working hard because they want to learn under trying circumstances.  I tell you from my experience, you get more effort from them when you choose the latter.

  • Keep Teaching. Adapt. Keep your eyes on the prize. In making a switch, you’ll likely not be able to teach some favorite sub-topic or assignment that you’ve long thought was so important to the course. Instead, think (there’s that word think again) about what the real purpose, the threshold concepts, of your course are. How can you salvage what you’ve started f2f and adapt in midstream to achieve some version of that?  You’re not making a permanent commitment to changing the curriculum in this course for all time or for all of higher education. You are trying to make sure these students finish this semester with the essentials of this course.

    There are, of course, some things that just can’t go remote (as far as my imagination has envisioned). I have a hard time seeing how clinicals in many health services classes could be done on online. Some third party accreditation/state authorizations require x number of documented f2f contact hours. Paramedic training comes to mind. If you teach those things, then your obligation is raise the flag to the senior leadership. Educate them. And work to see what is fair for your students.

  • Technology will not fix things for you.
  • Seize the Teaching Moment. Even if you don’t need to “make the switch”, consider that COVID19 presents teaching moments. For example, I’m working on a lesson now for my macroeconomics students. I hope to use the COVID19 pandemic to explain how it might result in a recession. It’s a perfect example of a process described in the course but in more general, abstract terms. I’m confident that if I re-explain those terms and abstract concepts in the context of the virus now, I’ll get enormously better, deeper learning than I ordinarily would.  A virus pandemic has aspects that touch most course subjects in some way: humanities, sociology, economics, chemistry, biology, math and stats, etc. Seize the moment.

These are not normal times.  Pandemics put a premium on our social relations and our ability to learn.

more to come with more specifics in other posts

 

 

 

 

What’s the LMS Worth?

Herein, against my better judgement, I wade into the Great Instructure social media wars of 2019.  Last week, Instructure Inc., the publicly traded (NYSE: INST) company  announced it had agreed to go private and sell itself to private equity firm Thoma Bravo.  For people who teach in higher education this is big news. Instructure, is the current name for the company founded in 2008 that created and sells the Canvas LMS. Canvas in the last decade has toppled the previous king-of-the-LMS’s, Blackboard. Canvas is now widely reported to have largest market share of higher ed LMS market at least in North America. Moodle, the open source system, appears to dominate outside North America.

The announcement triggered a great deal of, let’s call it discussion, on social media, particularly Twitter. A lot of has gotten nasty and heated.  On the surface, the discussion seems to be about questions regarding what Instructure (or Canvas, or the data Instructure has collected) is “worth”.  Specifically, is it worth the $2billion Thoma Bravo has valued it at and why would TB pay that?

Underlying the valuation question though, is the real concern.  Can we discern the plans and future for Canvas (and thereby schools, instructors, students, the higher ed system, pedagogy, etc) from this transaction?  There’s roughly two camps. Both camps seem to think $2 billion is a big number.  I don’t but I’ll explain that later. One camp seems to be arguing that the $2 billion is perfectly justified as a valuation for Canvas as it is now and as an ongoing successful business and therefore there’s nothing to be concerned about here, nothing to see, just move along.  The other camp is seems to see $2 billion as a very big number and a clear indicator that Instructure’s new/future overlords will be monetizing the (relatively) massive database of user/student interactions (Instructure’s own claim as to it’s massiveness) and therefore putting students/faculty at risk from nefarious surveillance and profiling via AI (artificial intelligence and algorithms).

What I want to do is clarify some mistaken ideas/concepts that I see a lot of my education friends (and not so friends) arguing.  What’s been argued, by both camps at times, is not good economics or well informed finance. I’m not going to name folks here nor call out any one in particular. That’s not my intent. I’m hoping to clarify some thinking.

What’s a company worth?

Both camps seem to be arguing the “worth” (in precise economic/finance technical terms it is the “valuation”) of the company using the wrong theory or models of how valuation/worth is established.  The implicit model being used by all is familiar in economic/finance theory. It’s the idea that the current value of an investment (i.e. the purchase price of the company) should somehow be justified as expected present value of the future cash flows of the company from doing business.   That’s understandable. It’s a decent way to start evaluation of investment decisions – particularly inside companies when they decide to invest in something like a new machine or an expansion. It’s not the only consideration. There’s strategic considerations too.

So as an example  we’ve heard arguments that Instructure has been growing, generates cash, and has margins of 70%, so the value is just reasonable and therefore there’s nothing for the education community to worry about.

On the other hand, some have essentially argued that the only reason private  equity would pay this and/or the only pay they can recoup their money is if they monetize the data and that is presumed to lead to nefarious outcomes.

Let me clarify. The company was purchased, not the software and not an asset. The company. There is only one real-world way that valuations of companies are established: Will somebody pay a higher price later for this same company?  Let’s be very clear. This is a private equity deal. PE funds do not run companies. They do not sell things. They buy and sell companies. Period. That is all they do.  The only customers they have are the other PE firms or corporations or banks that they sell their  companies to.  Period. Thoma Bravo is not in the education or edtech business. They are in the buying-and-selling software companies business. That’s it. And no matter what they say about “being in it for the long run”, they aren’t. PE firms generally look to recoup and sell the business inside of 5 years, preferrably a lot sooner.

Conclusion #1:  No matter what any manager at Instructure or TB tells you, the needs of higher education are no longer the driving force.  The driving force is putting together a nice story supported by anecdotal financial data that leads to some future firm paying TB way more than $2b in a couple of years.

So is Instructure worth $2b?  We’ll find out if and when TB sells it. My guess is yes, TB will definitely flip this in a few years for substantial profit, assuming the bottom doesn’t totally drop out of the LMS market. (a small but real possibility).

Any argument you make about the deal based on business fundamentals is nonsense and fantasy. It’s part of popular econo-myths. Before you try to argue with me on that, do this one test: can your implied model of valuation explain why Uber went public at a valuation of ~$100 billion when Uber has never made money, is cash negative, and has no prospects of making money?  Can your model explain WeWork?  If you still don’t believe me, I suggest researching a little with Professor Scott Galloway (@profgalloway) about how valuations and funding happens real world these days.

What’s next?

What can we expect? Will the data be monetized? Will it be sold off piece-by-piece? Will Instructure/TB now invest heavily in all kinds of accelerated innovation? (Ok, I just threw that last question in for laughs. Of course they won’t. Real innovation costs money, time, and work). Really, we don’t know but there are some high probabilities based on the new capital structure and owners.

First off, there’s the possibility of some good old fashioned battle of the funds. We know very little about the specifics of the Instructure-TB deal. That’s how private equity works. It’s private. It’s not transparent. However, it seems that Instructure has 35 days (counting holidays) to find a better deal. Some other funds, hedge funds in this case, have taken positions in Instructure and they don’t think $2 is enough.  Typically the only people who come out ahead in these situations are lawyers, banks, and partners at the biggest funds. Little shareholders and the rest of the human race, not so much.

Once the deal closes, the priority at Instructure will be clear and it has two parts. First priority is get the money (cash) back to TB. I’ve heard it said on the Twitters that TB is putting out $2b of it’s money to buy Instructure. Again, we don’t know details for sure, but that’s almost certainly false. PE deals don’t work that way -especially with a company like Instructure that generates a healthy positive cash flow, is profitable, and has little debt (AFAIK).  Typically the playbook is that the PE firm buys the company largely with the target company’s own money.  In this scenario, the PE fund (TB in this case) puts up a relatively small amount of their own cash up front. They take a very short-term bridge loan from a friendly bank to get the total $2b in cash needed to buy out the shareholders. Once the deal closes, Instructure Inc. then is directed by their new owners, TB, to get a loan from a bank secured by the company’s assets. The proceeds of that loan are then paid as some kind of “special dividend” to the new owners to retire their loan. The PE fund has a small at-risk stake at that point. Management fees or sell-off of some assets in the first year can often pay back that cash. By maybe the end of the first year, the PE fund has gotten all it’s cash back and is playing with house money at that point. The target firm (Instructure in this case) is likely a lot more debt-laden than before with a lot less free cash flow.

At that point, we consider the other priority (don’t worry, these folks can multi-task so you’l hear this one right away). Namely, the big priority is to develop a story that leads to another big pocket putting out well more than $2 in a few years. Tell the story and tell it hard. Once they’re private, that becomes a bit easier. Less real data has to disclosed since they’re no longer public, so it’s easier to be selective with the data and put your own spin on it without fear of those pesky shareholder suits and the SEC (is anyone actually still afraid of the SEC?).

PE firms, like Venture Capitalists or hedge funds, aren’t looking for nice safe returns on their money. You and I would be ecstatic to get annual returns of 10-20% on our retirement funds. These funds look for more. They want multiples of the initial investment. So they’re looking for deep pocket buyers that can and will spend not $2b, but maybe $4b or $6b or more in just a couple years.  The PE fund wants a big exit and once the deal closes the only thought is the exit. Running the business is only important to the degree it helps tell a story that helps them exit.

Why would anyone pay that in a couple years from now?  Go back up to the section on “What’s it Worth?”.  There aren’t that many routes for exit for a PE firm:

  • do an IPO (initial public offering) -not likely here since they just took it private – obviously the public market wouldn’t value it high enough
  • find a bigger sucker PE fund – the story of why there are untold, untapped riches becomes critical
  • find a really big, deep pockets corporation that wants to add to it’s portfolio of businesses thinking this will add that magical “synergy” to its other businesses.  This is a possibility for Instructure, but the likely candidates are:
    • Google, FB, MSFT, Amazon, or Apple – the people trying to collect everybody’s data about everything in the hope of controlling/monetizing everything.  A story of the value of the data and the ability to predict the future lives of students could lead them to write a big check.
    • Textbook publishers – OK, there are only two left, Pearson and Cengage-McGraw Hill.  They could fall in love with a story of becoming the single source books-homework-courseware-LMS provider. In fact, they’ve tried the LMS before, but couldn’t do it themselves. They might choose to buy in. I’m not sure their pockets are deep enough though.
    • When all else fails, merge. Instructure could merged with Bb or Brightspace using some other PE fund’s money.

Whatever route leads to the exit, that’s the priority now at Instructure. In my opinion, all those avenues are fraught with very good reasons why colleges, professors, and students should be concerned.

Where will the money come from?

Another thing I read on the Twitter was the suggestion that Instructure is somehow impervious to the all-too-common private equity strategy of carve-it-up and sell off the parts.  Nonsense. That tweet came from somebody who purports to know and advocate for private equity but apparently, judging by their tweet, thinks Hollywood movies about whores are primers about finance.  I won’t deal with that aspect of the tweet other than to say that misogynistic tweet was all the evidence to convince me the dude has spent too much time in either tech or finance culture. Unfortunately, he’s not very skilled at the private equity portion. It takes little imagination to see how Instructure could be carved up and pieces sold off. I’m not saying they will. I’m just saying it’s a piece of cake. They’ve made 2-3 acquisitions in recent years. Reverse those and sell. They’ve already told everyone they’re positioning for a possible split-off. They’ve stated they’re separating the codebase for Bridge from Canvas.  Add to that, any business with multiple services, even when sold to the same segment, can be carved up. It doesn’t even take much imagination to do it. All it takes is a willing buyer. And all that takes is a plausible story about the riches at the end the rainbow.

Education is not THE Story Anymore

We in higher education have a tendency to think we’re important as a market. We’re not. For a long time, edtech companies and Silicon Valley have fed that fantasy. We think in terms of the edtech “market” and think it’s attractive. In truth, it’s largely failed to meet to meet SV expectations.  The LMS market is mature. Very mature. Most LMS’s are really based on 1990’s architectures ported to the Web. Canvas was an innovation in 2008 by being cloud based. But product wise, all of them are still largely the same conception of the product as 20+ yrs ago. Everybody who needs an LMS has one.

Yes, Instructure has had decent growth numbers (not sterling by SV standards, but good) in recent years. But finance is all about how are you going to top that going forward. Finance doesn’t look back. Truth is, Instructure or any of the LMS’s are going to have a hard time finding big new sources of revenue. There just isn’t much left in the higher ed budget for their stuff. Even the data analytics for learning part has failed to take off revenue wise. That’s why data mining for AI/Algorithms, monetizing the data to non-education folks, is so tempting.

Yes, any of these LMS firms, or publishers for that matter, could have had decent solid, satble, modestly profitable businesses that were mature. But that’s not how finance capitalism works.  Instructure isn’t an education tech company anymore. It’s just a software company and data processing service that happens to get its data from college and university students.  It will likely be managed that way.

FUD for thought?

I should put a word in about FUD.  Not sure if I introduced it into the conversations on Twitter or somebody else did. I didn’t realize the term was new to so many.  It’s an acronym that stands for Fear, Uncertainty, and Doubt.  The original usage that I’m familiar with dates back to software deals and business deals in the 90’s. FUD was something some firms tried to create in the market about their competitors. For example, back in those days, Microsoft was often accused of putting out PR releases and statements trying to create FUD about whether Linux or open source software was any good.  A more recent example in edtech world would be a few years ago when for-profit publishers would spread stories casting doubt (FUD) about whether OER was any good. They helped perpetuate doubts about the quality of OER in order to justify their high priced books. Nowadays, those publishers have tried to enclose (“embrace and extinquish” – another old Microsoft strategy) OER instead of spreading the FUD.

The thing about FUD is that it usually isn’t specific or justified.  It’s an attempt to cause people to feel uncomfortable about things.

The ironic part now is that I don’t think the concerns expressed on Twitter about the Intructure deal are FUD.  What the concerns have shown is there’s reason to be uncertain – the details aren’t disclosed and won’t be. There’s good reason to be doubtful: private equity deals very often do end up butchering or hampering the core business.

And there’s reason to be fearful:  that giant database of student data has value to big players in the surveillance capitalism industry. There’s the big obvious ones: Google, MSFT, Apple, Amazon, and FB. But there’s a host of other hidden players – data brokers, Palantir, banks, and many others, the lords of the algorithm cults. They often have deep pockets or they’re backed by funds with deep pockets. All Instructure/TB needs to do is convince them of a story about how Instructure’s data can add value to their existing trough.

A Final Lesson

I’ve argued extensively that higher education (perhaps all education, but I’m not expert in K-12) is best organized as a commons. The boundary between commons and the market-oriented capitalist economy is tricky. Capitalists and market-thinkers inevitably seek to enclose the commons, privatizing benefits and externalizing costs onto society.

This boundary is particularly tricky in the edtech world. If there’s one lesson I hope to impart to people in education, it’s the need to do your due diligence on your vendors and “partners”.  Current product offerings aren’t enough. Product roadmaps matter. Plans matter.

But most of all, capital structure matters. No matter how nice the people at the vendor, no matter how good the values of the hired managers are at that edtech “partner”, ultimately it’s capital that calls the tune.  That’s why it’s called capitalism.

Domains19 Reflection, Well Really More of A Thanks.

I just got back from the Domains19 conference and some thanks and perhaps observations are in order.

It was a very interesting, stimulating, and useful conference. Frankly, I’ve come to expect nothing less from the ReclaimHosting crew: Jim, Tim, Lauren, Meredith, Judith, and Justin(?, we didn’t meet yet, I think).  It’s a human level conference and it’s a mix of folks from different views, backgrounds, walks, and interests, united by an deep emotional and rational commitment to learning and making the world better for people.  All people.

Actually, I don’t think I have that much “observation” to put into this yet. I can feel differences but can’t articulate them yet. Domains is like that for me.  I’m still in the absorbing, thinking, and non-verbal stage. The best conference experiences are ones where you leave as a different person than you arrived  but it’s your agency and connection to others that changed you.

Good Job, Reclaim.

via GIPHY

As a former biz strategist and now economist, it’s fun to watch Jim Groom and Reclaim grow. I think Jim said this their sixth year(?) and I believe I’ve been a customer for 5 of them.  It’s exciting to see the group start to navigate the difficulties of maintaining the spirit, soul, and mission that motivated the original founding while they grow and add people.  So far, so good. I like what I see.  It’s no secret that I think higher education is and should be, at its core, a commons. In my opinion, Reclaim is a model of how a for-profit company can serve and interact with a commons in ways that don’t extract from or enclose the commons but instead actually further it.

There’s way too many people that were at the conference for me to start naming all the folks I learned from or thought it was great to see. Many are long-time fellow travelers in this open space, others are long-time Internet fellow travelers that I now know for certain are in-the-flesh humans, and others that I just met for first time. Thank you all.

 

Scale and Scope

Note: A couple of friends have asked why I say “A commons doesn’t scale, it scopes”. This is a relatively quick note to explain some thinking on why. It’s a topic I’m deep into researching now and developing my thinking as it applies to higher education as a commons, so with the caveat that I may alter some stuff later, here’s my thinking right now. This is part one of a two part answer. Typo in paragraph about Facebook now corrected.

I’ve been saying for awhile now in discussions of the commons, OER, and higher education that a “commons doesn’t scale, it scopes”. Before I explain why I think a commons doesn’t scale very well, I probably need to briefly clarify what’s meant by scale and scope. Like many terms in economics, they’re both commonly used terms in both business and everyday life, but in economics they may carry a subtly different, more precise, or richer meaning. Both terms refer to the production of an increasing volume of output of some kind. Enthusiasts of particular good(s), be they an entrepreneur producing the a product they hope will make them rich or an open educator advocating for more open licensed textbooks because it will improve education, generally want to see their ideas scale. And by scale, they generally mean “be produced in larger and larger volumes”. Larger volume of output, of course, brings a larger volume of benefits to more users. More output –> more users –> more benefits. But it’s the behavior of costs that really intrigues us when we think of “scaling” as a way to increase output. More benefits is nice, but if more benefits also means an equal increase in costs, then it’s not so attractive.

The era of mass production has brought a popular expectation that increased output should bring an increased total cost, yes, but with decreasing average costs. In other words, as you produce more it, the product (or service, or activity) becomes cheaper. This is what we call economies of scale and it’s why scale seems to be such an attractive idea for things we want more of. The idea of economies of scale goes back to Adam Smith.

But since at least the work of Panzar and Willig (see Wikipedia footnotes 3, 4 for links and full citation) around 40 years ago, economists have added a richer explanation. We (well not all economists, but IO and institutional types do) now distinguish between economies of scale and economies of scope.

Scale is to produce to the same thing in larger and larger volumes. It’s doing the same thing over and over again. A lot. There’s little variety, just volume. Scope on the other hand is a way to get to large volume by adding variety to the mix. Scope means doing a lot of things that are different by share some apects. The more aspects shared, either in final form or in production process, the closer you get to scale. The more variety you have, the more scope you have.

For some simple examples, think Ford Motor Company’s Model T. That’s scale in action. Enormous volumes of the same car – even down to the same color. Mass production generally involves scale. Standardization is a virtue in scale. Standardized inputs, processes, and outputs, all enable the great of economies or efficiencies we associate with scale. Massive scale can be managed within a hierarchical structure. The hierarchy adds costs, but it more than makes up for it by through an ability to control and standardize inputs, processes, and outputs. Hierarchical management achieves enough economies of scale to more than offset its added overhead costs.

Scope can bring economies, too. This was part of the Panzar and Willig contribution. Economies of scope are more difficult and complex than economies of scale. They’re less automatic and less obvious. Variety, whether it’s variety of location, product, inputs, processes, or outputs complicates things greatly. However, economies of scope are possible through shared services or other aspects. There are lots of examples of scope economies in the business world, although not so many in real life as business people imagine (I speak from experience). When you hear an executive make the case for merging two different businesses and say they’ll achieve cost savings through “synergies”, that’s economies of scope they’re chasing (and likely not getting, but the investors won’t know that until management has fled the scene). When a school district operates a multiple types of schools (pre-K, elementary, middle, high school, specialty) in multiple locations but insists on centralized purchasing and accounting, that’s an attempt at economies of scope.

When businesses, industries, or products first start to grow, they usually scale. But eventually there are limits to scale. When firms hit the limits of scale in growth, they begin to scope. They usually start with product differentiation and geographic expansion. Then comes segmentation of the market and multiple brands. Variety and variation bite back. Remember Henry Ford’s famous quote about “the customer can get it in any color they want as long as it’s black”? Economies of scale talking there. Unfortunately for Henry, his quote came just as Sloan and Durant at General Motors were pioneering ways of adding product differentiation and segmentation – variety.

When Facebook burst on the scene and seemingly everybody in America (and elsewhere) started signing up, that was scale. But when FB added What’s App and Instagram and Messenger to the corporate portfolio in order to keep the growth going, that was scope.

How does scale and scope apply in education? Scale seems to me to be the impossible dream. We’ve achieved very tiny little scale efforts. When a large flagship university (itself a shining example of wide scope) runs 600 seat lecture classes in principles of economics supplemented with smaller discussion/lab sessions taught by TA’s, that’s a scale effort. It’s tiny though. 600 is only 20x the size of the principles class I teach at the community college. In contrast, business world scale usually means thousands-times larger. We’ve tried to scale by producing textbooks and that has had some positive effect in that it enabled hiring more instructors (adjuncts in particular) at lower costs. But it’s limited too.

Society has for much of the past century been trying to “scale”. Society needs more college-educated people, yet, for many reasons, it is reluctant to pay more them. The idea of scaling education is tempting. If only we could scale up education like we did cars, or clothing, or beer, or music, then we could have more college educated folk and not have to pay the full costs. It hasn’t really happened.

I’d argue it can’t. Scale economies require standardization from inputs to process to outputs. That’s not education. Every learner is different – that’s variety and scope there. What works for one doesn’t work for another. Processes are different. Despite all our efforts in recent decades to define “learning outcomes”, they still defy definition let alone control and standardization. Education requires scope.

There’s more to why a commons won’t scale, but that’s in part two.