Business Ideas VII: GuideMe

Idea: GuideMe – an automated guidance counselor that helps students make better college and career choices

MVP: Too many students in the US leave college with too much debt and no realistic career path – in part because guidance counseling is a luxury at many American high schools. GuideMe will help fill this void, using students’ interests and strengths to show each student the college or vocational programs that will help them achieve their goals. GuideMe will also help students evaluate admissions offers to determine the best choice in terms of career ROI, taking into account both costs and future income.

Market: US high schools average one guidance counselor per 500 students, leaving most students with no career guidance except what’s available via friends, family, and the internet. In this vacuum there’s a tremendous opportunity to help students and families make better choices, with better careers and less debt the end results.

From a business model perspective, students and high schools have limited resources, but employers have a substantial recruiting need, and a successful app could funnel qualified candidates into positions at a far lower cost than traditional means of recruiting. There are over 150M working Americans, 100M of whom lack a college degree. The vast majority of that 100M employees might benefit from vocational training and placement services – almost 50% of employees change jobs annually. If the value of placing an employee is conservatively estimated at $1000 (versus the 20-25% of salary typically paid in white-collar recruitment), this leads to a total addressable market as large as $50B. [1]

Idea Score (0-10 scale): 8 points

Feasibility of MVP / Market Entry (out of 2): 2

The GuideMe MVP would leverage data on salaries and tuition published by college programs in order to determine career ROI, adjusting each career path for projected future changes. Much of this data is either publicly available or can be licensed, but it may need to be refined newer or non-traditional careers.

GuideMe would then determine the highest ROI programs for a student, based on their GPA, test scores, and interests. Virtually all of the data needed for the MVP is publicly available, though career ROI estimation algorithms vary – given my experience building HiddenLevers, this should be a competitive advantage.

Revenue Market Size (out of 4): 4

As noted above, the total market opportunity in the HR recruitment space, taking into account only the under-served vocational market, is conservatively estimated at $50B  per year.

GuideMe’s principal issue is that the initial platform rollout is devoid of any revenue generation plan – users in the cost-conscious student market are unlikely to adopt a paid guidance product. GuideMe instead intends to roll out a full-featured free product, while developing a placement product for employers requiring specific skillsets. GuideMe will be well positioned to match capable students with employers, enabling higher volume placement at a lower cost to businesses.

The challenge in building a two-sided marketplace style product is well known, but the returns to success can also be extraordinary.

Difficulty, Barriers to Entry, and Competition  (out of 2): 1

Many sites and apps exist to provide guidance in aspects of the college decision process, but none  provide comprehensive career guidance, and none utilize the concept of career ROI.

Existing competitors like MyKlovr are attempting to solve aspects of this problem, but appear to be focused on paid software approaches, which will limit growth potential. There is substantial risk involved in building  a free guidance product, and then working to link it to employment placement, but this approach is likely to capture the largest number of users in a space where massive scale is possible.

Riding Hype or a Trend (out of 2): 1

At present there seems to be little focus on this market – but if scale can be achieved among the 20M students in US high schools, then building a funnel to employers should become relatively straightforward. Very little has been done to improve the functioning of the middle of the US job market in particular – the rewards are too small for traditional HR firms to work hard at placing a plumber. Automation is the key to unlocking the scale potential in this market – and early career guidance is the key to bringing large numbers of candidates to market.

 

[1] Public companies like Randstad, Adecco, Robert Half, and Manpower show that valuations in the $5-10B range are possible in this sector.

Career Rankings by ROI and salary

A college education has many rewards, but it is primarily an investment, and its return can be calculated by measuring the increase in salary that it brings. While college has many intangible benefits that are difficult to measure, the NPV and IRR of future income can be used to measure its rate of return. Unfortunately, very few comparisons have been done to rank career paths on these metrics.

In the table below, I build on my previous research by ranking 22 different career paths by return on investment. The careers are ranked by Net Present Value and rate of return (methodology explained at bottom). The career rankings take into account numerous factors for each career, including the length and expense of education, salary potential, and unemployment risk.

Career ROI Rankings:

Career Average Salary NPV After-tax earnings (lifetime) Rate of Return
1. Law $124,230 $186,200 $4,709,000 15%
Attorneys rank high on the list since their education is complete just three years after college, and they can step right into six-figure salaries.
2. Chemical, Petroleum, Nuclear Engineering $85,000 $174,100 $3,271,000 19.3%
Petroleum and Chemical engineers step into starting salaries over 60k, leading to a high return on a 4-year education.
3. Pharmacy $98,960 $173,305 $3,833,000 16.5%
Pharmacists typically must complete a six year program before starting work, but high demand for pharmacists enables them to move directly into $90k per year positions upon graduation.
4. Computer Science $83,160 $170,000 $3,335,000 19%
Computer science grads start work immediately after college with salaries above 50k, giving them a fast payback on their investment, but lifetime earnings potential is lower than in some professional fields.
5. Medicine – Specialist $190,000 $148,000 $5,994,000 12.75%
Doctors have always enjoyed good incomes, but their educational investment is so high that it reduces their educational ROI more than is commonly realized.
6. Accounting $69,500 $144,900 $3,038,000 17.9%
Accountants can start work right after college, and their pay increases considerably once they’ve completed their CPA certification.
7. Stockbroker $90,470 $125,600 $3,194,000 16%
Stockbrokers start with a low salary, but can build up to a comfortable 90k with time and effort.
8. Civil / Mechanical Engineering $75,200 $112,000 $2,860,000 16.0%
Civil and Mechanical engineers tend to lag engineers in other fields in terms of income and career ROI.
9. Medicine – Primary Care $161,500 $108,900 $5,246,000 12.2%
Primary Care doctors have an educational investment almost as high as medical specialists, but do not receive commensurate salaries.
10. Physical Scientist (Astronomy, Physics, Chemistry, etc) $78,100 $108,600 $3,177,000 14.7%
Physical scientists have to complete eight years of education before moving into a full time research or academic position.
11. Airline Pilot $148,410 $106,241 $3,279,000 13.75%
Airline pilots must work for years at low paying regional air or charter jobs before making it to a major carrier, but the final payoff is a relatively high salary and reasonable working hours.
12. Nursing (RN) $62,480 $106,170 $2,598,000 16.75%
Nurses can finish training in as little as three years, and earn relatively good salaries right from the start, with job prospects virtually anywhere in the country.
13. Police Officer $50,000 $78,000 $1,748,000 9.6%
Police Officers are well compensated relative to the length of their education, but take risks not associated with most other careers.
14. Biological / Life Scientist $69,175 $71,720 $2,812,000 13.3%
Biological scientists earn lower salaries than their colleagues in physical sciences, but have to undergo the same amount of training.
15. Financial Analyst $81,700 $54,000 $3,042,000 12.20%
While completing an MBA can nearly double a financial analyst’s salary, the high tuition and lost earnings diminish the rate of return.
16. Insurance Underwriter/Appraiser $57,795 $54,000 $2,342,000 13.20%
Insurance underwriters and appraisers enjoy a relatively steady income after college.
17. Architecture $73,650 $50,000 $2,710,000 12.2%
Architects have decent salaries in the long run, but they must first complete a five year Bachelor’s program, and then spend several years as interns before becoming full-fledged architects.
18. Human Resources Specialist $56,740 $25,000 $2,164,000 11.50%
HR Specialists start working quickly, but their salaries don’t rise as significantly as in other careers.
19. Graphic Design $45,340 $18,220 $1,994,000 11.2%
Graphic Designers can start work right after finishing college, but competition for positions is high, keeping salaries down.
20. Psychologists $70,000 $11,000 $2,373,000 10.5%
Psychologists’ long training period and low salary compared to MDs decreases returns significantly.
21. Teaching (K-12) $52,450 -$6,630 $1,930,000 9.6%
Teachers are not particularly well compensated in the US, and since their starting salaries are particularly low, the NPV of an investment in a teaching career is actually negative.
22. English (PhD) $60,000 -$15,250 $2,165,000 9.25%
At the bottom of the rankings are Humanities majors. If an English or Humanities PhD candidate tells you that they didn’t go into it for the money, they’re not lying: this career path has a negative return on investment in income terms.

Annotated spreadsheet with all calculations: HTML | XLS with formulas

Definition of Terms:

NPV: This is the Net Present Value of the student’s investment in education, based on a 10% discount rate. 10% is a common rate of return expected for long-term investments, and it helps provides a fair benchmark of the value of each career path.

IRR: This is the Internal Rate of Return of the educational investment. IRR tends to favor shorter time horizons, so shorter educational paths like engineering are rewarded when measured via IRR.

Lifetime Earnings: This is a simple sum of the lifetime after-tax earnings of each career path from age 18 through age 65.

Methodology:

All salary data was taken from the BLS May 2007 Occupation Employment and Wages Estimates. The BLS data measures only base salaries, and does not include bonuses, profit-sharing, or other similar forms of compensation in its estimates. College was assumed to cost $20,000 per year (this sounds low, but is an average for public and private colleges, after all scholarships, grants, and student work are taken into account). Professional school costs, and graduate and resident stipend data were sourced variously, and are noted in the spreadsheet. Inflation at 2% and progressive taxation are also accounted for in the calculations.

The rate of return for each field was calculated by determining the IRR for each field, taking into account the cost of college and measuring total after-tax gains from age 22 to age 65. The NPV of each career path was also calculated with a discount rate of 10%. Finally, lifetime after-tax earnings were calculated as a simple sum to provide another measure of earnings potential.

What People Make III: Career ROI is as important as salary

What is the purpose of higher education? While a minority of college students have enough wealth to study as a hobby, college students generally view college as a step towards a career, with higher earnings potential as one motivation. But while a four-year college education generally has the same price tag regardless of degree, an individual’s future earnings potential vary widely depending on the degree chosen. Here is a partial ranking of careers, ranked by NPV and rate of return (details on the methodology at bottom):

Career ROI Rankings:

Career Average Salary NPV After-tax earnings (lifetime) Rate of Return
1. Law $124,230 $188,000 $4,825,000 15%
Attorneys rank high on the list since their education is complete just three years after college, and they can step right into six-figure salaries.
2. Computer Science $83,160 $184,000 $3,534,000 19%
Computer science grads start work immediately after college with salaries above 50k, giving them the fastest payback on their investment. Lifetime earnings potential is lower than in some professional fields, however.
3. Pharmacy $98,960 $168,000 $3,885,000 16.2%
Pharmacists typically must complete a six year program before starting work, but high demand for pharmacists enables them to move directly into $90k per year positions upon graduation.
4. Medicine $179,000 $151,000 $5,908,000 12.9%
Doctors have always enjoyed good incomes, but their educational investment is so high that it reduces their educational ROI more than is commonly realized.
5. Accounting $69,500 $148,600 $3,151,000 17.9%
Accountants can start work right after college, and their pay increases considerably once they’ve completed their CPA certification.
6. Airline Pilot $148,410 $125,000 $3,578,000 14.25%
Airline pilots must work for years at low paying regional air or charter jobs before making it to a major carrier, but the final payoff is a relatively high salary and reasonable working hours.
7. Nursing (RN) $62,480 $100,000 $2,633,000 16.3%
Nurses can finish training in as little as three years, and earn relatively good salaries right from the start, with job prospects virtually anywhere in the country.
8. Architecture $73,650 $54,000 $2,839,000 12.3%
Architects have decent salaries in the long run, but they must first complete a five year Bachelor’s program, and then spend several years as interns before becoming full-fledged architects.
9. Graphic Design $45,340 $24,850 $2,125,000 11.6%
Graphic Designers can start work right after finishing college, but competition for positions is high, keeping salaries down.
10. Teaching (K-12) $52,450 -$10,100 $1,986,000 9.4%
Teachers are not particularly well compensated in the US, and since their starting salaries are particularly low, the NPV of an investment in a teaching career is actually negative.
11. English (PhD) $60,000 -$14,000 $2,301,000 9.3%
At the bottom of the rankings are Humanities majors. If an English or Humanities PhD candidate tells you that they didn’t go into it for the money, they’re not lying: this career path has a negative return on investment in income terms.

Annotated spreadsheet with all calculations: HTML | XLS with formulas

Law, Computer Science, and Pharmacy majors take top honors in terms of career ROI, while (perhaps not surprisingly) artists, teachers, and Humanities professors come out on bottom. Doctors and airline pilots are further down the list than one might suspect, principally because they spend so many years in training before achieving high compensation.

Definition of Terms:

NPV: This is the Net Present Value of the student’s investment in education, based on a 10% discount rate. 10% is a common rate of return expected for long-term investments, and it helps provides a fair benchmark of the value of each career path.

IRR: This is the Internal Rate of Return of the educational investment. IRR tends to favor shorter time horizons, so shorter educational paths like computer science are rewarded when measured via IRR.

Lifetime Earnings: This is a simple sum of the lifetime after-tax earnings of each career path from age 18 through age 65.

More info on Methodology:

All salary data was taken from the BLS May 2007 Occupation Employment and Wages Estimates. College was assumed to cost $20,000 per year (this sounds low, but is an average for public and private colleges, after all scholarships, grants, and student work are taken into account). Professional school costs, and graduate and resident stipend data were sourced variously, and are noted in the spreadsheet. Inflation at 2% and progressive taxation were also accounted for in the calculations.

The rate of return for each field was calculated by determining the IRR for each field, taking into account the cost of college and measuring total after-tax gains from age 22 to age 65. The NPV of each career path was also calculated with a discount rate of 10%. Finally, lifetime after-tax earnings were calculated as a simple sum to provide another measure of earnings potential.