An Entrepreneur Sees Profits in the Future of His 'Power Campus' He plans to offer intensive business programs in 'growth markets' wherever they are By GOLDIE BLUMENSTYK ATLANTA One of the newest players in the arena of for-profit higher education made his first big mark in business building a chain of photo-processing shops and then selling it to Eastman Kodak for a reported $45-million. ALSO SEE: Edu Trek's Revenue and Profit Outlook That's not the most conventional route to a college presidency, even in the proprietary-education sector. But Steve Bostic says he didn't buy American InterContinental University two years ago merely to perpetuate career-college conventions. Convinced of the 28-year-old institution's basic strengths, he says the attraction for him was seeing if he could "grow it and expand it into new markets." Mr. Bostic, who named himself president of American InterContinental, says his challenge is to distinguish it from other Wall Street-backed, for-profit colleges, like the far-flung University of Phoenix -- the largest of them -- and the DeVry Institutes of Technology. The way to do that, he says, is to offer students fast-paced programs that provide a "good return" on their tuition investment. Most of his growth strategy is built on a concept he calls "power campuses" -- new branches, modeled on a prototype in Atlanta, that will specialize in business degrees and in an intensive, technology-oriented curriculum, taught in corporate-like settings. The technology program is based largely on a package of courses that the university is licensing from a Canadian company. They teach proficiency in Java, Windows NT, Oracle data bases, and several other widely used computer and networking programs. The curriculum, supplemented with business courses, trains graduates for work in the job-rich information-technology industry. Mr. Bostic is also adding to the university's more traditional, career-oriented curriculum. A two-year-old audio-visual-production program has 150 students enrolled, he says. Also in the works are plans to update such mainstay programs as those in fashion and interior design, and to intensify the marketing of evening programs in business, aimed at working adults. As with the technology program, he says, the plan is to "pick a growth market and put a quality program in place. Build it and they will come." Last fall, some 3,000 students did come to American InterContinental's four campuses -- in Atlanta, where the parent company has its headquarters; Los Angeles; London; and Dubai. By next fall, Mr. Bostic predicts, the number should be double that. "The faster you grow, the more cash you generate. That's one of the nice things about this business. You get paid on the front end." Power campuses and audio-visual programs are two of many changes Mr. Bostic has instituted since October 1996, when he bought what was then known as the American College. Already a successful businessman -- his American Photo Group was No. 1 on INC. magazine's 1987 ranking of the country's 500 fastest-growing companies -- Mr. Bostic had become aware of the college when its founder sought his advice on selling it. At the time, Mr. Bostic was enjoying an early retirement, one that gave him plenty of time to teach the occasional business-school course at nearby Emory University and to serve on some non-profit boards, including the Board of Trustees at Presbyterian College. He hadn't been looking for a new business venture, he says, but "suddenly, I saw my dream of what I wanted to do when I grow up." He was intrigued by the subject of how people learn; with some of the proceeds from the sale of his business to Kodak, he had already established a research institute in Atlanta. Favorably impressed by the methods promoted by the institute's two directors, he was eager to use his newly acquired college as a testing ground for some of their ideas about making education more participatory. Through a company called Edu Trek International, which he had formed a few years earlier while dabbling in the business of corporate training, he paid $38-million for the four-campus college, financing the acquisition with about $5-million of his own money and the rest in loans. Soon after, he changed the name to American InterContinental University. A year ago, he took Edu Trek public, raising $30-million in a stock offering that was designed to provide Edu Trek with capital to pay off debts, finance initial expansion plans, and still keep Mr. Bostic in charge. He controls 57 per cent of the stock, which is traded on the Nasdaq exchange. Most of the rest is held by a few institutional investors. Mr. Bostic has recruited several administrators from traditional colleges and from industry to run the university. The head of human resources came from a similar post at Stanford University; the chief operating officer worked at Thunderbird, the American Graduate School of International Management; and the director of marketing was recruited from Federal Express. Stephen G. Franklin, Sr., the chief academic officer -- and formerly associate dean of executive education at Emory's business school -- says he and these other self-styled "educational mavericks" were attracted by Mr. Bostic's notion of immediate training in a collaborative-learning setting. Students in a traditional master's-of-information-science program, for example, "are not getting applied knowledge that is going to make them immediately valuable to a company," says Mr. Franklin. "That's what we're about." American InterContinental is opening two new "power campuses" this month, in Los Angeles and Washington, and plans to open as many as eight more by mid-2000. But even with its ambitious expansion goals, it is smaller by far than many of its likely competitors. The University of Phoenix, for one, has some 50,000 students on its 65 campuses and in its distance-education programs. Nonetheless, a number of analysts who follow the for-profit-education industry say American InterContinental has some unusual strengths, which make it worth watching. One is its international presence: The university runs campuses in London and Dubai, which have helped it to attract students from around the world -- both to those campuses and to its domestic campuses, in Los Angeles and here in Atlanta, where it has its headquarters. It also operates study-abroad programs on the London and Dubai campuses, which attract more than 600 students a year from U.S. colleges, creating a steady stream of revenue. An international market is rare in the for-profit sector, according to Scott L. Soffen, an education-company analyst with Legg Mason Wood Walker, an investment company based in Baltimore. Accreditation from the Southern Association of Schools and Colleges for its programs leading to associate's and bachelor's degrees, and to master's degrees in business and in information technology, is another plus. The institution has been accredited since 1987. Investment analysts say they also like the focus on power campuses and information-technology degrees. Although many institutions offer technology instruction, analysts say the intensive nature of American InterContinental's program, its inclusion of business courses, and its team-based approach make it distinctive. The prototype, in Atlanta, recently opened a few miles from the main campus. Contemporary in style, the three-story building features polished-wood paneling and modernist paintings and sculptures. The classrooms are wired for computers and accommodate 24 students each. Nearby are smaller "team rooms," where students and professors work together on assignments. Students in the information-technology program are expected to prepare presentation-quality copies of their reports and projects on paper and diskette, so that they graduate with a portfolio of their work. The university gives each of the students a black-leather portfolio case, embossed with the institution's name, upon enrollment. Tuition for the 11-month program is $25,000. The first 80 students in the program are scheduled to graduate in mid-October. A total of 420 are enrolled, including some who attend part-time and should finish after 22 months. A new program begins every four months, and the university expects enrollment to grow substantially, as the curriculum is introduced in Los Angeles, Washington, and several sites in Florida. Grey B. Guidon, a member of the first class, says he was attracted by the promise of a practical orientation, and was largely satisfied. "Our curriculum matches very much what's expected of you in the real world," he says. A graduate of the University of Toronto with a degree in philosophy, Mr. Guidon, 29, says he knew nothing about computers before he enrolled. It gave him a grounding in a number of programming languages, he says, although courses in project management and financial accounting "were not as thorough as I would have liked." But at least, he says, "I know what a balance sheet is." Faculty members knew their stuff, he adds, but not all of them were great at teaching it. Indeed, faculty recruitment remains one of American InterContinental's highest hurdles. It employs 400 to 450 full- and part-time faculty members. If the information-technology program catches on, as Mr. Bostic hopes, the university will need to hire more than 600 faculty members in the next two years. That problem aside, some Wall Street analysts are impressed. Mr. Bostic's venture "has got tremendous growth potential," says Gregory W. Cappelli, who analyzes education companies for Credit Suisse First Boston Corporation, an investment house. First Boston began formally tracking Edu Trek in early September and is recommending the stock as "a strong buy," its highest rating. "He builds a great-looking campus," says Mr. Cappelli, who visited in Atlanta. "Can he replicate that all over the country? That's the bet that investors are making." Another major investment company, Alliance Capital, hasn't invested in Edu Trek but thinks well of the power-campus approach, although with reservations. "The company only has one of these things up and running," says Andrew Frank, a research analyst who covers education stocks. "We would want to see them execute on more school openings, to see if the model works as planned." Edu Trek's stock, which was offered last year at $14 per share, has been trading in the $7-to-$9 range recently, down from a springtime high of $28.25. A few points of the plunge came in August, after an investment analyst reported that the company's earnings per share would be lower than projected. The analyst painted that as a sign of financial weakness. Furious with what he said was a misinterpretation, Mr. Bostic tried to get the report changed, going so far as to place a heated phone call to the analyst's boss, whom he knows. It didn't work. Mr. Bostic was happier with a report from Credit Suisse First Boston, released two weeks later, which interpreted the lower earnings estimate as an investment in the company's growth. Going public is a mixed bag, Mr. Bostic says. "The upside is having great access to capital," and the capacity to reward employees with stock. The downside is that "you are subject to the whims of the market." The Apollo Group, parent company of the University of Phoenix, recently saw its stock price drop in response to a negative report in The Wall Street Journal. Like a number of other for-profit institutions, Edu Trek doesn't own its campuses, but leases them. Instead of investing in large computer laboratories, which involve recurring costs for replacing out-of-date machines, students use laptop computers provided by A.I.U. under a leasing arrangement. When they leave, they can take the computers with them. The company also tries to share costs with outside parties. In Atlanta, the equipment for the audio-visual program, for example, is owned by a private production company that operates on the campus. Mr. Bostic is also trying to sign corporations based in the area, such as Coca-Cola and Home Depot, to partnerships that would make it easier for the university to market programs directly to their employees. Marketing is no small matter at American InterContinental, which advertises heavily in newspapers and on drive-time radio shows. Its recruiters attend college nights in the United States and abroad and visit regularly with high-school counselors. They also count heavily on direct mail to locate people who might someday become students. The university has even managed to take advantage of Atlanta's clogged highway system to promote itself. The office park that houses the new "power campus" sits alongside a highway carrying 40,000 cars a day. At night, a 60-foot-long "American InterContinental University" sign, on one of the buildings, lights up the sky. Providing education is a lot more fulfilling than his previous career was, says Mr. Bostic, but in some ways, he finds that the businesses are alike. With American Photo, "I was in the business of fast turnaround" while building a "broad-based distribution system." His product is different now, but Mr. Bostic says he considers himself to be "in the service business," still trying to deliver a product faster and better than anyone else.   http://chronicle.com Section: Money & Management Page: A41