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Class Clowns: How the Smartest Investors Lost Billions in Education

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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. K 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 expos' for activists and teachers frustrated with the repeated underperformance of these attempts to shake up education.


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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. K 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 expos' for activists and teachers frustrated with the repeated underperformance of these attempts to shake up education.

30 review for Class Clowns: How the Smartest Investors Lost Billions in Education

  1. 4 out of 5

    Bob

    Columbia Business School professor and investment banker Jonathan Knee sets out to examine why people who are otherwise considered titans of industry have lost billions in education reform. To boil 250 pages down to a couple of sentences, the people who did well tended to have a more narrowly defined target market and, even if they were peddling the current "disruption" model, actually made money the old-fashioned way, via steady incremental improvement. Knee's writing is incisive and funny and he Columbia Business School professor and investment banker Jonathan Knee sets out to examine why people who are otherwise considered titans of industry have lost billions in education reform. To boil 250 pages down to a couple of sentences, the people who did well tended to have a more narrowly defined target market and, even if they were peddling the current "disruption" model, actually made money the old-fashioned way, via steady incremental improvement. Knee's writing is incisive and funny and he follows some hugely complicated sagas of merger, acquisition, de-acquisition and fire sale across multiple decades and continents. Being steeped in the investment banking world, he never really addresses questions that might occur to the lay reader (nor is it the point of the book), but one can't help wondering about a system in which investment bankers collect hundreds of millions in fees on deals that are plainly bad - overvalued companies with no revenue are the norm in this history - while stockholders lose their shirts. (Obviously the talk of a poor liberal).

  2. 5 out of 5

    Graeme Roberts

    Education is the market from hell. This excellent book helps us to understand why. The case studies are thorough and well-written. How shocking it is that sleazy, smooth-talking operators like Christopher Whittle, Michael Milken, and Barry O'Callaghan can talk investors out of many millions of dollars, despite obvious flaws in their business models and results that are between appalling and fraudulent. Rupert Murdoch, a legendarily astute businessman, didn't need a trickster to fall prey. Educat Education is the market from hell. This excellent book helps us to understand why. The case studies are thorough and well-written. How shocking it is that sleazy, smooth-talking operators like Christopher Whittle, Michael Milken, and Barry O'Callaghan can talk investors out of many millions of dollars, despite obvious flaws in their business models and results that are between appalling and fraudulent. Rupert Murdoch, a legendarily astute businessman, didn't need a trickster to fall prey. Education bewitched him, and he hired Joel Klein, former chancellor of the New York city public schools, and a procession of others who lacked educational or business operating experience. The resulting company, Amplify, was a complete disaster. Read, enjoy a little healthy schadenfreude, and run for your life if education is mentioned in the same sentence as money.

  3. 5 out of 5

    Eric Connelly

    I've never read another book with this type of format. It told a story (well, ok, four stories) of a company by focusing on the analysis of the companies financial and public records. The theme of the book was that education is tough, whether you want to make money or impact. Many companies have fallen far short of their ambitious goals (including mine at Amplify!). For me, the main takeaway was you need to be focused as a business, and try to make an impact in a targeted subject, grade, or geog I've never read another book with this type of format. It told a story (well, ok, four stories) of a company by focusing on the analysis of the companies financial and public records. The theme of the book was that education is tough, whether you want to make money or impact. Many companies have fallen far short of their ambitious goals (including mine at Amplify!). For me, the main takeaway was you need to be focused as a business, and try to make an impact in a targeted subject, grade, or geography. It was a good dive into the business of education and helped me understand it more, especially the potential traps that are out there. Still, it was a non-fiction business kind of book and it can be a little dry and slow going. I recommend it if you are interested in the industry, but if it doesn't call out to you then I would skip it.

  4. 4 out of 5

    Roxanne Russell

    I was constantly shaking my head while reading this book. Or feeling like the emoji with a mushroom cloud bursting over my head. I'm not sure what's contributing more to my incredulous reaction- the facts of the education business cases described in this book or the persistence of my naiveté when it comes to the world of investors and big business. In this book, education business dreams are whirled around by sophisticated carnival barkers and millions of dollars are grifted and wasted. Multiple I was constantly shaking my head while reading this book. Or feeling like the emoji with a mushroom cloud bursting over my head. I'm not sure what's contributing more to my incredulous reaction- the facts of the education business cases described in this book or the persistence of my naiveté when it comes to the world of investors and big business. In this book, education business dreams are whirled around by sophisticated carnival barkers and millions of dollars are grifted and wasted. Multiple times. Often by the same barker. The author, Jonathan Knee, a Columbia Business School professor, details four cases of educational business ventures that fail spectacularly. Two of the examples ensnare two legendary investors- Rupert Murdoch and John Paulson. As an ed tech entrepreneur myself, I learned from Knee's analyses of the education industry and market and his final chapters that were devoted to success stories and the lessons he thought emerged from the cautionary tales and the thrivers. Yet, my own conclusions about ed tech entrepreneurship have been reinforced-- that I would much prefer to continue to build and sustain my own business rather than getting caught up in the venture capital and never ending growth narrative that is relentlessly sold to entrepreneurs. As Knee must navigate in this book, there is a difficult tension in the education space between mission-driven desires to do good and profit-driven motives to tap into this huge market. And I think that tension is exacerbated on the investment track. There is a big difference between doing good work and getting fairly reimbursed for it and trying to create a business model that creates value for disinterested investors. I feel more comfortable in the one to one transaction between me and my company and students, teachers and parents that we are building with Read Ahead, so I'm going to stick to my current path of bootstrapping incremental growth.

  5. 4 out of 5

    Darren

    Invest in education and reap the rewards – that is the mantra usually told to students. Yet the same cannot be said for otherwise successful investors who have been trying to make inroads in the (U.S.) education market thus far, with billions of dollars going effectively down the plughole. It should be so simple, shouldn’t it? Apply standard market principles to a commodity product (education) and await the flow of profits. Sure, a bit of change may be necessary to get the right product but compa Invest in education and reap the rewards – that is the mantra usually told to students. Yet the same cannot be said for otherwise successful investors who have been trying to make inroads in the (U.S.) education market thus far, with billions of dollars going effectively down the plughole. It should be so simple, shouldn’t it? Apply standard market principles to a commodity product (education) and await the flow of profits. Sure, a bit of change may be necessary to get the right product but companies are used to that. Just like a fast-food chain or consumer brand, there is going to be demand and “you” are the one to supply it. In this fascinating book the author looks back at attempts to pursue this dream over the past couple of decades and digs deep into four fairly major ventures that failed to connect. As becomes evident, this was not some wild “dot.com boom” speculative venture by someone who plucked a random idea out of the air and used other people’s money to have a go. Serious people invested serious money to have a go and yet it was still all in vain. Education still may benefit from a bit of a shake-up and innovation, but its structure and methods of implementing this can require a somewhat different way of thinking. Some successes are being made, nibbling away at the sides, and here the author looks at these and seeks to identify what might be working and contrast this to the causes of failure to date. This is a detailed and powerful read, even if it can be a little hard-going and specialized at times. It is backed up by extensive notes to allow the reader to dig even deeper as required. It is not something that has been written just for the education sector; the astute investor or business operator may even get a lot out of the bigger picture that they can implement elsewhere, if they invest the time and trouble to read through it. No at-a-glance suggestions are given for future instant success, yet the book can be capable of shepherding the thoughts of those who may fancy taking a piece of the “education pie” in the future. Even if you are a bit more passive or a regular, generalist reader it can be an interesting, thought-provoking read. Autamme.com

  6. 4 out of 5

    Angelica

    For anyone who runs or wants to run an edtech business, this book is a must. It is definitely not for beginners or someone new to the space, but it’s a refreshing take from an investment banker and business school professor, with a viewpoint that is more business oriented where most books are pedagogical. Knee looks at four major disappointments in the sector and then concludes with a chapter on what makes for a good edtech business. (Spoiler alert: the same factors that make for a good any kind For anyone who runs or wants to run an edtech business, this book is a must. It is definitely not for beginners or someone new to the space, but it’s a refreshing take from an investment banker and business school professor, with a viewpoint that is more business oriented where most books are pedagogical. Knee looks at four major disappointments in the sector and then concludes with a chapter on what makes for a good edtech business. (Spoiler alert: the same factors that make for a good any kind of business.) The four case studies he profiles are depressing and depressive, and an interesting study in how “improving education” is often bandied around to great fanfare. If you are short on time, go directly to chapters 5 and 6 where the conclusions are. From my perspective, it reinforces a few key tenets for edtech startups: be hyper-specific and targeted with your customer market, be clear on where there are advantages of scale (regulatory environments often nullify this), make sure you are serving a real need with enough profit in it to sustain a business, and — perhaps most crucially — be prepared to be around for the long term. There are no quick fixes or fast growth numbers in education (Google Education is maybe the one exception). The industry as a whole is slow-moving, extremely political, insular, and resistant to change. Benefits, triumphs, and all-important reputation come only after you’ve put hard work into it year after year. The book gets only three stars from me because the writing is jerky in parts, and overall I thought could have been more comprehensive / thorough in reviewing the industry. (i.e. too short! I want more!) But overall a very worthwhile read and contribution. I read it as a personal supplement to my business finance course, and fully plan on going back through the case study examples to pull financial statements and track reverse-engineer some of Knee's interpretations. (I built an edtech company and am currently in business school, so this book is more relevant to me than most...)

  7. 5 out of 5

    Nick

    An incredibly boring and excruciatingly detailed account of education startup failures without any unique lessons to apply today (for ex. recommendations include “execution matters”). One insight I do subscribe to is: “The best businesses start by dominating a niche and systematically building around that core franchise.” Recommended only for the sector case studies which you can skim.

  8. 5 out of 5

    Ben Christensen

    I'd recommend reading it in reverse order. Read the last two chapters and if some referenced detail catches your brain, dig into the relevant associated chapter. The takeaways were pretty interesting and examples helped illustrate them, but exposition got a bit long in the four example stories.

  9. 5 out of 5

    Peter Harris

    A good read with some interesting points. I found the author a bit selective of the facts to ensure his points were well supported.

  10. 4 out of 5

    Johnny

    For someone very close to this whole deal... Was very impressed by how well Knee captured everything I lived thru

  11. 5 out of 5

    Navin Valrani

    I enjoyed reading this book, particularly given that I have interacted with the various protagonists in the book. However I did feel that the author does a great disservice to the for-profit education industry by largely focusing only on its failures. Also, the summary chapter felt like a summary of a summary - didn’t truly seem necessary.

  12. 5 out of 5

    Pedro Morales

    Although it was a difficult type of reading, there are great lessons about the key factors of education investments and why this industry is very tough.

  13. 5 out of 5

    Jamila

  14. 4 out of 5

    Gaurav

  15. 5 out of 5

    Ryan

  16. 4 out of 5

    Robin

  17. 4 out of 5

    Samuel Casey Carter

  18. 5 out of 5

    Rafat Ali

  19. 5 out of 5

    Thomas Fan

  20. 5 out of 5

    Hbombme

  21. 5 out of 5

    Marcelo Benchimol Saad

  22. 4 out of 5

    Cj

  23. 5 out of 5

    Nathan Bullock

  24. 5 out of 5

    Ken Parker

  25. 4 out of 5

    Shani

  26. 4 out of 5

    Linda

  27. 4 out of 5

    Gustavo

  28. 4 out of 5

    Corey

  29. 4 out of 5

    Seth Goldman

  30. 5 out of 5

    Tyler Bosmeny

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