Aaron Cohen learned a lesson last year that isn't taught in his trade schools: It's tough for a small company to make it to the big leagues.
Cohen, president and chief executive of Encino-based United Education & Software, tried to transform his company from a small operator of private trade and technical schools in Southern California into a major nationwide marketer of computer software and personal computers.
The idea fizzled, however. A glut in the personal computer market hurt the company and helped produce a loss of nearly $3 million in the fiscal year ended Jan. 31. It made a profit of $790,000 the year before.
A few weeks of witnessing dismal results and a string of sleepless nights persuaded Cohen to halt his ambitious expansion plans. "If this company had continued along, it would be out of business by now," he said.
Alive and Well
Today, however, United Education & Software is alive and well. The company turned a profit in its first two quarters this year, mainly because it sharply scaled down its computer-equipment business and once again focused on career schools.
In its second quarter ended July 30, the company showed a $183,000 profit on revenue of $5.1 million, an improvement from the $800,000 loss on revenue of $4.7 million it had in the same period a year earlier.
Cohen has resumed building United Education's chain of 12 schools in Los Angeles, Orange and San Diego counties. The company has 11 schools that use the Pacific Coast name--Pacific Coast College or Pacific Coast Technical Institute --and one known as Sawyer College in San Diego.
Two weeks ago, United Education disclosed plans to acquire its 13th school, National Technical Schools in South-Central Los Angeles, for an undisclosed sum in a transaction that it hopes to complete by November. The 80-year-old, employee-owned school offers correspondence courses and classes in automobile mechanics, electronics and computer repairs. The acquisition would add about 500 students to the 8,000 now enrolled in United Education's schools.
United Education's students typically pay from $2,000 to $7,000 to study fields such as nursing, bookkeeping, court reporting, computer operations, welding and automobile repair.
The company stumbled into the schools business. Cohen, a UCLA Engineering School graduate, and partner Jack Lin formed Associated Engineering Test Laboratories near Inglewood in 1961 to provide engineering testing services for aerospace companies. The business was bought by Whittaker Corp. in 1968, and was sold back to Cohen and Lin in 1973 as National Technical Services, later renamed National Technical Systems.
The firm had evolved into a business that primarily inspected high-rise buildings to make sure they met construction specifications. Cohen and Lin thought that the company needed a supply of trained welders, so they bought two welding schools, in Downey and Anaheim.
They discovered there was money to be made in schools. Shortly after the acquisitions, National Technical formed an education group--which eventually became United Education & Software--and began buying trade schools.
In 1982, 39% of United Education & Software's stock was sold publicly, with National Technical keeping the rest of the shares. Lin, president and chief executive of National Technical Systems, still owns nearly 7% of United Education's stock and serves as chairman, although he is not involved in the company's daily operations.
The company grew rapidly in the early 1980s--from $3.9 million in revenue in its 1981 fiscal year to $14.1 million in 1984. Despite that growth, Cohen early last year thought that the company had to quickly increase its revenue to the $25-million range to get the kind of bank credit it needed and to meet the targets it had set when its stock was sold to the public.
United Education & Software wanted to use Spectrum, a Sioux Falls, S.D.-based computer firm it bought in 1983 and renamed Data Systems Group, to try to produce that growth. Cohen's computer programmers already had spent more than $1 million to develop computer software to help run the vocational schools, software that he felt could be sold to other schools by Data Systems. As an additional moneymaker, the software was to be sold in a package along with computer equipment, mostly personal computers made by IBM and Texas Instruments.
The company spent more than $1 million to buy 300 IBM personal computers and related equipment last year. But, by the time the personal computers were delivered in July, 1984, the computer market already was glutted and the price cutting had started. "We could buy the computers cheaper from a store down the street than we could from IBM," Vice President R. Nelson Carnes said.
Computer Sales Fall