Building your practice—Stage four: Platform for growth

In my first article, I stated that private-equity-backed multilocation group practices, or dental service organizations (DSOs), are becoming more influential and are controlling a larger portion of the dental market. In my 20-plus years of experience growing DSOs, I’ve identified all successful, developing groups’ progress through six stages of growth. Therefore, as you transition from solo practitioner (Stage 1), to entrepreneurial (Stage 2), to foundation development (Stage 3), to platform for growth (Stage 4), you can facilitate your ongoing growth by following these progressive steps.

Last month’s article highlighted Stage 3 (four to nine offices). This is where you decide what functions to centralize, decentralize, and outsource, selecting either an acquisition or de novo model while determining whether your locations will be branded or nonbranded. These pieces, coupled with prior stages, expand your growth model.

This month’s article focuses on Stage 4 (10 to 20 offices). As you continue to add practices, you will need to create a transition process that systematically integrates acquired practices or launches de novo practices. You’ll need additional doctors, so you should consider both the associateship and partnership model. You also must define your role in the company and determine if you are the chief executive officer (CEO) or chief dental officer/chief clinical officer (CDO/CCO). Once you decide what you are, you’ll need to actively search and hire for the other position.

You’ll need to make decisions around these components of Stage 4:

Transition process

If you haven’t done this already, your first step is to designate a transition manager. This person must spearhead systematizing the pre- and postpractice transition process by creating an inclusive list of tasks and timelines for completion. This list should include items that fall under the business, operations, and clinical departments in the practices. To ensure all items from these departments are covered, the transition manager will need to collaborate with department leads. Accordingly, this comprehensive task list and timeline will become your transition playbook.

Both the acquisition and de novo models have their own playbooks. In the event you are completing acquisitions, it is imperative that you share details of the playbook in advance with the team members to establish their buy-in and alleviate their fears about the transition process and upcoming changes. Remember, change is difficult, and you don’t want the team to feel alienated, because this can deteriorate office culture and lead to staff turnover.

In contrast, while completing de novo transitions, you establish everything from scratch and bring in an already-trained team as well as established systems and policies. With either model, it is important for the transition manager to closely monitor and ensure all timelines are on target with the appropriate departments. Together with identifying your transition process as part of your platform for growth, you must designate the model by which you will grow your doctor team.

Associate or partner doctor models

At this stage (and earlier) you have associates and perhaps one or more partner doctors. If you haven’t already done this in Stage 3, think about how you will continue to build your group by following either an associate or partner doctor model. The associate model is one in which all dentists are employees of the group, while a partner model delineates that certain dentists within the group will have partnership interests in either an individual office or the entire group. There are pros and cons with each model, and there is no right or wrong way to go. What is important is to take your time evaluating your choices and consulting with experienced advisors.

During the past few years, we’ve seen a push from associates who are requesting partnerships. From my perspective, this may be due to younger dentists coming out of dental school with a large amount of debt who would have typically been able to purchase their own practices. Also, with the growth of the emerging groups and DSOs, there is increased demand for practices, which drives up the cost in many markets across the United States, and this also makes it more difficult to purchase a practice.

Additionally, we see owner-doctors of emerging group practices experiencing turnover and having difficulty finding qualified candidates, which leads them to think that the solution is to bring on a partner. This decision is often made from a position of fear, without the owner having yet chosen either the associate or partnership model, or understanding how either could impact his or her future. For instance, if the partnership model is selected, what level is the owner’s participation (e.g., office or group) going to be?

If you choose to follow the associate model, you will need to invest in recruitment. If you follow the partnership model, you will need to spend your dollars on legal documents and time with attorneys. Either way, you must commit to a model and point your dollars in the appropriate direction. Also remember to invest time mentoring your doctors (as noted in Stage 2), regardless of their titles.

When selecting the partner model, it is important not to rush into anything. You must define your expectations of the doctor. It’s equally important to understand why the associate is seeking partnership, because in many instances the needs are also attainable in the associate model with potentially less risk for both parties. Both parties require time to work with each other, typically for two to five years. We refer to this time as the “path to partnership.” During the path to partnership, you may lay out annual requirements that may include community involvement, productivity expectations, clinical philosophy, and which CEU courses are required. When you are ready to partner, the operating agreement of the partnership will identify the legal rules of engagement for all parties.

Lastly, just as you’ve defined whether you will follow an associate or partner doctor model, you must define who you are and what role you will play with the company.

Who are you? Chief executive officer or chief dental officer/chief clinical officer?

At this stage, you need to ask, “Am I the CEO or CDO/CCO of the company?”Your answer cannot include you serving in both capacities since each is a full-time job. A CEO will deal with all of the nonclinical aspects of the business, while the CDO/CCO will take care of the clinical aspects. In my estimation, there are currently 75 private-equity-backed DSOs, of which fewer than 20% have a dentist serving as the CEO. If you have a strong desire to be the CEO, you need to obtain the necessary education, training, and development to be successful. In contrast, if you decide to be the CDO/CCO, you will have to hire a CEO. In my experience, it is more challenging to hire a CDO.

Conclusion

Now that you have grown to 10 to 20 practices (Stage 4), you should establish your platform for growth. This platform systematizes everything, making it easier to carry out future development in Stages 5 and 6. Specifically, you establish your transition process and whether you will follow an associate or partner doctor model.

You also determine your identity as either the CEO or CDO/CCO of the company, and hire for the remaining role. Once you accomplish Stage 4 and decide to take more steps toward entrepreneurial growth, my subsequent articles will continue to guide you through this process.

Vincent Cardillo, MBA, has more than 20 years of experience owning, leading, and partnering with DSOs, the latest of which was No. 14 on the 2014 Inc. 500 List. He is the founder of Dental Management Innovations LLC (DMI).DMI positions clients for growth by strengthening their operational systems and infrastructure. Mr. Cardillo also provides his expertise to private equity firms and institutional investors. His book on the six stages of growth will be published later this year. Contact him at [email protected].