The Case:
‘Fiction Playgroup’ (Fiction) is a three-year-old preschool group based in Pune. It was started by a 40-year-old entrepreneur, who has gained considerable experience in the education industry both as a teacher and later as a school administrator. She runs two centres, located in busy localities, and caters to families of upper middle class in providing quality education service. Her schools have become popular locally for imparting learning to children, from the age group of one to four years, through fun-filled and varied extracurricular activities. Having established a good brand recall in the community and with each centre self-sustaining, she is keen to slowly build a national presence by scaling up to other cities.
The Expert:
Narayanan Ramaswamy has over 18 years of management consulting and industry experience. He is a partner with advisory services practice of KPMG India and its national lead for education sector. Ramaswamy advises clients in the areas of business strategy and operational improvement – more specifically in business planning, academic and regional partner search, fund raising, corporate transformation, customer management, business process improvement, defining and implementing IT strategy and program management. He has led and executed assignments in multiple geographies including India, Europe, south east Asia, Middle East and Africa. His list of clients includes some of the leading universities, schools, education service providers and global professional services firms besides others. Prior to KPMG, Narayanan was working with Arthur Andersen business consulting for over four years and PricewaterhouseCoopers for over three years. He holds a bachelor’s degree in Electronics and Communication engineering and an MBA from Indian Institute of Management, Bangalore.
Expert Talk:
Though the idea of preschool has been in existence for a long time, from the viewpoint of the market potential and the business model, it is still considered to be in a nascent stage. Being in early stages, unlike formal education, preschool segment in India is highly unorganised and fragmented. It is also a very regional affair – what works in Kolkata will not necessarily work in Chennai. Though the fundamentals remain the same, the culture and the community of a region play a huge role in taking care of children before they reach their formal learning age. So, it’s important how preschools position themselves.
However, potential is huge: the preschool segment in India is growing at 40 – 50 per cent annually. Currently, the market is pegged at US $1 billion. But this information is mostly from the formal market, the actual data could be much more. But having said that and keeping in mind how formats of playschools can vary depending on the geography, the growth and the community within a city itself, it is lot more difficult to scale up preschools. But the entrepreneur can look at other urban cities to expand; even the fast-growing Tier II cities such as Surat and Indore are good targets.
Expansion strategy
Most preschools target the middle class and above, where both the parents often work. Hence, she can choose locations keeping in mind those socio economic categories. You need to understand the kind of residents in an area, the community at large and the level of urbanisation. A good rate to expand would be to keep doubling for five years and then stabilise them before looking at more expansion. Though it is slightly an ambitious rate but it won’t be hard to achieve, depending on her inclination. It is also not hard to attain break evens faster and it usually takes a year or two. Most of the costs will be recurring since she’s not going to invest in buying property. The expenditure for each centre depends on the revenues from the fee generation. She should work on margins she can generate and then match it.
Ownership or franchise
The entrepreneur needs to decide what will work for her. There have been successes and failures in both types of models. She should clearly build critical components and processes, and look to replicate it. For franchises, the expenditure is more on building a brand to attract franchises through promotions, achieving standards and iterating the model. Ownership format requires building a strong network to reach out and gaining presence in each city and customising accordingly.
Since franchises often understand the local surroundings better, many opt for the franchise route. Founders might know about the business plan, child psychology, characteristics required in teachers, curriculum and the mode of assessment but local franchises will know how to source good teachers, scout the right location, the correct marketing technique or even whether the centre should be air conditioned or not. With ownership route, the expansion rate will be a little slower but she will have more control and personalisation. However, I would suggest not doing a mix of both but to choose between either one.
Funding
The type of funding should be decided by the short term or long term scaling plan. For a smaller scale term, debt works better but she would have to push break evens for a little longer since it is expensive to service debt. If the quantum of money required is huge and the expansion is spread out over a longer period of time, then equity can be favoured. Of course, it will require her to part with 100 per cent ownership of her business but venture capitalists can bring in different perspective and competency that she might find useful. If not, she can always hire someone who would be capable of advising the right mode of action to grow.
Hiring
Getting good quality teachers will be her biggest challenge. For this, she should build a good brand and positive word-of-mouth. She can rope in her teachers at the Pune centres to help with this before hiring the local teachers. In-house training is another good way to ensure quality – the local teachers can be trained first at the central location before embarking on centre-level training.
Curriculum
Given her strength and expertise, she should look at building her own brand of teaching method. Though tying up with another well-known brand for the curriculum will help get the school noticed faster, but once she does that, getting her brand recognised will become difficult at a later stage. Hence, I would suggest that she concentrate on her own learning strategy.
Differentiation
Differentiation happens only when there is quality and credibility attached to the school. Besides teaching, other factors such as food given to children, hygiene, safety, location, admissions, presence of a playground, handling children during emergencies etc. are critical as well to build credibility than to merely concentrate on number of centres. Quality should be a key criteria right from the beginning – she should have checks and measures early on before building scale and then maintain it at each centre.
Marketing
Networking is a great way to spread the name of the school. For this, she should look at tying up with schools that she would like the children at her preschool to graduate to. Conducting events and promotions in the region will also help the cause. She should highlight her work in Pune and replicate that magic.
