Educational Entrepreneurship
Why It Matters, What Risks It Poses, and How to Make the Most of It
About This Event

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The notion of entrepreneurship remains little understood in K-12 education, even as an unprecedented wave of entrepreneurs works to refashion schooling. Developments like charter schooling, alternative teacher licensure, supplemental education services, and distance learning have created new opportunities and controversy. Entering the breach, entrepreneurs have launched nationally influential programs like the KIPP schools, Teach For America, New Leaders for New Schools, Aspire Public Schools, the New Teacher Project, and Edison Schools.

This conference will examine the nature, landscape, successes, and limitations of educational entrepreneurship. The research will raise important questions and provide practical guidance for entrepreneurs, educators, and policymakers. Researchers and respondents will examine what it means to be an entrepreneur in the education sector; how educational policy, law, and practice shape entrepreneurial efforts; the prevalence and nature of the for-profit presence in education; the promise and perils of entrepreneurial ventures; and what lessons experience may teach for harnessing entrepreneurial energy.


8:15 a.m. Registration and Breakfast
8:45 Welcome: Frederick M. Hess, AEI
9:00 Panel I: Understanding Entrepreneurship
Presenters: Kim Smith, NewSchools Venture Fund
Paul Teske, University of Colorado at Denver
Discussants: Jon Schnur, New Leaders for New Schools
Kent McGuire, Temple University College of Education
Nina Rees, U.S. Department of Education
10:30 Break
10:45 Panel II: The Landscape of Entrepreneurship
Henry Levin, Columbia University Teachers College
Patrick McGuinn, Drew University
Discussants: Barnett Helzberg, Jr., Shirley & Barnett Helzberg Foundation
William Roberti, Alvarez & Marsal, LLC
Eric Adler, The SEED Foundation
12:15 p.m. Luncheon
1:05 Panel III: Models of Entrepreneurship
Presenters: Robert Maranto, Villanova University
Joe Williams, New York Daily News
Steven Wilson, Harvard University
Discussants: Michelle Rhee, The New Teacher Project
Larry Berger, Wireless Generation
2:40 Break
2:55 Panel IV: The For-Profit Question
Presenters: Alex Molnar, Arizona State University
Adam Newman, Eduventures, Inc.
Discussants: Jeffrey Cohen, Catapult Learning

Nancy Van Meter, American Federation of Teachers
James Shelton, Bill & Melinda Gates Foundation

4:25 Break
4:40 Panel V: Unleashing Educational Entrepreneurship
Presenters: Larry Cuban, Stanford University
John Chubb, Edison Schools
Discussants: Larry Rosenstock, High Tech High
Joel Klein, New York City Department of Education
Rod Paige, former U.S. Secretary of Education
6:15 Reception
7:15 Adjournment

Event Summary

November 2005

Educational Entrepreneurship: Why It Matters, What Risks It Poses, and How to Make the Most of It

The notion of entrepreneurship remains little understood in K-12 education, even as an unprecedented wave of entrepreneurs works to refashion schooling. Developments like charter schooling, alternative teacher licensure, supplemental education services, and distance learning have created new opportunities and controversy. Entering the breach, entrepreneurs have launched nationally influential programs like the KIPP schools, Teach For America, New Leaders for New Schools, Aspire Public Schools, The New Teacher Project, and Edison Schools. Panelists at a November 14 AEI conference examined the nature, landscape, successes, and limitations of educational entrepreneurship. Researchers and respondents examined what it means to be an entrepreneur in the education sector, how educational policy and practice shape entrepreneurial efforts, the prevalence and nature of the for-profit presence in education, the promise and perils of entrepreneurial ventures, and what lessons experience may teach for harnessing entrepreneurial energy.

Frederick M. Hess

Risk aversion and a lack of entrepreneurial fervor in the education sector have produced a stagnant, static system of public education that is ill-equipped to handle the challenges of the new century. Failure to adapt education to these ongoing changes entails more risk than the risks associated with rethinking and reforming the current system. Rather than fear potential failure, entrepreneurs embrace trial and error as learning tools for shaping the future of public K-12 education. This conference explored the realm of entrepreneurship in education with an eye toward understanding the players involved, the landscape in which they operate, the potential for future advancement and reform, and the risks posed by entrepreneurial activity in this sector.

Panel I: Understanding Entrepreneurship

Kim Smith
NewSchools Venture Fund

Entrepreneurs and the organizations they create play three critical roles in public education today. First, they are change agents who create necessary “co-opetition”--that is, they compete against the static public system, but cooperate by developing effective alternatives that can be replicated. They also act as welcoming venues for different skills and mindsets. Finally, they act as developers of learning laboratories. The essential role for an entrepreneur is to strategically break the rules and determine what the outcomes might mean for the future of public education.

Entrepreneurs require financial, human, and intellectual resources. The corporate structure of entrepreneurial ventures dictates the challenges they face financially. For-profits usually have the hardest time obtaining capital at the outset; non-profit ventures have trouble sustaining capital inflow, even after achieving successful results. Paradoxically, once an entrepreneurial venture is proven successful, its ability to sustain funding typically waivers as it appears to lose the “entrepreneurial” label and become part of the larger education system. Thus, both for-profit and non-profit entrepreneurial ventures face the hurdle of sustained growth and scaling.
Aimee Williamson
University of Colorado at Denver
Educational entrepreneurs seek to instigate change in the public education system that will disrupt, transform, or radically alter the way education is provided. Examples of educational entrepreneurs include businesspeople envisioning new ways to provide education services, public leaders seeking to change the existing system from the inside, and non-profit leaders creating organizations on the fringe. Educational entrepreneurs are willing to take significant risks to fill the gaps they perceive in the public education system.

Constraints on entrepreneurs include the democratic nature of the public education system; bureaucracy (often created by teachers unions); and multiple veto points for education reform at the district, state, and federal levels. In spite of these constraints, the current climate appears more open to entrepreneurial activity than in the past. There is a prevailing sense of crisis in the public education system, and consequently both state and local politicians appear more willing to take risks with private support service providers, business sector models for human resources, and alternative methods for delivering education (education management organizations [EMOs], virtual schools, etc.). The No Child Left Behind Act (NCLB), a more progressive reform atmosphere in higher education, and an increase in private philanthropy have encouraged entrepreneurial activity in both the public and private sectors for K-12 education. Entrepreneurial activity is on the rise, but it is unknown whether it will effect lasting changes to the system of public education.
Nina Rees
U.S. Department of Education

It is encouraging to see the number of new players in the education sector highlighted by these conference papers. Since NCLB was passed, the Department of Education has taken bold steps forward in supporting entrepreneurship. NCLB has broadened involvement at the local level by inviting more people to the discussion table. The future success of entrepreneurial ventures is uncertain, however, because for entrepreneurs to feel fulfilled they either need to make money or have a greater impact on the public education system. States and school systems should be more supportive of entrepreneurial initiatives and not just leave funding up to federal and philanthropic efforts.

Three ideas to grow entrepreneurship come to mind. First, entrepreneurs need to be more engaged at federal, state, and local levels when public policy decisions are being made. Second, better lines of communication are needed between entrepreneurs and education bureaucrats so that both sides understand the language of reform the other is speaking. Finally, if the goal of entrepreneurial activity is to close the achievement gap, then entrepreneurs must build alliances with people interested in inner city renewal.

Jon Schnur
New Leaders for New Schools

Today’s culture of public education is one of mediocrity and compliance. The culture of entrepreneurial activity, by contrast, is one of hard work and adaptability. For example, most funders like to invest in new programs that challenge the status quo. However, once these programs demonstrate effectiveness, funding tends to disappear. Management expertise does not exist in the non-profit or education sector, and so there is a pervasive problem of scaling in which successful entrepreneurial ventures are unable to grow and effect more change. One idea to combat this trend is to have companies like Google offer stock equity to education executives who are achieving agreed upon goals.

NCLB created a city competition process by putting pressure on cities with failing schools. This has, in turn, helped entrepreneurs by giving them added leverage in their negotiations with schools. However, while it is true that NCLB has led to new entrepreneurial activities, overall investment in educational R&D is as missing as it always was. One suggestion for improving the efficacy of entrepreneurial ventures is to mirror the knowledge management tools created by business consulting firms and develop a collective knowledge for best practices within educational entrepreneurialism.

Panel II: The Landscape of Entrepreneurship

Henry Levin
Columbia University Teachers College

Why is educational entrepreneurship so difficult? It just is. We have to be aware of the many obstacles that entrepreneurs encounter at many stages. For an entrepreneur, getting started is not the problem; it is sustaining that is difficult and requires a strong leader. Despite what most people believe, excessive regulations really are not the problem (with the exception of incidents in special education). Private schools, for instance, do not have to abide by regulations, and yet they still look relatively the same as public schools in terms of entrepreneurialism.

Historically, schools are conservative institutions with cultures that resist change. We cannot alter this, so we should instead focus on locating and addressing the obstacles to change. Economies of scale at this level are not going to be the answer. Technology will not either; technology has been promised as the silver bullet to school reform for many years with few results. It is also important to remember the isomorphism that takes place; schools are homogenous because they reflect their constituencies.

Patrick McGuinn
Drew University

The complex and contentious policy landscape of entrepreneurship is obviously a broad topic. It is important to focus, though, on three arenas in particular when considering how states have differed in implementing laws: charter schools, teachers and principals, and supplemental services. Traditionally, schools have been run locally, with a lot of variation across states. But since A Nation at Risk, a national culture of increased accountability and further deregulation has emerged. How states have implemented national mandates while initiating their own reforms has greatly differed.

The main impediments to entrepreneurship are barriers to entry, inadequate access to financial capital, and lack of human capital. For the first two obstacles, the national and local government can help with aid or reduced regulations. The third barrier, however, prompts the need to consider alternative teacher and administrator licensure to open up the career to more people. Today’s environment has significantly changed because of NCLB. This change has a great deal of potential to challenge the status quo and clear the way for entrepreneurs; however, it also may lead to increased regulations that could threaten entrepreneurship. Ultimately, the law’s effects on entrepreneurship will depend greatly on its implementation.

Eric Adler
SEED Foundation

Entrepreneurialism in general is difficult; entrepreneurialism in the education industry is an even greater challenge. Two major impediments in the education field emerge. First, many in the education industry resent entrepreneurialism and are working to dampen it. This is drastically different from all other industries--it is surprising to find a field where there are actually constituencies who do not like entrepreneurship. The second major impediment is often found in all the small details. When dealing with schools, we are not dealing with an efficient marketplace. There are diseconomies of scale. The smallest details, like every individual’s housing decisions, largely affect the outcome and potential impact of any entrepreneurial activity.
What is needed in education is a direct connection between what people achieve (the results) and what they receive. We need to reshape the environment of schooling to make it more receptive to entrepreneurs. Otherwise, entrepreneurs will not even want to go into education, increasing the paucity of innovation and new thinking in schools.

Barnett Helzberg Jr.
Shirley & Barnett Helzberg Foundation and University Academy

The entrepreneurship involved in creating University Academy began with a simple interest in voucher and charter programs in Missouri. The motto of this plan was always, “fail small, succeed big.” Today, University Academy serves grades six through twelve and is purely college prep. With the help of its founders, the academy has spurred change in Missouri, which recently passed a comprehensive and flexible charter school law.
The creation of this charter school has illustrated how entrepreneurialism necessarily involves some failure. Reformers must narrow their efforts and initially focus on one aspect (for instance, management) of the school system. In comparison to the private sector, schools are run in a very unusual environment--for instance, why aren’t good people paid more? Why isn’t more money poured into the good schools instead of the bad ones? Why are there varying accreditation processes among states? Schools must focus on getting the system working instead of expanding and adding services.

William “Bill” Roberti
Alvarez & Marsal, LLC

Alvarez & Marsal focuses on turning around and restructuring organizations, both private and public. Of course, there are substantial differences between these sectors. For instance, when a private organization is failing, sometimes liquidating the weakest branches and redistributing funds are necessary; in contrast, shutting down a failing school is extremely rare. Alvarez & Marsal has contracted to overhaul the public school systems of St. Louis and New Orleans. The company begins by having the organizations define their core competence; it then restructures the systems with the core competence as a prioritizing principle. In St. Louis, the company rebuilt the system until its costs were consistent with its revenues. In New Orleans, the schools were in complete disarray, with unbalanced books and a history of fraud--even before Hurricane Katrina. Since the hurricane, the focus and methodologies have been shifted.

The education industry today lacks competent managers. Alvarez & Marsal has demonstrated the effect that operational change alone can have on schools. It is not skilled to address curriculum and pedagogy inside the classroom, but instead, its focus has been on outputs--cutting costs and increasing efficiency outside the classroom--and it has met with much success.

Panel III: Models of Entrepreneurship

Robert Maranto
Villanova University

The key element of this panel’s papers is the role of organization culture in education. Entrepreneurial companies can homogenize behavior through imparting values, but it is harder to extend these values into a change in the culture of education. But there are tradeoffs in educational entrepreneurship. Successful operations cannot expand and reach more children quickly because of their overarching emphasis on quality. These systems function with quasi-clan-like behavior, in that they are selective of students and principals and often remain insulated from the larger public school system. These arrangements do not aim to change the entire system or its culture, but rather exist as separate and almost competing entities.
In addition, schools of education are not graduating many entrepreneurs. Teacher training in higher education does not encourage thinking outside of existing standards and practices, and in fact, entrenches students in the mindset of the educational bureaucracy. This is why educational entrepreneurs tend to enter the field from well outside the standard entry point of education degrees.

Joe Williams
New York Daily News

Public education is risk averse, and the culture of tenure creates incentives to keeping one’s head down. However, although a sparse field, educational entrepreneurs do exist, and they can be divided into five distinct categories: fresh bloods, James Deans, Johnny Appleseeds, destiny grabbers, and cooks using all their burners.

Fresh bloods create programs that bring non-traditional people into the education field, like Teach For America teachers. While they bring outside expertise, they are often poorly prepared for the challenges of education and weakly supported. James Deans are the rebellious lot who deliberately break rules in order to spur change. Their success usually comes at the expense of more timid rule followers. A common criticism of James Deans is their tendency to allow what is good for their own business to trump what is good for the education system as a whole. Johnny Appleseeds believe the system can be saved from within and believe that investments in school leaders will create the necessary agents for change within schools. Destiny grabbers seize control of education at the school level and dictate where their school is headed. They maintain standards by controlling the educational environment in which their students learn. Finally, cooks using all their burners believe that empowering entrepreneurs is futile in the absence of radical changes to the system that supports them. Thus, they try to change the culture of education by pushing for reform at all levels of the system.

Steven Wilson
Harvard University
A scan of the different components of entrepreneurship within education--in pre-K, K-12, and higher education--yields a dramatic contrast in business outcomes. There are approximately 2,500 post-secondary institutions that receive federal money. In pre-K, 65 percent of children attend some form of childcare. Twenty percent of these are run by for-profit providers. By contrast, in K-12, Edison Schools, the largest for-profit K-12 outfit, just had its first profitable year. Thus, the K-12 arena is, at present, the sector least changed by entrepreneurial efforts and least responsive to these efforts. These K-12 entrepreneurs need to be more comfortable with the idea of creative destruction in order to succeed at effecting meaningful change.

Currently, there are a variety of firms carving a spot in the K-12 arena. Among them are Kaplan Score, Platform Learning, Catapult Learning, Growing Stars,, and E-learning. The difference in funding levels for these enterprises dictates which ones will be successful and which ones will falter. EMOs have not been bold enough. Thus, charter management organizations (CMOs) appear to be the next generation of public school operators.

Larry Berger
Wireless Generation

It is easy to demonize the individuals who work within the educational bureaucracy and blame them for the lack of adaptability in the system. However, it is difficult to pinpoint the person in the trenches who is trying to hold back change. Even the most institutionalized teachers union in New York City fought to get Wireless Generation’s software into its public schools once it believed the programs would help children succeed. Individuals are not impeding progress; the system’s inability to interact with outside actors and entrepreneurs is impeding progress.

Little mention has been made of the large education publishing world. This multi-billion-dollar industry sells textbooks, software, and tests, and it is controlled by an oligopoly--a strong conservative force that keeps the educational status quo. Publishers offer schools products. Most entrepreneurial ventures offer services, and this is a key difference in their business models and scales. In the for-profit sector, acquiring venture capital necessitates scaling. Yet, marketing and sales, the very areas in which problems of scaling are meant to be worked out, are largely ignored or underutilized in educational entrepreneurship. Big publishers understand that scaling is about the sales force, but most educational organizations do not devote nearly enough resources to it.

Michelle Rhee
The New Teacher Project

The only thing that can revolutionize education is accountability. There is no accountability in the system to ensure that children are learning. We need to hold all adults in public education accountable, with rewards for success and firings for failure.

Unfortunately, most public schools can get away with ignoring accountability. Though The New Teacher Project has brought large numbers of new principals into a school system with little overhead cost, districts are more likely to rely on traditional modes of hiring teachers, despite huge disparities in cost and efficiency. These kinds of illogical business decisions can only be made in the world of education. Products are easier to sell because schools can buy them and show them as proof of “improvement.” Services are less popular because they force schools to change the way they are operating.
Panel IV: The For-Profit Question

Alex Molnar
Arizona State University

It is time to move away from the economic development model of schooling and time to begin thinking about how children really become adults. Secondary schools, for example, no longer serve their intended function. We must ask ourselves how great a social consequence we are able or willing to assign to people who are less able or just unlucky. The education industry is proceeding along two parallel K-12 markets. With the introduction of charter school laws, NCLB, and for-profits, these parallel markets increasingly are merging. The emergence of the virtual school has also significantly altered the landscape.

What are the issues involved with the introduction of for-profit education organizations into the industry? Accountability is a primary concern. How will we hold these for-profits accountable? They often are very tightly knit and aligned with politicians. We also have to ask: can these for-profits ever really be profitable? It seems that they cannot. A pure business model (which would include making larger schools primary schools because they are cheaper, and a focus on test preparation through a standardized curriculum) will not work.

Adam Newman
Eduventures, Inc.

When considering the educational for-profit sector, the education industry as a whole must be considered--not solely for-profits, management, or supplemental services. The for-profit component must be put into its broader perspective. Certain changes in the past few decades have altered the role and prominence of educational entrepreneurship. Teaching, for example, has changed greatly. Historically, teaching was geared toward the average and misaligned with standards. Teachers taught static content and rarely used technology in their lessons. Today, teaching includes individualized learning, standards-aligned curriculum and tests, and dynamic classroom content. Administration--how information is distributed from the central office--has also evolved. Today it is much more data driven (with some demand for performance pay), which has expanded the potential role of the private sector.

A few other trends emerge when examining educational entrepreneurship. First, high-profile education services (like supplemental services, test preparation, and tutoring) are a small percentage of industry revenues. Second, a great deal of entrepreneurial activity is co-opted by the big publishing firms. Third, technology lags hinder entrepreneurial activity in schools. Technology presents a great deal of potential for entrepreneurial activity.

Jeffrey Cohen
Catapult Learning

Accountability is present in for-profit companies. Companies like Catapult are publicly traded and thus must disclose all financial information.

Teaching and learning are at the core of a school’s purpose. As you move away from that core, the propensity to outsource school goods will naturally increase. Farthest from that core are services like textbook manufacturing, janitorial work, transportation, and food services. Catapult Learning began as a supplemental services industry (in the area between the core and the outside ring of services), which was fairly easy to grow but very difficult to sustain and to scale up.

Today, one in every six children is outside the traditional public school system. The time is passing when the industry was full of uneducated consumers not exercising choice. Increased consumerism, in addition to increased accountability, will create great possibility for entrepreneurship. For-profits do have great potential to create a social good, and it is important to avoid a detrimental rush to judgment about their ultimate value. 

James “Jim” Shelton
Bill & Melinda Gates Foundation

What should be focused upon when analyzing entrepreneurship in the education industry? Distribution is a particularly important issue. Once a distribution channel is built, it is nearly impossible to challenge. Today, the private sector already has a prominent role, as the vast majority of non-labor expenses are going to for-profits. At this point, accountability is a difficult question because we do not really know what is being measured, and the only measurement tools we have are test scores.

When looking at for-profits in the education industry, consider the price vs. quality model in basic economics. To compete, an entity must provide a different quality item for the same price (or perhaps even a lower price). In public education, the price will be set. So if for-profit entities can provide students with what consumers perceive to be a better quality option for the same price, why shouldn’t they? As a community, we will have to decide how to answer a few central moral questions: Is it wrong for these organizations to make a profit? What will the profit cap be? Even if it is wrong, is it acceptable as long as they are creating a better service for our children?

Nancy Van Meter
American Federation of Teachers

For those long involved in the education industry, it feels as though for-profits have been on the scene for a long time. The essential question today should be: does entrepreneurialism result in improved student achievement? There is not currently a great deal of evidence providing answers to this central question. This lack of evidence becomes increasingly problematic in practice, as public officials are under pressure to use what has already been proven to work.

The issue of accountability for for-profits is also critical to consider. The pattern that EMOs have followed is at odds with the rhetoric of the charter school movement. Both entities are using public money, and we all have a vested interest in insuring that these organizations are transparent and democratically accountable with their finances and activities.

Panel V: Unleashing Educational Entrepreneurship

John Chubb
Edison Schools

The idea of entrepreneurship is not new to education, but entrepreneurship has historically played merely a supportive role in the field, like providing extracurricular support and tutoring. What has changed recently is the expectation for entrepreneurship to provide education directly. Why has this change occurred? One possible explanation is the existing broad consensus that our country’s education system is in crisis.

When looking toward the future of educational entrepreneurship, a few questions arise. Will these entrepreneurial enterprises ever move beyond unique entities to a national scale, in order to effect broader change? Will for-profit organizations be allowed to exist nationally and thrive, or will they continue to be hindered with unnecessary regulations? Despite evidence that students in EMOs and CMOs are improving their test scores more rapidly than state averages, political resistance to these organizations continues, making educational entrepreneurship unnecessarily difficult.

Larry Cuban
Stanford University

For the last century, educational entrepreneurs have been the source of change in the structure, goals, and governance of schooling. One hundred years ago, educational entrepreneurs were called “educational engineers”; progressives at the turn of the twentieth century attempted to dramatically change “traditional” systems of education. But seldom have such well-intentioned efforts resulted in permanent reform. In fact, these “radical” movements have only served to preserve the status quo of schooling.

Today, the rhetoric of educational entrepreneurs is individualistic and teacher- or principal-centered. Acting as “change agents,” these reformers demand a “jolt to the system,” using war-like vocabulary that only prevents systemwide and collaborative change. In reality, the current structure of age-graded schooling in thirty-six-week intervals has efficiently educated millions of children over many decades. Though lacking in real results, today’s entrepreneurs differ from those of decades past because of their commitment to pragmatic change and inventiveness. While a minority is devoted to specific curricular or pedagogical strategies, most reformers today will try anything to improve the system; such commitment and innovative pragmatism are admirable.

Joel Klein
New York City Department of Education

Why is it necessary to think about innovation in education? In any other sector, innovation is the very lifeblood of business. This sector, in particular, should welcome entrepreneurship because it is clearly a failing system, and as global competition increases, the failure will become more obvious and detrimental. Instead, education is specifically designed to discourage innovation. Take, for example, the common rules of lockstep pay, life tenure, and seniority. True accountability cannot exist in a system regulated by these rules.

Educators and policymakers, contrary to players in any other industry, believe they will be able to regulate themselves into compliance. Unless there is a movement away from multiple levels of government regulation, an environment that truly fosters innovation cannot exist in education.

Rod Paige
Former U.S. Secretary of Education
In this setting, it is essential that we ask why it is even necessary to defend entrepreneurship in education. Education is the only American sector that discourages entrepreneurship. Educators have somehow bought the myth that there is one special way of teaching or learning a subject. Well, student test scores have destroyed that myth. There must be a better way to teach our schoolchildren.

Education also claims that the law of supply and demand does not exist in its field and that its players do not respond to incentives. Human nature and organizational psychology have proven that incentives are effective. Before competition existed in the delivery of mail in America, for example, the U.S. Postal Service claimed the same exemption. Now years after Fed Ex and UPS have emerged--very successfully--into the delivery sector, the U.S. Post Office must compete for customers. Entrepreneurship only asks, “Is there a better way?”

Larry Rosenstock
High Tech High

There has been a lot of talk about the potential and perils of charter schooling, and while charters are not the source of the problems in education today, neither are they a panacea for them. It is often argued that charter schools steal funds from public education. This is false. Charter schools are public education. San Diego City Schools, for example, recently built a new high school that cost $68,000 per seat; High Tech High’s most recent high school cost only $16,000 per seat to build. In addition to the political barriers that hinder charter schools, there exists a co-monopoly in the public education system of the school district administration and the teachers unions. This environment makes it almost impossible for entrepreneurs to exist in the public space.

AEI researchers Hilary Boller, Morgan Goatley, and Rosemary Kendrick prepared this summary.

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