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Is Green Dot A Different Kind of CMO?

The heart of charter schooling is not technical innovation in management or pedagogy, but a social movement – driven by the idea that public schools should be of, by and for the communities they serve. Centralized management contradicts that idea, which is why I’ve been against Charter Management Organizations as philanthropy’s primary investment strategy for scale. Still, some CMOs will work. The Los Angeles Unified School Board’s decision to contract with Green Dot Public Schools suggests it may be one.

The basic problem of charter scale is not a shortage of qualified individual school operators, necessitating growth from the top down. It is the lack of a supportive operating environment necessary to attract them from their present positions in their communities. The idea of maintaining school quality from a center not only heads us back to the shortcoming of school districts that spawned the charter idea, it also duplicates the only legitimate job for chartering agencies.

This is not just a matter of ”philosophical” or “policy” preference. The social nature of public school alternatives to centrally managed district schools present formidable “business” barriers to the CMO’s financial viability. The economic sustainability of management organizations depends on capturing potential economies of scale in basic operations by spreading support costs over a large number of schools and students.

• Restricting the number of schools who will benefit from these economies to those that buy into one view of education, creates a very narrow “addressable” market for CMO’s support services – whether that market is expressed in terms of the number of local school leaders, sponsors, or chartering agencies.

• Duplicating chartering agencies’ responsibilities for quality with expensive “control” activities - a set of activities with a fixed price for each school, adds a set of unnecessary costs to CMO budgets.

The first function translates into a longer transition to break-even, the latter makes it harder to break even at any given number of schools. These barriers were overcome only rarely by Education Management Organizations - the CMOs for-profit predecessors So far, the nonprofit approach doesn’t seem to be doing much better.

Still, some EMOs do work. National Heritage Academies and Opportunities for Learning/Options for Youth come to mind. Surely some CMOs will too.

Here's why Green Dot may be different from most of its sister nonprofits.

CMO founders face three practical hurdles to success: convincing philanthropy to back their business plan, reaching the financial “break-even” point before they run out of philanthropy's cash, and achieving overall school performance that is at least comparable to other public schools. Each hurdle requires a different set of skills.

Convincing philanthropy to provide the cash is about a plausible business plan and personal appeal. It’s hard to overemphasize the point about plausibility, since few foundation officers or their business advisors have any experience starting or running a school management organization, or access to the records of EMOs. Since much of the new philanthropy came out of the new economy, remember that most in the venture capital world that spawned the new economy knew quite a bit about – indeed came from - the kinds of technology firms they invested in (before they took all those gambles on the dot.coms.)

It is equally hard to overemphasize the personal nature of philanthropy’s investment decisions. Ask any venture capitalist, and they will tell you the people running the enterprise are the most important ingredient to success. That’s great if the CEO of your new investment was the successful CFO of your last and will be operating in the same space. If the space is entirely unknown, the idea of investing in “who you know” wanders into less tangible criteria, and philanthropy’s investment strategy has always tended towards “who you like.”

That’s not to say it’s easy to get grants to start a CMO, or that founders might not have attributes beyond a winning smile and stellar presentation skills, only that these are necessary conditions of getting to the next stage.

Today, most CMOs are stuck somewhere on the road to break even. Good teeth and PowerPoint wizardry don’t hurt, but they are not that important. What matters is the possession of some kind of a roadmap noting where others ran into trouble; incredible endurance; general organizational capacity; working knowledge of education, law, business and finance; an unerring ability to size up potential colleagues, and an instinctive capacity for delegate. The problem is that these attributes must be found among that group with the winning smiles and stellar presentations. Add a business model that will only appeal to a narrow range of potential charter operators and chartering agencies, and it’s not too hard to see why most CMOs are struggling.

Here is where Green Dot’s Steve Barr stands out from other CMO leaders. With his history and skills as a political organizer, Barr is managing to overcome the barriers to growth that normally afflict CMOs. By all appearances he has leveraged community - as intended by the charter idea - into a politically powerful network. I have yet to see a picture of him in the papers without an army of green-shirted supporters or read an article about him at some meeting that doesn’t mention his many vocal supporters. I can’t remember any other CMO or EMO with that kind of political support.

Most CMOs are “outsiders” in most of the terrritory where they market their school ideas. Barr has managed to expand the territory where Green Dot is “in.”

The need to achieve educational outcomes for charter schools that are at least as good as the districts in which they are located is not a very high bar, nor what charter proponents envisioned, but it is the politically realistic benchmark today. This requirement is put on founders the moment they open their doors, and in the long run it requires that CMOs have their financial house in order.

So far Green Dot, and most charters have met the educational criteria for success. Of course if they can't do much better than the rest of public education, its unlikely that state legislation change to help the charter movement get to scale, but that’s another story.

For now Barr is showing that it's possible for a CMO to grow fairly quickly and hasten its journey to break even. My guess is that Barr is an extraordinary leader, and unless impressarios are scalable, the CMO is not the right strategy to charter scale. Still, he is someone to learn from as the movement grapples to balance that goal with its core value of community.

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