Infrastructure vs. Theater: Why Schools Are Failing the AI Test
What a failed grilled cheese empire taught me about institutional death spirals
During my undergraduate years, we had something called co-ops: work quarters where students ran actual businesses instead of sitting in classrooms. In one of them, the university would hand you a small budget, assign you a venture, and let you sink or swim with real money and real consequences.
My friend Jane drew what seemed like an easy assignment: managing a student lounge that sold grilled cheese sandwiches. Previous operator had done fine with basic grilled cheese at reasonable prices: nothing fancy, decent volume, steady profits, hungry students eating grilled cheese sandwiches at 10M. Jane looked at this setup and saw opportunity for improvement.
The Death Spiral Begins
She started making gourmet sandwiches. Artisanal bread, premium cheeses, organic tomatoes … the works. She raised prices to reflect the elevated quality. Fewer people bought sandwiches, but the margins were better, so initially it seemed smart.
When sales continued dropping, Jane’s response was to raise prices again. After all, if fewer people were buying, she needed more profit per sandwich to hit her targets. She added more expensive ingredients to justify the premium pricing. The customer base shrank further.
By week six, Jane was caught in a death spiral. To maintain revenue with her tiny remaining customer base, she had to keep prices high. But to maintain margins with those high prices, she couldn’t lower ingredient costs. So she actually cut back on ingredients while keeping prices at their peak levels. Even the stoners eventually gave up.
Jane’s grilled cheese empire was bankrupt.
The Safety Net That Made Failure Valuable
The brilliant thing about the co-op program was its built-in safety net. The school knew this might happen. They’d given each student a budget at the beginning, and at the end, the school kept half for future co-ops while the student kept the other half as their “salary.” So when Jane’s sandwich empire collapsed, the next quarter’s student could start fresh with working capital. Jane, and those of us who watched and winced, learned invaluable lessons about pricing, customer behavior, and the dangers of optimization without market feedback.
This ten-week undergraduate exercise taught more about fundamental business principles than most MBA programs manage in two years. The lesson stuck because Jane felt the panic of declining sales, lived with her bad decisions, and had to face the consequences in real time with real money.
AI as Business Theater
Here’s what makes this story relevant today: many business schools are responding to AI exactly like Jane responded to declining sandwich sales. Business schools teach strategy while executing terrible strategy. They teach operational efficiency while drowning in operational dysfunction. They lecture about innovation while clinging to business models that haven’t changed since 1970.
A well-designed AI tool that actually enhances learning looks boring in a board presentation. It doesn’t have a slick demo. It requires faculty to change how and what they teach. It takes time to integrate into curriculum. It’s infrastructure, not spectacle.
But infrastructure is what moves people. Trains aren’t sexy, but they transform cities. The schools falling for vendor dog and pony shows are buying Maseratis to park in the lot while their students are still waiting at the bus stop.
What AI Actually Can’t Do
AI can simulate business scenarios, but it can’t replicate the visceral experience of real failure with real consequences. It can analyze market data, but it can’t teach you how to navigate organizational politics when your analysis threatens someone’s territory. It can generate strategy recommendations, but it can’t prepare you for how to collaborate and sell the recommendations to management.
Jane’s grilled cheese bankruptcy worked as a learning experience because she felt genuine panic watching her customer base evaporate. She had to sit with the discomfort of knowing her decisions were failing. She experienced the emotional reality of a death spiral. No simulation replicates that.
The schools that will survive aren’t the ones replacing faculty with AI. They’re the ones using AI to create more opportunities for students to experience that kind of high-stakes learning. They’re enhancing judgment, not replacing it. They’re using AI to create richer case studies, more dynamic simulations, practitioner tools, and better feedback loops.
Making the Same Mistakes
Like Jane doubling down on gourmet ingredients while her customers disappeared, many institutions are responding to market pressure by adding more bureaucracy, more complexity, more administrative friction. They’re launching “AI centers of excellence” that function primarily as PR vehicles. They’re creating new administrative positions with titles like “Chief AI Officer” without changing what happens in classrooms.
Some schools had working relationships with AI tools that genuinely enhanced learning. And then we can guess what happened. Pricing became political. Implementation became bureaucratic. Faculty lost interest. The tools sat unused while the same schools signed contracts for flashier alternatives that generated better press releases.
This is the institutional equivalent of Jane cutting back on cheese while keeping prices high. Same likely ending.
Who Will Actually Survive
The institutions that will thrive aren’t the ones with the most impressive AI demos. They’re the ones asking harder questions:
Where does AI actually enhance human judgment rather than replace it?
What would our curriculum look like if we designed it from scratch today?
Are we buying tools that transform learning, or tools that look good in presentations?
They’re the ones willing to admit that a well-designed AI system might teach certain business principles better than a lecture hall, while also being clear about what only human instructors can provide.
They’re the ones treating AI as infrastructure, not decoration. They’re buying trains, not Maseratis.
The Simple Truth
The co-op program worked because it was elegantly simple: here’s some money, here’s a real business challenge, go learn. The failure mattered because the consequences were real. The lesson stuck because Jane lived it.
The best use of AI in education follows the same principle: give students powerful tools, create genuine stakes, let them experience the full arc of success and failure. Use AI to create more opportunities for that kind of learning, not fewer.
Jane’s grilled cheese bankruptcy taught her lessons that stuck for life. She learned about death spirals, margin optimization, and the dangers of losing touch with your customers.
The question isn’t whether business schools will learn those same lessons but whether they’ll learn them before it’s too late. Physician, heal thyself, as my co-founder put it in an article. Apply their own medicine to their own institutions before their customers stop showing up or stop getting jobs.