Scaling and operating a growing group practice is hard work. In the early stages, success or failure can often hinge on the consistent revenue produced by your best providers. You’re not alone. In fact, “retaining key employees” is the number one challenge of every founder-owner of a group practice.
But what if you could solve the problem of associate turnover in your business?
Could you turn a weakness into a strength?
Or even create a competitive advantage?...
Their Mindset Matters
Many founder-owners of group dental practices often wonder how they maintain the practices they have while continuing to grow their business through new startup locations or acquisitions. To state the obvious: it does you no good to continue to grow your footprint if your existing businesses are declining. “Dark revenue days” borne out of the turnover of key providers can bring a growing group to its knees.
Every founder of a successful group practice or DSO will echo the thought of Andrew Carnegie when he said: “No man will make a great leader who wants to do it all himself, or to get all the credit for doing it.”
At TUSK, we often hear our clients say things like: “No one else cares about the business the way I do.” Straight up truth. Our response is frequently: “If you want an owner mindset, then you need other owners!” To have the right owner-partners, you need to find the right people.
Your Mindset Matters
Many dentists have challenges transitioning from 100% control to having to listen to the input of others. What is even more challenging is the emotional part of giving up complete control of a business they have built. However, if you have hired the right team members, then you should want their input. Jack Welch (former CEO and Chairman of GE) reformed an entire enterprise around this idea, saying “If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don't have to manage them."
Whether a top dentist leaves their associateship at a small private practice or a large DSO, the issues are more similar than different. In working for a private practice, some may have concerns with patient flow, but many leave their associateship for a better future opportunity – which is not purely related to compensation. In fact, a study done by the Gallup organization in 2015 showed that more than 50% of people left their job because of their manager. Similar studies often show “lack of communication and empowerment” leads to good people looking for better opportunities.
So, what are three things we can do to get more engaged team members?
The first– and easiest – is to communicate with your key employees often in both group settings and one-on-one. Hold (at minimum) a monthly meeting with your key staff and associates about the direction of the business and their role in it. This will help communicate to them that you want them to care about the business and not just their personal income.
Second, empower them to impact your business and their personal lives. Good people want to be heard by their team leaders and feel empowered to make decisions. Of course, you may need to be there early in the process to coach them to success.
Third, and most importantly, allow them unlimited financial opportunity and the ability to generate life-changing wealth for their families by earning ownership in the business. The key word here is “earning” – not “giving.”
Why do you need to offer the opportunity to earn equity to associates? First and foremost, you don’t have to offer this opportunity to anyone and everyone alike. You will always have to plan for the attrition of employees just like any other business; however, if you want to avoid losing your key providers – the ones most often beloved by both staff and patients – then you have to consider what motivates them and would make them want to stay.
Owner mindset is ingrained early on.
Many students choose Dentistry over Medicine for their graduate studies for the simple reason that they would rather own their own business instead of becoming an employee of some hospital network or healthcare conglomerate. They also want the opportunity to exceed the compensation of their peers in medicine. Many of their friends, family and advisors also recommended dentistry as a better career path to ownership.
As these students transition into dental school, there are lawyers, accountants, insurance companies, banks, dental distributors and dental practice brokers at “lunch & learn” sessions all presenting the benefits of private practice ownership. This strong message of ownership continues into residency programs or associateships from the respective parties.
In most cases, by the time a dentist is looking for private practice ownership, they have heard the same message for over six years. And now the only person advocating becoming a career employee is, well…you. That’s a tough sell.
Know What Matters Most in the Equity You Own
The concept of “ownership” has traditionally been viewed (in our world) as a “zero sum” game – all or nothing. If I own 100% of the pie and you want 50% of it, I agree to sell you that 50% for some amount of money.
One way to adjust your thinking process (as the founder-owner of the business) is to consider the value of your piece of the pie instead of the percentage ownership of it. Put another way: would you rather own 75% of a business valued at $10,000,000 or 100% of a business valued at $3,000,000?
If you find yourself in the 75% camp, then the question becomes, “how can I best ensure the growth from $3,000,000 to $10,000,000?”
The answer to that question is threefold:
- Attract and retain the best possible talent
- Get them committed for the long haul by allowing them to earn a stake in the future they’re helping to create
- Get them to produce results above and beyond the normal rate
If you can do those three things, then you’ll be operating a business that grows the top line at a faster rate than the industry averages while expanding the bottom line (EBITDA %) incrementally and experiencing lower turnover rates of key providers than other groups in your market.
Isn’t that the business we’re all trying to build?
If so, there are several paths to ownership:
- Associate writes a check from personal funds for the portion available to buy-in
- Associates takes out a bank loan to buy into the partnership (which we do not recommended, as the bank will typically collateralize your practice)
- “Earned Equity” compensation models such as Restricted Stock Units (RSUs), which are often used in Corporate America, though we rarely encounter them in the healthcare space
- Profits Interest Units (PIUs), which is another ownership model that protects the basis of the initial value creation of the founder
One important point to note is that all of the options and structures discussed above can be offered at the PC level or the DSO/Management company level.
At TUSK, we developed an earned equity compensation model based off of our collective experience with RSUs during our time in Corporate America. We call this model “Partnership Pathways” because it’s not a “one size fits all approach” in that there are many variables the founder-owner controls. Additionally, Partnership Pathways is designed to allow the founder-owner to determine which key employees they want to avail of the opportunity to earn equity in the business. Again, it’s not “share and share alike” – it’s more of a “reward and retain” for those who drive the business to greater outcomes.
We educate owners from emerging groups up to Enterprise-level large DSOs on how to attract and retain top dentists, then help to determine the best path for the business. The key to success in offering ownership to associates is to outperform the option of private practice ownership.
For most top performing associates, this outcome will be a practice worth close to $1,500,000 in roughly 10 years.
There’s your target to aim for when determining how to value an earned equity model outcome to retain your best associates.
If you’d like to discuss associate compensation models, Partnership Pathways or any other topics related to trends in our industry, please feel free to contact me at Diwakar@TUSK-Partners.com. TUSK provides industry-leading resources for Group Dental Practices and DSOs. We help our clients START, GROW and SELL their Group Dental Practice or DSO. For more details, visit our website or feel free to download our Overview of Services.
TUSK will be the featured presenter at the “DSO Foundations” seminar hosted by Patterson Dental Supply in Charlotte, NC on June 1 & 2, 2018 where we will present “Tactics to START, GROW and SELL your Group Practice or DSO.” You can find more information and register HERE. We hope to see you there as well!
To see where else we’ll be in the near future, please check our calendar for a listing of all seminars, conferences and presentations.