A tale of how (NOT) to run your business into the ground ! I was inspired by this story from Emonitized: Mistaking your Way To Success. In other words, “why I don’t post so much right now!” I’m too busy…

The article I mentioned lists some interesting ways to kill your business:

• * Overexpansion.
• * Poor capital structure.
• * Overspending.
• * Lack of reserve funds.
• * Bad business location.
• * Poor execution and internal controls.
• * An inadequate business plan.
• * Failure to change with the times.
• * Ineffective marketing and self-promotion.
• * Underestimating the competition.

We achieved an amazing 80% on that scale, once I tell you the story, you’ll understand. Perhaps then you’ll see what we did wrong… and why things are better now…

It’s always difficult to know which episode to start the tale. A brief introduction. We started running our business unofficially in 2000, we had very little idea of how the business would ‘take’, how much money we could or couldn’t earn, how to hire/fire, how to get/keep customers, etc… We were, the Chinese say, “Vegetable Birds”, Greenhorns through and through.

Given the success/failure rates in business in the first five or ten years, we have been remarkably successful: we’re still here after seven years, we’re still making a ‘little’ money, and we have created a thriving business. But it was in the seventh year that we faced our biggest challenge: falling enrolments, unmotivated staff, poor advertising/marketing, budgets out of control, and lousy management (yes, I mean we did a lousy job at managing things!).

The ESL Business in Taiwan
To explain, The Language School Business in Taiwan is a fiercely competitive business with numerous chains and independents. Of course, we are the latter category. There are also a lot of crossover businesses, schools who provide other services that also provide language teaching. This can be done in a number of ways: after-school classes with English, kindergarten with English, English and other subjects, and general cram schools. Schools can also be categorized by the age of students, e.g. children and adults, kindergarten and children, children and teenagers. So there are a number of ways to look at the market. There are of course language schools that teach a number of languages, including Chinese, Japanese, and so on.

The Competition
Our school has focused on solely teaching English to children aged 6 to 16. We don’t mix our products with anything else. This has been both good and bad, but it makes us different from almost all of the schools in the immediate area who teach English, and from most of the schools in the surrounding area. We have achieved a good reputation for that subject teaching alone, BUT we sometimes lose students because we don’t offer after school care, or kindergarten, or whatever. Some parents really need the convenience of multi-service schools. However, we excel at preparing students for standard examinations in EFL (which are not compulsory), and we teach students to USE the language (you have no idea how rare that is in Taiwan!).

Challenges
There are also challenging factors in that for schools, student retention rates are also critically important. Student semesters are generally only 3 months, and in many school attrition rates are attrociously high, often 50% of students leave after six months. Staff attrition rates are also a problem, as several of the schools I worked experienced staff turnover rates well in excess of 100% per year. The two factors are, if you know teaching, very much inter-related. In short, keeping the teachers happy helps you to retain students. When students stay, they learn well. Other students stay, too. Success in the language school rests on creating a virtuous cycle, not a vicious one.

Tuition Fees
With lots of competition, if you aren’t a first rank school in a large city, then pricing pressure restrains your upper price limits considerably. In addition, there are expectations for discounts on the prices from parents that you have to factor into your pricing scheme. Many schools try to charge extra fees for books and materials to cover their additional expenses, but in general this is not easy, either. Taiwanese customers tend to focus largely on the material costs of books and use very practical ways to measure books’ values.

A good example to illustrate: if a book has 100 pages, then it’s upper price tends to be restricted to about NT$200 or thereabouts (because that’s how much it costs to photocopy a page). Additional value can be extracted by adding color for the children, and CDs and so on. But in general, it can be very difficult to get purchasers to appreciate why a 50-page book costs more than a reasonable amount, almost regardless of what’s in the book.

Competitors: Local and International
There are, despite these problems, considerable opportunities in many markets for these kinds of schools. In fact, the presence of lots of competition indicates a strong desire for many of the services already being provided, and a willingness for parents to try new schools, as well as new services. Elementary schools and high schools are increasing slowly the quality of instruction within their communities, but the parents’ desires are far from even being recognised by the local education authorities. It’s that gap that allows so many schools to exist in the private sector.

In addition, from being a largely homegrown market with staples, like Hess Kindergartens, Joy Schools, Kojen, and a few others, increasingly foreign competitors are entering the marketplace, such as Shane Schools (from Japan), Geos (from Japan), PopularKids (from Singapore), etc.. Suffice to say, the international chains have few advantages in the local market, except perhaps deeper pockets than local companies. Local chains also operate in the same environment. All of them face the same typical problems. Therefore, in many areas of Taipei City and County, and around the island, local independent (or boutique) schools do well because they can compete very effectively on Quality of Service.

So, with the usual business concerns, pressures from competition, and pricing challenges from customers, we were quite surprised by our initial success in the local market where we are. We grew quickly year-on-year, and soon found ourselves with a popular little school in a well-defined market.

It’s that context that we will explore in the next posting as we explain how we achieved a failing grade of 80%! It’s been an interesting journey!… Bet you can’t wait…! Oh, and thanks to our wonderful students, Peter, my first class, some students and teachers at a recent demo, a naughty class! and some flowers!).