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NCLB Outrages

Trends: Not Left Behind: The schools act of 2002 has been a boon for education companies

By Jeremy Quittner

Mindy Bingham used to think $1,500 was a good sale. That's how much Academic Innovations, her curriculum development company, would take in when it landed a school district as a client. But since 2004, her 12-employee St. George (Utah) company has been ringing up far larger sales, such as $40,000 from a Southern California school district that is making her company's course on how education affects career prospects a requirement for its 1,600 first-year students.

Bingham owes her improving fortunes to No Child Left Behind (NCLB), the 2002 law that is the cornerstone of President George W. Bush's education policy. The act calls for school districts to ensure that students meet state proficiency standards in math, English, and other basics by 2014 or risk losing federal funds. While politicians and educators have hotly debated the merits of the law, it has been an indisputable blessing for education entrepreneurs such as Bingham, who estimates that NCLB funds accounted for one-third of her company's 2005 revenues of $2.1 million.

NCLB is a reinterpretation of the Elementary & Secondary Education Act passed in 1965 by President Lyndon B. Johnson and often tinkered with over the years. Entrepreneurs are getting a boost from Title 1 of the act, which originally supplied federal aid to impoverished school districts that were also underperforming. It still does, but now Title 1 stipulates that districts seek outside help, either from not-for-profits or private companies that provide educational services such as tutoring, test preparation, and staff development.

In 2006, about $13 billion in Title 1 funds are to be spent, including $3.7 billion expected to go to businesses developing supplemental curriculum, $3.5 billion to professional development services, and $1 billion to tutoring and test preparation companies. "There are people out there who refer to NCLB as the Testing Company Welfare Act because of the benefits that accrued to testing companies overnight," says Tim Wiley, a senior analyst at Eduventures, a Boston market research firm.

Although most of the 1,400 for-profit players in the education market are small, NCLB has spurred few startups, says Steven Pines, executive director of the Education Industry Assn. "Startups with no track record working with school districts won't get approved by the states, which are the gatekeepers," says Pines.

School districts are also notoriously fickle in their choices of vendors and suppliers. And it can be tough for small businesses to scale up, sometimes going from working with a handful of students one year to thousands the next, says Clive Belfield, associate director for the National Center for the Study of Privatization in Education at Columbia University in New York. He says the states further complicate things by providing little oversight of the products and services offered by private companies.

But for many existing companies, the act has meant an opportunity to expand. Summit Educational Group, an eight-year-old tutoring company in Watertown, Mass., offers one-on-one math, science, reading, and writing instruction to students in underperforming schools located in Boston, Chelsea, Framingham, Lawrence, and Lowell, Mass. The 21-employee, $3 million company recently developed a division that creates written testing materials that were used by about 2,000 middle and high school students in the last school year. "The two ways we have [expanded] our company are by providing [state testing] materials to the schools and one-on-one tutoring," says Susan Higgins, the company's vice-president for marketing and business development.

While NCLB funding made up only 10% of the company's 2005 revenues, the number of students it tutors in underperforming districts has doubled each year, which Higgins expects to continue.

Entrepreneurs in other areas have also benefited. In 2000, Jeffrey Elliott founded Advanced Academics, a testing company in Oklahoma City, to provide alternative teaching methods to students who didn't perform well in traditional classrooms, such as offering online instruction to students who don't speak English. After NCLB became law, Elliott added a test preparation division with 24-hour-a-day online connections to certified teachers who help students prepare for exams in 20 states. Since 2003, his staff has grown from 30 to 50, and revenues have more than doubled, to $10 million, thanks largely to schools' increased focus on accountability and preparation for state tests. Advanced Academics reaches about 15,000 students a year. Elliott admits that if a school district decides it needs more teachers midyear, he'll be hard-pressed to find them.

Academic Innovations will also have to hustle to keep up with growth. In July, a Florida district signed on to make its course a requirement for 11,000 students, and Bingham will need four more employees in the next few months, particularly in sales. She is also looking for a larger office space. "We've very quickly had to increase our spread over the entire country," she says.

While NCLB is scheduled for reauthorization in 2007, it may be changed substantially after the 2008 elections. "You can't count on anything in this business," says Bingham. "We see that as a fact of life." And by 2008, entrepreneurs that have been benefitting from education contracts could very well be left behind.

— Jeremy Quittner
Business Week


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