FINANCIALS
Education Alternatives Inc. Projected* Operating Statement
($ in thousands)
Fiscal Year (July 1 - June 30) 1991 1992 1993
TOTAL REVENUES $2,687 $10,102 $22,602
(Including revenues from school
management, consulting, and
sales of proprietary products)
* * *
Direct expenses ($3,250) ($8,693) ($20,502)
GROSS PROFIT (LOSS) ($563) $1,409 $2,100
* * *
Selling, general, and ($531) ($871) ($970)
administrative expenses
Operating income (loss) ($1,094) $538 $1,130
* * *
*Projections are based on Inc. estimates.
(CONTINUED)WHAT THE EXPERTS SAY
OBSERVER
DENIS P. DOYLE
Senior research fellow at the Hudson Institute and coauthor of Winning the Brain Race
Golle is truly a pioneer, but he's got some tough sledding ahead. The public-school tradition is 150 years old, and there's a belief that the public sector should do it all. It's not just teachers and principals but school boards, parents, and business leaders who resist this kind of experimentation, largely because in public-education circles profit is a bad word.
Second, about 34 states have Blaine amendments, which restrict how public money can be spent. Very few jurisdictions could do what Miami has done with Golle.
Golle says he'll order pencils in bulk, but every school in the nation has that capacity now. Anyway, the percentage of the budget devoted to consumables is infinitesimal. Almost all the budget goes to hiring people, so the only way Golle will save money is to replace people with machines. His success will hinge on electronic technologies -- such as interactive computer disks -- to increase the rate and depth of learning, so kids will learn twice as fast at half the cost.
Last, Golle's promise of a 30% return on investment is probably something he can't deliver in the first couple of years. Once the thing gets off the ground, it will probably pay a handsome return. But given its huge capital base, returns would probably be more on the order of 7% to 9%, which still isn't bad.
CUSTOMER
ALBERT SHANKER
President of the American Federation of Teachers, in Washington, D.C.
Some school boards are made up of elected officials who want to be able to change things on almost a day-to-day basis so they can get reelected. At best, boards might contract out one or two schools, but any widespread use directly conflicts with their political needs.
Still, there's a lot of dissatisfaction with the whole method of operating schools through school boards. Perhaps the day will come when school boards are abolished and management companies bid on the right to manage schools for, say, 10 years. Instead of giving parents the choice of schools, as the president is proposing, we might give communities the right to choose which company will manage their schools.
As far as the teachers' union is concerned, as long as the collective-bargaining relationship is maintained and this company is willing to negotiate, I see no problems. It's a new employer to negotiate with, but if EAI develops a track record showing it's not hostile to unions, I think a lot of unions would welcome it.
CUSTOMER
DONALD INGWERSON
Superintendent of the Jefferson County Public School System, in Louisville, cited as one of the most progressive urban school systems
Here in Kentucky there's a law saying that every school will be governed by site-based management, meaning the district hands teachers and parents the right to decide how their schools will be run. This is just the kind of progressive school Golle's targeting; yet I suspect that the schools here won't hire him, simply because the teachers have their own ideas about what needs to be done, and they want to carry those ideas out themselves.
I'm worried also about the link between EAI's success as a business and its students' performance on standardized tests. Unless Golle gives some attention to this link-up, he'll find himself being driven by narrow-based measures because of what he has to deliver to the marketplace. He'll fall into the same trap public schools have traditionally fallen into, where measurements are based on what makes the school look good rather than on what works for the children.
Golle's educational program cannot stand by itself in a community. We may not think that setting up expectant-mother programs or providing gang information is part of our job, but to achieve excellence you must address these problems and be part of the solution. Golle is going to have to set up other programs -- costly programs -- to address a host of social ills. He may not be able to afford it.
FINANCIERS
PETER ULIN AND NICHOLAS HOLLAND
Managing directors of Ulin, Morton, Bradley & Welling, an investment bank for midsize companies, advisers to a start-up educational company in Boston
This is a company that has yet to show it can make a profit in any phase of its business. Moreover, most of the money it's raising in its IPO is going toward covering sins of the past, such as paying down debt, leaving little available for real development efforts. Yet it obviously has development needs. For example, EAI is counting quite heavily on revenues from proprietary products, while it has yet to develop a commercial offering.
And sure, teachers are dedicated, but there's a limit. Business cards and phones are nice, but if you ask teachers to do more in the classroom, you have to pay them more.
We are not impressed that Golle is going to save money by buying his pencils and erasers more cheaply. We are not impressed that he's going to make a profit by investing tuitions more wisely or by extracting concessions from the unions. This is not value-added stuff. Nor are they powerful rationales for turning over contracts to this company or for investors to expect that those things will yield big profits.
