Don’t grow out, grow up (or down)

Vertical growth is a familiar strategy in the commercial world, and this approach to expansion can bring real benefits for independent schools, writes MTM’s Head of Business Development Daniel Cohen.

We at MTM receive regular enquiries from independent and state schools looking to increase the number of pupils on their rolls. Even education providers that are secure in their admissions performance are wise to consider ways to ensure they continue to recruit on the scale that brings optimum viability to their businesses, and assures a secure future for their students and staff.

But providers that find themselves struggling for market share sometimes come to the conclusion that it just isn’t possible for them to attract the number of pupils they need to balance the books. It could be that local competition is pushing them out, or perhaps a change in the demographic of the catchment area means that there are simply no longer enough children and young people of the target profile living there. Either way, it is important to realise in plenty of time that the market is drying up, and to take swift action to do something about it.

Horizontal or vertical

Usually, education providers have only two choices when it comes to growth: they can either grow horizontally or grow vertically. In the education sector, horizontal growth usually presents as schools merging with other schools to create larger organisations, benefiting from pooled resources and greater purchasing power to keep costs down and admissions up.

Independent school groups are a great example of this, while multi-academy trusts in the state sector come about for the same reasons. By contrast, vertical growth is usually evidenced by schools establishing their own providers either below or above their own position in what in commercial terms would be known as the supply chain – in the case of education, we prefer to describe these as feeders and destinations.

Vertical growth is usually evidenced by schools establishing their own providers either below or above their own position in what in commercial terms would be known as the supply chain – in the case of education we prefer to describe these as feeders and destinations

So, a standalone preparatory school may launch or buy a nursery to ensure its own steady stream of entrants at Reception; it may even launch or buy a senior school to offer its prep pupils an established onward journey at the age of 11 or 13. If that senior school does not already operate a sixth form, the school may launch one, again to provide a seamless transition for its pupils from Year 11 to Year 12. In common with horizontal growth, vertical growth can have the advantage of scale, but with the added bonus of a (more or less) guaranteed supply of pupils at all entry points. This helps to keep classrooms full and the bursar happy.

Buy or launch

The question then for schools intent on vertical growth is whether to buy or launch.
Buying can certainly be the quicker option – particularly if there is a prime candidate for sale and on the doorstep.

However, it is very important for the leaders of both organisations to satisfy themselves that their ethoses and their markets are compatible; there is little point in a prep school acquiring a nursery or a senior school if parents are going to stray from the seamless transition that has been put in place especially for them and opt for their children to move to a competitor.

Launching is therefore a popular route, particularly in the case of preparatory schools and nurseries because the nursery’s ethos, structure and educational offer can be established in line with the existing prep school.

On a practical level, a new nursery can often be accommodated on the existing school campus – classrooms re-purposed or a low-cost building constructed on school grounds. Many schools like to create an EYFS bond between nursery and Reception pupils so sharing of facilities and play areas is usually considered a benefit to all.

A prep school launching a senior school, or a senior school launching a prep school, is less common than acquisition but can be extremely successful. Much depends on the size and adaptability of the school’s campus and budget.

This approach can be a slow-burn – it can take several years for the roll to reach full capacity, in contrast to buying a ready-made establishment ‘off the shelf’.

A newly launched prep or senior school will usually begin to fill from one main entry point – Reception, Year 3, Year 6, Year 9, or Year 12 – or more than one simultaneously to speed up the process.

Whatever the arrangements for entry, founding a school is a costly and risky enterprise and should only be attempted once the necessary market research has shown that there is definitely a demand and the offer tailored accordingly.

Vertical growth can be a very successful strategy for independent schools. Ensuring a safe passage for children from one stage of their education to another can reap rewards both for the organisation and for its pupils and parents.

Our case study of The Mall School explains how a prep school made the decision to launch a new nursery on its school site, to act as a feeder.