Teaching Japan a lesson
Despite the recession, there are some companies that are doing very well thanks to innovative strategies and cutting-edge software. One of those is Dean Morgan Co Ltd, which operates a chain of English and French conversation schools in Tokyo and Osaka. The company has three brands – Dean Morgan (one-to-one lessons in English and French for the high-end segment), SALA (an Osaka chain with both group and one-to-one English lessons) and Hummingbird (a patented English pronunciation program) with three locations.
Heading up the operation is Dean Rogers, who founded the company with a partner in 2004, and is now the sole majority owner. Born in Santa Barbara, Rogers majored in Japanese at UCLA before coming to Japan with a software company in 2001. After 18 months, he did some freelance software consulting before deciding to launch Dean Morgan.
Japan Today editor Chris Betros visits Rogers at the Dean Morgan school in Shinjuku to hear more.
Was it hard getting started?
Brutal, to be honest. We started out with a lot of confidence and got slapped down pretty hard over those first two years. In the beginning, I started out with an idea and tossed it around for about a year and a half to corporate partners and Japanese investors, which did not go all that well. I got pretty good at making presentations. Then I went back to California and sought individual investors. Once the snowball started rolling, we raised close to $1 million in the U.S., Europe and Japan. I sold a bit over a third of the business to investors.
How many schools do you have now?
We have three separate brands in our business. One is Dean Morgan which is our man-to-man, very high-end segment in Tokyo. We have two Dean Morgan schools in Shinjuku, one of which is shared with our Hummingbird Tokyo facility.
Then we have SALA which has four locations in the Osaka area. I acquired SALA about 2 ½ years ago from another foreigner and have grown the business to over 1,200 students from 400 at the time of acquisition. James Conway, the original founder, did a great job of building a great core business that we were then able to add onto with our technology and business methodology. SALA offers both group lessons, as well as man to man, with much more approachable prices, to a broader market segment.
Our third brand is Hummingbird, an existing pronunciation school business that we acquired last year after it failed under the previous ownership. We revised the cost structure and pricing points, implemented the DMA technology and it is now one of the most profitable parts of our group business.
What sets Dean Morgan apart from other language schools?
The quality of our people, and our software, which we developed ourselves. All lessons, which are one-to-one, are digitally audio-recorded and automatically uploaded to our servers. Like an audio CD, our software encodes it into MP3 format. Students can listen to their lessons at home on their PC or on iPods/MP3 players, and review all the things they can’t necessarily remember. Some 90% of schools outlaw any recordings of lessons, but the audio component is a fundamental part of our program, and a fundamental part of learning to speak English. Students can log in and can see announcements for them, their next scheduled lessons, appointments list, profile, see what classes are currently available, which teachers are available and which ones are certified for TOEIC and TOEFL, and book the appropriate class.
It also helps us with quality control. If there are complaints from teachers or students, we can listen to the lesson and address any issues that might have come up.
How long are the courses and what do they cost?
A course may be from six to 18 months, or up to two years, ranging from beginner to advanced levels, for adults. Lessons, which are 40-50 minutes, range in price from about 1,500 yen for group lessons in our Osaka schools to 3,200 yen to about 5,000 yen per lesson for man-to-man lessons in either Dean Morgan or SALA. Hummingbird pronunciation course lessons are between 4,000–5,000 yen per lesson for 50-minute lessons. Payments can be monthly, by package with split payments or fully prepaid packages. We offer a wide variety of payment options for our customers who have a wide variety of needs. For man-to-man lessons, our prices are much cheaper than some of our competitors. In addition, we have corporate clients, but otherwise all lessons are here in the schools.
Do you use your own texts?
No, we use proven texts. Many schools make their own texts so they can charge what we consider excessively high prices for the quality of the texts offered. I am yet to see a homegrown textbook that beats the best books by Longmans (business) or Thomson for general English. It is a major part of some schools’ profit margins, which is the likely reason why most schools build their own curriculum. Some schools charge around 20,000 yen for paperback homegrown texts. If students cancel their contract, you have to refund most of the money but with textbooks, once the seal is broken, there is no refunding, so I understand the logic from the business side, but choose not to walk down that path for our company. In our case, we charge the going rate for textbooks at around 2,500 yen.
Where do you go from here in terms of software upgrades?
What we are doing now is just the tip of the iceberg. We are way beyond anything our competitors are doing and pushing that envelope. Video is one area we are looking at. Another is digitalizing Hummingbird’s DVD sets to make them into a streaming video system which will enable us to cut prices nearly in half so that more students can afford it, while decreasing our DVD inventory carrying costs.
What is the age range of your students?
Well, with over 2,000 students, it is a pretty wide-ranging group. The youngest students are older teenagers and the oldest is 89. We have quite a lot of retirees. About 90% of our students study English; the other 10% are learning French.
How do you market the schools?
About 50% come through our staff handing out flyers, while a third of our customers come from referrals. We have a search engine optimization program that improves our rankings. We have a lot of career people coming in during the day. Two million people pass through Shinjuku each day, and 100,000 to 200,000 cross our intersection here in front, according to Shinjuku-ku, giving us lots of opportunity to reach out and contact people who work and live in our areas. Most of our schools are located in similarly heavily trafficked areas.
They say there are two businesses that tend to do well in a major recession – education and adult-related businesses. In our case with education, we’ve been seeing record sales, growing about 3-8% a month in our language school business annualized over the last five years well over 100% annual growth. It is very gratifying because it was tough at first and we came awfully close to failing.
Starting and building a business teaches you a lot of humility. After the first six months, I went without a salary for the following three years and taught over 5,000 lessons for free. DMA teachers and staff sacrificed some of their salaries in order to give us stability in those early days. I owe a lot to the sacrifice and effort that they have put into the development of this business and the success we are now enjoying. After the first six months, we just had 18 students. Now, the number is a little over 2,000.
Tell us about your teachers.
We have about 20 Japanese staff and 65 instructors. We have a very high retention rate. Most are excellent Japanese speakers. We hired six new teachers recently out of 850 applicants, so literally they are in the top 1% and I am very proud of the people who work in our schools as we really have some amazing talent. Talent attracts talent. Teachers must have a university degree or equivalent experience. Humility, integrity and a hard work ethic are the most important qualities along side experience. The hardest thing for me is losing high quality teachers because eventually they are going to go home.
What is your company philosophy?
Our company slogan is “Customer Second”—a term I borrowed from Hal Rosenbluth, the author of the book “Customer Second.” It’s in our brochures, it’s on posters on the walls, and in our company DNA. I built our business model differently with a focus on making this the best company to work for, for our foreign teachers knowing this would lead to great success. Many companies tell their staff customer first and then treat the staff with disrespect and disregard especially in this industry. We are foreign owned and operated, and I know that teaching can be a truly rewarding or hell if you work for the wrong company.
Rule No. 1 in our corporate philosophy is that everyone from the CEO down (all native-speaking management) are required to teach at least one day a week. I believe in the philosophy very deeply. I taught a bit over 800 lessons last year, our Osaka area manager even a bit more. We have a new COO starting in December and on his job outline at the top, it clearly says you must teach a minimum of one day a week no excuses.
We are a teaching organization and we need to constantly improve at that from the CEO down, and stay in touch with the pulse and needs of the business. Most of the innovation comes from giving a lesson, meeting students and working together with other teachers—or what Japanese call “genba shugi.”
The thing that damages the reputation of the industry the most is that too many schools look at teachers as a disposable resource. If there is a student complaint, the teacher gets fired. I always tell our teachers that this is one place where you can really feel secure since every lesson is recorded. We have refunded students in the past who made inappropriate complaints and canceled their contracts for them, backing our staff. We have a very high standard of conduct here that is mainly driven by our teachers. They are the most passionate about giving the best quality service, which we get back from students via digital data which is tracked and analyzed for improvement opportunities. We got 20,000 feedback comments over the last couple of years. It helps us see which of our teachers need more training, and which deserve further reward and opportunities.
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.
What is your business model?
We have about half our students on a monthly payment system. It’s like rent, nice and steady every month. We have larger packages and allow for split payments over 24 months. Then about 20% of students pay full cash. We have no affiliation with any loan companies, so the prepaid cash gives us a little bit of a float, while the monthly and other split payments cover all of our operations. It creates a low-pressure, stable environment for both our teachers and students so we can focus on quality and on solid healthy growth generating real profits.
How do you pay teachers?
Primarily on salary, or on a per lesson or fixed lesson basis. Teachers who rank highest from feedback combined with management review have the opportunity to become senior teachers and are allocated more slots and responsibility over time. Our teachers earn a very decent living.
What is a typical day for you?
I get up around 6:30 and work online at home until about noon. I usually do a short hard workout sometime in there as well which helps clear my head. I have a large computer system with a 30-inch monitor and two 24-inch monitors somewhat similar to a stock trading system, so I can work through weekly reports, mail, stream news and keep up on things in the businesses. I get CC’d into hundreds of emails a day, so there is a lot of reading. I come to the schools in the afternoon and am usually there until early evening or sometimes as late as 11 p.m. We teach seven days a week in most schools. I always teach on Saturdays and Sundays all day, as this is when the need is heaviest.
What are you working on for the future?
We are growing our technology in the area of franchise management to create opportunities for foreigners, with a proven track record, to own schools. We will look to find successful independent teachers with existing student bases who are using systems like www.senseisagasu.com or www.myclass.es to find our franchisees under our SALA brand. Eventually they might go back home (outside of Japan) and Dean Morgan will in most cases be happy to buy back those schools, which represents a real win-win partnership for them and us. Most of my focus will go toward mentoring and helping franchisees succeed in the coming years as that part of our business grows.
I have also been working on a book for about two years. It is about developing businesses and leadership. Next year, I will take some extended time off and go overseas so I can finish it.
You don’t mind leaving the business for a while?
I have a great executive and management team, and with nearly 100 employees, the operation is very well run. One of my mentors in business, Alan Dabbiere, the founder of Manhattan Associates, once told me: Don’t hire a dog and then bark for it, or to quote Warren Buffett, you don’t hire Mark McGuire to join your baseball team and then try to show him how to hold the bat. I hired up and found people who are incredibly talented and that is why our business is succeeding extraordinarily well in such a recessionary market.
For further info on Dean Morgan, visit www.mydma.com, www.sa-la.jp, www.humbird.co.jp