Can a new on-line learning company make the grade?
Can a new on-line learning company make the grade?
60-Second Business Plan
The pitch: George W. Bush may have coined the phrase "No Child Left Behind," but Baxter T. Brings intends to make good -- and good money -- on the pledge.
His two-year-old company, Advanced Academics Inc., provides on-line course work for tough-to-teach students: those who are at risk for not graduating, those who live in rural areas, those who are homeschooled, and even those who are overachievers. By 2005, says Brings, 2.9 million students will fall into such categories. That translates into a $19-billion market, given that, on average, states spend $6,584 per public high school student per year, according to the U.S. Department of Education. "Ours is a rapidly growing segment in the K-12 space because it's new," says Brings, who serves as Advanced Academics' president and CEO. "And with the newness comes a lot of opportunity."
The Oklahoma City company offers 60 accredited courses in subjects ranging from Spanish to biology (think virtual-frog dissection) to students in the 12 states with educational policies that are most hospitable to on-line instruction. The company plans to expand to at least 15 more states by 2007. Advanced Academics isn't alone in the field; Brings cites six on-line learning companies as competitors.
What puts Advanced Academics at the head of the class, Brings believes, is its business and revenue models. "A lot of private companies compete with the public-education market, and that's the opposite of what we do," he says. "We supplement what the public-education market is doing."
To that end, the company, with its 52 employees, forms partnerships with school districts, which largely determine the contracts' terms, including how many students will participate and which courses will be offered. The company's fee ($335 per student per course) comes out of the average daily attendance funding that states allocate to their school districts (an average of $500 per student per course). The $165 difference between what the districts take in and what they dish out to Advanced Academics goes straight to the schools' coffers.
The system is designed to appeal to administrators. Though Advanced Academics develops all the courses itself, students log on to Web sites that frequently bear the district's name. Also, curricula can be customized to meet district standards. And the system monitors students automatically, which allows teachers, schools, and parents to keep track of what their pupils are studying in real time. Brings also provides students with 24-7 access to a team of Advanced Academics instructors -- 20 teachers and 7 teaching assistants -- by means of live chat, E-mail, and phone. True, the student-teacher ratio of 250 to 1 is no improvement over Any Town High, but Brings insists it's vastly superior. "We don't teach a class, we teach a student," he asserts. "Because it's round-the-clock, we actually touch the kids more than kids are touched in the classroom."
So far, the company's tracking data bear him out. Of the 1,200 students who have enrolled in Advanced Academics courses, 70% have completed them. Exit exams -- state-required pregraduation tests that must be taken in a brick-and-mortar classroom -- will be another indicator of how the program measures up. If the company makes the grade, Brings expects to sell it for more than $100 million in a few years or to position it for a public offering. "Ultimately, the proof is in the success rate of the students," he says. "And that's where I have to focus and continue to focus and focus again."
The Quick Once-Over
The Numbers: $314,000 in revenues, $3.4 million net loss in 2001; $1 million in revenues, $4.2 million net loss in 2002; $5 million in revenues, $2.6 million net loss in 2003; $16 million in revenues, $3 million net profit in 2004
Capital Raised: $12.5 million from five venture-capital firms and angel investors that together own 85% of the company
Biggest Expenses: $2 million for sales and marketing in 2002; $2.7 million in 2003; and $4.2 million in 2004
First-Year Operating Costs: $680,000
The Weigh-in: Our Panel Rates the Plan
Pass or Fail?
Who: Marjorie L. Schaffner, consultant and former CEO of Success Lab Learning Centers (#9 on Inc's 2002 Inner City 100), based in Chicago
Rating: 4 (on a scale of 1 to 10, with 10 being the highest)
"Advanced Academics claims -- with only limited alliances with minor publishers -- to provide a curriculum that meets the needs of a wide range of students: remedial, quick learners, special needs, missing credits, home schoolers, and so on. Even in an individualized setting, it's extremely difficult and costly to provide course work that meets the needs of both remedial and gifted students. I also question whether Advanced Academics will be able to maintain its price of $335 per course and thereby continue to provide $165 in economic incentive to school districts. Given the current state-revenue shortfalls, school districts are likely to go to the lowest bidder that has an equivalent product. The marketing plan appears to be based on hiring high-powered salespeople to leverage their prior relationships with superintendents. Although personal relationships are a crucial part of the selling cycle, it seems risky to base a rollout plan on relationships alone when the average superintendent's tenure is approximately two years."
Who: John M. McLaughlin, a member of the John McLaughlin Co., an education-industry consulting company based in Sioux Falls, S. Dak.
"The business plan glosses over how difficult it is to sell to public schools. That surprises me because the company has an impressive leadership team, one that has been successful in the education industry. The plan also fails to consider several well-capitalized direct competitors. Chief among them are Pearson's NovaNet, which already features 100 course offerings; K-12, which is backed by Michael Milken's Knowledge Universe and run by former U.S. Department of Education secretary William Bennett; and KC Distance Learning, which is part of KinderCare, the largest provider of child care in the nation. In addition, dozens of states and school districts have their own virtual-learning initiatives that can be accessed either on-line or through live video."
Who: John Bergstrom, a partner at RiverPoint Investments Inc., a financial advisory and consulting firm based in St. Paul, Minn., that focuses on education and media
"The concept offers all the characteristics of a high-risk, high-return investment scenario. The theoretical market for on-line K-12 curricula is inarguably enormous, but it is also politically and emotionally charged. The company is most likely correct in targeting the fringes of the classroom, including remedial and homebound students. School bureaucracies are generally more open to trying on-line, teacher-independent approaches with those populations. The company is also on target in focusing on those states where success is most likely and costs are lowest. But offering a complete high school curriculum consistent with state, federal, and accrediting-agency standards is a Herculean task."
Who: James Sandfort, superintendent of the Lindbergh school district, in St. Louis
"The plan says that all their courses meet national standards. That is somewhat nebulous. For a company to have credibility in the marketplace, every course needs to have the stamp of approval from at least one of the seven regional accrediting associations from around the country. The same quality assurance applies to the teachers. It's not enough to say they are experienced or even certified; they must be licensed and certified to teach the subject to which they are assigned. Without such guarantees, it's as if a publisher is saying to me, 'We have a great textbook, but we're not going to share with you who wrote it or reviewed it."
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