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Dr. James Anderson’s Entrepreneurial Journey – Episode 39


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Dr. James Anderson wasn’t wired to follow the traditional path of dentistry. Within a year of starting a practice, he hired his first associate and caught the entrepreneurial bug (or as he calls it, “A.D.D.”). Since then, he started nine successful practices, built one of the largest dental billing companies in the nation, and even opened an arcade. In this episode of Dentist Money™, Dr. Anderson recounts important lessons he’s learned about practice expansion, managing accounts receivable, and incentivizing staff.

Podcast Transcript:

Reese Harper: Welcome to The Dentist Money Show. I am your host, Reese Harper, here with a very interesting guest. This is a good friend of mine, Doctor James Anderson. I will give a teeny bit of background and we can all clap, ok? Dr. Anderson is an entrepreneur, one of his new ventures which is my favorite, an arcade. He is starting to smile now, I love that. I love that you did that, ok? In normal circumstances I might actually advise someone not to do that, but in your situation, I am more than happy to endorse that.

Dr. James Anderson: It was for the kids.

Reese Harper: You are an owner of multiple practices. You have started, not recently, but you have owned a great building company. I just thought it would be great to have you on the show so you could give people insight into being an entrepreneur, dentist, dad, business owner, and everything else. I think this should be a fun show.

Dr. James Anderson: Thanks for having me!

Reese Harper: Tell me how you got into dentistry. You have so many interests, I am curious how you got channeled into dentistry?

Dr. James Anderson: That is a good question, I think I now know that I have A.D.D.

Reese Harper: You know thats a good thing? A lot of successful entrepreneurs do.

Dr. James Anderson: Oh really? Glad I am in good company. I have started nine dental practices, but my plan was just to raise a nice family and not be poor.

Reese Harper: That is a good plan. Expectations were not that high initially. You just don’t want to poor, and have a family.

Dr. James Anderson: I hate admitting this, but there was a guy in our neighborhood who became a mentor for me. He was a dentist. He had the biggest house in the neighborhood. We did not live in the biggest house in the neighborhood. I know that sounds materialistic, and I’m not. He was just a nice guy. He was a coach for my basketball team. He was just the neatest guy. I really admired him. There were twenty seven kids all my age that became dentists just because of him. I went to his dental school because that is where he went. I went to Oregon Health Science University. He helped me find a location for my first dental practice. I actually drove out there with him, I was thankful for the time in his car, and he said, “yup, that will be a winner, it will work.”

Reese Harper: So he helped you pick the location?

Dr. James Anderson: Yes, he did.

Reese Harper: That’s cool. What a good mentor! Everyone needs a couple of those in their life, ya know? They are usually people that were mentored themselves and they don’t really expect anything out of it. They are just trying to pass along lessons. That is really cool. Sorry I interrupted your story, I just thought that was a nice highlight.

Dr. James Anderson: That is why I became a dentist, but after opening the practice we did well. I hired an associate within 6-9 months of being open.

Reese Harper: What made you decide to hire an associate? A lot of people might get in that situation and feel like they are finally making a little bit of money. Was it that you had so much volume you couldn’t handle it, or was it that you didn’t want to practice all day by yourself?

Dr. James Anderson: I did not want to build a prison brick by brick. I didn’t become a dentist so that I couldn’t leave whenever I wanted to. I remember even, my background is a degree in business, and I remember trying to find my first associate. I interviewed someone who was fifty or sixty years old and he said, “you have been open for how long? You already want an associate?” This was a very foreign concept to him. To me, I was like, “Ya, I want to be open six days a week and I don’t want to see everybody. I want someone to come work three days a week with me. In the end, I think we’ll make more money and I’ll have a better lifestyle, and our patients will be served better. If I don’t have to be there every single day.”

Reese Harper: That is a risk you take upfront though, right?

Dr. James Anderson: Well, if you guarantee a salary?

Reese Harper: No, I mean, for you. That person that you hire, you have to step off the ledge a little bit. You don’t know if it is going to work out, you aren’t sure if they are going to stay or know if you are going to make money right off.

Dr. James Anderson: That is right. It is a risk. Just like starting your dental practice. That is more stress than hiring your first associate. I think it is less stressful than that.

Reese Harper: You don’t have to go get a million dollars of debt to do that next one.

Dr. James Anderson: No, no debt at all! You just take your Friday’s off, and have someone come in on Friday and Saturday’s, for instance. Instead of you working six days a week. My experience was that it took the stress away from me a little bit. I didn’t think about how it would all fall apart. I tell people this all the time when they talk about business, the most secure person is the owner of the business!

Reese Harper: They have control, right?

Dr. James Anderson: If the patients all of a sudden stop coming, and we are in trouble? There were things in the contract that allowed me to quietly let him move on. He would also probably want that since the money wasn’t coming in. When an employee wants to get a loan they ask the employee to go get check stubs from the employer for the last few weeks or months. Then when the employer has all the money on the line, they don’t ask for the last two weeks of his check stubs, they want the last two years! I tell you though, if things are going down hill, I’m going to let my employees go because I have to! The bank thinks they are more secure than the guy that owns the place? That has never made sense to me.

Reese Harper: That is always a mystery that people don’t realize until they have to apply for a loan as a business owner. Then you see someone in your company who just got a loan with a W2 paycheck and then you are unable to qualify because you had 1% decline in your collections and they are worried about it.

Dr. James Anderson: Right, they are worried. That was important though. I built the practice big enough that we could have an associate right away. I think seven or eight operatory’s is the perfect number. That first practice had seven, we have few with eight now, and I wish that first one had eight. Most of ours have seven which we have done to minimize the space. You can fit seven ops, a small office, a lobby big enough for the people that are waiting, and a small treatment plan room in a bout 2400 sq. ft.

ReeseL That is efficient. A lot of people will do that and end up with 4500 sq. ft.

Dr. James Anderson: No, you do not want to waste money like that!

Reese Harper: I know, but you see it. You see people wasting money on space, because they want it to feel a certain way or they will turn their office into a private house/office.

Dr. James Anderson: That will backfire on you. When patients see the build they say, “I am not paying that guy. It is way too nice.” Our office is comfortable, but we do not have oak and marble all over.

Reese Harper: What advice would you give to someone then who has not hired an associate yet, and they are thinking about hiring that first associate? There are a lot of emotions people go through, how do you know if you are ready?

Dr. James Anderson: Well, if you are booked out at least two weeks than you are ready. It is that simple.

Reese Harper: Ok, so if someone is booked out six weeks right now and have not hired an associate…

Dr. James Anderson: They are crazy! They are waiting for the corporate office to come next door to them and hire the associate that they should have hired. I have had that happen to me. We have had some corporate office guys come and open up next to me and take my associates. We are doing fine, I want dentistry to stay the cottage industry that it is. We are doing just fine. We built the office big enough for two dentists right from the get go. If you build an office that only has four operatory’s, it is going to be awfully hard to add an associate!

Reese Harper: Ya, and then you have to relocate and you have wasted all of your time and local marketing. A lot of it is inefficient to do transition.

Dr. James Anderson: During construction phase, my advice is to build it big enough for two dentists from the get go. Most dentists listening to this I am assuming, already have an office. You can be creative with your hours. Do two shifts, make sure your Saturday’s are open. You will find that your staff will first resist Saturday’s and they will tell you that everybody no-show’s and it is because they want them to no-show. They will find a way to help them no-show because they want to prove to the doctor that they are not going to show up. But it is not true, Saturday is our busiest day.

Reese Harper: What do you do on Saturday’s to encourage staff to work? How do you encourage them it’s a great thing?

Dr. James Anderson: We have done different things, sometimes when you are organizing your staff there are certain days that need to be filled and if you want the job then this is when you have to work. If you are already organized that way and are doing extended hours then sometimes you have to ask them, “how much extra per hour do you need in order to work that day.” I started off with, “do you want a million dollars an hour to work extra that day?” Then I said, “how about ten? You just proved my point that more money will make Saturday a good day for you. I will give you ten dollars a day extra.” Then we went down from ten to five, then I went down to two dollars an hour. I had two people left who would do it for two dollars an hour. That is all we needed, so that is what we settled on.

Reese Harper: There is some good logic in that. What do you find typically is the most productive day for the week in your practices?

Dr. James Anderson: Friday and Saturday’s, well, actually they are all really productive. We are booked solid every day, but our most requested days are Friday and Saturday’s or in the morning before work or after work.

Reese Harper: Tell me a little bit about ..

Dr. James Anderson: That is an idea that John Christensen taught me.

Reese Harper: Tell me a little bit about the next phase. We talked about how you got into dentistry. We talked a bit about the associate concept that is interesting to people. Tell me a little bit about that second location. The first time you opened another location, right? Now we have got a lot more than two, but talk to me about that first step you took to open that second location. Why did you do it? Why did it make sense, and how did you determine it was the right time?

Dr. James Anderson: I just made a goal to start a new office every year. I knew the most important part of starting a new office would be finding an office manager to run it and collect from the insurance company. To make sure that patients knew what their out of pocket was going to be, and make a treatment plan. I had someone, Jen Harvey. She is fantastic. She was with me and we were collecting 100%, we were a million dollar practice within a year and a half. My goal was to have a new office every year, so we decided that we would do it at year two, we did another office, year three we did another office. I don’t still own all of those. Unlike some of the other dentists that you know of that start offices and keep them and never let the associates become partners. I am not like that. I have actually sold five of the nine practices, and I have two more that I plan on selling our positions out of and maintaining that.

Reese Harper: We will get into the other business that you have started in a little bit, but why do you think that it makes sense to allow the associates to eventually take over the practice, or purchase the practice? Why don’t you maintain ownership? I think that’s something important to talk about.

Dr. James Anderson: I think this is why DSO’s are ultimately going to fail. Those that don’t let dentists own what they do. They don’t own the office, and they will always have turnover. They will have lower quality.

Reese Harper: You see some DSO’s trying to involve dentists in ownerships and those seem to be the ones that are successful.

Dr. James Anderson: Yes, that’s the way they have to do it. I guess the reason I’ve done it, is that at first I thought I didn’t want to sell it. I wanted to keep owning it and running it. Then I began to realize that I wanted to help dentists fulfill their desires or goals and dreams too. We became dentists to work for ourselves. I wanted to be a good guy. I wanted the dentist to like me. It is important to me. I don’t want them to view me as the enemy.

Reese Harper: An adversary, ya.

Dr. James Anderson: A guy coming in and building a bunch of dental offices. Kind of like some of the corporations are doing now.

Reese Harper: What is your opinion on maintaining a consistent brand across all locations?

Dr. James Anderson: I think maintaining the same brand is a bad idea. There is not a right or wrong answer, this is just my opinion. All it takes is one dentist to make a mistake, have a root canal go bad multiple times, or a margin that is open a few times. ThisW office is somewhere three hours away with the same name and now all of a sudden people don’t want to go to your dental practice either. It is too easy to talk about it on Facebook, or Google. They do a Google Search of the name and everyone sees the review of the doctor far away and it is now attached to your practice.

Reese Harper: Yup, that is really good insight. Tell me a little bit about what made you say, “I want to start a business that is outside of dentistry. I feel like I am more passionate about that?” I think it is fair to say at this point, I don’t know the details of how that has shaken out for you. I think it is fair to say that the business outside of dentistry has no become more important or more financially significant to you than even the dental business?

Dr. James Anderson: You are talking about E-assist dental building? That is still focused on dentistry, but it is not doing dentistry.

Reese Harper: Yes, I should say that. You didn’t go outside of the industry.

Dr. James Anderson: I did for the arcade. That was just for fun. That was easy.

Reese Harper: You didn’t really start that business as, “I want to get out of dentistry.” You did something to help your own practice.

Dr. James Anderson: It was to solve my own problem. So after starting multiple dental practices, I realized the biggest problem you have is finding an office manager who knows what they are doing. Who not only is nice with patients, can educate patients, be kind, and manage staff, understand the schedule and keep it full, answer the phone the first ring, always have a smile. Then you have to change personalities to get on the phone with insurance companies and demand payment. It’s such a shift!

Reese Harper: They are different people. It is hard to be adversarial and go back and forth.

Dr. James Anderson: You can find superstars, I had one for years. Then her husband was in the military and she was transferred to Washington. I got a three month notice or so, we said our goodbyes, and then I tried to find someone to replace her. Over the next twelve months I hired and fired six different office managers. I feel terrible about that, now. I went back and brought a few of them back after that. I got a reputation for being a hatchet dentist, and I didn’t want to be!!

Reese Harper: You’re not that mean are you?

Dr. James Anderson: No, I’m nice! I don’t like to fire anybody.

Reese Harper: No, it is tough to find the right fit sometimes.

Dr. James Anderson: This is why I got scared, and this is what dentists usually go through eventually. This will happen sooner or later. They either have a superstar that they inherited from buying an office or they get one out the gate. But when that superstar has to leave for maternity leave, a car accident, a spouse relocating, you have all sorts of issues that now you have to deal with in a two week time period. How do you find a replacement for someone that valuable in two weeks!? Especially in a small community. That is what happened to me. Our paid receivables went from over $100,000 to to $150,000 to $250,000 within twelve months, if I remember my numbers and timeline right. I knew I was in trouble. We were still making money, but we were leaving a lot of money on the table. Patients were saying, “I love your office Dr. Enderson, but your billing is all messed up.” When I would call in, they would write it off. I went down and there was a box of EOB’s under the office managers desk. What are those for, they are unorganized and right there by your feet. I don’t know what they were doing, but they would just write stuff off and tell patients they were sorry. I realized it was because we were busy collecting $150.000 -$180,000. One person was doing that all, she was a superstar, I didn’t pay her enough. Instead of hiring and replacing one person like that, I needed to add three people. Adam Smith’s concept of the division of labor introduced in The Wealth of Nations book, which is credited for starting the industrial revolution, if you remember form business school…

Reese Harper: I have that book up in my office right now.

Dr. James Anderson: Ya, most dentists have not read it. When I have gone to dental conventions and I ask that question, “has anyone read Wealth of Nations”? Nobody has in the dental industry, they just don’t understand the concept. I thought about what Adam Smith taught. If you have one person making a widget, let’s say that it is a pen that you use for sewing, if it takes that person all day to make ten pens, you can now add two more people doing specialized things. If that one person is going from beginning to end doing whatever it takes to make that pin. It could be sharpening, polishing, packaging, and getting it ready to go for sale. If that person does every single step along the way they can make ten pins a day. If you specialize each step and all of the duties required to get that product to market and have three people doing those things you might be bale to make 100 pens a day! The same thing is true for services. I thought in dentistry it has to be the same way. I thought instead of having one person do it all, I need three people. One person focused on the patient and people in the office. The need to handle the paperwork and make sure that insurance is verified so we can present a proper treatment plan. Then have a nice smile and know the patients name, family, and have a relationship. You are not interrupted by the insurance and trying to post EOB’s. You are just focused on patients that are in the practice and collecting the patients co-pay. If that is your job and we create a matrix to help motivate someone to be successful at knowing how many patients are leaving the practice before paying, what is our collection ratio, what is our treatment plan success rate, you can now have this person focus on just those specific things. Then she can know whether or not she is successful. We use leading indicators not lagging indicators.

Reese Harper: What you are saying is that the insurance collections process it’s not one skill set, unfortunately. It is not easy to do. So you saw this problem and you started building a company that solved that problem.

Dr. James Anderson: I didn’t start the company first. I just hired two more people and brought them out of the office because I didn’t have any more office space for them. I have an I.T. background so I created HIPAA compliant, Dentrix data, as if we are in the office. It can’t be something like “Log Me In” that is too slow. It has to be fast, HIPA A VPN, and functional. So I engineered those and then made it so that all of our mailing came to a central location and we had a billing department in someone’s home. It was incredible what happened. Within six months are receivable dropped back to 100,000. Back to where they were before. I had to write off about 30,000 of that money due to timely filing issues, some insurance companies after twelve months if you don’t give them all the information they need they no longer have to pay. Some are even 90 days. Most are 18-24 months. We solved the problem once and for all with that. Part of it was to create a system where the people who were focused on the insurance and following up to all the denied claims would have to send me a daily report every day to tell me what they were doing because I didn’t see them every day. Were they even working? I don’t care about the hours they were working, I wanted the results. How many claims are you processing? How many appeals are being successful? I wanted all that documented every single day and I got a report in my email box. It solved my problems. Then I had a classmate of mine, Warren Willis, up in Idaho. He has a successful dental practice up there. He told me that he had the same problems and asked me to help him. I thought, “ok, I’ve got to re-engineer this so I don’t ever handle the money. The checks don’t come to me. We don’t have to change the software that people are using.” I actually tried to find a solution for this before Sandy my office manager just said, “let’s just do this ourselves and solve this problem with our own solution.” There weren’t any companies doing this. There was one in Oregon that was factoring your money but they weren’t processing insurance claims, taking narratives from the doctors notes and x-rays, and making sure money was being paid. You had to find someone that knew what they were doing and no one was doing this. We were the pioneer in this industry. We grew through the internet. Our very first client was someone from Virginia. She is still with us today, Dr. Jenkins in Maryland.

Reese Harper: They just found you by googling for someone to help me fix my billing?

Dr. James Anderson: I made a little website and threw it up there. She found it and I gave her three months free. I flew out there myself and installed everything. I did that for our first ten clients and now if things are streamlined we get in there and we get 1-20 clients a month now. We have solved a lot of peoples problems. We are cheaper than trying to do it yourself. Wen you are in the office running a successful practice like that then the patients always come first. So if you are on the phone on hold for half of an hour to talk about aging claims, if a a patient needs a treatment plan, you have got to hang up. Then you’ve wasted three ours and your focus. Pulling them out of the office was a game changer for us.

Reese Harper: Theoretically, if I am a doctor I have two choices. My front office is trained, they do a good job, and I want to save the money because it helps offset my costs. How much is it costing me to outsource versus keeping it internal?

Dr. James Anderson: It is very minimal. Sometimes there are claims being written off a $25.00d claim here and a $37.00 claim here, just because it takes too long for them to process that. You don’t really know how much money you are losing. You don’t have to hire us, you can do it yourself. We actually put three people on every account. If you aren’t going to do three at least bring in one person to just focus on insurance and don’t interrupt them with anything else at all. Will you make more money after you pay her salary? You should because the staff has more time.

Reese Harper: So I have the option of hiring someone full time to do this, or maybe doing Adam Smith’s divisory law which would state that if I spread that job across more people then potentially it might be less expensive because we get more done.

Dr. James Anderson: That’s right.

Reese Harper: Theoretically when I hire a company like yours I will be paying a percentage of what your team collects for me.

Dr. James Anderson: Yes, a very small percentage.

Reese Harper: Does that percentage stay fixed, does it grow, does it decline? How do you incentivize your account managers and how does that effect what the client pays?

Dr. James Anderson: Good question. It actually goes down. The larger your office is and the more we collect from the insurance company the percentage goes down. For most people it is 3.5% of what insurance pays, that’s it. That is similar to hiring someone in your office part time to do what we do. That gives you three people. One person to post all the EOB’s, that is a different skill set right? You have to be very focused on exactness, debit, and credits, being able to read and understand it.

Reese Harper: Almost more like an accountant type person.

Dr. James Anderson: Right, not a friendly sales person you want behind a desk saying things. We find the people who are good at doing that. Then the other person follows up at all the claims. We don’t create narratives, but we understand what things are and read the chart notes. Only the dentist can create a narrative, but we understand what we are looking at and make sure that the chart notes match. We don’t add everything. The client has to be digital in order for this to work. Not even with our company, but just if you are going to hire someone and put them in your office and take them out of your office so they aren’t interfering with patients or even the drama that happens in the office. One less personality is a good thing. People seem to not want to get along with each other from time to time.

Reese Harper: That is the second person that you have on my team now. I got my EOB poster,

Dr. James Anderson: Person that sends and follows up on all the claims, that person has to work during office hours.

Reese Harper: What is that personality type like, generally?

Dr. James Anderson: They have to be tough with the insurance company, kind, build relationships, know who they are.

Reese Harper: But not afraid to be direct.

Dr. James Anderson: Insurance companies, let’s just face it, they don’t want to pay.

Reese Harper: Who is the third person in the team?

Dr. James Anderson: The team leader for quality control, spot check posting, spot check EOB, check on sending claims and narratives, a contact person for the office to call if they have a question about something.

Reese Harper: I think that is great, I appreciate you going into detail on this. I think we could go into a few hours on the arcade, I didn’t get to dive into that today.

Dr. James Anderson: Ya, if you have a high score then you get your name up on the board, asteroids and stuff.

Reese Harper: It has been a real pleasure, man. We have learned a lot today about entrepreneurship and growth. One of the key take aways for me is that if you are going to go down a rabbit hole and pursue another business there is a lot of things that are closely related to dentistry. If you spend enough time thinking about how a problem you are facing in your practice can be turned into a business, it is a lot more efficient than throwing money at a tech start up in silicon valley that your buddy just started.

Dr. James Anderson: I agree, there is another dentist, Dr. Jim Ellis, who made an electric toothbrush. I heard him speak, really dynamic guy, loved hearing him talk. This toothbrush is like Sonicare, it is like a Sonicare toothbrush for 1/3 of the price. He and I were talking and he said, “Ya know, I just felt like these guys are ripping people off and I can do better.” He went to China and did some things. That is what you are saying, right? He found a problem as a dentist and created a solution for it, and is now really helping people with that solution.

Reese Harper: I think that is great. One other thing I will add is that I do think it is important to be able to master your craft first before you try to master another craft. Each of us have a level of capacity of what we can do in phases. Sometimes I meet associates or new practice owners who have yet to collect that first million dollars in a calendar year and at $500,000 they are already thinking about the next business.

Dr. James Anderson: No, they just need to hire that associate next.

Reese Harper: They shouldn’t be doing real estate development quite yet.

Dr. James Anderson: Can I say this, Reese? Where I have lost money is in real estate. I really have!

Reese Harper: Thanks so much for taking the time, we look forward to having you back soon.

Dr. James Anderson: Thanks Reese, this is a lot of fun, more on the arcade next time?

Reese Harper: Yes! Carry on.

Income, Practice Value

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