Instructure Restructure: Significant layoffs hitting Canvas side of the business
//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. 1Disclosure: Instructure, Blackboard, and D2L are all subscribers to the MindWires LMS Market Analysis data service (as are many of their competitors). 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.
I worked at Instructure. Nobody should be surprised by this. Cutting costs is what Private Equity does. They do it to dress up a company and maximize profit and then they sell the company at a higher multiple. Thoma is one of the best at this, they will resell the companies they buy after 3-4 years. They do not care about people or if the company becomes a bad company. Phil, do not be fooled here. Speaking from the inside, there are very bad things going on at Instructure. These cuts included many people in product and engineering. Thoma is choosing to cut investment on products and things that are important to customers. The Thoma plan is to quickly cut costs and generate high margins, so they can use Instructure as an asset to take on debt. I saw the plan. Earlier this year, there was no further planned layoffs. Why do you think Goldsmith left and Coates cashed out? They did not agree with Thoma Bravo and what they want to do with the company, but they are ultimately the owners and can force decisions, like this. You should know that the management team almost revolted with the proposed changes that Thoma was putting forward. The way they keep management is to load them up with equity. They will give large amounts of equity to senior management to do their bidding. You should ask people like Mitch Benson, Melissa Loble, Matt Kaminer, Jeff Weber, and Frank Maylett how much equity they now have to gain with this new ownership. Thoma allocated over 200 million in future value equity (value over the next 4 years). Most goes to top management and very little goes to employees. Next step in plan…. raise prices on existing customers.
I just wanted to second everything InstGuy said. This company is going to trash and everyone knows it, but the only people who can stop it are getting a big old cash payout while they she’d crocodile tears on Slack and LinkedIn about “oh boo hoo it’s so hard to see all this fine talent go.”
Phil – I keep hoping you will try to report in an unbiased, respectful and cogent way, but your personal biases, and yes, your apparent personal vendettas, seem to keep getting in the way. As the previous poster pointed out Thoma’s plan was likely the reason former CEO, Dan Goldsmith, and former-former CEO/board chair Josh Coates, stepped away from the business. You’ve consistently failed to consider that they were likely the ones trying to stop exactly this type of thing from happening. Instead, you decide that because the current PE owners have “kissed your ring” and agreed to meet with you, you will give them the “benefit of the doubt.” Whether or not Instructure’s past or current leadership is doing a good job has never been dependent on their direct dialogue with you, nor should it be. Grow up. Stop letting the personal slights you feel were delivered to you impact your narrative. Maybe then your reporting will provide some valuable insight vs the tabloid drama you are currently peddling. You can do better than this.
there is no evidence that’s why Dan/Josh left. Until you have evidence to prove otherwise, I think Phil has it pretty spot on.
What is your evidence that Phil’s reporting is “spot on”? If both of the ex-CEOs were onboard with the Thoma approach, why leave at all? Thoma’s playbook surely would have netted them (as senior leadership/investors in a Thoma company) a significant sum (as it will for the remaining senior leadership). That is an indisputable part of the “playbook”. Why do you think that InstGuy (above), who states that he has first-hand knowledge of what happened, would lie? Further, what “evidence” has Phil presented that supports his “facts”? The answer is simple: none. InstGuy has presented clearer thinking and more direct evidence in one reply post than Phil has in multiple, drama-ladened op-eds. #tiredofthedrama #thinkbeforeyouspeakphil
I’ll ignore the personal statements – make your own judgements. But let’s keep this civil.
The two people at Instructure most responsible for bringing in Thoma Bravo as a new owner were Josh and Dan. The only other one with close to that influence on the process was their independent director Kevin Thompson. Read the proxy statements for these details. These were the people soliciting the Bravo offer and directly working with them to finalize the deal, setup the new strategy, and get past shareholder resistance. It stretches credulity to hypothesize that at the exact same time Josh and Dan “were likely the ones trying to stop exactly this type of thing from happening”.
“If both of the ex-CEOs were onboard with the Thoma approach, why leave at all?” If you want to get facts straight, one of the main points of going private was for Josh to finally cash out and leave. He wanted out, not in. He took a $1 salary for years and planned to make his money from Instructure by selling his shares – that’s what the Bravo deal did for him.
Dan’s situation was different, but he was forced out along with his sister. His letter to the company upon his departure was classy, but it contained no suggestions whatsoever that he was quitting due to Bravo plans. But there is no “proof”, as that is the whole point of forcing someone to resign (while giving up half his shares) rather than firing him. I would not call this a fact, per se, but it is my analysis based on multiple interviews with company insiders and investors and reading board documents.
To address InstGuy’s comment on why they left, that was the plan all along for Josh, and Dan was forced out by the board based on the fiasco of a sales process and how it was endangering the completion of the sale.
Ahem…. Yep, down there.
On a long enough timeline you become the very thing you criticized. Now the machine unravels.
To the Instructure leadership that criticized other platforms and companies, enjoy these just deserts. To the rank-and-file workers, I’m sorry you were sold a vision on layaway.
Goodness Phil, so much speculation with so little proof. Haven’t you realized yet that there are enough people here discrediting what you are saying who actually have the real facts? These are individuals who work(ed) at Instructure and clearly understand the situation better than you do.
This is pretty obvious, so I’m surprised you can’t put the connections together or perhaps you’re just that dense. Why force out a CEO during a transition? That certainly doesn’t look good. There’s only one reason why that would happen. Connect the dots, super-sleuth.
I was in the room much of the time. I reviewed documents and was part of the inside communications on the process as it was happening. I have evidence (communications, financial models, business plans, correspondence between the board and Thoma Bravo). I can verify the late night phone call where Goldsmith objected to the Board going with the Thoma approach (one that cuts 80M in costs with major layoffs). The Board insisted that he get on the phone with Thoma (Holden Spaht) to work out an agreement right then. Thoma agreed to the management plan created by the leadership team at the time (about 40M in cuts). That plan was in process and cost cutting measures and business changes were completed in Jan/Feb. Then Thoma turned around and was pushing for the 80M. Dan dug in and did not agree because he knew their plan would ruin the company. That is why he is gone now. And Phil, if you really want to get to the facts, why have you not asked Dan or other people from the management team? You have done really good work for education over the years, why would you take the risk of reporting something that is not informed with data and facts?
Interesting points, InstGuy, and thanks for sticking to straight analysis / debate.
I have spoken to many people at Instructure, including management, and to multiple institutional investors that were being lobbied by the Instructure board. However, what you suggest (Bravo pushing for $40m cuts then changing after the fact to push for $80m, leading to Dan’s departure one way or the other) is something that is worth exploring.
I stand by my comments about culture changes since Jan 2019, the unrealistic nature of promising no more significant cuts, about mistaken DIG claims, and the positive comments about Goodman. Your point is interesting but unrelated to the key arguments in the post. Thanks.
You can’t ask for the evidence, then get the evidence, then decide that because you don’t like the answer, it was never relevant at all. InstGuy appears to have shockingly specific details on this and those details support the idea that these layoffs were specifically engineered by Thoma to do exactly what InstGuy stated: reduce costs to increase profitability, load the company up with debt, and then sell it off in 3-4 years at a significant profit. That should be the point of your story. 150+ people lost their jobs because of that. Customers may be left with little investment in new capabilities (I assume you saw the tweet about the whole mobile team being laid off?) and with reduced support and customer services because of that. Instructure as a company and Canvas as one of the best tools on the market may end up in the dust bin of software history because of that. That’s the real drama here and the more interesting story. But, by all means, continue to talk to your “management sources”, who are apparently boiling this down to “Dan, Josh, and Kevin bad. Goodwin and Thoma good.’ If that’s the story you choose to believe, that’s your prerogative.
Well at least we’re putting our cards on the table, since I only asked for docs from InstGuy by private email and specifically did not want to put him / her in a tight spot publicly. Since you’re choosing to make this public, here is the text of my email:
“I didn’t want to ask this in comments, but do you have any docs you could share that back up your points about Bravo changing plans on cost reduction and Dan vehemently disagreeing? I would be interested in seeing those – they contradict the information that I have but could be very relevant.”
Let me follow your logic. You accuse me of not basing analysis on data or facts. When InstGuy references some specifics, I agree they are relevant and ask privately if I can see them. You respond publicly that I cannot have the “evidence” because you know I’ll censor. Let’s grow up here – I’m willing to look at info that might counter what I’ve heard and researched. Why are you answering for InstGuy rather than letting him / her reply to my private email? And while we’re at it, how about keeping to one commenter name -you do know that blog systems check IP addresses as part of spam control, right?
And I’m not sure how you’re interpreting my post as “Thoma good”. It’s hard to respond to that one. I am happy to respond to specific points in the post.
Phil – I can’t seem to respond to your comment directly, so I will respond here. I’ve never changed my name on my responses, so you must have me confused with someone else. Nor am I the same person as InstGuy, although I agree wholeheartedly with his point that the most important questions here are how this will impact institutions, educators, and students currently using the Canvas products. Honestly, the rest of your response is just kind of confusing. If you want to talk about how you think the current situation will impact institutions, educators, and students moving forward, I am all ears. That would make for a good story. Have a good evening.
Have a good evening as well. I agree that the real story beyond describing the news is how this move will impact institutions, educators, and students. I plan to cover this angle and look forward to your commentary.
Phil – I am not looking to get into a debate. I am just sharing facts. The plan only included the 40M in cuts. It was created by the management team (many of them the ones that are there today), it was accepted by the Board, and it was implemented in Jan/Feb. Your logic does not make sense. If Dan was pushed out, then as of Jan/Feb he must have been assuming he was staying on, so for him to lie directly to the employees and the public saying that the layoffs were complete would not make sense. There was nothing unrealistic to be communicating that when the management team, then Board, and Thoma Bravo were aligned to the plan. The issue is that Thoma was not honest and is doing bad things for the company. The management plan had the company getting to a very healthy state that any investor would be happy with, but Thoma and the Board prevented the analyst day from happening as planned in December and they are being greedy now in a way that will do harm to educational institutions all over the globe. However, your read on this situation and your new found love affair with Goodman/Thoma seem out of alignment with facts and what you should be focusing on: “What is the impact of all of the Instructure changes on Institutions and educators….”
Again – I’ll try to stick just to relevant, civil points.
I want to be clear that I did not say that Dan “lie[d] directly to the employees”. I, too, have a concern on the Bravo focus on profit and the “harm to educational institutions all over the globe”.
So…moving past the strategy and questions of who did what and why, my question is what will Canvas become in the next year? Next 3 years? Because I mostly care about the product and how it will continue to perform and hopefully continue to improve. Otherwise the who and why don’t really matter to me as an LMS admin. Next, I care about the “aura” or culture of a company that listened to me as a customer (of course, mostly not me individually but me collectively). If Canvas the product becomes that big giant dinosaur (no names), then I’ll take my money to the next great big thing…
Kris, well stated – those are the big questions, despite the direction the comment threads have taken. We can speculate on these questions, but it is more important to track Canvas progress and evaluate over time.
Phil, I always enjoy your perspective on things, and the comment section is always a fun read. I’m just curious if the logged IP address of Disappointed and Instaguy are the same and if it happens to geolocate to an ISP outside of Philadelphia… 😉
Having a little fun, I see. While I’m not ready (yet) to fully address this question, I will clarify that InstGuy and Disappointed do not appear to be the same person, at least based on IP address. We do seem to have a few anonymous commenters on this and previous Instructure posts that either are the same or might be closely related. While this may not be idea, I prefer to keep comment policies somewhat permissive.