Renaissance Learning Systems, Inc.

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Renaissance Learning Systems, Inc.

2911 Peach Street
Wisconsin Rapids, Wisconsin
U.S.A.
Telephone: (715) 424-3636
Fax: (715) 424-4242
Web site: http://www.renlearn.com

Public Company
Incorporated: 1986
Employees: 700
Sales: $83.6 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ALSI
NAIC: 51121 Software Publishers

Renaissance Learning Systems, Inc. is the leading provider of reading software for Kindergarten through 12th grade students in the United States and Canada. Its software products are used in approximately 50,000 classrooms across North America. The company’s principal product is a software program called Accelerated Reader, which was invented by founder Judith Paul for use by her own children. The software tracks students’ reading ability and comprehension through computerized tests based on thousands of books. Students earn points based on the length and difficulty of the books they have mastered. The product is marketed directly to teachers. Renaissance Learning also offers Accelerated Math, Perfect Copy, which tests writing skills, Surpass, a test-preparation software kit, and several other software packages. All are designed to allow teachers to track individual students’ progress, so that teachers can focus their classroom time more precisely on individual needs. Through its subsidiary, the School Renaissance Institute, the company also trains teachers and other education professionals in how to use its software. The program trained nearly 80,000 educators in 1999 alone. Other subsidiaries include Humanities Software and IPS Publishing. Renaissance Learning is based in Wisconsin Rapids, Wisconsin. More than 70 percent of the company’s stock is in the hands of founders Judith and Terrance Paul. Until 2000, the company was known as Advantage Learning Systems, Inc.

Deriving a Business from a Family Project in the Mid-1980s

Judith Paul came up with the idea for Renaissance Learning’s key software product as a result of her dissatisfaction with the way her children were being motivated to read in school. Paul had a degree in education from the University of Illinois and was actively engaged with the educational careers of her four children in the mid-1980s. Her children’s school offered prizes such as pizza to students who read a lot of books. But the school program did not differentiate between students who read difficult, lengthy books and students who read as many easy books as they could simply to win the prize. Teachers also did not have an accurate means to keep track of reading comprehension. Students could claim that they had read a book, and the teacher would not know if they actually had, or if they had understood it. Paul also was alarmed that many classic books that she had read in her own childhood were not being read at school, perhaps because they were too challenging. So she made up a program for her own children, which included a recommended reading list containing many classics of children’s literature and a point system based on difficulty and length of each book. Her children earned points for books read, scoring higher for reading the more challenging ones. In addition, they did not receive their points until they passed a multiple choice test about the book, which Paul designed.

Word of Paul’s program got to a nearby Catholic school, and teachers there offered to pay Judith Paul to let them adopt her system. Paul’s husband Terrance, then president of Best Power Company in Necedah, Wisconsin, helped formalize his wife’s reading program by translating it into computer software. In 1986, the Pauls founded a company they called Advantage Learning Systems to develop and market their reading software. The software eventually was named Accelerated Reader, and they marketed directly to teachers by mailing brochures to names on mailing lists they procured. The company’s marketing material was heavy with testimonials from teachers who had liked the software. Sales also grew as word-of-mouth spread the virtues of Accelerated Reader. The company first operated out of the Pauls’ home in Port Edwards, Wisconsin. Later Judith Paul ran it out of a building that had formerly housed a supermarket.

Advantage Learning operated differently from many other educational software companies by marketing directly to teachers. Most other firms sold to entire school districts, but Advantage Learning aimed at individual teachers, convincing them that they could keep track of individual students’ needs and spend their teaching time more wisely by using the reading software. The basic Accelerated Reader program sold for less than $400 and included testing and comprehension software for a list of 150 to 200 books. Teachers pleased with the success of the program convinced other teachers to buy Accelerated Reader, and teachers with the basic package often moved on to buy software for more or different books. Buoyed by raves from satisfied teachers, Accelerated Reader found its way into classrooms all across the country. By 1992, Advantage Learning had annual sales of $3.2 million.

That year, Terrance Paul joined Advantage Learning full time. He had been involved in a difficult struggle with Best Power, a family-run company, over whether to take the firm public. Paul wanted to keep Best private, and he was finally let go with a $1 million settlement. He turned his energies to Advantage Learning and helped the company manage its rapid growth in the 1990s.

Quick Rise in the 1990s

Advantage Learning quickly became a leading force in the educational software market as Accelerated Reader gained popularity. The number of computers in classrooms across the country grew, and pressure on schools and teachers to raise reading levels remained strong, so Accelerated Reader had a naturally expanding market. In the early 1990s, there were few other products that competed with it. Sales and income for the company increased decidedly, year by year. By 1993, Advantage Learning decided it needed to find a way to train teachers better in how to use its products. It launched a subsidiary company in Madison, Wisconsin that year, called the Institute for Academic Excellence. (When the parent company’s name changed in 2000 to Renaissance Learning, the subsidiary changed its name to School Renaissance Institute) The subsidiary began with only three employees, whose job was to study the effectiveness of Renaissance Learning’s products. The Institute staff conducted research on Accelerated Reader and other software programs and contributed articles to education periodicals like the School Library Journal. The Institute recruited former teachers and school administrators and trained them to lead workshops in the use of Renaissance Learning’s software programs. Within four years, the Institute had around 85 employees, and it had trained tens of thousands of teachers at seminars across the United States. The seminars ran from one to three days, and the price ranged from slightly more than $100 to about $550. By 1996, the Institute for Academic Excellence accounted for more than 20 percent of the parent company’s revenue.

Renaissance Learning also grew through acquisition. In 1996, it purchased a small publisher of math software in Vancouver, Washington, called IPS Publishing. The firm specialized in math assessment software. Renaissance Learning planned to mimic its success with Accelerated Reader by putting out a math assessment package, so this acquisition fit in with its goals. The deal was estimated to have cost the company around $6 million.

Sales for 1996 rose to $22.4 million, up from $3.2 million just four years earlier. Net income in 1996 was $4.2 million, and the company’s market still seemed to be expanding. By 1996, Accelerated Reader had found its way into approximately 26,000 schools, which represented 21 percent of all the Kindergarten through 12th grade schools in the United States. Accelerated Reader still accounted for almost 70 percent of Renaissance Learning’s sales. Satisfied customers continued to come back for more software, as in 1996 alone nearly 80 percent of Renaissance’s new customers made subsequent purchases from the company. Spending by schools on educational software continued to grow nationally, with estimates projecting 15 percent growth annually in the market in the years leading into the new millennium. So Accelerated Reader seemed a secure mainstay for its makers. Renaissance also brought out new software. A new product, debuted in September 1996, was a reading assessment software program called S.T.A.R. This software allowed a teacher to assess a student’s reading level in as little as ten minutes. Teachers found this useful and time-saving, especially in cases where a new student arrived at school long before transcripts and past reading achievement scores showed up.

In 1997 the company decided to launch a public offering. It had a formidable track record, with sales and net income rising in double-digit increments yearly, and predictions of 40 percent annual growth over the next three to five years. Judith and Terrance Paul were still the only stock holders, and they planned the public offering in part to be able to pay themselves back money they had loaned the company. The company also had incurred debt for construction. Renaissance also wanted cash in order to bring out new products. It planned to bring out its new Accelerated Math software in 1998, and it also considered putting out versions of its reading software in other languages and marketing its English language products overseas. Being a public company was seen as an advantage when dealing with overseas markets, where education spending was likely to come under the purview of government ministries. The Pauls sold 20 percent of their company in the September 1997 public offering. The shares quickly rose from $16 to more than $26 a few weeks later.

Company Perspectives:

Our primary purpose is to accelerate learning on a worldwide basis for all children and adults of all ability levels and ethnic and social backgrounds.

By 1998, the company seemed to have convinced the stock market that it was a good bet. Renaissance had revenues of $50 million, but market capitalization of more than 17 times that, or $862 million by the end of 1998. Investors perhaps understood that education software had a growing customer base as the use of computers in schools increased. Accelerated Reader boasted a market share of 30 percent of Kindergarten through 12th grade schools in the United States and Canada by 1998, and it was clearly a strong product. But being the leader in software was always a risky business, as computer products were easy to imitate. Scholastic Corporation began marketing a similar reading software tool, called Electronic Bookshelf, which threatened Accelerated Reader. Scholastic already held ten percent of the total educational software market, and it reached students and teachers directly through its book clubs. Fear of Scholastic’s encroachment apparently spooked investors, and Renaissance’s stock went through rapid swings in 1999. However, the company continued to exhibit a fantastic growth rate of more than 60 percent. In addition, Accelerated Reader and Accelerated Math fit in with many people’s ideas of the way to ensure that kids became academically proficient: the software offered a form of quality control through its continuous testing. The need for more testing and more feedback seemed a given of mainstream educational debate. So the market for Renaissance’s products did not look like it would wither any time soon. The company continued to reap the benefit of word-of-mouth endorsements of its products, too. The principal of a troubled school in Chicago was quoted in Forbes (March 22, 1999) explaining how she promised her students she would kiss a pig if they racked up a certain point total on Accelerated Reader by the end of a year. Her students surpassed the goal she had set, she kissed the pig, and the school went off probation. Stories like this were great publicity for Renaissance.

Renaissance introduced nine new software products in 1999 and acquired three new software firms. Sales in 1999 reached $83.6 million, with earnings of more than $17 million. By the end of 1999, the company had firmed up plans to use the internet to sell its products. It began selling its quizzes over the Web in November 1999 and began working on on-line versions of some of its educator training courses. In 2000, the company began offering software designed to help teachers prepare students for standardized tests. The software, called Surpass, first focused on the Texas Assessment of Academic Skills, and then expanded to cover major assessment tests in other states. Surpass was somewhat different from other test preparation software, in that it had students take tests on paper, just as they would for an actual statewide assessment test. The program was meant to tutor students in test-taking skills, not the math and reading skills the standardized tests assessed.

By 2000, the company found its various software programs in more than 50,000 schools. It had developed beyond its core product, Accelerated Reader, to offer a panoply of reading, math, and test-taking programs. Through its teacher training subsidiary, the company had trained more than 200,000 people since its inception. Growth had been strong ever since the firm began in Judith Paul’s home, and market conditions seemed favorable to the company for some time to come. According to Kiplinger’s Personal Finance (November 2000), industry analysts who followed Renaissance’s stock predicted the company would see long-term profit growth of 35 percent a year. Education was a major theme in the 2000 presidential election, and it seemed probable that education spending on technology and software would continue to grow during the new Bush administration.

Principal Subsidiaries

Humanities Software; IPS Publishing; School Renaissance Institute.

Principal Competitors

Scholastic Corporation; Sylvan Learning Systems, Inc.

Key Dates:

1986:: Company founded by Judith and Terrance Paul.
1993:: Subsidiary, Institute for Academic Excellence, founded.
1997:: Company goes public.
2000:: Name changed from Advantage Learning Systems to Renaissance Learning Systems.