In the last couple of years, a number of well-known and highly-successful business people have made investments in education with the noble intention of bringing innovation and knowledge to a greater number of learners with convenience and at a lesser cost. However, a number of business ventures in this area have failed rather miserably.
Take the example of LeapFrog Enterprises, it was the best-performing IPO of 2002 and was founded by brothers Michael and Lowell Milken in 1996 and supported by Oracle's CEO LArry Ellison. Aptly named, Knowledge Universe, it was, in the words of Michael Milken, intended to be "the pre-eminent for-profit education and training company," that will cater to learners of all ages.
Knowledge Universe aimed to transform education so the business offered programs for preschoolers, K12 learners and MBA programs and IT training for professionals and more.
Early this year, LeapFrog Enterprises sold itself for $1 per share. The vision of Knowledge Universe and Milken's dream of transforming education remains unfulfilled.
Another notable personality, media mogul Rupert Murdoch invested to have technology integrated in the way children were being taught. He and then New York City schools chancellor Joel Klein established the Amplify division within News Corp. According to Murdoch the K-12 education is "a $500 billion sector in the U.S. alone that is waiting desperately to be transformed."
After a few years and $1 billion of investment and having to compete with "multibillion-dollar global leaders in educational hardware, software, and curriculum development", without any signs of profitable returns, the company was sold to Laurene Powell Jobs, last year.
These and a slew of other noble education ventures that involved financial institutions like JP Morgan and Goldman Sachs as well as billionaire Ronald Perelman and hedge-fund investor John Paulson have put in and lost big money in for-profit education
While these losses are indeed monumental, keep in mind however, that not all investment in for-profit education loses. There are a number of reasons that some of them filed and why the others succeeded.
Scope and scale can be identified as critical areas of concern when it comes to businesses wanting to change the education industry.
When Milken started his Knowledge Universe, he had the grand vision of transforming education - it wasn't a bad move entirely. However, his company's transportation efforts overlooked the actual size of operations against its scale. So while their operations grow on the national level, the company had lesser margin for profit because of rising operating costs.
Also the scope of the operations worked against the Milken business. They offered everyone everything - the company's "from cradle to grave" approach to learners caused them to be outdone by more focused competitors.
Further, most big investors have preference to customize and associate with prominent institutions that up their expenses. Another one of Milken's projects known as the Knowledge University, offered to pay millions to be associated with top universities like Stanford, Columbia and the University of Chicago. The contract state that Milken's company will develop an online-M.B.A. course material and then share revenues with the said schools.
It was a good thing to be associated with such prominent higher education institutions however, it would have been more practical to seek partnership instead of Knowledge University doing all the work.
Most ventures that have succeeded in for-profit education are those who worked with specific targets and worked incrementally to grow the business and eventually their profits. Education has a tightly defined market and the most recent business successes are those that focused on innovation one at a time.
A clear business model and an incremental plan to build on is something investors in for-profit education should focus on. An all-out assault to overhaul the system will not work without one.
