LATE IN 2013 John Fisher, scion of the family that founded Gap, co-owner of the Oakland A’s, and chairman of the well-regarded nonprofit charter school chain KIPP, purchased control of Avenues School. Avenues is a private elementary school that first opened its doors to students the previous year. The school is housed in a magnificent new building created on Manhattan’s far West Side by the architecture firm Perkins Eastman and the interior design firm Bonetti/Kozerski Studio, “best known for crafting Donna Karan’s sensuous but scrupulously minimalist Manhattan apartment.”1 Unlike KIPP, which operates public schools for low-income families in underserved communities, Avenues set the high-water mark for private school tuition in New York City and fashioned itself “The World School” in anticipation of a network of comparable campuses in “20 or more” leading cities around the globe.
What was unusual about this high-profile deal is that there was no press release and no media coverage whatsoever. This is particularly strange given the entrepreneur who raised the cash to fund the original venture, legendary salesman and promoter H. Christopher “Chris” Whittle. Few others have succeeded in securing front page New York Times coverage for the launch of new ventures.2
Whittle’s effective removal from any day-to-day responsibility for Avenues was not itself a surprise. Indeed, to a greater or lesser degree, that had happened at each of his previous ventures. Time and again, investors or senior executives insisted on Whittle relinquishing control as a condition of their continuing involvement. What is surprising, even shocking, is that for over twenty years, in the educational arena Chris Whittle has been able to continue to separate sophisticated investors from their money despite a plethora of red flags that in any other context might be viewed as disqualifying.
Whittle’s durable fundraising success in the face of financial and operating failure can only in part be explained by his marketing prowess. By the time Whittle directed his full attention to the educational arena in the early 1990s, his previous exploits had already left a widely publicized trail of unhappy partners, tales of profligate corporate spending and personal excess, accounting irregularities, exaggerated claims, and charges of self-dealing, all culminating in financial collapse. A close examination of Whittle’s track record reveals much about the faulty assumptions and predispositions that have made education investors particularly vulnerable to his unique talents.
“Oh, no my dear. I’m a very good man. I’m just a very bad Wizard.”4
The birth of Whittle Communications came in 1986 when Whittle and his founding partner, Philip Moffitt, agreed to go their separate ways—Moffitt keeping Esquire and Whittle keeping the the specialty publications. The break with Moffitt reflected the culmination of a long-running psychodrama in which Whittle struggled to emerge from the shadow of his one-time mentor.6 But the tensions were aggravated by the extent to which the growth of the business and the introduction of serious outside money—which by this time included not only Bonnier but also Lord Rothemere’s Associated Newspapers—had fed Whittle’s weakness for lavish spending and self-promotion.
Whether the topic was expensive new hiring, a personal car and driver, or the need for either personal or corporate PR, Moffitt had consistently served as a constraint on Whittle’s desires. Whittle had developed a close personal bond with architect-designer Peter Marino, a Warhol protégé who specialized in opulence and had become popular with celebrities. Together they spent four years putting the final touches on Whittle’s apartment in the Dakota, complete with sock drawers lined with hand tooled leather. Whittle also purchased a Vermont farmhouse and adjoining land and supervised the complete relandscaping of the property. Even as he oversaw these projects, Whittle found time to travel the world amassing dozens of precious works of art of all types.
On the business side, Whittle began to launch niche market media products beyond his historic focus on free single-advertiser magazines. An effort to extend the business model to book publishing, for instance, failed to catch fire. Whittle Direct Books paid large advances to famous authors to write books distributed free to select “opinion leaders” on behalf of a major advertiser.
Most fateful, however, were two initiatives that, unlike his various publishing launches, required massive start-up capital investment. Both Channel One, which programmed a network for elementary school classrooms, and later the Medical News Network (MNN), which programmed a national network of doctor’s offices, relied on the same business model: install televisions to attract a customer base and hope to be able to sell enough advertising later to justify the upfront investment in equipment, programming, and sales. It was Channel One that first introduced Whittle to the K–12 education market. In anticipation of its launch he began giving speeches on the need to transform education arguing, for instance, that textbooks were an obsolete “technology straight from the Middle Ages.”7
“If you build it they will come” business models like Channel One and MNN can succeed, but they require an appropriate capital structure to provide the funds to build the business to a scale that generates cash. The modest profits from Whittle’s publishing business, particularly after the drain from the Knoxville construction project, did not come close to filling this gap. So in 1988, with the help of then-banker Richard Holbrooke, Whittle sought a major new strategic investor in Time Inc. Time, inexplicably, permitted all of the $175 million it paid for half of the company to go immediately out of the company to the shareholders. Whittle personally pocketed $40 million, leaving the company as financially constrained as before.8
By 1991, with construction of Whittlesburg just reaching completion, the company was running out of money and could not afford to pay bonuses. The top twenty executives held a two-day intervention of sorts with Whittle at a secluded (and of course expensive) Smoky Mountain resort. Viewed by many attendees as “the most crucial two days in the company’s history,”9 the team begged Whittle to scale back expenses and initiatives as the only way to avoid the inevitable implosion of the entire enterprise.
Whittle came tantalizingly close to securing an investment from private equity giant Teddy Forstmann, signing a letter of intent to obtain $350 million in return for a third of the company. Less than 10 percent of the investment would have gone to funding new projects, with the balance mostly going out again to equity holders and an increasingly important and wary constituent—the banks that had lent the company money. This dream transaction came to a screeching halt almost as soon as the Forstmann team landed in Knoxville and observed the disparity between the vision spun by Whittle and the reality reflected in the company’s financial results. The company’s own newsletter reported that Forstmann was too “stodgily substantive” for Whittle’s taste and that when that “culture clash showed up in the numbers,” they had decided to part ways.
Unfortunately for Whittle, even the most enthusiastic dreamers tend to get a little “stodgily substantive” before writing multihundred–million-dollar checks. Fortunately for Whittle, he found an investor with its own reasons for seeing the expensive new ventures thrive: much of the capital invested would be going to buy its products. Philips Electronics was already selling televisions to Channel One and wanted both to grow that business and to do the same for MNN. The net economics to Philips of funding Whittle’s expansion accordingly were far superior to those of any unrelated party. Even with these structural advantages, Philips’s 25 percent investment for $175 million, ultimately secured in early 1992, represented a devaluation of the company by one-third from what Forstmann had proposed only months earlier.
The new CFO needed to negotiate a quick truce with the banks, who at this point would not even speak with Whittle directly, but needed new capital from the existing investors to do so. Only Associated Newspapers and Philips agreed to put in new money—Associated had benefited from a $100 million windfall from the Time investment and Philips could not let the company fail so soon after their investment. They both insisted that this $60 million would be the last. At a January 1994 board meeting, Whittle predicted that losses for the full fiscal year ending in June would be $25 million—even though the company had already lost $30 million halfway through the year. At the same board meeting, the CFO announced that the loss would likely be three to four times larger. The board replaced Whittle as CEO the following month with a Philips board representative who immediately began shutting money-losing businesses and radically cutting expenses.
Throughout this period, Whittle kept up a frenetic stream of activity and assurances—to the banks, to the board, to customers, to potential investors, to employees, and to the public. The activity was genuine, but the promises were not kept. Banks had negotiated covenants to require business lines to be shut down when targets weren’t met, but these were ignored until Whittle was removed. Days before he was replaced, while the company was hemorrhaging cash and had inadequate advertising commitments to cover the cost, Whittle called a press conference to announce the $200 million rollout of MNN. And Whittle simply disregarded a board directive not to pursue any alternative transactions once an agreement with Goldman Sachs had been reached to avoid inevitable liquidation.
In the summer of 1994, Whittle found a savior in K-III (later renamed Primedia), a portfolio company of private equity giant KKR that the new CFO had previously identified as potentially interested in buying just Channel One. The value K-III placed on the asset would satisfy the outstanding company debts even after a $10 million payment to Whittle.11 The investors agreed once K-III committed to fund the losses until the deal closed. When it did, Philips lost its entire $175 million and Time lost well over half of its $185 million. Whittle Communications would forever be known at Time Warner as “Time Inc.’s Vietnam.”12
In a final twist, a money-losing Channel One would ultimately be more or less given away by Primedia in 2007 to a small youth marketing and media company. When that company in turn was sold in 2012, the buyer, Time Warner, had only one condition—it would not take Channel One. The lessons of Vietnam were not lost on Time Warner.
Before the K-III transaction was finalized in October 1994, the price drifted downward as a number of accounting irregularities were discovered. Goldman had identified these same problems earlier. Revenues had been inflated by booking long term revenue deals up front. More concerning, the company had never bothered to file state tax returns despite the auditor insisting that it had told them to do so. The reported $300 million deal had become $240 million by the time it closed. The balance of the assets were sold off quickly at distressed prices or simply shut down.13
Whittle himself acknowledges his willingness to ignore the obvious in terms of financial risks but justifies it: “I call it robust naiveté or conscious innocence.”15 Whittle’s choice of words is telling. In criminal law, securing a conviction requires “actual knowledge” showing an evil intent. A long-established line of cases, however, provides an exception to this general rule, condemning also those who merely “consciously avoid” becoming aware of the relevant facts.16
Even as his niche media empire started to crash down around him, Whittle had become enamored with the education market and begun to design what would become known as the Edison Project. The liquidation of Whittle Communications drew much unwanted attention as Whittle attempted to launch Edison as an independent venture. In October 1994, veteran journalist James Stewart wrote a wide-ranging article on Whittle in The New Yorker titled Grand Illusion.17 Stewart, who had met Whittle during the Esquire years and expressed fondness for him, struggles in the piece with assessing Whittle personally. But with respect to the prospects of Edison in light of the Whittle Communications saga he is unambiguous:
Irrespective of its educational merits, which have generated controversy and also garnered much praise, and its economic feasibility—a far shakier proposition—the likelihood at this juncture of major investors’ trusting their capital to Whittle seems remote.…[O]nce the public school administrators of America have absorbed the magnitude of Whittle’s failure with his other ventures they are hardly likely to trust him with their tax dollars, let alone their children.18
A large number of government entities did hand over both tax dollars and children. More incomprehensibly, major investors would continue to fund Whittle’s ventures for years to come even after he repeated many of the worst excesses of Whittle Communications on a grander scale. In the case of the investments in Edison, what makes this particularly surprising, reputational issues aside, is just what a shaky proposition the economic feasibility represented on its own terms.
The basic idea of the Edison Project started morphing almost as soon as Whittle conceived of it in response to operational and financial realities, on the one hand, and political and investor pressures, on the other. Its modest current incarnation—EdisonLearning, on whose board Whittle still sat until recently—bears little resemblance to the initial formulations. These were developed first by Whittle himself and then in conjunction with a group of six “founding partners,” whom he referred to as education’s Mercury astronauts tasked with fundamentally redesigning how elementary education is delivered in the U.S.
A year and a half later, in May 1991, Whittle came forward with the first formal presentation of the Edison Project. During this time, Whittle had directed a secret internal project to create a framework to achieve the “transformed educational system” of his earlier musings. Despite his friend Lamar Alexander becoming Secretary of Education, Whittle realized that the originally hoped-for $1 billion would not be forthcoming. In its place, the project relied on raising $2.5 billion from private corporate investors. In lieu of this money going to 100 visionaries, it would now be entrusted to a massive for-profit enterprise that would be part of Whittle Communications.
All of this was announced at an elaborately orchestrated news conference in Washington, D.C. Publicity around the event was choreographed, with selected newspapers getting an advance look in exchange for prominent coverage. Yet it would be early 1992 before Whittle put in place his team of “astronauts” to begin to turn any of this into an operational design. Half of the six selected for this purpose came out of journalistic endeavors. Of the half with an educational background, one was an elementary school principal, one a Brookings Institution policy expert, and one a professor and former federal educational official. No one had any significant experience running a business, certainly not a multibillion-dollar one on the scale envisioned by Edison.
Schmidt may have been a singularly powerful example of the potential marketing value of an investment in a “million dollar man.” However, his selection shared an important common characteristic with many of the other celebrities from politics, journalism, and academia who had joined Whittle over the years—an absolute lack of domain expertise or meaningful experience in the function for which they were being hired. Schmidt, a First Amendment lawyer by training, had no relevant experience in any for-profit business or K–12 education generally.
Whittle and Schmidt spent the balance of 1992 on a road show of sorts—without the benefit of an actual completed operational design, much less a business plan—highlighting the need for educational reform, defending the potential role of the profit motive in the sector, and avoiding too much detail regarding what they actually proposed to do. The duo turned up everywhere from Larry King Live to the National Press Club and were sometimes treated skeptically but always respectfully. In the absence of specifics, the pair offered up the attractive promise of much more for less. Student spending had skyrocketed, but students’ results had not: surely that meant that the problem wasn’t money but “the system.”25 By reinventing the system, they argued, it would be possible to take back the presumably wasted spending, deliver the wanted outcomes, and still have money left over for investors.
Once the specifics of the Edison design became finalized in early 1993, the hard part started: finding investors. The design itself was a lot less radical than advertised. An Edison school ran longer hours, had shorter vacations, used more technology, and had more demanding curriculum requirements. The curriculum itself was largely not original—it used widely available, well-established course materials such as Success for All reading, developed at Johns Hopkins, and Everyday Mathematics, developed at the University of Chicago. In short, Edison looked like a very expensive private school that somehow charged very little but managed to be profitable.
But, as James Stewart had predicted, getting any outside money or any school districts to commit remained challenging, particularly once it became apparent that the overall Whittle Communications enterprise would be liquidated. Edison was spun out of the carcass of Whittle Communications, with Philips and Associated Newspapers continuing to own 40 percent each (Time Warner refused to have any continuing connection with the entity), and Whittle owning the balance. As compelling a salesman as Whittle was, the fact that neither of these owners—nor indeed any previous investor—would put another penny into the entity served as an unnerving “tell” to any potential new investors.
An overenthusiastic entrepreneur, who plunges headlong into new projects even as previous ones falter, is not an unusual phenomenon in the venture world. Venture capitalists are also used to an early business model shifting, sometimes even radically, as market and product constraints are taken on board. But the trouble with Edison was that even radically scaled back, it required a far greater investment of capital than would be typical before a basic prototype had been proven out. In part this reflected Whittle’s insistence on starting big. But it also reflected that Whittle’s spending habits were inconsistent with a start-up. And the perks demanded by Benno Schmidt were similarly unheard of in the venture world. In order to entice him to Edison, Whittle had provided him not only a $1 million salary but also a $1.8 million loan and access to a private jet.28
The balance of the $30 million financing came from Benno Schmidt and two friends. By this time, Schmidt was having to explain the embarrassing collapse of Whittle Communications as he flew around the country trying to sign up customers for Edison. As a result, this critical piece of funding came only after Schmidt insisted that Whittle be denied the formal title of chairman at the company. Despite these early tensions, Schmidt would remain associated with all of Whittle’s educational ventures for decades.
Sprout’s investment was contingent on limiting the initial launch to four modest schools, serving around 2,000 students in total. In an interesting piece of revisionist history, Whittle argued that “the birth of Edison killed its mother, which was Whittle Communications, but the child survived.” And despite these humble beginnings, in Whittle’s view, this was going to be a very big baby. “Think of it, 30 percent of $260 billion rounds out to a new $75 billion category.…Edison should have a big piece of that market.”30
“Pay no attention to the man behind the curtain!”
With the new investment, Whittle ceased to be an employee of Edison altogether—but was being paid as a consultant through the holding company for his shares. Although Schmidt did sign up additional schools, he obviously had no experience running any commercial enterprise, and Sprout had always insisted that a true chief operating officer be hired. When none materialized, Whittle reappeared two years later, first as president and then also CEO the following year. After that, Schmidt was given the honorific title of chief education officer for a few months, but then became simply chairman. When the company finally hired a COO a few months before the initial public offering (IPO) in November 1999, they chose a former lawyer, Chris Cerf, with no business or operating experience. When the company went public, the prospectus highlighted Cerf’s background as a high school history teacher.
Although the business was growing quickly from new contracts, it was devouring increasing amounts of capital to open the actual schools. A new round of financing was required the following year, and then again every few months all the way to the hoped-for IPO. Throughout this period, as it actually began to run schools, the company refined its message and model, attracting capital from J.P. Morgan and the Wallenbergs in 1997 and from the Swiss bank UBS and Microsoft billionaire Paul Allen a few months before the IPO in 1999.
Edison’s core differentiator, according to the prospectus, is its ability to address what it views as the three main sources of the failure of public schools: the lack of consistent leadership, the inability to invest in the future, and the inability to exploit the advantages of scale. Yet if these are truly the correct diagnoses, Edison would on its face be an odd tool to correct them.
On the leadership front, none of the four members of Edison’s “experienced management team” had previously run a single school and, with the exception of Whittle’s own checkered experience, had not run a for-profit enterprise of any kind. It is hard to argue against the observation that “a sustained commitment to effective implementation over a lengthy period of time” is valuable in all things, but how can one then justify selecting individuals who had never implemented any commercial undertaking? On the investment front, the annual appropriations cycle of schools certainly is a constraint on long-term planning. But that hardly justifies replacing it with an unprofitable organization requiring regular new capital infusions to stay afloat and whose CEO’s personal loan obligations could result in a sudden change of control to his banks.
The more fundamental business question, however, is whether this is a scale business and, to the extent it is, whether Edison would operate at a scale advantage or disadvantage. The structural competitive advantage known as economies of scale is easily misunderstood. Scale in this sense is a relative rather than an absolute concept for two important reasons.
First, scale refers to one’s position relative to others in a relevant geographic and product market. This means that, even as one grows in an absolute sense, it is possible to diminish “scale.” For instance, an operator who dominates a region and decides to compete nationally, where there are multiple larger competitors, moves from having a scale advantage to a scale disadvantage. The question of whether a market is primarily local, regional, national, or global is a function of the extent that the specific fixed cost investments can be leveraged. In the school context, most of the fixed cost infrastructure required to manage day-to-day school operations—hiring, building management, customer relations, new client development, and the like—all are locally or regionally based. So, for example, Edison organized its “business development” function under twelve regional vice presidents. Fixed cost categories that seem more national in nature, like curriculum development, also have a significant local component as curriculum must be modified to comply with specific state standards. Even the vaunted standard Edison “design” was modified locally wherever union agreements required that in order to secure contracts.
Second, the economic relevance of scale is greatest in business models where these fixed cost elements are relatively important. Where costs are purely variable, profitability will not significantly improve with scale. Average total unit costs start to fall dramatically as sales grow only where the central costs that do not increase with output predominate. The advantages of scale, then, will be most apparent in businesses with high so-called gross margins—the difference between revenue and direct costs before fixed expenses. From the Edison prospectus, it is not clear whether Edison schools were even profitable at the gross margin level. The company presents a term called “direct site contribution” that manages to eke out some margin, but it excludes a laundry list of site-level expenses from computers to teacher training to building improvements. In the two years leading up to the IPO, Edison losses grew faster than revenue, exactly the opposite of what one would expect in a scale business.
A number of additional “tells” in the company’s filings and elsewhere suggest either that Edison is not intrinsically a scale business or that those running the enterprise don’t understand scale—or possibly both.
In making his case for scale, Whittle frequently points out that the vast majority of school districts “tend to be small, independent and localized operations.”35 But the business plan, initially at least, called for a focus on the largest districts. These tend to be huge—there are over one million New York City public school students, and dozens of districts around the country serve at least 100,000 children—and have the additional administrative advantage of being tightly clustered. The seventy-nine Edison schools, by contrast, were randomly scattered around the country, in thirty-five cities across sixteen states, with only eight school districts using Edison for more than two schools. Although Edison boasted enrollment of 38,000 nationally, within any of the twelve regions into which it organized itself, even assuming stunning continued growth, Edison would continue to be among the very smallest players. The fact that Benno Schmidt spent an inordinate amount of time in the early days of Edison on his private plane making sales calls to Honolulu
36 (which still had not paid off by the time of the IPO
37) reflects the team’s failure to appreciate that regional density is the most powerful source of scale.
Local modifications aside, curriculum development intuitively seems like the area where benefits from a central infrastructure of scale could be realized. But even here, Edison often operated at a significant scale disadvantage. The business sought to operate in thirteen different grades, each of which require different curricula. Although Edison hoped ultimately to grow its elementary and middle school contracts into high school business, there was little evidence that the Edison solution had a viral quality—either to adjacent grades or adjacent communities. Less than 5 percent of Edison enrollment, representing just two schools, was in high school.
More broadly, Whittle’s argument for the long-term economic viability of Edison seemed at times to be that it would allow governments to shrink the expensive and inefficient local education bureaucracies by leveraging the intellectual capital that would reside at Edison’s more efficient scale center. Even if Edison were eventually capable of taking on these functions, the same political realities that made these bureaucracies lumbering in the first place made it hopelessly naïve to believe that they would downsize proportionally to their usage of Edison’s schools. It would be far more likely that an incremental bureaucracy would need to be created to oversee the Edison contract implementation.
How, then, could the public and institutional investors be convinced to invest given the frightening financial profile and tenuous narrative?
The Edison IPO occurred before the imposition of stringent rules to ensure that research analysts were not unduly influenced by investment bankers. That said, there was no particular evidence of foul play here. Indeed, many of the research analysts who supported the offering were highly respected and went on to other positions of great responsibility. In some cases, they would themselves make investments in Whittle’s future ventures, even after the collapse of Edison.
The fundamental methodology usually relied on by research analysts to support their recommendations is called a “discounted cash flow” or DCF analysis. Although stocks do not trade in line with DCF valuations and investors rarely use these as the primary basis of decision making, the apparent mathematical precision and intuitive appeal of the DCF leads not just research analysts, but courts, investment bankers, boards of directors, and others to lean heavily on this tool. The basic idea and math of the DCF is deceptively straightforward: estimate the future cash flows of the business and then, using an appropriate discount rate, crystallize a present value of all of those projected results.
Despite the elegance of this procedure, its precision is more apparent than real. The way the math works, the value of the terminal in such a DCF calculation almost always represents the vast majority of the total valuation. And remember that the terminal value is the result of multiplying two numbers: the terminal multiple and the estimated final year cash flow. Those two numbers are the source of the problem with the DCF.
The terminal multiple itself, we saw, is a function of the discount rate and the growth rate. Neither of these numbers, however, is very scientific. The right discount rate is something called “the weighted average cost of capital” or WACC for the company. The WACC is essentially the average cost, expressed as an interest rate, that the particular company needs to “pay” to raise capital.39 This is a theoretical value, not something that can be empirically verified. If you asked a dozen bankers or economists about a given company’s WACC, you are certain to get a scatter of responses that has a range of at least a few percentage points from high to low. Similarly, the growth rate required for the terminal multiple formula is not arrived at by calculating how fast cash flows have actually grown, but estimating how fast they will grow on average into infinity. Although most companies’ growth over time converges toward the overall growth of GDP, there is always disagreement both about the long-term growth of GDP and the extent to which any given company’s trajectory is likely to diverge from this.
The problem here is that even if the disagreements about both the growth rate and the discount rate are relatively small, the combined impact on the resulting terminal multiple are massive. Let’s take our example of a 10 percent WACC and 5 percent perpetual growth rate. Assume we are confident that there is only a 1 percent possible variation in either number: 9–11 percent for WACC and 4–6 percent for growth. When we plug all these combinations into the formula for terminal multiple, it yields a range of terminal multiples from 14× to 33×—a variance of over 130 percent!
It is not too much hyperbole, then, to describe the terminal value that underpins the much-worshipped DCF methodology to be little more than a rough guess multiplied by a wild estimate.
In the case of a company like Edison, which has no current cash flows, the problems with the DCF methodologies are exacerbated. Instead of simply reflecting a majority of the valuation, the terminal actually represents over 100 percent because most of the interim cash flows are negative! The research analysts who would make stock recommendations built their models based on the level of profitability they believed ultimately achievable by a company with the business characteristics of Edison.
Let’s look at the research report supporting a “buy” rating by respected analyst Greg Cappelli at Credit Suisse First Boston. Today, Cappelli is the CEO of the world’s largest for-profit university, Apollo Education Group. At the time of the fifty-page report issued in December 1999, Edison shares had drifted down to $15 from its IPO price of $18 the previous month and had a public market value of barely $500 million. Based on his DCF, however, Cappelli concluded that Edison’s intrinsic worth was more than double the current market value, giving the shares “60 percent price-appreciation potential” within the next year.
Cappelli’s DCF projects that Edison would continue to eat over $200 million in cash flow over the next five years (2000–2004). To address the terminal value problem noted, however, he projects not just five or ten years of future results, but twenty-six years! The good news is that by pushing out the projections all the way to 2025, the terminal value actually represents just under half of the overall company valuation. The bad news is that the company that is imagined to exist at that future time—with over $8 billion in revenues and $1 billion in profits—bears no resemblance to the small money-losing entity being valued.
The oft-uttered phrase “first mover advantage” suggests to many the idea that going first in itself represents a structural competitive advantage. In fact, a moment’s reflection on various product categories—from cell phones to social networks to spreadsheet software—reveals that the clear winners are almost never the first or even second mover (VisiCalc or Lotus 123 anyone?). First mover advantage is a rare attribute available where product and marketplace characteristics facilitate quickly achieving scale. More often, the structure of marketplace demand or technology constraints imply a modest pace of adoption for entirely new product categories in the best of circumstances. In those circumstances, those who invest heavily early to test the contours of the possible are basically doing free market research for future competitors. Accordingly, going first where it is structurally impossible to gain scale quickly is more appropriately termed a “first mover disadvantage.”
Is the marketplace Edison has chosen more likely to bestow a first mover advantage or disadvantage? Well, the fact that after almost a decade of work Edison represented less than 1 percent of the “$300 billion-plus” market wasn’t a good sign. Even after the next five years of Cappelli’s optimistic, projections during which Edison would continue to hemorrhage money, its market share was projected to be well under 5 percent. What would stop a new entrant during this extended period from closely observing Edison’s successes and missteps in entering into and executing on school contracts? Would a fast follower need to spend the $50 million Edison claims to have invested in curriculum development (which resulted in mostly selecting widely available best of breed from third parties) and school design? Indeed, Whittle himself repeatedly bragged that Edison’s success would allow others to replicate it easily.
In the first couple of years after the IPO, Whittle focused on growing the business quickly by signing up as many schools as possible. To achieve this result, he was willing to “customize” the Edison proposition to address union concerns here, political issues there. What the resulting contracts had in common, however, was that they were expensive. Pedagogy aside, all of the cash-strapped districts that signed on found the over $1 million per school Edison agreed to spend up front for facilities upgrades, computers, and educational materials highly attractive. Unfortunately for Whittle, before he was able to snag major contracts with the high-profile big cities like Philadelphia and New York that were his primary interest, the returns from the first wave of sign-ups started to roll in.
The problem wasn’t that none of the Edison schools were good. With the significant upgrades in facilities and materials, many were far better than they had been previously and some were excellent in absolute terms. But quite a few still were not. Edison by this time had grown into essentially a mid-sized school system with the twin disadvantages of being spread all over the country and many of its contracts having slightly different requirements. Even if it had developed a deeper bench of seasoned operating executives, effectively managing the company would represent a challenge.
Edison aggressively attacked the Bloomberg reports as “irresponsible” and never disclosed that the SEC launched an enforcement action on this and other accounting issues at the company until a settlement was reached in May. By then the stock was under $3, battered by the news that Philadelphia had awarded Edison less than half the schools expected. Reinforcing concerns about the underlying business model, Whittle’s prescription for the ballooning administrative costs was to reverse course and intentionally slow the growth of new contracts.43
On top of the accounting issues, the mixed academic results, the failure to deliver a blockbuster big city contract, and the uncertain financial picture, the company was running out of money. It was only in August 2002 that the company came up with a complicated and expensive financing plan to provide the funds that would allow it to deliver on the modest Philadelphia contract. By then, Edison was a penny stock, having fallen below $1 per share in July.
The addition of board members had been necessitated by the resignation of three previous members who had participated in the emergency financing and could no longer be considered independent.45 What the new independent board members didn’t know as they were elected in December 2002, and what the board would not be informed of for many months, was that Whittle and Cerf were already discussing with Cerf’s brother, Monty Cerf, a banker at Bear Stearns (“Bear”), how to take the company private.
“The queerness doesn’t matter, so long as they’re friends.”46
Although Bear was not formally hired until February 2003, Whittle and Cerf had begun planning the previous year. By engaging bankers personally, Whittle could ensure that so-called strategic buyers—companies with their own management teams and strategic perspective—would not be contacted and that his own personal employment and financial matters could be dealt with explicitly up front. In a company-run process under the oversight of the board, strategic buyers were much less likely to be excluded and the exclusive focus would be getting the highest value for shareholders. Any discussion of management would be meticulously avoided until a high bidder was identified.
Once engaged, Bear worked with Whittle to prepare a list of potential private equity firms with the money and likely inclination to back him in a buyout and a presentation to sell them on the idea. In late March, Whittle informed the independent board members what was going on. In the end, seventy-six private equity firms were contacted by Whittle and his advisors, of which nineteen were interested enough to take a pitch meeting. Nine of these agreed to undertake more detailed diligence of the company. When this was completed in early May, the stock was still trading at barely $1 and Whittle told them they would need to pay at least $1.40, which narrowed the field to four.
Generally a “management buyout” implies that, usually with the help of a partner, the management is actually using all or a substantial part of its equity in the company to help finance the transaction. Here, however, Whittle wasn’t buying anything. He was looking to get completely cashed out and then provided a salary increase, new equity, new loans, and non-compete payments (as well, of course, as getting the expenses for his financial advisors paid for). Whittle ultimately negotiated that over the next several years he could make the company buy up to $10 million of that equity back from him plus another $7 million to cover the non-compete (held in escrow just in case).
While this was going on, the independent directors of the board were establishing a special committee and hiring their own financial and legal advisors to oversee what management was doing as well as assess whatever it might ultimately propose. This involved reviewing the private process run by Whittle and Bear as well as the company’s prospects. Although Whittle informed the committee that he was considering making an offer with Liberty in the range of $1.58 to $1.65 per share, his advisors initially refused to share the actual proposals submitted by the finalists to Bear.
“It is such an uncomfortable feeling to know one is a fool.”
Although Edison sold for a substantial premium to its recent trading price, this represented a tiny fraction of what the company had sold for to the public only a few years earlier. As the company’s stock price had collapsed the previous year, the New York Times had reported that many finally had begun to “see déjà vu in Mr. Whittle’s stewardship of Edison.”49 They pointed to the unrealistic expectations that had been encouraged, the financial regulatory problems, the high overhead costs, and hiring “smart, talented people who do not know enough about business and finance to keep Edison out of trouble,” as all reminiscent of Whittle’s previous ventures. In retrospect, some could be forgiven for wondering how they had been drawn in in the first place.
The fact that a presumably sophisticated financial buyer was interested in backing Whittle again, and that a number of such firms had been interested in doing so, created skepticism as to whether the public was getting the full story. Most major firms that had sponsored Edison had long before dropped research coverage and distanced themselves from the company. The few remaining research analysts—who had been enthusiastic about the stock at dramatically higher prices than where the newest group backing Whittle was buying it—smelled a rat. One ThinkEquity Partners analyst charged that the offer added “insult to injury”50 and complained openly of the “shabby treatment of existing shareholders” and the “continued bad faith”51 of management in withholding key operating information needed to evaluate the offer.
They needn’t have worried. The public filings showed both the projections shared with buyers, and upside and downside sensitivities developed by the investment bankers who provided a fairness opinion in the transaction. In the most conservative case developed, Edison showed modest profit on revenues of $477 million in fiscal year 2008, the last of the five years projected. This was barely half of the $888 million revenues projected by Whittle for the “plan case” shared with buyers. In fact, in fiscal 2008, Edison was still unprofitable and had revenues of $264 million.
Who was Liberty Partners and what were they thinking? The fund had been created in 1992 by former Merrill Lynch buyout group executives to specialize in so-called middle market investments. What made the fund unusual was that the entire fund was financed by the Florida pension funds. Although this arrangement avoided the expense of fundraising and managing diverse limited partners in the fund, according to an independent firm hired by the state to review overall performance by Liberty, fees charged were actually higher than typical while returns were “unequivocally unacceptable” and contained “far too much risk for the returns involved.”53
At the time of the buyout, Florida teachers were horrified to learn that their pension funds were being used to back Whittle.54 Speculation circulated that the presence of politicians sympathetic to the school reform movement on the board that oversaw the pension fund—notably Jeb Bush—had played a role in the investing decision.55 Bush denied this, saying that he had no role in investing decisions. And to be fair, at least one other fund had arrived at similar valuation views.
At the end of the day, private equity firms take a view on a business model and management team and don’t always get it right. Despite the warning signs, they too can be seduced by management assurances that they are favored and come to believe that “this time will be different.” Furthermore, conversations with those familiar with Liberty decision making at the time say they were genuinely influenced by the “mission orientation” of the enterprise.
“Going so soon? I wouldn’t hear of it. Why, my little party’s just beginning.”
Whittle tired of Edison within a few years after the deal with Liberty closed. Costly high-profile contract failures resulted in a retrenchment from what was once the central Edison proposition. As this core Edison concept morphed and atrophied, entirely new business lines were developed to take up the slack. A UK partnership was announced in 2003 before the sale, by which time Edison had launched summer and after-school programs and something called “achievement management solutions” for school systems.57 Then, over time, dropout programs, school “turn-around” programs, online programs, and a variety of other outsourced services to charter schools and districts were added. Some of these initiatives involved high-profile marketing partners like Magic Johnson. Within five years, Edison Schools changed its name to EdisonLearning, a rebranding meant to emphasize that Edison was no longer in the business of taking over schools but instead now was all about creating “partnerships with schools, districts, organizations, and charter boards and authorizers” to “achieve lasting gains in performance.”
Before then, however, Whittle was already focused on his next big idea—and on getting someone to pay for it. That big idea was in some ways as far from the original Edison idea as one could go: instead of contracting to take over the running of local public schools, Whittle now envisioned creating a global network of high-end private schools available primarily to the super-rich international set who could afford them. As originally formulated in 2006, these schools would “offer an internationally integrated, globally-focused education program.”58
In addition, as Whittle learned from the high cost of even upgrading the existing infrastructure, the capital costs of bricks and mortar schools can be daunting. The elite schools he was trying to compete with already had facilities, while Whittle needed to find a way to cover the cost of finding quarters that would attract the clientele he was now seeking. There was no question that Whittle had experience overseeing expensive construction projects. At issue was whether the envisaged business model could support it.
Whittle nonetheless found a new investor to fund his new dream. Sunny Varkey, a mysterious entrepreneur and self-educated Dubai-based son of Indian expatriate teachers, agreed to provide initial funding of $6.85 million. Varkey had built his own largely Middle Eastern-based network of private elementary schools called Global Education Management Systems (GEMS). To attract Varkey, Whittle also somehow convinced Edison’s new owners at Liberty to invest $3.33 million, despite the disappointing performance of the current investment. In addition to that $10 million, the continuously financially strapped Whittle contributed only twenty-five dollars60—hardly a ringing endorsement. For his nominal investment and promise of involvement, Whittle received almost 5 percent of the equity of the venture. In January 2007, Edison and GEMS announced their international alliance, ultimately called Nations Academy, to build schools in major cities around the world.
During Whittle’s publicity tour for the venture, Nations Academy expressed confidence that there was “enough money in place for the initial work.”63 In fact, the ongoing operating costs of this venture would eat up all of the capital contributed before ground was broken on the first school. Indeed, according to private equity investor Lynn Tilton’s complaint charging “brazen fraud,” by early 2008 Nations Academy had gone through all of its initial funding and was facing a series of $10 million deposit installments to Durst.
Lynn Tilton is not someone you want to mess with. A colorful, self-described billionaire, her private equity firm, Patriarch Partners, owns seventy-five portfolio companies including defense contractor MD Helicopters.64 According to Tilton’s lawsuit, Whittle and Varkey tricked her into wiring them $5 million based on a wide range of false representations and concealed facts about the venture.65 Buried in the complaint is an excerpt of a memo Tilton somehow obtained in which Whittle threatened to blow the whistle on the precarious nature of Nations Academy’s prospects as part of his ongoing employment negotiations with Varkey. Just as in the Channel One sale and in the Edison go-private transaction, Whittle had managed to ensure that satisfying his personal needs was a requirement of any transaction.
A year later, however, Whittle somehow had found a new secret funder to entice Durst to go ahead with an even more grandiose construction project at the same West 57th Street location for the same purpose, albeit with an undisclosed new name.67 That funder was global education publishing giant Pearson. Reminiscent of Philips’s earlier investment in Channel One, Pearson’s funding would have been contingent on a deal under which the school would commit to use Pearson materials and technology so that much of its “investment” would come back in the form of purchased goods and services. On closer inspection of the business plan, however, Pearson ultimately could not justify the arrangement as an economic matter even with these structural advantages. The project was again abandoned.
The next year, 2010, Whittle located a warehouse near the New York High Line owned by a different developer that could be renovated for a fraction of the envisaged $200+ million construction project on 57th Street. Rather than relying on the questionable availability of tax-exempt bonds from the city Industrial Development Authority as he had the last time around, as little as $75 million ($60 million of which was for the building) from investors would cover the start-up costs of the New York flagship school of his planned global network. Whittle poached administrators from brand-name private schools like Dalton and Hotchkiss, but installed a long-time associate from Whittle Communications with no education experience as president.
Given Whittle’s own track record and the lack of any proven for-profit education operating executive, who would underwrite the rechristened Avenues School, now described with typical Whittlesque hyperbole as “the first global school”? The answer was in part the same people who had lost money in Whittle’s last two ventures, Liberty Partners. In January 2011, they and another private equity firm, LLR Partners, announced that they had split the $75 million investment required.68 What were they thinking?
Within a few months, the Whittle marketing machine was in full swing in anticipation of a fall 2012 opening: a “spectacular” launch luncheon “attended by a who’s who of New York educators,”70 profiles and interviews across major media, a slick ad campaign including glossy full-page ads in the Wall Street Journal and New York Times, and over 100 elegantly catered informational sessions for prospective parents at the Harvard and Core Clubs and posh hotels mostly in New York but as far away as Beijing. These presentations were described as “masterly” by the New York Times and vintage Whittle: “packed with alarming figures and thoughtful reflections on so many different forces at work in the world and in education: the rise of China, the failure of American education, the importance of reading, the aspiration that our own children will not only embrace the world but also be fluent in it.”71
The aggressive marketing combined with the scarcity of space at the more established New York City private schools enabled Avenues to open its doors to an impressively large contingent of students in the fall of 2012. Since then, buzz about the school from parents has been largely positive. But amid the good feelings of the successful launch, basic unanswered questions remained about the underlying economics of the enterprise, the availability of continued funding, and even the product being delivered.
On economics, given the financial fate of Whittle’s previous ventures, one might have expected a fully baked explanation of how the math would work. Instead, the explanations were reminiscent of those given at Edison’s launch with talk of scale (this time globally) and efficiencies, buffeted largely with anecdotal evidence. For instance, when pressed on cost savings, Alan Greenberg, the former Esquire publisher selected to run the actual enterprise day-to-day, pointed to the fact that “there are some schools in town that teach 15 languages. We teach two. Huge efficiency.”73
Unfortunately, language programs are not a big driver of a school’s overall cost structure. Salaries are. In addition to a formidable central overhead of long-time cronies, Whittle was paying high-profile teachers and administrators as much as 20 percent higher than average to attract them to his untested venture.74 In addition, Avenues made unprecedented technology start-up investments including the provision of both an iPad and MacBook Air to each student. This approach imposed costs not seen at any other school, private or public.75 And, of course, significant development expenses are associated with the planned network of twenty global academies. The head of a competing Manhattan private school marveled at the outsized spending on salaries, marketing, capital, and development and concluded that “either Chris Whittle has lost his mind again or,” in the alternative, “the investors have lost theirs.”76
On the “positive” side, financial aid was much more limited than at a typical private school.77 Whittle claimed that the New York campus had already “broken even” months before its doors first opened in 2012.78 The problem is that this literally could not be true as, under generally accepted accounting principles, revenue cannot start to be recognized until services are actually delivered. Only a few months later, Benno Schmidt, who took the role of chairman at Avenues, told a reporter that the school would start turning a profit “in about five years’ time.”79
The $75 million Whittle had raised was largely spent on the building, but Whittle went to great lengths to assure his various constituents that there was minimal risk associated with future financing needs. The school, he said, would take on no debt and would fund future growth from the cash flows and a single round of additional funding.80 The remaining nineteen schools, he said, will cost $500–600 million to establish, although it is not clear why these—some in locales with even higher real estate costs than New York—are projected to be less than half as expensive to create on average.81 Although Whittle often touted the unique vision of Avenues, when it came to finances, he insisted that there was nothing unusual or complex about Avenues. “It’s pretty simple,” he told the New York Times, “there are thousands of examples worldwide to demonstrate it works.”82
The question of whether a new school is any good takes many years to assess. Avenues graduated its first class in 2016. What is clear is that the venture is taking on a lot. Avenues is committed to an immersive curriculum in which half of all subjects, at least in the early grades, are not taught in English. Simultaneously developing a demanding new curriculum—one that integrates existing and new material consistent with its World School conceit—and opening all grades from nursery school to ninth, was a massive undertaking.
The idea of learning bilingually is not a new one, but its successful execution is complex and expensive. My own daughter goes to the Lycée Français in New York, which is part of a global network of almost 500 French government–subsidized institutions whose basic pedagogy was established by Napoleon over 200 years ago.83 In addition to the historic track record, the Lycée usually requires that at least one parent supports the French language at home because of how demanding it is to learn bilingually. Avenues has no such requirement with respect to either its Spanish or Mandarin programs.84 On a more practical level, the Lycée has a global network and home country from which to draw teachers qualified to teach all subjects in French. The challenge for Avenues in this regard is not trivial.
Some of Avenues’s early investors didn’t want to wait to find out whether a promising start would translate into a sustainable business and certainly didn’t want to have to fund its global ambitions. Although the school opened at only half its capacity with around 725 students, it had attracted an unprecedented number of applications for a new school in New York. Avenues was poised to grow quickly to over 1,000 students with continued marketing and as high school grades started to open.
All the resulting early talk of “success” led Liberty to decide it was time to cash out after only a couple of years. Having lost money in both Edison and Nations Academy, no one knew better than Liberty the execution risks associated with staying too long in a Whittle venture. History had shown them that if there were a window of potential investor euphoria around one of Whittle’s ideas, it was best to take advantage and move on before the actual financial results came in.
An unlikely potential savior appeared in the form (again) of global education giant Pearson. Whittle had been apoplectic when Pearson had walked away from the earlier incarnation of Avenues on 57th Street. Now, Pearson had no interest in the school downtown but loved the idea of selling its software and content to a network of high-end global schools. A transaction was structured in which Pearson would invest only in the international operations in return for some cash and a long-term deal to be the soup-to-nuts supplier to these institutions. The New York school would remain in the hands of Whittle, LLR, and a new group of private equity investors including Providence Equity.
The transaction was moving forward, but Whittle’s history and reputation came back to haunt him. Sitting on the Pearson board was Susan Fuhrman, the president of Teacher’s College and an expert on educational policy and school reform. Fuhrman had followed Whittle’s educational initiatives closely from inception. As dean of the University of Pennsylvania Graduate School of Education a decade earlier, Fuhrman observed Edison up close when she took over several of the failing Philadelphia schools not awarded to Whittle in 2002. Fuhrman was horrified to learn that Pearson was thinking of partnering with Whittle and strongly objected. The board declined to approve the investment.
For a second time, Pearson had left Whittle to start over. In this case, however, time was running out, limiting his options dramatically. John Fisher, the billionaire known for his interest in sports teams and educational philanthropy, had invested $5 million in the original $75 million Avenues financing (as did current Illinois Governor Bruce Rauner) and earlier expressed interest in an additional investment on very different terms and with very different governance. Whittle had waved him off, and the larger investors permitted him to do so as long as the Pearson deal that would have left Whittle in charge was a live option. Once the Pearson deal collapsed, Fisher began to deal with the other investors directly. Whittle’s 2014 annual letter may have relegated his “important” new investor and new leadership team member to brief mentions following pages of details on the planned China expansion, but it was clear that Fisher’s new team was now firmly in charge. Less obvious was whether this team had the same stomach for costly international initiatives—the letter also touches on plans and discussions in Sao Paulo, London, Shanghai, Hong Kong, Delhi, and “the Gulf region”—or whether they would focus closer to home.
When asked about his greatest fear regarding Avenues, Whittle said that he dreaded it becoming “just another fine private school.”85 Although no formal announcement would be made, it soon became clear that the new owners would indeed dramatically scale back Whittle’s promise of twenty schools in ten years. The following year’s annual letter from Whittle was unusual in two respects. First, it did not represent “an ‘official’ Avenues statement but rather” Whittle’s “own opinions.” Second, titled “A Beginner’s Report on China,” it was described as a “personal reflection more than a progress report.” The almost 3,500-word musing on life and China was also notable for the fact that it said remarkably little about Avenues at all. Two months later, in March 2015, Whittle formally cut his remaining ties to Avenues.
86
“A heart is not judged by how much you love, but by how much you are loved by others.”
Whittle, who will turn seventy in August 2017, has said of his ambitions for Avenues, “I view this as the last rodeo.”87 Such pronouncements from Whittle need to be taken with a grain of salt. As one incredulous research analyst remarked a dozen years earlier after Edison had been taken private: “If you look at his history, he’s like a phoenix. Who knows what his next venture will be?”88 Indeed, on announcing his resignation, Whittle already was singing a different tune. “It’s in my blood,” he said. “If there’s anything an entrepreneur knows it’s how to begin again.”89
Given his track record of raising money based on far less, it would be hard to believe that Whittle couldn’t spin the Avenues story into something that would attract capital for his next venture or maybe even a fund to seek out new opportunities. Indeed, according to knowledgeable sources close to Whittle, he has already raised $20 million from rich individuals and international institutions to recreate his original broad vision of Avenues as a global network of schools. His non-compete with Avenues will apparently constrain exactly how he goes about this, but it appears that the effort will begin in Asia. The initial name for the new venture suggests that Whittle continues to believe that his own reputation is an asset rather than a liability: Whittle School and Studio.
More surprising at some level than Whittle’s own ability to continue to move forward relatively unscathed by his track record is the ability of those connected with him to do the same. The Edison Schools saga was not just a monumental financial and operational failure, it represented a massive failure of appropriate corporate governance. Once informed of the ongoing work by Whittle and his team to find a partner amenable to their personal needs, the independent directors did everything they could to minimize Whittle’s efforts to keep so much of the residual value of the business for himself. Even if future investors might convince themselves that they could put in place enough protections to get the benefits of Whittle’s strategic vision without significant risk, why would anyone want to back those who both enabled his least savory personal proclivities and failed to execute on his big ideas? Yet many have found their association with Whittle to provide a more than satisfactory springboard to future opportunities in the private and public sectors.
Benno Schmidt has never worked for any for-profit business not affiliated with Whittle to hire him. But he has secured a number of high-profile appointments in the nonprofit and public sectors that suggest a lack of concern regarding his leadership as chairman of the board of Edison. Most notably, he has served as chairman of the board of trustees of the City University of New York. The late John Chubb was the Brookings Institution researcher who was a member of “Mercury astronauts” who produced the Edison School design. This association did not impede his being appointed president of the most influential national trade association of private schools or being sought for public policy advice by presidents and presidential candidates.92
Part of why alumni of the failed Edison adventure fared so well is that they have positioned themselves as early “leaders” of the so-called school reform movement. Although Edison was much more focused on getting contracts to operate entire school systems, some of their schools were operated under early charter school legislation—when it went public, twenty-four of the first seventy-nine schools were “charter” rather than “contract” schools. In the fifteen years since then, charter schools have become a generic symbolic of efforts to improve public schools outside of the constraints of the existing bureaucracy. As in many intense political battles, the operational track records of fellow travelers are not always examined closely. So Edison alumni have come to be embraced by school reform advocates as charter school pioneers, despite the dramatic public implosion of their business enterprise.
Michael Moe, the one-time Merrill Lynch research analyst who ran their Global Growth team, was the most public and vocal supporter of the Edison IPO in its early days. When he left Merrill in 2001, Moe founded ThinkEquity Partners, the investment bank that continued to publish research on the company even after the stock collapsed and the established banks had stopped. ThinkEquity complained loudly about Edison’s lack of disclosure in connection with the go-private transaction, accusing management of bad faith and irresponsibility in its treatment of shareholders.
The resilience of Whittle after a quarter century suggests that his remarkable marketing and promotional skills are even more effective in the educational domain. Psychological research strongly suggests that we are more likely to believe claims that confirm our previously held views.94 This tendency may be even more powerful where these views take on an intense, personal aspect borne of formative developmental experiences.
If our preconceived views on education cast a powerful spell, making us particularly susceptible to misguided investment decisions in this arena, is there any protection? In The Lost Princess of Oz, L. Frank Baum reveals how the benevolent sorceress, Glinda the Good, protects herself from evil spells. “Of all the magical things which surrounded Glinda in her castle, there was none more marvelous than her Great Book of Records.” The Book contained a contemporaneous account of everything that transpired in the kingdom, and this wisdom provided Glinda with a singular defense against any dark arts that she might encounter. “No thief, however skillful, can rob one of knowledge,” wrote Baum, “and that is why knowledge is the best and safest treasure to acquire.”
The educational realm is broad and complex, and knowledge can only be acquired through a detailed examination of the unique attributes of each of its distinct constituent parts. There are, unfortunately, no easy shortcuts to attaining such knowledge. The stories of how others have lost their financial way in their search for riches in different corners of the Land of Ed are probably the best way to start.