Success in Practice and Small Business is All About Relationships

Much of the money spent by practice owners on consultants and expensive seminars in exotic locations is wasted. Having spent 33 years advising mainly dental and veterinary practices and observing various accounting, legal and financial services owners it is clear that the No. 1 key to maintaining practice growth and improving profit is the quality of practice relationships with patients or clients.

Ritchie is a talented dentist. He also carries a touch of charisma and not only do patients get dental treatment which ranks among the best available but they find his personality agreeable and Ritchie gets lots of personal referrals. Ritchie has an eye for practice presentation and insists on refurbishment of paintwork and carpets before the need becomes apparent. Megan his associate is competent, perhaps near as competent as Ritchie, but she doesn’t make the receptionists phone ring. Ritchie is very busy and chooses to pass some patients to Megan, but naturally keeps the patients with greater needs or community connection to his list. Megan resents that Ritchie is making a lot more money than she is and believes that the receptionist is favouring Ritchie. In reality, the receptionist gets many more calls to make appointments with Ritchie and has become adept at knowing which of them should be fitted into his forward book and which can be booked to Megan. Inevitably Ritchie does a lot more high-end treatment. Ritchie believes that it is up to Megan to build her own profile as he had done. Eventually the associateship breaks down. Ritchie buys out Megan and hires an assistant dentist to do the work he chooses not to. Megan feels aggrieved, but she has failed to be sufficiently aware of the paramount importance of the interpersonal bonding between patient, dentist and chairside assistant as well as the vital role of practice receptionists.

The Lesson

Dentistry is a personal relationship business. It is far more a relationship business than medical general practice, with large group practices revolving doctor availability, doctors forever being well behind schedule, quick appointments, and vast amounts of outward referral to specialists, or to have X-ray scans or pathology tests or physiotherapy. Unlike medical GPs who refer virtually every procedure out, dentists spend their days carrying out procedures.

The Difference Between Small Businesses Offering Personal Service and Big Business

The bigger a business the more it is about branding and depersonalizing service. Small to medium consumer facing businesses are relationship based. Hence the national supermarket chains have come close to eliminating staff operated check outs. They have streamlined their warehousing and distribution with re-ordering automated. They have come close to being depersonalized. The smaller Foodland business franchise in our local shopping centre was until recently owned by a couple who put in long hours, but always had a greeting for regular customers and went out of their way to be helpful. Their attitude spread to the staff. Their delicatessen area was carefully calibrated toward local needs. Unsurprisingly, some years earlier they had run a country pub—the success of which depended on their relationships with the community. Since the change to a new owner which has several other Foodland franchises, the personal touches have dwindled and we find ourselves buying more of our needs elsewhere. By aggregating a number of franchises, their competitive appeal is diminished as the sense of community relationship recedes.

The Dentist Employed by a Health Fund

Theo worked in a clinic owned by a health fund. He was competent and had good communication skills, and although the clinic carried the fund brand, he built up a solid patient following. One day the fund’s management announced a reorganization and Theo was told that henceforth he would be working elsewhere, thus impacting lots of patient relationships. That motivated Theo to buy a practice off an older retiring dentist. Theo not only hung onto most of the retiring dentist’s patients but a regular stream of patients from his health fund list drove considerable distances to be treated by him.

The Lesson

The health fund overrated the strength of its brand and underestimated the strength of some dentist/patient relationships.

The Power of Three-Way Relationships

Three corporate organizations have purchased many Australian veterinary practices, two of them concentrating on small animal practices, and one on country practices with a predominantly farm production animal focus. Both of the urban small animal practices have passed into the hands of private equity players whose modus operandi is to buy a business, strip out as many costs as possible, then sell the business at a profit either by trade sale or by floating on the stock market. In the hands of private equity their financials are hidden. In the case of Greencross, it is likely that its Pet Barn business is better performed than its veterinary arm.

The corporates have major challenges as there is a nationwide shortage of vets available to work full time and this has played havoc with rosters. For many years veterinary schools have graduated mainly females and in due course many vets have chosen to work restricted hours. At the same time, privately-owned practices with full time owners have a significant advantage over corporately-owned practices—corporately-owned practices have a lot more staff changes and with no owner vets working full time, they depend heavily on a great number of part time employees. Pet owners influenced by the three-way relationship of their dog, themselves and their vet are often unimpressed with corporate practices and are referred by their friends to competing privately owned practices with long term veterinary owners with whom they can develop a relationship. As a result of the serious weakness of corporate practices it is widely recognized that the best place to start a privately owned practice is close to a large corporate practice. Preferably the veterinary start up could have two veterinary owners, each working full time. I knew of a number of start-ups near large corporate practices which grew rapidly by winning clients away from the corporates. There was nothing the corporate could do to stop the flow.

The Lesson

The great weakness of corporate Veterinary practices is their staffing, which impedes long term pet, owner and vet relationships with the widespread criticism by pet owners that “we never see the same vet twice at that place”. As the title suggests, “it is about relationships”. Branding cannot overcome the weakness of a business model offering personal services but which is not relationship based.

Does the Veterinary Corporate Deficiency Carry Over to Dentistry?

We know that the financial rewards spread over a dental career hugely favour well-performed dentists who establish their credentials in privately-owned practices, which are not preferred providers to health funds and who in due course become practice owners. They are able to profit from developing long term relationships with patients, their family members, workmates and friends referred to their practices. This enables them to build fees, increase profit and increase the goodwill value of their practice. This is heavily influenced by the quality of both their dentistry and of their personal relationships. People refer their family and friends to dentists whom they find agreeable and with whom they can enjoy a long- term dentist to patient relationship. While patients often cannot differentiate relative clinical skills many quickly reject a dentist with inadequate interpersonal skill.

Geoff, a dentist in a major regional city bought his practice off his uncle. He said that his uncle had the best following of any dentist in the city. He had a very engaging manner but the quality of his dentistry was poor. It demonstrated that in building a practice, maintaining and increasing its revenue and profit the relationship skill of the dental practice owner are even more important than their clinical skills.

Some employed dentists exhibit a poor ability to generate follow up appointments and personal referrals because they cannot communicate adequately with patients. They become recognized as “practice destroyers” and are moved on to make way for “practice builders”. Many of the former are spilled from private practice into publicly operated practices and health fund practices. Once again it is about the relationships with patients.

A vast amount of evidence indicates that the source of most new patients in privately owned Australian dental practices is personal referral. The dominant factor in personal referrals is relationship based. Naturally it is vital to maintain good appearance of premises, as while patients may like a dentist’s chairside manner, they will stop referring if the appearance of the premises deteriorates through fear of their friends being critical—but once rectified referrals tend to pick up again.

Breaking News TPG Sells 45% of Greencross

Australian Super and Canadian pension fund HOOPP are taking 45 percent ownership of Greencross and TPG is also refinancing Greencross with a new debt package of $1.8 million enabling TPG to receive a major dividend in addition to sale proceeds. As to the business future the saying goes follow the money. In this case TPG’s payouts.

It seems near certain that the actual jewel in the business is the retailing arm of Pet Barn and City Farmers. Despite all the corporate hype its veterinary practices are known to have huge veterinary staffing limitations. According to the Australian Financial Review of 23 March, Greencross only has about 7 percent of the Australian veterinary practice market.

The explosion in pet numbers during Covid was better for its retail arms than its veterinary clinics which have steep competition from veterinary practitioner owned practices

Web Sites

Simple websites which set out basic practice contact details and location are adequate. Websites help somebody who has been referred to make contact but apart from this the relationship of the dentists, vets and their receptionists with patients is the dominant influence generating referrals.

The Lessons

Advertising via letterbox drops or through local newspapers is widely experienced by dentists and vets to be a waste of resources. You don’t sell personal relationships by letter box leaflets.

The Surgery Ceiling!

I am amazed at how many dentists I have asked to identify the most visible part of their practice in the eyes of their patients who suggest it is the waiting room. The actual most visible part of the practice to patients is the square metre of ceiling above their head when reclining in a dental chair! Yet some practices present it poorly or in particular cases have ceiling tiles threatening to surprise a patient. Dentists need tasteful pictures with soothing colours, particularly green, hung horizontally on the ceiling. Greenery and moving water scenes are soothing on the eyes and improve the patient’s experience. This is preferable to mounting a video player with moving pictures. If a dentist is to enhance the retention of patients and their referrals, small touches which make the dental experience more agreeable are important.

When to Sell a Dental or Veterinary Practice.

The time to sell is while a practice is still growing. Dentists who wait too long and reduce their clinical days from four to three days per week show a marked decline in overall profit. Whether it is that they have slowed down or that their staff sense that their boss is losing interest I have noticed over the years that where the principal of a two or three chair practice reduces from five clinical days to four or four and a half days, their practice remains sound but when they reduce to three clinical days per week there is a large decline in practice profitability.

The Lesson

If a practice owner wants to cut their clinical involvement to three days per week it is time to sell first and contract to work for the new owner for reducing clinical days.

Leading By Example

Successful practice owners are not only competent clinically but their relationship with both staff and patients set the tone of the whole practice just as the commanding officer of a military unit’s leadership skills are imitated by their subordinates and differentiate the standards of units.

Staff Meetings

Staff meetings should be kept to a minimum, run to an agenda and tight time limit. Once a month is adequate. Quality of communication is far more important than quantity.

The Surgeon with an Underperforming Practice

I recall “Nicky” being referred to me by his adviser many years ago because his income was modest despite his specialist surgical qualifications. I asked Nicky how he had spent his time at university and he replied “doing medicine”, but I probed to find out whether he had been involved in any other student activities and came up with a few. I then asked whether fellow medical students had been involved in any of those activities and which other students he had been friendly with, looking for relationship hooks on which he could hang referrals. I suggested that he and his wife could make contact with old friends from university days and invite them to lunch or dinner. Nicky was naturally reticent but accepted the general idea and started to make social contact with classmates who had remained in general practice and who were in a position to refer patients in need of surgery falling within Nicky’s sphere. Since surgeons obtain patients by referral, it was necessary for Nicky, assisted by his wife, to increase his referring network. It was also necessary to build confidence in the patients who were likely to mention their experience of him with their referring doctors. The medical specialists who establish successful three-way relationships with patients and their referring GPs and in many cases with other specialists build up strong personal referrals. In due course Nicky became much more successful.

The Lesson

Success in specialist practice is about referral. In a crowded specialist market, referring doctors become aware of which specialists inspire confidence from patients and which do not and this governs their ongoing referrals. Patient referral is about relationships—and this also applies to the referral by dentists to dental specialists. Veterinary practice owners benefit by doing surgery in house rather than referring out all but highly challenging cases.

Accounting, Financial Advisory and Legal Practices Rainmakers and Drones

Successful practices invariably owe their growth to the existence of a rainmaker who has the skill of attracting clients through developing networks of relationships. If a rainmaker retires and other partners are incapable of being a rainmaker, the practices go into steady decline. Continuing partners privately decide that there is no point in working harder at creating relationships if the reward is going to be shared with other partners. They service existing clients but don’t put significant effort into creating new relationships.

As accounting clients age and sell their businesses, accounting assignments dwindle:

• legal referrals that once would have come to a rainmaker to dispense internally now go to other legal practices; and

• financial planning clients age. There is a steady decline in client superannuation funds under advice and administration agreements as death or family law settlements take away funds. The weighting of assets under advice and/or administration multiplied by the average life expectancy of the clients are on a steeply declining curve. The longevity of the business and its goodwill value go into steep decline.

Practices become top heavy with partners overseeing declining workloads. Talented staff realize that there is no opportunity of advancement and look elsewhere to join growing practices.

Practices in these categories suffer grievously if they are unable to replace a rainmaker. In the past, I have interviewed applicants for positions who when asked why they want to move on from their present employer have indicated that the particular practice in which they are employed has ceased attracting new clients and existing clients are selling businesses or dying. They see no chance of promotion in a practice increasingly top-heavy with partners.

Partners in accounting, legal or advisory firms who are unable to attract sufficient new clients and grow practices turn into drones watching while the practice suffers a steady long-term decline. Potential buyers looking back over several years read the signs and mark down the business value compared to a practice with similar income which is growing.

The Lessons

Such businesses are dependent on the ability of key partners commonly referred to as “rainmakers” to attract new clients to replace client wastage through sale of business retirement and mortality. The rainmakers have a variety of approaches, but all are able to create a steady stream of new relationships. Practices which no longer have a rainmaker decline. The decline accelerates as their remaining client group age and the better of their young professional staff move on. Both partners and remaining staff age. At a certain point it is nigh on impossible to reverse this trend.

Accountants, in particular, are prone to assuming that churning out financials is sufficient to maintain and grow a practice but with no rainmaker and partners putting their individual comfort above establishing new relationships practices decline at an accelerating rate. The same observation applies to a myriad of legal and financial services practices.

Relationships After Corporate Acquisition

I know of successful veterinary practices where an owner with enthusiasm toward patients and their owners have built enormous followings, being successful over many years. Where such a practice owner sells to a corporate owner and departs after a contractual work out period, it is common that practices lose their appeal and clients depart.

A Corporate Buying a Dental Lemon

A finder paid by a corporate discovered a practice for sale owned by “Harry”, a talented and successful dentist. Harry did a lot of quality restorative dentistry charged at healthy rates. He employed an assistant dentist who did the basic work and enabled Harry to concentrate on the quality work which was his forte. Harry produced 80 percent of the fees and the assistant 20 percent. Harry generated lots of personal referrals. The corporate advised by an accountant from a top four accounting firm did not understand what they were buying. They paid top dollar and realized well into Harry’s work out period that while they could easily find replacements for the assistant dentist that it was nigh on impossible for them to replace Harry. It was Harry who had the talent to do high quality restorative dentistry for whom patients were prepared to pay and who had the personality to continue to generate a high rate of referrals. The accounting adviser from one of the big four practices knew so little about the business of dentistry he did not ask the right questions and hence did not realize the high risk that the corporate was taking.

Knowing What You Are Buying

A young dentist consulted me about buying a solo dental practice generating extremely high profit from advanced restorative dentistry. I noted the practice vendor was producing around triple the fees of a typical dentist of the period. I asked the young dentist whether he was able generate referrals of patients prepared to pay substantial five figure amounts per treatment plan and he admitted that he would find that hard, and that he also lacked the confidence to do a lot of the work. My advice was to buy a practice reliant on more basic dentistry and build it up rather than paying top dollar for a practice which would rapidly decline after the current principal retired. Sometime later another dentist consulted me about the same practice, and I had to offer the same advice. In due course the practice owner rang me because the prospective buyers had told him that I advised them not to purchase. I answered his query with the question:

“Who, apart from existing successful practice owners, is equipped to step into your practice and generate your fees?”

Later I found that he had sold to a dental corporate!

Lessons

1. The more advanced the treatment offered by a dentist and the greater their relationship building skills, the fewer potential buyers are equipped to successfully takeover their practice.

2. The safest practices to buy are far more general in nature. They also have the biggest pool of potential buyers subject to other issues such as location and premises being suitable.

Financial Markets

Regardless as to who wins the coming federal election it is near certain that the Reserve Bank will commence a series of interest rate increases soon after the election. The US Federal Reserve has made one small increase but has signaled seven increases over a year to come. When interest rates increase financial and housing markets weaken. It is time for carrying more cash and bank hybrids in our superannuation funds.

Financial Success for Dentists

Financial Success for Dentists: Rules for How to Approach Your Dental Career sets out the key strategies which make dentists successful. It is specifically written for those dentists and dental specialists owning their own practices and for those aspiring to own practices. Among the topics included:

• Understand key practice valuation criteria.

• Learn how some dentists inadvertently reduce the value of their practice by $500,000

• Avoid long term errors when purchasing your practice.

There are many accountants, financial advisers, marketing consultants, web site designers and practice advisers who give advice from their particular disciplinary experience, but very few have the wider breadth of experience to define for their clients the key rules to follow to optimize their practice and their long-term financial outcomes. An otherwise competent financial adviser may have little understanding of what makes one practice much more successful than another. Many accountants have detailed knowledge of the taxation rules but cannot identify if a dental client has broached invisible barriers to practice growth or a threat to practice goodwill value.

I spent 33 years examining dental practice financial outcomes and reviewing the key strategies and decisions which separated successful Australian dental practices and practice owners from the less successful and this led to relevant conclusions and advice to dental practice owners.

A complete and comprehensive career guide for mature and aspiring dentists. Based on real life situations and a lifetime of dealing with dental practice ownership outcomes this book is worthy of Text Book status for every dental teaching school. —Merv Saultry, Founder Dental Innovations Network

To Obtain a Copy:

• Go to the Delany Foundation website at http://www.delanyfoundation.org.au

• Click on the Donations tab and make a donation of minimum $60. This is easiest by Mastercard or Visa.

• Email [email protected] confirming that your donation has been made, as well as your name and mail address

• A copy of the book will be mailed directly to you

All production costs and mail costs are met by me personally, so all money donated goes to the Delany Foundation which contributes toward the running of schools in Ghana, Kenya and Papua New Guinea. Naturally donations above $60 are welcome.

The donation to obtain this publication will be the most cost-effective practice advice most dentists will ever receive.

General Advice

I sold my interest in a financial services and accounting group on 30 June 2020 and have no intention of starting another financial services business. My website is now available at grahammiddleton.com.

Those who find my newsletters of value to them are asked to consider making a donation to the Delany Foundation, a registered charity which assists schools in Papua New Guinea, Ghana and Kenya. Delany Foundation c/- Holy Cross College, 517 Victoria Road Ryde NSW 2112.

Best wishes to all readers,

Graham Middleton