Changemakers: David Eskenazy, President of Merrill Gardens

David Eskenazy has earned the status of senior living changemaker by being a pioneer in data-driven operations, helping lead early forays into the Chinese market and keeping the spirit of innovation alive at a provider known for taking risks.

After four years as CFO and President at Seattle-based Aegis Living, Eskenazy became President of Seattle-based Merrill Gardens in 2015. At the time, Merrill Gardens had just significantly trimmed its portfolio to enter a new growth phase with a heavy focus on technology, and Eskenazy has played a key role in creating more streamlined systems to avoid a “whack-a-mole” approach to operations.

Today, Merrill Gardens’ portfolio numbers 33 U.S. communities, and Eskenazy is also supporting the company’s efforts in China. It is it is one of only a few U.S.-based senior living providers helping to develop communities for the vast aging population in China.

Eskenazy also spoke about how Merrill Gardens is driving the trend toward more mixed-use and intergenerational development, what senior living can learn from companies such as T-Mobile and Nordstrom, and how to balance blocking-and-tackling with a changemaker mentality.

Describe some changemaking efforts you’re particularly proud of?

I’m kind of a data nut.

There’s this theory in the industry that’s kind of whack-a-mole: Just about the time you get these communities fixed, something else will break down over here, and then you go to try to fix those and something else will break down over here. You can never have every community up running at full efficiency at any one time.

To me, it’s just a nonsense theory.

If something is breaking down, you have to know what it is and how to find it quickly before you can go about trying to fix it. To do that, you have to have information in a way that all your managers can understand very quickly.

So, fundamentally changing all reporting was something I thought was really important.

Our classic system of information recording has a whole bunch of rows and a whole bunch of columns and a whole lot of black and white. I used to say to my managers, “If I give you this report and I gave you three minutes, and you’ve never seen this community before, I want you to tell me how’s this business doing — where are they doing really well, where are they having challenges, and where are we likely to focus our efforts to fix it. Go.”

After three minutes, oftentimes they would just get used to what the rows and columns meant and what was on each page.

Executive directors have so many things coming from so many places. It’s probably the hardest job I’ve ever seen in my life. They don’t have time to study the kinds of things that we might have the time to study in the home office.

And so we built. We started this at Aegis and we continued it at Merrill Gardens, to the point where I believe now we probably have the most sophisticated business analytics tools in the industry, and we can dial in on every element of the business very, very quickly. I can hand a set of reports to a manager and they can see two years’ worth of history and trends in every key area.

They can dial in on any particular matter, whether it’s a sales function or a care function or an expense matter, and see exactly where things are breaking down, and they can do that very quickly. Building a business analytics function behind the organization was something that was critical, and I think we’ve done an amazing job at it.

How did you get the tools you needed to achieve this?

Fundamentally, you have to see where your information is.

For example, when I went to Aegis, we had eight different systems, one for the receivables cycle, one for the general ledger, one for the payroll hours … all this stuff was everywhere. One of the things that we had to do was consolidate.

At Merrill, we did a similar thing, but we didn’t have quite as many different systems. We were basically able to get down to two basic data sources, Kronos and Yardi. We also bolted on Yardi EHR, which is an electronic health record module that takes all the [resident] assessments, and we dial those assessments down to points. Those points are now inside Yardi. That’s a measure of the acuity of the residents. Now we have the acuity of the residents, all the financial information, the hours, and the payroll dollars, direct and indirect, in pretty much two places in the cloud.

But, we had to build a system that could draw from both of those two. Every single night we have a download that goes into a central depository — that’s our data bank — that we then hook into for our business analytics, so it gives us pretty close to real time.

Can you provide an example of how this works in practice?

We can tell which individuals or which communities have been dialing it down further in their shifts, or which individuals are clocking in late or clocking in early, and that sort of thing. Or a sales funnel. We can see how leads are turning into tours, turning into deposits, turning into residents, in very real time, and we can pick any date and community scheme we want. We can pick a region or maybe all the communities opened in 20 years.

What were some challenges in changing to a more centralized, data-driven operation?

One is cost. I think every company has to decide, what are we going to invest and what is worthwhile? I don’t think either [Aegis or Merrill Gardens] was too resistant to that.

At the community level, change is sometimes harder. But, when I ask people if they want to improve their business, everybody usually says yes. Then, I challenge them and say, “I want you to tell me how you can improve your business without changing anything.”

They give you kind of a blank look. You say, “Do you then understand that you can’t be resistant to change if you have aspirations of improvement? Do we agree on that? And do we further agree that it would be very nice if you didn’t have to spend reams and reams of time poring over financial reports?”

I think a lot of times the relationship between the home office environment and a store environment is a little bit of an us-versus-them as opposed to a support relationship. You have to have trust on both sides. I try to explain to them that I want us all to be looking at the same thing.

Can you describe a change you’ve brought to the company’s corporate management?

There’s one thing I did want to improve when I first came to the company, and it’s one of the few things that I thought could be improved upon.

I asked the question, “On this particular item” — and I asked this of the management team — “Can somebody raise their hand who is in charge of this?” And no hand went up. Then I said, “Is it that we’re not paying attention [to this], or is it that a lot of you think you’re in charge, or that nobody knows who’s in charge?”

And so I went about saying, okay, I need a top ten list. Which things do I think are so important, when I ask this question, I really need a hand to go up? I’m going to make that list and I’m going to make sure that a hand goes up for every one of those things. We might have another ten below it, but we’ll work on these ten first.

Can you describe what Merrill is doing in China, and why?

I think it’s clear that in China, having no basic history of this industry, they do look to the United States to find quality operators to bring to China, to help them develop the blueprint for how senior housing will be able to work ultimately.

Under the leadership of Cole Wright, senior vice president and managing director of China Operations, Merrill Gardens has been working with certain development partners that had an interest in this industry on a consulting basis and we are building relationships with potential development partners.

There’s a lot of risk in China.

Currently we have two communities operating and we will open a third later this year, with the capability to serve over 500 residents. Essentially, it’s been a seeding opportunity for the last few years, both having us understand the dynamics of the marketplace in China and at the same time, develop relationships in China that will ultimately pave the groundwork for our development partnerships.

Changemakers strike the right risk-reward balance. What’s the risk-reward equation in China?

There’s a lot of risk in China. A lot of the risks, we now read about every day in the newspaper.

I think other risks in China are [related to] who you’re selecting as your development partners. The number of years we’ve been in China will help us discern who are the right partners.

We know we have a good demographic [in the U.S.], but there’s also a lot of supply when it comes down to it … In China, supply is really not the issue right now. There’s, if you build it, will they really come? From a cultural standpoint, can you overcome those barriers?

Those barriers I think have also been crossed here in the U.S. There are some Chinese-based communities here in the U.S., where the activities are different. Sitting Tai Chi is probably attended by 80% of residents. It’s probably the highest participation rate I’ve ever seen in any activity in any building. And calligraphy — there are a number of different activities that work very well in Chinese American communities, and there’s no reason I can think of that that same atmosphere would not work in China.

The move-in cycle [in China] is a little bit different. I don’t think the operations cycle will be all that different. We’re working with the managers in China now, trying to get them a glimpse of some of the things that we face as operators. We just had our general managers meeting in Seattle, where we invited about five of the managers from China. They participated with our managers in all of the dialogue.

We’re also having some of our managers go over to China and involve themselves, because to the extent that the environment is different there, we’ll be able to help diagnose how to alter the operational elements of the buildings as well.

I’ve seen the plans for some of these Chinese communities. They look like small cities.

Some of the developments are extremely massive. The senior housing element of the master plan is not quite as massive … I think right-sizing and scaling of those communities is important.

This is a trend in the U.S. as well — embedding senior living in mixed-use developments. Merrill Gardens is one of the companies driving this change.

We’ve had incredible success with that. It used to be that when you were selecting a site, you were putting the site out from the urban area, trying to build a self contained area, almost an island.

The thinking today, particularly with the generation that’s moving into our communities, [they want to be] walking out their front door, being able to see some great restaurants, some hustle and bustle, some places to roam around and walk.

Merrill Gardens’ related development arm, Pillar Properties, also does multifamily. Have you done projects mixing Pillar Properties multifamily with Merrill Gardens senior living?

We first did that in the University District in Seattle.

We have a very expansive courtyard, a grassy area with beds and flowers and picnic tables and other elements that you might see in a multifamily apartment. The senior housing building looks out on that courtyard, as does the multifamily building.

You can come over to the senior housing building, play bridge and have lunch, even if you live in the other building, and I think that also makes for, perhaps, pre-senior housing in the multifamily building. If you’re not feeling like you’re ready for senior housing, but you move into that apartment building, looking across the way, becoming very familiar with the senior housing building, it really helps remove the stigma. I think it becomes a natural flow. But even just the multi-generational intermixing of people in that center area has become a really great template for design going forward.

Another big change for Merrill Gardens came in 2013, when it sold 38 buildings, committing to a smaller, more tech-enabled portfolio.

When I first came to Merrill, it was just after they had sold a lot of assets, and we were really down to a number below 20 communities at that point.

A lot of those properties were getting a little older, perhaps seeing some functional obsolescence, at least in terms of the vision that we have for the kind of building that we wanted to build going forward. By taking a number of those assets and reinvesting, it was very clear to me that we [would] have a fairly healthy budget to build backend systems, because we were going to embark upon another growth phase in the organization. Probably mostly by development but possibly by acquisition, but either way, we wanted to have a best in class back of the house system.

Now, today, in the workforce environment that we have, it’s critical that we’re a highly efficient operator. If we want to afford to do some of these cool things and buildings, they all take money, everything competes for budget. So in our blocking and tackling, if we can do those things in the most efficient way possible, it frees the budget.

As we talk about some of these great things that we want to push into the future, we can’t forget that we have to do the basic things correctly. Last year, for example, we actually decreased our costs, and we did that because we focus so much on the efficiency.

Describe a time you tried to create change and it didn’t go well.

I thought one of the greatest gifts we could give to seniors would be, they would never have to talk to a phone company or cable company again in their lives.

I saw a lot of buildings where you’d move somebody in and then you expect the resident to deal with the phone company, to deal with cable company, and go through the aggravation. So I thought it would be good for us to get in the middle of that. We’ll deal with the vendor and we’ll have the residents deal with us.

I still think that’s probably a good idea in the long run, but how do to that without having the same customer service problem that cable companies have? I kind of feel their pain now.

Basically, it’s been on the phone side. We provide cable in most of our buildings, and that’s fine and we generally don’t charge for that.

Introducing WiFi into all the buildings, whether we want to be the interface with the resident or whether we have a third-party be the interface, is still an open question. The telephone side has proven to be a challenge because if something is going wrong with somebody’s phone, it’s usually not us. It’s usually on the other side, so we become a middleman in that process, and I think that’s been a little bit painful, but it’s also taught us that we really have to be careful as to who our phone provider is, because their failure will reflect on us from a customer service standpoint.

Have you backed away from playing that middleman role?

No, I think we still have that objective. We’ve backed away from certain vendors and we’ve also shaped our contracts to be very terminal … so you can turn and go the other way if you need to.

How do you keep the organization pushing for change, despite some unsuccessful initiatives?

I think sometimes change and fear occur in the same context.

As I tell our people all the time, I really want you to fail a little bit. If we’re not failing a little bit, we’re not pushing the envelope enough.

We’re going to go into something with some set of assumptions. Nine times out of 10, we may get some benefits out of things that we didn’t even see coming. Similarly, we might find some problems we didn’t see coming.

If we’re not failing a little bit, we’re not pushing the envelope enough.

I don’t want to try something [unless we] know in advance what are we going to measure, what are we going to look at, what do we think success looks like, because if we really like this, would we roll it out to the whole company? And if that’s true, then what things would we want to look out for, so we can know to watch for those things and carefully schedule out and design a pilot so that we can make our decisions, pass or fail, on a schedule, with as much objectivity as possible, and try to use that same template regardless of what we’re piloting.

Margins are under pressure for a lot of providers, making it hard to innovate. What position is Merrill Gardens in?

Because we did what we needed to do over the past few years, we’re probably in as good of a position as anybody to take advantage of efficiency. Our stabilized portfolio has been 96%-plus occupied for three straight years, including last year.

Do you thrive on change or do you think of yourself as more cautious?

I’m looking for the outcomes.

A long time ago, a professor in technology told me about the elements of programming. He said, “Forget how you’re going to get there. Start with where you want to get to. Make sure you understand what your end objective is here and then you can work back from there as to how to create a report.”

We’re looking for happy people that really enjoy living in our communities, working in our communities. We’re looking for reasonable returns for our investors. And those are things we’re looking for in an efficient operation and at the most affordable prices we can get them, and so we back up from there and [consider] anything we can do to improve those things by changing something.

Are there people or companies you look to as changemaker inspirations?

I wasn’t even in senior health care until 2009. I spent 20 years in the hotel business, but during that same 20 years, because our company was owned by an individual that was a very significant angel investor in Seattle, I had been involved with many, many kinds of companies, so I’ve seen lots of business models.

I was involved with Redbox since its inception almost. I was involved with CoinStar for over 20 years. I was involved with CoinStar as we bought Redbox from McDonalds and ran Redbox into a $2 billion dollar-plus business.

Companies that I looked to, companies I invite to speak at our management meetings, are not senior companies. A year ago, we had [T-Mobile President] Mike Sievert, in charge of the operations. This is an incredible business, and how they try to do everything in their organization and in their industry [to separate themselves from] the stigma attached to that industry, that’s something that really intrigues me. We can learn from people like that.

This year, it was Pete Nordstrom from Nordstrom, and how they have looked at customer service and changed over the years. Today they have double the number of discount stores than they have whole-service customer stores, and they’ve been able to do that over time without tarnishing their brand. And a third of their business is done online. It’s not a small number, and yet nobody considers them a technology company or an online provider or discount operator. To be able to pull that off, and still they have a family company with the governing structure as solid as they do, is remarkable to me.

McDonald’s is another one. I think there were five straight CEOs that all had their roots back to being a fry cook. So career pathing at McDonald’s is probably unmatched to any company I can think of. For us, career pathing from a caregiver to my job is important, particularly in today’s competitive workforce requirement.

How do you get ahead of the curve but not too far ahead of the market?

When we try things, it’s okay to try to be early. You can learn things. We tried virtual reality. It didn’t work. But I think it’s going to work.

It didn’t work because it cost too much and its benefits were too few. The content isn’t there. The cost structure isn’t right, but it doesn’t mean it’s not part of our future. We’re watching as the devices get rolled out. Now the devices are better. There’s more of them. There’s more manufacturers. Price is down to $300. I think that price point is great. There’s more content being delivered, and so we have to keep trying to figure out how we introduce virtual reality into a resident environment economically and also practically. That is a timing thing, and sometimes it’s the timing of some of the components we need, and sometimes it’s timing acceptance or just economics.

Do you think senior living is changing fast enough?

I think the industry is totally out of denial.

Out of denial, meaning people recognize the need to change?

I think the industry has a strong recognition that there’s been excellent change over the last 20 years. Certainly the physical plant has changed quite nicely. How we operate, how we staff, how we approach caregiving, probably hasn’t changed all that much. How we approach marketing hasn’t changed enough. Where we’re locating buildings — more in town centers like we talked about — how we recruit, how we develop a workforce, hasn’t changed enough.

Glenn Campbell was suffering from Alzheimer’s. Eventually [his wife] Kim had no choice but to look to memory care providers, and to her shock, what she found was wonderful. That’s still something that a lot of us have been surprised by. The environment within the communities has changed so much, and at the same time, I don’t think we’ve crossed the divide to be able to articulate that and communicate that to potential residents and families. If that’s accomplished, it’ll double the industry again.

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