The business of education

Strayer Education Inc. Chief Executive Robert Silberman teaches an introductory business course at the company’s for-profit university when he isn’t running the $1.3 billion education firm.

He could also give lessons on how to turn a sleepy business into a fast-growing moneymaker.

Strayer University is in the midst of its most explosive growth ever.

Enrollment increased 31 percent last year.

Revenue vaulted 26 percent in 2002 and in 2003.

The company has no debt and has $108 million in cash and short-term marketable securities.

And while nearly all for-profit, post-secondary education companies have seen their stock increase over the past year, Strayer’s share price has been among the most impressive in the $15 billion industry. Strayer’s stock is up 98 percent over its closing share price a year ago, closing Friday at $118.77 a share on the Nasdaq.

Despite the company’s phenomenal performance, Mr. Silberman, a 46-year old former Defense Department administrator, says Strayer’s success does not surprise him.

“It seems to me that if you can figure out how to do this business, it ought to expand. For us, the issue is not the rate of expansion, it’s maintaining the quality of the education while we expand,” he said.

Strayer, which opened in 1892, markets undergraduate and graduate degrees in accounting, education, business administration and information technology to working adults.

Demand for college degrees among working adults has fueled rampant growth at Strayer and its competitors.

“The whole industry has done very well,” said Jerry Herman, managing director at investment banker Legg Mason Wood Walker.

That’s owing in part to a weak job market, which has convinced some people to return to school to improve their skills and bolster their earning potential.

There are an estimated 60 million working adults who don’t have more than a high school diploma, according to the U.S. Bureau of Labor Statistics.

Demographic changes are likely to continue fueling growth at for-profit and nonprofit post-secondary schools. The number of high school graduates is expected to increase from 2.8 million in 2000 to 3.3 million in 2010.

But while Strayer has become well-known in the Washington area, it has little name recognition outside the region. Mr. Silberman’s ambitious plan includes making the company a national player.

Strayer has campuses in the District and six states.

Last year, the company opened five campuses, more than it did in any other year. It plans to open five more campuses this year, giving it 30 campuses.

Its expansion has boosted enrollment from 14,009 during the fall quarter in 2001 to 20,138 during the fall quarter last year. Revenue has grown from $92.8 million in 2001 to $147 million in 2003.

The biggest company in the for-profit, post-secondary education industry is Apollo Group Inc., which runs the University of Phoenix and has 201,400 students at campuses in 29 states.

Mr. Silberman, who earned $970,000 last year in base salary and bonuses, said the aggressive expansion will continue, but he declined to say which states Strayer is targeting for new campuses.

The company also is likely to add more campuses in states where it’s already in business. It has four campuses in North Carolina, for instance, but state regulators have given the company approval to open nine facilities there.

“When I first started, we felt comfortable opening three new campuses a year. [Now] we feel pretty good about five. I wouldn’t expect to do less than that, and if we can do more, we will,” he said.

Analysts applaud Mr. Silberman’s plan.

“You don’t see nonprofit colleges opening 10 campuses in two years,” said Sean Gallagher, senior analyst at Boston education research and consulting firm Eduventures Inc.

Mr. Silberman was recruited to run Strayer in 2001 by New Mountain Partners, the venture-capital firm that owns about 10 percent of the company and directly controls four seats on its board of directors. He worked at a California energy producer, a paper manufacturer and at the Defense Department under then-Defense Secretary Dick Cheney prior to taking over Strayer.

During his tenure at the Pentagon, which he can see from his 25th-floor office in the Rosslyn section of Arlington, he served as assistant secretary of the Army.

Despite Strayer’s rapid expansion, it is not clear the company will achieve a national profile unless Mr. Silberman speeds its growth through acquisitions and offers courses in more fields, like health care, Mr. Gallagher said.

Mr. Silberman said he doesn’t rule out acquiring competitors.

Analysts also recognize Mr. Silberman needs time to carry out his strategy.

“I think he’s in the early stages of an opportunity to enhance value for all stakeholders, from students to stockholders,” Mr. Herman said.

The greatest risk to Strayer may not be that it grows too slowly, Mr. Silberman warned, but that it grows too fast. He said the university must ensure that it recruits good professors so it can provide a sound education for students, who spend $243 to $324 per credit hour and shell out an average of $15,000 to $20,000 for a degree. If it can’t, Strayer’s students will flee for its competitors, he said.

And that’s a lesson the professor and chief executive doesn’t want to forget.