A blank sheet of paper . . .

In 1974 Marty Sklar had just been promoted to creative leader of Walt Disney Imagineering -- the creative force behind the theme parks and other guest experiences. At the time Walt Disney World in Florida had just opened and EPCOT Center was on its way (Disneyland in California was in operation). Over his tenure as the leader, it grew to eleven theme parks across the globe on three continents.

Back to 1974 though. In one of his first meetings, Sklar set out a black piece of paper in front of the Imagineers who had gathered for the launch.

"There are two ways to look at a blank sheet of paper," Sklar told the creative team. "It can be the most frightening thing in the world because you have to make the first mark on it. Or it can be the greatest opportunity in the world because you get to make the first mark -- you can let your imagination fly in any direction, and create whole new worlds!"

If a blank sheet of paper were placed in front of you, how would you see it? Answering that question can make all the difference in the world as to what you may or may not create moving forward.

The K12 ship continues to go under water

Over a year ago I penned a blog (Why K12 will struggle) that stated if Agora Cyber pulled their management contract from K12 that the K12 stock would drop into the $13 range, perhaps even as low as $12. Shortly after it was announced that Agora was indeed pulling their management contract, K12's stock plummeted into that range. It is difficult to overcome a loss of 11,000+ students.

The silver lining at the time was K12 continued to provide curriculum to Agora under the new agreement reached. There was spin associated with this new arrangement but what was missed was that it was a temporary association. Within the next 2-3 years, Agora will pull their curriculum from K12 as they work to build their own (and while that is a mess, that is another story entirely).

A few months ago I wrote a blog The K12 ship is sinking and laid out some reasons why I believe they are on a steady decline.

As I write this, their stock price is $8.91 per share. My guess is they would love to see it in the $12-13 range that only a year ago was considered dismal performance.

So, what next? What does the future hold? Of course I can't say for sure but I can point to indicators:

1. Watch what happens when Agora pulls the curriculum

2. Pay attention to the potential closure of Tennessee Virtual Academy at the end of this academic year

3. Pay close attention to the California Attorney General's investigation into for-profit providers which includes K12

4. Watch for other virtual school boards either threaten to or actually pull their management contracts from K12 over the next two years

5. And, pay attention to the academic performance in Maine and North Carolina -- the narrative K12 has wanted to tell the past few years was they were in transition and now putting students first. Both Maine and North Carolina were launched with the new management in place so this will be the true test as to whether or not the transition was real or simply smoke and mirrors

Where there's smoke . . .

houston@figment-consulting.com

The K12 Inc. ship is sinking

They say the devil is in the details. The earnings announcement by K12 provided some interesting details, many of which were devils.

In response to the announcement I sent out a Tweet that said the same as my blog title for today: The K12 Inc. ship is sinking. It appears it stirred something within those who actually saw the Tweet because I had a flood of emails arrive yesterday -- on both sides of the argument.

In more than 140 characters, here are the main reasons why it is sinking.

1. The elephant in the room.

K12 management can talk all they want to about double-digit growth in international and private pay schools, and institutional and software sales (even throw in non-managed programs for good measure), but the elephant is managed schools and that is on the decline.

Enrollments in managed schools were down 2.2% in the three months ending June 30 when compared to last year, and down 3.9% yoy. Out of the $948 million in revenue, managed schools accounted for almost $814 million of that total revenue.

Last year K12 was able to increase revenue even with declining enrollment which was a job well done. However, that is not a long-term strategy, nor is it sustainable.

As we look to this academic year, they are already substantially behind in enrollments; Tennessee Virtual Academy will probably have to close doors next year which means a further loss in enrollments; and the states on the horizon (such as Alabama) do not have the population or momentum to provide any measurable increase in enrollments.

So, they are touting the revenue from sources other than managed schools. In fact, CEO Nate Davis referred to FuelEd as "the revenue driver moving forward."  But, when you add them up, they only total approximately $130 million in revenue. And, at their current rate of growth, it will take years for these entities to unseat the managed-school elephant that dominates their revenue stream -- which is on the decline.

Keep in mind, all of these numbers include enrollments from newly launched schools in North Carolina and Maine.

2. The legitimacy of the non-managed school growth is in question.

Agora Cyber Charter School severed their management ties with K12 last year. This means enrollments in Agora (over 10,000) shifted from managed schools to non managed schools. See Note 2 under the Enrollment Data. 

Non managed schools showed a 38.5% increase yoy in enrollments and a 36.4% increase yoy in revenue. Remove the average of 10,000 in enrollments from Agora from the equation, and non managed schools actually show a decline in enrollments yoy (along with revenue decline).

Why do I point this out? Agora's first step was to sever management ties with K12, just as COVA (Colorado) did a few years ago. What some are missing though is Agora's intent to sever curricula ties with K12 within the next two years -- once this final contract runs out. This means that the near-term horizon has K12 under the gun to replace 10,000+ enrollments in non managed schools just to remain where they are currently.

Commonly referred to as a false positive. Growth looks great on paper but in reality it was a mere shift in classification that accounted for much of the growth. Couple that with the impending loss of these enrollments, and the current positive has a glaring negative potential on the horizon.

3. Ongoing academic struggles of K12 virtual schools.

I mentioned earlier that Tennessee Virtual Academy (TNVA) will probably be shut down after this year -- it was only kept open by legal maneuvering this year so it is hanging on by a thread. It could stay open if it demonstrates a remarkable turnaround in academic success.

However, that is highly unlikely. This past year intense efforts were undertaken to improve the state test scores by TNVA students on the TCAP tests. The results were dismal. So, to expect a turnaround this year would be foolish.

My prediction is the recently opened schools in North Carolina and Maine will be under the gun this time next year because of poor academic results. Why? Because the K12 marketing machine has it wrong.

4. Marketing, messaging, and purpose is still off base.

In the earnings transcript, Nate Davis refers to the new K12 marketing strategy of using "data analytics to find those students most likely to succeed." He also stated the new messaging "will result in a student body better aligned to our core curricular strengths and therefore substantially more likely to gain academically over time and stay with the program longer."

Sounds pleasant and nice. But, I began this blog with the idea that the devil is in the details. So, let's see what details emerge when we uncover the "core curricular strengths" of this. The answer (and the problem) is found when Nate answers an investor's question related to the new type of student K12 is searching for through it's marketing efforts.

Nate's reply: " . . .centering around a campaign we call Uniquely Brilliant, communicating with parents that this program is about the individuality of your student, it's not my sitting in the classroom of verified students and everybody at the same age. This really is about your child's unique speed." (italics mine)

WRONG. The K12 virtual schools, especially at the high school level, are not set up around the child's unique speed. Remember, we used K12 high school for one of our children, so I have firsthand knowledge here.

I am not going to dive into what the messaging should be. K12 can call me if they are serious about recruiting the right students. Suffice it to say though, this ongoing off-based messaging will continue the trend of high attrition rates, and it still remains about the number of seats filled.

If K12 wants to attract the right type of students, then they need to become the right type of virtual school. There remains a huge disconnect between what is being messaged and what is reality once families enroll.

So, I end this as I began it. The K12 Inc. ship is sinking. It's not going under this year but it is taking on water.

At some point in the near future the K12 narrative they would like you to believe will be shown for what it is.

Then, perhaps we can get on with developing virtual schools that matter, ones that serve their customers the way they deserve.

houston@figment-consulting.com

Union County TN opts not to enroll new students in TNVA this year

Last year at this time, Union County fought with the State of Tennessee and won in order to allow 626 new students enter Tennessee Virtual Academy (TNVA) for the 2014-2015 academic year. 

This year, after a court ruled TNVA could remain open for another year, Union County opted to go in a different direction and only allow returning students to be a part of TNVA this year. That means no new enrollments in the virtual school, even if current students leave.

Being a proponent of virtual schooling (though no fan of the current models in action) I have mixed feelings about this move. However, based on the past struggles of TNVA and their newly-released TCAP scores for 2015, I do believe it to be the right one for this year.

For TNVA to avoid a shutdown next summer there is much work to be done. K12, the company behind TNVA, likes to tout that students who stay with them longer perform better on state tests. This year should allow them to prove it (or not). 

There's no more excuses available for them. Union County took a good first step. Now, it's time for results.

houston@figment-consulting.com

Questions from readers on TNVA, Manifesto, and even Agora Cyber

From time to time I enjoy sharing some questions I receive from readers of my blog here. As always, I wish to begin by saying how much I appreciate all who take moments from their day to read what I have to say. I do not take it lightly, and I am honored that the readership continues to grow.

Now, on to some questions.

Q: Agora Cyber severed their contract with K12 on the management side late 2014 with their charter up for renewal. Do you think TNVA should have done the same thing in light of what has transpired the past few days?

A: I actually offered up a solution for the TNVA issue that included keeping the school open if they found a new provider of services. I am not sure if that was ever on the table nor can I be certain it would have prevented it from being closed as it appears it will be. Contractual arrangements between K12 and Union County (TNVA home school district) might have prevented this option as well.

Opening the door to that possibility could have turned the debate from a Yes-No argument over closing TNVA to finding ways to serve the 1300 students moving forward.

Q: As a teacher at Agora Cyber I am troubled with the transition currently taking place and have trust issues with the new leadership team and concerns about their ability to lead the school. Any advice here in PA for a concerned teacher and are there any cyber/virtual schools that are "doing it the right way" as you say?

A: Transitions are tough so I feel for you. While I am not aware of the specifics of what is going on with Agora one of the first steps new leadership should take does not involve processes or organization charts. Instead, it involves developing trust. Change inherently brings with it trepidation and too often leadership forgets the emotional side of the change while focusing on the part that can be measured. Again, not sure this is what is going on with Agora but yours is not the first email expressing these types of feelings.

My hope is it all works out properly because there are 10,000+ students that are being impacted with this transition.

And yes, there are virtual schools (even in PA) that are working hard to serve students properly. Typically they fly under the radar because they are focused on the task at hand. In a future post I will try to highlight some that are doing virtual right.

Q: In your Manifesto you talk about a "culture of retention," can you explain that more?

A: Virtual schools, like other public schools, are funded based on count dates throughout the year. Some have single count dates while other states have basically rolling count dates. This means that schools are funded for the number of students they are serving based on those counts.

Too many virtual schools are focused on these count dates as the barometer for their recruiting success. In my opinion, they should instead focus on the number of students they are serving on the last day of the school year -- how many students stayed with them after enrolling. Schools that have a culture of retention start here.

Second, schools with this type of culture understand retention and enrollment are synonymous. Retention begins when a family first says "Yes" not in the spring when it is time for families to begin making decisions about the next school year.

Third, schools with a retention culture are more concerned about proper fit than overall numbers. While it is up to the family to ultimately decide if the public virtual school is right for them, the schools carry the burden of communicating properly to the family to help them with this decision. Virtual schools talk about educational choice yet treat it like a sales approach. Instead, a school with a retention culture must view this as a decision process to determine appropriate fit. This means communicating what it takes from the student and the family to succeed in this environment.

As a virtual school, would you rather enroll 500 students and keep 90% of them, or enroll 1,000 students and lose 50% of them? One is a retention approach and the other a sales approach.

Q: Do you think blended learning is the answer?

A: I actually do not believe there is one, single answer. And, I wonder if we are even asking the right questions when it comes to educating our kids. We work so hard to standardize education yet we celebrate diversity in life. We look for ways to scale when data continually demonstrates the effectiveness of more personalized approaches. We look to programs, processes and technology to solve our problems when perhaps we should be looking at the relationships more.

Blended learning can be and should be part of the solution, just as virtual and traditional brick-and-mortar schools should be. My hope is we take an "And" approach instead of an "Either/Or" approach. Let's look for ways to include instead of deny.

houston@figment-consulting.com

Tennessee Virtual Academy could cause a ripple effect

Last week a Tennessee judge refused an injunction request to keep the Tennessee Virtual Academy (TNVA) open, and just today the State Legislature appeared to close the door on TNVA when a last-ditch effort to keep it open was refuted.

I have written about this ongoing issue extensively here in my blog so I will not repeat all of it here. However, what will be interesting to watch over the next few years is, if TNVA is actually forced to close, will it be the beginning of a ripple effect across the country for virtual schools, particularly those operated by K12?

Make no mistake, the legal battle in Tennessee is only now just beginning so this is far from over. But, the signs are pointing to TNVA having to close at the end of this school year, and if that is the case, what other states are watching?

Massachusetts? California? Pennsylvania? Ohio? Colorado?

It's a shame really. Virtual schooling can be a revolutionary concept, if done properly. And, situations like this give it a black eye.

houston@figment-consulting.com

Tennessee Senate Passes Virtual School Authorization Act 31-0

Previously I had stated that I hope the Tennessee Legislature can separate the concept of virtual schooling from the debate going on over the performance of Tennessee Virtual Academy.

With the Tenn. State Senate voting Monday 31-0 to extend the Virtual Schools Authorization until 2019, it would appear they are doing just that.

Well done. Well done.

houston@figment-consulting.com

Tennessee Virtual Academy (TNVA) Parents Sue to Keep School Open

On Thursday, March 12, two Tennessee families launched the next phase of keeping TNVA open -- via lawsuit, and the real battle has begun.

Could the solution be a simple one?

houston@figment-consulting.com

Is closing Tennessee Virtual Academy the answer?

Former Tennessee Education Commissioner Kevin Huffman threatened to close down the Tennessee Virtual Academy (TNVA) due to poor academic performance. And, in fact, there is a sunset law coming into play this year that should the TN Legislature not extend the law, the school would have to close.

TNVA currently serves approximately 1300 kids across this State I call home. Recently hundreds of TNVA parents, students, teachers and administration made their way to Nashville to plead for it to remain open.

I have recently had numerous families in TNVA reach out to me for my thoughts on it, and have turned down a few interviews for stories related to TNVA and whether or not it deserves to be closed.

And now, four paragraphs into this post and I have yet to touch on answering the question I posed in the title: Is closing TNVA the answer?

First, I would re-frame the question. Instead of arguing over whether or not TNVA deserves to remain open, make the question related to the 1300 students that would be impacted by this decision.

If TNVA were to close, what choice would each student have for school next year? Why did they choose TNVA this year? How would it benefit each student by, in essence, returning them to the place they left because it was not meeting their needs?

In reality, there is not a single answer that will suffice here. There are, in fact, 1300 different answers to this question.

Second, let's not make this a Yes or No question and answer. Instead, what if we explored ways in which to transform TNVA and its model into one that will serve the students and families. What if TNVA attracted students that would be a better fit for its model? What if TNVA built itself around even some of the Nine Essentials I proposed in an earlier post related to virtual schools? What if TNVA adapted a blended version of itself in key areas of the State? What if . . .?

Instead of making this a decision related to staying open or closing, make this a decision about transforming the model (not tweaking) moving forward. Make it a decision about the future possibilities not just the past results.

Third, if the decision is to close TNVA, my hope is that it is made based on the implementation of the model, not on the overall virtual concept. Virtual learning has great promise and it can serve the right students remarkably (when implemented correctly).

So, what is my answer? Actually I can see both sides of the argument. However I can't help but give thought to the faces of the 1300 students.

Perhaps the real question is what is best for each one of them?

houston@figment-consulting.com

Why K12, Inc. will struggle.

As I write this, K12 just today watched its stock value plummet over 5% in one day. Over the past three to four weeks, it has lost almost 25% of its value and is now resting in the $16s.

The question today is 'Why are they struggling?' Below are just a few of the primary reasons:

1. They lost their focus.

This began when they went public almost ten years ago and it has led to the crescendo we see happening now. For K12, the promise of revolutionizing the educational industry was replaced with meeting quarterly expectations and annual earnings per share and revenue targets.

They may like to tout "putting students first" but actions unfortunately paint a different picture. Their focus is, and has been for some time, on other areas.

2. The lost their visionary.

Founder Ron Packard severed all ties with K12 on June 30 of this year (except I assume for personal shares of stock). Having worked with Ron for almost 12 years, he had his shortcomings and faults as we all do. However, one area where he excelled was casting the vision of what K12 could be.

By doing this he was able to overcome ongoing issues with partner schools and continue relationships with them. Though he left K12 just a few months ago, his influence was diminished as far back as almost two years ago.

So, it is no coincidence that within the past eighteen months Colorado Virtual Academy broke off management relations with K12, Agora Cyber recently issued an RFP to sever ties with them, and K12-managed schools in California, Ohio, and other states are waiting in line to possibly do the same.

Why? The main reason is without Ron's impact, relationships with K12 have now become more of a business decision centered around school performance, management expenses, and P&L statements.

3. A multi-page report cannot overcome a headline.

Do a quick search for Agora Cyber, TNVA, CAVA@Kern, OHVA, or even K12 and you will see headlines spotlighting poor and even dismal student performance on state tests. You will also see efforts to close down Tennessee Virtual Academy (TNVA) and CAVA@Kern.

K12's response to all of this? Issued a multi-page report in an effort to counter the headlines.

First, in-depth responses tend not to overcome headlines (need proof - just watch the elections this year). Or, remember "if the glove doesn't fit, you must acquit." So, whether or not the evidence K12 presented in the report was accurate or not doesn't matter. Perhaps it is true that the longer students stay with K12 the better they perform (though that argument could be made in many schools) and perhaps it is true that Scantron tests are better measurements of student performances than state tests. None of this matters.

What matters is that the headlines are directing the narrative. And, those headlines are saying that K12 is failing. Until K12 schools can demonstrate strong academic performance on the state tests, it really doesn't matter if the report they issued was fifty pages, or five hundred.

All of this leads to the next question -- 'Will their struggles continue?' I would answer this with a strong YES. In fact, I predict that K12 is headed down a slope that will only get steeper increasing the rate at which they will struggle.

Watch for their stock price to nosedive into the $12-13 range (if not more) if Agora leaves. In addition, it will potentially create a cascade of other K12-managed schools following Agora's lead causing further erosion in value.

Tennessee Virtual Academy (TNVA) is in its last year unless it can demonstrate a level of academic performance that it has not been able to do during its entire existence. The TN Ed Commissioner has said that if they cannot meet the expected performance level he is closing their doors at the end of this academic year. Again, this will create a crescendo effect in other states where K12 is presently.

Finally, current issues in Tennessee, Pennsylvania, and other states could be obstacles in K12's efforts to expand into new states such as North Carolina, or expand enrollment caps in other states where it already operates schools. And I haven't even mentioned slowing growth rates in virtual school enrollments in many states (Ohio at .5%), increased costs, increased competition, unionization efforts of teachers in K12-managed schools, and the exodus of corporate staff.

Is it too late for K12 to change course? First, one would need to ask how strong the desire is to change course, or if there is one from the current leadership team? Or, is there an exit strategy involved that is playing itself out already?

It will be interesting to watch. Unfortunately, it will be the students and families who pay the real price.

houston@figment-consulting.com