Life Plan Communities Are Primed for Growth. Here Are 3 Sparks to Moving Forward Boldly in 2022.

by | Dec 20, 2021

By Tommy Brewer, Managing Director at Ziegler and Mario McKenzie, Partner at CliftonLarsonAllen

In Love & Company’s recent webinar presentation, “Focus on 2022: Insights and Strategies for a Successful Year,” one of the main topics that we discussed was growth. After two extremely challenging years, Life Plan Communities are experiencing strong cash positions and many appear ready to enter the next stage of advancing their missions.

So, why are so many Life Plan Communities still hesitant to take bold action and grow? Much of it involves risk aversion. To a point, this is understandable given the pandemic’s continued evolution; however, organizations could be letting opportunities pass them by if they sit on the sidelines too long. Here are three considerations that can help spark your organization’s growth in 2022 and beyond.

1) Be the pioneers, not the settlers

Historically in the senior living field, not-for-profit providers were the pioneers. They blazed the path for the Life Plan Communities of today, which required a tremendous amount of upfront risk. On the other hand, the for-profit organizations and investors were the settlers. For-profits followed the footsteps of the pioneering not-for-profits and entered the market with much less risk.

Now, not-for-profit senior living providers are perhaps more risk-averse than ever before, while for-profits are the ones who have been innovating. As fellow webinar panelist Chris Keysor at Lenbrook noted, it’s time for not-for-profit providers to get “back on the offensive” even if that means assuming new risk. And despite still facing challenges, Chris has the feeling that if not-for-profit providers don’t start moving forward on growth opportunities, even more ground will be lost to for-profits. In other words, it’s time for not-for-profit senior living providers to be the pioneers—again.

2) Understand and counter boards’ risk aversion

Even if leadership teams at Life Plan Communities want to grow ambitiously in 2022 and beyond, many plans get stonewalled at the board level. In our view, many of today’s boards have a “not-on-my-watch” mindset regarding growth options because they don’t want an underperforming project to be their legacy. This requires taking a hard look at what success really means, and whether it means perpetuating “vanity metrics” like a 2.0 debt service coverage ratio and 400 days cash on hand, or if it means continuing to serve others and fulfilling the organizational mission.

Many classic mental biases are also at play when boards are faced with making decisions like this. Understanding these biases can help counter boards’ objections to growth.

Humans’ general tendency is to maintain the status quo and avoid change, and when communities talk about growth, they are talking about change. This “status quo bias” is usually the biggest hurdle to overcome. Other biases that can affect growth discussions are decision paralysis, groupthink, and as we hinted at before, loss aversion. We recommend a couple of resources that dive much more deeply (and much more expertly) into these concepts: “Misbehaving: The Making of Behavioral Economics” by Richard Thaler and The Brainy Business podcast.

Several other tools have been successful when proposing growth paths. Developing and presenting a 5- to 10-year forecasting tool can help the board see the financial impacts of a new project and where adjustments can be made along the way. Establishing an “entrepreneurial fund” for new ventures, with the understanding that it may be lost, can help. Getting back to risk, though, the most effective approach may be to educate the board on the differences between risk management and risk avoidance. Growth requires risk!

3) Look at the factors favoring growth

Across the board, favorable factors exist in the field that are making it realistic to increase the sector’s comparatively low annual growth rate of one percent. Life Plan Communities have stronger liquidity than ever, with more cash on hand to take on new investments and growth opportunities. The population trends we’ve all been seeing are continuing to forecast well: boomers are booming. Plus, our sector is unbelievably resilient.

Chris noted that the Life Plan Community world has overcome numerous challenges before such as the economic downturn of 2008, and we’re on our way to overcoming the COVID-19 pandemic. Brighter days are imminent, and in Chris’ words from his experience on the provider side, “We’ve managed a hurricane, and now it’s time to look ahead.”

Whatever growth may look like for your organization, whether it’s a new master plan for expansion, a new service line or a new partnership, everything we’re seeing inspires confidence for growth in our sector in 2022. That growth will take bold action, and we hope that this article and accompanying webinar can help provide the spark your organization needs so it may advance its mission and serve more seniors.

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