Evaluating New Ventures for Non-Tuition Revenue

1. Evaluating New Ventures for Non-Tuition Revenue Peter J. Stokes, Ph.D.Eduventures, Inc. Independent Schools Financing Symposium November 23-24, 2002 Herndon, VA

2. Agenda • Introduction • An Industry Perspective • Opportunities for Independent Schools • Discussion

3. About Eduventures • Research and advisory firm covering learning markets since 1993 • Assisting institutions in thinking strategically about products & services investments • Helping providers drive growth • Delivering an independent view on key market issues

4. Purpose of this Discussion • See what the for-profit market can provide in the way of comparables and models • Brainstorm and pressure test these ideas • Identify areas for further investigation

5. The Challenges • Is there really a financing problem here? • If so, is it something you would risk your brand to fix? • Getting out of the either/or box • E.g., raise prices or reduce expenses • Moving to a both/and view of the possibilities • The tension between mission and money • Every species’ mission is to reproduce itself (status quo) • But doing it successfully can require adaptation to environmental changes (new value proposition / ROI) • The tension between provocation and practicality • For-profit models will have limited applicability if you believe there is no need to adapt • Or, for-profits may signal how the environment is changing

6. Agenda • Introduction • Industry Perspective • Opportunities for Independent Schools • Discussion

7. Education Industry Pre-K-12 Postsecondary Corporate Childcare Postsecondary Education Instructor-Led K-12 Schools Publishing E-Learning Content Publishing Technology Publishing Tutor/Test Prep Procurement Synchronous E-Learn Technology Language Training E-Learn Platforms Procurement Testing/Assessment Prof. Dev.

8. Industry Avg. 5.5% Growth

9. Pre-K-12 Revenue $58 Billion

10. Venture Capital Decline

11. Industry Investment Decline

12. End of Irrational Exuberance

13. K-12 Investment Declines

14. Industry Avg. 2.5% of Total

15. What It Means for Schools • K-12 market increasingly entrepreneurial as education reform and technology converge • “No Child Left Behind” Act driving growth / creating new opportunities following the venture bust • For-profits bringing a new kind of commercial and educational expertise to market

16. Agenda • Introduction • Industry Perspective • Opportunities for Independent Schools • Discussion

17. Financing Pressure Points Weakened global economy Tuition discounting Increases in restricted philanthropy Growing reliance on debt Coping with Ripple Effects Have you bled all of the inefficiencies out of the cost side of the equation? Are there business processes you can outsource? Financial aid? Human Resources? Etc.

18. New Opportunities • Diversify income streams through entrepreneurial efforts • The three I’s: • Intellectual property • Incorporation • Internationalization

19. Opportunity Map Internationalization Opportunities to ProductizeIntellectualCapital Core StreamsToday Curriculum Assessment Tuition Debt DistanceLearning Reselling SCHOOLS Sale of Assets Philanthropy Tutoring Recruitment Risks grow with movement away from the core. Reaching New Markets & Aggregating Buyers Incorporation

20. Defining Opportunities Opportunity Definition Rationale IntellectualProperty Productization of assets in the form of expertise around curricula,assessment, recruitment, pedagogy, etc. Schools are not monetizing the assets they possess, especially with respect to human and intellectual capital. Incorporation Entrepreneurial efforts to diversify organizational structure, revenue streams and market reach. Protects traditional value proposition while creating new opportunities to leverage intellectual property. International Leveraging assets and entrepreneurial skills to reach foreign markets and bring U.S. content, technology and services to new markets. Deepens and broadens target customer pool while creating opportunities to scale entrepreneurial activities.

21. Intellectual Property • Cf. Edison Schools • After-school & summer programs • Affiliates program • Benchmark Assessments • Achievement Management System • Achievement Advisor • Professional Development • Projecting $100 million in three years • For more information, visit www.edisonschools.com

22. Incorporation • British Columbia, Canada • School Act Legislation amended this year • Districts able to form corporations as adjuncts to school boards • Designed to protect schools engaged in business around Pacific Rim (especially distance learning) • Creates new opportunities for schools to “do business” at home and overseas • Contact for more information: Russ Pacey, Associate Superintendent, Westminster School District

23. Internationalization • Enhancing value of service in local market through international partnerships • Cf. Nobel Learning Communities & South Ocean Development Group • Aggregate international buyers and act as reseller / sales channel for your assets or U.S. businesses looking to expand internationally • Cf. Westminster School District • For more information, “A Global Education Market? Global Businesses Building Local Markets” at www.eduventures.com • World Education Market conference 2003, Lisbon, Portugal

24. Risks • Intellectual property assets are not truly unique • Entrepreneurial culture change difficult to manage • Business development skills necessary to establish sales strategy may not be available • Sales channels difficult to establish • Chicken or egg problem: how to aggregate buyers without product and service partnerships / how to establish partnerships without having first aggregated buyers • Dilution of core value proposition and erosion of quality of service • Result: another set of ripple effects to cope with in addition to those pressures you already struggle with

25. Discussion: Where to Next?

26. Contact Peter J. Stokes Executive Vice President Eduventures, Inc. 20 Park Plaza, Suite 1300 Boston, MA 02116 617-426-5622 Fax 617-426-5431pstokes@eduventures.com www.eduventures.com