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Posted June 1, 2005

By: Lon Woodbury

Our office frequently receives calls from people wanting to open a private parent-choice residential program for high-risk teens. Some are interested in creating a new school or program. Others already have successful public funded programs and want to convert to private-pay due to state budget squeezes. All these conversations come down to a basic question: Is there room for another program, or is the market saturated?

My answer is always the same; there is still plenty of room for good programs, and all indications are that the market is still growing and a long way from being saturated. I base this on several considerations.

First, since the 2001 stock market slump, every year has had a record number of new private start-ups. Half way into this year, we have already received information on more than a half dozen new start-ups, and we are aware of several more in the early planning stages. This suggests that a number of astute people have analyzed the market and concluded that the potential in this market is sufficient to take the major risk of undertaking the very difficult task of creating a new private residential program for high-risk teens. In addition, several successful schools and programs have been existence for one, two, or three years, etc. The success of these start-ups shows that a high percentage of them survive.

Second, there is a widely held perception that teen anti-social behavior seems more widespread and more extreme than in the past. Regardless of speculations on the cause or percentages, the consensus is that increasing numbers of children are in trouble and are not growing up very well. Many private residential parent-choice schools and programs have been very successful in the past serving this perceived problem, and there are no indications this problem will go away very soon.

Third, there are an increasing percentage of parents willing to make placement decisions on their own authority. Thirty years ago, a parent concerned about their child would usually go to some institution or professional and ask them to do something to help. Now, an increasing number of parents are making placement decisions on their own, often bypassing the professionals and institutions that used to make that kind of placement decision. This is a reflection of a broad and profound attitude change in this country. The Medical field is a good example of this attitude change as shown by the increasing acceptance of alternative treatment systems and the boom in the nutritional supplement business. The same change in parents' attitude is happening in public education as indicated by the increased popularity of charter schools and voucher programs. There is no indication we have reached the end of this shift toward parents taking placement decisions into their own hands when their child is in trouble. Every year, it seems more parents are willing to consider this option.

Fourth, there is an increased acceptance of the contribution private enterprise can make to social problems. The election of the Reagan Administration in 1980, with its rhetoric on limited government and support of free enterprise, was a reflection of a major change in public attitudes toward private enterprise. Previously, the consensus was only the government had the money, ability and social conscience to tackle serious social problems. In addition, the general perception of business before 1980 seemed to be that its bottom line emphasis on making money precluded solving social problems. However, educational visionaries who developed effective private schools and programs for high-risk teens even before 1980 demonstrated that business could effectively help children while still succeeding as a business. As a result, the 1980s saw an explosion of private parent-choice residential schools and programs for high-risk teens. This broad shift in attitude toward private business continues in all areas of the economy.

Fifth, there is a perception by business academics that industries go through a kind of life cycle. First is the infancy phase when a few entrepreneurs see an unmet need and develop creative solutions. This is a very creative and dynamic time with both outstanding successes and outstanding failures. Consumers are uncertain whom to trust. The public is mostly unaware of these new approaches and unfortunately the industry can attract people who are looking for easy money or do not really know what they are doing. At this stage, it is very easy for anybody to enter the industry on a shoestring. This was the status when I first became aware of this industry in 1984.

In the adolescence phase the 'general public' begins to become aware of the existence of this industry. Responsible programs begin to develop 'best practices and standards' and form Associations, and public institutions start looking for justifications for regulation and oversight. It is my opinion that the network of private parent-choice residential programs for high-risk teens has transitioned into this phrase the last few years. Entry into the business is still fairly easy, but proper preparation and solid staff experience is becoming more important, and success will be less likely for those who try to start a program with just hope and a shoestring.

Maturity is the phase where the market is pretty much saturated. Standards and oversight are well accepted and only top quality start-up programs, with resources and knowledge of the acceptable ways to provide these services, have a decent chance of survival. The network of private parent-choice schools and programs has a long way to go before reaching this stage.

The last phase is aging, where the need has either decreased or been met. Those businesses that survive are businesses that are the most efficient, often through the economies of scale. Educational visionaries have gone elsewhere.

These are some of the reasons I advise those callers it is still a good time to try a start-up in this industry. At this time, there is plenty of room for good programs, and there still is flexibility that would allow a program to survive, even if they go through the turmoil of first year growing pains and learning how to be successful.

Copyright © 2005, Woodbury Reports, Inc. All Rights Reserved.
(This article may not be reproduced without written approval of the publisher.)

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