a16z Podcast - a16z Podcast: Modernizing Government Services, From Food Stamps to Foster Care

Episode Date: June 7, 2017

When people think of modernizing government, they tend to think of new IT, of improved procurement, of new infrastructure ... rather than social services like foster care or food stamps. But how can we actually help improve daily lives -- less in the abstract and more concretely -- by applying tools and lessons from consumer tech to help put food on the table, or to find a safe foster home for children? In this episode of the a16z Podcast, recorded from Capitol Hill in Washington D.C. as part of our D.C. podcast roadshow, Propel CEO Jimmy Chen describes the evolution of the food stamp program from paper stamps to an 800number and EBT card to an app that actually helps make easier and better decisions. Senator Todd Young (R-Indiana), whose district is "ground zero" for the opioid crisis, describes efforts to improve and modernize an interstate foster care placement process. Together, they discuss how the public and private sector can work together to experiment, iterate, and measure success and outcomes; think more holistically about people’s problems and therefore the best solutions; and how to combat poverty. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, welcome to the A16Z podcast. We're recording from Capitol Hill on the Senate side this time over in the Russell Senate building. I'm here with Senator Todd Young of Indiana. along with Jimmy Chen, who is the CEO of Propel. These days, when people talk about government and tech, they think about modernizing data systems. They think about modernizing IT, some of the infrastructure. A lot of the issues that the two of you have chosen to focus on don't get a lot of attention. Senator Young, so when you were in the House last term, you sponsored this bill,

the modernizing interstate placement of children and foster care. What motivated you to take on this problem? Well, starting at a high level, I represented in my congressional district, Scott County, Indiana. This is ground zero for the opioid crisis. And what has happened is so many children of opiate addicts find themselves in our foster care system. It's overloaded Indiana's foster care system, and it got me to looking into how that system was managed. And so let's just say our existing foster care system is suboptimal in that regard. So it was designed to serve people in a given state when really an interstate solution was needed. Some of the problems, just to very quickly

itemize them. It's a paper-based system, so it's really slow. Extra costs are associated with looking through the paper for staffing and for equipment and supplies and maintenance of all the records. And then it's opaque as well. I mean, you don't have the ability to log into a system and figure out the disposition of a particular case. So I knew we could do better. I discovered that there was a system rolled out in 2014 that needed to be scaled up. And so we got involved in this whole thing with our legislation. So the bill itself, this was part of the innovation initiative, hard to imagine that people were against modernizing the foster care system. But what was the reaction that you got? It almost always, in today's environment, takes a bit of persuasion to tell people to spend

money, right? You need to identify a serious need. Here, we've got an incredible need that is impacting so much of our country. And in the end, we're going to save money and improve lives at the same time. So it wasn't that tough of a cell. It just took a little time to normalize people to this idea that maybe their states, had they been doing things for generations, wasn't quite working. So, Jimmy, how did you become interested in the food stamp issue? I grew up in a loving and supportive household that sometimes had trouble putting food in the table, ended up getting a full-ride scholarship to Stanford and then working at Facebook, where I built a lot of consumer software. I left Facebook to apply the best practices of Silicon Valley to build really engaging, really

crisply designed consumer software to solve social issues around poverty. We learned about food stamps through a nonprofit program called Blue Ridge Labs. It's based in Brooklyn that helps entrepreneurs identify challenges faced by low-income Americans. Can you explain why you decided to do this as a company, start your own private corporation, private company, rather than going into government, say, joining the U.S. Department of Agriculture and trying to address the SNAP program from the inside. I think the experience of the safety net in 2017 really encompasses the public sector, the private sector and the nonprofit sector. And someone who is experiencing a financial shock or is going through a tough time, uses services from a variety of those different sectors. And so a single sector

approach, I think, is a little bit short-sighted and incomplete. And it's part of the reason we run the company that can go in between these three sectors, regardless of whether they're a government-run service or whether it's a private company offering a better type of kind of financial service product. These days, our focus is on a public sector service called the SNAP program, formerly called the Food Stamps Program. It's used by about 44 million Americans. Americans currently. So about one in seven families in the United States is currently relying on these benefits to purchase food. Every state is operating in its own stove pipe, which we find not just in our foster care system, but across government. I find this challenge, though, to particularly afflict

our efforts to serve people who are poor, who are vulnerable, who are at risk. Our safety net needs to encompass our public, our private, are not-for-profits. I couldn't agree more. I really think we're underutilizing all the expertise out there. And our government programs, typically, they don't measure outcomes. They may measure inputs. If we're able to tear down walls between organizations and programs and connect the data dots about particular outcomes, then suddenly we're able to get a holistic picture of the needs of a particular individual, of the outcomes of populations, then we can iteratively improve government programs, not-for-profit programs, and private programs. So to the extent we can define outcomes and identify how much money we're really spending by either

addressing a challenge or immediately for prevention purposes or addressing it later on, that gives us a much clearer picture about what sort of interesting partnerships can be brought to bear to treat individuals who need help. Well, it's really interesting because that sort of gets back to this ageal debate about whether it's better to be an innovator inside of government or outside of government. What sounds like both of you guys are saying is that those are not mutually exclusive. The sphere of the public sector means that we shouldn't try as a private sector company to do better for our users, I think is the wrong approach. We think about ourselves a little bit like how TurboTax works for the tax process and that here's a private sector company that's able to take the UI of a particular program and make it significantly better such that people save time and money.

And I think that's ultimately, you know, that's really what we are, the same type of ethos that we're trying to drive for a program like the food stamps program. Yeah, you know, I would welcome the efforts of the private sector or not-for-profits or perhaps innovative individuals within government that might, for example, help those from more humble circumstances navigate our constellation of social services programs. It's unclear to the single father of three children who's been offered a job of $12 an hour. or whether or not that person is going to be better off taking said job or if instead they should stay home, take care of their own kids, cut some grass on the side. I certainly couldn't fault

that individual if they made either decision, right? But policymakers have a difficult time determining whether or not somebody would be better off under those circumstances. So we need to try and create some order out of this confusing constellation of programs that exist. And I think some of that can be done by leveraging technology. Having on your smartphone access to valuable information, which is increasingly how we're getting our information, I think can benefit policymakers and program recipients alike. I think for a challenge as deep and as significant as poverty, it's got to be a team effort. And I think we can all do a little better.

I think there's more that the public sector can do. There's more. The private sector can do. There's more than nonprofits can do. What we are trying to build is one of a multitude of efforts that are really trying to address this very complicated and very deep problem. Currently, you would have to call a 1-800 number to get you the balance of your EBT card. Yeah, that's right. In the late 90s, the food stamp program transitioned from actual paper stamps onto a debit card called the EBT card that is how food stamp

benefits are now distributed to these 44 million Americans across the country. There's about $70 billion spent each year through the food stamp program at grocery stores. It actually composes a huge amount of revenue for the grocery industry. In an earlier version of Propel, we actually building software to help people enroll in food stamps. And in late 2015, we transitioned away to building what we do now, which is really focused on building financial management software for people who are already on the program. My business partner and I were in a grocery store in Philadelphia trying to get people to enroll in this benefit. And on this particular day, lots of people told us that they were already enrolled and they were there to spend their

benefits. This person that we were speaking to, you know, we ultimately just asked, okay, how do you spend your food stamps at a grocery store? What does it like to purchase groceries on food stamps? And she said, the first thing that I do is I called the phone number on the back of my EBT card to see how much I can spend. And so she did that for us. And before listening to the automated voice prompt, she typed in one and then three and then typed in her entire card number purely from memory. Wow. And when we asked her how she was able to do that, she told us that it's because this is how much she knows she can buy for her kids. This is how close she is to really needing serious, serious help to put food on the table.

And so she has to do this every day. So we thought that was a little bit crazy. I come from a consumer technology background. So my experience has always been building consumer-facing software products previously at Facebook. And, you know, this particular challenge is one that's been solved by the private sector for years, right? Every major consumer bank has had a free smartphone application you can use to check your balance and see your transaction history for years.

But for some reason, that didn't exist for these 44 million Americans spending $70 billion per year through the EBT card. So that's what fresh EBT really is. It's supposed to be a modern software layer on top of the EBT. So I know both of you, Jimmy, you in the process of building Propel and then you, Senator, in the process of designing this bill last term, talked to a lot of people that were on food stamps, met with a lot of folks at foster care centers. What was the main takeaway in terms of best ways to design these programs moving forward? What is still lacking?

I think we need to make sure that our foster care system is tailored to the needs of its particular population, which is not confined to the state of Indiana. not confined to the state of California. This is a national challenge of trying to match needy children to loving parents or relatives or another set of foster parents, whatever might be in the best interest of the child, irrespective of state lines. Now, in the private sector, or even in the not-for-profit realm, you tend to respond more to the needs of your customers. They are the ones who put together pilot programs that need to be scaled up ultimately by government. We don't do enough of this in government.

In fact, we don't even measure success. There are roughly, depending upon how one counts, the different social support programs, 80 federal social support programs. Only 10 have ever been rigorously studied using the gold standard, randomized controlled trials across multiple sites. Can you imagine a business continuing to operate 70 programs that they weren't even sure were moneymakers or not? That's right. I mean. And so out of those 10 studied, only one has been found to meet its defined purpose. So this is where we need some help. You recently introduced, I think, with Senator Booker and Senator Bennett, this bill to basically build in evidence-based assessments for these different agencies or programs. Yeah, this is a transpartisan issue in the sense that everyone recognizes we need to improve these programs. Whether you want to better spend taxpayer money or you care deeply about the target.

populations, we all recognize that improvements need to be made. The legislation you're alluding to is legislation that would allow private investors to scale up things that are working, either on account of private business or in our not-for-profit sector. And if you improve lives based on an independent evaluator determining that lives were significantly improved, then we pay back the investors all that they put in to scale up that intervention, plus a positive return on investment. That's the model. We call them social impact partnerships. And the legislation passed unanimously out of the House of Representatives last Congress. I think it will pass out of the Senate this Congress and we'll sign it in the law. Knock on wood.

Literally the Russell. Knock on wood. The Russell Senate building wood. So that's interesting. So at the end of the day, you know, evidence isn't always neutral. So how do we ensure that these measurements are actually rigorous, particularly when you're building a company? And, you know, a lot of the evidence is tied to profit. We've tried to build a business model that doesn't conflict from the social impact we're trying to create but actually complements it. I think that's the strongest type of social impact and most sustainable type that we can build.

So as an example, in the early stages of the company, we considered a model where we were going to build software for the food stamp program and then we were going to build software to make it easier to get a visa or to get a driver's license. We're going to have all these different verticals. One of the reasons we chose not to go down that path was that was a model where we were going to not make money

off of low-income consumers and instead to make money off of these other types of services. We instead ask ourselves, is there a better model where we can actually build a big, interesting business while also still serving the same types of people that we started the company to serve? And so that's why we have this free app that people who are on food stamps currently use to manage their benefits. Our business is selling advertising to grocery retailers and grocery brands who want to attract the business of our shoppers at their stores, often by providing coupons and discounts directly to our users. So they actually save money by using our product. Yeah, it's essential that we have safeguards in government to make sure that when we do partner with, whether it's not for profits or for-profit entities, and there's money to be paid for those services that we are, in fact, improving lives. And so the approach we've taken in our social impact partnership legislation is, number one, we make sure that all contracts very clearly delineate what outcomes you're trying to achieve, by what date, what milestones, intermediate milestones you're supposed to hit.

hit and so forth. Then secondarily, make those contracts public and make all independent evaluations. And I emphasize independent evaluations by a third party. They have to be public as well. You see, there's this habit in government. When you tend to do something, you issue a press release, you hold a press conference. And then when things don't go so well, you tend to hide it. No, this is exactly the opposite of what should happen. We know that in our most vibrant sectors, like the tech sector, what you do is you learn from suboptimal results. You don't even consider them failures, right? And then you iteratively improve upon them. And so we wanted to replicate that sort of model in government. There are a number of competent evaluators who conduct either

randomized controlled trials or longitudinal studies that can really rigorously assess whether or not we're paying for success or paying for something less than success. How do we convince more young New Yorkers or young Hoosiers that come from the these communities that understand these issues better than anybody else, right, because they've grown up facing confronting these issues. How do we incentivize them to actually either go start companies or try and improve it from the inside? I think the answer you would have heard from many Republicans, say a generation ago, and I don't say this critically, it's just the standard Republican line, is use economic incentives to bring them into this marketplace. And that still

applies, right? And unapologetic, unabashed, and proud capitalist and, and, and, you know, So to the extent we can create a profit incentive for people to actually help individuals as opposed to self-indulgently funding 70-plus federal government programs, where we have some sense that perhaps on the margin some of these programs help, but really don't have much clarity on that. I prefer not to think in terms of programs, but instead of treating individuals holistically, if we're modernizing our social support system, people want to be part of meaningful. full work. They want to be part of a cause greater than themselves. That's something I learned in the Marine Corps, right? It's about leadership and motivation. What was the moment when you realized I can actually take the kind of technical training that I have and the perspective that I bring from my own upbringing and actually turn that into a company? Yeah, so a couple of things. The first is we spent all of our time talking to people who are recipients of the SNAP program

and of food stamps in the United States. And what we hear time and again is that the benefit is is extremely critical to being able to put food on the table. And so for our users and the people that we work with, it's very clear to us that this public benefit is a really critical part of the safety net, and this is who we're trying to serve. In terms of how we can inspire other entrepreneurs to solve these types of problems, I think people start companies that solve the problems they understand. And I think that's why so many of the startups that come out of places like Silicon Valley are addressing the issues of 20-something males who live in cities, because those are the types of issues

the tech entrepreneurs as a demographic tend to understand better than the average. There are 45 million Americans who are currently on food stamps. There are probably not a lot of them starting software companies. And so who's going to build a software that meets their needs?

I think there are two different ways we can address that. The first is that actually, you know, you can have an understanding and a deeper empathy of someone else's challenges. I think there are ways to start interesting companies,

whether they're for-profits or non-profits that address these types of challenges. There is an opportunity in the coming years for people of all income spectrum types to start their own companies and to solve their own challenges. And so the question is tooling. How do we provide the tools so that those 44 million Americans on food stamps can indeed

start their own companies? Something you said that I thought was profound, which is we do tend to solve or attempt to solve those challenges that we understand. I think that the private sector can help government better understand its own problems By embedding predictive analytics into some of our programs, we could do that in our social programs. And then on the back end of it is rapid cycle evaluation to determine whether or not we're actually helping the people after slightly manipulating a program to tailor it to the needs of a particular population or individual. What else? I mean, what other components of the support system do you think are most ripe for, to use such an overused word, disruption? So, you know, you could imagine something like with Pell Grants or short-term low-income housing, right?

Every program we have needs to be rigorously and regularly evaluated so that we can optimize it or get rid of it and replace it with something else that's working. You can do a randomized controlled trial for about, you know, 100 grand now. So we're going to increasingly see our not-for-profits, providing information showing what works and what does not work. I've got legislation we've just passed in the law that creates a clearinghouse of best practices that people can. draw on. These are some of the things that certainly we ought to be doing. And I think most importantly, we just need to be thinking of people, not as recipients of government programs, but instead as assets to be realized as opposed to liabilities to be written off. We don't really think of ourselves as a disruptor. We're not trying to disrupt the way that public benefits work in America.

We think there are actually lots of really committed people who are doing great work in the public benefit space. We really want to enhance the efforts that they are already committed to and to improve the lives of the people that they try to serve. And for a lot of our users, that's about navigating these public benefits and making sure that they have enough to spend and so they can actually go purchase those groceries. But I think that our mission goes broader than just a public sector program. It's really about the entire stack of what it's like to put food on the table when you're a low-income American. So what are the stores you shop at? How do you choose the right items? How do you find savings? And how do you manage the entire

process. I think in the longer term, we're really an anti-poverty company. So to the extent that food in the table is an important part of fighting poverty, that's why we're starting there. But I think more broadly, we see a huge opportunity to modernize the safety net and to fight poverty through software. It's terrific. I'll just close by saying that a lot of these issues are either bipartisan or nonpartisan or transpartisan, as you said, Senator. And what's exciting from our perspective sitting out in Silicon Valley is actually watching industry and government start to work together on this. There are some that are very easy fixes if only people started talking to each other more. So Absolutely. Thank you. Thanks for having us.