Optimal Owner for a School — Not Private Equity or Wall Street

The School Business

The School Business often requires a long term ownership perspectiveFinding a perfect match between a business and an owner is not easy.  This hit home to me last week at a gathering for private post-secondary schools in California where I heard an owner of a private, post-secondary school describe an epiphany he had 20 years earlier.  The school business clicked for him when he realized that “My school is a business, and also my business is a school”.  He was saying that there was a balance to owning and managing a school between managing the business well (and making sure the economics worked all around), but also not forgetting that a school business needs a bit more perspective than just a bottom-line focus.

Many of us feel that way about our businesses — a for-profit legal structure is the optimal, most efficient way to manage the organization but it is also much more than just a profit-making endeavor.  There is more to it.  As a result, every business should spend time thinking about who is the optimal type of owner for their business.

Align Business with the Proper Owner

Some businesses should be owned by venture capitalists — rapidly growing businesses targeting huge markets — because the vc’s have a ton of expertise in building those businesses.  Others are perfectly suited for mom-and-pop ownership — many wonderful local businesses serving their communities.  Others are perfectly suited for Wall Street and mutual funds because they are large enough to have a lively market for their stock every day and it works best if these businesses have smooth, predictable and growing earnings power so that Wall Street will not be surprised.  Or, some businesses should be owned by private equity firms to enable them to invest heavily or transform themselves under the privacy of private ownership and be ready to sell again on a quick time frame — 3 to 5 years.  On the other hand, life can be miserable when your business is owned by the wrong type of owner.

Business Growth and Ownership: My Own Experience and Observations

I have owned a private, for-profit, post-secondary school for nearly 10 years (the National Holistic Institute massage therapy school).  I believe that tax-paying schools serve a vital role in our society that will become even more important in the years to come as it becomes more obvious to the general public that our traditional colleges cannot serve every educational need of our country.  Yet, many of these schools need to find a long-term ownership structure that is not Wall Street or private equity or mom-and-pop.  It is something in between that has a long-term perspective, is sophisticated about building organizational capacity and handling regulations, and maintains the creativity and strive for efficiency best characterized by private enterprises.

Throughout the ownership of my school, I have observed schools that are large publicly-traded companies and how their Wall Street ownership is misaligned with the optimal way to manage those schools.  There are cycles to the school business based upon the economy, unemployment, and the public’s interest in various careers.  Even though we are all aware of the cycles, they are not easy to predict or manage through unless you have a very long-term perspective.  Being publicly-traded makes these schools too oriented to short-term results and therefore they manage their schools with more volatility (amazing success during good times, and serious blow-ups during the bad times) and maybe too oriented to the business side and forgetful that it is also a school.  Sometimes, private equity investors have done well with schools when they hit the cycles correctly, but I often find they are a little too aggressive with growth and not understanding enough of the human side of education.

I don’t have an answer, but feel many of these schools would be most successful for themselves and for our country with focused attention on developing an ownership that is optimal for the “school as a business and the business as a school.”