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In September, my wife and I became parents. In between caring for our new son and trying to get some work done on our businesses, we spent time digging into child care options. We live in NYC, and we initially assumed we’d have lots of choices.
That didn’t turn out to be the case — even in a big urban center like New York, quality affordable daycare or child care services — let alone services that make use of available technology — are hard to come by. We’re not alone in feeling this way, as we’ve heard the same complaints from many other new parents in cities like New York and San Francisco. Questions abound, such as:
- Why is it so expensive?
- Given that it’s so expensive, why are there so few new entrants or consolidation?
- Why do “preschool” programs not provide full-time childcare as well?
- Why does it seem that all the innovation in this market is focused on building apps rather than actual childcare solutions?
- As it turns out, the answers to these questions offer a fascinating window into American history, entrepreneurship, and our relationship with government.
“The Innovation Will Happen First On The Handlebars.”
There are about as many ways to slice and dice the education industry as there are people who think about such things. But the “handlebars” metaphor has always stuck with me. In the comparison, there are 2 education industries that have very little in common:
The Bike: Kindergarten through College. Large, institutional decision-makers: school districts, universities, and local governments.
The Handlebars: Pre-K and Post-College. Consumers are the decision-makers, whether parents on behalf of their children (pre-K) or the students themselves (post-college).
We need a place for our son to learn and socialize during the day.
Innovating on the Bike presents large, obvious barriers. Charter schools aside, districts function as government-run monopolies. Procurement processes are long and arduous. Teachers’ unions are powerful and often resist change. In comparison with typical enterprise sales, procurement departments (the school administration) tends to be weak and bureaucratic, dragging out sales cycles.
The Handlebars present few of those challenges. Unions are generally absent, and (with some exceptions) pre-K and postgraduate education are unencumbered by politics. And perhaps most importantly, consumers make their own purchase decisions. If you think you have a better product, you can sell it directly to the end users who would benefit from your innovation. While the handlebars are a much smaller industry, introducing a new product is much, much easier.
And we’ve certainly seen that innovation in postgraduate and lifelong learning. Dozens of companies — from General Assembly to Lynda to Udemy — have created compelling products, gotten funding, scaled, and successfully exited in some cases.
In comparison, the other handlebar — pre-K — has been a wasteland. Of the largest education venture financings in 2014, zero of them were focused on pre-K education. Of the most-funded ed tech companies of the past 5 years, zero touched early childhood.
Particularly, there has been a total absence of compelling, new brick-and-mortar childcare operators: a company adding to the capacity of the urban child care ecosystem through a physical offering as we did with postgraduate training at General Assembly.
Coming up empty-handed in my own search, I sought out leads on social media:
While I received over 35 responses — including a number privately over email — I was underwhelmed by the results. Almost everyone building a new company in this space is simply building an app. But my wife and I don’t need apps. We need a place for our son to learn and socialize during the day.
To my knowledge, no entrepreneurs have seriously attempted to co-opt these models into a sustainable urban childcare solution.
In this search I wasn’t simply trying to find an answer for myself. Child care and education is a universal hardship for families living in urban centers, as many of them do. I now run a company innovating in residential housing, and addressing the childcare challenge in a multi-family building would be one of the best ways a residential operator could improve the quality of life of their residents. Sussing out innovation here is not just a personal errand for me, but a social and business mission.
Vitamins And Painkillers
Thus far my search had yielded hundreds of vitamins. Vitamins can be useful, but someone looking for reasonably-priced child care in a major US city is on the hunt for morphine, not Vitamin D. I‘m excited to introduce my son to the world of kids’ apps and online learning tools. But I’m even more excited to find a qualified person to care for him while my wife and I go back to work without spending $50,000 per year.
In this context, apps are simply colorful noise.
Unfortunately, even when innovative services touch the physical world, they avoid providing a childcare solution. For instance, several responses to my Facebook post suggested Tinkergarten, which I’ve been familiar with for the past few years. They seem to have built a compelling in-person enrichment product for kids. But it’s still only a vitamin, with classes taking place for a couple hours once per week. With mostly weekday classes, it’s built on the assumption that parents either (a) don’t work or (b) have a full-time nanny. Tinkergarten isn’t solving my problem; it’s making me guilty for not spending even more money.
When innovators do attempt to solve the childcare issue, the tend to solve it for themselves or a small group of friends. The “Kidbutz” of Topanga Canyon was profiled in the New York Times earlier this year. And this certainly isn’t the first time the Times has covered ad-hoc childcare solutions. But none of these initiatives have attempted to grow, let alone scale. And to my knowledge, no entrepreneurs have seriously attempted to co-opt these models into a sustainable urban childcare solution.
Preschool evolved from the nursery school movement, a embrace of the importance of early learning and a staple of wealthy upbringings since the early 20th century.
So what’s going on? Why is no one building a painkiller at scale?
Finding The Crèche
In France, the crèche begins at 3 months. It is a hybrid of the American concepts of preschool and daycare, providing working-hours childcare in a nurturing, stimulating setting. The French state covers 80 percent of the cost, and placing your child in the crèche for the full day at 3 months’ of age is seen not as a sacrifice to the demands of a working schedule, but as a critical step in a child’s development and socialization.
In the United States, we distinguish between preschool and daycare. Preschool is a luxury, typically taking place for 2–4 hours per day, 2–3 days per week. It’s highly educational and social, but like Tinkergarten, it doesn’t replace the need for a full-time private nanny. Preschool evolved from the nursery school movement, a embrace of the importance of early learning and a staple of wealthy upbringings since the early 20th century.
Daycare in the States evolved independently as a solution to working-class childcare needs, primarily for the children of immigrants. It was designed to “keep these kids off the streets and turn them into Americans”, a pitch tailored more to the factory owners subsidizing the daycares than the parents themselves. To this day, enrolling your child in “daycare” — or any full-time childcare option — is often seen as an abdication of parenting.
With the crèche, the French do not distinguish between preschool and daycare. The crèche hosts children for the full day because that is what parents need. It engages children in activities that promote learning and motor skills because that is what children need.
So why is no one bringing the crèche to New York or San Francisco? French state subsidies aside, clearly in a dense urban center with parents eagerly paying upwards of $40,000 per year for private school, you’d find a willing audience of parents ready to enroll their children in a paragon of European education, right?
Sadly, it’s not quite that simple. For one, starting a legal daycare is complicated, subject to a raft of well-meaning licensing and training requirements, codes, ordinances, and paperwork that must be mailed in triplicate to Albany. This alone turns away many entrepreneurs and drives much activity underground. Part of the regulatory framework includes detailed specifications of the space required to legally operate a daycare — specifications that make sense but unfortunately make most commercial spaces in a place like Manhattan unviable for daycare operation. Required square footage of outdoor space, specific kitchen and bathroom facilities, and room sizing requirements rule out most available spaces.
Local governments’ high-touch, weighty regulatory approach has handicapped market-based solutions.
Regulations aren’t an issue by themselves — they simply complicate an already difficult retail rental environment. Given the recent run-up in urban retail rents — and New York and San Francisco being under-retailed overall — prospective daycare entrepreneurs must compete with banks, chain restaurants, and other better-capitalized operators for limited space that would hypothetically qualify under existing regulations.
With the lack of available spaces, it’s not unreasonable for a daycare to pay upwards of $100 per square foot in rent for a legal space in a decent part of Manhattan or Brooklyn. For a 2-classroom, 1,500 square foot daycare, that’s $150K per year in rent. Since regulations specify that each room can hold no more than 4–8 children — depending on their age — it’s clear how legal, private daycare only makes financial sense at the highest end of the market. The rest gets pushed underground.
The lack of affordable childcare in the urban United States is a comprehensive failure of government. Local governments’ high-touch, weighty regulatory approach has handicapped market-based solutions. But the government has failed to provide an adequate alternative, leaving many families with no legal childcare option.
The end result is a massive, unregulated black market of illegal nanny shares and ad-hoc underground daycares. For the upper middle class, it’s expensive and inconvenient — private nannies become a must even when we’d rather be socializing our children in a group setting. But those less well-off are left with a handful of dangerous, unregulated options.
I wish I were more optimistic about the future of urban childcare. But a patchwork of tight local regulatory schemes and inflating retail rents have put this space off-limits for meaningful innovation, at least for now. I would love to be proven wrong.
Brad Hargreaves is the CEO of Common.