Under the spotlight

These are challenging times for independent schools. Robert Boyd explains why an understanding of the school’s business model and how it responds to the market is crucial to strategic planning and survival

For many years, independent schools have concentrated on the school development plan, but have often overlooked the business model and strategic planning for the business. The effects of this can be seen most starkly where a school has downsized and is still highly successful in terms of staff and parental support, but the underlying business is failing because the school can no longer generate a surplus, the debt is increasing and the site is too big.

For all schools, it is essential to keep the business model under regular review, whether for defensive reasons or to develop an already successful model. By “business model”, we mean the essential features that characterise one school – or one type of school – and distinguish it from another. Understanding the school’s business model and how it responds to the market is crucial to interpreting problems and strategic options.

But the business model does not exist in isolation. It must serve an agreed set of aims. The parameters of change to the business model can be tested with this question: “If the school’s survival depends on such a radical change to our business model that we would be serving a different market with a different range of services, would we wish to continue or would we close?” If the aims restrict flexibility, then they too will need to be reviewed.

Defining the model
In the mainstream sector, the business model of an independent school is most clearly defined by:

the school site, its location and its current and potential uses;
the gender/s and age range of the pupils, and the numbers catered for;
the school’s proprietary status: charity or privately owned;
the school’s organisation in terms of year groups, boarding/day provision, the house system, class sizes, breadth of curriculum and co-curriculum, and the length of the school day and the school week;
the school’s brand image, marketing systems and the market segments it serves; and
its capital and debt structure, cost structure, fee levels and profitability.

These are the features that need resources, regular review and a readiness to change. It is these features that come under the spotlight when competitive pressures increase, pupil numbers fall and the school is unable to budget for a surplus.

Site for sore eyes?
The chances are that the school site, which was suitable five years ago, may now be too large, too small, or needs reorganisation or new build. Perhaps boarding numbers are down and the site is too remote for day pupils. In some cases, there are constraints that mean an all-girls junior school cannot switch to co-education provision because there is insufficient play/recreation area for the needs of boys.

Some schools do not own the freehold of their main site; this can be costly in rent as well as limiting opportunities for improvements and fundraising. For schools that have downsized, the site may now be too large and could be a drain on resources.

Whatever the nature of the problem, be realistic. The school matters more than the site. Many schools have relocated more than once in their history. If the site cannot be made to work and more land cannot be acquired, then partial or full relocation may be the right business decision.

Tradition and sentiment are often the inhibitors. In some cases, a governing body lacks the strength to manage the process and would rather increase the debt in the hope that the issue will resolve itself. But schools deserve better than this and it should not be overlooked that trustees are required to act as would a prudent man or woman of business in the conduct of their own business affairs.

Genders and age range
Through-market segmentation is essential. This can be carried out in several ways and, particularly, by year groups, for example: Nursery & Reception; Years 1-2; Years 3-6; Years 7-8; Years 9-11, and sixth form. Identify any segment where numbers are falling or where additional resources or marketing is required, and the competitive pressures that bear directly on that segment. Then obtain evidence from market research and devise strategic options specifically for that segment.

Some single sex schools are flourishing and are over-subscribed, but they are mainly those that are most academic. The trend towards co-education will make stability and growth more difficult for the mid-range and small all-girls schools. Those for whom there is no obvious merger partner nearby may need to consider a longer range merger that would involve a complete change of business model, as most of the staff and pupils would be unable to follow. But how does this sit with the intellectual model, that is the aims of the school?

“Now is the time for entrepreneurial thought backed by market research and sound judgement of opportunity and risk.“

Proprietary status
One apparent advantage of being a charity is that agreements and arrangements can be made with other charitable schools that do not involve commercial negotiation of personal interests. But the corresponding disadvantage is that when commercial factors are removed, tradition and sentiment tend to take over and these can severely inhibit strategic planning.

This is often the most complex part of the business model because changes in the house structure such as abolition of day houses or introduction of central dining, and changes in class sizes, breadth of the curriculum and co-curriculum and the length of the school day and week will have a major effect on the model and ethos.

In some areas, schools that are organised on the traditional boarding/day public school model are now considering a change to the day grammar school model, offering a shorter school day, larger classes, five-days a week and limited activities. A reduced fee structure attracts completely different parts of the market, segmented by income. Again, how does this sit with the intellectual model?

Brand image and marketing
The brand image dictates how the school is perceived in the marketplace. At its simplest, the components are: reputation for quality and consistency, trust and confidence, affordability, kerb appeal, and corporate identity and style. The brand image has a decisive effect on market demand. For example, an all-girls school that has promoted itself as such will find it difficult to make a credible offering to the parents of boys.

For all but the most famous schools, a professional marketing campaign that emphasises the brand will pay dividends, provided there is evidence that the market demand can be created or increased.

It is essential to segment your market. This can also be organised by year groups and by reference to parental income and aspiration: high academic, mixed ability, gifted children, special requirements such as riding, and special needs. It can also be done geographically, noticing where clusters appear, and by boarding, weekly boarding or day requirements. In addition to generic marketing, there needs to be a plan for each segment.

Financial concerns
Fee levels continue to cause concern for all but the wealthiest. Moreover, planning needs to anticipate the market as far ahead as seven or more years, when the new wave of parents may still be paying off (by then) up to £50k of student debt (or £100k if both parents are graduates) while trying to get on the property ladder, make adequate pension provision and maintain elderly relatives.

Prep schools will come under particular pressure if parents settle for a good state primary, believing that perceived deficits can be made up later.

Schools will also need to anticipate regular upward ratchets in the requirements of the public benefit test so that more children from poorer homes are educated at the expense of other parents.

These factors show that a higher density of use of school sites will become inevitable for all but the wealthiest schools. A key theme during the past 20 years has been the rise of the day schools and it must be anticipated that some of the traditional independent schools in large towns and cities will need to consider radical change in their business model and become day grammar schools in order to achieve the necessary levels of profitability or else look at converting to state control as academies or trust schools.

Now, more than ever before, is the time for entrepreneurial thought backed by market research and sound judgement of opportunity and risk. No business model should be set in stone; the model is only as good as its ability to respond to the market.

Robert Boyd headed the Schools Team at Veale Wasbrough, Bristol which advises more than 700 independent schools in the UK and abroad. He is the author of Independent Schools: Law, Custom & Practice and other books and publications.

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