by Gary North
I once heard Professor Israel Kirzner describe an entrepreneur as a person who notices a sidewalk gutter that has $100 bills floating by. He reaches down and scoops them up, one by one. Nobody else bothers to look down at the gutter. People are preoccupied with other matters.
Let me describe one such gutter: academic day care.
Just because feminists want to use taxes to subsidize day cares doesn't mean that day cares aren't a good idea. They are a great idea, depending on what is taught in them and who funds them. I am talking about parent-funded, academic day care. I am talking about a profitable day care business, as distinguished from a subsidized day care bureaucracy.
Here is one area of the American economy in which the State has almost no presence. The costs of creating a government-funded day care system are so astronomical that 100% tax-funded day cares are unlikely to multiply. Neither are government-operated day cares.
This has created a wide-open window of opportunity for private educators. If day care children are taught to read before they become eligible for tax-funded kindergarten, a percentage of the parents will enroll them in a private school, so that their children will not lose their academic head start. The day care also offers a K-12 program.
This approach to a day care business means that the benefits of private education become visible, almost as an afterthought, to parents who would not otherwise have considered enrolling their children in a parent-funded school.
A friend of mine is doing this. He finds that at least one-third of the parents who have enrolled their children in one of his day cares — he operates three — enroll their 6-year-olds in his K-12 program. They pay him $93/week for the opportunity.
Two of his day cares enroll between 120 and 130 students each, most of whom stay enrolled all year. Each student generates $93/week. I challenge you: do the math. Get out a calculator and do the math. And you always thought that running a day care is an occupation for women who can't get "real" jobs. So does just about everyone else. That's why an academic day care is a gutter with $100 bills floating by.
Herein lies an entrepreneurial opportunity. Starting a day care is as low-risk a venture as I know of. A well-run day care business is a cash cow, yet hardly anyone has recognized this. This is why the opportunity exists.
For sixteen years, I have waited to tell this story. I plan to devote the remainder of my life to telling this story. It's that important to me, and it's that great a story.
In 1987, I was invited to speak at a church in New Hampshire. Normally, I don't go on the road, but this time, I did. That proved to be one of the best decisions of my life. There, I met a man who had a vision.
He was a Christian educator. He had been hired by three Christian schools in a row. Two had been close to bankruptcy. In all three cases, he had turned around their finances. But as soon as the red ink turned to black, he found himself in the same condition as the day he had arrived: fired with enthusiasm.
He began to see a pattern: If you don't hold the hammer, you get hit by the hammer. He decided that it was time for a change. He told me that he had taken severance pay and started a day care. He had looked at the economics of day care, and he was impressed. He told me that he planned to be a millionaire within five years.
He achieved his goal. By the early 1990's, he and his family operated several day cares. He was living in a penthouse in a city that is the winter playground of the super-rich. He sells day care services to the people who work for the rich.
Today, he and seven of his eight children operate at least eight facilities. The other son is a very rich electrical contractor. They are all under age 35.
One of his former associates went out on his own in 1991. He began with almost no money. He now has three day cares, a K-12 school, and he is about to open his second K-12 school.
I have persuaded him to write a manual on how to do this. I also got him to agree to give away a beta-test version of his manual to people who read my articles. This way, he can test people's reaction to it before he begins an $88,000 direct-mail program in 2004.
Starting a day care is not that difficult. Running a day care is even easier. But, because of day care's low prestige, businessmen with capital to invest ignore this opportunity. To them, a day care is just another gutter.
BY THE NUMBERS!
Let's go through the numbers. A day care charges anywhere from $75 a week to $120 a week, depending on its location. Each school enrolls about 130 students. Do the math: 130 x $100 x 52. Just one day care facility can gross $675,000 a year. A well-run day care can keep salaries to 40% of total expenses.
Real estate expenses run 10%. The founder of the day care buys the property under the umbrella of a separate corporation. The bank lends the money to buy it. The parents in effect pay off the mortgage. At the end of 10 to 15 years, the rental income from the day care will then go to him: about $60,000 a year per facility.
My friend opens a new facility every 36 months. So, 10 to 15 years out, his net annual income will increase by about $60,000 (today's dollars) every 36 months. This is passive income: no muss, no fuss.
He uses team teaching, which is unheard of in modern education. He has developed a system that enables teams of teachers to run large classes. The head teacher teaches a lesson. The support teachers help the children individually and also head off disciplinary problems. It's the division of labor in action. It works.
No teacher has to teach more than a 15-minute stretch. So, his teachers don't get burned out. It's not one teacher with 15 students all day long. It's four teachers in the same room with 40 students. This meets his state's mandated student/teacher ratio. Most states are closer to 15 to one; some are even higher.
I know of no low-risk business venture that is comparable to a day care business in terms of a long-run payoff in the widest sense.
My friend's day cares teach children how to read through phonics, beginning at 30 months. They also teach children classical music, basic art, number recognition, and group singing. The kids play in an orderly way.
These are not free-play schools. They offer highly structured programs. There is discipline in the classroom because there are plenty of teachers. I have seen his day cares in action. The kids love the program. They learn how to sit in their chairs, raise their hands to respond to questions, play quietly indoors, and are well behaved outdoors. It's a tightly structured environment, except during play time. Even there, the teachers offer games.
Contrary to most modern education theory, most children want structure in their lives. Too many of them live in broken homes. The children want to know where their desk is, where their sack lunches are stored (the parents pay for lunch — another cost-saver), where their show-and-tell toy is.
Students are taught the ten commandments twice a day. They get a Bible story twice a day. They get phonics and numbers twice a day. By age 6, some of them are reading at the second-grade level.
Now comes the fun part. What is a parent going to do with a six-year-old who is reading at a second-grade level? Put him in the local taxpayer-funded kindergarten? The child will be bored. He will get in trouble, as bored children do. The public school teacher doesn't know what to do with him.
My friend tells the parent: "Why not enroll your child in my kindergarten?" The parent says, "I can't afford it." He says, "But it's what you're already paying." The parent says, "You mean you'll keep my child all day, all year round, and teach a regular academic program?" "That's right." A third of them take the deal.
A year later, the child is reading at the fourth-grade level. He or she has been in school 8 to 10 hours a day for at least 11 months. The director makes the same offer at the end of the next year. Every year that the child stays enrolled in the program, he laps his peers by at least one-third.
Each year, my friend adds another grade level. The State-run school system never gets its hands on the children whose parents stick with his program.
TO CLONE THE SYSTEM
In 1995, I was convinced that he could franchise this operation. He came to Texas, and I spent a week helping him to write the first section of a how-to manual. Then he went home. I never heard about the manual again.
But he kept working on it. He's not a full-time writer. He did not complete it. So, in July, 2001, I drove to his place and started working in one of his day cares. I was determined to help him complete his manual. I spent four hours a day teaching little children. I was there until after September 11. In fact, I was shooting a series of videos on how to run a day care on the day the attack took place.
Day care students are more receptive to instruction than high school students are, let me assure you. The scene in Ferris Buhler's Day Off, where Ben Stein is teaching a room full of zombies, is not what I found.
I loved it. Quite frankly, if I were age 25, I would get into the day care business. I may still do it. I came very close last spring.
For almost two years, he and I have worked on his manual, the how-to videos, a curriculum package, and other support materials. He is about ready to go public with the program.
Every new package needs beta-testing. That's why I persuaded him to let me release the manual for free basis on the Web. I want to be sure it's ready before he starts doing direct mail to our targeted list of 275,000 (non-email) names.
BECOME AN EDUCATOR
If you are at all interested in starting a day care as a way to launch a K-12 private school, but you don't have the money, here is the cheapest way to start. If you're married, open a day care in your home. See if your wife likes teaching. There is little regulation on a home-based day care with fewer than six children. Charge $75 a week. Or, if there are zoning problems, charge nothing. If it's not a business, it's not under zoning laws. You're doing this for the experience, not the money. In six weeks, your wife will know if this is for her. If it is, the two of you can open a larger day care. You will know if it's worth quitting your job.
You then move out of your home. How? Rent a church. Six years ago, my friend rented space in a church for $810 a month. When the school went to 49 students (49 times $85, times 52), he rented more of the church for a grand total of $1,500 a month. He took the day care to 79 students.
Do the math. Please, do the math.
With 79 students generating $85 a week, he took his balance sheet to a local builder. The builder agreed to buy the land and build a facility for 130 students — no money down. The day care moved the 79 students to the new facility six blocks away from the rented church. There was never any problem meeting the rent: a dollar per square foot per month. The facility filled to 130 students in one year. He hiked the weekly fee to $89. Do the math.
With no money down, he got his corporation a perfect facility with a seven-year lease-purchase agreement. Then, a decade after the seventh year, he will have it paid off.
Tell me about your retirement program if it is better than this. I want to hear about it.
A day care provides the initial funding for the K-12. It pays the real estate. This creates the initial market for the kindergarten program. Then add one grade per year. The advertising budget for the K-12 school is essentially zero.
IF THIS MIGHT BE YOUR CUP OF TEA . . .
Because his manual on starting a day care is still in beta-testing stage, you can receive a free copy. I made this offer to my Remnant Review subscribers in October. I told them the full story, and I provided a link where they could get the manual. I have decided to put that issue on-line for free. So, if this opportunity sounds interesting, click the link, print out my report, and read it. You can get it in HTML or (for easier reading), PDF (PDF Version). Just click here.
November 22, 2003
Copyright © 2003 LewRockwell.com