2U

2U is redefining online education delivery as we know it

By Mike Unger

Photography by Rachel Smith

One of the University of North Carolina’s MBA students has attended class from Dublin, Hong Kong and even during a family vacation in Sorrento, Italy. He’s logged on in hotel rooms, from a moving car and aboard his boat — many times. Ideally, he likes to participate in class from his Annapolis home, but given his family commitments (he has two sons in elementary school), and especially considering his hectic work schedule — he runs the company that partners with UNC and 13 other universities to offer the most robust online graduate degree programs in the field — that can be tough.

“What’s becoming more and more clear is that we are reshuffling the deck of U.S. higher education,” says Chip Paucek, co-founder and CEO of the Landover, MD-based, technology-focused education company 2U, and these days, also a Tar Heel business school student. “There are people that simply will not pick up their life, quit their job and move to go back to school. I’m a great example. I might be an extreme, but I’m not as much of a unicorn as you would think. There are a number of people in my program who definitely would not have left their job to do this — the [chief of emergency medicine for a healthcare company in Washington], a Turkish basketball player. If you can do this — in high quality — from your living room or your library or your office, it’s just a lot easier to fit this educational goal into your life.”

BREAKING THE CODE

It’s mid-July and 2U’s driven and quirky leader, Paucek, 44, is sitting on a couch in his ground-level office, which is actually 1,349 square feet of open space where the entire Maryland office was once housed. 2U’s headquarters now occupy more than 87,000 square feet on multiple floors in two buildings in the complex, and it has offices in New York, Chapel Hill, Los Angeles, Denver and Hong Kong.

During the conversation, Paucek repeatedly stresses two words, which he seemingly never tires of uttering: “high quality.”

That’s the key ingredient for 2U’s university partners, its more than 800 employees, its investors — it went public in 2014 — and most importantly, for the more than 15,000 students who have enrolled in the online graduate programs it powers, but doesn’t teach. It’s also a mantra for Paucek.

His workspace abuts that of his longtime assistant, Lauri Czajkowski, whom he says “keeps me sane.” Look around and you might think she’s failing. A fuzzy, stuffed Syracuse Orange mascot sits on his cluttered desk, staring at his laptop. Beside it is a yodeling pickle that was a present from his wife. A nameplate given to him by some of his employees alerts visitors to his, shall we say, informal, internal title: “Chip Paucek – MFCEO.”

A disco ball hangs nearby.

But don’t let the knickknacks, gag gifts and ‘70s-esque party relics fool you. While Paucek does like to let his hair down (impromptu dance parties have been known to break out after meetings), at his core, he’s a workaholic with an intense focus on building 2U into the global leader in online graduate education delivery.

“Right now the impact we’re having is pretty profound; $873 million in tuition bookings, 83 percent of students graduating or still enrolled,” says Paucek, who’s wearing white Puma sneakers, dark jeans and a blue T-shirt. “But we feel pretty strongly that there will come a moment when there is no such thing as an online student. There will just be students. Some will be on campuses, some purely online and many will be doing both. We think we’ve cracked the code in doing things a better way.”

NATURAL CALLING

The youngest of three boys, Christopher Paucek was the first member of his family to attend college. His father, Ed, was a builder, and his mother, Ellie, worked as a school receptionist. Although Chip, as he would come to be known, grew up in sunny Fort Lauderdale, FL, he fell in love with Washington, DC, during a high school trip to the capital, and wound up earning a scholarship to George Washington University.

During his first week in Foggy Bottom, he met Todd Glassman, who helped him pick out a London Fog winter parka at Hecht’s.

“Chip has always worked for everything he’s had,” says Glassman, now 2U’s general counsel. “Back then, it was riding his bike to be an usher at Lisner [Auditorium], then shooting over to a law firm to work as a receptionist. Whatever job he had, he could somehow talk to the top person there very quickly. He was always very smart and motivated.”

After graduating with a degree in political communication, he landed a job as assistant scheduler in the office of Senator Barbara Mikulski (D-Maryland).

“It’s the worst job on the Hill,” he says. “All you do all day is say no to people, because the scheduler takes all the yeses. But I learned over time that being able to do that and not piss people off actually had value.”

At the end of the day, Paucek often drove Mikulski from Washington to her Baltimore home. While sitting in traffic or over burgers once they finally got there, the conversation flowed and the two became close. When Paucek, an entrepreneur at heart, decided to quit to start his first company, he gave Mikulski a copy of his business plan.

“The next day was one of the coolest of my career,” he recalls. “I walked into the office and there’s a Senate envelope with the wax seal. I open it up and there’s a check. She invested a small amount of money. She was my third investor. The first was my grandfather, the second was a plumber in St. Augustine, FL, and the third was her.”

The idea behind Cerebellum Corporation, which he co-founded in 1993, was to deliver educational content in a funny, accessible way. “Standard Deviants,” a show for middle school, high school and college students, was the product, and eventually PBS picked it up. While the show was a success, the business struggled to find a clear distribution path. In 2003, he sold it.

“I believe fundamentally that we were a victim of a lack of focus on my part,” he says. “We were constantly pivoting, to the point where I felt like Wilt Chamberlain. We raised $14 million and it never came close to returning the capital. A lot of good came out of it, but clearly, as a business, it did not succeed. I don’t feel like I need to nuance around it. It was a huge learning experience for me.”

Paucek went on to serve as deputy campaign manager of Mikulski’s victorious 2004 re-election effort, then had mixed results running a company that purchased the “Hooked on Phonics” multimedia-reading education platform. In 2008, when he co-founded what was then known as 2tor (the name changed to 2U in 2012), he swore not to repeat the mistakes of his past.

“He’s more sophisticated now because I think he’s much more focused,” says Lorrin Ortiz Mena, 2U’s executive vice president for graduate programs, who worked with Paucek at Cerebellum Corporation. “In the past, he maybe would try different things, but I think some of the success of 2U is because we’re focused on only one thing: driving great outcomes for the students in our programs.”

MAKING THE COMMITMENT

Ten days later, a tired but nonetheless enthusiastic Paucek is speaking on the phone. He’s just gotten back from Guatemala, where he and about a dozen 2U employees visited schools that the company helps support through its work with the nonprofit Pencils of Promise.

It’s been a whirlwind year for Paucek, who in March announced that 2U had added Yale University to its already impressive roster of clients, which includes the highly-ranked Georgetown University School of Nursing and Health Studies and American University School of International Service.

Still, perception matters, and the fact that an Ivy League school — the country’s third-oldest institute of higher education — plans to begin offering an online Master of Medical Science degree, could go a long way toward changing the perception of some slow-to-adapt, stodgy university administrators who still equate online education with Massive Open Online Courses (MOOCs) or for-profit institutions like the University of Phoenix.

“The story of change in higher ed is the story of the turtle being led by two snails,” Paucek says. “It’s slow. Still today.”

Imagine, then, the skepticism Paucek and his co-founders, Princeton Review founder John Katzman and then-24-year-old entrepreneur Jeremy Johnson, encountered when they began pitching universities nearly a decade ago. In 2U’s business model, the company provides the technology platform, markets the programs, recruits students, places them in internships and provides 24/7 technology support. The school chooses the instructor and curriculum, makes the admissions and financial aid decisions, and grants the degree. Professors lead courses live online, and many programs have a required in-person learning component. The idea is that online students are not tangential members of the student body, but rather fully-immersed Trojans, Hoyas or Eagles, albeit from afar.

“We had no track record,” Paucek recalls. “I said, ‘I’d like you to take these online students you’ve never had before and make them equal. You’ve got to give them the same rights and same responsibilities. I promise I can find them, and I promise that this whole platform will be good even though I can’t show it to you yet, and I promise that the experience will be as good as your campus. We’ve never done it before, and we have a tiny little team, and we can’t raise money, and I’d like more than half your revenue please.’ They said yes. It’s crazy, but they said yes.”

Why? In 2009, the University of Southern California became 2U’s first client.

“They were absolutely dedicated to doing the very best,” says Marilyn Flynn, dean of USC’s School of Social Work. “They were not out there to say, ‘We’ll do anything you want, we just want a contract.’ That’s the way every other company out there was operating. I was very impressed with the financial side of their business. They were very ambitious, but they were also very smart. I liked the way they were handling their projections and their marketing and thinking about costs and potential revenues. They care about the quality of the education itself, not just how they deliver it.

“They say that the companies that are great at innovation are the companies that are great at listening. Chip listens,” she says. “That doesn’t mean he necessarily agrees with you, but he absolutely listens. As far as I’m concerned, he is fundamentally honest in the way he approaches things. He’s a dealmaker. He’ll negotiate, come back 1,000 times — he never gives up — but he is never dishonest or manipulative. If you’re going to take a big risk, you really want to take it with a person you can trust.”

GAINING MOMENTUM

The gamble has paid off. Six years later, USC Social Work has 1,100 graduate students on the ground and 2,500 (from 49 states and five foreign countries) online, making it the largest school of social work in the world, Flynn says. But even after signing USC, 2U was anything but an overnight success.

“After the first year and before the fourth, there were a lot of challenges in terms of figuring out how the model was actually going to come together, and whether or not we could figure out the economics,” says Johnson, who left in 2014 to start Andela, a technology and placement company in Africa. (Katzman left in 2012 and did not reply to an interview request submitted to Noodle, an education company he founded where he is now CEO.)

Johnson doesn’t think 2U could have been successful without Paucek.

“Every company needs someone who, no matter what happens, will throw their body on the tracks to make sure that it works, and I think Chip played that role for the company.”

In 2012, 2U didn’t sign a single client — by design.

“My past failures drove that,” Paucek says. “In other words, focus. Just keep it simple. Build good bones. By definition, our model requires patience, because you’re investing $10 million of net negative cash over the first four years of a program’s life. The reason I need 10-year contracts is, I’m not going to make any money until the end. So getting funding was challenging.”

An undergraduate pilot program called “Semester Online” presented another hurdle. Available for fall 2013, Paucek pulled the plug on it just a year later. Seemingly counterintuitively, Rob Cohen, 2U’s president and COO and a Series A and B investor in the company (who also once paid the payroll out of his own pocket), saw the move as a sign of Paucek’s strength as a leader.

“We had a bunch of great partners, like Duke and Northwestern and Washington University,” Cohen says. “Six or nine months in, we determined that the students absolutely loved the program. There was no question about whether our methodologies instructionally could be effective with undergraduate liberal arts students, but it was also pretty clear that not only wasn’t it a good business — which is not unusual, it takes all of our businesses a while to mature — but it wasn’t going to be one.

“So many executives would have waited three or four years and $20 million more dollars, then made a decision that it wasn’t going to be successful. Chip had the leadership ability to say, ‘Let’s end it soon, and let’s find a way to help the partners get out of it.’ They ended up not only being happy with us — Northwestern ended up becoming a graduate partner with us. Chip has a tremendous sense of vision, and he’s extremely quick to act. But if you say, ‘By the way, have you considered this?’ he stops and he listens. If he’s going the wrong way, he’s very willing to change direction. That’s special.”

The company, Paucek says confidently, is solidly on course these days. It pockets up to 70 percent of tuition from each student, and anticipates revenue around $147 million this year. While it’s not profitable yet, Paucek has vowed that it will be in three to five years. It’s outpacing its performance each quarter, and expects to grow 30 percent per year for the foreseeable future, he says.

That future likely will include additional partnerships with universities overseas, and a dramatic increase in its workforce from near 1,000 to 10,000.

“The people are what make this company great,” he says into the phone, his voice a bit gravelly from fatigue. “I’ll take the right attitude over the right skill set any day. You can train the skill set; you can’t train the spirit.”

With that, Paucek says he has to go. Since getting back from Central America, he’s taken a quick trip to Boston and trekked up to Capitol Hill to meet with regulators. With a company to lead and an industry to transform, he’s struggling to find time to sleep.

And later this week, he has class. Maybe he’ll attend from bed. CEO

Disclaimer: This article includes certain forward-looking information based on current estimates and forecasts. Actual results could differ materially.

Mike Unger is a freelance writer based in Baltimore, MD. Contact us at editorial@smartceo.com.

2U’S ‘NO BACK ROW’ APPROACH

At 2U, “high quality” is non-negotiable when it comes to its online learning platforms.

When your client list boasts some of the nation’s most prestigious colleges and universities, missing the mark isn’t in the cards. That’s why 2U has developed a unique cloud-based, software-as-a-service technology that provides schools with the operating infrastructure they need to attract, enroll, educate, support and graduate students globally, all while delivering the top-notch education they’ve staked their reputations on.

Here’s how it works:

  • Immersive course content. In order to facilitate robust class discussions, students engage in immersive course content between live classes. From documentary-style lessons to video case studies to interactive learning tools, course content is designed to raise questions, describe theories and inspire ideas for later discussion.
  • Live classes. Class sessions are held on a live video platform and are led by university faculty members. All classes are intentionally kept small — they average about 12 students — to facilitate close collaboration and engaging discussions.
  • Real-world learning experiences. Practice-based learning is a cornerstone of every program. All programs offer real-life, in-person immersion and networking sessions. Real-world experiences enrich classroom learning, and some disciplines simply cannot be taught without in-person, hands-on experiences.
  • Social engagement. By design, programs foster strong social engagement between students and faculty. 2U’s unique online campus and live classes bring learning and social engagement together on a web-based platform, and in-person experiences offer students the opportunity to meet, network and learn together.
  • Dedicated support services. High-quality student and faculty support is a hallmark of 2U’s service offering. Faculty support begins the moment 2U begins to work with a university, working closely with teaching professors. Support for students begins when they inquire about a program, and continues throughout their program.

Source: 2u.com