Quitting PE to Open a Childcare Center
I work at a megafund in private equity, and one of our portfolio companies is a franchise childcare center. Whenever I look at their financials, I am blown away by how much cash flow they are constantly generating.
Seems like a very straight forward business model, with a focus on having a good location, excellent staff, and keeping costs low. Demand for childcare centers will always be there and can expand pretty fast given how low commitment it is if hired a good director. Thank you!
Cashflow is definitely high, a lot of my coworkers talk about how they shell out like $6k/m min for childcare and there's a long ass waiting list for the good ones too. They had to do like a fucking interview as part of their application or some shit.
Not sure what differentiates "good childcare" and "middle of the pack childcare" though. Like what is the differentiator between a typical childcare that costs $3.5k/m and one that is $6-8k?
The teachers. The more expensive ones will be able to have a conversation with you about your child's progress and areas for growth etc. The cheaper ones, well they're just there to watch your kid for the day and not much else.
I think 50% of the costs related to childcare centers are staff so I see this forsure. It would be a challange to hire good ECE's for sure
I know the staff/teachers are a huge cost, but always wondered whether it made that much of a difference since most of my coworkers paying for childcare have children under the age of 12 (not sure how much actual learning is going on).
I think the area the center is in makes a huge differencae i.e. suburbs vs in the city where there are a lot of highly paid professionals
Depends if you would be opening a new brand or franchise owner. The former you have a ton of headwinds with incumbents that people know/trust vs. the new guy. The latter likely has lower upside but if you can get to 4-5 can be a cash flow machine as you mention.
Would you ever thinking about opening one? If yes, why and same, if no, why. Thank you
Have looked at a few new education facilities in the past, albeit these were boarding schools for k-12 rather than daycares. The key issue is building trust with parents and communities. A lot of this stuff is built via word of mouth (you’re not going to ship your 10 year old to Switzerland based off a Facebook ad), and id imagine it’s the same with childcare. We did see some successful entrants, but they did so by partnering with other established boarding schools in neighboring towns. This partnership was also helpful because the families on the waitlist for the main school could funnel kids on the waitlist to “new entrant” boarding school with a kickback of course. Just food for thought from an adjacent market.
This makes a lot of sense. I understand the concern with trust and childcare centers, but I think that given the insane demand for childcare centers from parents, the default is to trust them. I think trust if only yours to lose with childcare centers, if I were to open one, I would have tours, open houses, and make sure the parents feel comfortable sending thier kids.
You should do it. Get it to scale and sell top your firm.
Target daycare; your baby will get the mega-fund offer!
Worth mentioning the headline risk here. You're servicing a client base (kids) that are so vulnerable that if God forbid something were to happen to them, you would essentially be out of business. My friend's firm made a similar investment involving kids, although it wasn't a childcare center, where this exact thing happened and it went to zero.
I'm not saying it's a bad idea, just something to consider.
Yeah was thinking the same thing. I don't know about the childcare business, but first thing I thought of as an outsider was the risk if something happened to a child and how much liability insurance to pay and how much the legal fees would cost. It probably is a blue moon event, but also likely happens from time to time.
opened this posting expecting a "I'm done with the PE bullshit and its time to do something good in the world" post. But its just talking about how to capitalize on young families (which there is totally a place for I'm not throwing shade at this guy, just kinda funny).
But yeah these places print money although hiring an A-1 staff is the hard part like you said. Good teachers are hard to come by, and customer acquisition might be harder than winning government contracts. Usually families will refer to a friend about where to send their child to daycare/pre-school because they trust them, it's extremely difficult to gain the trust of a young family when you are trying to take care of their kid for 2/3 hours of the waking day as a new daycare establishment.
After thinking about this thread unconsciously for a few hours, I think a valid path you could take is to differentiate yourself as an exclusive and high quality place to send your kids. Make it exclusive. Hire top talent. Offer an IB workshop for the 3-4 year olds. Make them use Excel without a mouse. "Ad astra."
My friend went to Princeton then HBS and after a couple years of PE decided to join a travel company as CEO. He built the company out and it looks relatively successful, but I always thought he knew more about the margins that I didn't know. I mean PE to a CEO at a travel booking agency? He's been there for a decade, so I guess it worked out.
I have similar experience as a lender seeing *some* of these type of shops be enormously successful. One of the best ones was, in fact, started by two young IB guys that saw the opportunity and understood how to assemble capital so they could grow rapidly and had the professionalism to hire the right people and give them good systems and administrative support. So yes, if you do it right... it can be a home run.
That said, you should really do some more research into the industry and see what the other 80% of day care centers that never achieve that kind of growth or success do. Many (if not most) of these are probably "mom and pop" shops that have operated in the same location for years and provide a decent living but not get rich money. If you don't have the capital or the network to raise capital to grow your concept rapidly - then you'll be trying to bootstrap a business and that ain't easy. If you've never had experience running the day-to-day piece of a business, that will be a monumental shock to you and is something you need to be prepared for.
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