That said, Clegg and Dixon have sallied forth confidently to slay the dragon. Nobel makes money not only by operating private schools. It makes money by teaching children with special needs and by running charter public schools. And it's even easing into the notably capital- and labor-intensive high school market, beginning with the recent acquisition of three specialty high schools in Houston. And finally, Nobel recently took a 40% stake in Total Education Solutions Inc., a California company that toils in one of the toughest markets of all, educating emotionally disturbed, at-risk children.
So how exactly can Clegg move so boldly where others dare only tiptoe or have had to retreat? He boils his business down to a few key numbers. Education, he is wont to say, "is not a money problem. It's a money- management problem." In sum, Clegg believes, if you know the numbers that matter and you can religiously hit them, then the rest falls into place; the business model reinforces itself.
So what exactly are those numbers?
Clegg drives the business off three measures. They are corporate general and administrative expenses (G&A) as a percentage of gross tuition; the school occupancy rate; and school personnel costs as a percentage of tuition.
A closer look at each and how they all fit together reveals how Jack Clegg makes money in a complex business.
Lean and below the mean
Nobel has a single corporate office with 52 people managing all 162 schools. Its G&A cost is about 7.5% of gross tuition, which is below that of other school-management companies. Nobel can keep costs low because it is a highly decentralized company. In effect, each school operates as a separate entrepreneurial business, with modest guidance from corporate headquarters.
To Nobel the benefit of running lean is that it attracts the attention of an important constituency: investors. (Nobel is publicly held.) But the number matters just as much from a marketing perspective, because it attracts a second, and equally -- if not more vital -- constituency: parents.
"In an era when consumerism is alive and well in education, that's an important number for us," says Dixon, referring to the 7.5% figure. "The public is fed up with all the money spent on administrative bureaucracy. People want to know, 'What are you delivering to my child?' " Nobel can readily show parents that a high percentage of what it takes in flows through to the actual education of the students. That money does not stick to administrative fingers.
Nobel charges, on average, from $6,000 to $6,500 a student, a moderate sum compared with tuition at many private schools. But perhaps more significant, Nobel has been able to raise tuition by about 5% in each of the past two years -- a sign that the company's customers think it's delivering something of value.
At Nobel schools, parents know that no school enrollment will exceed 300 students, and no class size will exceed 22 students. "Our commitment to a small school size implies an emphasis on safety and awareness of the child," says Dixon.
Each year, Nobel publishes its students' test scores. Based on the Stanford 9 grade-level standardized tests, Nobel students perform above their grade level, and the longer they attend a Nobel school the further ahead they get. Last year the typical first-grader at Nobel read at a 3.0 level. In other words, he or she read at the level of an average public-school student in third grade. And the typical Nobel first-grader scored at a 2.6 level in math. By the seventh grade, the average Nobel student will be reading and doing math at about the 10th-grade level. Of course, the test-score comparisons are at least a little misleading. Nobel students are from families that can afford tuition payments and that explicitly value education; it stands to reason that as a group they would exceed the academic norm even if Nobel were no better at educating them than the public schools they'd left behind.
However inconclusive the test scores may be, Nobel claims them as evidence that low operating costs don't conflict with quality. And Nobel's reputation for cost cutting doesn't appear to have harmed its schools' popularity. When Nobel entered the public-school arena, last year, by opening a charter school in Philadelphia, more than 4,000 students applied by lottery for 624 places. Nobel received from the city 70% of what it spends per public-school student, as well as a management fee of $400,000. The charter school's average class size was half the size of the average public-school class, and after one year the charter-school students' test scores were a grade and a half higher than those of the public-school students. The Nobel school, meanwhile, turned a $600,000 profit in its first year of operation.
Fill 'em up
Last year Nobel's overall occupancy rate was 83% of capacity in its pre-elementary schools and 69% in its K-12 schools. (Those figures include new schools. Nobel opens about 20 schools each year.)
Homing in on capacity, says Clegg, helps Nobel achieve efficiency at the local level. "We are able to get more revenue earlier into the bricks and mortar," he says. Translation: the key to being profitable is to not let schools go underutilized.
But that's easier said than done, because building enrollment requires building a reputation, not just opening the doors. Nobel clusters its schools, typically constructing one elementary school near three or four pre-elementary schools. That creates word of mouth and a source of future students for the elementary school. Lately, Nobel has built "combination" schools, such as the one it recently completed in Dulles, Va. It houses pre-elementary and elementary grades, as well as a Paladin Academy. (Paladin is Nobel's division that serves children with learning disabilities; whenever possible, it integrates them into the academic mainstream.) "It's like being able to offer three products instead of one," notes Clegg. Having that variety under one roof allowed the Dulles school to open with 180 students.
