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Instructure Restructure: Significant layoffs hitting Canvas side of the business

Author

Phil Hill
May 27, 2020

After Instructure’s January layoffs, which mostly affected Bridge and its corporate learning market, then CEO Dan Goldsmith stated at a company all hands meeting that there were no more planned layoffs coming. Thoma Bravo, the private equity firm that completed the acquisition in March, had other plans as reported at IBL News on January 26th [emphasis in original].

Last week, Instructure, home of Canvas LMS, went through a restructuring process which resulted in 100 full-time employees losing their jobs. They were primarily working on the money-losing Bridge corporate platform.

Despite the fact that private equity firms usually lay off lots of people, Thoma Bravo, the new expected owner, has promised that it won’t reduce Instructure’s staff on the new path to profitability.

That plan was never realistic and likely misstated by company management. Today, Instructure has implemented a new, even larger round of layoffs, this time primarily targeted at the Canvas side of the business (academic markets in higher ed and K-12). More than 150 people are losing their jobs, representing more than 12% of the workforce. These layoffs appear to be broad-based, hitting most if not all departments. When combined with the January cuts, Instructure has now removed almost 20% of its full-time staff since the beginning of the year. These are significant layoffs.

Instructure management confirmed these layoffs, according to a statement provided by the company:

Letting friends and co-workers go is a difficult thing for any company at any time, and it’s only worsened by the reality of having to do it while we’re working remotely and dealing with the challenges created by COVID-19. This week Instructure had to say goodbye to a number of talented individuals, and we are doing what we can to aid in their transition, recognizing that they have all played a meaningful, invaluable role in building Instructure into the company it is today. Their future employers and colleagues will be fortunate to have them.

Closing Offices

In additional cost-cutting measures, Instructure is also closing most of their satellite offices and will now run almost all business out of their Salt Lake City headquarters. The company will retain staff outside of headquarters, but they will be working remotely. The Chicago, Seattle, and San Diego offices will be gone (it is not clear if Philadelphia, home of the Practice acquisition, is also closing).

Instructure is even closing its large London office that had been running its Europe, Middle East, and Africa (EMEA) regions. Long-time General Manager of EMEA, Kenny Nicholl, was let go late last week, according to his post on LinkedIn, in advance of the further cuts and office changes. Instructure will retain staff working remotely in the UK and moving forward will have its office in a shared workspace setting.

Financial Targets

As is typical for companies owned by private equity firms, the driving force for Instructure has become hitting bottom line targets. Profitability above all else. While Instructure was backed by venture capital and once they became publicly-traded, the primary focus was on growing the top line revenues. Growth above all else. Instructure is in the middle of a financial and cultural shift to change emphasis.

The concerns over profitability and cost control are not new, however. The remote offices cost a lot of money, and the stock market in general was pushing Instructure to move toward profitability, at some point as long as it didn’t harm growth too much. In addition, with the change in management last year, Instructure had hired a lot of high-level employees in marketing and strategy. Clearly Instructure was not built on profitability – we shouldn’t pretend that there are not areas that could be cut and operate more efficiently. The question is whether these cuts go too deep and affect Canvas’ competitive position.

It is also important to recognize that while Thoma Bravo is focusing Instructure on hitting its profitability metrics, this comes at a time when the company’s internal costs have been rising due to the COVID-triggered move to remote teaching. I described in March how systems such as Canvas were seeing massive increases in system usage (60% – 1000% increases), and these increases lead to higher costs from cloud infrastructure such as Amazon Web Services (AWS).

Cloud usage has helped EdTech platforms largely manage the massive usage increases, and we will likely see an acceleration of cloud adoption for the remaining LMS implementations on self-hosting models and for other product categories. But we will also see financial impacts on LMS vendors as they deal with increased internal costs.

Change in Culture

It appears to me that the current layoffs are not just about finances, however. There appears to be a deliberate change in culture that is being pushed. Nearly three years ago I wrote a post “InstructureCon 2017: Culture as a competitive weapon” describing the importance of this topic.

In our recent coverage of BbWorld and D2L Fusion, Michael and I came away impressed. Both companies are improving and doing so in ways showing them listening to customers, empathizing, and developing product enhancements with more engaging user experiences. Both companies are doing so by attempting to change their company cultures to support these behaviors. Their challenge, however, is that Instructure is already there – their company culture has supported simplicity, customer-centric empathy, and openness from day one. And what struck me (again) at this year’s InstructureCon was how well the company is managed and how consistent is their approach, over time and throughout the organization. [snip]

While Canvas is a market-changing platform, that is not really Instructure’s primary strength. Instructure as a company is the real strength.

What I didn’t know at the time was that this was the peak of this culture, with ongoing changes accelerated by then-CEO Josh Coates mostly checking out of day-to-day management of the company in 2018 and then handing the reins over to Dan Goldsmith in January 2019. 1 The clearest evidence of how much the culture was changing came in March 2019 when CEO Dan Goldsmith was touting the DIG initiative with its promises of artificial intelligence and machine learning transforming how schools could leverage EdTech data.

This is brand new behavior for Instructure as a company. Previously the company was reticent to talk much about non-released products, but now they are talking not just about a new initiative, they are touting buzzwordy machine learning and artificial intelligence and predictive modeling well before any of those capabilities exist or are in customer hands. [snip]

Wow. Robot tutor in the sky – meet the new kid on the block.

No company can go backwards to fully reclaim the old culture, but after Goldsmith’s departure in February of this year, Instructure has made some positive changes with interim CEO Charles Goodman, and now that the long-running soap opera of the Thoma Bravo acquisition is complete.

Despite these noted improvements, Thoma Bravo is the new owner, and they have a playbook for how they manage software companies. A major part of this approach is to ensure that their companies understand the mindset and inherent culture required to live in a private equity world. This new and emerging culture appears to be in stark contrast with what could be described as the Instructure Way. Spreadsheets and plans on increasing the bottom line drive a certain type of management, and the new owners and the senior executive team are showing that they will not be held back by people wanting to protect the old culture and ways of doing business. There are choices that have been made on who to cut and how, and (to me, at least), there seems to be a message being made. I realize some of this is vague, but I will likely go into more details in future posts and in our podcasts.

What to Expect Next

These layoffs are not the only significant changes we will see from Instructure this summer. In my March post written after the sale to Bravo was complete, I described the CEO search.

In an interview today, [interim CEO Charles] Goodman described the CEO search as likely taking three or four months. Ideally they would hire someone with direct EdTech experience, but the chosen executive must have software industry experience at a company with comparable scale and growth as Instructure. In addition, Goodman stressed the importance of finding someone who fits the Instructure culture and aligns with the broader higher education culture. Goodman said there would likely need to be compromises made to find the best candidate, not a perfect candidate.

At this point Thoma Bravo does not have immediate changes planned for the Instructure executive team, but I would expect some new faces once a new CEO is named.

I believe that we are seeing this balancing act playing out. I have heard from multiple sources that Instructure has identified a potential CEO already – someone “internal” to the Thoma Bravo holdings – and this person could be named in the next month or two. It is not clear how well the statement about fitting the Instructure culture figures into the final selection.

Beyond the CEO search, I would also expect Instructure to ramp up their planned M&A activity quite soon. Thoma Bravo has been explicit about their intentions to acquire other EdTech companies and to fold them into Instructure. I would also expect Instructure to determine which of their add-on products still fit in the overall vision.

Given the size of both layoffs this year, we will need to watch to see how well Instructure can continue to develop Canvas (particularly the core LMS), when they clearly will likely have to dedicate significant resources into integration of any new corporate acquisitions.

Disclosure: Instructure, Blackboard, and D2L are all subscribers to the MindWires LMS Market Analysis data service (as are many of their competitors).

Update 5/27: Per Instructure clarification, I have corrected statement about São Paulo office being closed. That office is being reduced in size, but it is not being closed. I apologize for the mistake.

Update 6/3: Clarified that the new London office will be in a shared workspace setting, since the previous description was imprecise and could be interpreted incorrectly.

1 Disclosure: Instructure, Blackboard, and D2L are all subscribers to the MindWires LMS Market Analysis data service (as are many of their competitors).