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A Little Bit of a Downturn

From Japan Today, a pretty standard interview with the president and CEO of an English school, but this bit caught my eye:

Do shady operators in the English school business tar everyone with the same brush?

I would say that archaic business models that don’t function well in this industry have forced some schools to be more aggressive in ways that are inappropriate for an education-oriented company. When Nova launched, it was in the early bubble days of easy financing. All the contracts were signed with loan companies and the cash was prepaid to the company. So in a situation like that, you have a lot of cash coming in the door, but you have increasing liabilities for lessons that haven’t been taken. Now for two or three years, the student slowly works it off. If they don’t work it off, the contract expires and the money is yours. But what happens is you have no consistent cash flow like rent when you own an apartment or building.

Having prepaid classes really drives cash flow. It’s like an insurance company float getting premiums in advance which they invest. What’s happened in the industry is that Nova and all these other companies had 100% float and really huge floats to be honest. This brought in vast amounts of cash which they over used to expand. With Nova, all it took was a little bit of a downturn and it wiped them out completely because they had 46.7 billion yen worth of debt to their customers which they should have refunded but were unable to. It ends up looking like an overextended multilevel marketing business in some ways with the fly wheel spinning faster and faster until it eventually collapses.

I'm nitpicking, but I don't think "a little bit of a downturn" means what he thinks it means, unless fraudulent business practices, losing in the Supreme Court, and receiving 6-month sanction from METI constitutes a "downturn."

Japan: 

Comments

Hey Shaun,

I think the "little bit of a downturn" is basically the nice way of saying the president was a slimeball self centered egomaniac, but this is mainstream media and berating your competitors I think was not the point of the article in general, but more focused on other things. In business anywhere in the world, but in Japan especially it does not benefit a business or the image of a company or it's employees for the CEO to bad mouth the competition overly. It is a frank assessment without too much scorn of what everyone knows was an amazingly crappy company, that had a lot of good people in it who suffered because of that piss poor leadership.

Refering to Nova and President Saruhashi in the comment above btw,


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