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My favorite companies tend to be disruptors of traditional and backward industries -- companies that bring 21st-century technology to 19th-century knife fights like Qlik Technologies with business intelligence, and InnerWorkings with printing.
One other such company that has been on my personal stock radar screen is K12 (NYSE: LRN ) , an online education company that operates virtual schools as well as developing the curriculum for them. Founded in 2000, K12 is at that perfect point in a company's life where it's not too young as to be completely unproven, but also not so old that everybody and their mothers are all over it. In fact, with a three-year average top-line growth rate of 35%, I think it might just have started hitting its stride.
For a company at this juncture in its life cycle, one of the most critical components of its continued success is a strong management team. That's why fellow Motley Fool Rising Star analyst Bryan Hinmon (who manages the Un Portfolio) and I drove out to Herndon, Va., to find out if K12 passes the test.
K12 students receive boxes like this before their school year starts.
Each box contains all the supplies they'll need to complete a full year's curriculum. What's inside depends on the course -- not everyone gets paintbrushes!
A lesson in innovation
Ron Packard is the founder and CEO of K12. He has an MBA from the University of Chicago and past lives at McKinsey & Co. and Goldman Sachs. Packard got his introduction to the industry through Larry Ellison, CEO of Oracle, and Michael Milken, who recruited him to work at their education-focused organization, Knowledge Universe. From there, Packard saw a void in the supply of consolidated educational curricula -- and thus K12 was conceived.
Packard considers April 2000, when the first employee walked in the door, the company's founding point. They spent the first year developing curricula, but it became clear they had tapped into something big when they hit $6 million in revenue in June 2002, and $35 million in 2003. By 2004, the company had doubled that to more than $70 million. With Packard at the helm, that growth engine rolls on. A self-declared technologist and believer in innovative change, Packard has broadened K12's core business into four major segments:
- Public virtual education: The company's bread and butter. K12 partners with public school districts to operate online schools for the districts' students. As of the current school year, the company manages schools in 27 states and the District of Columbia.
- Private virtual education: K12 has also begun exploring partnerships with private schools, collaborating with them to establish virtual schools the company operates on a day-to-day basis and supplies with curricula Examples include the K12 International Academy, the Keystone School (acquired along with KC Distance Learning), and the George Washington University Online High School.
- Hybrid model: K12 is trying this new model in San Francisco with the Flex Academy, a mix of online education and traditional onsite schooling. Students will have access to the individualized pace of the company's curriculum, but they'll be able to follow it in a physical classroom setting.
- Interactive curriculum: K12 also sells or licenses its platform and curricula to school districts that don't mind taking care of the operations themselves.
K12 recently acquired a minority interest in Web International Education, a Chinese company that provides English-language training. Packard was bullish about the Chinese market but was pragmatic about K12's approach. While it retains an option to buy out the remainder of Web International, Packard acknowledged that keeping the existing management was crucial to the deal.
This is part one of the Dada Portfolio's deep-dive look at K12. In part two, we'll look at some of Packard's CEO idols and some videos of K12's products at work.