When a market solution can't fix a broken system

November 2, 2022

America's child care system is broken. I came into this space from the entrepreneurial process of looking at child care as a huge pain point for my family. Why is it so hard for everybody? After I had my first child I could not believe how challenging it was to find care—and I could afford it. It's incredibly heartbreaking for families and working mothers that lack the resources to get the child care they need.

It doesn't work for anyone. Not for the caregivers, who are trying to stay afloat. Not for the employees working at the centers, who are earning in the bottom 2% of compensation in the United States. And not for the parents who can afford it and are often paying more than their monthly mortgage payment for child care. My co-founder, Elizabeth Szymanski, and I launched MyVillage to help ameliorate this impossibility.

After we started to pull at the thread of the child care crisis we discovered there was a massive differential between supply and demand. Simply put: there's a lack of caregivers.

Many working families rely on informal and unpaid caregivers, like family, friends, and neighbors. But fundamentally, from a professional and workforce perspective, there isn't enough formalized care that exists. And that's where we anchored MyVillage: how can we provide a market solution to solve this imbalance? We looked at it through a business lens of how can we create more supply?

We quickly found that the home-based care market—small, independently run caregivers—was where we felt like we could have a real impact. There's less overhead and infrastructure than a large care center. We assumed that we could bring a business-in-a-box solution to these entrepreneurs that wanted to start their own in-home child care program. We would partner with these small businesses to get their programs running.

Coming to a broad, systemic problem that intersects with various government agencies presents some hurdles. When we started, we figured that we could be the business experts and bring that solution, then have this fundamental partner in the government to get started on licensing, education, and all the red tape that goes into running a child care operation. I remember those early pitches when I went in to try to partner with local agencies and we'd say, “You're the experts on early childhood. We're the experts on business, this is a match made in heaven.”

We found out quickly that it was very rare for governments to respond positively to anyone coming into the space. 

It's worth mentioning here that we weren't naive or barging into this space like a start-up with a silver bullet. We had the right conversations. We felt that we could partner with the existing infrastructure—like the government agencies and local nonprofits that support caregivers—to help increase supply. All over the country we saw the dearth of child care options and we felt that by bringing business acumen and infrastructure to a fragmented industry, we could help spur the opening of more child care facilities.

This is a system that needs to be reimagined and rebuilt from the ground up.

The system couldn't get out of its own way. We would align on the same vision, identify the same issues, and believe in the same toolkit of services, but then we could not believe the level of negativity and pessimism that came from the public sector. It was just a slap in the face within the system. It's not that the people within the system were negative about our approach, they were discouraged and fatigued from years working in a broken model. 

What was most shocking to us is how often we heard—from nonprofits, from local stakeholders, from the public sector—how much they needed more supply and more people in this space. But then when it came down to it, after we'd propose a market solution to increase supply, we were constantly met with the millions of reasons why they couldn't work with us to actually implement it in their state, because ultimately the incentives that exist for them don't work. We believed inherently in a system of carrots and they operated in a system of sticks. And the demoralizing result of that is that the end user—parents and families—remain in a fragile and financial struggle. 

Beyond that, it drives everyone underground. More families rely on unpaid and informal care. So the state never truly understands or comprehends the scale of the problem. The system is so fragmented and the actions that both the federal and state players take drives families out of the system, not into it.

The issue, from a business perspective, is that the margins of running a care center are impossibly thin at around 1% on average. It's basically like running a restaurant. So what we encountered were a lot of people who wanted to do this, it was their ideal profession. But the numbers didn't work out; so they would leave, and take their hard-earned expertise to totally different fields. 

The pitfall was that to build a market-based solution in this space, we needed to be extractive. There is fundamentally not enough money to make the market dynamics work for most participants. Given the razor thin margins, it doesn't matter how valuable or cost saving our product or experience is—most families simply do not have the resources to pay for it. Which is why we decided to close MyVillage. 

We have spent over four years trying to build a better child care and early childhood education system for the future. We helped over 200 women become early childhood entrepreneurs and open their own home-based child care businesses. Additionally, through our MyVillage membership coaching platform and rewards program, we helped support over 30,000 child care providers to open new programs or improve and sustain their critical caregiving roles in society. We've also, as a byproduct of all our work, stumbled into public policy—because it turns out that this absolute market failure cannot be solved by market forces alone.

This is a system that needs to be reimagined and rebuilt from the ground up. Caregivers must be incentivized and valued—both monetarily and for the critical role they play in our society. It is possible to solve for a new values system that elevates the work and the compensation of child care providers, and caregiving at large. We can no longer depend on a system that requires martyrdom, it must shift to value and values.

We have landed on our feet and deeply analyzed our learnings. We are determined to overcome established pessimism and acceptance of a system this vital and this broken. We believe there is a solution and that the time is right. There are emerging tools available today that weren't available when we started MyVillage, giving this distributed and desperate workforce the ability to organize itself in new ways, offering massive potential for redesigning the dynamics in the care economy. Our pilot project, The Care Collective, will unite this fragmented workforce inside a decentralized organization to unlock shared benefits, including increased income and elevated respect. Here's what we learned from MyVillage that we're applying to The Care Collective:

Recruiting new supply is only part of the problem.

Despite becoming best in class at recruiting new home-based caregivers, we weren't able to keep educators in a field and role that was ultimately unsustainable. In other words: recruiting new supply into a failed market is like filling a balloon riddled with holes.

Maximizing revenue isn't the number one priority for caregivers.

Even when wages increase revenue doesn't always increase—caregivers optimize their businesses for sanity. Caregivers don't think like a business owner first because their primary role is a caregiver, not business optimizer. As a result, most programs operate below capacity—by choice—to maximize work-life balance and stress for caregivers.

You can't monetize a customer that doesn't have money.

Educators are in the bottom 2% of earners; even the smallest expense of a $5 monthly fee is a highly considered expense. When income increases, educators are able to begin thinking about extras or add-ons, but this is out of reach for the vast majority of the caregiver market (like center staff and informal caregivers).

The supply market is fragmented and undervalued.

There is no unifying organization, body, or entity that truly represents the interests of a unified caregiving workforce. This is the foundation to any disempowered system and it's what keeps the workforce from engaging, elevating and sustaining.

This decentralized and fragmented problem is going to need a decentralized system to solve it. It is an entirely new way of looking at accepted and broken systems. It is an enormous problem, an enormous opportunity, and solving it will create enormous impact.

About the Author
Erica Mackey

Erica is the co-founder of 11VEN, an innovation collective focused on advancing solutions for sustainable cities.

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