‘There Was Always Going to Be Tech Disruption’: Honor, Home Instead CEOs Break Down Recent Transaction

In August, home care technology company Honor announced it acquired Home Instead Senior Care, one of the largest in-home aging services providers in the world.

As a result of the deal, the combined Honor-Home Instead enterprise now represents more than $2.1 billion in home care services revenue. That size and scale will help the pair tackle some of home care’s most challenging problems, including the retention of care professionals, Honor CEO Seth Sternberg and Home Instead CEO Jeff Huber explained during a recent HHCN+ TALKS appearance.

“In home care, your brand is your caregiver,” Huber said. “So we’ve really had an intense focus on being that employer of choice, creating a culture that really honors and lifts up our caregivers, giving them all the tools they need to be successful.”

HHCN is pleased to share the recording and transcript of our HHCN+ TALKS conversation with Sternberg and Huber. Read on to learn more about:

— How Honor’s business model has evolved since its launch in 2014

— Why Home Instead was prepared to make a deal with Honor in order to solve some of the home care industry’s biggest challenges

— What Honor and Home Instead have been doing to enable a smooth integration process

— How Honor’s technology platform has helped lower caregiver churn and call-off rates

The below has been edited for length and clarity.

[00:00:07] Holly: Welcome, everyone, to this episode of HHCN+ TALKS. We actually have two industry leaders with us today, so we’re going to dive in for the sake of time. I’m pleased to welcome Seth Sternberg, co-founder and CEO of Honor, along with Jeff Huber, CEO of Home Instead. Seth, Jeff, thank you both for being here.

[00:00:27] Sternberg: Totally. Thanks for having us.

[00:00:28] Huber: Thank you.

[00:00:29] Holly: For those watching live, if you have any questions, please send them my way using the Q&A function on your screen, not the chat function. For those who couldn’t make it live, thanks for the interest. Hopefully, you could be with us next time.

Seth, let’s go ahead and start with you. In August, big news broke that Honor was acquiring Home Instead in a move that created a combined enterprise with $2.1 billion in home care services revenue. To kick things off, could you recap how Honor’s business has evolved from launch to original concept, to where you are now?

[00:01:06] Sternberg: First of all, thanks for having me, and hi to everybody who’s out there watching. When we started Honor, there were four of us. It was myself, Monica, Kim and Sandy. The goal that we set out to accomplish: We wanted to change the way society cares for a parent. We found home care as this really interesting space because we felt like we would need home care for our parents, ultimately, if we wanted them to be able to stay in their homes as they aged.

The first thing we did is, we just launched a home care agency in the San Francisco Bay Area, which is where we lived. It’s because we needed to see firsthand, what was it actually like? What was it like to actually run an agency? What were the challenges? What worked really well? I’d say the No. 1 thing that we learned is that it’s really hard. Really, really hard.

We got to about a $10 million run rate in scale about 18 months in, and that was enough scale for us to start building what I would call meaningful technology against some of the problems in home care.

Some of the problems that I’m sure everybody watching this will be familiar with would be things like caregivers — what we call Care Pros, oor care professionals — too frequently calling and saying, “Hey, I’m sorry. I can’t make my shift.” That makes it really hard to scale because you have to restaff that person. Or one of the most vexing problems was, “Mrs. Smith, a customer, loves Janet, a Care Pro, but Mrs. Jones, a customer, can’t stand Janet, a Care Pro.” How do you do that? It’s so hard to solve that quandary. At that scale, we started to get enough data to begin to use machine learning to help us solve those problems.

Once we could do that, we then did what a lot of technology companies do, which is to say we offered that platform out. We offered the capability that we had built for ourselves to others. That’s what we branded HCN, our Honor Care Network at the time. That’s a very normal thing for a tech company to do, where it says, “Hey, I have launched a service. I have built a technology capability for myself that lets me provide a better product at higher scale. I will now offer that to other people.” That’s what we did with HCN. We started that in about, I think, mid-2017 and grew that really quickly.

We then continued to grow and continued to raise financing rounds. We raised the round back in October or November of 2020, which was led by T. Rowe Price and Baillie Gifford together. That round was actually intended to just let us go super big because the whole system was working. The technology is working super well, and we were scaling really fast. For that round, one of the points of it was, “Hey, we can now go do mergers and acquisitions if we want to.” I went on a walk, and I realized it might be the best move to buy one network that would allow us to just get the technology platform distributed out to the market much faster under one consistent brand.

The one network that obviously would be the best network would have been Home Instead, the biggest network, the best brand, the highest-quality network. I put a call into Jeff, which seemed, at the time, rather crazy, but here we are today. That’s the evolution. To start a home care agency, learn, figure out what’s really hard, build technology to make it work, offer it up to other people. Then, ultimately, purchase a network to be able to embed that technology into that full network and really have the scale and technology to change the game.

[00:05:02] Holly: Just really quickly, I know, Seth, you mentioned the call-off stat and the success Honor has had. I think I’ve tuned into presentations where you’ve showcased that Honor’s call-off rates are about half the industry average. Can you put a little bit of color behind that?

[00:05:18] Sternberg: Yes. When you look at the unmanaged call-off rate for a home care agency, most home care agencies don’t measure it. First you have to decide how you measure it and over what time span and such. If you measure trailing seven days, for instance, you can maybe ask, “In the seven days prior to an appointment, how likely is it that a care professional will call and say, ‘Hey, I’m sorry. I can’t make it.” It’s about 12%. For the industry, about 12% of the time, they’re probably going to call and say that. At Honor, we brought that all the way down to 5.5%.

We find these kinds of problems that make it hard to scale or create worst experiences for clients or worst experiences for care professionals, and then we figure out how to solve those problems. Sometimes it’s a purely human solution, and sometimes it’s a technology solution. Often, it’s a combination of the two.

[00:06:07] Holly: Jeff, I’ve had plenty of conversations with folks in the home care world after this acquisition was announced. Being the journalist that I am, I always just like to ask, “Did you see this coming? Was this a shocker to you as well?” Pretty ubiquitously, the answer was, “Yes, we never would have expected this deal to materialize.” How or why did the stars align from your perspective at Home Instead?

[00:06:38] Huber: I think we’ve known for a long time that there was always going to be tech disruption in the home care space. First, it’s just such a big opportunity. Secondly, every other industry has been completely turned upside down. Realizing that, we’ve been working very hard for the last, I don’t know, five to six years, trying to really disrupt ourselves. How do we take our large footprint and brand, and retrofit that with digital capabilities? That digital transformation is a really hard thing to do, but we were well on our way, doing all the really gritty, hard things you have to do to make that happen.

We’ve explored technology with hiring lots of new talent, casting a vision to bring our network on board with where we need to go in the future. We’ve been standardizing collection of data. The examples go on, and on, and on. We were well on our way and had firmly believed that there is going to be an integration of high tech and high touch, and that we needed to be the ones that lead that. When Honor came on the scene, six, seven years ago, of course, it got our attention. We followed their every move. We started to get to know each other.

We would bump into each other at conferences. Seth and I spent a day together, I think four years ago, at an industry workshop. It was a real small group, so we developed a nice relationship. Our teams got to know each other. Following Honor, we saw they were making great progress raising more money, making really smart pivots. Our observation was, “Okay, if there’s this race to get to the integration of high tech and high touch, we have the high touch and scale part of it.” Honor had built this high-tech component.

Our challenge was to create the tech and integrate it. Their challenge was to create scale to go along with it. We were thinking it was only going to be a matter of time before they acquired a network, and I think thankfully because we have developed a nice relationship, that’s why Seth felt comfortable in placing the call. I think what enabled it ultimately to happen was we had created really the exact same vision and had done all of the work over the last five-plus years, to really make us ripe for that to happen. We weren’t starting from scratch in terms of trying to think, “Oh my God, how do we get technology into our network?”

A lot of the preconditions had already been set and the foundation laid for something like this to happen.

[00:09:57] Sternberg: Yes. I got to tell you two things. One is I’m smiling because Jeff told me after the transaction that they had guessed we would buy a network. I was like, “Thanks for letting me know now. By the way, you probably figured it out before I did.” The other thing that was just amazing to myself and our team when we first went to meet Jeff — along with Paul and Laurie and the core management crew of Home Instead about a potential acquisition — is: I remember we got out, we spent a day together in this hotel secretly in Omaha. We’re walking to the airplane, and we’re like, “Wow. They’re totally on the same thread as we are.”

Same vision, really care about infusing technology to be able to deliver a better product and more scale. We were in the same place, and we just didn’t expect that level of alignment walking into that meeting. That alignment, along with how well the teams got together, is what made this thing sing.

[00:11:06] Holly: Just to give our viewers an example of those digital capabilities, Jeff, that you mentioned, I know we’ve reported on how Home Instead invested in companies like GrandPad and used that type of technology in the home to complement what the caregiver is physically doing.

Seth, let’s talk more about this size and scale because when we talk about Home Instead, we’re really not talking about just a big U.S. home care provider. We’re talking about one of the largest home care organizations in a handful of countries. What does that kind of size and scale do for Honor moving forward?

[00:11:45] Sternberg: You think about what we have created by putting Honor and Home Instead together. We have literally created the largest senior care network outside of health care. Outside of core health care, we are the largest senior care network in the world, full stop. That’s true both on an owned and operated basis, and on a franchise-network basis. That is an amazing base because what it does for you is it gives you the scale to be able to drive incredible amounts of innovation.

Literally, because of this new scale, we are tripling our spend in research and development, which is really a way of saying we’re hiring a ton of engineers, software engineers, et cetera, data scientists, product managers, designers. If you are one of those people and you’re listening, please get in touch because we need to hire you if you’re mission-driven and really care about the mission.

What the scale does is it lets us not only drive innovation to improve core home care like ADL support, better jobs for the care professionals, better service for the clients, better businesses for our franchise owners and our HCN partners, but it also then lets us innovate on top and drive new products and new services that simply aren’t possible without the combination of really substantial scale with a technology platform that allows you to create those new products and embed them throughout the network.

[00:13:29] Holly: Tripling that R&D spends, that’s partly thanks to the news earlier in this week, correct? The $70 million in Series E, plus $300 million raised in debt financing?

[00:13:39] Sternberg: Yes. We’ve raised a fair amount of money, and where that money goes is really into product innovation and growth. It’s, “Let’s hire a ton of additional engineers to be able to solve more problems, so we can create better jobs for care professionals and better care for clients.”

Or, it’s, “Let’s use that to drive the platform into the Home Instead network, so that we can empower all of the Home Instead franchise owners with this new level of technology and operations optimization.”

[00:14:28] Holly: Typically, the bigger the transaction, the more challenging integration is. I think at this point, I like to get each of your perspectives on how that integration process has gone. Jeff, let’s start with you. How have Home Instead franchisees reacted to this news and embraced Honor? Then, Seth, same question to you.

[00:14:51] Huber: We put a lot of careful thought into this. Once we knew the deal was going to happen, we started getting the teams together right away on a regular basis. The most challenging part of that is just keeping all of that quiet until we could get to a point where we got to the closing announcement. We’ve made a real commitment to doing that. We didn’t want to wait until the announcement to start ironing out all of the issues. That goes to the team integration questions. But really, the communication plan on our network was front and center. We’ve put a lot of careful thought and investment into making sure we could announce this in the right way on Aug. 6.

Shortly after that, we hit the road and got into multiple cities around the country, where we got our franchise owners together so that we could be in front of them right away, answering questions, introducing them to our new colleagues. We did all of that virtually with all of our international markets and teams overseas. We’re going to do that again in a week or so, where they’ll all be together in one location. I think just that level and that commitment to transparency and being out in front, it’s just the way we’ve always done it.

I think it has paid dividends.

I think our network is really excited about this news. Super curious, of course, about what this is going to mean longer term. We’re trying to give them all the answers that we have right now, and as details become finalized, keeping them apprised with the ongoing commitment to just open-channel communication. There’s great excitement, great reception. It’s an exciting time for everyone at Home Instead.

[00:16:44] Holly: Seth, from your view, how has integration gone? I know you made the comment to HHCN reporter Joyce Famakinwa this week about how you’re talking about two very complementary organizations, which makes that process a little bit easier.

[00:16:59] Sternberg: One thing that’s really fun is you have to distinguish, in your head, the difference between investors and companies that are in the classic private equity space versus in the growth equity space. When you hear about M&A, it’s often private equity-driven, and it’s driven by cost-cutting. It’s like, “Hey, we have two companies. They have a lot of overlap. We’re going to cut out all that cost and try to save money.” That is not our world at all. Our world is growth equity, and so what we look for is how do you literally 10x things.

Let’s take something at 10 and make it 100. When you look at the core things that Home Instead was amazing at, pre-acquisition, and look at the core things that Honor was amazing at, pre-acquisition, they do not overlap. They’re purely complementary. The neat thing is that, in this, we’re not spending time figuring out how to cut costs. We’re spending time figuring out how to take an amazing technology and operations system and bolt it onto an amazing network and an amazing brand. Then fuse those two together, which is to say you’re just creating one substantially larger, let’s call it, complete technology and high-touch, human-driven company.

That’s an awesome thing to get to work on because it’s all about growth, it’s all about creating more innovation, better consumer experiences. Then what we focus on to make that happen is really a couple of things. We now have over 700 people just in HQ. It was really neat how, in the M&A process, as we kept going through it, more and more of our teams started to meet each other, as more people got disclosed on what we were doing. They worked together, with every successive layer, super well. I told you when we first got together at the leadership level, it was amazing.

We had the same vision, and then when we brought successive levels of team in, they worked together super well because everyone has the same vision and is so mission-driven. That is what has happened as we’ve now brought all 700 people together. The teams are working super, super well together, and we’re making sure, at the leadership level, that everyone just is hyper-focused on the mission. Let’s change the world for older adults, let’s make it a much better world, and let’s go drive innovation and change the way society cares for older adults.

Then it dovetails into what Jeff talked about. As you focus the teams in on that effort, it’s really important that we talk to the Home Instead franchise owners and help them understand new capabilities. That’s where, of course, Jeff and team are experts. They drove an amazing kind of experience for me to go around the country. You pop into Boston and then there are 100 franchise owners that we get to meet, then another 100 franchise owners that we got to meet in Phoenix. Meeting everybody in the network and understanding where they’re coming from, and what’s the same and what’s different about their world versus the world we’re living in, is super fascinating.

[00:20:22] Holly: Can you talk a little bit about how home care needs an answer to the worsening staffing crisis? It’s really a situation that has just grown more dire during the public health emergency.

[00:21:23] Sternberg: It’s interesting. I would say about 70% of the tech that we build is actually in service of what we call “care for the Care Pro.” Super early on, before we raised any financing even, we met with 50 Care Pros in Sacramento and Phoenix. We really wanted to understand what their life was like, and what worked for them, what didn’t. What we early on discovered was that the No. 1 most important thing to them was basically respect.

They’re like, “Am I being paid what I was told I’m going to be paid? Am I paid on time? Do I control my life? Do I have agency in my life, or does my employer want to tell me the way it is?” Then the second thing that we heard loud and clear was, “Look, I can be working 40 hours this week, but then a customer of mine might pass away, and I lose half of my income next week. That kills me.” Our stability is supercritical. Literally 70% of our effort is in service of fixing these life challenges and problems around the way that you run and give jobs to the care professionals.

It gives them a better working life, and it empowers them. So then what you discover is, sure, the call-off rate came down, but the call-off rate came down because we figured out how to get better jobs that were more appropriate to that individual. Or our churn rate is about half of industry average. It’s because we’re getting more consistent hours and better jobs that are a better fit. We’re better equipping the Care Pros with the right tools, so that when they walk into a certain home, they’re equipped to perform well in that home. That’s what people want.

They want to perform well and to be put in a situation where they’re set up for success. If you do these things, you become the employer of choice. If you have just a fundamentally better employment experience, you attract the people. Even if you are in a situation that we’re all in as an industry, where there is absolutely a shortage of care professionals, at least you can be the place that they’re going to check first to see if you have a job for them that makes sense. Then you can keep them employed and you can better utilize their time. They want that, too, because they want those hours, but they want the right hours.

Basically, you set up a system that’s just better for them and their lives, and it helps alleviate a lot of the challenges.

[00:24:17] Holly: Jeff, how are you guys hanging in there on the staffing front? Has burnout been a big issue this year?

[00:24:26] Sternberg: Oh, Jeff, we can’t hear you.

[00:24:31] Holly: It looks like we lost Jeff’s audio here. Let’s give him a little bit of time just to see if we could get him back. Seth, in the meantime, I actually had a question for you from one of our colleagues at Senior Housing News. Not everybody knows this, but Honor actually has some senior living partners as well. How do you see technology playing a role in the senior living staffing crisis? Because those operators are dealing with a lot of the exact same problems that home care is.

[00:25:03] Sternberg: We do partner with senior living providers. The way that we tend to partner with senior living providers is they’ll often have an ADL supports line of business that serves either into their communities or out into the communities that they operate in. In both cases, we’re able to help those folks either with providing home care within their communities or letting them provide home care out of their community and into the broader ecosystem, or broader geographic area, that they operate in.

On the staffing front, occasionally we have pockets of our business where we’ll actually help them literally just staff. A request that we get pretty frequently is just, “Hey, can we use your technology system to help with our staffing? Can we just take it?” Unfortunately, right now, the answer is no. We can’t just give people the software to let them run their whole community. Maybe at some point in the future, but today, that doesn’t exist. Rather, it’s helping them provide home care both within their communities and within their broader geographic community.

[00:26:28] Holly: It sounds like Jeff is back.

[00:26:31] Huber: Yes. Sorry, yes. I don’t know what happened there, but you were asking about the caregiver shortage and burnout. Absolutely. Anybody in home care is feeling this. Our network is certainly feeling it. I think we have to think about this in a multi-dimensional approach and think in terms of short, medium and long term. For years, we’ve tried to improve this issue. In home care, your brand is your caregiver. So we’ve really had an intense focus on being that employer of choice, creating a culture that really honors and lifts up our caregivers, giving them all the tools they need to be successful.

All of those efforts are continuing, and we’ve doubled down. When we were evaluating this transaction, one of the main criteria was, is every stakeholder of Home Instead going to be made better? Certainly, we want to focus on the care professional for all the reasons that Seth just mentioned. It was very compelling that this union was going to help elevate caregiving. In addition, too, for us it’s moving from a pure franchise model where now we can have a more consistent consolidated employer model that allows us to improve paying benefits in addition to all the technological things that creates a better caregiver experience.

Then over the long-term, we’ve just published a global workforce report. We’ve put a stake in the ground in trying to champion the creation of a workforce that the world badly needs for home care and elevating the role of profession of caregiving, and a real global call to action to create this pipeline and a job-creation engine, frankly, to meet the needs of a global aging society. We’ve put together a massive public relations global campaign around that.

We’ve got a workshop plan in a couple of weeks with the OECD, so we’re collaborating. OECD, rarely if ever, collaborates with the private sector, but they recognize the need. They’re really endorsing and helping us get the message out that we need to create this pipeline of well-compensated, well-respected home care workers and create a new vocation.

[00:28:57] Holly: I often think that that’s the part of the workforce crisis in all of health care that doesn’t get talked about enough: How do you actually create the professionals in home-based care going into the home? Maybe at this point, Seth, maybe could you just explain how the legacy Honor Care Network will fit alongside Home Instead Network moving forward. Then any final concluding remarks that you’d like to make.

Then, Jeff, we’ll wrap things up with you and any final remarks you’d like to make.

[00:29:36] Sternberg: In terms of the Honor Care Network, alongside the Home Instead network, they can operate in the same markets, but the brands do not cross. The partners within the Honor Care Network might be Caring Hands Home Care, for example, our first partner in Cupertino, California. They operate as Caring Hands Home Care, powered by Honor, and that will remain the same. Then, Home Instead, just like Home Instead franchises have always been in that market, that will continue to be the case as well. They operate together. The great thing about them operating together in a similar market is that, now you’re lifting all boats, particularly for the care professionals and supply of those care professionals. With that increased demand in liquidity locally, you can then make sure that you keep the care professionals fully employed. Even if a customer in one agency does move into a facility or pass away, you’ll still have work for them next week.

You’re not going to turn them out of our network, but rather we can keep them for our total network. Keep them fully employed, get them over to another customer. We keep them on the platform, which is also much, much better for them because it’s consistency of income. The thing that I would say in closing, I actually want to talk a little bit more on a couple of examples around the care professionals and some of the things that we do for the care professionals because this is actually the rub. If there’s something that I would want to leave people listening it’s, “How can we as an industry do more for the care professionals?”

Because it is our common problem. It is our joint problem, and if we don’t figure it out, we’ve got real problems because we’re not going to be able to care for our clients. Two things that I think are worth talking about. One is, one of the ways that we have designed our system around how we figure out which care professional could or should work with which client, is that the machine learning does a whole bunch of heavy lifting on what would be a really great job for this particular care professional. It says to them, “Hey, would you be interested in working with this person?”

It gives them some high-level data. Like, roughly the geographic area that they live in, roughly, the care plan. It’s not identifiable individually, but it gives them some rough data about that person. It’s even thinking about things like, what is this care professional’s current schedule? Would this new client improve that care professional’s schedule? Would it give them more consistent hours? Would it fill in gaps? It’s thinking about those things, but it’s asking the care professional, “Do you want this?” It will actually ask like 10 or 20 care professionals, “Do you want this customer?”

Then those care professionals either raise their hand and say, “Yes, I would,” or they say, “No, I wouldn’t.” What we’re doing is we’re only showing them customers who we think, if they worked for them, their working lives, their professional lives would be improved. Then we give the care professional the ultimate choice. That’s a really big deal to help people have agency in their own lives and control their own lives. That’s something that I would put out there as a suggestion to folks, is thinking about how to give the care professionals more agency.

Then an outcome that I’ll talk about for a second before I’ll pass over to Jeff is, we look at these charts: How many hours per care professional in a given market does that average care professional get? In a given market, are they working an average of 20 hours a week, 25, 30, 30, 35, 40? What’s awesome is that, as both our density and technology have improved over time, what we see across all markets is that those curves are up and to the right. More care professionals are getting more hours from us. They’re filling the hours that they need in order to make their lives work and get the income that they need.

[00:34:31] Holly: Seth, thank you so much. Jeff, any final remarks that you’d like to leave our audience here with?

[00:34:37] Huber: Yes. I think those are just perfect examples of the kinds of things that we were looking for to elevate the caregiver profession within our own network. But I guess, look, in closing, I would just say the synergies of these two companies coming together are just so incredibly powerful. We now have this incredible complement of skills, competencies, brand, technology, size and scope. It’s really exciting for all of us. It’s really exciting and gratifying to see how well the teams are coming together. We’ve got this incredible network of franchise owners, and we’re going to put this technology power in their hands. Ultimately, what that means is we’re going to be able to change the way that we care for our parents, change the face of aging, reach more people at a time when the world really needs this. I think we’ve got the right vision, values, people and now capital structure to make this dent in the universe. We’re just super excited to do it.