Udacity restructures operations, lays off 20 percent of its workforce

Udacity, the $1 billion online education startup, has laid off about 20 percent of its workforce and is restructuring its operations as the company’s co-founder Sebastian Thrun seeks to bring costs in line with revenue without curbing growth, TechCrunch has learned.

The objective is to do more than simply keep the company afloat, Thrun told TechCrunch in a phone interview. Instead, Thrun says these measures will allow Udacity from a money-losing operation to a “break-even or profitable company by next quarter and then moving forward.”

The 75 employees, including a handful of people in leadership positions, were laid off earlier today as part of a broader plan to restructure operations at Udacity. The startup now employs 300 full-time equivalent employees. It also employs about 60 contractors.

Udacity, which specializes in “nanodegrees” on a range of technical subjects that include AI, deep learning, digital marketing, VR and computer vision, has been struggling for months now, due in part to runaway costs and other inefficiencies. The company grew in 2017, with revenue increasing 100 percent year-over-year thanks to some popular programs like its self-driving car and deep learning nanodegrees, and the culmination of a previous turnaround plan architected by former CMO Shernaz Daver.

New programming was added in 2018, but the volume slowed. Those degrees that were added lacked the popularity of some of its other degrees. Meanwhile, costs expanded and their employee ranks swelled.

Udacity CEO Vishal Makhijani left in October and Thrun stepped in. He took over as chief executive and the head of content on an interim basis. Thrun, who founded X, Google’s moonshot factory, is also CEO of Kitty Hawk Corp., a flying-car startup. In an earlier interview, Thrun told TechCrunch that he discovered the company had grown too quickly and was burdened by its own self-inflicted red tape. Staff reductions soon followed. About 130 people were laid off and other open positions were left vacant, Thrun said.

Thrun insists these latest layoffs aren’t just a half-hearted attempt to quickly cut costs and instead are part of a strategic turnaround plan. He communicated that same thinking in the email sent to employees.

“By bringing our costs in line with our revenue and refocusing our product strategy, we believe we can continue to grow the overall business both in enterprise and consumer segments in fiscal 2019 and beyond, while also achieving a break-even position in terms of both cash flow and EBITA, which will ensure that we can continue to do our important work,” Thrun wrote toward the end of the email to employees.

Last year, Udacity generated $88 million in revenue, but it reported a loss of $40 million.

Even as Udacity slashes costs and headcount, it’s trying to expand its enterprise business, which has had recent success. Udacity now has contracts with 60 enterprise customers, including AT&T and PricewaterhouseCoopers. Airbus and Audi recently signed on, as well.

Udacity’s plan was developed largely by Lalit Singh, the interim COO hired in February. Singh conducted a review of the business, including its operating model and Udacity’s primary costs such as workforce, marketing and other non-workforce expenses. As a result of the review, Udacity has laid off more staff, streamlined operations and programming and cut other costs.

“We have tremendous opportunities in front of us, and we also have some challenges. To succeed, we have to ensure that we have an operating structure that allows us to be nimble, efficient, and better organized to win with fewer silos and frankly, reduced cost,” Thrun wrote in the email.

As of Tuesday, four executives who handle different aspects of the business now report directly to Thrun. Those executives include Singh, Alper Tekin, who recently became CPO, James Richard, who was VP of engineering and has been named CTO, and Caroline Finch, vice president of consumer growth.

Alex Varel, the company’s head of enterprise sales, and Jimmy Lee, head of enterprise operations, will now report to Singh.

The change is striking compared to October, when Thrun came back to temporarily fill the CEO role. At that time, 17 people reported to Thrun.

Udacity also has cut costs and streamlined its marketing efforts, downsized and consolidated office space and made its educational programming consistent throughout the various regions in which it operates, including the U.S., Brazil, China and India.

The company will keep an office, albeit a smaller space, in Mountain View, and one in San Francisco. Udacity is closing an additional satellite office in San Francisco and is evaluating its real estate needs in other countries, as well.