Learning curve

Learning curve

by Liz Wolf   Joe Keeley, 25, started with a student project that he’s working to build much, much bigger.

As a 19-year-old college student, he launched a successful summer nanny placement business matching college students with families. Around graduation, he attracted the attention of Minnesota businessman Peter Lytle.

Lytle, well known for business turnarounds and his 2002 bid for Fingerhut, was so impressed with Keeley’s business model that not only did he invest in Keeley’s company — providing an infusion of much-needed capital — but also partnered with him to design a bigger and better concept that expanded into tutoring.

Now, the pair are in the process of nationally franchising the Wayzata-based business — called College Nannies & Tutors Inc. — with plans of opening 200 locations in five years.

Keeley, president and CEO, says the business hasn’t always been smooth sailing. When he launched what was then called Summer College Nannies in 2001 during his sophomore year at the University of St. Thomas, he was running it from a house he shared with a bunch of guys.

He says that wasn’t exactly conducive to running a company, especially one dedicated to kids. He also was balancing the life of a full-time student and business owner.

Also challenging: cash flow. He had to watch every penny. “I think I still owe St. Thomas like 15 reams of paper,” Keeley says. However, when Lytle joined him and they began moving toward a national expansion, Keeley had to get used to the fact that they needed to spend big money in order for the company to grow.

“I came from the school of thought to bootstrap everything,” Keeley says, “and then we’re spending $10,000 on a software program just to find out that we needed to build our own. It blows my mind. It’s a keep-me-awake-at-night type of thing.”

As eager as he was to have Lytle invest and partner with him, it also meant giving up part of his business. Each owns 48 percent. But Keeley realized that partnering was vital if he wanted to grow quickly and says Lytle brings a “gray-haired credibility” that only comes with age.

The partners spent the last two years developing the franchise concept before letting it loose this year. Keeley is eager to see where the business goes.

After his freshman year, Keeley found a summer job as a nanny for an Edina family. “That’s where the idea really started. I saw a need.”

Keeley made connections with other families seeking help to look after their children, while at the same time he had college friends looking for summer jobs.

“I had this supply and demand and I became a headhunter of sorts,” he says, adding that initially he thought it would be a way to make some quick money. However, he discovered that the concept had potential and also offered hands-on experience valuable to a business student.

“I feel I had 10 times the education that anyone else did because I had a working, living project everyday,” he says. “They teach cash flow and all these things. They beat you over the head with it, but unless you really experience it you don’t know.”

His house was too rowdy for the business. “I remember sitting in my room taking phone calls telling parents how I was going to be placing this wonderful, nurturing active role model with them, and I could hear the keg being tapped downstairs. I knew I had to get out.” St. Thomas provided him with office space.

The business was going well and Keeley decided to turn it into a self-made internship. “I thought, ‘I’ll build a resume, which in turn, will get me a job when I graduate.’ Because that’s why you pay $25,000 a year to go to St. Thomas, right?” The internship worked so well that he landed many interviews.

 “I’ll never forget I was sitting across the table from a recruiter for a buyer position with General Mills — a pretty sought-after, corporate-type job. He said, ‘Why would you want to leave your own business to work for a multi-national, multibillion-dollar company? You’re not going to have a lot of autonomy the first three to five years.’ I said something like, ‘I love Cheerios.’ But he knew and I knew that this probably wasn’t the direction for me.” Keeley realized he needed to continue to grow his business.

Keeley also won awards as a student. The biggest was the 2003 Global Student Entrepreneurial Award, which came in three levels. “Every step of the way, they came along with cash and I’m thinking, ‘I’m making more money winning awards than I ever did running a business,’ ” Keeley says. “My initial thought that I was going to make a quick buck never happened, because I never took any money out.”

Keeley took the $20,000 in award money and invested it in the business. “I said, ‘OK, I’m going to commit to a year. I wanted to give it everything I had and see where I could take it, because one thing I never wanted to do was say, ‘what if?’ That would have just eaten me alive.”

Around that time, Keeley met Lytle, managing partner of Wayzata-based The Business Development Group, at an awards ceremony.

“I used to be a teacher and I really understood a lot of what he was talking about,” says Lytle, College Nannies & Tutors’ executive chairman. “I’m listening to Joe talk and he was so succinct; he had such clarity and focus. I’m listening to this 22-year-old and he sounds like he’s been in business for 20 years.” Lytle offered to partner and invest in the company.

Lytle says they complement each other. “I respect his decisions,” he says. “It’s pretty rare that we have a disagreement. The only issue was when we started I was willing to spend money. I wanted to try things and hire people and get more equipment.

“Joe was incredibly tight. Joe’s life has always been financially conservative. He had been a lone soldier, and all of a sudden, we’re talking about expansion and leases and spending tens of thousands of dollars on testing. It was a very trying time for Joe.”

Lytle says launching a franchise means trial and error. “We tried things that failed miserably,” he admits. “But I learned a long time ago that you have to test things and pick what works. Everything has a cost if you want to do it correctly. Also, I’ve learned that you have to move quickly and the way to do that is invest capital.”

For Keeley, partnering with Lyle was a big opportunity. “Peter brought several things — certainly access to capital,” Keeley says. “I probably could have raised money, but it would be different than Peter. Peter raised $600 million for his Fingerhut bid. No. 2, he brings what I call in the most loving way a ‘gray-haired’ credibility. It was this great story when I was a student, but guess what? I’m not a student anymore. So am I now just a 21-year-old punk? I don’t believe that, but there are some who do.”

Keeley says his biggest challenge was becoming comfortable with investing thousands in order to grow. Up to that point, he built his business on a shoestring.

“I had a friend who was an attorney who drew up everything,” he says. “Another friend designed the Web site. All of my business planning was done in class. So going from that to the money that needs to be spent to build a franchise was a pretty big shock to the system.”

The pair opened the Wayzata placement and learning center, last year. “Geez, now we’re talking about Wayzata rent,” Keeley says. “But I’ve been able to swallow it, and I’ve matured and look at things completely different from an investment side of things of what it takes to put a concept together. It’s the old cliché of you gotta spend money to make money.

“In the scheme of things, when I look back spending a few thousand dollars to test something and either prove it’s where you need to go or prove we don’t need to go in that direction is like pennies; it’s nothing,” he adds.

 “And there’s value there as a franchisee because we’ve figured it out. You don’t have to go through the learning curve. Every learning center we open gets a little bit cheaper and faster to the point that we can roll them out.”

Keeley’s company provides part-time and full-time nannies from a national population of college students and recent graduates. They screen nannies through background checks, interviews and psychological assessments and match them with families. As children grow, they provide tutors — either in-home or at the company’s learning centers. “We’ve become a child-development company,” Keeley says.

Keeley charges $395 to recruit, interview, screen and train nannies. Keeley says one factor that sets them apart from other agencies is families can choose to have his company employ the nanny. About 90 percent choose that option.

“Parents don’t have to worry about the tax side of things,” he explains. “Also, there’s the liability standpoint. If families employ someone directly they’re completely liable. What happens if the nanny is hurt? Their entire family’s net worth could be sitting out there. So we employ them directly.” The company employs more than 100 nannies.

Tom and Sandy Audette of Highland Park opted to let College Nannies & Tutors be their nanny’s employer. “Tom started to run numbers and we decided it was worth it to not have the headaches,” says Sandy Audette, a new mother returning to work. She also says they chose Keeley’s company because it offers part-time nannies who can work with her schedule as a pharmacist, and they were impressed with Keeley.

“Joe’s personable and professional,” she says. “He’s an up-and-coming star in this industry.”

Pat Cascio, president of the International Nanny Association in Houston, says the nanny industry is growing as parents realize hiring a nanny is not just for the well-off, and many hire a placement agency to do their legwork.

Keeley says the next logical step was to offer one-on-one tutoring, from pre-K through college. He says tutoring is a booming business.

“Some say it’s the largest growth industry in the country right now,” he says. “The reason is increasing class sizes. Teachers have to teach toward the middle so those who need to be challenged aren’t getting challenged enough and those who are struggling aren’t getting one-on-one attention. And there’s increasing competition for colleges.”

Sandi Ayaz, executive director of the National Tutoring Association in Lakeland, Florida, agrees. “The tutoring business has exploded in the last two years.” Eleven years ago, her organization had 200 members. Five years ago, membership jumped to 857. Today, it has 3,900 members representing more than 15,000 tutors.

Reasons for the boom, Ayaz says, include the federal No Child Left Behind law, growing class sizes leaving many students feeling a disconnect, changes in SAT tests resulting in more test preparation and business magazines naming tutoring a great opportunity.

With two burgeoning industries, Keeley and Lytle are ready to take off nationally. College Nannies & Tutors Development Inc. is the franchise company owning the intellectual property, systems and technology. It just began franchising so there’s no revenue to date.

It will generate revenue through awarding franchises through a $25,000 franchise fee, 5 percent royalty and 1 percent marketing contribution. It costs a franchisee between $52,000 and $115,000 to open a location.

At the end of July, the College Nannies & Tutors Wayzata center reported $305,000 in sales. Keeley predicts sales will be $600,000 by the end of 2005. A center opened in Shorewood this summer and also is owned by Keeley and Lytle. Franchised locations are open in Woodbury, Edina and Phoenix.

Laura Davis owns the Edina center and is looking at opening a second location. “I never considered a franchise before. My interest was driven by the service. I believe in the concept,” says Davis, the mother of two young children, who previously owned a marketing-consulting business.

She says Keeley and Lytle are responsive in helping her with the franchise. “They’re there. I called Joe on a Sunday morning with a question, and Peter’s willing to do anything, even saying, ‘Let’s go shopping to buy books for the center.”

Keeley acknowledges that franchising is challenging. “Your business is no longer nannies and tutors, it’s franchising,” he says. “It’s teaching folks who are committed to education to run a business, and that’s always the important piece because you can have educators say, ‘This is great. This is absolutely what I wanted to do.’ Well, that’s very good, but can you teach them to run a business? At the end of the day, the numbers don’t lie, and the business needs to operate within its parameters.”

Keeley believes it’s important that their technology was developed to be a franchise. “We have the technology, systems and training in place at a level of five units that I’ve seen franchises with 30 units. We’ve been very deliberate that the last two years have been devoted to serving our Twin Cities customers but also building a national model.”

Part of building that model meant testing it in different markets. “We want to create something that’s not Peter and I doing it, but that systems are in place and it’s something that can be taught.”

Carolyn Herfurth, Twin Cities’ owner of The Entrepreneur’s Source, which matches people with franchises, believes College Nannies & Tutors’ concept of expanding into tutoring is smart. “They’re creating multiple revenue streams and tapping into an existing customer base,” she says.

“A business has a good chance of being successfully franchised,” she adds, “if it’s a credible concept that’s unique in some way, perhaps in its systems operations. Also it has to be teachable and grasped quickly by franchisees. And it needs to provide a return for both the franchisor and franchisee.”

There are several key things that Keeley, Lytle and company need to do now, Herfurth suggests. “They need a coherent expansion strategy on where they’ll be selling franchisees and how they’ll be sold. If they sell a franchise on the East Coast, for example, do they have a support system in place?

“Second, they need to train franchisees well; having ongoing training and support determines the long-term success of a franchise. Third, as they start to roll out, it’s important to recruit good franchisees and professional staff.

“Fourth they need to keep abreast of new laws and issues and make sure they’re complying with state and federal regularity policies. If I pay a royalty fee, I want the franchisor to stay on top of stuff that I don’t have time to.”

Keeley says that franchising means his role is changing. Three years ago he was alone; today he has a couple of hundred on his payroll.

“And when you look at the franchise, there are eventually going to be thousands of people,” he says. “My job and role are changing into things I’ve never done before. Being CEO/president of a company of this size that’s growing is very different than what I was doing. I’m learning and finding my way. What are the mission-critical things I’m supposed to be doing?”

What motivates Keeley is wanting to take the business to its “logical” conclusion. “I want to see it really go and I believe it can and already has. This can be in every major and second-tier city in the country. It’s very exciting for me to put things together.

“I’m also excited to be out of the development stage. That was painful. Now we get to go on to the fun part.”

[contact] Sandi Ayaz, National Tutoring Association: 863.529.5206; nt****@*ol.com. Pat Cascio, International Nanny Association: 713.526.3989; pc*****@****************es.com. Laura Davis, College Nannies & Tutors franchisee: 612.377.6100; ld****@************es.com. Carolyn Herfurth, The Entrepreneur’s Source: 952.920.0084; ca*****@***********ch.com. Joe Keeley, College Nannies & Tutors: 952.476.0613; jo*@************es.com; www.collegenannies.com. Peter Lytle, College Nannies & Tutors: 952.476.0613; pl****@************es.com; www.collegenannies.com.