FOCUS on the Middle Market Podcast Series - Lily Sarafan, COO of Home Care Assistance

Welcome to the President and CEO Focus on the Middle Market podcast series, where President and CEO founder Paul Stukel discusses middle market issues with business leaders from across the nation. Today, Paul speaks with Lily Sarafan, President and COO of Home Care Assistance, about how straight out of college she took a Silicon Valley startup to a thriving middle market healthcare company in just 6 years.

I guess we should start with how How you got involved in this industry, in home care assistance?

That's a great question. I certainly didn't see myself in this industry. When I was completing my graduate studies at Stanford, I was involved, and I've always had a number of interests across a broad spectrum of different issues, you know, everything from high-tech public policy to U.S. foreign policy to, you know, tech startup companies. I did the management science and engineering program, which is basically like business this school for engineers or those involved in technology. And this wasn't the direction that I saw myself going in, but it was a really exciting opportunity. I was doing an online search for a gentleman who had been quoted in an article in the Palo Alto Daily. And as I was doing a search for his name, that was back when, about 8 years ago, when Craigslist postings weren't as anonymized as they are today. So his actual name and email address came up in a Craigslist posting, and that happened to be a posting where it said local home care company seeking caregivers. And at the time, I didn't even really know what home care was, but I thought that it was a fantastic vehicle through which to contact this gentleman. So I actually went through the job posting and said, I saw that you were quoted in the Palo Alto Daily. This article, it actually had to do with day trading, and I thought that we could meet. So it was very serendipitous. I ended up meeting with him at what was then, you know, the very sort of nascent beginnings of home care assistance, and I met with a gentleman by the name of Jim Johnson, who's now the chairman of our board, and his wife Kathy Johnson, and they were starting to provide home care services in the Palo Alto area. The conversation went from Stanford to day trading to current affairs, history, you know, across a number of topics, and, you know, I was asking, you know, what are they doing here, and he talked about senior care, and, you know, a very charismatic, and if you know personality profiles, sort of artisan, free-thinking type of person, he said—

Right. You know what?

You're young. I know you could go out there and go work for Google like the rest of your graduating class. Why don't you go home and think a little bit about this opportunity? See if there's anything about it that interests you. And that was literally where it began. It was February of 2005. I did go home over the weekend, started doing extensive research, as I do, into sort of the aging demographics, what players existed.

Sure.

I found that it was a highly fragmented industry, not a lot of sophistication in the business model. Excited to apply not only some of the case studies, from my graduate studies, but also some of my personal experiences being in a very entrepreneurial family to a real-world issue. And I came back and said, you know, I'm going to defer law school and do this for a couple of years. It seems like a great opportunity. And 8 years later, here we are.

Well, there you go. Well, you know, look, at the very least, I congratulate you for deferring law school. The world has enough lawyers, okay?

I have heard that before. The funny thing is I've sort of become the de facto— of course, we have brilliant corporate and franchise attorneys who work with us, but in many respects, I've become a de facto attorney. I'm doing a lot of the contract negotiation and whatnot, so I still got my legal fill here.

You know, that's quite enough. If you get too much of that, you become really, really twisted, and you really, really don't want that. I'm the same way. I'm an entrepreneur too, and I've dealt with tons and tons of lawyers. I love them to death. I love them to death. They're brilliant folks. You know, I'm glad you're doing something productive. Anyway, you see what I mean about the editing part here.

Sure.

Okay, so you came on, you had this sort of epiphany, you know, and you researched it and you said, I'm going to take it like a 90-degree angle in my life. So what happens then? I mean, did you come in— I don't even know, how did you come into the company? I mean, what was your position? What were you supposed to do?

It's funny because we talk about it sometimes now. I don't even remember. I don't even know if it had— if there was an official position. I kind of just came in with the hope, and we were 4 people at that time, of just taking this operation and seeing what I could do to make it scale. I've always been interested in expansion. My husband is also an entrepreneur and has a startup company that I'm trying to expand. Everyone will tell you that I like to take something that works and see if I can make it bigger.

Right.

And so the thing that I really poured myself into at the very beginning was the franchising. We didn't have any outside funding. This was all privately funded, so we didn't really have the resources to open tens of corporate locations to use as incubators for lots of different testing and ideas.

Right.

The best sort of means we had to expanding nationally and really refining the model over time as we went into new geographies and new markets was through franchising. So, that's where I poured my attention in those first couple of years, studying everything about franchising, but also Sort of placing a concerted effort on doing things differently. I didn't come from a franchise background, and I noticed that a lot of the individuals involved with some of the different senior care franchise concepts were coming from franchising backgrounds, whether it was fast food or dry cleaning. You know, it seemed to be the cookie-cutter approach to franchising is find individuals who have experience franchising other concepts and bring them into senior care. You know, at that time, I could never have known, but it ended up being very forward-thinking that we thought, you know, we need to bring in individuals who have strong home care experience. known as the company that's best at franchising. We want to be known as the most recognizable and reputable home care company in the world, and franchising is just a means through which to do that. So, I think that allowed us to do things very differently from day one. For instance, where every other franchise company was selling these tiny territories because franchises define their success by how many units they sell, we decided to define our success by how well our individual units did, which meant selling huge territories, very unheard of within franchising, but that sort of gave us— you an idea of the type of different thinking that's contributed to our success up until now.

Yeah, that's very interesting. I mean, obviously home healthcare is a big deal. And actually, you know what, maybe I should clarify that. I said healthcare. You don't— you're not medical care. You're more personal care. Is that—

That's correct. And you know, it gets very, very tricky.

Yeah.

The reason is that even though we're operating in this one country called the United States, we may as well be operating within, you know, 50 different countries. And the reason is that every single state has such different regulations around this industry that in some states we're considered home care providers. In some states we're considered home health providers. In some states we're regulated by the Department of Consumer Affairs, in others by the Department of Health, and in others not at all. So we are a personal lifestyle care provider, but based on the regulatory environment in that state, we might be sort of officially labeled a home health provider. In general, for those who aren't familiar with the industry, home care is the non-medical lifestyle care that allows someone to stay in the comfort of home all the way through end of life. Everything from bathing assistance, transportation, medication reminders, and of course we go above and beyond by doing mental stimulation and nutrition consulting and all of that. Home healthcare in general is a Medicare-provided service. You know, typically just a few days a week for a few hours for a short period of time. Let's say once you're recovering from a joint replacement surgery or you have other, you know, sort of health needs, that's a temporary solution by Medicare. And then they usually turn it over to a home care company like us because government doesn't provide the 24/7 live-in care that our service does.

Right. So are you then— I would presume then that you are not reimbursed typically through a government program. You're typically reimbursed by the private individual or—

That's exactly right. About 90 to 92% of our cases are private pay, and the remainder are paid through long-term care insurance. LTC insurance does cover non-medical in-home care. Unfortunately, not a very large segment of the population has long-term care insurance, but with every passing year, we're seeing that number increase as people realize just how, you know, expensive it can be to actually provide the level of, you know, trained and compassionate care that the elder population deserves.

Yeah, and I mean, obviously you're interested in public policy, so— and of course I am too— so I have to ask you, I mean, in terms of— because you see this in the healthcare environment as well, that every state has its own regulations, which has caused— other than the fact that there's a federal law against it— but there is— it's very, very difficult for insurance companies, health insurance companies, to compete across the nation because everyone has their own— every state has their own regulations. Every state deals with things in a very different way. They've got mandated insurance coverage for certain things and not for other things. What is your thought on that? I mean, in terms of what you do specifically, the home care assistance, which I— again, I've got elderly parents and it's an extraordinarily important service, it seems to me, for people's well-being and quality of life. Because again, who doesn't want to spend their life in their own home as opposed to an institution of some sort?

Right.

So I mean, it's an extraordinarily important thing. What is your thought on— from a public policy perspective, what is your thought on why there are so many different regulations and why things are so fragmented that— I mean, from a policy perspective, surely that can't be a good thing. What do you think?

Well, it's a number of things. Any attempts up until now to create sort of blanket or uniform policies that could govern the home care industry haven't done very well because at the individual state level there are so many different lobbies and players who are going to be affected that it's easy to have the state-level regulations trump the national regulations. So for instance, we have something in our industry called the companionship exemption. Essentially, for domestic care workers like our caregivers are, they are exempt from minimum wage and overtime so that they can provide the round-the-clock care that clients need without it being prohibitively expensive for clients, you know, jumping up to say $500, $600 a day. Many states, you know, say California, have state-level minimum wage requirements that trump that because California tends to be a very employee-friendly state. You know, other states like say Pennsylvania and New Jersey and even Illinois have state-level regulations where minimum wage and overtime apply, and they trump sort of the national companionship exemption. Now, there is an attempt by the Department of Labor within the Obama administration to overturn that companionship exemption, but there's been a lot of pushback because it's really going to affect not only small business, but it's going to disproportionately impact home care companies and not sort of assisted living or skilled nursing facilities. And so that just— that very small example already demonstrates to you why it's been so difficult.

Right.

To have any sort of uniform policy for our industry. There are a lot of players involved. You know, some states, whether it has to do with minimum wage and overtime, whether it has to do with the power that the Department of Health or Consumer Affairs has in that state and their desire to oversee the industry, all of those different things contribute to why you have some states where home care is completely unregulated and other states where you basically need a nurse and a physician to sign off on a care plan. You know, I think that neither of those extremes is exactly appropriate.

Yeah, and that makes sense. I mean, and, you know, you read daily about abuses of these kind of things, you know, and typically that's in institutional care. You know, there are these horror stories of taking care of the elderly and what people do, and so there is a sort of a natural tendency to regulation, at the very least to create sort of a uniform quality of care. And I guess that leads me to the next question. In a franchise environment, which you certainly have, how do you maintain that sort of quality of care? Because it's so important to the families involved, not to mention the individuals who are being taken care of. You know, the elderly are the most— are probably the most vulnerable folks in the country. How do you maintain that quality of care and that oversight?

There's no doubt that that's the most important thing that we have to do as a company. And I think that there are a few things that we've done right, you know, and I'm knocking on wood right now on my desk. We're very fortunate that as compared to, you know, basically every other senior care concept out there, even when you're just looking up the company online, the level of consumer complaints or issues that we've had in all our years of business is so small, so negligible. And I think it has to do with a few things that we put in place, you know, by intelligent design. Number one, we are extremely selective in the franchisees that we recruit. We routinely turn people away from this opportunity, and that's unheard of within franchising. A typical franchise has a lot of outsourced individuals who are doing sales for the company. They're incentivized by the sale, and then they sort of drop off. They're no longer involved with that franchisee, so it doesn't particularly matter if they think that they're qualified to provide this extremely critical service within a community. Home Care Assistance does that differently. You know, our sales, quote-unquote sales department, is fully integrated into our operations, which means there's no one in the organization who's speaking to a prospective franchisee who then doesn't have to see them at every single convention, speak to them on cohort calls, help them to find their retail space. So, everyone is fully connected, which means that no one has an incentive to bring on a franchisee who isn't going to uphold the integrity of our brand, and it starts from there. Second, What we do is we really offer large territories and multi-site opportunities to our franchisees. Why that matters is that we never have an environment where we have a small set of— I'm sorry, a large set of franchisees within a small metropolitan area competing with one another, cannibalizing one another, and that's where you start to get some of the more unethical things going on. That's where people become so competitive about taking their share of a tiny, tiny market that they're willing to, say, skirt on certain screening or background check processes to save expenses. expenses, all of those things, we don't see that because our franchisees have large territories and they have every incentive since that entire metropolitan area or large territory relies on them and vice versa. Their reputation is tied only to their own performance. It's not as if they have a neighboring franchise that can impact their brand locally in any way. So, that's the next thing. Then it comes to our actual care processes. The screening that we have in place for caregivers is a lot more rigorous than even certain licensure states require. We go through extensive tests with the caregiver that go beyond just reference checks. We do personality and honesty and conscientiousness checks. We do extensive reference checks. We do our own sort of screening. We do Department of Justice background checks. I mean, we have all of those things in place. Then we don't just assume that because caregivers are coming in with experience that they don't need to be oriented. We have the only HCA University, Home Care Assistance University, which is an online school that certifies our caregiver population in everything from post-stroke care to Alzheimer's care to proper etiquette in the home, and they actually become certified in each of these topics. We have world-renowned chefs teaching culinary courses to our caregivers, so they feel extremely loyal to the company because of the continuing education they're receiving. They're not going to find the types of cases that they do with us with other organizations, so our caregivers also have an inherent desire to do well by our clients and by the company so that they can continue reaping these benefits and these loyalty programs. And so those are just a few examples of the many things that go into what we like to think is our gold standard of care. Then of course you have your third-party satisfaction checks, our regular quality assurance visits, the fact that we have caregivers documenting what's going on in the home every single day through care notes. I mean, each of these on its own may not make an impact, but when you put all of them together, it really means that we have a better idea of what's going on remotely in homes of our franchise territories than I think any other company does. We have amazing systems.

Yeah, that's interesting. Yeah, I mean, I would imagine cloud is part of that.

Oh, it sure is.

The ability of— yeah, right. I mean, you can really distribute information big time.

And we're very fortunate to be the only senior care franchise that's headquartered in Silicon Valley. That gives us natural access to leading systems, to leading providers. We've been asked to be pilot a pilot location for a number of new technologies in the area. We meet with Facebook. We meet with Google. We meet with robotics companies. We have access to a lot of things that, you know, some companies based in— excuse me— in the Midwest—

Oh, come on, Lily. Be nice.

I'm just joking.

Be nice.

I'm not saying they don't have access to, but don't have as easy access to. We're literally a mile away from all the up-and-coming startups, you know, that are going to revolutionize our country. So, I think it allows us to be at the forefront of technology in a way that other companies cannot.

Hey, tell me about LG Lab. I mean, I think that's an interesting concept. I mean, you've got the chefs, you've got the yoga classes. I mean, that's fascinating.

That's right.

What's that all about?

You know, we decided, you know, we're very fortunate to be the only company within the entire home care industry that has a hybrid model, which means that we're actively developing both franchise and corporate sites. What our corporate sites allow us to do is to test things without having to use our franchise owners as guinea pigs, which is actually pretty typical across a franchise. They pretty much don't have their own stores. only have franchise stores. So, things get rolled out across the board and only then do people find out that they actually fail miserably. What we do is we use our corporate stores, which are now across 8 states, so it gives us a really good idea of how a new idea will— I'm sorry, of how a new concept will play out within different types of markets. We have corporate sites in regulated licensure states as well as in unregulated states, in rural, you know, and metropolitan areas. So, LG Lab and San Diego Lab It's 2 of our California sites that we've used extensively for these testing purposes. We selected those sites primarily because of their location. These are beautiful retail storefronts and very large stores, which means in one we were able to develop a kitchen. The other one has a really large classroom, and that gives us the opportunity to test a number of things. We were able to do culinary classes inviting key individuals from the geriatric care management and hospital communities in San Diego, invite them into these courses to learn about our company and our focus on balance. where we go beyond just babysitting the clients and we really focus on healthy mind, body, and spirit. In Los Gatos, similarly, we were able to test yoga classes. We're right across from a hospital, so we tested using the office as a center for philanthropy and offering it as a space for a lot of different key decision-makers in our industry that may not have their own offices. Those are just a few examples of how we can use our offices as mini incubators And then we develop case studies around it, make sure that we're measuring results before rolling it out to the rest of the franchise network.

Yeah, that's interesting. That's very interesting. So, I noticed in the information that I got that you're interested in expansion in Southeast Asia and Europe. Now, I mean, I don't know. Forgive me for being critical or skeptical, but My goodness, I mean, this is such an aging country. Why is Southeast Asia and Europe attractive given the opportunities in North America? Just as a curiosity.

Well, we would definitely never consider expanding internationally at the expense of our North American development. I think that we have an amazing team, a sustainable infrastructure, and the resources we need to continue to meet our goals in North America, and the United States and Canada are always going to be our primary targets. At the same time, we are able to to recruit the best and the brightest here in the Bay Area. We have individuals who are joining our team who actually have roots and ties to some of these international communities and would love to help us go global. So if we can find the right partners on the ground in those communities which are also aging rapidly and extensively, I'd love to see how we can get through some of the cultural nuances and differences and actually provide a much-needed service in communities across the world? I mean, our Balanced Care Method was actually inspired by the elders in Okinawa, Japan. You know, what's amazing is that you still have these, you know, communities. Of course, we also have a sort of mainstream name for them, the Blue Zones, you know, based on the bestselling book where people are aging and not experiencing cancer, heart disease, Alzheimer's. You know, some of these things that we consider age-related diseases here in the US don't exist in regions like Okinawa, like the Nicoya Peninsula, And so it is going to be very interesting to see as we move this model into new markets, you know, how the needs are going to be different. In some cases, we— you know, even in some states, the need is more around hospice or disease-specific care. In some areas, it's more about, you know, healthy active lifestyles and nutrition. And I've always been fascinated by how each community gives us an opportunity to sort of add a new service line to our existing model.

Sure, yeah, right, exactly, which you can spread throughout the network. Yeah, that's interesting. Hey, in terms of your— I mean, look, you've obviously done an astonishing job in terms of rolling this company out. I mean, as you said, you started with what, you were employee number 4, employee number 5, something like that. How did you do it? I mean, how would you describe your managerial process? How would you describe the success or the reasons for the success that you've had heretofore?

It's a great question. Certainly, some of it has to just be good fortune and good timing. I have read Malcolm Gladwell's Outliers, and I do believe that sometimes there is the right time and the right place. At the same time, I'm an extremely driven and motivated person, and I've never settled for anything less than A+. So I'm sure that that's contributed to it as well. One thing that I think that I've done specifically is really focus on gathering a lot of buy-in I know that sometimes I can be very aggressive in coming to a strategic decision that I think is the right thing to do on our roadmap, but I really make sure to not make any formal announcements without consulting all the different key players across our team. As an example of the level of buy-in that I'm hoping to get with everything that we roll out, we're the first company to be launching a caregiver advisory board. Caregiver advisory boards are typically made up of family caregivers that might consult an agency on what they're looking for in terms of care for their parents. Our caregiver advisory board is actually made up of 10 professional caregivers who work with home care assistants, because if we don't hear all the way down to our hardworking caregivers in the field what they think differentiates the company, what values they think represent us in the work they do, then we're not doing a good job. So the fact that we have at this point, you know, close to 5,000 individuals from caregivers all the way up to VPs representing the company, I want to make sure that I'm hearing from people across the board. I think that's one thing that has really contributed to our success is we don't have as many disconnects where people are confused because something hasn't been tested or hasn't been discussed in advance. Something else is that being based in Silicon Valley, of course, allows me to really make use of a lot of out-of-the-box thinking. I don't think that we question the fact that we have some very young, driven individuals here. We're a couple of miles away from Facebook and Dropbox. Twitter, and Square, and all those different companies. So I think that it allows us to bring in a very youthful energy to what is a very traditional business.

Sure.

And that has helped because while we may think the seniors themselves in their 90s, or in some cases in their 100s, they may not particularly be that keen on information technology, if we can use it to fuel improved operations, become more responsive to their adult children who need our care, allow them to check in with exactly what's going on in the home environment because the caregiver is taking notes on iPads. These are the types of things that allow us to provide the exact service that the adult children of our clients are looking for today. So I think some of that sort of youthful and technology-oriented energy has really helped us to stand out when it comes to this industry.

That's great. So where are you going from here? Obviously, you want to expand internationally, but what do the next few years look like?

It's really interesting because it used to be that we sort of had our big audacious goal for every given year, and now we actually have a few. One of them is really making sure that we are taking a strong position on some of the regulatory changes that we think are up and coming over the course of the next year. We really want to do right by our clients who sometimes you know, can't express, you know, their needs and wishes when it comes to home care. So we want to make sure that we're representing and advocating, you know, their beliefs. And that's going to be one area of focus. Another one is to continue to provide the types of services our clients want even before they need them. So whether that has to do with meal delivery, whether it has to do with robotics care, whether it has to do with remote monitoring, there are a lot of different opportunities we're exploring right now to continue to be dynamic and never stagnate when it comes to our actual business model. I think you're going to see a lot of interesting things from our company in that respect over the next little while. And, you know, finally, to just focus on our core business. I know that sometimes we can get very excited by, you know, a new automated CRM system that allows us to track conversion rates, say, across our offices. But, you know, it comes down to providing exceptional care, and that means hiring the very best caregivers, training them the best way that we know how, and being in constant touch with our clients to make sure that our service is meeting and exceeding their expectations.

Great.

Be sure to check back for future editions of the President and CEO Focus on the Middle Market podcast series. Thanks for listening.