The Road to 600… and Beyond

^[1]June 2015 marked another huge milestone for Mathnasium, reaching—and surpassing—600 centers in North America. Mathnasium Matters sat down with CEO Peter Markovitz to discuss what the milestone means for Mathnasium, how we got here, and where we’re going from here.

MM: Six hundred centers in North America! What does this mean for us?

PM: It is wonderful that all of us—together—have come this far. It portends well for us. It’s exciting. Our evolution into a dominant brand will undoubtedly bring major advantages for our franchisees. But to dominate the market, Mathnasium must first have a presence in communities where our target customers reside. Six hundred centers represents significant market coverage—an important milestone on the road to market domination.

MM: Why is market domination important?

PM: Dominant brands garner greater consumer confidence because they are better known. Dominant brands also enjoy economies, like group advertising, that come from size. They become dominant by taking customers away from competitors and, over time, acquire greater resources to counter future competitive threats.

MM: Are we taking customers away from our competitors?

PM: We are taking many—certainly enough to hurt our competition, and perhaps enough to make some of their learning centers unviable. We estimate that in recent years, Sylvan has shrunk from nearly 1,000 units to a number in the low six hundreds. Huntington was once within reach of 500 units and is now at around 300. But the main reason for the implosions we’ve seen at Sylvan and Huntington lies in their business models. The price they charge to turn a profit is greater than customers’ perceived value.

MM: What about Kumon?

PM: Kumon’s growth has largely stagnated in North America in recent years. Unlike Sylvan and Huntington, Kumon does not have a problem with their value proposition: they give little and they charge little. But their growth has slowed. That’s because kids need more, and they need different. They’re not getting it from Kumon.

MM: Top of mind thoughts when you think about the milestone? How are you feeling?

PM: I feel enormous gratitude. I also feel humbled by the experience—especially regarding events that transpired several months to a year ago. Above all, I feel a great sense of optimism about the future.

MM: Grateful for?

PM: I’m grateful that we have such a great market opportunity. I’m grateful that the assumptions that we made and the strategy that we pursued have been validated. But I’m grateful most of all for the people who enabled us to act on those assumptions and strategy—our franchisees, HQ staff, and the passionate people who manage Mathnasium centers and teach our students.

MM: Do you feel that the market opportunity is still as strong as when you, David, and Larry started Mathnasium?

PM: In fact, it’s much better than when we started. Today, students can’t get into good colleges, even to pursue non-STEM degrees, without strong math scores on standardized tests. This wasn’t generally the case 12 years ago. Additionally, there are forces driving higher standards in education; students’ ability to measure against these standards is coming under greater scrutiny. When standards increase, parents find a way to help their children reach them. The great recession humbled all of us, and parents are more conservative about their children’s prospects and more realistic about their needs. Parents are more determined to give their children a strong academic foundation and opportunities to excel.

MM: Which of your initial assumptions have been validated?

PM: We assumed, for example, that focusing on a single subject would result in a higher quality service for the customer, greater numbers of students because of that quality, and greater efficiencies that would translate into higher value for parents and profits for franchisees. We also assumed that Larry’s approach to teaching for understanding would yield better results than the common approach of learning rules by rote.

MM: You emphasized the contribution of people to the success of Mathnasium. Could you elaborate?

PM: I believe that our community is exceptional, perhaps even unique, in its quality. By quality, I mean the combination of intellect and intent. Our people are sophisticated and they are also good. We really live the mission of helping each child to understand—and master—math. We know the mission is important to the individual child’s success. And we know that it is of great importance to the global community because of how that child—and all the children we teach cumulatively—can contribute to society. As a whole, Mathnasium is successful because exceptional individuals in our community focus their energies on key areas that enable us to make a huge difference.

MM: Which key areas specifically?

PM: The Guiding Principles in our Mission Statement ^[2] describe these areas well. The first is to act on the understanding that exceptional people are critical to all we do. We have to find the best people and help them grow. This refers to people at HQ and those in our learning centers.

The second principle states that the best people can be that much greater if they follow great systems or practices. A commitment to getting better at what we do is crucial.

Finally, the third principle addresses what we call humanity. Even if we have the best people and they follow the best systems, we still need to use our own judgment and initiative. We need to look constantly for ways to correct lapses, or act on opportunities—like the opportunity to make sure that each child has an “aha” moment at every lesson.

MM: On a practical level, what’s driving our growth? Are we awarding more franchises?

PM: Mathnasium’s growth is driven mostly by increases in average franchise revenue. This drives demand for franchises both internally and externally. Over the past several years, average franchise revenue has increased by double digits virtually every year. When franchisees become more profitable, they want to do more of what makes them successful. We have fewer franchisees coming to us from franchise marketing, but there are now 105 franchisees who own more than one center. Some franchisees have begun building chains. In other words, we are growing stridently from within.

But there are other factors driving our growth. When franchisees like what they do and their businesses thrive, they recommend the franchise to others. We’re adding increasing numbers of franchisees who are friends of Mathnasium center owners. Parents of Mathnasium students are signing on as well. In addition, we’ve grown our promising company-owned centers division.

MM: You mentioned a humbling experience about a year ago. Care to elaborate?

PM: We need to build the infrastructure that will shape Mathnasium into the system we want to become. That’s a system that not only dominates the market but also truly penetrates it. To do this we need to acquire as many customers as possible, keep them as long as possible, and do it in a way that allows us to sustain the growth in profitability that we have experienced in the past into the future.

Our first responsibility to accomplish these goals is the same as our franchisees’— to get “the right people on the bus.” And like our franchisees, the process of finding exceptional people—of building the ideal team—is a difficult journey. One often fails before one succeeds. Nine to twelve months ago, we found ourselves needing to let go of a number of people whom we had hired. These were people we had hoped would be part of our team of the future. This setback was humbling, because no matter how encouraging today’s growth numbers may be, the only way to sustain them is to get better even faster than we are getting bigger. The right team is crucial.

MM: What did you do? And why—given this adversity—are you so optimistic?

PM: I took inspiration from business leaders and from many of our own franchisees. It was a question of the old adage: “If at first you don’t succeed, try and try again.” We made the hard choices. Then, we lifted ourselves up and showed the necessary courage to try again. Blessedly, in the past several months, we started to find the right people. And when we did, we took extra steps to maximize their ability to perform for us. We required that they train in the field to learn our business, just as our franchisees do. As a result, we now have a team emerging that I’m very excited about. We’ve only recently enhanced our collective capability, and our team is by no means complete, but we are on our way.

MM: What’s next?

PM: We’ll talk about that at the convention. Right now I’ll say this. Our strength at present comes from performing better than others and meeting or exceeding customer expectations. But we all know that there are so many ways that we can do what we do even better. This is our first opportunity: make things better. And when we see improvements, we stop, take stock, and make things better all over again. This is the charge we have given our team. And this is the team franchisees will meet at the convention.

Our second opportunity lies in acknowledging that—with exactly the same tools—some franchisees perform much better than others. We need to confront this truth, do all that we can to challenge franchisees, and otherwise provide the conditions to narrow the gap. At the same time, we need to find ways to help successful franchisees become that much bigger. They’re leading the way forward, demonstrating by their example that the ceiling can always be raised… and raised again.

MM: Final word?

PM: The future holds huge potential for growth at Mathnasium. We could not hope for a better opportunity at a better time. Franchisee revenue has doubled in the past several years. Let’s double it again!