The Inner City 100
Allegheny Child Care lifts a burden from welfare-to-work moms
David Henry and his wife wanted to start a small day-care center. So in 1992 they raised $20,000 from family and friends and put down a $13,000 security deposit on a space in Pittsburgh. Business was slow: at one point they had just one client. But then Henry discovered Pennsylvania's Department of Public Welfare subsidies, which help parents in welfare-to-work programs pay for day care. Bingo.
Today $15-million Allegheny Child Care Academy (#48) runs 33 centers, all but 7 in low-income neighborhoods. The centers (in Philadelphia, Pittsburgh, and Detroit) serve 2,500 children, and the company adds 100 customers each month. Allegheny's market tripled with passage of the welfare reform act of 1996, which imposed work requirements and a five-year lifetime limit on welfare recipients. Stay-at-home moms surged into the workforce, and the demand for affordable child care exploded. Now 95% of Allegheny's revenues, including food reimbursement, come from government subsidies. "Without the government we couldn't offer this quality of service," says Henry.
Economies of scale let Allegheny provide an academic curriculum, gyms, and full lunches and dinners, while taking in, for example, just $7,000 a year per child in Philadelphia. "It costs much less to insure 2,500 kids than to insure 20," says Henry. "It's what you do with those savings that makes the difference."
The centers generally appear stamped from the same mold, although caregivers have some discretion regarding curriculum. Workers come from surrounding neighborhoods, so their ethnic makeup closely reflects that of their charges. In locating centers, proximity to staff and customers is everything because many parents don't own cars.
The CEO's relationships with state governments and community groups help drive growth; local development agencies, in particular, have enabled him to tap into the available workforce. And he hammers out deals with local real estate developers, who pay to construct Allegheny's facilities and then sign the company to 10-year leases.
Allegheny has critics, mostly nonprofits that say that its curriculum is bare-bones and that Henry hires inexperienced teachers. But he shrugs off the criticism, claiming he's concerned only with what the parents think. "A lot of people in day care fear us because we're very good at business," he says.
By year-end, Henry plans to have six more facilities in Detroit, two or three in Cleveland, and one near Oakland, Calif. Allegheny has already raised about $7 million in venture capital, although with so much investment in expansion and infrastructure, it's not yet profitable. But Henry is confident it will be. "The market is much larger than anyone believes, because the need is there and the available service hasn't been," he says. "It's a true supply-and-demand problem."
Thea Singer is an associate editor at Inc.
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