Class Clowns: How the Smartest Investors Lost Billions in Education

The past thirty years have seen dozens of otherwise successful investors try to improve education through the application of market principles. They have funneled billions of dollars into alternative schools, online education, and textbook publishing, and they have, with surprising regularity, lost their shirts. In Class Clowns, professor and investment banker Jonathan A. Knee dissects what drives investors' efforts to improve education and why they consistently fail. Knee takes readers inside four spectacular financial failures in education: Rupert Murdoch's billion-dollar effort to reshape elementary education through technology; the unhappy investors-including hedge fund titan John Paulson-who lost billions in textbook publisher Houghton Mifflin; the abandonment of Knowledge Universe, Michael Milken's twenty-year mission to revolutionize the global education industry; and a look at Chris Whittle, founder of EdisonLearning and a pioneer of large-scale transformational educational ventures, who continues to attract investment despite decades of financial and operational disappointment. Although deep belief in the curative powers of the market drove these initiatives, it was the investors' failure to appreciate market structure that doomed them. Knee asks: What makes a good education business? By contrasting rare successes, he finds a dozen broad lessons at the heart of these cautionary case studies. Class Clowns offers an important guide for public policy makers and guardrails for future investors, as well as an intelligent exposé for activists and teachers frustrated with the repeated underperformance of these attempts to shake up education.

Table of Contents:
Acknowledgments Introduction 1. The Wizard of Ed 2. Rupert and the Chancellor: A Tragic Love Story 3. Curious George Schools: John Paulson 4. Michael Milken: Master of the Knowledge Universe 5. What Makes a Good Education Business? 6. Lessons from Clown School Notes Index

About the Author :
Jonathan A. Knee is Michael T. Fries Professor of Professional Practice of Media and Technology and codirector of the media and technology program at Columbia Business School. He is the author of The Accidental Investment Banker: Inside the Decade That Transformed Wall Street (2006) and coauthor of The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies (2009).

Review :
Class Clowns is more than a business book, or a book on the education industry. Filled with colorful characters and gripping narratives, it poses deep questions that should engage a broad audience. By bringing the keen insights of a veteran investment banker, Knee demonstrates that no matter the goals, any business is subject to the basic laws of economies of scale, geographic advantage, and barriers to entry. This is an important lesson that many in the education sector seem to have ignored. Class Clowns will be intriguing for educators who, while they may be skeptical of reforms borrowed from the business sector, do not actually know much about the business decisions underlying these reforms. Do market-inspired reforms that fall short educationally also disappoint investors and backers? Jonathan Knee makes a fervent and entertaining case. When business meets education the result is a succession of face-plants that will leave you wondering whether to laugh or cry. Class Clowns is a great read for anyone concerned about the future of education or perhaps hoping to invest in it. Send in the clowns! In this case, the otherwise brilliant billionaires who were dumb enough to part with hundreds of millions of dollars in ill-conceived utopian education schemes. Jonathan Knee reveals how, despite the best of intentions, these "edu-trepeneurs" wound up getting schooled. Jonathan Knee's Class Clowns is a funny and trenchant account of the misadventures of a cohort of celebrated investors in the for-profit education business. The stories Knee tells demonstrate that the power of markets works only when combined with rigorous analysis, not willy-nilly. Class Clowns is, predictably, both a good read and provocative, and I think it will be a standard text for all those interested in investing in the educational ecosystem. This is a volume rich in insight and perspective. Knee delivers his clear objective—namely to highlight the common errors that have undermined progress in education and destroyed shareholder value along the way. Class Clowns performs an enormous public service by peeling back the underlying structure of educational markets and revealing the strategic imperatives for long-term success. The failure of many well-intentioned educational businesses and investors to heed these lessons has bred cynicism instead of hope in a sector that is crucial to social and economic progress. What I liked: This in-depth look into a segment of the investment world I'd never really given much thought to before.... What I loved: How many parts of Class Clowns read just like a novel. [Class Clowns] is as much about bone-headed bets on tech as it is about the challenges investors have in navigating America's educational system. A tough-minded study that shows there's gold in them there halls, but getting to it is a problem—or, an entrepreneur might say, a challenge. A stunning new book. It is easy to nominate irascible, contrarian, eloquent and, as well, one of the leading bankers in the media sector, Jonathan Knee, as the nation’s best business writer. . . . Class Clowns deconstructs a series of deals in the continuing bubble of the private education market. The allure of ever-increasing spending, combined with a desire among rich men to do good, or believe they are doing good, results in a series of delusional assumptions and vast shareholder losses. A valuable addition to our knowledge base regarding education markets... Class Clowns prosecutes a very sound case that investors must beware when entering the educational space. Timely...filled with stories of hubris and myopia, of a failure to understand the field of education and, indeed, in some respects even the basis of success in business outside the celebrated investors' traditional field of dominance.