Beyond universities, the world needs alternative pathways into jobs | Part 1 — why are we investing in this space?

With 1 billion individuals needing to be reskilled by 2030, traditional education providers are failing to meet the needs of those looking to upskill/reskill and access jobs in the most high-growth industries. From Udacity to General Assembly, the first wave of startups have seen limited success in enabling individuals to access these in-demand jobs at scale. At Emerge, we have identified the characteristics of a new generation of providers; set to establish alternative pathways into jobs that will rival the $2T higher education sector.

This article is the first of a two-part series on the future of alternative pathways into jobs — developed in collaboration with 30+ corporate senior leaders, startup founders and sector experts.

At the end of this article, you will have gained insight into:

• The learner personas that are most underserved by traditional education providers
• The four emerging models that will define the future of alternative pathways into jobs
• The fundamental reasons behind why the first generation of these providers have seen limited success
• The defining characteristics of the next generation of unicorns that will be created in this space
• The most exciting future market opportunities for early-stage founders

The pandemic drove global unemployment to a record level

In 2020, global unemployment reached a record high of 7.2% with c. 250m individuals unemployed. Lasting damage to the labour market is expected as the International Labour Organization (ILO) warns that the pace of job creation is unlikely to make up for lost employment until 2023. The impact of this damage will be extremely disproportionate as 80% of workers facing job insecurity do not have a university degree. As for those with degrees, recent graduates have been hardest hit with unemployment rates almost 3x higher than the average for all graduates. By 2030, McKinsey estimates that more than 100m workers in developed economies will need to switch occupations, with almost half requiring more advanced skills.

Meanwhile, skills shortages are leaving millions of vacancies unfilled

Prior to the pandemic, the global skills gap was estimated to reach $8.5tr and 85m unfilled vacancies by 2030. Covid-19 has only accelerated this as many sectors have experienced digitisation jump forward by several years. As for growth in labour demand, the majority of this is expected to occur in high-income jobs, especially technology. For example, Microsoft predicts that there will be 149m new jobs in technology alone by 2025. Mass upskilling and reskilling will be required to fill these vacancies as 69% of companies already report talent shortages and difficulties in hiring.

Traditional education providers are failing to address this need

As highlighted in our previous posts, the current education system is not set up to equip learners at scale with the skills required to access the most in-demand jobs. Although universities are typically seen as the best route to start a meaningful career, there is a large and widening gap between higher education and industry. Further, even if all university courses delivered great job outcomes, universities alone will not be able to reach the scale required to bridge the growing skills shortages. It has taken 200 years for universities to serve 200m learners worldwide, and even the doubling of this capacity over the next 2 decades would not be sufficient to fill the growing number of new job vacancies.

Large numbers of students and workers have been left underserved

Specifically, the following groups of learners are the most underserved by traditional education providers:

1. 16–21 year-olds seeking faster and cheaper routes to employment — undergraduate degrees are a lengthy and expensive route into employment, typically requiring three years of full-time commitment and an average student debt of £40k. For students who would prefer to save time and money while getting an earlier start to their career, the traditional undergraduate route falls a long way short of meeting these requirements. The existing alternative available here is state-funded apprenticeships, but these programmes suffer from low uptake as 89% of school leavers have some reservations about choosing an apprenticeship over university
2. Non-degree holders in low-income jobs — these individuals are most at-risk of job displacement, and have the greatest need for skills development to access new higher-paying jobs in fast-growing industries. Existing solutions present a lack of affordability and flexibility as most programmes require several thousands in upfront fees; along with an extended period of full-time commitment
3. Recent graduates who are unemployed or underemployed — more than one-third of recent UK graduates are estimated to be working in a non-graduate role, and another 12% are unemployed. This group requires additional support, guidance and/or skills development to secure their first job at a graduate level or equivalent
4. Aspiring career changers in medium- and high-income jobs — this group comprises predominantly of degree-holders working in ‘traditional’ industries such as finance and professional services, who are seeking to transition into a career in tech. Current offerings fail to meet this group’s needs as they provide little flexibility for learners, have limited alignment with employer requirements, and offer little-to-no hands on experience for practical skills development

Technology-enabled solutions will be key to bridging the skills gap

At Emerge, we believe that technology startups will play a fundamental role in bridging the skills gap for employers and addressing the needs of these individuals. Given the scale of the problem, in-person solutions alone will not be able to deliver the mass up- and re-skilling required on a global scale. For learners, technology is necessary to access flexible learning opportunities that can be completed at any time and from anywhere in the world. For employers, digital skills are a fundamental pre-requisite. Technology also brings cost advantages with significant economies of scale through automated assessments and personalised learning.

Alternative pathways to jobs are emerging to address this challenge

We define ‘alternative pathways’ as solutions that take an untrained individual and provide them with the skills and support to secure a well-paid job in a high-growth industry. There are four technology-enabled models emerging in this space:

• Model 1: Industry certification platforms — these providers offer online self-directed learning and access to industry-approved certifications that are valued by employers. The programmes are paid for by the learner and pricing varies from £20–200 per month. There are now several thousands of online certificates available for learners to upskill themselves across a wide range of disciplines including: project management, business analysis and human resources. This model offers significant flexibility for the learner, but the focus on self-study typically works for a minority of highly motivated learners, leading to lower completion rates. There are now several large players in this space including Udacity, Udemy, Simplilearn, Datacamp and A Cloud Guru.
• Model 2: Bootcamps — this model comprises of immersive 3–6 month learning experiences that are typically cohort-based and include career support. Each programme costs £8–20k and is paid for by the student through upfront payments, instalments, and/or an Income Share Agreement (ISA). To date, most bootcamps have focused on coding, with some newer players focusing on other high-growth skills such as data science, design and sales. Bootcamps are more cost-effective and industry-aligned than most postgraduate programmes. However, it’s extremely difficult for learners to differentiate between the >500 bootcamps in the market, and skills development can be limited given the relatively short duration. The largest bootcamp providers are General Assembly, Flatiron School, Springboard, Lambda and Trilogy.
• Model 3: Staffing companies — these providers hire and train graduates before deploying them to work at client organisations on a project-basis. Individuals are employed from day 1, and are charged out at a standardised fee set by the staffing company. For learners, this model is free with the staffing company providing industry-aligned training and taking 100% of the risk. However, these learners are locked in for a period of at least 18–24 months with the employer, and a significant proportion of salary is effectively shared with the staffing company. These providers focus predominantly on filling technology roles such as software engineering, quality assurance and technical operations. There are a number of established players in this space including FDM, Mthree and Revature.
• Model 4: Employer and/or state-funded learning — similar to staffing companies, these providers offer a job guarantee, and deliver a learning experience that is free or paid for the learner. However, a key difference is that the learner is not required to work for the learning provider for a specified period of time. The learning experience can vary between a 3-month full-time programme, a 2-year ‘earn and learn’ model where learners split their time 80:20 between work and training, or a combination of both models. There are also various business models that can work here including: schools taking 100% of the upfront risk and charging hiring fees for placed learners, employers paying upfront for the school to recruit and train a specified number of learners, and state-funded apprenticeships. Although there is significant government funding available through initiatives such as the apprenticeship levy in the UK, employer take-up has been low as >£2b have been lost in unspent apprenticeship levy funds over the past 2 years alone. Encouragingly, there are a number of emerging players including Multiverse, The Academy and Patika who are stepping up to educate employers and take this model forward.

These models offer learners greater flexibility, skills and outcomes

In comparison with traditional education providers, these alternative models provide learners with a range of benefits including: up-to-date and industry-aligned curricula, greater access to employers, and increased flexibility. The graph below demonstrates the extent to which these benefits vary across different models.

The impact of these models will vary across different groups of learners

On the one hand, industry certification platforms (model 1) and bootcamps (model 2) offer greater flexibility for the learner by offering fully online, part-time and on-demand options for learning. On the other, they push the cost of learning on the individual, and many bootcamps offer little to no direct exposure to employers and the workplace. Staffing companies (model 3) and employer/state-funded education programmes (model 4) increase accessibility by removing the burden of tuition fees, and offer greater guarantees around job outcomes. However, they typically require learners to commit to the programme full-time, and may also stipulate that the learner must work with the learning provider or employer for several years. These differences make models 1 and 2 more attractive to ‘aspiring career changers in medium- and high-income jobs’. For all other groups of learners, we expect models 3 and 4 to better meet their needs.

The first generation of providers have seen varying success

Industry certification platforms and bootcamps are the two models that have seen the most growth. For model 1, leading players such as Udemy and Udacity reached unicorn status over the past decade. However, with average completion rates typically falling below 10%, these self-paced courses were only a route to employment for the most highly motivated students. Although the largest MOOC platforms such as Coursera, EdX and FutureLearn have expanded their industry certifications, this only makes up a small minority of their courses. In recent years, the bootcamp market has seen significant proliferation with >500 bootcamp providers worldwide growing at 30% YoY. With the exception of Trilogy’s university-branded courses, no bootcamp provider has been able to scale beyond 10k graduates per year. As a result, these companies remain a long way away from becoming a mainstream alternative to university.

The next generation of providers are stepping up and learning from the past

In recent years, a new crop of startups have emerged with new and improved offerings that address the shortcomings of older incumbents. Based on the current trajectory and outcomes delivered to date, these players are set to grow exponentially and surpass their predecessors. The key ingredients powering the success of these new models are:

• Risk-free business model for learners — from bite-sized videos to full degree programmes, individuals today are overwhelmed with options for online learning. In this crowded landscape, differentiation becomes a critical challenge for providers, with customer acquisition costs (CAC) becoming untenable at scale. This is the root cause behind the limited success of bootcamps. Even the largest online consumer education providers, from Udacity and Udemy to Coursera and OpenClassrooms, have seen the biggest revenue growth from B2B rather than B2C in recent years as direct learner acquisition becomes increasingly expensive. The new generation of providers reduce CAC and make themselves 10x more attractive to learners by removing the burden of tuition fees, and instead, shifting this to employers and state funding.
• Live and cohort-based learning — many of the large established players today face low completion rates as learners struggle with motivation when completing fully online and self-paced courses. The new generation of providers are solving this problem by reverting to the traditional pedagogical model of live lessons and structured cohorts. The increased accountability, networking opportunities and peer-to-peer support results in significantly improved learner engagement. A great example is UpGrad, founded in 2015, that has now scaled to >$150m in revenue while delivering live and online cohort-based courses with completion rates >90%.
• Client relationships with employers — in order to deliver successful job outcomes, it’s essential for providers to equip learners with both the skills and the signalling required to attract employers. The new generation are solving for this by focusing on employers as clients, and establishing deeper relationships with larger numbers of employers. These employers then inform course design to ensure that learners are developing the most in-demand skills. The co-branding of courses with employers addresses the signalling need for learners. More importantly, establishing hiring partnerships with employers directly boosts learner job outcomes. As these relationships become stronger, providers will be able to place ever larger numbers of learners directly to these partners.

At Emerge, we believe that these players are only the first of many more that will appear in the coming years to establish a mainstream and meaningful set of alternative pathways to jobs. The market map below highlights a selection of the established and emerging players in this space.

There is significant room for innovation and opportunities for new players

Based on the learner profiles that are currently underserved, the current market size for alternative pathways is £64b in Europe and the US alone. This presents a vast untapped opportunity for new players focused on the four emerging models. In the next part of this series, we will produce a market guide that deep dives into these models, and outlines practical advice that can be used by founders to build a unicorn in this space. This guide will focus on the most exciting new categories in this market, some of which are highlighted below:

• Community-powered and verticalised bootcamps — although there is no shortage of coding bootcamps, there have been few offerings focused on other fast-growing verticals including: sales, customer success and UX design. As demonstrated by On Deck and Microverse, community engagement between learners is a highly desirable ingredient for high engagement, completion rates and scalability. We are on the lookout for new players that are able to build vibrant learner communities around programmes that upskill learners and place them into jobs in these verticals. Exciting players in this category include Productschool, Flockjay, Growth Tribe and Cousto.
• ‘Made to hire’ training providers — for employers in high-growth and high-turnover industries, the biggest pain-points are sourcing, screening and onboarding candidates. There is a gap in the market for new providers to directly address these problems by delivering ‘made to hire’ candidates who directly meet specific employers requirements. Success for this model will require providers to expand their offer beyond upskilling, and build technical solutions to deliver candidate screening and matching for employers. New players in this space can draw inspiration from the likes of Workera, TestGorilla and Frontier.
• Career navigation and pathway support — recent studies have shown that >60% of UK employees are unhappy in their work. Despite the prevalence of upskilling providers, there are few solutions to help learners identify their desired career pathway, and the optimal upskilling solutions required to succeed in that pathway. There are a number of potential technology-enabled solutions for this problem including: personalised coaching, AI-driven recommendations, and cohort-based career navigation programmes. Exciting newcomers in this space include Career Karma, Crew, Purpose and SkillLab.

At Emerge, we are on the look-out for the companies (existing and new) that will shape alternative pathways into jobs over the coming decade.

If you are a founder building a business across any of these models, we want to hear from you. We’re particularly excited about early-stage companies focused on models 3 and 4 (staffing companies and employer/state-funded education) where we see the greatest potential for growth. We are also on the lookout for companies innovating in the industry-certification space (model 1) and any founders who are looking to build differentiated bootcamps outside of the coding market (model 3) in Europe.

Ultimately, we believe that these are the businesses that will play a critical role in solving the skills gap, and our mission is to invest in and support these entrepreneurs right from the early stage. As a founder, you can keep in touch and receive piece 2 direct to your inbox by signing up, here.

Thanks to all the individuals who participated in the first phase of our research.

• Alvaro Rojas, co-founder of Hyrise Academy
• Ariel Camus, founder and CEO of Microverse
• Ashley Ramrachia, founder and CEO of Academy
• Ashwin Barath, co-founder and CEO of Revature
• Boris Paillard, co-founder and CEO of Le Wagon
• Don Taylor, Chair of Learning Technologies Conference
• Duncan Dunlop, Enterprise Account Executive at Coursera
• Ed Broadhead, Head of Adecco Analytics at the Adecco Group
• Gowtham Sundaresan, co-founder and CEO of Lancify
• Gülcan Yayla, co-founder and CEO of Patika
• Jack Hylands, co-founder and CEO of FourthRev
• Marc Zao-Sanders, founder and CEO of Filtered
• Marco Rosci, co-founder and CEO of Epicode School
• Parul Gupta, co-founder and President of Springboard
• Pierre Dubuc, founder and CEO of OpenClassrooms
• Rebecca Garrod-Waters, CEO of Ufi
• Ruben Harris, founder and CEO of Career Karma
• Salwa Muhammad, founder and CEO of FourthBrain
• Saranjit Sangar, EMEA CEO of UpGrad
• Simon Nelson, founding CEO of FutureLearn
• Shuvo Saha, former Director of EMEA Customer Programmes at Google and founder of the Google Digital Academy
• Tariq Chauhan, co-founder and group CEO of EFS

With special thanks to all members of the action group on developing skills and establishing alternative pathways into jobs. This group was led by Rebecca Garrod-Waters and Marc Zao-Sanders, along with Coursera as the technical partner.