Do You Have What It Takes to Build a Group Practice? – Episode #380

The industry is becoming more entrepreneurial, but there are pitfalls and perils awaiting those who don’t know the ins and outs of building a group practice. On this episode of the Dentist Money™ Show, Ryan talks with Perrin DesPortes of Polaris Healthcare Partners, a strategic advisory firm focused exclusively on helping entrepreneurial dentists build successful group practices.

Show notes:
polarishealthcarepartners.com

 

 

 

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Podcast Transcript

Ryan Isaac:
Hello everybody. Welcome back to the Dentist Money Show sponsored by Dentist Advisors, a no commission fee only fiduciary comprehensive financial advisor just for dentists all over the country. Say that 10 times fast. Check us out dentistadvisors.com. Today on the show, I welcome Perrin from Polaris, which you should also say 10 times fast. Really insightful discussion about the changing landscape in dentistry and group practices and DSOs and buying and selling and staying and all the decisions that are being made by dentists all over the country right now, that are different than they were even just a few short years ago. I was really impressed by the value and consistency put out by Perrin and his group in the educational realm in all this stuff; the workshops, the content, the podcasts they put out.

Ryan Isaac:
I really like talking to teachers in the industry and not salespeople in the industry, and I think Perrin and his group are doing a great job teaching people and just putting good educational content out there. So thanks Perrin for spending some time with us today. I appreciate the great conversation and insights, and thanks to all of you for joining us. If you have any questions for us, we love answering money questions and pointing you in the right direction. All you have to do is go to dentistadvisor.com, book a free chat with one of our dental specific advisors and we love answering your money questions. So we’d love to talk to you anytime. Thanks for being here. Enjoy the show.

[music]

Jess Reynolds:
Hey there. It’s Jess with Dentist Advisors. Did we recently launched a new service called the Dentist Money Membership? It’s an affordable way to support your personal financial strategy with cutting edge technology and guidance from dental focused CFP advisors. The Dentist Money Membership includes the Elements Financial Monitoring app, an annual financial checkup, CE courses, an automated investment platform and more. To learn more about the Dentist Money Membership and to get started, go visit dentistadvisors.com/money.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principals discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Ryan Isaac. And I’m here with Perrin from Polaris. I like saying that. Welcome Perrin. What’s happening, man? Thanks for being here. Appreciate it.

Perrin DesPortes:
Great to be with you, Ryan. I appreciate you having me on today. Yeah, Perrin with Polaris has a nice little resonating tone to it. It’s good for audio. So spin the hits together today, right?

Ryan Isaac:
Well, let’s hope man. I think that’s where it’s going. Where are you in the country today? Where are you at?

Perrin DesPortes:
Charlotte, North Carolina which, as you would well expect, on the last day of February, it’s a balmy 78 degrees outside.

Ryan Isaac:
Oh, is it?

Perrin DesPortes:
So feeling a little bit like the tropics, but compared to what the rest of the country’s going through, we’re all right.

Ryan Isaac:
Yeah, we’re recording this like last day of February. West Coast is getting slammed with rain and snow. So it’s warm back East. Is it normally like that? Is that normal?

Perrin DesPortes:
No.

Ryan Isaac:
Oh, okay. Everything’s reversed.

Perrin DesPortes:
Yeah, exactly.

Ryan Isaac:
Oh, okay.

Perrin DesPortes:
: So we’re a little bit off axis today, let’s put it that way.

Ryan Isaac:
Here in Southern California, it’s supposed… In February, we’re supposed to get some pretty nice mid 60s, upper 60s days with good wind patterns for waves and surfing and good waves coming in. And it’s been absolute garbage for 30 days of just rain and wind and storms, and no one feels bad for me but that’s my complaint for today.

Perrin DesPortes:
I was gonna say, you all are due for that once a decade.

Ryan Isaac:
Once a decade, we’ll get it. It’s fine, man. Well, thanks for being here. I feel like a lot of people know who you are, know what your company does. I feel like you’re making the rounds on podcasts lately. Are you tired? Are you sick of podcasting?

Perrin DesPortes:
No, no. I actually enjoy podcasts. I think it’s a great media or a great medium for some of the topics that we’ll dive into, and I think it’s easy for somebody that has this dense a subject matter as I do and we’ll get into that in just a sec. I feel like podcasts are kind of fun and they’re a little bit lighter than the norm. And and for so many of our audience that are building group practices, I find that they listen to our podcast or they hear maybe I’m on somebody else’s podcast like this one, and it’s the 30 minutes in between patients to woof a sandwich down. Or it’s the 20 minute commute home, or if you’re in Northern New Jersey, an hour and 20 minutes, or you got 30 minutes on the treadmill or something. So it’s kind of digestible for as media subject matter as it is. So I enjoy it. I really do. I appreciate you having me on today.

Ryan Isaac:
Yeah, for sure man. Well, let’s let you tell us, who are you? What is Polaris? I’m curious about your background too, like how you got in with the group, how that all formed, but give us a little background on it all.

Perrin DesPortes:
Sure, sure. So my name’s Perrin DesPortes. I’m one of the co-founders of Polaris Healthcare Partners. Real quick background on me and dive into what the company does and all that sort of jazz. But I was born into the business side of dentistry. My family owned a dental distribution company called Thompson Dental Company, which was headquartered outta Columbia, South Carolina, where I was born and raised. That business was started in 1899 by my great-grandfather, James Perrin Thompson, and being in the financial world like you are you, you know that family businesses, most of them don’t make the transition to the second generation, let alone the third, or God forbid the fourth. And so it was a… I’m biased, it was a very good company, and my father was president and CEO when I joined the business in 1995. My grandfather was chairman of the board.

Perrin DesPortes:
And in April of 2002, we made the decision to sell that business to Patterson Dental Supply. And I like to say not necessarily for financial reasons or operational reasons, the business was growing tremendously well. This is coming out of the dot com burst for anybody in your audience that’s mid-career and remembers that 2001. And my grandmother had passed away and my grandfather’s estate was set up to be share and share alike. My dad has two sisters, neither of whom were involved in the business, nor were their husbands, nor were any of their kids. And you can kind of figure out where this plays out in relatively short order with a valuable asset that’s illiquid essentially and was not set up properly to be transitioned between generations.

Perrin DesPortes:
And when two of the three want to get their money out, that can force dire consequences on the third that’s left to own and operate and really drive the business, and that was my dad. So we found that the best situation for all parties, and when I say all parties who were probably 400 people employed by the company at that time, was to exit the business and sell it. And there were only two suitors Patterson and Shine and knew both of those companies very well. Obviously, great industry titans in their own right. But Southeastern values plays really well with Minnesota, nice as I like to say, and so a cultural aspect and the fit was the right one. And I was fortunate enough to be able to stay on with Patterson for 15 years.

Perrin DesPortes:
I ran three different businesses for them. I had full P&L responsibility from the age of 31 on, and I like to say if I had known what that meant at the time, I probably wouldn’t have taken the job. But they entrusted me with a lot early on and I really flourished being a general manager for them. I ran Richmond, Virginia, Metro, New York, New Jersey which is Northern New Jersey and in Manhattan predominantly, and then Charlotte for the last eight years of my career. And over that 15 year span, I saw the proliferation of group practices because these were… You had Heartland Dental at the top end of the food chain and all those other enterprise level DSOs, and then you had what was Patterson’s core customer, core client, typically single dentist, single location, successful solo practice.

Perrin DesPortes:
And then you had, coming out of the financial collapse of ’08 and ’09, you had a lot of these entrepreneurs who happened to be dentists and they all wanted to own more than one location. So this proliferation of group practices was happening underneath me, and I saw it from the distribution lens and I saw the mistakes that some of them were making, and I saw that there was nobody really providing guidance resources to help them grow and scale. And if they did reach some level of success, they had nobody to really help them transact the business at that point, because it was beyond the capabilities of a traditional dental practice broker. So a couple of colleagues and I got together and formed a business called Tusk Partners in January of 2017. Again, I’m biased, but that was a pretty, pretty successful business and we had a really good run over four years.

Perrin DesPortes:
And we built a business that helped dentists start and grow a group practice or sell a group practice. And my current partner, Diwakar Sinha, and I were two of the three operating partners in that business, and in March of 2021 decided to exit that business to launch Polaris. And Polaris Healthcare Partners, once again, is a strategic consulting and M&A advisory firm that focuses all but exclusively with group dental practices. We help them grow and scale. We can talk about trials and tribulation to doing that and then ultimately help them exit. But our grand designs on the business are certainly to kind of, I don’t wanna say perfect the services. We refine the services that we offer in the group practice space but ultimately be able to extrapolate that into other physician practice model type healthcare verticals.

Perrin DesPortes:
My wife’s an ophthalmologist, so ophthalmology, optometry is a natural behavioral health, is white hot right now as you probably well can imagine. That is really attractive. And there are a number of others that aren’t the same as dentistry from a group context but the industries aren’t all together different. So we think we can expand the business in the years to come beyond just our core business which is group dental practices.

Ryan Isaac:
Yeah, man, I won’t name names, but going back to the Tusk days, I think we actually had a mutual client that we worked on a deal together. Like you guys were working on a deal and then I was just copied on a lot of things, and I remember, I think I remember talking to you guys during the Tusk days, actually.

Perrin DesPortes:
Yeah, when people ask about it, I like to say that I think we’re relatively sharp guys. I don’t give us too much credit for too many things. I try to stay humble, but if there was one thing we got right going back to that business and certainly Polaris now is that I think we got the timing right. And when you want to build a service driven business similar to yours, subject matter expertise matters but timing matters a lot too. And I think if you’re trying to do the old Wayne Gretzky thing of don’t skate to where the puck is, skate to where it’s gonna be, you need to have some level of a crystal ball or at least some gut conviction around what you’re trying to do and what you’re you’re trying to offer. And I think we’ve carved out a nice niche and I think Polaris certainly has built upon that. And we like where we are right now and we think the tailwinds, even in spite of rising rate environment, are still really good for the coming decade.

Ryan Isaac:
Yeah, I’m just hearing your story too thinking, man, you’ve been a part of… This concept of consolidation of building something and then combining it or selling it, consolidating it with something bigger and different has a lot of mixed feelings obviously, and there’s probably no like right or wrong, it’s just different choices and different outcomes, different things to deal with. But you’ve personally had an interesting path then, being on the side of building and consolidating and splitting off and all those kind of things. That’s probably like some really cool personal insight that I would assume gives you some conviction around helping dentists do the same thing for those where it’s a good fit in the right situation.

Perrin DesPortes:
Well, I like to say that when I do write a book it won’t just be a book, it’ll be a trilogy, Ryan. So there’ll be a lot of there there, if you know what I’m saying. But no, it’s a very insightful point. I mean, going back to the family business, I have lived life in a family business and been exposed to things in a family business at an early stage that most would not be. So I’ve kind of seen the ugly underbelly of family business if you will. I’ve been through an acquisition where I was acquired. I’ve been through the the trials and tribulations of being part of an acquisition without a defined job and a role in the new company and had to kind of sort that out over about 120 day period, and that’s a lot of anxiety for somebody who’s in their early 30s and just wondering, is their career up in smoke at this point?

Perrin DesPortes:
And then when you finally get your act back, you hear things like, “Well, they bought the old man’s company and we inherited the kids.” So that’s sort of tough to get around the corner on. And then when you leave the ivory tower that is corporate America, where everybody thinks, because you’re part of a Fortune 1000 company, that it’s easy, and I’m here to tell you it’s not, you go from being in a highly structured environment to a full-fledged entrepreneur, as they say, jumping off the cliff and building the airplane on the way down. And for somebody that goes from all of that structure to no structure, the plane doesn’t land smoothly all the time. And there are challenges to it, there are things you know and there are things you don’t know, and then there are things about the dynamics of partnership that are much like a marriage.

Perrin DesPortes:
And building a business with partners is so gratifying, so fulfilling, so rewarding and so darn challenging all at once. And you don’t get everything right the first time out the shoot. And I think that it’s okay to acknowledge where you make mistakes or you get things wrong or they’re differing visions for a business too. And if you’re not the only owner of a business, you need to make sure that you’re in alignment in a lot of ways. And I’ve suffered some scars from that but I’ve also lived to tell a story and I’m grateful for all of it. So, yeah.

Ryan Isaac:
Man, that’s really cool. Thanks for being candid about that. I’m sure we could tell war stories about family business and acquisition for a long time.

Perrin DesPortes:
Yeah, we might not do it on a recorded mic and it might require a glass of scotch or something like that and atleast some therapy.

Ryan Isaac:
And an NDA.

Perrin DesPortes:
Yeah. There you go. There you go.

Ryan Isaac:
NDA and some scotch. I think that’s a good combo for a good conversation, man.

Perrin DesPortes:
That’s is. That might be the name. We can host a new podcast together, NDAs and single malt.

Ryan Isaac:
And scotch.

Perrin DesPortes:
Yeah, there it is.

Ryan Isaac:
Oh, man. Good call. So I have questions floating around around this subject, but let’s take it where you want to discuss and what just feels really relevant to you. But this growing world of consolidation of partnering, of selling, it’s just… I mean, it wasn’t here five years ago like it is. It’s not even 12 months ago it seems like, and it’s just, it’s creating a lot of cool opportunities for the right people. I feel like it’s creating, I don’t know, candidly some conflict in a lot of people too. Like man, do I do this? Do I not do this? Do I do it at 40 or do I wait till I’m 55? Is it gonna be gone? There’s pros and cons in every decision we make in life. I don’t believe in a lot of these things that they’re right or wrong like the way or not the way, but it’s just different choices. So those are the things swirling around my mind.

Perrin DesPortes:
Those are the things I hear from clients. Especially, I think the biggest conflict these days, feedback from our client base and probably our listeners too, is that it’s these mid-career people who are getting these opportunities and these offers and wondering if it’s right for them. That seems to be the most conflicting. Because they’re still looking at a 15 plus year career ahead of them and going like, “Man, do I really cash it out now and work back for someone, and then how do I see where I’m going?” And people think about retirement so differently these days too. Even if they have the money, a lot of people aren’t just being done being busy and working, which I think is really cool. So that’s what’s swirling around. That’s a lot of the kind of the vibe from our clients and questions. But kind of take that wherever you want, throw your insights in there and just guide the discussion however you feel is like really helpful and relevant for that.

Perrin DesPortes:
Yeah. So good points. Let me try to take them in buckets or something like that or some logical order of sequence. So I think a couple of things. One, let’s talk about solo dentists that are, I don’t know, let’s just call it late career, whatever that means. And I know. Personally, going back to the Patterson days, a lot of extremely successful dentists that have owned and own successful practices typically more higher end fee for service, CEREC and Cone Beam driven or CAD/CAM and Cone Beam driven, so they’re doing expanded clinical services. They’ve owned the practice for 30 years, so they paid off all the practice debt. Maybe they’ve got a little bit of debt on some equipment or something like that, but they’re cash flowing wonderfully. These are really successful business owners and really successful clinicians, and they’ve built really, really great businesses that value really, really highly.

Perrin DesPortes:
They’re also the king of the kingdom. They have their hands on the wheel. It ain’t a partnership. It’s their way or the highway, and that’s the way the business has been. So there are a lot of them that have fiercely remained independent and can afford to do so. And then they get toward the late stage of their career and they’re thinking about transitioning their practice. And historically, you and I both know that the world of solo dentistry since the dawn of time has been senior dentist brings on a young associate, sells part of or all of the business in a workout transition either instantaneously or over a short period of time, and that’s the the segue out. And the the young associate’s gonna borrow money from a bank ’cause dentists don’t default. Low credit risk, wonderful model.

Perrin DesPortes:
However, that senior dentist realizes that a young associate is only gonna qualify for so much money from the bank. And while I may be personally well off and have funded retirement working with people like yourself and I’m financially secured, do I want to take a haircut on the value of my practice? Because it seems to me that a lot of these DSOs are offering 100% of collections or more if I’m willing to stay on for a couple of years. So now, if I’ve said in the past that I want nothing to do with group practices and DSOs, when it’s my money on the table for the value of my life’s work, I take a second look at that.

Ryan Isaac:
Totally.

Perrin DesPortes:
Right?

Ryan Isaac:
Yep.

Perrin DesPortes:
And justifiably so, I’m not saying that, in that case, that they’ve built an asset that’s unsellable or that an associate using bank funds to buy wouldn’t qualify for. But that associate, based on the way banks look at loan to revenue and debt service coverage and a lot of other stuff, may not qualify for the full amount to buy the practice in excess of 100% of collections. So there’s your first fulcrum point really about, “Okay, person who’s built a successful solo practice that may be one of your core clients. Okay, what do I do to get max value out of it?” And in that situation, when we’re approached by people like that, hopefully we have access to them before they’ve had a bad day and are ready to hang it up. Because any transition should be a process and not an event.

Perrin DesPortes:
And if you’re going to undertake a sale to a group practice or a DSO that can be highly financially advantageous, you owe it to yourself to think about that from a what’s in it for me not just financially but from a fulfillment standpoint, and what do I want life after that liquidity event to look like? Because it may very well be a year to sell the business to find the right buyer, whatever that means, in a group context, but also the right life after the transaction if you’re gonna work back for a couple of years. So it tends to be not just a nine month sale process, I’m done hanging up the handpiece. See ya. It’s really more, I would say plan on about a 2-3 year transition at a minimum, maybe as long as 4-5 to for your successful solo practices. So that’s kind of the group practice dynamic around successful solo practices. You mentioned mid-career and this is…

Ryan Isaac:
Sorry, can we pause it there for a second?

Perrin DesPortes:
Yeah, yeah.

Ryan Isaac:
I’m curious about the feedback you get from these ending career dentists who have very valuable practices and find it tough to sell to a younger dentist, early career dentist from a purely bank finance standpoint. How many are venturing into the seller finance note kind of territory, combining that with a bank, doing it all themselves? What do you find in that realm?

Perrin DesPortes:
We don’t work with a ton of them, so I couldn’t say for sure that it’s 20% have a seller note attached to it or any. I wouldn’t wanna mislead your audience and it would be purely conjecture on my end. But what I will tell you is that in the event of a seller, we’re not big fans of a seller note. If we’re representing a group practice type of a buyer, an entrepreneurial dentist who wants to acquire other practices and the seller wants to hold a note, we’re fine with that if the buyer’s our client, but not on a seller context. And really the reason for that is if you are selling the business outright and are walking away in relatively short order, you are no longer in the practice.

Perrin DesPortes:
And the bank has claimed to… The bank who loaned the associate the money has the claim on the asset before you do, so it’s a receivership issue in the event that an associate drives the business into the ground. Now, the likelihood of them driving it completely into the ground and bankrupting it is probably pretty low, but it doesn’t take much to go cash flow negative when you have a note and a relatively decent fixed cost basis to support…

Ryan Isaac:
Well, and you’re… Yeah, I was just gonna say, and you’re a early career dentist trying to replace the late career dentist who’s probably faster, more talented and has all the relationships in the community.

Perrin DesPortes:
That’s right.

Ryan Isaac:
Those are risks there. Yeah, I think about, there’s an interesting… I don’t know what you see in this. There’s an interesting psychology that I watch happen in people ending their dental careers where they might have the opportunity to hold a note, or in a lot of cases, where they own real estate that they work in. And in the case of the real estate, just from a purely mathematical returns perspective, it would be in their best interest to hold that real estate well after they are transitioned out of the practice. They get the note finally paid off after all those years of paying the note themselves as the tenant themselves and have someone else in there.

Ryan Isaac:
But I find there’s this psychological kind of, it’s just like this shutdown mode. Like they just want some closure on a very long rewarding, fulfilling but also probably pretty tiring career. And regardless of the fact that holding real estate longer for a couple more decades would be the best mathematical returns option, they also choose to just wash their hands of everything. So what you’re saying resonates with an exiting dentist who’s not gonna gonna be there anymore or very short term. There’s just something psychological I think about still holding this little piece of something that you’re trying to be completely done with.

Perrin DesPortes:
I agree with that. And just to add a little bit more color to this, I would almost differentiate it. And look, dentistry is a physically demanding profession. I mean, to say that somebody’s worn out at the end of a career is an understatement when you work as a clinical dentist four days a week for 40 years. I mean, that is…

Ryan Isaac:
I didn’t use to believe that. I didn’t use to understand why they would say that until it took me a few years to watch this slowly happening. Oh yeah, what a slow grind physically it is.

Perrin DesPortes:
Yeah, and so I can understand when somebody says, “Look, I just I want to be done.”

Ryan Isaac:
Totally.

Perrin DesPortes:
“I don’t want any attachment. I just need a break,” and mentally, I get it, even if they’re compelling financial reasons to hold on to the annuity that is real estate. I would also say though that if you sell the business to a young… If you sell the practice to a young associate and you continue to own the real estate, you’re gonna be tethered to it, and there’s still a little bit of risk if the associate, like I mentioned before, runs it into the ground or something like that. Real estate’s a different type of asset to be sold after the fact if you had to. But I think it’s different if you sell the practice to a group because the group typically is not gonna want…

Perrin DesPortes:
A private equity backed DSO and most emerging groups tend to concentrate their cash on practice acquisitions and not real estate acquisitions. But because it’s a larger entity with multifaceted revenue streams typically, the security of owning a real estate asset where you are really disconnected from the practice, but have more security about the cash flows of the mother business, is arguably greater than a one-off transaction.

Ryan Isaac:
Maybe we can talk about the target market that is, where this is like the most appealing, a really good fit, where this seems to be the most natural transition. You were starting to talk about mid-career people too, so I don’t want to like derail that.

Perrin DesPortes:
Yeah, yeah, sure. So I think it’s interesting, when I get a chance to speak to recent grads or some dental school and residency type programs or do podcasts or webinars or things like that, there’s so many of them that are interested in owning group practice, in building group practices. They’re really entrepreneurial in their mindset and their approach, and I think that what the industry’s going through has kind of validated that position. Now, whether or not they can do it the first day out, it’s a totally different conversation. But from an intermediate term plan, it’s just kind of an interesting evolution of a mindset within the profession that wasn’t there, for all intents and purposes, for quite a while.

Perrin DesPortes:
Let me tell you and tell your audience that even though Polaris Healthcare Partners is a consulting firm that helps entrepreneurial dentists, that guides entrepreneurial dentists to build group practices, that is what we do, build and exit successful group practices as we like to say, we do not think that this is the right thing for everybody. And I am not in the mode of talking people into doing this when it is not in their best interest or their first nature. Because I’ve seen some of the calamities of people that come to us that had a successful solo practice and now they own four and they’re making 20% less income and they’re struggling to pay the bank, and they’re wondering what the heck they got themselves into and how to get out of it.

Perrin DesPortes:
That is not a great place to be for either the entrepreneur or for us, candidly. When somebody comes to us for consulting resources and we have to fix a lot of things, that’s a heavy lift in the short term before we can get to the fun stuff honestly. So I don’t believe that group practices are the right thing for everybody and that everybody should do it. What I will tell you is that if you’re late stage career, whatever that might be, I’m 52 so maybe it’s like mid 50s or something and you’re thinking about you got another 10 years to go, should you or should you not build a group practice? If you’re five years from retirement I would say it’s not worth the risk. If you’re 10 years from retirement, I’m not sure, it’s a jump ball.

Perrin DesPortes:
If you’ve got more than 10 years to go, so going back to the mid-career comment which is, I don’t know, 40s to 50 or something like that, in the sweet spot of your earning, and you’ve built a successful solo practice, kind of like the one I described earlier, I think you gotta consider it and I’ll tell you why I think you gotta consider it. Dentistry, both as a profession and an industry is going to change more in the next 10-20 years than it has in the prior 50 years. It’s gonna change from a payer and a reimbursement standpoint. We’ve already seen that with declining insurance reimbursement, and the ADA’s Health Policy Institute has an insurance reimbursement index that they’ve shown on decline for the last decade, and there are only three states that were showing positive returns.

Perrin DesPortes:
So insurance reimbursements is going down. There are fewer… In terms of slice of the pie, there are fewer core fee for service practices anymore. Most of them take insurance at some level. We’re talking about now, beyond Medicaid, we’re talking about Medicare entering the the payer mix from a government payer standpoint by the end of the decade. That’s gonna create some pricing pressure. We are talking about a changing consumer behavior, especially by millennials, on how they make healthcare services purchasing decisions. And they make those decisions not the way I do. I know my dentist personally. He and I are members of the same country club. His kids went to my wife’s ophthalmology practice. Like I know him. I don’t know what he charges for a cleaning or a crown. And short of him losing his license, I’m not gonna change.

Ryan Isaac:
Yeah, it doesn’t… You don’t care. Yeah.

Perrin DesPortes:
No, I am provider loyal. I’m provider-centric. That is not the case for the younger generation. They see dentistry by and large as more of a commodity.

Ryan Isaac:
Interesting.

Perrin DesPortes:
They’re less provider loyal and when they make decisions to visit the dentist, they do it off of price transparency and convenience, and that’s days and hours. And it’s really tough to build a successful solo practice and be open six days a week and 12 hours a day to accommodate patients when they want to come, not when you necessarily want to be open.

Ryan Isaac:
And translate to your price transparency, translate the very complex pricing mechanisms in a dental practice that I would say a lot of dentists don’t quite understand either with their own profitability and write-offs and everything, to the average consumer to say, “Here’s a clear quick picture of what things cost.” That’s difficult.

Perrin DesPortes:
Yeah, you’re exactly right. Now, it’s a little bit easier to do that. It’s not a layup, but it’s easier to accomplish some of that in a group practice setting because you can take more advantage of the fixed cost structure of the business for sure. You can reinvest more dollars in marketing services. You can reinvest more dollars in capital equipment technology to do expanded treatment. There’s a lot more cash flow flowing around that can ultimately be reinvested in the health of the business to maintain the goose that lays the golden eggs. So if we’re talking… Let’s go back to that mid-career dentist for a second. When the mid-career dentist that has a successful solo practice says, “Should I stay, should I sell or should I build? Those are the three decision points, right?

Perrin DesPortes:
Stay. Well, you’ve built a successful practice. It’s cash flowed wonderfully. You and your family probably have a nice standard of living, probably doing pretty well. Can you reasonably conclude, when you look in your crystal ball, that the health of your business today is going to… You’re gonna be able to maintain it for the next 15-20 years without suffering any type of marginal pressures to cause a decline? I think it if that is your conclusion and you’re in your mid 40s, you’re taking an enormous leap of faith. Some of that is faith on you as the business owner and clinician, and some of that is faith on things you can’t control in the industry. And if I’m mid-career, I don’t know that I can afford to be that rose colored glasses for that long period of time, knowing what we’ve come through recently and looks like where we’re headed.

0:35:00.8 PD: So standing parts, staying where you are, I just think is a risky proposition as antithetical as it may sound. So sell, all right? Well, there are plenty of groups that would love to have you stay on board as a clinician, would pay you top dollar for your business and offer you an equity role for a second bite of the apple and all those things. And that might be compelling, but I would say it would have to be compelling based on what your personal financial position is right here right now today, and not trying to maximize the asset for a 20 year run if you’re not gonna be part of it. So I don’t know that selling the business to a group mid-career, unless it’s something where you you wanna sell the business and you wanna relocate to another state and do it all over again…

Ryan Isaac:
Exactly. Yeah, you’re looking for like a life transition anyway. Totally.

Perrin DesPortes:
Yeah, that’s a different deal. Then, yeah, I get that. But if it’s like sell and retire or or sell and just work back for 20 years, not too sure about that one. The group, build your own group has a lot of competitive advantages, like I kind of rattled off before in terms of value proposition. But if you think about it from a defensible strategy, size makes mite all too often in terms of purchasing power, in terms of lack of provider dependency, if you can attract associates and things like that, the ability to reinvest dollars in marketing and expanded days and hours and all those things. And they’re just a lot of competitive advantages that come in a group practice context, but you don’t have to build a 20 location group to get there.

Perrin DesPortes:
I think there are a lot of people who are now looking at building group practices that say, “Look, if I could build four or five… ” I say, build. If I could have a four or five location group that’s not 100% dependent upon my clinical skills, can have passive income out of that, maybe a couple of minority partners along the way, that’s not a bad place to be in for the next 15 to 20 years.”

Ryan Isaac:
Yeah, as you say that I’m thinking of what feels like… It’s all anecdotal, so I don’t know. My feelings, I can’t always trust. But it feels like a growing number of clients who are in that boat that are growing their second, third, fourth and some people their seventh, eighth, ninth, 10th locations, with the intention to just kind of perpetually hold that model because it was a ton of work but they got through the point where, like you said, there’s a handful of partners, there’s very well compensated key team members that are non-providers that are still very well maybe equity compensated, and it’s a smooth running machine with efficiencies and price efficiencies, profitability efficiencies, scale and providers and all that kind of stuff. And they look at it like, why would I leave this? Yeah, and I can see that. I can totally see it.

Perrin DesPortes:
It depends. I mean, you’re right, so those businesses, we like to call them lifestyle businesses, and by that, I mean it’s a business that funds a lifestyle. It’s cash flow business. And there are a lot of advantages to that. If you’re gonna build a group, one of the first things you wanna think through is, we like to say, what are you trying to build and why are you trying to build it? So what? How many locations? Are you gonna centralize services? Are you gonna have minority partners? How fast do you wanna get there? All that kind of stuff, and then why are you trying to build it? Is it built for exit, meaning transaction? That’s wealth, versus income. So income and wealth are competing interests in a business, because if you’re going to build a business for exit, for sale, you’re gonna probably…

Perrin DesPortes:
You should reinvest a lot of the cash in that business as a growth engine and not take all the cash out to fund the lifestyle. So it’s important to get clear on that, not just for the founder, but if you’re gonna have multiple partners, alignment around how we use the cash out of the business is a critical issue to be on the same page with from day one, because it will not get better and it will not course correct down the road. And if you have a partner that is living to 100%… His or her expense structure on the home life requires 100% of the profits out of the business attributed to him or her, then they have no margin for error on the home front, and that creates problems in the way we govern the business in terms of reinvestment.

Ryan Isaac:
Yeah, that’s fascinating. Okay, so maybe to tie up the mid-career person, we’ve got stay, build or sell, which again, everyone is different, every situation is different. There’s not a right or wrong, but they are very different paths for different people. And I like that you’re saying, “Let’s begin with what do you want in the first place? What do you want out of all this? And why do you want it?” I think those are really smart things to ask that they’ll seem like the obvious questions, like, “Yeah, it’s a lot of foo foo magic stuff,” but that matters a lot, and I don’t think we… In a lot of things in our lives, even like, “I’m gonna start going to the gym in January.” It’s like, “Well, what do you want out of the gym for the next 12 months or the next 30 days? And why do you want that? Is it because… Are you jealous of something on Instagram or is there something in your life you’re really driving towards that’s really motivating to you?” And those are important questions. I don’t think we take enough time for ourselves to answer a lot of times.

Perrin DesPortes:
You’re right, we don’t. I mean, this counts for me every bit as much as it does you and your audience as well, so I’m not immune to it. But what I will tell you is that the people who build group practices, we find, when they’re not clear about what they’re trying to build and why, they have delusions of grandeur. And they say, “Well, Perrin, I wanna build a business that I can sell in five years, and I wanna put $20 million in my family’s bank account after taxes and after debt service on the transaction.” And I’m like, “Great, okay, let’s model it out. We build financial models on every business we work with, let’s see what you got. Well, you’ve got two locations generating $500,000 in EBITDA. So based on our model to get to your $20 million walk away, you just need to buy or build 10 practices a year, every year for the next five years. How does that sound?” Probably not realistic. So I hate to say it, we’re very analytically driven at Polaris and I tend to crush a lot of people’s hopes and dreams.

Ryan Isaac:
Spreadsheets crush dreams, man.

Perrin DesPortes:
Yeah, absolutely, man. Now, listen, the alternative is that I can make you a billionaire on a spreadsheet with a couple of clicks of a mouse. So I’m not here to persuade you into doing something that you shouldn’t, but let’s be realistic about what your expectations really are.

Ryan Isaac:
Yeah, that’s really true. And I’m thinking back to one of the first things you said about podcasting, which when you said when someone has 30 minutes between their patients, and if we’re not careful, I’m gonna talk your ear off, I’m gonna make you talk for a long time. So here’s some questions that I’m wondering or maybe I think people will be wondering as they are hearing all this are, who is the person, the type of person, the archetype, who contacts you and what is that kind of first… Like you said, you’re analytical, you build out these models, but you’re also very… You’re asking the right questions kind of philosophically too. Who’s the archetype who is reaching out to you, who’s the right candidate, and what’s that kind of first experience like with Polaris?

Perrin DesPortes:
Yeah, I think there are two types that reach out to us. They’re dentists who are usually successful and they’re entrepreneurially-minded. So we like to say our target market is doctor-founded and debt-funded groups. That means they’re the entrepreneurs that own the business and they’re using bank funds to grow. And I kinda put them in two camps, the first is maybe one or two… Loosely put, one or two locations, they’re curious about building a group. They have questions that they know about, and then they know that they don’t know a lot of stuff, and they… Typically, that type of a perspective client, we have a service, we call it discovery day, that’s a one-on-one day. I teach probably 80% of them, my partner teaches some, and we have a few of the other guys that do it as well. And it’s group practice fundamentals.

Perrin DesPortes:
It’s one-on-one with an advisor, and we teach out of about an 80 page deck. It’s debt structure, equity structure, operating structure, legal structure, what is EBITDA, growth strategy, associate equity, exit expectations, so all the fundamentals of group practices, and the deck is really intended to create more questions. And when you’re one-on-one with somebody for six or seven hours, you can chase a lot of rabbits down a lot of holes. And what we find is that those days are really impactful for the people that wanna come and spend a day with us, because they have questions they won’t ask in a group setting, because they think they’re stupid questions and they’re not.

Ryan Isaac:
Totally.

Perrin DesPortes:
And there are other things that they’ve never thought of to ask and that day brings them to light, and I would tell you that…

Ryan Isaac:
Wow, that’s so cool.

Perrin DesPortes:
Yeah, probably about one out of every four that comes and spends a day with us elects not to build a group practice, and that’s quite alright. I think we saved them…

Ryan Isaac:
Yeah, that’s probably a successful metric actually.

Perrin DesPortes:
It is.

Ryan Isaac:
Because you educated. Your goal wasn’t, like you said in the beginning, to twist someone’s arm and sell them on something. Your goal was to educate them.

Perrin DesPortes:
That’s right. That’s right. And I would say maybe one out of four elects to engage us for consulting services, and the other two out of four say, “Okay, I know what I didn’t know before. I need to go back home. I need to figure out some stuff and then I’ll call you in a year,” or something like that. And then the other segment, if it’s not the one or two location type, maybe they’ve already started down their journey. They’ve got 3-4 locations and they’ve… Something blew up on them. They ran out of access to capital from their primary bank. They’ve been turning over associates left and right. They acquired a practice or two and they overpaid for it, and it’s not cash flowing that well, and oh, by the way, they still gotta pay the bank, and now, they’ve stepped on a land mine and they need help, and I wish it didn’t have to be the case. We try to educate people on our podcast what not to do and how not to get in those problems, but…

Ryan Isaac:
Yeah, it happens.

Perrin DesPortes:
There are a lot who do. Yeah, and that takes some work to get it stabilized before we really get to the fun stuff. And our consulting, we call it strategic consulting. It’s not operational consulting. So if you have trouble with case acceptance or hygiene retention, I’m not your guy. If you wanna learn how to buy or build practices, how to build a group practice, how to centralize operations, how to use bank funds the right way, how to create equity opportunities for associates, that is what we do.

Ryan Isaac:
That’s really cool.

Perrin DesPortes:
And those are the building blocks of establishing a firm group practice that can go to the distance.

Ryan Isaac:
Cool. And so if someone would expect to just reach out on the website, get in touch, and then you have maybe a rotating schedule of these kind of workshops and…

Perrin DesPortes:
Yeah. So our URL, and I can get the information to you linked in the show notes if you’d like is, polarishealthcarepartners.com, polarishealthcarepartners.com. I like to say that we looked for the longest unclaimed URL, and I think we found it, but there are a lot of videos, there’s our podcast, there’s some white papers, blogs, and speaking events, and all that sort of stuff on our website where you can find us in the industry, or if we’re on the stage or… We’re hosting a conference in Fort Lauderdale in May that’s called Building Your Enterprise Platform. So for those who wanna build a group and they wanna centralize and go big, this is the conference for them.

Ryan Isaac:
I don’t think I knew that your company was so education-focused and strategy-consulting focused outside of transactions.

Perrin DesPortes:
No, transactions are a very small part of what we do, honestly. It’s a very… The magnitude is big, but the number of clients is smaller, yeah.

Ryan Isaac:
I don’t think… So that’s one thing I learned today, actually. That makes me really excited. I love it. And I do. Like I said earlier, I see you guys all over the place doing live events and webinars and podcasts. What’s your podcast called by the way?

Perrin DesPortes:
It’s called Group Practice Accelerator. Group Practice Accelerator, and you can find it on Apple, TuneIn, Stitcher, Spotify, all that kind of stuff. If your audience likes business concepts that are a little wonky and not maybe easily digestible, boy, can I put them to sleep in a hurry. But no, we get nice compliments on it from people who were looking for business content that’s tactical, I’ll say.

Ryan Isaac:
I like that as a pitch, like, “Hey, if you’re looking for a podcast that might confuse you and take you down a rabbit hole of things that are hard to digest, we’re your guys.” I like that actually.

Perrin DesPortes:
Yeah, I’m sure you look at your downloads every bit as much as I do, and it’s… I can tell when a couple of people have stumbled on the podcast because they listen to an episode then they go back and binge all 100 other episodes.

Ryan Isaac:
Oh, the previous.

Perrin DesPortes:
Yeah, yeah. So I…

Ryan Isaac:
That’s super cool, man. How often are you putting out an episode?

Perrin DesPortes:
Twice a week. One is a core content type of subject matter, and the other is either an interview or a little bit lighter subject matter that is just, lets it breathe a little bit, I’ll say.

Ryan Isaac:
Okay, cool, man. Well, thanks for sharing all that. We’ll definitely link all this in when we share it and everything. And I’m always just curious, just personally for people, what you have going on in life and what’s something you have coming up that you’re excited about personally? Maybe it’s something in business, are outside of the business, on the golf course, a travel. What’s coming up that you’re excited about in life right now?

Perrin DesPortes:
Yeah, I’m married and we have a 9-year-old daughter, and she’s sweet and adorable and part terrorist as well, so I’ll say that the family life keeps me on my toes a big bit. I’ve been traveling a bit too much with business unfortunately. I don’t love business travel. But we had a family vacation a couple of weeks ago up to Asheville in North Carolina, to the mountains, which was nice. And then my wife and I will be celebrating our 11th anniversary the first weekend in May, the week before that other conference of all things. And so we’re looking forward to getting away for just a little bit of parent and Lucy time down in Kiawah Island in South Carolina.

Ryan Isaac:
Wow. Cool, man.

Perrin DesPortes:
So that’s probably the one that I’m… I’m actually gonna be out in LA for the end of March actually, maybe about a month away now, for an event that Patterson Dental is hosting too, so I’ll be out in your neck woods for too much longer.

Ryan Isaac:
Well, that sounds exciting, man. And I have four wonderful daughter/terrorists as well in their own right, so I get it. It’s a great dad life. Girl dad life is a great life, man.

Perrin DesPortes:
You don’t have to have any other motivation to get out of bed in the morning, that’s for sure, right, Ryan?

Ryan Isaac:
They’re the best. Yeah, that’s amazing. Man, thanks Perrin, for doing this, I really appreciate that and for all you guys are doing. It’s cool to learn about all the educational-focused things you guys do. That’s really impressive and I value that a lot. So thanks for putting that on and putting in the hours and getting that out to the public. I appreciate it. Thanks for being here, man.

Perrin DesPortes:
Look, I appreciate you having me on, and hopefully we’ll get you on our Group Practice Accelerator podcast and love to collaborate more going forward. I love the work you all do too.

Ryan Isaac:
I like to try to confuse people when I talk for an hour too, so you send the invite and I’m on. I’d love to be on there.

Perrin DesPortes:
Awesome. Counting on it.

Ryan Isaac:Thanks. I appreciate it man, and thanks to everyone for tuning in. We’ll catch you next time on another episode of The Dentist Money Show. Take care of now. Bye-bye.

Practice Transitions