Know your niche: Berklee set out to be the MIT of music; now the trick is to keep the focus without straying.

They come from all over the world, guitars and other instruments in hand, and a love of music in their hearts. Numbering over 1,000 this past fall, they are the entering students of Berklee College of Music in Boston. They are here because, frankly, there is no other place most would rather be. Founded as a jazz school by MIT graduate Lawrence Berk in 1945, Berklee is the world's Largest all-music college. With now over 3,700 music students, about a third of whom come from outside the U.S., Berklee defines the term "niche school." Although Berklee students can earn a bachelor's degree in music carrying the same accreditation status as that of a top liberal arts institution, most are here because they envision a career as a professional musician. And while our students take about a quarter of their courses in liberal arts, the courses are pertinent to their music. Here students build the foundation for their careers via numerous music-related majors--from performance and writing, to several music-technology-related disciplines and even music business and music therapy. Berklee research shows that about three-quarters of our grads do in fact find a career in music, earning near three quarters of their income from music in the first five years after graduation.

Berklee's niche is that of a "music city," with resources including sound-isolated practice modules equipped with drum sets or pianos; classrooms equipped with MIDI racks that enable faculty members to access a variety of online music materials and resources; recording, film, and synthesis studios with state-of-the-art gear; record shops; and music equipment and other music-related stores and services.

STICKING TO CORE VALUES

Importantly, along the way we have resisted the temptation to broaden our program to include subjects such as dance, video production, or classical music. And we didn't allocate funds to build an elaborate student center. Instead, we have focused on our core strengths, keeping in mind what realty attracted students to Berklee in the first place: a unique concentration on music. Under the leadership of Lee Eliot Berk since 1978, Berklee was the first music school to offer guitar as a principal instrument, music synthesis and songwriting as majors, and recently add majors in music business and music therapy.

The faculty consists of more full-time teachers than most other music schools, and Berklee's financial aid program is merit-based, with about 80 percent of aid allocated largely on the strength of applicant auditions and subsequent performance at the school Tuition at the college is about 20 percent below that of other private music schools--a tong-standing practice made possible by economies of scale (Berklee is about five times larger than most conservatories), a disciplined approach to cost control, and revenues from a large summer program.

FISCAL REALITIES

That said, we still have to deal with the fiscal realities of our niche. Music instruction is expensive, involving many small classes and private instruction. Instruction cost, therefore, takes a greater percentage of operating costs than other colleges of our size (based on a NACUBO survey). But small class size and personalized attention is a primary attraction for a student whose primary life focus is music. Offsetting cost strategies that are consistent with a school whose focus is on music rather than traditional college programs include: a smaller library (the focus is music rather than books), use of nearby hospitals and clinics rather than expensive and duplicative on-campus medical facilities, equipment loan programs with many leading music vendors, an urban setting (no landscaping costs), and an absence of athletic facilities.

FISCAL SOLUTIONS

And it all works from a larger financial perspective, as well. Berklee has developed a largely unrestricted endowment of over $100 million, without benefit of a capital campaign or significant annual fundraising. It has done so by reinvesting investment returns beyond the 3 percent used to support long-term debt principal payments, and by reserving 3 percent to preserve and grow the college. This has enabled returns to compound faster than if a nominal 5 percent was spent each year. In recent years, keeping with the endowment's "growth of the college role," the board has authorized additional spending from endowment to fund strategic planning initiatives such as our Berklee Media online school effort (www.berkleemusic.com). Aiding the endowment's growth was the use of tax-exempt debt to fund over $75 million of capital projects in the last 20 years. As a result, the college's unrestricted endowment, in effect, collateralizes the debt. While the endowment is leveraged about 75 percent, our trustees did so on the basis that it is less important for Berklee to be debt-free than it is to make the college a better place. Endowment performance over the last two decades (target 9 percent/year), despite the past three years, has easily outpaced the cost of our equally mixed portfolio of fixed and variable rate debt (interest less than 3 percent). The state-of-the-art recording, film scoring, and synthesis studios, plus the labs and computer-based facilities enabled by the debt, validates Smithsonian magazine's characterization of Berklee as "the MIT of music."

While donated funds would have been preferred, such are often not possible for a young, growing college until a giving tradition can be established. Our niche position, coupled with our strong and geographically dispersed applicant base, generated an institutional operating strength (S&P A+ bond rating) justifying debt which funded facilities to further strengthen our product.

STRONG ENROLLMENT AND COST CONTROL

Operationally, the college has been driven by its strong enrollment, growing by about 3 percent per year for the past decade. While the higher enrollment has driven up costs at a near double-digit rate, faster-growing tuition revenues have enabled us to meet operating , costs, fund increased debt, and provide a larger and higher-quality operation than traditional small music schools. The college has also benefited from a strong music-based summer program, consisting of a full credit semester (a five-week program for almost 700 primarily high school students) and shorter instrumental programs.

Some operating cost-control strategies--again benefiting from the niche music focus--include: extensive use of contracted services in non-mission centered areas including dining, auxiliary, and facility services; a reasonable (for music instruction) 15-17 hour/week faculty workload; diligent and vertical use of expensive Boston real estate space (about 600,000 square feet for 3,700 students); partial use of a defined-benefit pension approach; extensive use of student employees in many educational facilities, and a creative approach to the use of part-time faculty that provides for health and pension benefits to many teaching higher loads.

ASPIRATIONS

Many cortege missions state aspirations for quality, excellence, and being the best, but a niche is a necessary ingredient to success. MIT's may be technology. Amherst's may be liberal arts. Berklee's is music. What is your school's niche?

David Hornfischer is treasurer and vice president of Administration and Finance at Berklee College of Music, Boston.