Can you be for-profit and for K-12 students?

As this controversy heated up, it has prompted a wider debate about the role of for-profit companies in education, which has been fueled by the emergence of new for-profit K–12 education companies along with increased interest in education from private capital sources, including angel investors, venture capitalists, private equity firms and companies such as News Corporation.

Many in public education assume the worst when it comes to for-profit corporations, but it’s important to explore the reality of for-profits in education and move beyond the caricatures—both good and bad—of for-profit companies both generally and in public education specifically. In our work, examining the basic incentives and structures of for-profit and nonprofit companies by using the theories of disruptive innovation to deduce what drives them and what opportunities and dangers their corporate structures create yields three key conclusions.

First, for-profit companies are not inherently good or evil. Some corrupt for-profits flagrantly violate the law, but many others accomplish remarkable things. Likewise, some for-profit companies are wildly successful and others are wildly unsuccessful. Successful for-profits solve the problem or do “the job” that customers—the entity or person paying for the product or service—hire them to do.

When there is a viable, publicly financed market opportunity in front of them, these for-profit corporations respond by chasing the customer’s—in this case, the government’s—dollars by doing what it asks them to do, much of which is codified in policies and regulations. If there are “smart” regulations and policies in place that cause the government customer to make “smart” purchasing decisions, successful for-profit companies will do “good” things. If there are “stupid” ones in place, then they will do “bad” things. For-profits that receive plenty of investment up front but do not ultimately satisfy the customer and therefore do not gain traction in the marketplace will be unsuccessful.

Second, there are far fewer inherent and predetermined differences between for-profit companies and their nonprofit counterparts than many assume. Much of the debate over whether for-profits or nonprofits are more or less virtuous is a red herring to what the real questions should be. For the government paying, the question should be, “Is this given company, regardless of corporate structure, delivering on what society is paying it to do, as specified in the law?” And more important, the government should ask, “Is the law asking this entity to do the right thing?”

When the government is the customer, both for-profits and nonprofits may or may not be aligned with the needs of their targeted end user, as the end user is often not the one paying. That all depends on how well the government’s policies align to the end users’ actual needs, as opposed to their perceived ones. The notion that for-profits are inherently motivated to cut costs at the expense of doing their job—or that nonprofits inherently have less discipline in controlling costs and therefore are far less streamlined and efficient—has proved largely to be a smokescreen in public education to this point.

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