About

Twitter

Facebook

CUP Web site

RSS Feed

New Books

Author Interviews

Author Events

Keep track of new CUP book releases:
e-newsletters

For media inquiries, please contact our
publicity department

CUP Authors Blogs and Sites

American Society of Magazine Editors

Roy Harris / Pulitzer's Gold

Natalie Berkowitz / Winealicious

Leonard Cassuto

Mike Chasar / Poetry and Popular Culture

Erica Chenoweth / "Rational Insurgent"

Juan Cole

Jenny Davidson / "Light Reading"

Faisal Devji

William Duggan

James Fleming / Atmosphere: Air, Weather, and Climate History Blog

David Harvey

Paul Harvey / "Religion in American History"

Bruce Hoffman

Alexander Huang

David K. Hurst / The New Ecology of Leadership

Jameel Jaffer and Amrit Singh

Geoffrey Kabat / "Hyping Health Risks"

Grzegorz W. Kolodko / "Truth, Errors, and Lies"

Jerelle Kraus

Julia Kristeva

Michael LaSala / Gay and Lesbian Well-Being (Psychology Today)

David Leibow / The College Shrink

Marc Lynch / "Abu Aardvark"

S. J. Marshall

Michael Mauboussin

Noelle McAfee

The Measure of America

Philip Napoli / Audience Evolution

Paul Offit

Frederick Douglass Opie / Food as a Lens

Jeffrey Perry

Mari Ruti / The Juicy Bits

Marian Ronan

Michael Sledge

Jacqueline Stevens / States without Nations

Ted Striphas / The Late Age of Print

Charles Strozier / 9/11 after Ten Years

Hervé This

Alan Wallace

James Igoe Walsh / Back Channels

Xiaoming Wang

Santiago Zabala

Press Blogs

AAUP

University of Akron

University of Alberta

American Management Association

Baylor University

Beacon Broadside

University of California

Cambridge University Press

University of Chicago

Cork University

Duke University

University of Florida

Fordham University Press

Georgetown University

University of Georgia

Harvard University

Harvard Educational Publishing Group

University of Hawaii

Hyperbole Books

University of Illinois

Island Press

Indiana University

Johns Hopkins University

University of Kentucky

Louisiana State University

McGill-Queens University Press

Mercer University

University of Michigan

University of Minnesota

Minnesota Historical Society

University of Mississippi

University of Missouri

MIT

University of Nebraska

University Press of New England

University of North Carolina

University Press of North Georgia

NYU / From the Square

University of Oklahoma

Oregon State University

University of Ottawa

Oxford University

Penn State University

University of Pennsylvania

Princeton University

Stanford University

University of Sydney

University of Syracuse

Temple University

University of Texas

Texas A&M University

University of Toronto

University of Virginia

Wilfrid Laurier University

Yale University

December 22nd, 2016 at 8:23 am

Why For-Profit Education Fails

Class Clowns

“Should anyone care that a bunch of very rich people have failed in these ventures? In fact, this should matter to anyone concerned about education. That failure, repeated so consistently, has given credible fodder to people who resist the active participation of for-profit enterprises in the educational sphere. But that sphere will always comprise public and private, nonprofit and for-profit institutions, and for-profit businesses play an essential role.” — Jonathan A. Knee

This week, our featured book is Class Clowns: How the Smartest Investors Lost Billions in Education, by Jonathan A. Knee. Today, we are happy to share an excerpt from “Why For-Profit Education Fails,” an article by Jonathan Knee that appeared in The Atlantic.

Don’t forget to enter our book giveaway for your chance to win a free copy of Class Clowns!

Why For-Profit Education Fails
By Jonathan A. Knee

[O]ver the past couple of decades, a veritable who’s who of investors and entrepreneurs has seen an opportunity to apply market discipline or new technology to a sector that often seems to shun both on principle. Yet as attractive and intuitive as these opportunities seemed, those who pursued them have, with surprising regularity, lost their shirts. JP Morgan backed Edison Schools’ ill-conceived effort to outsource public education in the late 1990s and saw the business lose 90 percent of its value during its four years as a public company; Goldman Sachs was one of many private-equity firms that came up empty after betting on the inevitable ascendance of for-profit universities; the billionaire Ronald Perelman shut down his futuristic K–12 educational-technology company, GlobalScholar, after spending $135 million and concluding that the software was faulty and a “mirage”; by the time the hedge-fund titan John Paulson was able to sell the last of his stake in Houghton Mifflin Harcourt, in 2015, he had likely lost hundreds of millions financing the company’s misguided mission to remake textbook publishing.

Not all financial investments in education end badly, but the number that have is notable, as are the magnitudes of the fiascos, in stark contrast to the successes of many of these same investors in other domains. The precise sources of failure in each instance are diverse, as are the educational subsectors targeted and the approaches pursued. But what many share is the sweeping nature of their ambition.

You can see this ambition in both the scale and the scope that many of these ventures sought out—often simultaneously. Scale can be an important driver of sustainable profitability, but it is striking just how many for-profit educational ventures—particularly those centered on bricks-and-mortar educational services—have confused scale, which is a relative concept, with absolute size. For services like day care and classroom education, local or regional density of operations can be advantageous, because it enables efficient management of personnel (by far the largest cost), the sharing of fixed expenses like marketing, and sometimes even pricing power. The benefits of a national footprint are seldom as obvious. Yet it is national scale that many ventures have sought. For example, Milken’s effort to roll up many of the nation’s day-care centers began in 1998 and reached its zenith with the $1 billion purchase of KinderCare in 2005. The inherently local nature of this business, however, ensured that its profitability did not improve as it grew larger. When Milken finally sold the business last year, he received less than what he’d paid for his day-care acquisitions over the previous 17 years.

Scope, meanwhile, can be the enemy of scale, particularly when pursued at the same time. Spreading investments across a variety of segments can impede the achievement of scale in any of them and also scatter the attention of executives. Time and again in education, big-name investors have launched companies with the broadest ambitions, only to be undone by more-focused players. For example, an early Milken investment wisely targeted a growing population of families who wanted to homeschool their children and were increasingly eligible for public funding through distance-learning charter schools. The business, founded in 1999 and called K12, managed the technology, teaching, and curriculum needed to deliver the full educational experience to kids online. The problem was that Milken wanted to do more than provide a technology-enabled service or run a profitable business; he wanted to transform education by also delivering an entirely new, proprietary, all-digital curriculum.

Yet despite the fact that ego and the drive for status are inseparable from many of these ventures, and that they are for-profit enterprises, my own study of these businesses and the people behind them strongly suggests a genuine—and in many cases intense—desire by the founders and investors to improve education. That desire is often associated with deep-seated beliefs about what is wrong with the current system. The evidence suggests that the intensity of desire and belief can cloud the judgment of even the most sophisticated investor. The pursuit of high-minded ideals and the belief that the status quo is so bad that it can’t be hard to improve upon causes many investors to devalue execution—yet execution is particularly crucial to the survival of organizations that take on overly broad mandates.

Should anyone care that a bunch of very rich people have failed in these ventures? In fact, this should matter to anyone concerned about education. That failure, repeated so consistently, has given credible fodder to people who resist the active participation of for-profit enterprises in the educational sphere. But that sphere will always comprise public and private, nonprofit and for-profit institutions, and for-profit businesses play an essential role. Public-sector funding is subject to political whims, and the nonprofit sector’s funding sources are also typically uncertain. Advocates of for-profit education often understandably emphasize the role that market forces play in improving quality and efficiency. But the most constructive role the for-profit segment may play is in providing a unique level of stability to the educational ecosystem when (and only when) it establishes sustainable business models.

Read the article in its entirety at The Atlantic.

1 Comment

  1. Megan Shelly says:

    Very good educative article for educationist to review and reverse the educational policy especially “profit for education institutions”

Post a comment