"Stay focused on the legacy, not the currency"
There is a young entrepreneur reading this right now. Scared to death. Researching and wondering if they should take the chance.
They are starting their journey not realizing they have already made the choice. To work hard, to be different than the average. The many nights studying, honing their skills. Getting challenged in ways they have never been challenged. Sleepless nights spent learning difficult and mind numbing tasks.
After all that, they discover the world has changed since they first started the journey. The idea from the beginning was to be a master of their own destiny. To enter a field that offered financial independence, a desirable lifestyle.
They graduate with honors. Proud of their achievement. Ready to tackle their first patient and use their honed skills.
....yet not ready for the business.
How did this market get created?
They were already "wining and dining" you while you were in school!
The offers of exceptional jobs, replacing dentists that are ready to retire that had large patient base. The business of dentistry pointed the previous generation of entrepreneurial dentists to purchase large and profitable practices. The valuations on the market were much less than the potential profit. The circumstances seemed promising.
As older, retiring dentist - this entrepreneurs was sick that the current market values for practices meant they would get LESS than they had invested in the infrastructure of the clinic itself!! They were told for years that in order to maintain their patient base they needed to stay current. To invest hundreds of thousands of dollars to replace old equipment, to buy current technology like digital xray, scanners, CBCT, Cad Cam....
It works and they make a very decent living. Hiring several associates. Building a business that eventually allows them to enjoy a 50% or greater profit while working less.
The type of business ANY entrepreneur would desire!
Yet the multiples, in comparasin to much riskier business was about half?
Hmmmm, thought this entrepreneur. If only I could involve some private investors to share the profit with. There is so much potential for this booming generation of dentists to exit profitably and we could leverage the current multiples to quickly do well.
So they did. And now you see a dozen other companies that want to do the same thing. The prices rise dramatically. The formula seems to work.
What makes it so attractive?
My self directed portfolio has enjoyed an above average return for over a decade. Since I took control, and applied some of these principals. Here is what I look for, and in particular why this industry was so attractive as a private investor...
#1 - A huge base of customers in a business that is mostly recession proof. In Canada approximately 78% of the population uses a dentist "regular"
#2 - A controlled suggested fee guide that continues to rise and is guided by inflation.
#3 - The possibility to garner large profit with small changes to efficiency and scale. Several percentage points of profit on potential fast growth.
#4 - A large base of business available to buy with senior owners looking for an exit strategy in a time of tax uncertainty. A large base that was attractively priced versus traditional and riskier business.
#5 - A base that would be willing to stay and manage the business which was already shown to be profitable and help successfully transition and mentor the next generation of owners. Reducing the risk of future earnings....
#6 - A demographic of potential employees that would have higher student debt than ever, making it more difficult to challenge the competitive valuations.
#7 - A demographic that may be less likely to pursue purchasing a practice due to lifestyle, family commitments, debt.
What other business offers these attractive features?
In a summary an undervalued large business community with a fixed retail price on it's product, supported by a community that frowns on marketing. Supported by a highly educated, and able customer base. An influx of highly educated, capable and incredibly JOB competitive associates working on a percentage basis? A business that has a relatively high barrier to entry on so many levels - education, ability, skills, and mostly the cost!
The Challenges for everyone
I LOVE business. I LOVE continual improvement and the challenges it brings. Let's go!
There are arguments about corporations dictating patient care.
It wouldn't make sense for any business, that wants to stay strong and profitable, to start making decisions that might affect the entire business. This is a social media world and referrals and public scrutiny are STILL THE NUMBER ONE reason any business succeeds! This is not treatment that is hidden behind closed doors - patients have a lot of access and ability to help build or destroy a clinic. Bad dentistry will be discovered - and its' not good business to start treatment plans with a focus on profit first.
What IS GOOD business is finding EVERY opportunity for efficiency in current, affordable treatment. Looking for opportunity to help patients get what they want. Healthier, long term results with less pain and more comfort. Whiter, brighter smiles. Easier appointments that take less time out of their lives. More convenient appointments with less visits to accomplish longer lasting results.
People may go to a dentist from a referral - but they stay because they are getting what they want. They TRUST that person. The results are what they had hoped. They will turn on this experience to their friends and family.
If the experience is bad - they will seek alternatives.
So the challenge for the corporations that have a strategy to take over existing business and simply insert a new associate will have a challenge to maintain the patient base. Whenever I help transition a practice - much of the value of the goodwill is only maintained if there is a LONG transition period!
This is the challenge for those seeking to own as much as it is for a corporation buying! A new associate is not the same as the old. The skills and abilities can be dramatically different from a well educated and skilled 30 year + veteran dentist to a new grad. You can't simply step into these experienced shoes!
How will anyone compete in this new world?
It's my strong belief that there is plenty of opportunity in dentistry. It's only a matter of embracing change and learning to understand the opportunity.
If you want to challenge the corporate vision as an entrepreneur- you must be willing to convince the retiring dentists why you may be the best option to help grow their business and help the long established patient base enjoy your version of their business.
Continual improvement is a MUST in any business. Look for the improvements to the bottom line. Look for improvements to efficiency (this is PRIMARY in my consulting world). Find the reasons WHY patients would want to seek you out instead of the business across the street.
Be good. Continue to improve your skills, your team, your business. Find your demographic based on what you LIKE to do. Be involved in your community as this is the FACE of your practice and your business!
Understand WHO you are! You MAY NOT be the type that should own a business in this modern world!
The challenge of being a non practicing owner
Corporations are mostly self financed and have deep pockets. they don't have to pay a mortgage, for kids to go to school, or make a payment for a broken furnace and a new chair in the same month with any stress.
However, cash flow is different. Corporations can only take whatever is left AFTER the associates are paid fairly. AFTER the re-investments in the business have been made. They face the same (and maybe tougher) challenges with employees (like associate dentists) that may demand certain quality of material and working conditions and benefits.....
A corporation doesn't do actual dentistry.
You may be servicing debt - but if you have set this up properly you are gaining EQUITY and EARNINGS in your business with every payment. It's mostly a matter of managing your business and personal debts for a set period of time. Learn this, and you CAN and WILL be successful. You can compete. You have the first 30-40% of cash coming from the practice to make this work.
Personality types that buy practices.
There are the negative nellies that tell me that practices are overvalued. That only corporations can pay these prices and it doesn't make sense for them. They want a business practically given to them in a world where a hundred other people are willing to pay full price....
There are the tire kickers who keep saying they want to buy, and a decade later are still looking and thinking how things are only "getting worse" for buyers.
There is reality. It's a competitive market and corporations are buyers. The first and strongest group of corporations make strong, educated bids for the largest practices. Especially those that may have difficulty finding independent, smaller buyers at these large numbers.
Those that are difficult to finance since the valuations are in the millions, or multi- millions. They can make an offer and write a cheque.
There will always be a market for strong business to thrive. Are you the right person to help take this business to the next level.