Dr. Allen Nazeri applies Michael Porter's Five Forces framework to dental practices, showing how rivalry, supplier power, insurer bargaining, new competitors, and substitutes like cosmetic dentistry erode profitability. He argues dentists should cooperate locally to strengthen their practices and improve exit valuations.
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This is Dr. Alan Nazeri. And welcome to my MBA series. To my wonderful fellow dentists, anywhere you are in the world, today's lesson is about understanding competitive forces that can affect your dental practice. See, traditionally dentists think about other practices in their neighborhood as a competition. I encourage you to consider and begin looking at how you can cooperate with with the other dental practices rather than compete with them. After you complete this lesson. See, in 1979, a university professor, Harvard University professor who's still living, Michael Porter, he came up with what we call the Porter's five forces or Porter's competitive forces. And basically he said, you know what, businesses competitions are not just rivals, but they're other competitive forces that really affects the business and erodes the business from its profit. So this analysis tool was developed so dentists and business people can gauge the level of the competition in their business. And it allows the management to really gauge the profitability expectation of their business. Now all we know is that as profitability.
Goes down, competition goes up or the other way around, the competition goes up, the profitability goes down. So what I like to share here with you is the Porter's five forces. The first one is rivalry in the industry. So obviously is the existing dental practices more established rivals you have in the neighborhood. Obviously you have more to compete. That means what you have to do more marketing, you have to get out more in front of the public and so forth. And guess what it does, it erodes your profit. The next is the power of suppliers. Now if the manufacturers and the suppliers in your city is rare, or maybe you just have one dental supply company, they can pretty much charge, you know, ridiculous amount of prices and you have no choice but paying them. But if you have 2, 3, 4, 5 dental supply houses, then there's competition among them as well, right? In our case we have the dental suppliers, dental manufacturers, the that they want to increase the prices every year on their materials. And then we have the insurance companies, like in the U.S. most insurance companies, they try to negotiate the prices down for dentists and physicians and so forth. So all of that can actually erode the profit margin. Then is the next thing is the power of customers and I should say the power of bargaining. And the customers always are looking for more value, right? So if the customer is looking at an office that is modern, it has all the dental equipment and technology, guess what, they're going to go to that office and that is going to make you want to buy the same technology to compete. So guess what, it will erode your profit margin. Now, sometimes even the customers bargain, especially in bad economy, right? So as they bargain, what happens? You have to reduce your fees. That means it's going to cut through your profit margin. The next force is the threats of new entrants. Now, as dentists we have a high barrier of entry. So not everyone can become licensed and get set up a dental practice. However, you have dental schools that are putting out thousands of dentists every year. They come into town, they're new dentists, they start a practice or their new practices opening, corporate dentistry is acquiring practices and so forth. So basically all of that again is going to shrink the pool of patients and guess what is going to erode the profit margin. And finally is the threat of substitute. So patients can be changing providers, right? Not all patients stay with the practice for a lifetime. Okay? So sometimes they have to move, their insurance company has changed, so they have to go to a new provider. Or sometimes again they start looking for dentist that can provide them a better value. There you go. This was the Porter's five forces. I hope you have enjoyed this lesson. If I can be of any assistance to you in helping you develop a scale and exit from your businesses successfully, please feel free to contact me via email or my WhatsApp. And again, I encourage every practicing dentist to to cooperate with other dentists in their neighborhood rather than compete with them. And I promise you, you will be able to develop and the scale much bigger than you can do on your own. And when it's time for you to exit or sell your practice, you can get lot more value out of your practice when you cooperate with others. Please feel free to contact me. See you guys in the next video lesson. Thank you very much.
