An assisted living success story.

Aegis Assisted Living, headquartered in Redmond, Washington, was founded in 1997 by Dwayne J. Clark, former executive vice-president of Sunrise Assisted Living and now Aegis president/ CEO, and William P. Gallaher, former president of Oakrnont Retirement Communities and now managing member of Aegis Assisted Living, LLC. The company has enjoyed remarkable success in an era when the assisted living "gravy train" was grinding to a painful halt--or at least slowing to a crawl--for so many owners, investors, and developers.

In contrast, from 1998 (when its first income was earned) to 2002, Aegis' revenues grew from $357,776 to $46.5 million. Aegis now operates 30 assisted living residences in the states of Washington, California, and Nevada, with three more under construction, and it employs 1,500 people. Its buildings range from 43 to 158 units; four of its facilities include independent living apartments.

In October 2003, Inc. magazine ranked the company third on its list of the 500 fastest-growing companies in America, and Washington CEO magazine chose Aegis as its 2003 "Best Company to Work For" in the state of Washington--out of a field of 112 nominated companies. It's significant that employee votes counted 50% toward this ranking.

Because of Aegis' head-spinning success, and because such success clearly points to two essential elements--staff and customer satisfaction--Nursing Homes/long Term Care Management Editor Linda Zinn asked Clark to share with our readers some of the reasons for his company's phenomenal growth. His insights follow; some might surprise you.

Zinn: To what factor, more than any others, would you attribute your company's success?

Clark: The number-one factor is the people we have on our management team. That team shapes company culture and causes it to evolve. Our culture is unique: Our goal has always been not just to have a top-notch senior housing company, but a top-notch business.

When you look around at senior housing, it's apparent that this industry has come to the game late in terms of how we pay staff, how we look at benefits for employees, how we reward them when they produce great amounts of revenue, and how we approach business practices. Frankly, when we started Aegis Assisted Living we didn't see any great senior housing companies to model our business after, so we looked at the best business models we could find, at the best companies around the world, and emulated those.

For example, we wanted to avoid the pitfall of staff turnover. We observed that senior housing companies generally were rather complacent about it. So many people simply shrug and say, "Oh well, that's our industry." We went outside our industry to see what Costco, the retail warehouse giant, was doing, because we'd heard about its extraordinarily low turnover.

When Costco was developed, the average staff turn-over among businesses of its type was 300%. Its owners set a strategic goal to get their turnover rate below 20%, reasoning that if they could do that, they would save millions of dollars and, with that savings, create market dominance. Cost-co's turnover rate today is only 10 to 11%, which benefits not only its shareholders, but also its customers, in the form of lower prices.

Zinn: How is Aegis' turnover rate?

Clark: It's the lowest in the senior housing industry, ranging between 23 and 55%. That's compared to 120%, which is the industry average.

Zinn: How do your salaries compare with those your competitors pay in the areas where you have facilities?

Clark: We pay our management staff as much as double what our competitors pay theirs. For example, our executive directors who manage small buildings--i.e., 80 units--receive salaries of between $75,000 and $95,000. Our top bonused administrator last year made a $47,000 bonus. Compare that with the average executive director of an assisted living community, who is paid a salary of only $46,000 a year.

Zinn: Do you also pay your frontline staff more?

Clark: No, we pay our hands-on line staff almost the same hourly wages as our competitors pay, but the edge we have is that all our employees are eligible for profit sharing. For an average $10/hour worker, this could mean another $500 to $1,500 a year. In addition to profit sharing, we have an exceptional benefits package. For one thing, we give healthcare benefits to our line staff, which is becoming less common in our industry. We also provide for both our managers and our line staff what we call "soft" benefits. These are benefits they enjoy as a result of our negotiating with all our vendors on their behalf.

For example, all employees can get haircuts for $3 at any of our buildings, as well as discounts on massages, tux rentals from our uniform company, laundry services, food, and much more. We also negotiated with the bank that handles all our deposits to provide our staff with free checking. In fact, we ask every vendor we deal with, "What can you do for our staff?" The resultant discounts and benefits add up in real dollars that cost us nothing but show our employees that we're advocates for them.

Zinn: In addition to paychecks and benefits, what is the best way you've found to show your staff they are appreciated?

Clark: It's not enough to pay lip service to employees; you have to show them they are appreciated. I learned an important lesson about this from a mistake I made. I was always telling our line staff how much I valued them, but when we built our first building, we included only a tiny break room--about 5 by 6 feet. It wasn't a malicious decision; I just didn't think. People said to me, "You say you care, but look at our break room." I didn't make that mistake again. In some of our buildings, the break rooms are the size of apartments, complete with food vending machines to make employees' days more convenient and relaxing.

It's also important for employees to feel connected to the company. Benefits are great, and pay increases are a good short-term motivator, but people simply want to feel connected. I learned this while writing my book, Help Wanted: Recruiting, Hiring, and Retaining Exceptional Staff. I interviewed 300 line staff for the book. One of them was a housekeeper who said to me, "You know, I don't come from a very good home. There are lots of challenges and problems there. So when I come to work, I pretend I'm coming home to a grand mansion that's my own house. These people here are my friends and family. I love my job and it's an escape for me." When you're paying people $10 an hour they don't have a lot of luxury in their lives so, as an employer, you need to make their work environment, their tasks, and the people they work with as satisfying as possible.

I just spoke to one of our managers who put on an international potluck dinner, because he had employees from six different countries. He wanted them to know that their culture is part of our family. Such acts make employees feel connected.

I also interviewed Howard Schultz, the founder of Starbucks, who said, "Thirty or forty years ago, people came to a company with inherent trust for their employer. Now they come with distrust. Our job is to win their trust back." I thought that was so poignant. We win that trust by taking care of our employees, being good bosses, being considerate, and allowing flexibility.

If you can understand someone's personal situation, it goes a longway toward winning his or her trust. I coach our managers to look for opportunities to do that. Here's an example: Right now eight of our homes in Southern California are near the line of fire, so we're helping our staff who've been displaced by assisting them with food, clothing, and shelter. [Editor's note: This refers to the wildfires that were taking place in California in late October, at the time of this interview.]

Here's a specific example of flexibility: Our head of accounting, a very senior vice-president, works alternating short and long weeks--9:15 a.m. to 3 p.m. one week, then longer hours on the alternate week because that schedule allows her to spend more time with her children. Allowing flexibility shows people we care about their personal needs, and it reflects the kind of sensitivity that allows companies to thrive.

Zinn: But it must be difficult to offer that kind of flexibility to line staff. How do you accommodate their needs?

Clark: Because we have to operate our buildings 24/7, flexibility for line staff is indeed challenging, but we do our best by striving to rotate weekends, give short shifts as needed, and provide the schedules people want as much as is possible.

Zinn: What do you look for in prospective upper-and middle-management personnel, to help create and maintain a positive working and living atmosphere for your staff and residents?

Clark: Company culture has always been an extremely important issue for me. When we first started the company and met with bankers, my partner said, "None of that warm, fuzzy stuff. We have to show that we'll make money." But the fact is, having a progressive culture will help you make money. The way to achieve that is to hire like-minded people--and I'm not talking about a "Stepford," robot culture. I mean people who are polite, have high integrity, who believe in excellent customer service, who are intelligent, who don't mind speaking their minds rather than building a political base, and who love a challenge.

We do lots of reading as a company, which helps define our culture. For example, we read The Oz Principle: Getting Results Through Individual & Organizational Accountability, which has a great deal to say about integrity, about people taking responsibility for their mistakes rather than blaming others. If we hear someone say, "It's not my fault we're over budget; it's because so and so did such and such," that's unacceptable. That person will be counseled quickly. It's much better to say, "I screwed up and took my eye off the ball. This is what I'll do to make sure it doesn't happen again." It's much better for people to take the hit rather than spreading the cancer of blame; blame is simply unproductive.

Zinn: Could you describe your hiring process a bit?

Clark: We take a lot of time in hiring. Prospective employees sometimes get frustrated, because they have multiple interviews--sometimes twice with the same person. We tell them that we want to make sure they and we are making the right decision.

We also use a group interviewing process; I've interviewed more than 4,000 people that way. It helps us see the inter-personal dynamics, instead of simply falling in love with a resume. You can teach employees business skills, but you can't teach them integrity or honesty. We want them to come to us with good characteristics that will complement our culture.

A prime example: We've been looking to hire a vice-president of branding for months. We've gotten great resumes, but the people have been culturally wrong for our company. Some companies will act out of desperation, saying, "We have to hire someone," but I believe you're much better off to keep looking until you find the right person, not just someone. The fact that we still have our first and second employees, hired back in July of 1997, confirms that this is a good approach.

Zinn: Obviously, in addition to staff satisfaction, customer satisfaction must have contributed to your success. Do you have prospective residents on waiting lists at many of your facilities?

Clark: We have waiting lists at 80% of our buildings that have been open long enough for their occupancy to stabilize. Another statistic to look at is how fast we fill new buildings: The national average for an 80-unit building is 24 months from opening; we fill our facilities of that size in 14 months.

Zinn: What do you consider the most important key to customer satisfaction?

Clark: I think it's responsiveness--both to the needs and complaints of our residents. For example, I recently received a phone call from a resident's family member who was calling to complain about a food issue. She had called both the executive director and me. I told her someone would get back to her within 24 hours to address the problem. Within 24 hours our vice-president who oversees the property called her and gave her a detailed plan for how the problem would be corrected. Then I also called to follow up, to make sure she got satisfaction. She was blown away.

Believe it or not, we get excited when we get complaints. There aren't many second chances in business, but complaints are a great opportunity to educate people. We try to coach staff and managers not to be defensive and to look at complaints as just that--a second chance to win the customer over. And we go out of our way. We "overservice" the people making complaints, because we want to give a Nordstrom's level of attention to our residents.

When we hired our vice-president of Quality Assurance, who has a variety of roles, she asked on the first day, "What's my primary role?" I told her, "You need to be the licensing and QA person from hell. I want you to be harder on our buildings than any state inspector or any family member ever could be." We want to know first, internally, if we're doing something wrong. We want to find our own Achilles' heel.

Zinn: How do you monitor customer/ family satisfaction?

Clark: We have periodic town meetings at which we meet with half a dozen family members at once and ask what we can we do better. They're very candid. We engage an independent contractor who phones residents 30 days after they've moved in, to ask them what they think. That gives us good feedback. In addition, we have "secret shoppers" who call our buildings posing as customers. They rate how our staff treated them. We do the same with our corporate office, and these people let us know if the phone was answered pleasantly, if they were left on hold, if their call was routed correctly, etc.

Zinn: Could you describe some of the features and programs that you feel attract residents to your facilities?

Clark: For one thing, we're known for our Alzheimer's program, which is considered one of the most creative in the United States--much has been written about it. In our 80-unit buildings, 35 to 45% of residents have Alzheimer's or other types of dementia. I've seen a variety of programs all over the world. I've tried to incorporate the best of them into our programming here.

For example, we have a Snoezelen program, and several of our buildings have dedicated Snoezelen rooms. We have tactile art to help stimulate residents, and there are life skill stations throughout the buildings, as well as cueing devices, pictures, and signage to help Alzheimer's residents with way finding.

On our protected outdoor walkways, we have hydration stations and garden art with specially programmed activities for residents. At most of our buildings, an antique automobile sits in the court-yard, circa 1940. Of course it can't be driven, but residents can sit in it and operate its fully functional fights, horn, and radio. Besides giving them a sense of nostalgia, it also evokes memories and stimulates reminiscing.

As for features that appeal to residents as a whole, some of our buildings have spas, where we provide a variety of therapies, such as massages with essential oils. Our larger independent living buildings have business centers and plasma-screen TVs for people to watch. All of our buildings have "Family Rooms," which have computers with Internet access; CD players; a library of music, books, and periodicals; and even video games for visiting children.

Zinn: So many assisted living organizations have struggled and/or failed in the past few years. What do you think they did wrong?

Clark: People still tend to look at senior housing backwards. They look for someone with a finance or investment background to run their facilities--someone who is focused on the ROI, the profit margin, and who asks, "How much can I make?" But if you compare the companies that have succeeded with those that have failed, the difference is in the management of those companies. The problem with failed companies was the people they had in place.

Another problem lies with the average wage of an executive director of an assisted living facility. That person is running a hotel, a restaurant or restaurants, and a healthcare facility for an average salary of $46,000 a year--about the same as a housekeeping supervisor in a major hotel is paid. That's disgraceful. It leads to violations, poor quality of care, and dangerous acts that will get the industry into trouble. When we see our competitors put into a stop placement, it is almost always a result of poor management.

It's time everyone from the banks to the investors to the operators wakes up and recognizes that we need professionals to run these buildings. These executive directors are dealing with large staffs and issues that affect frail elderly residents. You need smart people who'll make good decisions. You can't just start with a great pro farina and expect to win. You have to start with an excellent management team.

Financing Progress

Based on an interview with Curt Schaller, Senior Vice-President and Senior Housing Team Leader, GE Healthcare Financial Services 

I've been involved in financing Aegis Assisted Living properties since 1997, as part of both GE Healthcare Financial Services' senior housing team and its predecessor, Heller Healthcare Finance, which was acquired by GE. I think what initially attracted us to Dwayne Clark and his plans for Aegis Assisted Living were: (1) Clark had had great success in upper management with Leisure Care and Sunrise, two senior housing operators with good reputations, and he had an obvious service-comes-first philosophy, plus (2) Clark's partner, Bill Gallaher, had an outstanding background of developing high-quality senior housing projects over many years. In short, the principals of Aegis had a strong track record.

In evaluating a prospect for financing in this field, an important factor is the company's historical property-level performance. Aegis consistently achieves high occupancy at some of the highest rental rates in the market--high rates that, I would add, are backed by very high levels of service. Also, digging deeper, one must evaluate the strength of management, both the track records of the principals and their reputation in the marketplace. Competitors will often tell you, in one breath, that they "have no competition," but in the next, concerning Aegis, that this company is "the one to beat."

Aegis has displayed a disciplined approach, developing assisted living properties in strong markets and only on the best sites, and it has backed up this strategy with a strong management team that believes in quality service. They know that no matter how pretty the building or how strong the market, if you're not delivering quality service in assisted living, you won't be successful in the long run.

We have provided a variety of financing solutions to Aegis, based on its specific needs--for example, miniperm loans, mezzanine debt financing, and credit enhancements. Aegis has been highly innovative in financing its projects, particularly in its use of tax-exempt bond financing, which generally requires affordable or low-income units. Our high regard for Aegis is exemplified by the fact that it is one of the few senior housing organizations for which we have provided construction-related financing. Our mezzanine debt financing on these projects allowed Aegis to stretch its own equity.

Aegis's management team is a leader in the industry and has been able to capitalize on opportunities as they arise. The company has been moving of late toward developing larger projects with a combination of independent living and assisted living, as opposed to its previous emphasis on building stand-alone assisted living facilities with dementia care. Although the company's initial growth was entirely through its development of new projects, it's recently made several attractive acquisitions of existing properties and secured management contracts on others, while staying true to its operating principles.

In short, we've been able to help Aegis grow under a variety of circumstances, and we've been very comfortable doing so.

Dwayne J. Clark, Cofounder, President, and CEO of Aegis Assisted Living, has 18 years of business experience in senior housing. He has written numerous articles and lectured extensively, and is an adjunct professor at Johns Hopkins University, teaching human resources principles. To contact him, phone [phone] or e-mail [e-mail]. To comment on this article, please e-mail [e-mail].