Doing Well By Doing Good: For-Profit Schools

For all of the three-decade hype about how business practices applied to K-12 schools will make them more efficient and high performing, a short hop and skip through the past half-century of for-profit companies failing in the education market might illustrate how applying market-driven practices to improve schools and make money  at the same time is tough for even shrewd entrepreneurs.

The argument that for-profit schools cannot succeed because they seek to make money out of the public coffer is not one I make here. There are such “good” schools and they  do thrive (see here and here). Keep in mind that other institutions entwine for-profits with public operations such as the space program, hospitals, prisons, and transportation. Government and profit-driven companies have  worked together for decades.

And that is why the historical record of businesses contracting with public school authorities is one that should be known well by the current generation of school reformers.

In 1969, Behavioral Research Laboratory, contracted with the largely black Gary (IN) district to raise test scores in reading and math in the Banneker elementary school. They failed. BRL is no more.

Dorsett Educational Systems in 1970-1971 took over a school in Texarkana (AR) contracting to raise 350 children one grade level in reading and math after 80 hours of instruction. They failed. DES is no more.

In 1970, Westinghouse Learning Systems contracted with Gilroy (CA) to take over the Eliot elementary school to raise test scores in reading and math. They failed. WLS is no more.

I could give many more examples of for-profit corporations seeking to make money from operating schools  through performance contracting when districts were flush with federal funds from the Elementary and Secondary Education Act  in the late-1960s and early 1970s–but I won’t. Failure in doing what seemed to be a fairly straightforward job–raise student test scores–proved unattainable by some of the best and brightest business leaders of the day.

These corporations tripped badly and eventually  disappeared or were swallowed by larger corporations.  In the late-1960s and early 1970s, the education market was ripe for money-making ventures to raise students’ low test scores but even then the school market proved unforgiving for those who believed that there were easy profits to be made by simply applying business efficiency and effectiveness principles to teaching and learning.

CEOs and investors learned the hard way that what worked in companies to make  silicon chips, crank out case after case of soda, and create brand-new cereals flopped when managers tried to turn low-performing students around and get higher test scores.

That was then. What about the recent past when start-ups, media conglomerates, and high-tech companies compete for the education dollar? The education market has gotten larger since the 1990s with charter schools, vouchers, and portfolios of alternative school in urban districts. Moreover, with the last decade’s Race to the Top and No Child Left Behind monies available, there were profits to be made. Nonetheless, corporate failures have  piled up.

Consider Minnesota-based Education Alternatives Inc. a fast rising star in the for-profit sector in the early 1990s. They managed schools in Hartford (CT) and nine Baltimore (MD) schools under a $133 million contract. EAI filed for bankruptcy in 2001.

How about Edison Inc.? Entrepreneur Chris Whittle, founder of Channel 1–a for-profit venture in public schools that eventually nose-dived–founded the Edison project in 1992. He and his partners believed that they could get students to learn more and better than regular public school could and, at the same time, return a tidy profit to investors. Edison Inc. was the first for-profit school-management company to be traded on a stock exchange. They got contracts from urban school districts (e.g., Wichita, KN; Philadelphia, PA, Ravenswood, CA) to manage scores of schools but stumbled into one political difficulty after another  with unions, parents, and administrators (see here and here). Their stock had reached a high of $40 a share in 2001 and then, as problems piled up, dipped to 14 cents later in the same year. Dissatisfied with Edison, districts began canceling contracts for financial, political, and managerial reasons. By 2005,  they were still 153 schools for over 65,000 students but the company was already dumping their school management business and had turned to  securing contracts to  provide tutorial services and other products districts wanted. By then, Whittle had found private lenders who aided him in converting the publicly traded company again into a private one.

And then there is K-12 Inc., a for-profit company, that pulled in over $800 million in 2013 through selling online courses and curriculum, software, and blended programs to private and public schools. K-12 Inc also own cyber charter schools.

Recently, investigations have shown how K-12 Inc. squeezed money out of each of their operations to give investors a high rate of return on their shares.  Whether K-12 Inc. will weather the current storm and dip in stock price, I do not know. But such a major player in the school reform business sliding into bad times reminds me of what occurred nearly a half-century ago with performance contracting.

Amplify (billionaire Rupert Murdoch’s addition to his media empire) dove into the educational market with sky-high promises of new curricula loaded on their tablets given free to schools. In 2015, Murdoch dumped Amplify.

Or consider Leapfrog , an education-entertainment company that soared when it opened for business in 2002 but over a decade later, its stock had fallen to a dollar a share and the New York Stock Exchange threatened to de-list the company.

How about another billionaire, Ronald Perelman, who shut down his K–12 educational-technology company, GlobalScholar, after spending $135 million. He saw that the software was faulty and a “mirage.”

And what about those for-profit cyber charter schools? Such virtual schools in Pennsylvania and Michigan have made much money and drawn considerable criticism for their low student outcomes (see here and here).

So what’s the point here? Sure, there is money to be made in the education market. After all, for decades big and small companies have sold textbooks, classroom furniture, transportation, low- and high-tech equipment from interactive white board to  professional development. They have profited from providing basic products and services to this stable market. And there are for-profit corporations that run schools, charter and non-charter, that have long waiting lists. But the numbers are quite small. It is very hard–I repeat, very hard– to turnaround a failing school or create a new school that parents clamor to send their children. Failures outnumber successes time and again.

Today profit-driven companies, and others like them (e.g., Apple’s iPads, Google’s Chromebooks and educational software start-ups) do not take over or create schools or districts. They provide services and products for already existing agencies running schools, not the tough business of turning failing ones around or starting brand new ones. That is a sinkhole that many companies eager to turn a profit have slipped into in the past and are primed to do so now.

Schools are complex institutions, entrepreneurs have discovered time and again. Just as they have discovered that doing good by doing well with schools is easier said than done.

14 Comments

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14 responses to “Doing Well By Doing Good: For-Profit Schools

  1. Reblogged this on From experience to meaning… and commented:
    This is a very interesting post, also if you link it to this talk by Per Kornhall about the Swedish situation.

  2. Andy

    ‘Those who cannot remember the past are condemned to repeat it’. Thank you, Larry Cuban.

  3. David Callaghan

    What I love about Larry’s writing is the references – like ‘Oversold …’, this piece is littered with references in exactly the same way most other blogs aren’t. However, I’m sure there must be some successful educational for-profits out there? Anyone want to moot some?
    Kindest regards, David

  4. educationstate

    “SABIS®’s licensing program grants schools the rights to use SABIS® intellectual property within the schools’ own management structure and philosophy”

    Larry, when money is scarce and schools across the globe are struggling to provide a proper education for all their kids, companies providing things for profit, like intellectual property at the Sabis school you cite, suck badly needed funds as profit out of systems that need every penny they can get. That is one big reason why for-profit public schooling is wrong, not that they can deliver for some.

  5. The other critical point is that for-profits function like businesses in that they only serve some customers. There is not a single business in this country with a business model of serving all customers– the survival of any business depends on identifying your real customer base and cutting everyone else loose. That cannot be the model for education, either on small or large scale. Those failures listed above no doubt failed in part because they weren’t prepared to teach every single kid– including the ones that were more of a challenge. The business approach is fundamentally mismatched to the public education mission.

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