It’s Hard to Go Back to Building Widgets

Published October 1, 1998

“Just a kid from the streets of Philadelphia” who put himself through eight years of night school, A.J. “Jack” Clegg truly understands the value of education in changing the lives of city children. As chairman and chief executive officer of Nobel Education Dynamics, Inc., he also understands how to deliver that value to more than 18,000 children in the company’s private schools across the country.

An engineer in the aerospace industry, Clegg worked his way through positions of increasing responsibility at Xerox Corporation, IBM, and Nashua Corporation. At the age of 37, he was running five small companies. In 1979, together with John Proctor, he formed his own company, building it up to an $85 million operation bought out by a British firm in 1986. He then became actively engaged in helping turn companies around . . . and those financial and business interests brought him into the education market.

Rockinghorse Child Care Center’s stock had tumbled from $7 to 31 cents when Clegg was asked to intervene. He quickly recognized that one of the company’s components, Merry Hill Country Schools in the Sacramento area, offered not merely child care, but a unique K-8 education process that had been in existence since 1949.

As a result of Clegg’s intervention, the firm’s name was changed to Nobel Education Dynamics in 1993. Its mission is to become a leading education company by making the private school alternative available to middle-income working families.

Nobel currently has a capacity of nearly 24,000 students and operates under thirty different local school names, with 134 pre-schools, elementary schools, and middle schools. The company will change its name in November to Nobel Learning Community, Inc., to reflect its focus on locally oriented learning communities and its expansion to schools for learning-challenged children.

Clowes: How do you view the market for private schools that you’re operating in?

Clegg: In 1993-1994, the pre-school market was $30 to $40 billion and K-8 was $200 billion, with nobody other than the public schools and the Catholic schools having any large share. There were no large, multi-unit, for-profit schools systems in the United States. True, there were 26,000 private schools out there, but less than a thousand were private, non-sectarian for-profit schools.

At Nobel, we realized we’d be plowing new ground. In doing this, we’ve had to make some mid-course strategy changes and some changes in assumptions as we’ve gone along. But the nice thing about being a company versus being in a bureaucracy is that we can sit in a room and make those changes in an hour. If we’ve got to change the curriculum because something is not working, we can change it. If we need to change the structure of our buildings, we change it. We don’t need ten months to get through a bunch of committees. That makes us much, much more efficient.

Clowes: How does Nobel view the market for private schools in terms of size, segments, competitors, and so on?

Clegg: The market is an evolving picture. We still see ourselves continuing to be a major player, but we now have some really big boys entering the market. For example, Knowledge Universe, which is backed by Milken; Kindercare, which was bought by KK&R; and Aramark, a $6 billion company that is trying to do what we’re doing through its Children’s World operation.

We’ve had about three to four years of virtually no competition in the K-8 market, but we know we’re going to have it now. So what we’ve got to do is to continue to advance quickly in the programs and the quality we provide. There are other changes out there, too, like charter schools. They’re confusing, but there are more and more of them and we’re waiting to see where they settle down.

Where we feel the opportunity is rising and the momentum has changed tremendously in the last six to nine months is in the voucher movement. You’re getting more and more backing there. The African-American community is finally waking up and realizing they’ve been fed a bunch of bunk, and that this could be really vital to the inner-city school kids to give them equality.

Clowes: So you’re looking to place new schools in their communities?

Clegg: If the vouchers come, we will go into the inner city. The problem is: We have to make a profit to get people to invest in our company to keep expanding, and we can’t make a profit in the inner cities today because the parents can’t afford even the low tuitions that we are charging.

But there has been a big change in vouchers in the last year. When I ran a session on vouchers at the Edventures conference a year ago, the arguments were intense. When I ran the same session this year, even I was amazed that the consensus of the entire room was that vouchers are inevitable. That is a big change.

Now, there are some difficulties in getting into the K-12 market, which people are discovering. It’s a reputation-driven business. With preschools, you can fill them up pretty quickly, but K-8 or K-12 schools are reputation-driven. And it’s not national reputation, it’s local reputation, which means that you have a very slow build-up of children. It can take two to three years to make a profit in K-12, which is very different from preschool, where you can make a profit in six months.

In addition to that, you have high facility costs and a shortage of teachers. One of the number one priorities in our company is: How do you attract and keep good teachers without paying them what the public schools are paying–which we can’t afford to pay if we want to keep the tuition low. But we do give other benefits, like anywhere from 50 to 100 percent scholarships to anybody that works for us. We get some very good teachers that way.

Clowes: How much does it cost to provide an effective education at a private school, and what does that education consist of in terms of class size, school day, school year, and school size?

Clegg: We’re charging between $5,500 and $6,500 a year. We have 17 kids per class on the average. Our schools are twelve hours a day, no matter what grade you’re in. Our tuition for an elementary school is for a ten-month year, but we offer summer camp programs. For the preschools, our program is for twelve months a year. The basic size of our elementary school is 300 children.

I tell my shareholders two things. First, if you go into the business of education, and you try to make short-term profits by cutting the quality of your program, you will get just that–short-term profits, because you won’t last. If you provide a quality product, you can last ten years to a hundred years because once you get that reputation for quality, you’re there forever.

So, the way we achieve our low cost is not by reducing the quality of our programs. In fact, we just sent out a bulletin to the newspapers about how many of our fifth-graders are achieving at a twelfth-grade level, based on Stanford Achievement Tests.

Second, we want to have small, manageable, locally oriented neighborhood schools. Could we make more money by building them bigger? Possibly. But, remember that a key to a good education is having a controlled environment: no drugs, no safety issues, and no children coming into your schools that don’t belong there. Our teachers and our principals know every kid in their school, and they know the parents.

Clowes: One of the keys to success in any kind of business is delivering high-quality product at low cost. How can private schools achieve high student outcomes cost-effectively?

Clegg: The way we keep the quality up and the cost down is just pure and simple reduction of bureaucracy–improved efficiencies in centralizing all our administrative costs. When I came into the company, our total administrative costs across the whole country for our schools were 9.3 percent of tuition. They’re now 6.8 percent.

I have 35 to 40 people here who basically do all the administrative functions, doing the payroll and paying the bills for all 134 schools. In our schools, we hold our non-teaching personnel down to a minimum, with just a principal and an assistant principal. We may have two maintenance people for ten schools, but we have no secretaries. In the public schools, you will find secretaries and maintenance people in droves.

As far as achieving academic outcomes, we start young. We start second language between the ages of two and three, and we do the same with computers. This is what comes out of our small classes, more localized schools, good teachers, and quality programs: Color or creed doesn’t matter, or whether they’re rich or poor–these kids are learning.

I truly believe that, given the chance, we could go into the inner cities and deliver this type of education at less than 80 percent of what they’re paying today, and produce well-educated children. The sad part about it is that everybody is fighting the reforms that will allow this to happen.

Clowes: What changes do you see ahead for private schools?

Clegg: We have new people coming into the market because of financial opportunities. We have legislators beginning to finally see that maybe vouchers are the way to go. And we have the unions beginning to lose their power to stop this from happening.

What I see coming quickly is more privatization of the education system, or semi-privatization through charter schools. This is not going to be stopped, and, in the long run, public schools will improve because of it.

Clowes: With almost two-thirds of the states already approving charter schools, what do you see as the major obstacle to legislative approval for vouchers?

Clegg: The major obstacle is those that want to maintain the status quo: the unions first and the bureaucracy second. I think what’s going to break the back of that obstacle will be the minority communities. If the minority communities in the inner cities ever get together and say, “We think vouchers could work for our children,” suddenly you would see legislation like you’ve never seen before. I think that’s the answer, but people like myself and others have got to go out and give the other side of the story, because the story they’ve been given is a story from the unions and the current bureaucracies to maintain their position.

Clowes: What message would you most like to communicate to our readers about education issues?

Clegg: Stop the bickering. Stop the selfishness. Start treating the future of our children as a nonpartisan top priority, and not as a political football. Stop lying to the inner-city children and families who have the greatest need.

A higher-quality education is not only possible, but more practical than the bandages being applied to the open wound that we have today. A quality education can be less expensive if the free market system is allowed to flourish; it can be done for less than 80 percent of what it’s costing per student today. This is not a racial issue and it’s not a union issue, it’s a child issue.

I believe also that the learning process must start earlier and that school days must be longer. Today, some 65 percent of the women with children in school are in the workplace, and we have not, as a public school system, addressed that fact. Most kids get into trouble between the hours of 3:00 and 7:00 at night . . . but not the kids from our schools–because they’re still in school.

All children can learn if provided the proper environment, no matter what color or creed. There can be no equality until there is equalization of educational opportunity. This doesn’t exist today, but it can exist simply by allowing education dollars to follow the student to the best possible alternative for that child’s education.