Middle-Market Executive Interview: Lily Sarafan, President, Home Care Assistance

It wasn’t too long ago that the market for home healthcare services was composed almost entirely of independent mom-and-pop shops. Then came the franchisors — each model strikingly similar to the next. Or maybe not. For Home Care Assistance, of Palo Alto, CA, the business of franchising is now more about what doesn’t get franchised. Middle-Market Executive spoke with Lily Sarafan, president and COO of Home Care Assistance, about her firm’s new twist on franchising.

MME: How does Home Care Assistance differ from traditional franchisor models?

Sarafan: Even though we are a franchisor, from day one we never thought of ourselves as a franchisor. You’ll find that typical franchisees measure their success by the number of units they are able to open on an annual basis, and even in the home healthcare you’ll find that companies in the franchising space have goals to develop 1,000 units across the United States. Our goals are really very different from those of traditional franchisors, and this has allowed us to achieve a unique concept not just inside the franchising space, but also in the home healthcare space. We’ve ended up being unique inside the two industries that we’re trying to disrupt.

MME: Do independents still largely populate the home healthcare space?

Sarafan: Yes, within home healthcare market something like 60 percent of businesses are franchises and 40 percent are independent mom-and-pop shops, where only 15 years ago, you would find that almost all were independents. We decided that we would be the only concept in senior care that would use a hybrid model of developing both franchises and company-owned stores at the same time. This approach has introduced a lot of benefits to our prospective franchisees because it did not make sense for us to use the same cookie-cutter approach to allotting territories that is used in traditional franchising. Instead, when we started selling franchises, we gave new business owners the opportunity to see the same level of success that we were able to achieve in our corporate stores, and this meant making expansive territories available to new business owners. Today, if we find a great partner in a market, we’ll go ahead and sell them a nice, large territory so that they can develop a multimillion dollar business with as many units as they want, and if we don’t find a partner for a particular market, we can go ahead and do it ourselves. This gave us a lot of control over how our brand developed over the past eight-and-a-half years.

MME: In terms of the hybrid model, how do the company-owned locations bring value to the franchisees?

Sarafan: Our company stores have really given us the practical experience of running the day-to-day business and helped us when it comes to everything from worker comp decisions to labor policies to recruitment strategies. Our franchisees know that we are totally vested and working beside them in our own stores. Because we are not opening numerous competing franchise locations within the same metro area, we have a very open and transparent network. When our franchisees are on the line, the level of mentorship that we are providing to different locations is amazing. The level of guidance and proprietary information and financial data that is being shared just isn’t encouraged by other models and has contributed to our success.

MME: In terms of population or geography, how does your model allocate markets?

Sarafan: Our average franchise location covers a territory of 500,000 to 600,000 in population, whereas the average for the industry would probably be something like 70,000 to 80,000. So even in a metro area of 8 million-plus — or, say, the size of the Dallas metro area — we would probably have only four franchises in the key density areas of that market, where you’ll find that a lot of franchise models have sold in excess of 30.

MME: Have you acquired certain franchisees? Do you have an M&A specialist on your team?

Sarafan: We’ve acquired five franchisees in the past because primarily we wanted the franchise owners to be part of our corporate network. They were strong operators, and we thought that they could benefit from exiting their own businesses and being part of the broader business. M&A is not currently part of our strategy, for a number of reasons. Again, this is really a unique concept. Consider that our average client is spending $30,000 with us annually and that our average weekly invoice is $1,100. These tend to be four times higher than the national average. For us to acquire an independent operation that needs 100 clients to achieve what we can achieve with 20 clients would be too big a difference and, I think, difficult to transition into what we require. It would be more cost-effective to start from scratch.

MME: You mentioned that you don’t think of the firm as a franchisor. What else do you think sets you apart from traditional franchising?

Sarafan: The whole culture of franchising and the “us vs. them” that sometimes exists between franchisor and franchisee just doesn’t exist within our network because our franchisees know that our corporate-owned locations have tested, incubated, and determined what strategies can be successful.