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© 2002
Market Intelligence for the Education Economy1
Evaluating New Ventures for Non-Tuition Revenue
Peter J. Stokes, Ph.D.Eduventures, Inc.
Independent Schools Financing SymposiumNovember 23-24, 2002
Herndon, VA
© 2002
Market Intelligence for the Education Economy2
Agenda
• Introduction• An Industry Perspective• Opportunities for Independent
Schools• Discussion
© 2002
Market Intelligence for the Education Economy3
About Eduventures
• Research and advisory firm covering learning markets since 1993
• Assisting institutions in thinking strategically about products & services investments
• Helping providers drive growth• Delivering an independent view on key
market issues
© 2002
Market Intelligence for the Education Economy4
Purpose of this Discussion
• See what the for-profit market can provide in the way of comparables and models
• Brainstorm and pressure test these ideas
• Identify areas for further investigation
© 2002
Market Intelligence for the Education Economy5
The Challenges
• Is there really a financing problem here?– If so, is it something you would risk your brand to fix?
• Getting out of the either/or box– E.g., raise prices or reduce expenses– Moving to a both/and view of the possibilities
• The tension between mission and money– Every species’ mission is to reproduce itself (status quo)– But doing it successfully can require adaptation to
environmental changes (new value proposition / ROI)• The tension between provocation and practicality
– For-profit models will have limited applicability if you believe there is no need to adapt
– Or, for-profits may signal how the environment is changing
© 2002
Market Intelligence for the Education Economy6
Agenda
• Introduction• Industry Perspective• Opportunities for Independent
Schools• Discussion
© 2002
Market Intelligence for the Education Economy7
Education Industry
Childcare
K-12 Schools
Publishing
Tutor/Test Prep
Technology
Procurement
Prof. Dev.
Pre-K-12
Postsecondary Education
Publishing
Technology
Procurement
Language Training
Postsecondary
Instructor-Led
E-Learning Content
Publishing
Synchronous E-Learn
E-Learn Platforms
Testing/Assessment
Corporate
© 2002
Market Intelligence for the Education Economy8
Industry Avg. 5.5% Growth
Education Industry Revenues
$93$99 $102 $106
$113$121
$-
$20
$40
$60
$80
$100
$120
$140
1999 2000 2001 2002F 2003F 2004F
bil
lio
ns
Source: Eduventures
© 2002
Market Intelligence for the Education Economy9
Pre-K-12 Revenue $58 Billion
Pre-K-12 Revenues by Market 2001 (billions)
$23.7
$6.7$7.0
$4.3
$7.1
$7.9$1.5
Childcare
Education
Publishing
Testing Services
Technology
Procurement
ProfessionalDevelopmentSource: Eduventures
© 2002
Market Intelligence for the Education Economy10
Venture Capital Decline
Venture Capital Investment Across All Industries By Quarter
$17,300
$25,800$23,900
$17,200
$10,600
$6,100 $5,100$3,700
$6,200$6,700
$11,900
$27,200
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Q41999
Q12000
Q22000
Q32000
Q42000
Q12001
Q22001
Q32001
Q42001
Q12002
Q22002
Q32002
mill
ion
s
Source: VentureWire
© 2002
Market Intelligence for the Education Economy11
Industry Investment Decline
Education Industry Private Investment By Quarter
$878 $932$814
$732
$396$311
$247
$58$160
$48$178
$29
$-
$200
$400
$600
$800
$1,000
Q41999
Q12000
Q22000
Q32000
Q42000
Q12001
Q22001
Q32001
Q42001
Q12002
Q22002
Q32002
mill
ion
s
Source: Eduventures
© 2002
Market Intelligence for the Education Economy12
End of Irrational Exuberance
Education Industry Private InvestmentBy Year
$30 $24 $64$598
$93$333
$1,050
$447$793
$2,943
$776$350
$2,567
$-$500
$1,000$1,500$2,000$2,500$3,000$3,500
mil
lio
ns
Source: Eduventures
© 2002
Market Intelligence for the Education Economy13
K-12 Investment Declines
K-12 E-Learning Investment
$98$175
$345
$723
$202
$-
$100
$200
$300
$400
$500
$600
$700
$800
1997 1998 1999 2000 2001
mil
lio
ns
Source: Eduventures
© 2002
Market Intelligence for the Education Economy14
Industry Avg. 2.5% of Total
Education Industry Investment as a Percentage of Overall U.S. VC Investment
0.0%1.0%2.0%3.0%4.0%5.0%6.0%
pe
rce
nt
Source: Eduventures, VentureWire
© 2002
Market Intelligence for the Education Economy15
What It Means for Schools
• K-12 market increasingly entrepreneurial as education reform and technology converge
• “No Child Left Behind” Act driving growth / creating new opportunities following the venture bust
• For-profits bringing a new kind of commercial and educational expertise to market
© 2002
Market Intelligence for the Education Economy16
Agenda
• Introduction• Industry Perspective• Opportunities for Independent
Schools• Discussion
© 2002
Market Intelligence for the Education Economy17
Coping with Ripple Effects
Financing Pressure Points• Weakened global economy• Tuition discounting• Increases in restricted
philanthropy• Growing reliance on debt
Have you bled all of the inefficiencies out of the cost side of the equation? Are there business processes you can outsource? Financial aid? Human Resources? Etc.
© 2002
Market Intelligence for the Education Economy18
New Opportunities
• Diversify income streams through entrepreneurial efforts
• The three I’s:– Intellectual property– Incorporation– Internationalization
© 2002
Market Intelligence for the Education Economy19
Opportunity Map
SCHOOLS
Debt
Philanthropy
Tuition
Sale of Assets
Curriculum Assessment
Tutoring Recruitment
DistanceLearning
Reselling
Internationalization
Incorporation
Core StreamsToday
Opportunities to ProductizeIntellectualCapital
Reaching New Markets & Aggregating Buyers
Risks grow with movement away from the core.
© 2002
Market Intelligence for the Education Economy20
Defining Opportunities
Opportunity Definition Rationale
IntellectualProperty
Incorporation
International
Productization of assets in the form of expertise around curricula,assessment, recruitment, pedagogy, etc.
Leveraging assets and entrepreneurial skills to reach foreign markets and bring U.S. content, technology and services to new markets.
Schools are not monetizing the assets they possess, especially with respect to human and intellectual capital.Protects traditional value proposition while creating new opportunities to leverage intellectual property.
Deepens and broadens target customer pool while creating opportunities to scale entrepreneurial activities.
Entrepreneurial efforts to diversify organizational structure, revenue streams and market reach.
© 2002
Market Intelligence for the Education Economy21
Intellectual Property
• Cf. Edison Schools– After-school & summer programs– Affiliates program
– Benchmark Assessments– Achievement Management System– Achievement Advisor– Professional Development
– Projecting $100 million in three years
• For more information, visit www.edisonschools.com
© 2002
Market Intelligence for the Education Economy22
Incorporation
• British Columbia, Canada– School Act Legislation amended this year– Districts able to form corporations as
adjuncts to school boards• Designed to protect schools engaged in business
around Pacific Rim (especially distance learning)• Creates new opportunities for schools to “do
business” at home and overseas
• Contact for more information: Russ Pacey, Associate Superintendent, Westminster School District
© 2002
Market Intelligence for the Education Economy23
Internationalization
• Enhancing value of service in local market through international partnerships– Cf. Nobel Learning Communities & South Ocean
Development Group• Aggregate international buyers and act as reseller /
sales channel for your assets or U.S. businesses looking to expand internationally– Cf. Westminster School District
• For more information, “A Global Education Market? Global Businesses Building Local Markets” at www.eduventures.com
• World Education Market conference 2003, Lisbon, Portugal
© 2002
Market Intelligence for the Education Economy24
Risks
• Intellectual property assets are not truly unique• Entrepreneurial culture change difficult to manage• Business development skills necessary to establish sales
strategy may not be available• Sales channels difficult to establish• Chicken or egg problem: how to aggregate buyers
without product and service partnerships / how to establish partnerships without having first aggregated buyers
• Dilution of core value proposition and erosion of quality of service
• Result: another set of ripple effects to cope with in addition to those pressures you already struggle with