What Blackboard’s New CEO Needs to Do Now (and how you can tell if he’s doing it)

As Phil noted in his post, Blackboard has hired a new CEO, a guy by the name of Bill Ballhaus. We don’t know much about him yet, other than that he came from outside education. (That shouldn’t be considered a disqualifier, by the way. Instructure CEO Josh Coates also came from outside education, for example, and he has kept most of his customers very happy so far.) We’ll learn more about him over the next days, weeks, and months. In the meantime, it’s worth taking some time to consider the challenge he has in front of him.

Still Under Private Equity, But Different Conditions

Before we get into the steps that management has to make, it’s worth taking a moment to remind and update ourselves regarding the conditions under which they operate. Blackboard is owned by Providence Equity Partners, a private equity (PE) company. As I wrote back when they were acquired, there are two basic business strategies for PE—landlords (usually slumlords) or house flippers. Sometimes PE buys a property that generates a lot of cash and just does the minimum to keep the money coming in. Product generally doesn’t improve much and, in fact, often slowly deteriorates. This is the landlord scenario. Other times, PE buys a property that they think has obvious problems that can be fixed in a few years. They make very careful, targeted investments with the goal of selling the property for a lot more than they paid for it a few years down the road. This is the house flipper scenario. There is a third model that I didn’t mention in the original post, which is junkyard. In this model, PE thinks that the parts of the company are worth more than the whole. They buy it cheap, fleece it for parts, and junk the pieces that don’t sell.

One important consideration for all of these models is that the purchase of the company is almost always made with a lot of debt financing. Debt financing means interest payments. And those interest payments go to the bottom line of the companies being purchased. So, for example, even if Providence was interested in flipping Blackboard, any investments they make into fixing up the house will be bounded by those interest payments. Basically, the CEO of the company is given the equivalent of a second mortgage and told to use the money to get the property into selling shape. In retrospect, it is clear that Providence tried and failed to use the house flipping strategy with Blackboard in a three-year time frame. (More accurately, Jay Bhatt tried and failed on Providence’s behalf.)

So what now?

We don’t know much about the new guy yet, but one thing we do know is that he has successfully flipped a company for Providence before. That suggests that the company may not have given up on the flipping strategy yet. Also, Ballhaus’ title as listed on the web site is “chairman, president, and chief executive officer.” I may be mistaken, but I believe that having Blackboard’s CEO also be Chairman of the Board is new. It is also relatively unusual (though not unheard of) with PE-owned companies. It suggests that they are giving the new guy more control and independence than Bhatt had. It also suggests that Providence is in a relatively weak negotiating position with the new guy. Chances are good that he has been given another three to five years of runway to turn the company around for a flip. Chances are also good that he is in a position to loosen the purse strings a little more than his successor was.

But that doesn’t mean that his job will be easy.

An Uphill Climb

Ballhaus inherits a company with a number of problems. Their customers are increasingly unhappy with the support they are getting on the current platform, unclear about how they will be affected by future development plans, and unconvinced that Blackboard will deliver a next-generation product in the near future that will be a compelling alternative to the competitors in the market. Schools going out to market for an LMS seem less and less likely to take Blackboard serious as a contender, which is particularly bad news since a significant proportion of those schools are currently Blackboard schools. The losses have been incremental so far, but it feels like we are at an inflection point. The dam is leaking, and it could burst. Meanwhile, tensions are growing between Blackboard and Moodle HQ in an environment where Moodle is core to Blackboard’s international strategy and international is the main area where Blackboard is seeing growth. The first six months of Ballhaus’ tenure will be particularly important if the company is going to manage a turnaround without going through a period of freefall.

Here are some of the things that the new adminstration will need to accomplish in the next six months to reduce the changes of a disaster:

  • Visibly improve support for 9.x: Phil and I have been hearing a growing chorus of complaints that bugs in 9.x are not getting fixed and development of new features has been slow. Nothing sends customers running faster than a sense that the company just isn’t responsive to current needs. Blackboard needs to not only improve its support numbers but make sure customers know that it is doing so and making it a top priority for the foreseeable future.
  • Clarify messages around the future of 9.x and of managed hosting: Customers have been getting conflicting messages out of the company. We spoke to one who had been told outright that 9.x is no longer a priority by one VP and that 9.x is going to be strongly supported going forward by another VP. After I complained about their confused messaging on the future of managed hosting in the world of Ultra, Blackboard did take some steps to clarify. But I don’t believe that message got out broadly to the customers and, in any case, it is swamped by the overall confusion around 9.x versus Ultra.
  • Prove that Ultra is real: While there are customers who will not be quick to move off of 9.x (for a variety of reasons), nobody believes that the current platform represents a compelling future for digital learning environments. It is long in the tooth. But schools evaluating LMSs have largely discounted Ultra because they don’t think it’s real and they’re not convinced that it ever will be. Now that the product is a year late, they have increased reason to be skeptical. We have heard that there are schools piloting Ultra, but I am not aware of any public information about how these pilots are going or even which schools are participating. Blackboard needs to ship Ultra and trot out some customers who are willing to speak publicly about their experiences with it. If they fail, they will not get a do-over.
  • Keep the pedal to the metal internationally: Blackboard’s one bright spot at the moment is international growth. The new guy may (or may not) get a little more financial slack, but it will still be far from getting a blank check. International sales need to keep growing.
  • Resolve the tensions with Moodle HQ (one way or another): As Phil and I have written about before, Moodle is critical to Blackboard’s international growth, but there are growing signs of tension between Blackboard and Moodle HQ, the company that shepherds Moodle’s open source development. While this item is less of a “must do” than it is a “probably gonna happen,” I think it likely that Blackboard will either mend fences or go its separate ways in the next six months. Unresolved tensions are not good for either organization.

What to Watch For

If you’re a North American Blackboard customer, here are some signs to watch for over the next six months to help you get a sense of whether the new guy is going to work out:

  • Ballhaus gets out of the building: The first thing the new CEO will need to do is listen very loudly. Customers were feeling a lot of anxiety and confusion even before the announcement. If word doesn’t get out broadly that the CEO is visiting schools, asking good questions, taking notes, and following up, he will already be losing.
  • Clarity around 9.x support and development: This will probably take a little longer, but it needs to start happening before BbWorld. Customers need to start seeing support tickets closed faster. They need to hear what’s going to happen to their platform, how long they can stay on it and what will happen if they do. Upgrade path announcements will likely have to wait for BbWorld, but even if customers have to wait a little to hear about the future, they need to be reassured about the present.
  • A return of the annual report card: The last time Blackboard was trying to rebuild its relationships with customers, leadership instituted an annual report card, showing metrics that customers cared about and providing updates on the company’s progress (or lackthereof) toward meeting those metrics. It worked. Customers felt the company understood what was important to them and was holding itself accountable. Unfortunately, the tradition left with Ray Henderson. If you start seeing metrics again on stage at BbWorld, you will know that Ballhaus understands his customer confidence challenge.
  • Ultra customers on stage at BbWorld: At this point, Ultra customers are rarer than an ivory-billed woodpecker.[1] If there are customers willing to speak publicly about a positive experience with the product, then you can start hoping that it’s real.
  • Jon Kolko and John Whitmer on stage at BbWorld: First, any time Blackboard has the opportunity to show that it is capable of retaining a senior employee who has ear grommets and multiple tatts, it should. But beyond that, Kolko and Whitmer are the two people in the company who can clearly, credibly, and persuasively talk about a compelling, educationally richer future for the Blackboard platforms. If these two guys appear on stage, it will suggest that Ballhaus has figured out how to separate baby from bathwater.
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Blackboard VP of Design Jon Kolko

A few weeks ago, during an ELI end-of-the-year webinar, I predicted that 2016 would be an eventful year for the LMS. We’re four days in so far.

Four days, people.

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About Michael Feldstein

Michael Feldstein is co-Publisher of e-Literate, co-Producer of e-Literate TV, and Partner in MindWires Consulting. For more information, see his profile page.
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9 Responses to What Blackboard’s New CEO Needs to Do Now (and how you can tell if he’s doing it)

  1. Christian says:

    My thoughts exactly. Ultra is still very much a proof of concept and anytime I have asked Blackboard employees when will this or that feature be added to Ultra..I get a don’t know response and a shrug. Not a way to run a business.

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