Hello, and welcome to another episode of the Oddlots Podcast.
I'm Joe Wisenthal and I'm Tracy Alloway.
Tracy, the economics of care work one of these topics that I think we're both interested in, but like news developments keep derailing our pursuit of.
This area, right, things keep happening. Yeah, really, And so we can't talk about the economics of preschool.
And I guess the one other time we sort of talked about it, like so much of the conversation about like infrastructure or making this economy like more productive, like so much emphasis on like the built economy.
The good side of the the good.
Side factories and can the factories make good batteries and stuff like that. But I do think that like when you look at like long term challenges for the US, so many things related to like childcare, elder care is a really big one, and the sort of like the economics of these industries that like aren't going to have like some huge productivity breakthrough tomorrow or like it takes a lot of labor, and they seem to keep getting more challenging for pure.
Right, in many respects, they seem more troublesome than some of the good sides. I think we talked about this before, but certainly if you look at inflation numbers and if you divide them up by you know, consumer goods versus services, the really long term price pressures are mostly on the services side, so again things like healthcare and education. And then secondly, to your point, in some respects, it feels like, Okay, if there's a bottleneck of a particular good, well we
can build a new factory or increased capacity at the ports. Yeah, you know, I'm sort of simplifying it. But when it comes to care work, there's this massive labor issue which you can't just build fifty new preschools in a particular city because you would still need to man them, and even and then even if you could get the labor to keep them going, there is a fundamental issue with the business model.
Itself totally, you know, And you mentioned the porch and you said you're oversimplified, but I don't think so. I mean, like, you know, that is sort of what a lot of this conversation is about. You can expand them, you could get you know, repeal the dreadg Act and allow more boats into the Port of Los Angeles, and then theory. You know, some ports are automated so that one person can do what ten people did in terms of unloading
containers and things like that. I mean, maybe at some point we'll have robots take care of like all old people and children and someone, but that does not seem imminent.
Uh.
It seems rather a dystopian though not imminent, but very dystopian. But okay, So we have done an episode on this with Nancy Folbright where we talk sort of generally about the issues at play with preschool education. But I think we need to delve in a little bit more on some of the practical difficulties of running this type of business.
Right, this one of those things. It's not like a post pandemic. I mean, it's worsened in this sort of current post March twenty twenty era, like the stress that families feel about childcare, but like in least in New York City, people were stressed about it in twenty nineteen and twenty eighteen and probably long, you know, for years and years. So there's like something that deeply structural going on.
And you has a really good question in the interview with Nancy full Brad It's like, where does the money where they w there is the money? Like, what is the cost?
I think I'm just going to be asking this question over and over again on this episode, but I do not understand how people can pay two thousand dollars a month for childcare and yet the childcare workers themselves seem to be not paid very well. So where is the money going?
And I think there are many people listening who'ld be like, wait, Tracy knows of a place where you can get childcare for two thousand dollars?
Oh really?
Sorry? No, no, no, I know, like that's that cheap.
I was trying to think of something reasonable.
I think that there are many people who pay I don't know. I actually don't know, but okay, let's find out. It is an expensive cost for any family, particularly in cities. And also it seems to be the case that the workers generally are not paid all that well in many locations at least. So your question of like where's the money going, what's the cost? Et cetera, like we just need to dive more into that.
Yeah, let's do it.
Well. I'm very excited to say we do have the perfect guest because he is in this business specifically, we're going to be speaking with Matt Bateman. He's a member of the founding team at Higher Ground Education, which is a startup that has a chain over one hundred and twenty Montassori schools around the country, mostly under the guide
Post Montessori brand. He is currently technically the VP of Pedagogy at Higher Ground Education, and he knows a lot about the actual business of childcare, where the cost go, et cetera. And so Matt, thank you so much for coming out on the podcast.
Well thanks for having Matt.
Just to establish why we're talking. What is Higher Ground Education? Why was it founded? I guess in twenty sixteen, like sort of like what is this this business that you helped launch.
It's a missionary company. So we're out there trying to create more monassory schools, create more monesssory education. And the fundamental mission of the company is educational or pedagogical, which means kind of related to teaching methods. It's that the kind of support that children get in early childhood centers or even from their parents can be greatly greatly improved. This is the monasory thesis by approaching education very differently, and so that's the premise and I mean there are
a lot of monastery schools. There are thousands of Monessori schools in the US, tens of thousands across the world. But we wanted to do something big in the space, to grow bigger, to create something like I don't know, like the whole foods of Monessuri create create a new a new kind of branding impact and a new reach for Monesssory Education understood it.
Tracy. By the way, I don't think this actually cauds a disclimer. I went to a Montessori school for a few years. I'm a big fan. I really, It's not like, well, there's things.
The reason that doesn't surprise me.
But uh yeah, when I from like eight grade one through three for few years, and I have, I had very positive memories of it.
I think I went to technically like government preschool. It was provided by the US embassy.
Oh which country were in Japan? Oh wow?
Yeah? Okay, Well, Matt, can I just ask the obvious question, So a parent or a pair of parents, they're paying hundreds of dollars a month for childcare. Where is that money going?
I'm going to answer the question as I understand it. I mean, the unit economics of an early childhood center are pretty simple. It's tuition minus labor minus rent. So is your question just the numbers don't add up. If you've got one hundred people in a center times the amount of tuition that's the list price, it seems like it should either be making like ninety percent margins or the teacher would be getting paid more. Is that the question?
I think it's more. It feels like the teachers should be getting paid more, and so labor shouldn't be as much of an issue as it seems to be currently.
I mean a few caveats. A lot of people don't pay list tuition, so I mean that is I mean even at very elite schools, at chain schools, there's a kind of list price, and then there's graded discounting down to fifty percent or even lower, and so the average list price can can be a lot lower than the list price. The kind of average gross tuition can be a lot lower than the gross tuition that you would
get just by multiplying the tuition numbers. The second thing is there, I mean there is overhead in this business. I think the overhead actually hits one off centers kind of mom and pop centers, which are most centers harder than it hits the chains because of there's regulatory overhead with licensing, there's kind of operational overhead. This is not an industry where there's like a billing system in a box than any preschool center can use and it's really easy.
It's it's actually pretty difficult to get it set up and chasing payments and chasing parents. Usually the people that set up centers are like entrepreneurial moms that decided to start a preschool twenty years ago and they've learned the business side as they go. It's a very small business kind of vibe. And in that setting operational complexity and regulatory complexity, which I mean it varies, but I mean in New York City there's a ton of regulatory complexity
eats up costs. And then the last bit, which is a kind of like intersection of regulatory and labor complexity, is there are ratio requirements, and there are there are ratio requirements, and there are also just requirements on who can work in a preschool at all. And I mean you see this a lot in places like New York, Like it's not that easy to find guides that are qualified to work in preschools. You need a certain kind
of bachelors or masters are credential. I can't remember exactly what the details are in New York City, but it's not just like you can tap into a wide hiring pool, a wide labor market, and so all these things kind of in being like you need to have a certain ratio, You've got some overhead. There's a lot of operational complexities, so maybe you should add another person to your staff.
And if you add another person to your staff, which is the easiest way to solve a lot of these problems, is you just kind of over staff, you end up paying everybody less. I mean, that is the endemic problem in the early childhood market. So that's a kind of shotgun blast overview. I mean I think that. I mean, the reality is is most centers don't make much money. I mean a lot of them lose money, a lot of them close, a lot of them have razor thin margins.
And even the big centers, I haven't seen kindercres numbers post pandemic or the Warning Care Group. But if you look at I mean, Bright Horizons is public and so you can look at their numbers their early childhood care business. I mean, if it weren't for ARPA money, it would be cashlow negative.
Can I just ask? That was a great overview, And I think we're going to drill into like a bunch of the things that you just said. But what is insurance like for preschool because I can imagine that that must be you know, you talk about sort of regulation. I imagine that must be one big risk factor and potentially quite a large expense.
We have viability insurance. I don't think it's that significant. I would have to ask somebody else on my team, but I don't. I don't think it's really that significant.
Go on, you know, and talk about like scaling, et cetera. And so you say that there's this endemic problem of over hiring, et cetera, and that this creates talk to us like about this phenomenon of like the choices that a school makes, how it sort of like solves the hiring problem and then pushes wages down for everyone.
I mean, that's one aspect of it. And I wouldn't say it's like the main or the primary problem, but it's like one of the ways that the problem manifests. So let's say you've got a small center with five classrooms, sure, and you need to have two teachers in each classroom. Let's just make it simple. Some of the classrooms are toddler, some of the costumes are preschool, but you need to
give those teachers breaks. Or you're in a labor crunch and you're losing teachers more frequently, or teachers aren't showing up, like a teacher calls in sick, and that's happening more and more often. This is the kind of post pandemic reality is. Call outs are just like every industry call outs, it's getting more common. Well, you need something that we call in this industry a floater or a kind of standing substitute teacher to be able to kind of go
and fill in. And then, unless you're thinking very creatively about that role, the kind of standard way to think about that role is you just have another person who's available.
It starts to get expensive pretty quickly because you're looking at, okay, like we had ten people on staff who are teaching, and now we have twelve people on staff because we have two floaters, and then we have two admins and fourteen people on staff is very small, Actually, for a school of the size, most schools would have three or four admins, and then you have to think about turnover and the teachers that you're training, and so it just
it's it's I mean, it's a labor intensive industry. Everybody knows that, but it's just like it's even more labor intensive. I think then people realize it is, at least on the standard models of it.
I want to go back to something you said that a lot of sort of the chain companies that own childcare centers would be cash flow negative without what money? Did you say, ARPA money? And what is that money?
I mean that's right Horizons in particular. Yeah, money is it's some sort of COVID grant system. Oh, I can't remember what it stands for, but it's I mean, Bright Haresins does make money. They make money with backup care and and in other ways. But if you just kind of look at the unit economics of their centers, of their preschool centers, it's not great. It's it's just a kind of low margin business. I mean, this is something
that we we struggle with as well. In good cases, we can push the margins up, but when you're starting at school, when you've got a new center, when you're looking at like, you know, somewhere between one and three years of cash flow burn no matter what, as you're kind of ramping up. I think that sometimes people have this impression because private equity is so interested.
This was going to be my next question, like, if the margins are so thin, why is private equity so interested in this business?
Apparently I think that they're interested in it because it's it's kind of sticky and has regulatory modes. And I mean, what private equity does in this industry is they it's
a roll up strategy. Basically, they come in and they buy centers from small businesses that are looking to sell, like schools that started in the sixty seventies eighties, or small businesses that are now owned by other holding companies, by other private equity companies, and they combine them and they try to get as many operational and administrative efficiencies as they can, and they close the ones that aren't profitable, and they try to get to fifteen percent margins or whatever,
and then they either repacket it and sell or they go public, depending on the modelism. There's been a lot of passing back and forth of clusters of schools and private equity.
How do you scaling efficiencies work in preschools, Because on the face of it, it wouldn't appear to me that like running ten schools versus running one school would be vastly more efficient.
It's not vastly more efficient. But if you're dealing with baseline thin margins, eliminating an admin person at a school because you can centralize that functional or coming up with a standardized operational or onboarding system or a system for vetting hires hiring is a pain in education just I mean, this is some of this is preschool in early childhood, but some of us, just like private schools or just the schooling system in general, some of these issues just
kind of get inherited from the general complexity of education. But yeah, I mean, if you kind of can go down from four admins to two, or you can have a scheduling system that lets you eliminate one float or something like that, that's where the private equity kinds of efficiencies come in. How we think about it as a
little bit different. I mean, the big question is are there innovations that can help are thesises there are, and that these kinds of standard models that take these like half academic, half progressive, play based preschools and just try
to scale them out. Like the thing that's actually needed is programmatic innovation, including innovation on the staffing side in terms of how teachers are hired and trained and how the funnel works, and can you do something like you know, Montossuri ran incredible schools in Rome where there were one hundred fifty students and five lead teachers and five assistant teachers for three to six years old. That's that's like
much better ratios. And those programs were amazing. They were kind of world changingly.
Goes, you're talking about the actual Montessori. Yeah when you say that.
Okay, yeah, I'm talking about Montesssuri in like you know, nineteen thirteen or whatever. And I mean, this is what she's famous for. She's famous for taking children who were living in slums the likes of which the US has never ever seen, the kind of poress of the poor, the least privileged possible, and you know, she had them kind of like happy and reading and academically advanced by
the time they were three and four. And nobody understood how she did it because this was a time when nobody was teaching children how to read at three or four, even even wealthy children were learning how to read. And so and she did it with relatively low ratios and or high ratios, I guess.
Depending on who's the denominator and what is the numer.
Yeah, exactly. And once you get up to the three year old range, and you have a program that's really based on setting up an environment in a certain way and giving children a lot of independence and setting a certain kind of culture in the school, you don't need to kind of staff for supervision or staff for tutoring
in the same way. That's part of our hypothesis is that, yeah, like in infant care and toddler Carroll, like you're you're always going to need you know, it's always going to be labor intensive in the sense of being a lot of teachers per student or a low amount of students per teacher. But that gets I think people think of like, oh, in elementary school, you can have like a higher ratio
and it can still be good. And I think that that's all so true in preschool and there are other things like that.
So actually that leads me to something that else that I wanted to ask, which is how much do the sort of economic aspects of running a preschool change along with the education style.
They do change a bit, So I think that they're fairly different for us once you get to three years old because of how we do preschool classrooms, because we have a one to twelve ratio there. They're also different for us, and that we consider the job of an early childhood educator to be a certain kind of expertise that we train on and pay for, and so the economics of paying teachers is just a little bit different
for us, paying and hiring teachers and supporting teachers. But in general, I don't think that it changes that much across most centers. Even the changes that I think are there for us, which are real and meaningful, they're not like order of magnitude changes. They're small differences that do make a difference.
Can you talk about I mean you talk about I mean every industry, especially these days, has had problem with labor retention. Probably it's worse for education and service sector childcare stuff. I know that the daycare center that my kids both went to that we get an email like every few weeks or maybe every few months about on this teacher is leaving and then so on else and
so I'm pretty like aware of that. Can you talk about like your strategy It sort of sounds like you're saying it, But are there things that companies can do or operators can do that would sort of like training and investment in the teachers to reduce churn.
So just the state of the problem is the total labor and early childhood is still less than it was in twenty nineteen. Wow, I can't remember how much less. I think it's like five percent less, but it's you know, there was a slowly studying increased curve, as there often is any kind of labor market that's healthy, and then there was a huge drop and it hasn't quite recovered yet. It's been going steadily up since them, but it hasn't
quite recovered. Pay has gone up twenty twenty five percent, I think in the last two or three years, and that's one of the main things that companies are doing is they're trying to pay teachers more. We're certainly paying teachers more, I think more. I can't remember exactly how much more than twenty five percent, but more than that is the amount that our wages have gone up. I don't know how much of it is just a wage issue.
So I mean, wages aren't going to double, like they're going to keep going up, but they're not going to go dramatically up just because of the unit economics of it. I think that a lot of it has to do with kind of seeing the job as a meaningful career,
as something with dignity. Early childhood work is also relatively low status, and then the things that employers can do or the things that centers can do, is like, how do you kind of actually manifest that both in terms of meaningful opportunities and in terms of the kind of dignity of the work itself. I mean, I've worked in
preschools that aren't Montessori as well as Montessori preschools. You feel like a babysitter, Like you feel like you're watching a bunch of kids and you're running out the clock. And that's just it. I mean, even if you love children, and I love children and I've done this kind of work, it's like doesn't feel like a kind of sustainable, long term thing. It feels like something you do for a
while or is gig work. And seeing it as like this is a kind of expertise and a kind of wisdom, and there's curriculum here, and there are things that you can do and master, and there are growth paths. I think that that's the biggest thing. And there aren't that many early childhood approaches. I mean, Montosauri is one. There are others that kind of take it that seriously.
Have there been, you know, throughout your career, any shifts in the demographics of people who work at preschools, Like did it used to be an older cohort and now maybe it's younger or vice versa.
That's a really good question. Anecdotally, I feel like it's gotten younger. But I also I mean, I've been in this industry for about ten years, so not that long. But even though I feel that way, like when I'm thinking about the teachers that we're training and the teachers in our schools, like it still really is the full range. So you did see a lot of retirements right around when COVID hit right, and that kind of knocks the
older end of the distribution off. I don't know whether that's just going to heal over time naturally, or whether that's here to stay. Yeah, that's a good question.
I want to go back to ra shows, and of course you talked about that, you know, the in theory, as you know Maria Montessori showed one hundred and ten years ago. Maybe you don't need as many teachers and once you get to the age of three or whatever. RA shows generally though regulated, and probably for most schools, the regulations are there for a pretty good reason, and especially if you're going to have babies, et cetera, like you want, you know, a lot of eyes on them
for pretty obvious reasons. But as a company with schools in multiple states, can you talk about like you have schools. I don't know if for sure this is true, but in my mind I imagine that Texas laws are much more liberal about this stuff than New York City laws. Can you talk about what you see the differences you see from state to state.
I mean, some of them are in ratios, but some of it is just like I mean, I lived in New York for years with a small child and grand schools for small children. It is essentially illegal to open an infant program in New York City for children under eighteen months. I mean, you need it needs to be on the ground floor and you need to have too egress. I mean, just the space requirements are so onerous, and then the kind of licensing review process is so onerous
that it's really really hard. We have infant programs in New York.
I'm pretty sure, because I'm pretty sure my I think at least one of my kids was in that program.
Before I'm overstating.
It's no, I know, it's.
It's legal. It's just hard, especially if you're kind of looking at kind of entrepreneurial when off hop operator. It's really really hard and that and that's not true in Texas, but I mean it's it's not that easy in Texas either. There's still a licensing process, so there are big differences. There are some differences in ratio requirements in Chicago and New York. The racio requirements are a little bit stricter. It tends to be the licensing process, the space requirements
we have. I mean, this is another thing that you can get with economies of scale. If you're opening new centers, which we do. We don't just do acquisitions, so you open a lot of new centers. Is there's a construction process that has to happen with almost any space and that means that you need certificates of EUCK agency and licensing, and there's this whole process. And in some places we've got it down to a few weeks where we can do that, like you know, like a couple of months
for construction and the licensing process and everything. And another place is like New York or San Francisco, you're looking at like a year, two years even and you're carrying the costs of the space when possibly staff, depending on what you're doing with it for that time with no enrollment.
How competitive are preschools on cost? And what I mean by that is how big a concern is it? Because on the one hand, I imagine that, you know, it is a sizeable chunk of money for parents who are spending hundreds or possibly thousands of dollars a month on this expense. But at the same time, I also imagine that if you're a parent of a young child, you might be nervous about taking the cheapest option right, and you might have a tendency or a willingness to take
something that's more expensive. So do you find that you're competing on costs quite a lot, or is there like a little bit of insulation there we.
Compete on costs, for sure. I think at the at the ultra elite level like West Side Montessori or the kind of storied New York preschools where people are like this is a you know, they think of it as like part of a path to Harvard or whatever, and
they're charging fifty thousand dollars a year. There is some price insulation there, but even there it's not I mean, it's not totally anelastic We raise prices and then we find that it's too much and we have the backtrack like we face, we face price competition.
Oh so if you raise prices too much, you do see attrition of oh.
Yeah, yeah, definitely. I find it interesting that you find that surprising where you kind of under the impression that that was.
Well, I thought it was. You use the word sticky before, and I kind of assumed like once kids were in a school that the parents liked more or less, barring some massive financial disaster like if they lose their job or something like that, that they would be very motivated to stay in that school.
Let's say that you're doing infant through preschool, and a typical case so we do for one age is zero through six. But say you're doing like two to five, which is a more typical case, SOS child is there for three or four years, you're losing a quarter of your class a year. So if you raise prices, I mean, let's just say that you don't even none of your existing families disenroll, which which isn't going to be the
case necessarily. But if you raise prices and like you're the twenty five percent of your new families are new families, and you have to compete for those families on the kind of new rates. We actually do this thing where we signal what our rate increases are going to be when you sign up, so there's no surprise rate increases, and you do have rate increases, but we say, like we have a rate sheet and you sign up for it and you know transparently what they're going to be,
so you walk in those rates. If you lose half of those families, like your business is sunk. Like that. That's that's part of what it means to be in a business where like you make money on the last four families that are enrolled.
I hadn't thought about that dynamic that just by definition, any like school basically is going to lose a lot of customers every single year automatically just because people graduate or a trick. I don't know, do you graduate.
Yeah, And if you're if your kind of mental model is K twelve, you might think, oh, you're like losing five percent or eight percent or whatever, but like, really you're losing like a fifth, a quarter or a third of your students every year. And that's if you've got a really healthy pipeline coming through like that, that's kind of what you're shooting for. That's the success cases that you're graduating students.
So I know, like every American considers themselves to have been raised middle class, but I was so and I definitely include myself in that category. And the years that I went to Montessori school, I was living in Juliet, Illinois. I had a lot of friends there whose families were unambiguously middle class. These days, when I think about like
monosory schools, I do not think that. Like I think like, oh, you're like, oh, you have to be rich to go to a Montessori school or some sort of like anything that sort of has the vibe of like progressive education. I just assume is sort of this luxury consumption good and be like, why is that the case? And has
it gotten worse? Because I don't know. The people that I went to school with strike me as I don't know if in the year twenty twenty three they could have sent their kids to a Montessori school.
So cost of childcare has gone up because of education in general has gone up faster than in other areas. I can't remember what all the different buckets are. You guys would know better than I would. But whenever I look at the inflation curves and it's like education, healthcare, and then like you know, food is flat, and then something like electronxes, like you know, yeah, so yeah, I mean it's it's gotten more expensive. I think in general
it keeps pace with or slightly outpaces wage growth. So given that most of the costs in education is labor, I mean I think that that's part of what you're looking at there. I don't know if I have the full story as to I think it has gotten a little bit worse. I don't think it's as bad as it seems for a lot of different reasons. So there is Hey, there's more public funding now than there's ever
been at the early childhood age. B it's just very so much by location, Like I mean, if you're kind of pegging on New York City.
Yeah, I admit that, like the economics of school, a monassory school in New York City where everyone is a crazy status obsessed in thinking that they need to get their kids in the right school so that they can one day go to Harvard and then one day go to a law firm. It's probably different than it was in Juliet, Illinois in the early nineteen eighties.
Yeah, I mean New York is very bimodal and New York it's like head start programs or like you know, twenty five hundred dollars a month would be cheap, well, you know for the kind of other end of the of the range, but in like Dallas, like you can get good daycare for twelve hundred dollars a month, one thousand dollars a month, and maybe some of that would be a little bit subsidized, And then you're looking eight hundred dollars a month, and then all of a sudden
it starts to look a lot cheaper than like an any and like totally worth it to get a job. Even a kind of middling pay job and send your kids to school if that's what enables you to do. So, I think that the range is probably bigger than your thinking. But has it gotten worse. I think it's probably gotten a little bit worse. Yeah.
Wait, so setting New York aside, which is crazy, crazy for a bunch of different markets. This was a wider point brought up by our previous guest on this topic, Nancy Folbright, who argued that one of the reasons why childcare costs are going up is like, yes, okay, labor costs happened going up, But there's also this selection bias at play, which is, if you cannot afford childcare, you
opt out of the market entirely. Maybe you find a family member who can look after your kid, or maybe you know you don't work anymore and just leave the labor market all together. And so there's selection bias at play in that the people who can afford preschool are the ones paying for preschool, and there's a whole segment of society who are just not included in that data. Is that a valid criticism from your perspective.
If I understand the point correctly, that there's a kind of step function where it's like you're either there's a threshold below what you're not considering paying for childcare. Yeah, and there's a threshold and that threshold has probably gone up, right. Yeah,
I think that that's true. They're kind of interesting little sub markets of the early childhood space, like at home care or in home care, or like a teacher runs a program out of their home and they might take like three students or five students or something like that.
I think that if you wanted to kind of lower that threshold of the kind of cost threshold, I think you would have to think about, how do we see a lot more of that kind of model where you've got a neighborhood, like where a lot of neighborhoods have schools, where like a mom whose kids have gone to college like walks after three or four toddlers, and kind of
what are the economics of that that is? I mean, that is not usually either illegal or not or kind of highly regulated, and it's just it's also we just don't have a culture of that kind of thing. But yeah, I mean in terms of the question is there a step function, is there a threshold effect? Does that drive up pricing? Yeah? I think almost certainly.
Does you know, it feels like there's this whole range. There's the heavily subsidized schools. There are the sort of mom and pop schools that were like, you know, maybe in the nineteen sixties or nineteen seventies and someone set up a school that's sort of like out of their house, and I think my sister went to them when I when I was growing up, like it was literally like
in our neighborhood. It looked just like a house. And then there's all these like private equity ones, like do you hit like this sort of like broader what does the whole like market look like? How much has it gone corporate versus said twenty years ago.
It's mostly mom and pop still, Yeah, I think the official numbers are that it's like a seventy billion dollar year market, but it's higher than that. I think that
that's an underestimate for various reasons. So if you say it's like one hundred billion dollar to addressable market early childhood centers in the US, and you could broad on that to be like two hundred billion if you included just nannies and other kinds of ChIL childcare expenses, KinderCare is like a seven billion revenue and it's the biggest by far, and then you have Learning Care Group and
Right Horizons that's another seven billion spring. So probably like ten maybe fifteen percent of it is pe or other kinds of big companies, and the rest is really mom and pops. I don't know exactly what percentage is subsidized because the way that the subsidies work is so varied,
and often subsidies go to private centers. It's often it's unusual for there to be like a public preschool in the sense that there's a public school, but most I mean the kind of chains like I mean, you know, we're dropping the bucket and you know, higher ground school. It's it's a huge market and it's very very fragmented. The biggest players are like, you know, the biggest company takes up like less than five percent of the market.
Probably you said something earlier that many daycare jobs or childcare jobs, as a society, we don't they're not seen as high status jobs, high dignity jobs, and perhaps in some cases the person in the position feels like, as you say, like they're sort of a babysitter waiting out the clock. And waiting for the parents to pick them
up and then the day's over. Can you like talk a little bit more about the structural challenges that pose because at the end of the day, like there just seems to be like this mismatch, like and who is going into you know, the supply of future teachers, Like who is going in to this career? And like are there policy levers that you think could be done to sort of increase the number of people that want to make this a career in some way?
So the people that go into the early childhood education are people that love children by and large, I mean not always. You occasionally find somebody working in early childhood education who actually hates children, and that's tragic and awful. It seems like a bad but it's a bad combo. Yeah, yeah, I mean one side this is a little bit of an aside, but one side of this being a very labor intensive industry and a very human industry, where I mean I agree that it would be I don't think
robots watching our children are in the cards any time. Ever. One half of that is it's a management intensive industry kind of like the culture of a school and the kind of happiness of your staff, and it matters a lot and kind of interfacing with all these you know, you've got ten twenty personalities in a small center, all literally stepping on each other's toes. Like keeping that a really positive place which is really important for the children
is really hard. That's an aside. You can divide it into three issues that are all interrelated. One is the money problem, like what about people that want to make more money? I think that there are possibly solutions to that where you tie early childhood education into other career paths. The other is the kind of status problem that's in some ways the hardest problem, just like how do you get people to see working with small children as important?
I mean, this is the problem that mothers I mean tied into all sorts of other social issues, on gender issues and so on. And then the third problem is, and this is kind of why higher Ground exists, and we haven't talked about it much, but it's how do you actually make early childhood education good? Like how do you make it.
So that I laugh there, not because like it's funny, but it is funny in the sense that is the education good. Often it feels like is the secondary or churchary question? Even though we are talking about schools here and.
I think, I mean, most education isn't good, is my view. Certainly most early childhood education isn't good. It's and it's very far from great. Even if it's like passable, you know, it's not great. And what everybody wants, I mean, people want money, and people want status, but what everybody wants most out of their job is they want to do good work. And the thing that's going to change early childhood education is changing how we approach it at the
level of the classroom, in the programming. And this is why, this is why I'm such a such an evangelist about Montessori and developmentally informed education and kind of like thinking about alternative education and differences to the system. Is education needs to change and that that will change the teaching profession. I mean that change would, I mean, it goes a lot. And this is why part of what we do we
run a training center. We train a thousand teachers a year in our Moneessory Training Center, are kind of accredited training center, and that is essential, like that you can kind of take somebody in then say there's a totally different way of thinking about it. We're going to kind of deprogram you from your traditional thinking about education and open your eyes to a new way of thinking about children, about learning, about curriculum, about development, about growth. Certain people
love that. I mean, that's a calling for a certain kind of person.
So just on that note, you know, Joe and I started this conversation talking about how, to some extent, expanding capacity in durable goods is simpler than expanding capacity in something like daycare or preschool education. And you talked a little bit about what it would take to get more people entering this profession. But are there other ways that
you could expand capacity? Would it be, for instance, you know, maybe tweaking the type of education, making it more for lack of a better word, efficient, that sounds terrible, efficient education, or government support of some of some form or another funding. What would it take to actually expand this sector significantly?
Okay, here's the standard narrative. I don't know how much I believe the standard narrative, but it's out there and there's probably something to it. There's been a kind of collapse that the pandemic accelerated. Families that put down roots and they know one another, and they get to know their neighborhood and they might have extended family in the area,
and this is how they kind of raise children. The kind of critical narrative is like we've can become more adamized as a society, so like we don't know our neighbors, and like if you're got to working families and you need help with child care, you've got to hire someone. And that didn't used to be the onli or even the main solution to early childhood education or childcare. To the extent that that's true, I think that's probably a
half truth. I'm kind of skeptical of kind of adomization narratives, and I'm generally skeptical of like there was a golden age where childcare was great, right neighbor Yeah, But to the extent that that's true, I do think that there need to be kind of different operating modes for early childhood where I mean, we were doing things like we
are running preschools in neighborhood houses. We'll like rent a house, like a five bedroom house, We'll move a preschool teacher into that house, and we'll say we'll pay your rent and like you know, in three on the first floor, like you run an early childhood neighborhood center, and like that kind of thing is the kind of thing that
we're experimenting with. I mean, if that was more common, more standardized, more culturally accepted, and we got better at it, not just we as on higher ground, but just as a as a culture, that was a kind of problem that we really were invested in solving. I think that
that kind of shift would be good. The early childhood center model, it's i mean the school model in general, even just like you go to school for eight hours a day until you're eighteen, Like it's getting disrupted, and that goes all the way down to child childcare and early childcare. And there's a question as to what it looks like, what do micro schools look like, what do home schools look like? What are the whole range of homeschool options? How do you get expertise in this area?
It's it requires thought and innovation, and it's it's an exciting time. If you kind of look, if you squint and you look at the industry as like this is where it's at right now, it looks very dark. I mean it's like there's a labor crunch. Education is very bimodal.
It's hard to expand capacity. But if you kind of step back and you say parents are really skeptical of existing institutions and people are hungry for something different, I think you can be a lot more optimistic, and I think we will see changes in the next time twenty thirty years in this space.
So I just have like one sort of last question, and maybe it sort of very ties into this what you were just talking about. But like, you know, people have this idea, and I think, for like good reason that we should have publicly funded childcare from day one. We hate we have this sort of strange system where the public schools are as everyone knows in large part places where people are A big reason they exist is for working parents to drop off their kids hopefully it's
a good education. But also a big part is just this sort of public this free childcare, but only once the kid turns like five or six or whatever the exact age is. So let's say like we wanted as a country. You're like, this doesn't make any sense, Like why do we only start this at age five? We want to start it from like day one or you know, month free or whatever it is. What would be the biggest constraint to being able to happen.
So I'm very skeptical of that solution, both like philosophically and politically, but also operationally, I would say, and I should also say there are people, especially people in the Montessori world, who think that is the solution. That is obviously the solution is to kind of integrate monesssory with the public space in multiple ways. There's a debate about that.
I think what you would find really quickly is that making early childhood education good, like really good in a way that actually meets children's developmental needs, is harder than getting elementary school right. That's harder. It sounds crazy to say, you're just like, wait, aren't you just watching the kids? Elementary school kids are actually as critical as I am of most school trust structures and traditional school structures. Six year olds are kind of ready for school. They're eager
to learn, they're curious, they're thinking conceptually. They don't need a specifically, they don't need to think about learning in terms of like a job or some vocation. This is just what that age is. The kind of six to
twelve age especially is is the school agent. Always has been in history, always there's a reason why if you go back twenty six hundred years, school starts at six or seven, and then there's this question as to what to do when children get to like middle school, high school age historically, but this kind of like six to twelve age is when schooling happens, and there are developmental
reasons for that. If you want to push it down to three much less two or one, and you want to think about making that a healthy environment where children are getting what they developmentally need, I think you have to do something like Montossori, if not exactly Montissori, and most preschools are really far from being that good. They're
really really far from being that good. And so I think what you would see is that the kind of the public preschools, it's just it will be a developmental disaster. That's that's my that's my thesis.
Well, MATD. Bateman really appreciate your perspective. Obviously sort of like extraordinary complicated question just in terms of some of the dimensions that you brought up there, but even some of the sort of simpler regulatory questions about like well ratios and multiple points of egress in one state for another. Really appreciate you coming on the podcast and talking about the business.
Thank you're having a nice thanks really.
Yeah, thanks Matt Tracy. I thought that was really interesting. I mean I think like simple, like you know, the the economics as he described it, are like, yeah, you pay, and then it's like wages and rent, et cetera. But then like when you think about like management costs and I you know, floaters and I've certainly seen this in substitutes and churn, et cetera, you could see how it's just like they get incredibly like inefficient, complicated business.
Yes, which is why I'm still kind of surprised that there seems to be so much private equity interest and like a belief in scaling it up. Although I do take the point about like sure you can have a sort of centralized administrator and things like that. I did think it was really interesting his point about competing on costs and the idea that like, well naturally just by attrition, you're sort of losing students every year. That's something I hadn't considered before.
Yeah, the fact that like so right, like as you said, k through twelve hardly and you graduate in a year. But if it's like a two or three or four year program, like you're always losing students and always having to pull at new ones.
Also, you guys are so down on robots watching kids, But I have distinct memories of my parents leaving me alone with like a Teddy Ruckspin doll in nineteen eighty five for hours to entertain me. So it's already happened. The robots are already here.
It's funny.
It's called the iPads.
I love yes, Oh my god, can I just say as a parent, I love screens, I love iPads, I love kindles, I love TV, I love Amazon Fire, I love all of these things. They make life so much easier. But actually it is funny you say that because he's like, oh, there's never really a golden age, but maybe the golden age is when like people are just more chill about this stuff. Okay, No, seriously, if you were so, you know, all the parents are like so neurotic.
No, it's like the child has to be learning something all like every minute of the day in preparation for you know, their future success. Whereas you could just sit them down, like I don't know, a light bright or something, I'm giving away my my nineteen eighties I'm sorry, childhood.
It's crazy that like if you have a two year old you're like thinking about it on the Harvard track. There's crazy. No, that is that's crazy.
No, I agree completely. Shall we leave it there?
Let's leave it there.
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me on Twitter at the Stalwart. You can follow our guest Matt Bateman. He's at m Bateman. Follow our producers Carmen Rodriguez at Carmen Arman and dash Ol Bennett at dashbot. And check out all of our podcasts under the handle at podcasts. And for more Odd Loots content, go to bloomberg dot com slash odd Lots, where we have transcripts, newsletter and a bloog and check out our discord discord dot gg
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