Several years ago there was a popular game show called “Are You Smarter Than a 5th Grader?” You probably remember it. After six seasons, only two adults had correctly answered all 11 questions required to take home the $1 million prize. One of those was a state superintendent of schools and the other was a Nobel Prize-winning professor. The rest of the contestants flunked—and they were in good company, as home viewers (including me) usually stumbled on at least one of the questions, as well.
I recently got to meet with some real fifth graders and test them to really see how smart they were. As a guest in my son’s fifth grade class, my goal was to teach the kids three words about business. These three words are also quite applicable to adults—especially dentists.
First word: trade
The first word was trade. We talked about how many countries don’t have the resources or the capacity to produce everything they need or want. I told the kids how nations develop products unique to their region and then engage in trade with everyone else.
We talked about certain exports produced by certain countries, like Chilean raspberries and aluminum from Australia. I explained how a country like Chile, by trading their surplus of raspberries, can then purchase aluminum cans from Australia instead of making aluminum cans themselves.
To make my point, I gave the students different resources—cocoa beans from Columbia, batteries from South Africa, LCD screens from China. Then I told them to go around and match up with kids who represented other countries and trade what they had for the things they wanted.
You might not think about it, but as a dentist, it’s the same for you. You’re one of maybe 200,000 people in the US who works on teeth. If you’re like most dentists, maximizing your financial utility means focusing on your trade. That’s your advantage—that’s your surplus. Be cautious about redirecting your efforts into other trades (such as bookkeeping, investments, real estate, tax strategies, IT services, or getting involved in nondental businesses).
Second word: specialization
The second word was specialization. I talked to the students about what they want to do when they grow up. There were some aspiring professional athletes, engineers, doctors, nurses, and even one future dentist—probably the child of a dentist! We went on to talk about the importance of not only choosing a profession, but also of finding ways to stand out in whatever field they go into. As Abraham Lincoln put it, “Whatever you are, be a good one.”
As a dentist, you’ve sacrificed a lot of money and time going to dental school to establish your trade. But beyond DDS, what will you become known for? How can you deliver a patient experience unlike anyone else? What treatments can you provide that very few others can? By diving deeper and deeper into an area of specialization (even GPs can specialize!), you become much more resistant to commoditization. Specialization is one of the fastest ways to increase your compensation and accelerate the growth of your net worth.
Third word: opportunity cost
Now the third word, opportunity cost (OK, two words), is a little more difficult for fifth graders to understand. But here’s how I approached it: If you were going to start a lawn mowing business, would it be: 1) a lawn mowing service for houses and schools; or 2) a lawn mowing service that just mows lawns for schools?
The class was split on their responses. Half said “home and schools” and the other half voted for the “only schools.” I asked the first half of the class why they liked the combo lawn company: “Because I’d do a lot more lawns. I’d be a bigger company.” Now, I might disagree, but that answer totally reflected human nature. They’d do a lot of lawns! Bigger is better! Right?
I went to the other half of the class who thought the service that just did schools would be better. One kid observed, “I could use one of those really big lawn mowers to do all the schools.” Exactly! She’d have specialized tools to make her job more efficient. She would also cut lawns differently—not the same way people cut house lawns. She’d fertilize the large lawns differently; she’d use different equipment.
When you specialize, you always give something up, like mowing home lawns. But when you try to do too many things, there’s always an opportunity cost. And if you aren’t careful, you’ll carry an opportunity cost that can hold you back from building a more focused, efficient, and profitable practice.
A concept that’s anything but elementary
As the population grows and the options in the marketplace for dentistry become increasingly diverse, patients will naturally be attracted to the practitioners who develop the deepest specialization.
Whether it’s literally becoming a specialist, developing specialized skills or procedures, or developing expertise in servicing niche customers, this is the key to building a defensible practice in a competitive landscape. Stay committed to your trade, specialize in something that sets you apart, and minimize your opportunity cost by prioritizing efficiency over volume.
As a financial advisor for dentists, my job is to help dentists build wealth faster by getting organized, developing good savings habits, managing debt, choosing the right office retirement plan, following a tax-efficient investment strategy, and getting properly insured.
That said, and above all else, your practice is the engine that powers your net worth growth. A thriving business provides the cash flow to pay down your debt faster, support the lifestyle you want for your family, and save more money for the future. It might seem elementary, but getting it right can be worth millions.
Reese Harper, CFP, is the founder and CEO of Dentist Advisors, a registered investment advisory firm that focuses on dentists and specialists. His trademarked planning methodology called Elements is used by dentists all over the country to plan, invest, and retire better.