Sometimes, You Gotta Lose Money to Gain Money

In the following video, Ronald Packard, CEO and founder of K12, sits down with Motley Fool analyst Matt Argersinger and explains that cutting no corners in getting K12 off the ground and running has led to high customer satisfaction.

A transcript follows the video.

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Matt Argersinger: OK, so 2001, fall 2001, you've got about a thousand students. Flash forward to today. You've got about 130,000 students and close to 500,000 kind of accessing at least some part of your curricula. You'd gone from basically zero revenue in 2001 to $870 million this year.

Ronald Packard: Yes.

Argersinger: That's phenomenal growth, by the way.

Packard: Thank you very much.

Argersinger: So what are the main drivers of that? Why does K12 have such a great value proposition?

Packard: Well, I think it's because we do great stuff, right? We started out building a great curriculum, and it turned out there was nobody that really had online schools or knew how to do it, so we started offering the service of actually managing online schools. And from day one almost, from that 2,000, 1,000 kids, we've had tremendous customer satisfaction, and we spent a lot more building the curriculum than anybody else ever had.

So we wanted to be rigorous. We wanted to be interactive, so I think it's the fact that we didn't cut corners and we said, "Look, we're going to invest a lot more." And we had big losses in the first three to four years because we invested so much in the product and systems, for the first year and two years, I did almost every business function in the company. Every year was a reduction in my job for 11 straight years, but in the early years, I put every dollar we had into the curriculum and systems, and I figured we had a great product, then we could build the rest around it, and that's what happened. When you look back to our employees on that day, it might have been 95% were building the product.

So I think the key is not cutting corners, and for 11 straight years, we've had super-high customer satisfaction ratings and we also -- we want to deliver the best education possible and deliver it to as many kids as possible. And if you keep those two kinds of core goals, internalize them with the whole culture, you end up building great stuff, and you also want to give it to everybody, right? Because what kind of person would you be if you built a great product and you didn't want to distribute it everywhere?

It's almost a moral obligation to deliver it to as many students as possible. It's not even a business obligation; it's a moral obligation. If you really believe you have great stuff, which we do, then you want to deliver it to as many kids as possible. Like I told our employees, who, a lot of them are educators and haven't really been in an enterprise, if you do that, all the business ventures take care of themselves.


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