Higher Ground’s mission is to help children to live full lives. We empower them to become their most capable and passionate selves by educating them, through a suite of educational offerings grounded in Montessori principles. We ourselves are capable educators, guided by a unique philosophy of education and impassioned about bringing it to the young.
We’re also a for-profit business. We expect to make money.
So, how does profitability relate to our educational mission? Is there a contradiction? A tension? Something problematic or unsavory about pursuing an educational mission for profit?
No. To the contrary, profitability is a core measure of our success in achieving this mission. It’s a vital perspective on whether we are succeeding on what we’re trying to accomplish as educators.
Profitability simply means the value of the services we are providing to our customers is greater than the cost of providing them. In order to do this, we must create value for our customers such that the value to them is greater than the cost of the tuition they are willing to pay.
To offer the education we think is proper to thousands of children—scaling up to tens of thousands, then hundreds of thousands, then millions—is costly. It requires a massive investment in people, real estate, technology, and operating expenses. It requires planning for the cost involved in learning through experience, as well as the unforeseen costs that occur as a result of chance or outside factors. It requires a long-term commitment backed by the dollars to carry through that commitment.
These investments can only be made if we can use them to create value that is even greater than the amount we spend. There is a cost to the materials, the real estate, and above all countless hours of hard work from educators, trainers, and operators. In seeking funding to pursue our vision, we are expressing confidence that the value of what we do will be worth more than the time, resources, and effort put into doing it.
We all think that this work is worth it. The delight on a child’s face, the enduring connections that form in their minds, the sparks of curiosity and interest that we carefully protect and fuel and grow into the fires of thought and work—these things are worth the costs it takes to achieve them. Profitability is a way of materially, mathematically measuring this worthiness. Profitability says: customers will pay for this, and they will pay more for this than it costs to make it. This education is worth the costs it takes to afford it. (And in other forms where the customer is not paying, the principle is the same—the measure of our impact is whether we can create greater value than the dollar amount we can receive from foundations, donors, and other institutions.)
The only way to be able to invest what is needed to create this kind of education is to make the education good enough to be worth it. And the only way to secure the level of capital investment needed to create this kind of education is by manifesting the value of this education in monetary terms. Large-scale education needs large-scale profits.
At Higher Ground, profitability is the means of achieving our mission at scale. Our mission is made possible by our enduring margins, and is manifest in those margins. The profitability requirements of Higher Ground’s mission are in contrast to many organizations operating in the educational sector. A not-for-profit enterprise is inherently limited in scale to the extent its donors are willing to fund perpetual losses. A governmental institution is limited by the amount it can tax the inhabitants within its jurisdiction, as well as the incentives it can provide to entrepreneurs, educators, and others that play critical roles. At Higher Ground, we must ultimately deliver excess value to the world in the form of profits to fund our ambitious mission. Our reach is limited only by our capacity to do this: our capacity to deliver a great education, an education that is worth vastly more than the cost of its parts.
Profitability is also inherent in our values. Consider how it applies to our Guidepost values. It is the practical means of achieving our educational ideal (Practical Idealism). Profitability is an aspect of the mission to be embraced (Be Your Own Compass) and to participate in. Profitability requires keeping the perspective of the paying customer in mind and treating it as critical (Earn the Trust of Parents). Profitability requires teamwork based on trust and candor (Guide and Be Guided by Colleagues). Above all, profitability requires delivering on our promise to the child: to help her to learn to do it herself, think for herself, and live by and for herself (Revere Independence in Children).
At Higher Ground today, we generally measure profitability at the level of the school, the business line (e.g., Brick & Mortar, Virtual, Homeschool, etc.), and the company as a whole. Over 90% of our current business is represented by our 112 Brick & Mortar school locations. The key profitability benchmarks for a Brick & Mortar location are: break-even within 18-24 months, and 25% profit margins within 4 to 5 years. If we can create a model that successfully achieves these outcomes, there is truly no limit to the number of children we can impact directly and, ultimately, indirectly through the ways we and others will build on our innovations.
Profitability is the result of countless decisions, but the key driver is and always will be enrollment, enrollment properly defined as enrollment at tuition rates that can allow us to achieve our profitability targets in programs that we are proud to offer children and families. In this sense, enrollment is both the source of profitability and reflects the achievement of our mission to help children to live full lives.
Enrollment itself is also a complex measure that incorporates countless factors including program quality, student outcomes, staff engagement, parent experience, and marketing effectiveness. At the end of the day, growing enrollment shows that we are creating value as more families choose to spend their hard-earned money on the phenomenal value of a Montessori education that we can provide, and that we are doing so in a way that is healthy and sustainable (or better).
As we move to our new regional structure, one of the key objectives this spring will be driving enrollment and profitability with effective planning on how we organize our classrooms. For example, a critical factor in whether a school matures in its enrollment is how effectively it handles “Move-ups”. Move-ups represent the natural progression of a student from a classroom with a younger age band to one with an older age band (e.g., infant to toddler). They represent both the growth of the student and the immense joy of the family in experiencing our support of that growth. By achieving high retention rates and backfilling the move-ups with newly enrolled students at the younger ages, we continue to support our existing students and start to serve new ones—and therefore to dramatically increase profitability.
The achievement of Higher Ground’s mission—the realization of our educational principles in the forces shaping the development of millions of children—is immensely difficult. It requires that we be a specific sort of company. We need to be unbending idealists—practical idealists that actually create value in reality and don’t live in the clouds. We need to hold ourselves to exacting standards of creativity, depth, and precision of thought. And we need to embrace with clear eyes, to a person, the demands of the mission and the complexity of the collaboration.
I look forward to collaborating with you all in driving and celebrating profitability as an expression of our mission, and in achieving that great mission in the days, weeks, and months ahead.
Onwards and upwards!
Mitch
I'm very excited about “Practical Idealism.” Please keep these Friday Notes coming.