Risk, Reward and Entrepreneur’s
After working with hundreds of clients over the past twenty-five years, I can recognize an entrepreneur from a mile away. Earlier in my career, it never occurred to me that some clients represented a greater opportunity than others. Yes, I knew a big office would buy more sundries than a small office but I never profiled a dentist’s leadership or entrepreneurialism. Not one coach, consultant or mentor back then, ever discussed the value of account selection. We thought that anyone who opened a dental practice was entrepreneurial and they had to buy their dental materials from someone, so why not buy from me? With the challenging headwinds of today, account selection may be the most crucial factor in developing and maintaining a profitable business.
Anyone can be entrepreneurial
Anyone can be entrepreneurial but entrepreneurs tend to be repeat offenders. These extraordinary people are driven and will accomplish their dreams and goals somehow, some way. The idea of potential failure doesn’t faze them. They are optimistic, confident and they do their homework. These people hate to fail, but they view failure as part of the process. They realize that failure is just a tiny footnote in their success story. Entrepreneurs like to work with people and companies that are deliberate, reliable and that execute. They have no time for fluff and distractors and will not delay or forgo their progress because of others.
My experience tells me that the most common road blocks for dental entrepreneurs are; financing, risk tolerance and human capital (talented, dedicated providers). I have several clients that would open or acquire more offices if they had the funds and clinicians to do so. They have learned how to operate a profitable business and they have the infrastructure and systems to replicate it.
Risk tolerance is the degree of uncertainty and volatility that an investor or business person is willing to take on the journey towards success. An investor is looking for a high yield on their money. A business person seeks sustainability, growth and profits while an inventor may be looking for consensus, approval, empowerment or funding. While outcomes differ, these exceptional people accept an elevated level of risk or failure and debt service doing what they do.
Decision making is very individualistic, even in this new world of analytics. Most of us think that the numbers don’t lie or the facts determine outcomes. It isn’t quite that simple. Don’t forget that businesses are run by people. People have financial motives, idiosyncrasies, risk tolerance issues, leadership or leader-less challenges and money can accelerate or suffocate even the best laid plans. If we have all the facts and the human experience factor than decision making should be relatively easy, right? Well, yes and no. The way in which one sees the world can change the decision-making process. Some leaders believe that the world of opportunity is abundant and others see the world of opportunity as scarce. This variance in philosophy combined with one’s risk tolerance will impact decision making. Therefore, decision making is an imperfect calculation.
Most leaders and C-suite officers are excellent decision makers. They measure the data against specific criteria. Their knowledge of mergers and acquisitions, industry trends, impending governance (compliance) or competitive disadvantages, provides them with a backdrop of expertise and the critical data necessary to make an educated decision guess. However, some management teams are so focused on the P&L, shareholders or media pundits that they have forgotten about people power. People power is the engine of invention and innovation. It is fueled by motivated professionals harnessing great ideas and strategic relationships. While it is extremely difficult to measure the talent, effort and outcomes of motivated people, they must never be discounted or underestimated. People are a company’s greatest asset whether you are a dental office or multi-national conglomerate.
I am sure we’d all like to go back in time and buy Fang stocks (Facebook, Amazon, Netflix and Google) when they were IPO’S. Many of us, at the time, thought that these companies didn’t make or own anything and they were over-valued. We couldn’t wrap our heads and hands over the fact that they didn’t have the traditional brick and mortar business that we understood. Most of us thought that they were distractors and the big boys, that operated in their space, would eventually figure out how to beat them, acquire them or crush them. In the end, these companies were indeed distractors but more importantly, they were disruptive. They single handily disrupted the space they operated in and transformed their perspective industries. In turn, they have changed our world.
*The lesson or take away for every business is this; today’s consumer grew up with a smart phone and the internet of everything. They seek convenience, authenticity, fairness and solutions. They have grown up watching their parents and big business resist change, frozen in political gridlock and polarized by generational disputes. Today’s new consumer won’t accept the “Status Quo”. They seek continuous improvement, advancement and a positive trajectory. It is how they are wired.
When you look at the dental landscape today it is much different than it was just a decade ago. In the early 2000’s there was private, public and institutional dentistry. The public and institutional dentistry accounted for about 10% of the mix. When I used the term public dentistry back then, I meant health centers, hospitals or clinics. When I said institution, I thought of universities, prisons and the military. When I said private, I meant everyone else. Today the mix is more complex and fluid. Change is happening at every level spurred on by private equity and venture capital investment.
I believe the current mix between private, public, institutional and group dentistry is more complicated because DSO and MSO growth has accelerated over the past few years. I am certain that the industry data and financial analysts do not account for hundreds of practice owners that have two facilities and provide multi-specialty, group dentistry. The way we (the industry) identify group practices is archaic and needs to include these dynamic duos if we want accurate numbers.
This is how I see the dental landscape today.
Private Practice – 63% (Solo or 2 or less practices)
Public Practice – 7% (spurred on by the expansion of community health centers, Medicaid, CHP (child health plus) and other federal and state subsidies.
Institutional – 5%
DSO/MSO and Regional Group Practices – 25%.
I predict that by the end of 2019 Group Practice will be at 32% reducing Solo practices to 56%.
These trends show no signs of weakening but as I mentioned earlier, money can accelerate or suffocate expansion. With interest rates rising and a market place that seems willing to over value properties (multiples of E.B.I.T.A), I expect VC and PE money to slow in the dental sector. However, regional groups who use traditional financing, will continue to escalate. Dentist owned and operated regional groups are committed to dentistry and they know the local landscape. They will acquire key practices where the seller stays on as an employee and ambassador and they’ll preserve that private practice feel. These organizations will experience quick growth by implementing multi-specialty capabilities and operational efficiencies.
Between the consolidation of ownership fueled by group dentistry and an industry wide technological revolution, we find ourselves in a highly volatile marketplace. Dentistry is a relatively small industry, so trends, movements and big money can have an enormous impact and influence on it. In just over a decade a multi-national conglomerate, through acquisition, has become the largest dental manufacturing company in the USA.
On the healthcare provider front, we see a handful of management companies opening several dental offices every month with no signs of slowing down. At the street level, dentist investment is very high but not ominous. The larger practices that provide multi-specialty care or operate in a group setting are making big investments in technology. The smaller practices are struggling to keep up and many have decided to opt out of the technological revolution completely. The real excitement is in the mid-sized private practice sector because they are poised for remarkable things. They have an enormous upside when they integrate technology (CBCT and CadCam) and grow their community relevance. Patients want to have the same clinician every time they go to the doctor and they want to have a relationship with their caregiver! The windfall for the mid-sized, cutting edge practice is that private buyers and groups recognize the distinction and are willing to pay top dollar for these practices.
When a homeowner sells their house after they’ve raised their kids and lived in it for thirty years, they hope the buyer has a similar experience but they want a great price for their home. Buying and selling a home is a financial and emotional transaction just like selling a dental practice. On the flip side, the buyer hopes that the amenities and the house are in excellent condition because they are making a huge financial investment. Additionally, most home buyers don’t have the funds to upgrade or renovate right away, so they want a turn key house. That’s why real estate agents say, “It’s all about the kitchens and baths”! A home with nice amenities will sell at the top of the price range and will sell fast. In contrast, a similar home that requires updates and investment, will sell for less and will be on the market longer. The same goes for dental practices! Keep your practice current (good curb appeal, well decorated and equipped with the latest technology). Enjoy the new equipment and technology now and capture the revenue. When you sell your state of the art practice, it will be extremely desirable and will yield a very profitable ROI for you.
The Journey Continues…
Entrepreneurs know that the journey of growing a business or empire is mired with challenges. Some of those challenges are external and are imposed on us. Other challenges appear because of our mismanagement or lack of skill and resources. Today, my job is to remove those barriers and connect my clients with the tools and resources they need to grow their business. I spend seventy percent of my time being a confidant and adviser to dozens of practices. I take pride in these relationships and I am happiest when I can identify a unique opportunity or help them accomplish their goals.
A few years ago, I changed my business model and took a leap of faith. This was my way of taking responsibility and being entrepreneurial. It was the scariest thing I ever did and perhaps, the most rewarding. It was no subtle change either. I went from being the seller to becoming my client’s buyer. I now manage the supply spend for dozens of independent and group dental practices. I am currently creating an e-catalog with budgets for several offices and I’m developing training and education programs for a few others. I use my knowledge of the market place and vendor tolerance to help maximize free goods and audit product selection to reduce supply costs. I am a firm believer in operational efficiency, cost containment and growing revenue. My greatest challenge from clients is a lack of engagement and/or communication. Many great, long term, clients do not reach out for this help and go it alone. In a world where time is money, I respond best to those who are engaged and provide feedback.