Educating the Market

With Education Alternatives Inc., John Golle is determined to apply the ABCs of good private-sector management to the public-school system

If John Golle gets his way, return on investment may become education's fourth R. His plan: to take over public-school systems from stodgy bureaucracies and replace them with lean management, quality service, and satisfied customers.

But do entrepreneurs belong in the public-school system? "Absolutely," snaps Golle. "Take a look at what UPS did for the Postal Service. Show me a business that doesn't succeed or fail based on its ability to respond to customers. Why shouldn't education be held up to the same measure?"

That kind of thinking seems to be gathering support. This past April George Bush, the self-described education president, unveiled his comprehensive blueprint for overhauling the nation's school system. Among other recommendations, the Bush plan calls for the creation of new model schools -- an attempt to reinvent our educational system on a community-by-community basis. What the president's plan does not offer, however, is a significant infusion of federal funds. The job is supposed to get done within existing budgets and with the help of the private sector. Therein, Golle is betting, lies a budding industry rife with opportunity.

Focusing on elementary schools, preschool through sixth grade, Golle's Minneapolis-based Education Alternatives Inc. (EAI) is out to deliver an affordable, quality education to the ultimate consumers -- students -- and expects a 15% to 20% pretax profit to boot. Golle has spent nearly $7 million and four years perfecting his education business at two company-owned elementary schools -- one in Eagan, Minn., and the other in Paradise Valley, Ariz. Those two private schools have become the models for EAI's venture into the public-school arena.

To visit one of EAI's schools is to witness an entirely different attitude toward education. Walls between classrooms are gone. Computers are everywhere, from preschool on up. Desks are clustered rather than neatly lined up in rows. Everything from bookcases to cubbyholes rides on wheels, allowing the shape of the classroom to change to accommodate the needs of the children. Class size is kept small, and instruction is individualized. The result: standardized tests show EAI students outperform the national average by almost two grade levels.

Eye-catching, yes, but Golle knew he'd have to offer more to those who run public-school districts. First, his price had to be affordable. So he developed a cost structure that allowed him to implement the innovations for about the national average of $5,100 spent per student. Next, he settled on a comanagement approach, working side by side with school systems -- and preferably unions, too -- in hiring and management. "Educators get uncomfortable when businesspeople imply they know education better than educators do," he notes.

In June 1990 EAI was one of 7 entrants (from a field of 35) to win a contract with the fourth-largest school district in the country, Dade County, Fla. Under a five-year, $1.2-million contract, EAI will manage the South Pointe Elementary School, due to open in September 1991. News of EAI hit the front page of The New York Times, which heralded it as the first business/public-school partnership in the nation. Come success or failure, one thing Golle can count on is that all eyes are upon him.

Theoretically, entrepreneurs should be flocking to the education industry. At $600 billion, a full 12% of gross national product, it's one of the largest industries in the country, and it's in desperate need of reform. In 1981 average math scores for eighth-grade students put the United States third to last in a ranking of 15 countries. Sixty percent of high school graduates aren't prepared for entry-level jobs. And a single year's class of dropouts costs the nation more than $240 billion in lost wages and productivity.

Unfortunately, the education system is mired in conflicting interests -- from unwieldy school boards to possessive unions to restrictive laws -- that have kept most entrepreneurs at bay. "Sure, it's a big industry," Golle agrees. "The question has always been, How do you build a business in such a restrictive environment?"

Golle has been educating himself for the job for quite some time. Formerly a salesman for Xerox specializing in training and education, Golle left in 1970 with Robert Holmes to form Golle & Holmes, a designer of custom educational and training programs for Fortune 500 companies. But education was always more than just a business pursuit for Golle: his son suffered from learning disabilities and didn't benefit from a cookie-cutter educational approach. "My son was stripped of his self-esteem and finally gave up on learning altogether," says Golle.

So in 1986, when Control Data, a $3-billion data-processing company based in Minneapolis, abandoned its plans for a string of private schools stressing creative, individualized learning techniques, Golle jumped. For virtually nothing, he bought the research the company had compiled and set to work building EAI.

Originally, Golle planned to confine his business to private schools that would occupy a niche squarely between the pricey private school and the low-priced parochial or free public school. While a typical private school might charge $8,000 for tuition annually, EAI schools would charge $5,000 and yet offer a similar, if not better, education. Golle hoped that parents who found themselves frustrated with their public school but unable to afford hefty private-school tuitions would flock to EAI schools.

"Private schools are usually single-plant operations with no economies of scale," Golle explains. "We'd gain the efficiencies of buying pencils, desks, and computers in bulk." Although many private schools offer kindergarten through 12th grade, Golle figured elementary schools were his best bet: "In 12 years a lot happens to a kid. You need a bigger physical space and more hard-to-find, higher-paid specialists, from physics teachers to football coaches." Not only was grade school less complicated and less expensive than high school, Golle figured, but emphasis was swinging toward the lower grades, as studies linked early teaching to later performance. By year five, Golle estimated, he'd have 20 schools up and running, revenues of $30 million, and investors' returns of 30%.