The Child Care Industry is in Crisis. Solutions Lie in Innovation
With demand for quality childcare spots far outstripping supply, the childcare industry is begging for innovation. Successful operators of the future will respond to Americans’ changing lifestyles by offering more flexible care arrangements. Technology can help centers become more profitable by better matching available capacity to the precise hours parents want.
The career that led up to that fateful 2017 decision to purchase the daycare—a business I have expanded into two locations and a child care management software business under the umbrella of Callahan Learning Center—gives me a somewhat unconventional perspective on the needs of this essential industry. My background is in engineering development. I earned a degree in electrical engineering from Grove City College in 1997, obtained my MBA in 2002 and worked for decades to build a successful career as an executive and entrepreneur in the wireless communication technology and software industry. I hold numerous patents, I’ve invented multi-million-dollar product lines, and I’ve been involved in more than four startups from cradle to exit, including my most recent startup selling for $200 million in 2019.
At heart, I am a problem-solver. I have found great professional joy in combining the problem-solving skills I learned as a software engineer with time-tested philosophies on managing and motivating teams to build healthy and profitable enterprises. When I bought a local daycare business, I discovered an industry screaming for software innovation. That discovery launched my journey to build a better daycare—one of the most fascinating problems I’ve worked on.
An industry in crisis
You don’t have to look hard to find people sounding the alarm on the severe imbalance between supply and demand in American child care. Before the onset of the COVID-19 pandemic, a mere 23% of children under age 3 could be served by the available licensed child care slots in their communities, according to a survey of child care supply in 19 states and the District of Columbia conducted by the Center for American Progress. The mismatch between child care supply and demand costs the American economy an estimated $57 billion a year in lost earnings, productivity and revenue, according to research by the Council for a Strong America.
These studies were conducted before the onset of the COVID-19 pandemic, which has put a ton of bricks on the accelerator of what was already a worrisome trend. In April 2020—just weeks into the crisis—the National Association for the Education of Young Children (NAEYC) surveyed workers in child care centers and family child care homes in all 50 states. At that time, nearly half of respondents reported that their center—like Callahan Learning Center at the time—was completely closed. Of those that were open, 85% were operating at less than half of their enrollment capacity. The stress on these centers as the pandemic has continued has been immense. A July survey by NAEYC found that if the reduced enrollment and increased operating costs brought by the pandemic were to persist, only 18% of child care programs expected to survive another year. Yet the demand for good child care is only going to grow as the post-pandemic economy thankfully starts putting more Americans back to work.
This is an economic inefficiency that is begging us for a market solution.
Matching demand more precisely
At its most basic level, child care is the business of matching people who need care for their children with individuals who are willing to provide that care. In America, we’ve been going about the business of addressing this market demand pretty inefficiently for years. Most child care centers sell care in standard quantities designed to match a typical “9-to-5” work schedule, while only 62% of Americans would prefer to work the ‘typical banking hours’ of the 50s, according to a 2018 survey.
In complete truth, to keep a spot in these centers, many parents end up paying for child care hours they aren’t using, be it unused hours each week, or needing to pay for care during vacations to hold their spots. This setup also prevents center operators from being able to charge a higher rate for smaller and more irregular quantities of care, which would benefit both the center and the families who would gladly pay more per hour for the hours they need versus paying by the week for hours they can’t use.
In the 21st century, we’ve learned that matching market supply more precisely to demand can reap rewards for both consumers and providers. For instance, Uber and Lyft have allowed urban dwellers to stop paying for cars that stay parked most of the time—or make an economic return on that excess automotive capacity. Another example is Airbnb, which has allowed travelers to find lodging in the heart of the neighborhoods they wish to visit, and often without the minimum-night requirements of traditional resorts. Instacart lets us be more efficient in the time we allocate to buying food—while allowing grocers and paid shoppers to charge a premium for items purchased through the service.
We often don’t like to think about applying cold economic principles to something as personal as the care of small children, but the reality is that this is already happening, to the detriment of American working families. The American 9-to-5 office job is quickly disappearing, and the child care industry has not kept pace with this trend. In addition, many existing jobs—from surgeons to paramedics to restaurant workers—demand irregular and unconventional hours that aren’t often served by traditional care offerings. As the millennial generation—whose members seek unprecedented flexibility in their work-life arrangements—is now entering parenthood, it is urgent that the child care industry evolve by providing a product that matches their lifestyles.
Strong child care businesses can no longer be built on providing set offerings of full- or half-time care, but instead must offer a more customizable menu of options. This requires some of the same software-based solutions that have brought us on-demand transportation, lodging and grocery shopping.
Defining the problem
Labor makes up more than half of a typical child care center’s costs, so in the first few months I owned Callahan Learning Center, I spent a lot of time trying to understand how my center director scheduled staff. I watched as she worked her intuitive magic week after week to match our available educators with the children in our care. While this skill was highly impressive, it was also impossible to replicate. As I watched the process, I wondered, “What happens if she gets sick or leaves this job?”
I thought for sure someone had created a tool to help with this.
I tried some of the leading software tools on the market. While many of them kept good data on where children and teachers were yesterday, and where they were today, nobody was helping me answer the question that I believe lies at the heart of making this business better: Who will be in your care tomorrow, next week, and next month? Who will care for those children, and what will that care look like?