Pando

Home care startup "Honor" is moving all its contract workers to W2 status, giving them equity

By Sarah Lacy , written on January 20, 2016

From The Sharing Economy Desk

Honor uses software to connect in-home health care to families who need it.

It isn’t ad-based. It isn’t for millennials. It isn’t a unicorn and it’s not going to be the next Facebook. But it’s the Silicon Valley startup you should be paying more attention to.

Not only did it raise a cool $20 million in funding before it launched a product, with $15 million of that coming from Marc Andreessen alone. (Disclosure: Also a Pando investor.)

Not only is it a rare Silicon Valley company building something for the elderly, not millennials and teens.

But it’s also a company with an utterly different philosophy than nearly any other company in the sharing economy, peer economy, on demand economy or whatever your buzz phrase du jour is for a platform that connects workers with those who need something done.

In a market where countless startups have styled themselves as the “Uber of X,” consider Honor the exact opposite.

To wit: Today-- just six months after its launch-- Honor is announcing that it’s moving all of its contract labor to W2 employees with full benefits. Not only that: It’s offering training to make them better at their jobs and giving each of them equity in the company.

“I think Silicon Valley tends to see ‘rock stars’ and in most companies that’s the engineers,” says co-founder and CEO Seth Sternberg. “Our rock stars are our CarePros. Our engineers would tell you they work in the service of the CarePros. So we are going to give them equity. We think it’s what they need to fully be part of the team.”

Mind.

Blown.

Right?

Like so many Uber of Xs, Honor is trying to reinvent an old dysfunctional market using the efficiencies of data and technology. Like so many Uber of Xs, it’s trying to create a national brand that operates at scale across multiple cities, pairing people who want to work inside the home with those who need it. Like so many Uber of Xs, it has to deal with the real world problems that can arise when strangers enter a loved one’s physical space. And like so many Uber of Xs, it has has this tricky triangle of needs: Where the company itself has to make money as a middleman, customers want at least as good of a value as they’re getting already, and the army of on-demand workers want a reliable living wage.

And yet unlike so many Uber of Xs, Honor has a solution: Treat your employees-- and yes, they are their employees not their “partners” or “entrepreneurs” using their platform-- with respect. Make their lives better, make sure they aren’t worried about their own needs, and they’ll make your high priced Silicon Valley startup more valuable in turn.

How’s that for disrupting the disruptors?

Now, in fairness to Uber (I so rarely get to use those words…), this is a different business with different attributes. There’s a higher bar of skill, training, and demeanor that someone caring for the elderly needs to have, and that means retention is that much more important. Workers can’t be interchangeable cogs you interact with for ten minutes of your day.

And, Sternberg says, while the industry is broken in a myriad of ways but margins aren’t one of them. They are actually decent. Honor charges slightly less than many solutions on the market and assumes that its reliance on automation in terms of matching and other administrative tasks will make its back office costs even more streamlined.

It’s also not as “transactional” as the rest of the “gig economy,” meaning a lot of these CarePro matches may last weeks or months, not just one gig at a time.

Honor picked a hard industry to scale and a decidedly unsexy corner of the business world by Valley standards. But it picked one that had an existing market, growing need, and decent margins. And it picked one with almost no other deep-pocked venture competitors.

Sternberg wanted to build a startup that was a pure execution challenge, not a buzzy social, ad supported “build it and if it’s cool they will come” startup. So far, six months in Honor is harder than even he expected. But that’s a good thing, he says. The single biggest risk in his mind: Not having the best care. To him, treating workers well is the best way to ensure they provide it.

Most people outside Silicon Valley may see that as a no brainer. When there’s a hierarchy or trust required with these atoms-meet-bits services; there should be a hierarchy of pay, respect, training, and vetting of the service providers, right?

I’m OK with most anyone biking a sandwich or delivering groceries to my house. I’m less OK letting just anyone in my home. I’m way less OK getting in a car with just anyone. I’m not at all OK taking any risks on anyone taking care of my kids or my parents.

GrubHub’s CEO has argued paying Doordash or Postmates such a premium to do the first of those won’t scale to a wider market. Airbnb had to enact a $1 million insurance policy in order to scale up nervous homeowners. Care.com, UrbanSitter and others do thorough background checks, enable extensive references, and pair up with your own social graph to give you more confidence. And now Honor is sending you an employee.

Uber has mostly competed on compressing prices and ubiquity. As it invests heavily in scaling, it’s compressed worker pay.  

But this isn’t just a difference in business model, it’s also a philosophical difference. Just because the market allows him to treat workers better and pay them more, it doesn’t mean he had to.

Sternberg says he wasn’t having high turn over when everyone was on 1099s. No competitive market force or union drive or class action suit was making him up his employee costs. He wanted to. He’s chosen in general to put all “incremental dollars” towards giving the CarePros a better experience, versus, say, putting it back into the growth of the business or even giving steeper discounts to consumers.

“In this industry right now, the labor is treated really poorly,” Sternberg says. “You get $9.50 an hour and have to drive two hours just to serve someone dinner. And if you don’t, you are fired. With the pay many people are getting, they should just be flipping burgers at In and Out. But they are choosing to do this work because they love it. I think that if you want to completely remake the experience of the recipient of the care, put that person delivering the care into a good place in their own life.”

He could have done just slightly better and likely still built a big business.  

To be clear, a big part of his solution for in-home care is technology and software. Things like a messaging system for caregivers to communicate with each other about a patient, better matching technology so that a 90 pound woman doesn’t show up in the home of a 300 pound man, expected to lift him, bath him and get him into his wheelchair. Any collection of data whatsoever. Getting a log of what happened in the home outside of spiral-bound notebook on the patient’s kitchen table. What most tech-enabled industries would consider the basics.

But a lot of his reinvention of this industry is treating workers better than they’ve been treated already. Not the same, not swapping benefits and pay for “flexibility.” And that’s meaningful because there are several million people working in this industry, mostly through fragmented local players and franchisees. More than half of them are living partially on government assistance programs. “If they can’t care for themselves, how can they care for someone else?” Sternberg asks.

For a “platform” business, this kind of rhetoric is sadly remarkable.

In the triangle between company-third party worker-customer these platforms all face, Honor may be one of the first of these kinds of companies to pick one-- the workers-- betting that will make the other two stronger in the long run.

Sternberg wants his company to be considered a “human services company caring for your parents, not a tech company looking after seniors.” Compare that to Uber’s company wide policy of saying “you push a button, and (FILL IN THE BLANK) appears” anytime a camera is pointed at them. It’s clear which part of that triangle is least important to Uber. The driver has already been written out of their tag line.

Uber is already planning for a future with no workers, er “partners.” But Honor could be a role model for other companies in the peer economy that don’t expect or hope to be staffed by robots. That it matches CarePros for more than just one transaction is similar to what I’ve written ridesharing for kids services like HopSkipDrive and Shuddle should do. I’d far rather continue to pay someone to pick up my kids that I have used once and feel good about, then risk a new person every time.

Of course, companies like these don’t grow at hyper-speed. It will take deep pockets (check) and a long time horizon. Also, check. “I do not want to sell this company, I want to build it the rest of my career and then use it when I get old,” Sternberg says.

It’s a dramatic switch from his first company, Meebo, a chat app that turned into an ad business. It sold to Google in 2012, for a reported $100m, and Sternberg did the usual “rest and vest” while he thought about what was next. He built Meebo for seven years, but ultimately it was a disappointment. It didn’t change the world for anyone, and didn’t become the next Facebook either. “It’s dancing pixels,” he says. “It’s cute and makes people feel good, but it doesn’t fundamentally change people’s lives.”

By year five or so of Meebo, that feeling started to “gnaw” at him. The day they sold, he sat with his co-founders in the conference room waiting on the documents to come from Google. They passed the time by white boarding out all the things they’d do differently. The most important was actually making the world a better place.

After all, if you are going to spend seven years of your life building something that doesn’t quite go as according to plan as you’d like-- you want it to be meaningful. “If you’ve already done it once, you get that,” Sternberg says.

Winding down his time at Google, he had lunch with Andreessen-- an angel in Meebo-- to sanity check what he was thinking about. Andreessen started emailing him at 2 am every day with thoughts. He not only put in a hefty first investment, he joined the board.

“Most entrepreneurs are upper middle class, and they try it because they know mommy and daddy will take care of them if they fail,” he says of why most companies like Honor don’t come out of, say, Y-Combinator. “By the way, I’m describing myself there too. You usually build for your problems, and your parents are the solution if it doesn’t work, not the problem you are building for.”

Hence, Secret, Bang with Friends, Tinder, and the like.

“We had to be able to look human beings in the eye and know they are making their lives better,” he says. That not only goes for the patients, but the workers.