No Dollars or Sense

Edison's bad math

When Chris Whittle started Edison Schools Inc. a decade ago, he envisioned a "National Schooling Company" that would provide a high-quality education while securing profits through "economies of scale" made possible by operating hundreds of schools nationwide.

Fast forward to this September, when Edison declared a $49 million net loss for the fourth quarter, bringing the company's total loss for 2002 to $86 million. Edison has shelved plans to build a $125 million, 15-story headquarters in East Harlem. NASDAQ has threatened to delist Edison's stock if it doesn't rise above $1 per share by November 25. Whittle himself owes Edison schools $10 million secured by the low-performing stock—20 percent of the company's current market capitalization.

The company has lost at least six major contracts in recent months and is barely holding on to others. Last spring Edison was expecting to manage 45 Philadelphia schools this term and play the role of central manager for the city's entire school system. Since then, the Philadelphia Inquirer has reported that truckloads of Edison's school supplies have been repossessed. Though the company denies that allegation, it is now contracted to run only 20 schools.

Behold Edison's grim, dispiriting bottom line: The company has spent more money than it has taken in. It has nothing to do with the education industry or public education, and everything to do with too many top-level executives making six-figure salaries.

On top of that, Edison has a lousy business plan. Instead of working with individual customers, it has dealt only with large government bureaucracies. To win contracts, it gave up the integrity of its original pedagogical model. Edison sometimes sacrificed key pedagogical components (such as longer school days and more teacher training) to satisfy the unions and school districts.

Many other for-profit education companies have realized that the key to growth is to satisfy students and their parents rather than the bureaucrats who can sign large government contracts. According to a January report by the Commercialism in Education Research Unit at Arizona State University, there were 36 for-profit education management companies in the U.S. in 2001, operating 370 schools in 24 states. An overwhelming majority of those schools are public charter schools, which receive their funding only after attracting students to enroll in their schools. These companies have managed to grow their businesses incrementally, hoping for a small profit at each school.

Only when the funding truly follows a child will we have a market in education that is responsive to the right customers: the students and their parents. To the extent that Edison has failed that test, the company has also failed public education.