SM: How many not-for-profit entities are there out there that are building upon your technologies?
RP: There are now 40 of them.
SM: How many students do cater to through this model?
RP: We have 70,000 full-time students.
SM: What are the financials? One not-for profit buys what volume of technology from you?
RP: The range can be dramatic and it depends on how many students they have. K12 has almost $400 million in revenue now.
SM: What is the ramp between 2001 and 2009?
RP: In 2001 we had 1,000 students in two different schools which produced just over $5 million in revenue. The following year we had seven of these schools with revenues of about $35 million. We grew very quickly. We grew from there to $70 million in revenue and then to $108 million, $140 million, $225 million, and $315 million. Today we are getting close to $400 million.
SM: How do you find these people who start not-for-profit schools?
RP: They find us. These are parents who have heard about how good K12 is. We have tens of thousands of people who email us asking for a school in their state.
SM: Parents wanting a school in their state are much different than entrepreneurs building and growing a school.
RP: They are, but we help them when it comes to getting the school going. We sell everything you need to do a school. We can turnkey a solution for them. Many time people would contact us and asked us what they had to do to have a school in the state. They formed the not-for-profit entities and they go through the process of getting legal permission for the school. Once they did that, we could turnkey for them.
SM: Very interesting business model. You also mentioned you had a private school that was your private label. Are the public schools your primary revenue source?
RP: We do have a private school, but that just started two years ago. Most of the revenue is through the model I just described to you.
SM: After you found the entrepreneur who is setting up the school for the state, what is the process of acquiring students for that entity?
RP: They recruit students like a consumer marketing company would. You do direct mail, email, Internet search, and everything you would do if you had a consumer product. At that point it is a consumer sell. It is impossible to communicate how good our school is without seeing it. We run a lot of open houses where we rent a room at a Holiday Inn and a teacher from K12 will go there and educate parents on it. When people come to the open house and see how good it is, they sign up.
SM: Who does the consumer marketing? K12?
RP: K12 does a lot, but it is a combination of work between the entrepreneur and K12. We certainly do a huge part ourselves and by assisting them.
SM: You then have a good idea as to what the segmentation of your marketplace is, and who your likely students are?
RP: We learn more every year. Because this is a such a new market, as it becomes more and more mainstream we get different kinds of kids.
SM: What have you learned so far about which kids are successful in your schools?
RP: The range of kids is enormous but they all share one thing in common, a local school that for some reason is not meeting their needs. If your child is perfectly happy in their school then they are probably not coming over. We get kids who are highly gifted and work three to four grade levels ahead of where they are chronologically.
We get a lot of kids with special needs, especially kids with autism. They come to us in droves. We get a lot of kids who are socially conservative. The values taught in the public schools do not match their family’s values.