How's this for a business model?

Imagine you sell a product that costs some $250,000--more than the liquid net worth of most of your  target market. Even at those prices, you turn away 10 to 15 qualified customers for every one you convert. You assume massive fixed costs in plant and staff, and you give an important segment  of your workforce contracts guaranteeing employment for life, plus a veto over your management decisions. In addition, you have to cope with a growing public backlash over the cost of the product and research questioning whether it actually does what you claim.

Ready for Disruption

The product, of course, is elite university education. It certainly sounds like a business just screaming to be blown open by a cheaper, high-quality scalable alternative.

Or so said former Nebraska Senator Bob Kerrey, executive chairman of the Minerva Project's not-for-profit research arm, in a recent visit to Inc. Minerva, which Inc first wrote about last October, is one of a number of start-ups that aim to disrupt higher ed by moving classrooms online--among them the massive open online course providers Udacity and Coursera, which were founded by Stanford academics.

The founder of Minerva, former Snapfish CEO Ben Nelson, has no academic credentials but no shortage of ambition, either. Unlike the other online schools, Minerva will offer a degree program--and not just any degree program, but a true collegiate experience and a credential that will carry as much prestige as one from any of the most selective colleges in the land.

The Believers

So far he has an impressive group of supporters, including Benchmark Capital, which ponied up $25 million in seed capital. Also on board are former Harvard president Larry Summers and Kerrey, who in addition serving in political office was also the president of the New School. Stephen Kosslyn, former director of Stanford’s Center for Advanced Study in Behavioral Science, will be the founding dean.

Nelson's desire to challenge colleges like the Ivies and Stanford raises a whole host of questions about Minerva’s chances of success, however big the market opportunity might be. Kerrey fielded questions from Inc. reporters about how Minerva expects to pull it off.

The highly qualified students Minerva hopes to attract by definition have a lot of choices. Why would they choose Minerva, when they could have Yale?

Who says they could have Yale just because they are qualified? There are only 50 or so Tier 1 institutions, and they turn away most of the highly qualified students that apply. 90 percent of those students could be successful at those schools, but the admissions department needs to find one from Montana, and one who plays defensive back, and so on. And only about 7 percent of the student body at most of these schools is foreign born, which represents another untapped source of demand. Our only criterion will be whether you have the intellectual werewithal to do the work. If all our students end up being from suburban Boston or Mumbai, so be it. The world is awash in qualified students. I think attracting students will be the least of our worries.

So, what is the biggest of your worries?

Getting accreditation. The regional bodies that decide whether an institution can grant a degree have a lot of power and tend to be pretty protective of it. Only one elite institution has been accredited in the past 100 years or so, Rice University.  If we don’t get accredited, we don’t have a business.

By the way, if you wonder why education costs so much, it’s because of that regulatory restraint. I fell asleep in Economics 101, but I learned enough to know that if you artificially limit supply while allowing demand to rise, prices go up.

Why is Minerva focusing on liberal arts?

Because we believe that critical thinking skills are the most important thing students can learn in college. If they can read a series of papers and distinguish between those that are persuasive and well argued and those that are superficial and specious, they’ll be valuable to any future employer, whatever field they go into. Our freshman curriculum will focus on four courses: critical thinking, use of data, understanding complex systems and leading through effective communication.

But that’s not all we’re going to expect our students to know before they graduate. They’re going to have to be able to read and write at least two languages in addition to the one they grew up speaking. But we’re not going to teach beginning language courses, or survey courses of any kind. They’ll have to get that elsewhere. That’s why we’re not threatened by MOOCs like Coursera or Udacity. We hope our students will use them.

When do you start and how do you scale?

We hope to start in September 2015 with one class of 300 in one city, probably San Francisco, although eventually we’ll have students in dorms in cities all over the world.

Do you think you’ll get 300 enrollees?

I think we will, but I’ll tell you want we won’t do. We won’t lower our standards. If we get only 175 students who are qualified, that’s what our initial class will be. We won’t admit 125 lower skilled students just to fill out our quota.