The Business of Schools
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Image: Dileep Prakash for Forbes India
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MODEL 1 Satya Narayanan's Indus World runs school in partnership with real estate companies who lease him the land in residential projects that they are building
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rishnan Ganesh, chairman and founder of TutorVista.com, an online tutoring company, is a serial entrepreneur with a nose that can sniff out new opportunities very early. In 2002, he and his wife Meena sold their call centre business, Customer Asset, to ICICI for $20 million. His investment in the next business, Marketics (a data-analysis start-up) fetched him a good return too (he sold it to Business Process Outsourcing firm, WNS, for $65 million).
And now the duo has spotted their next big thing: Schools. Last year, Ganesh and Meena joined hands with the Manipal Education and Management Group, one of India’s oldest names in private education, to get into the business of running K-12 (short for Kindergarten through Standard XII) schools.
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The opportunity for the business of education in India is huge. India has the world’s largest population of school going children (over 200 million). Indians also spend a lot of money on education. “School education forms the second most important spend item on an Indian family’s list, just after food and grocery. In US it is seventh,” says Ganesh. But it won’t be easy for him.
Education is a difficult business to build scale; there are hardly any businesses of scale in this sector, in India or elsewhere. There are only 75,000 private schools in India, and only a handful — like Delhi Public School (DPS) — have managed to cross 100 locations.
A key reason for that is schools are a not-for-profit pursuit by law. And with reason — education needs to be inclusive. Human Resource Development Minister Kapil Sibal has minced no words in letting the whole world know that as long as he stays minister, those seeking to make profits out of schools can take a hike.
So, schools in India are required to be set up by charitable public trusts which cannot take out surplus money out of the institution. As a result, there is hardly any venture capital investment that has gone to setting up schools in India. According to a research report published in January 2009 by IDFC SSKI, only $180 million of private equity investment has taken place in the formal education sector. This includes the entire gamut — from playschools, to coaching classes, online tutoring and digital content for schools.
Yet, Ganesh is not the only entrepreneur venturing into the business of schools. In 2007, Shantanu Prakash of Educomp Solutions started The Millenium School which has plans to set up 100 schools, and in 2007 Career Launcher’s founder, Satya Narayanan R., started the Indus World School. Today Indus World has 12 schools across India, and aims for 100 schools by 2014.
Why are so many entrepreneurs interested in this business, despite the constraints?
Karan Khemka, who heads Parthenon Mumbai (a global strategic advisory firm), lists five reasons why schools are such an attractive business: “There is more demand than supply, there are high barriers to entry, school fees rise higher than inflation, there is high visibility of revenue, and finally it works with negative working capital [since a school collects fee in advance]. No other business has these characteristics. It is better than IT, investors are dying to get in.”
And each one of these entrepreneurs has a blueprint for how to build a significantly large chain of schools.
Cracking the Code
Schools in India can only be owned by a not-for-profit trust or society or the government. With over a million public schools, the government runs the largest number of schools in the country. DPS is run by a not-for-profit trust.
Most businessmen and investors blame the law for creating pygmies in the sector. Their reasoning is that the absence of clear profit making structures make it difficult to raise and deploy capital across schools, which makes it difficult for them to scale this business.
A school is a capital-intensive business. In a metro, setting a school for 1,000 children on a 2-acre plot could cost anywhere between Rs. 15 crore to Rs. 25 crore (including land and buildings).
The simplest way to raise money is through equity, but no private investor wants to invest money in a not-for-profit trust. This is why the entrepreneurs getting into the business have created two legal structures. A trust that runs the school and books all the expenses, and a company that owns all the assets — land, building, management and technology — and leases it to the trust for a fee.
Almost every new entrant into the school business is using this twin structure to set up a school with minor variations. Some use it for setting up new schools; others have used this route for working with existing trusts and schools.
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Position one which is "technology is the SOLUTION" and the answer to scalability and Position two which categorically denies that technology can EVER replace a teacher as the way forward.
There is room for both depending upon the goal of the "educationist".
An afterthought, please don't use "standard" and "education" together. We are in the 21st century!
Scalability is only possible using technology with statndard education.
Merely building structure without standard / good faculty will be disaster. Mind set has to change to accept education thro' DTH.
and here will come the role of technology academician to redraft the entire syllabus suitable to DTH --and this will bring scalebility at affordable cost to all.
