The lean dental start-up

May 2nd, 2019
1905desin P01

Amisha Singh, DDS

Start-up versus acquisition: it is a decision every potential practice owner makes. When the average dentist starts looking to purchase a practice, he or she chooses a category, commits to it, and sets down a path. But a few more steps are required to find the right fit and create the perfect home for a dental career.

The dental community thinks of start-up and acquisition as polar opposites, but in fact, they are a continuum. At one end is the scratch start: find a space that is a box, design from the ground up, and hang your shingle. At the other end is the well-oiled machine bought from a retiring doctor that is producing at the top of its ability. In between is everything else.

It is important to note that this “right fit” is not an absolute. There is no such thing as the perfect practice; there is only the perfect practice for you. So, the first step into the pathway to owning a practice is some introspection. Questions such as the following can influence which model is the right fit for your vision and your personality.

• Are there clear and precise parameters as to how I like things done?

• Do I need to make money right away?

• Would I enjoy creating systems from scratch?

• Would it be a welcome challenge to change systems that have been in place for a long time?

A “lean” start-up is a practice, either started or acquired, that has room for growth. This can either be bought as an existing practice or can be the acquisition of a space that is partially or fully built, with no patients and no goodwill.

I started my practice from “scratch” six months ago. In true startup fashion, on day one, we had zero patients. But it was not what most would consider a traditional start-up. It had been an existing dental office. The previous occupant used it as a satellite location and had an oral surgeon see only Medicaid patients once a week. He did not practice in the location any of the other days. The location had five operatories and one was being used four times a month.

It turned out this was not a viable business model and the doctor had to close the office, abandon his lease, and incur losses. When I first saw the practice, the broker’s description was “Medicaid office fixer-upper.” It was enough to have me worried. The color on the walls was depressing, the fixtures were antiquated, but the bones were good. The walls were where they needed to be. And what most saw as a failed practice, I saw as an opportunity. We took over the lease, bought some of the used equipment, rebranded, and remodeled. And my start-up was born, very nontraditionally.

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Lean build-outs

One method of acquiring a lean start-up is finding an existing dental space and either leasing or buying it. The reason that this category holds immediate opportunities is that electric and plumbing, the two most expensive and time-consuming elements of a new build, already exist. This translates into less wasted “free rent,” cheaper build-out costs, and a quicker start.

Oftentimes, since these spaces are sitting vacant, a real estate broker can potentially negotiate more favorable terms with the landlord as well; as always, this is dependent on the laws of supply and demand. Many of these spaces will require some remodeling or, at the very least, an investment of supplies and equipment, but the start-up loan most banks offer can go further due to costs saved up front. For example, in my practice, we were able to invest in a CBCT right away due to costs saved, which would have been challenging with a full build-out cost for a more traditional startup.

For these practices, the primary consideration is doing due diligence as to the dentist who existed in the space previously. When vetting these spaces, you should look at his or her online reputation, ask the landlord, broker, and other common members of the community about the reasons for leaving, and find out the core of his or her business model.

Did this dentist leave because he or she found a bigger, better space and had outgrown this one? That is potentially a great opportunity for you: this space has a history of a housing successful practice. Did that same practice do sedation dentistry, which is not within your scope of practice? Dealing with the challenges of incongruous practice models can be difficult. Was the practice’s online reputation less than ideal? You may have challenges breaking ties and a more vigorous rebrand and marketing campaign may be needed. Are you planning on doing something different than this dentist did, or was he or she an example of your plan not working? These questions are important to parse out good opportunities from bad ones.

Finding these practices is straightforward. The first step is to contact local commercial real estate brokers who will represent you to the landlord. Commercial brokers specializing in dentistry will have a good pulse on available spaces, be able to show them to you, and advise you during the search. You can call your local organized dentistry component to find dental-specific brokers for real estate.

Lean acquisitions

The second lean start-up is actually an acquisition. There are practices that, due to a number of factors, have decreased their production and do not have a robust enough cash flow for a bank to finance them as true acquisitions. They are existing practices with existing doctors—and many times, existing patients—although the active patient base may be small.

Examples of these include practices with owner-doctors who have sustained health problems or injuries and the practices have downsized as a result, owner-doctors who have run their business poorly, and owner-doctors who have had other extenuating circumstances. You, as a buyer, can still purchase these, but they are financed as start-up loans and they have a lot in common with start-ups. They may need new systems, new staff, new equipment, and a robust marketing plan to attain new patients. The benefit of this option is that they usually come with some cash flow, however small, and also a patient base of charts that could be reactivated—a marketing cheat which may accelerate your growth!

When looking at these practices, it is important to focus your due diligence on growth potential. Is the area of the practice saturated? Would it be challenging to market to new patients? What is your rebranding plan to keep the patients you are acquiring while still mitigating the previous practice’s reputation and the effects it will have on patient expectations? Did you vet the numbers to assess the veracity of the situation of the practice you are acquiring? What are the reasons the practice has lower numbers? Can you overcome those reasons?

Finding these practices can prove to be a little more challenging. Reach out to dental practice brokers (different from the real estate brokers mentioned above) to let them know the parameters of your search. You may find that searching in this market is beneficial, as many doctors fail to see the opportunity in these lower production practices. You can also do a search through your local organized dentistry component to get addresses of doctors who may be interested in selling and send letters introducing yourself.

No matter which method you choose, the benefits are similar. You get a start-up for a lower cost, which can shorten the path to breaking even and becoming profitable. You still have ample opportunity to choose your team and build the right system from the get-go. Sometimes, as in my case, the practice model can choose you; you can find the right opportunity at the right time and it can change the course of your search. Lean start-ups can be the best of both worlds with the right due diligence and the right business plan.

Amisha Singh, DDS, serves on the Colorado Dental Association House of Delegates, on the American Dental Association Dental Wellness Advisory Committee, and on the Metro Denver Dental Society and CDA membership councils. She is the CDA new dentist committee chair-elect for Colorado. She is also a blogger and professional speaker who works with IgniteDDS to inspire other dental professionals and provide them with resources to be the best clinicians possible. Dr. Singh practices in Parker, Colorado, at Smile Always Dental.

Quiz: Which model is right for you?
1. Do you know how you like things done?

a. It’s my way or the highway.

b. In some respects, but I am open to change.

c. I go with the flow and am good at adapting to existing systems.

2. Money talks . . . how important is it to have an ideal cash flow from day one?

a. Meh, I would be financially OK if I did not earn at the top of my potential for about six months to a year.

b. It is important for me to earn to cover some essential costs, but I have some wiggle room.

c. I have bills! I cannot take a pay decrease right now.

3. How does creating change make you feel?

a. Sign me up! I love change and creating it excites me.

b. As long as I have a solid foundation that doesn’t move too much, sure, I will spice things up every once in a while!

c. Change freaks me out a little. I would much rather have a solid routine.

4. How do you feel about the perception of risk?

a. Risk is a necessary part of living a healthy life!

b. Risk is OK as long as its mitigated.

c. No, thank you—I am a risk averse person.

5. When you hear “self-promotion,” what do you think?

a. Self-promotion is one of the most valuable qualities of a leader. I talk about my abilities with pride and purpose.

b. I can promote myself sometimes, but it would drive me insane if I had to do it every day.

c. No way! The idea of promoting myself in public makes me cringe a little!

6. How do you feel about working at multiple practices for a while?

a. No problem! I can do a day a week at five practices if that is what it takes to reach my goals.

b. I could do it, but it wears on me a little.

c. I strongly prefer to have one home where I go every day to work.

Total your Answers as follows:

A = 3 points

B = 2 points

C = 1 point

Range:
15–18

Start-up savvy: You are not risk averse and the arena of start-ups would work well with your style! You would feel confident and comfortable doing anything from a complete, group-up scratch start to a leaner start-up, building up patients from zero, or a more accelerated plan. Fully functioning acquisitions would be a challenge for you as systems with momentum are hard to change. You know what you want and you go get it!

9–14

The lean start-up machine: A lean start-up would be ideal for your plan, but you would also be comfortable with an acquisition. You have the skills and personality it takes to build a successful dental start-up, but you could also be happy with acquiring a functioning practice and growing it.

6–9

Everyday acquisition: Your comfort zone makes you an ideal candidate to find a well-functioning practice with an ideal team and step into that role. You like your routines and you know your strengths. Some leaner start-up models, such as a lower functioning acquisition, may work for you as well, as long as they offer some stability and more tangible opportunity for growth.

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