I’ve spent most of my career in the private sector, as a banker, consultant, and executive, working on everything from start-ups to improving the results of complex global organizations. For almost two decades, I’ve also invested all my volunteer time in K-12 performance improvement, in New England, Alberta, and now Colorado, at the school, district, and state level.
Amid all that has been written about charter schools, one perspective that has been mostly overlooked is that charter schools are also businesses, whether run as for-profit or non-profit organizations. As we celebrate National Charter Schools Week, it is helpful to use this lens to identify the key issues they face in 2018 and beyond.
In my experience, these issues can be divided into four broad categories: Market Demand, Value Propositions, Business Models, and Risks.
As Eric Hanushek’s research has shown, in a world of intense global competition and accelerating technological improvement, K-12 education performance is critical to economic growth, more equitable distribution of its benefits, and, ultimately, to reducing the degree of social and political conflict in our nation.
Unfortunately, recent NAEP results, their failure to improve in recent years, and the United States’ scores on the OECD’s PISA assessments all highlight the need for substantial improvement in our nation’s K-12 performance. So too does the growing number of job openings that are going unfilled due to a lack of skilled applicants, and the increasing anxiety on the part of many parents about whether the public school system is adequately preparing their children for the harsh world that awaits them after high school graduation.
In sum, there is no doubt that that there is strong demand for alternatives to traditional district-run public schools, provided that they have a reasonable chance of producing much better results. That said, there is also considerable uncertainty about which of today’s confusing mix of education value propositions can successfully meet that demand.
A value proposition is a description of the benefits that a client or customer experiences when buying and consuming a product or service, relative to the monetary and non-monetary costs incurred to obtain it. A value proposition highlights what an offering does differently, and why a customer should care about those differences (e.g., because of the superior results those differences will produce along one or dimensions that are high priorities for the customer).
From Montessori and Waldorf offerings, to blended, personalized, experiential and project-based learning, to college-prep, early college, classical, core knowledge, STEM, career pathways, and arts-focused curricula, there is no shortage of value propositions being pitched to parents today, with widely varying degrees of clarity, by both district-run and charter schools.
Unfortunately, at the national level there are no systematic and well-publicized assessments of the relative performance of these different value propositions when it comes to producing results in different areas that are potentially important to parents. With few exceptions (most of which are narrowly focused on standardized test results), these comparisons are also almost non-existent at the local level.
This gap creates a potential source of competitive advantage for a charter school that can offer students and parents a clearly defined value proposition that is supported by strong evidence of its benefits using explicit goals and metrics. These might include not only achievement results based on standardized tests, but also results in non-cognitive areas (e.g., using assessment tools such as those provided by Pairin, Inc.), and longer-term metrics like college acceptance, remediation, persistence, and graduation rates.
The advantage this creates for a charter school will often be further magnified by the inability of competing district-run schools to define distinctive value propositions of their own, and by the unwillingness of many districts to publicly compare schools with each other on the basis of measurable academic and non-academic results.
Unfortunately, while I have seen a number of strikingly effective charter school value propositions, I have also seen too many that essentially boil down to this: “We’re not a district-run school.” In some districts, that may be sufficient to fill charter classrooms and generate substantial student waiting lists. But relying on the continuing weakness of mediocre competitors is always a very risky strategy to pursue.
A simple definition of a business model is that it describes how an organization will perform various processes in order to deliver its value proposition’s benefits at an economically sustainable cost.
In this regard, I’ve also observed a number of common weaknesses in charter school business models. In the absence of a clear and differentiated value proposition, it is impossible to design an effective, efficient, and adaptable business model. This usually results in something that looks very much like a traditional district-run school, which typically leads to unimpressive charter school performance.
Another weakness is charters’ temptation to put the facilities cart before the educational value proposition horse. Living in Colorado, I know all-too-well that finding a facility for a new charter school can be a daunting challenge. Yet too often that challenge is met by dedicating so much per pupil revenue to facility costs that staff is forced to deliver the educational value proposition with fewer resources than they need. The risk is obvious: failure to deliver the superior results that parents and authorizers expect, leading to increased organizational conflict, teacher turnover, a loss of enrollment, struggles to renew the school’s charter, and ultimately financial distress.
These are far from the only risks that charter schools face today. Political opposition to charters has been growing, and the rate at which new schools are opening has declined. The cleverest charter opponents are urging districts to expand choice options across district-run schools, and to allow those schools to offer more differentiated value-propositions (though they still seem to resist measurement of and accountability for the benefits that are actually delivered).
Start-up financing for charters also remains very scarce. Donor grant funding is limited, market-based seed equity is essentially non-existent, and federal charter start-up grants are often structured as reimbursements of already incurred expenses, which perversely requires new schools to raise initial working capital in order to access grant funds. And for established schools seeking to expand facilities, debt capital market investors still regard exposure to charter credit as relatively risky, and as a result usually impose restrictive covenants and other conditions.
A final set of risk factors only becomes visible when a successful single-site charter attempts to grow into a network of schools. From a business perspective, this is equivalent to becoming a multi-site professional services firm — and as anyone who has tried that in the private sector can tell a charter school, it is no easy task. In fact, rapid growth is second only to start-up as the lifecycle phase when organizations are most likely to fail. While the school’s primary focus is normally on replicating core academic processes, scaling up many other business processes — including enrollment, student supports, human resources, purchasing, accounting, facilities, financing, technology, risk management, governance, and others — usually proves to be surprisingly difficult, particularly when more than one charter authorizer is involved.
In my experience the challenges associated with growing a charter network are far larger than what most single site charter management teams and boards expect. Unfortunately, they too often pay a high price for their overconfidence. This is a fundamental reason why observers can point to many excellent single site charter schools across the United States, but far fewer high performing and rapidly growing networks.
In sum, as we celebrate National Charter Schools Week, here are four improvements that could have a substantial impact the future success of this critical segment of America’s K-12 education system:
(1) Charter schools need to get more specific about their value propositions and the benefits they intend to deliver to students and parents;
(2) Charter business and financing models need to ensure that high facility costs don’t prevent realization of these benefits;
(3) One way to do this is to substantially expand the amount of donor support and market-sourced equity and debt capital that is available to charter schools for start-up, expansion, and network growth;
(4) Boards (and outside funders) need to focus much more on strengthening charter schools’ organizational capacity to manage network growth.
Tom Coyne is a private sector executive. For almost 20 years, he has invested all his volunteer time in K-12 performance improvement at the school, district, and state levels, in Canada and the United States.
