104: Lightning Bolt: A Metaphor for the Leadership Journey with Steve Bilt, CEO of Smile Brands Inc.

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Hello everyone and welcome to another episode of DSO Secrets. I'm your fearless host, Emmett Scott and today I have something special. I have an exclusive interview I did with Steve Bilt, CEO of Smile Brands. It was for Adso members in February and I'm now able to share it with each of you. I hope you enjoyed as much as I did. All right with that. Steve built. Steve, I'm so excited about this. I'll give a little bit of your bio, but I want to save some of it for the Q and A. But Steve Bildt is the Chief Executive Officer at Smile Brands and One Smile LLC. He co founded Smile Brands in 1998 and OneSmile in 2015 and in 2016 combined the two businesses. I'm excited to talk about that. Steve was named Entrepreneur of the Year by Ernst and Young and the Kaufman foundation and as a member of the Entrepreneur of the Year hall of Fame and Academy, Steve was also honored with Excellence in Entrepreneurship Award from the Orange County Business Journal for his role in founding and developing Smile Brands and led the Smiles for Everyone foundation to two American Red Cross Humanitarian Awards and numerous other international awards. So Steve is definitely the quintessential entrepreneur. And Steve, thank you so much for doing this Q and A. You and I have done several of these and always find that we're able to go maybe a little philosophically deep in leadership. So I was really excited about this one and I thought I'm just going to come right out of the gate here on a question and want you to start with a little bit of your story and include in it that learning inflection point because you're very good at doing some of that self awareness stuff. But oftentimes it coincides with I thought things were going good and then they weren't and that was huge for me.

Well, like you said, Emma, we've done a few of these together, but this is my first one with you with the facial hair. So it's a little intimidating, I gotta say. So I'm gonna try to get my composure back and jump in here. But you know, I've shared with the group that, you know, if you think about founding the company in 98, you think about where we sit today and you say, okay, well you found it in 98. And here we sit with 8,000 employees and coming up on sales, 700 locations and billion revenue and all these kind of fun things and some of the stories you told and if you use the Excel program and draw that trend line, it looks like a really incredible journey up. And I think when we look from the outside at anyone founding a company, we tend to see the beginning point and the end point and call that a success story and therefore assume that the in between points were always handled well, were probably a linear progression. And the reality is Rick shared it beautifully in his story on one of these. I will tell you that when you look at the actual experience, it looks more like a lightning bolt that we draw right up. It's down, it's up, it's down. And in those down moments, it's abject fear in some levels, right? I mean, you can say, well, now that I know the end of the story, it's fun to look back and tell it with a little bit of a, yeah, that was a great experience and embrace that and so on and so forth. But in reality, when you're in those moments, they're just plain scary. You don't know if you're going to come out the other side. I will tell you, the years of experience do soften some of the fear around that. So in other words, I know I learned going into Covid and I'll be happy to share some examples like, you know what? We're going to do everything we possibly can to make this work and that's going to be enough. It's got to be enough, right? We're going to do everything we possibly can. It's going to be enough. That doesn't mean we'll actually succeed, but that means it takes some of the fear away from it, if you will. So just, I'll share that as we move along. And it actually, it's funny that I say that because it reminds me of having come into the CEO chair at Smile Brands. I co founded the company as the cfo. The co founder left to go back to a very large company that he had founded prior to us starting Smile Brands. And it was the height of the dot com boom. And I remember having A bunch of. I'd been the senior finance guy at a New York Stock Exchange company that was fairly successful and as a result had a bunch of dot com offers sitting in my inbox at the time. We were facing up this sort of, how do you make a dental company work? And I remember thinking, like, if I'm going to be CFO somewhere, it should be one of these dot coms. But if I'm going to try to become an operator in something I'm really passionate about, the healthcare service space, I should try it here. At the time I stepped In, I was 33 years old. We had 15 times debt to EBITDA. That takes a second to absorb when you realize how far backwards we had moved. But 15 times debt to EBITDA is.

Now, was that. Was that on purpose or was that.

No, you never do that on purpose. That's called pre bankruptcy filing because you thought you had this much EBITDA and it turned out to be dramatically less. So it just was the reality of the situation. But I remember, and it's funny because I think about that story I just shared about going into Covid, softening the edges at that point in my career, I said, you know, I'm okay trying this. I'm an ER doc, I'm going to do everything possible to save this patient. And I went into it with the mindset of it's possible the patient just got here too late. So it took a lot of pressure off me insofar as I said, I'm going to do everything I possibly can to save this business. And if it's not enough, it's not because I'm a lousy ER doc. It's just the injuries were too catastrophic. But it's a very freeing mindset to truly pour into it everything you have, but not pour your sense of self per se, into it. From a risk standpoint, huge difference.

Steve, I think if I don't save

the patient, I'm a failure and I could never be a doctor. Right.

Especially as a co founder. As a founder, that can be difficult to create that separation. Right. Because your identity can very much get wrapped up in the organization itself and its failures. Representing your failures. So had you come in as kind of fresh executive and you say, well, I don't have any ties to the back end of this. That can be a little bit easier. How did you do that, having been involved from the beginning? Because I still think it's a healthy approach.

Well, and you'll hear me talk a lot about these metaphors. I tend to use both to tell stories of our company and, but also to create this mind space that hopefully is healthy and not completely entwined in self. And so for me at the time, it was really just how dire the situation was and how I knew somehow, instinctively that if I didn't create some level of separation, it could be a killer and maybe a literal killer. So I was able to create that. Now maybe it was just, I was fortunate that it was so such a dire situation that it kind of begged for the metaphor. But you know, I was a first time operator. I'd never, I've been a finance executive my whole career, never an operator. All of a sudden I'm saying, I can do this. It's like, whew, that's a lot of risk to take on in theory if I'm totally tied up in it. And so it just naturally got there for me. But then something in me just knew to really pound that nail in and say, this is the metaphor, this is the mindset I'm going to hold on to. And at that point in my career, I was really just getting exposed to this concept of mental models. And I was fortunate enough to have a business school professor who was one of the first in the country that really brought those concepts home. And so I was very familiar with the concept of the mental models. And this one just really grabbed me quickly from my own personal, I'll talk about the ones I use in the business too. But really was, was powerful. Now you asked an opening question I want to get to, which is, so we had this experience on the ER doc. I come in, we end up growing earnings 60% organically, followed by another 50% organically in the next two years. And suddenly we're under leveraged. We're like three times debt. Diva died. So it's like, what do we do with this? Right? Your PE guys think, well, let's pay a dividend. And guys like me think that's the worst use of capital. I hate that idea. So let's maybe do something different. And we went out and bought a big company, three times our size, publicly traded company, big long earnings slide, and said, we can handle this. And we were able to turn that business very quickly with a whole bunch of things I'll be happy to talk about, but turn that business quickly. Then bought another public company a year later. And all of a sudden we're in pretty good stead. And then three months after that, my PE guys came and said, we've been in it for five years, it'd be Time to sell. There hadn't been, to my knowledge, PE2PE transaction in dental to that point. And so we were kind of went out there first ones to try that out. We introduced a whole bunch of people to the dental space at the time. Guys like Code Hennessy, who went on to incredible success with Heartland, guys who went on to invest in Aspen. You know, some really interesting folks that we were brought to this table who looked at our company and quite frankly said, this is a really interesting sector, but we're not willing to go quite as hard at your business. So they moved on to more handsome. But we were able to ultimately get a deal done with a group called Freeman Spogli, which is a very successful transaction. We then did another deal five years later with a group called Welch Carson. Those were at the time, each of those were the highest valued transactions in the space and they were very successful. And then about three years later, and taking ourselves through a recession and two successful private equity transactions, Welch Carson had some ideas at the time that they wanted to run the business a little bit differently than the way we were doing it. And you know, as a CEO who's been through two successful private equity transactions, you know, they don't technically fire you, they just offer you the opportunity to, you know, you pick, fill in the blank, spend more time with your family, pursue other interests focused on your charitable endeavors. But, you know, you check which box it is, but they're all boxes that are, you know, it's time for you to go. So I effectively got asked to move on and do other things.

Can I ask you real quick just to pause on that? First of all, I heard that because of your education of the marketplace, Heartland and Aspen really owe you, right, for their.

Oh, yeah, no, big time. Big time. Yeah, sure. Rick has a little corner of his

house he allows me to just stand in. The second thing is that sounds kind of pretty on paper of, hey, I have these options emotionally that had to be, I mean, incredibly intense.

Well, you know, it's multi layered. It's interesting at the time, it's kind of like, all right, you know what, had a couple good deals, had a great run. You know, let's move on to something else. Feels okay. And then as a, as someone who's been in the business a long time and a founder, there's connections to the business and the purpose that go way beyond the financial pursuits. And I want to talk about that a little bit, but there's connection there. Even if you're the ER doc, even if you think you're not connected to the business. Even if you think, oh, if I land this transaction, bank this much money, pay off my debts, pay off my houses, buy a second home, whatever it is, I'll be fine. You may or you may not. And that's part of the inventory I think you and I want to talk about here a little bit. So for me, it was fairly multilayered at first. It was kind of like, all right, you know what, maybe I do want to take this time and do something different. And I looked at a bunch of other businesses and did a bunch of other other things and executive chairman of stuff, and it all sounds good, but there was some kind of unfinished business, There was some kind of a drawback that really pulled me in. And so I found myself, you know, missing. And I wasn't positive. Even though I knew the business inside out, I wasn't sure. Am I missing being in it day to day? Am I missing the elements of dental and the unfinished business I had in dental? And am I missing Smile Brands, the company that I co founded? I don't know what it is. So it took a little time to even sort that through. And, you know, as you mentioned, I started another business which was really meant to be smaller and focused on small groups at an earlier stage where you could knit together a level of support services that were different than maybe a later stage version of where Smile Brands was in terms of dental groups that were founded 40 years ago that are carrying on. And so it was really interesting. And my particular story ended up being that we started the new company, we started to work with smaller groups that was going well and continues to go well to this day. But my old company, because of the internal wiring of the company, I often talk about our businesses. We know them. It's one of the main lessons. As leaders of these businesses, we know them in ways no one ever can. And a lot of times we find ourselves enamored with, well, this person comes from this really large thing, or this person has all this investment experience. But there's a reality to your business. You can learn from those people. But what your business is fundamentally is unknowable to someone who isn't you. So you think about the ceiling fan. You want to rewire the ceiling fan in the business, right? Quote, unquote. And you say, well, I just want to connect to that red wire. Well, you know, inside the walls, the red wire actually connects to the blue wire, which connects to the green wire. So if you want to connect to the red wire up here, you got to connect to the green wire down there shouldn't be that way. Just is. You know it better than anyone. Right. And that's where you want to take in the knowledge from outsiders, but still process it as the founder, the heartbeat, the owner, the person who knows what the purpose is. And you decide what the answer is not. You can never outsource that final decision. So what happened at Smile Brands was a whole lot of wire cutting for what someone else might be doing in the industry, but not how Smile Brands work. And the thing went completely off the rails to the point where EBITDA was cut to a third. We overpaid to buy it back for the debt itself of the company and then started on this journey back, which we can talk about how. But a lot of it was knowing the heartbeat and the purpose of the company, which was so powerful. And that's something that the founders here and the leaders that are really close to these businesses through growth have and know. And it's a power they often give away. And when they give it away, that's where outside investment transactions tend to fail.

Yeah, I hear a lot of give

away that decision making, that power.

I think one of the things you're speaking to that brings this real tactical. Right. Is you might engage with an investment banker or PE firm and they're benchmarking you against a thousand other companies and how they're doing things. And I think that internal wiring. Right. You know, whether that benchmarking is something that you should translate into your business or it just doesn't translate. Would that be a tactical.

You can. Yeah. What I'd say is you can learn from those things. You can say, wow, that's possible. But to think you get there by just mimicking them, it's not reality. Right. You have a different path through history, you have a different construction of an organization. Those are interesting things to see and learn from, but mimicking them will not create success because there's so much more happening behind the scenes in those business just like yours. You can tell your story and you know you're able to get like 5 or 10% of it out, but you hear someone else's story and you go, oh, that's how I should do it. But, you know, they can't get more than 5 or 10% out. So you can use it as a way station or a sign post, but you cannot think you can mimic that. It's just not the way it works, not the way you're wired inside your business.

Is there anything kind of looking back at that Steve built before that conversation that you've taken away to say, you know what? Here was my part in that, that I think I'll do differently going forward. Clearly, ultimately, it's played out well for you. Would you say, no, I'm comfortable driving that activity again, or no, I would probably do a few things differently.

Well, let me back up for a second and come forward to answer that question. So I think there's. When you construct your business, you've got a purpose, this higher purpose you're driving to, which is kind of the sky you're trying to grow to the sky. And you've got this tree you're growing. The root and the stump of that tree or the base of that tree are your main tenants, and everything grows off of it. And then everyone you pull into that business, they have their own business to run, they have their own issues to deal with. And probably, I'd say going into the chapter you're talking about, we'd had a lot of success during the Great Recession. We actually grew dramatically during the Great Recession. We were able to exit at the end of that, right? We went all the way through public offering process. We're at the doorstep of that. Sold to a private equity firm. Very successful transaction. But that firm came in and they had a set of goals. And that set of goals I would say I lost alignment with. So what was the growth engine? What was going to accomplish what they wanted? We had had a lot of success going through the recession. I felt like on one hand, the recession was kind of coming through dental a couple years later than it went through the broader economy. That point I felt like we were in alignment on, but we probably weren't in alignment on. So I'd been through, for example, two private equity. Two different private equity partners prior, both of whom, two years into the deal, we looked like we were getting wiped out. And then five years into the deal, we'd more than tripled the money both times. So we were a couple years into this private equity firm's tenure and the recession's passing through dental. And I'd say I was pretty calm and cool about it. I'm like, hey, we're okay. This is kind of what happens. Two years in our deals and we have the recession going on. And they were kind of parroting that back, but it wasn't clearly agreed upon at the level that it needed to be. And they felt like they could unlock growth, that maybe I was too patient around. So there was a communication around goals. Are we sure we're in alignment Here, are we comfortable? Do we need to pick up the pace that we're on? You know, and there was just a. There was a. It was articulated and agreed, but it wasn't as clear, obviously, as it could have been. And so it was a miss in that regard. And as that happened, you know, you start getting people looking at you going, well, you've sold twice, you've put money away. Maybe you just don't. Maybe you're not as worried about it. So maybe the first time I went through, I could have had the exact same attitude, but they might have looked at me and said, well, he's young and hungry. So therefore I know this is just him being patient beyond his years. After you've cashed out a couple times, if they go, well, you're awful patient, that can show up as being disconnected. So was I coming through often enough and saying, I'm bleeding the smile, brand's blue. I'm really worried about, you know, where we are growth wise, you know, how do you guys feel? Should I slam down the accelerator? Are you comfortable? Right. I was probably in a lot of ways because of that lens that I might have been viewed through fairly.

Right.

That lens I'd be viewed through. I wasn't being clear enough on what might be their fear or anticipate what might be their fear. And that that reared up.

Well, Steve, you often reiterate a quote, and I'll butcher it a little bit, but I love it, which is the universe upholds a void and fills it with the most terrible things. Right. And so a lot of it is that ability to fill that void, whether that's a mental void, it's usually some kind of communication void. Right. With enough. With the appropriate pieces. And I think that's what you're speaking to is there was some kind of void there you thought was filled, but they were definitely telling themselves their own story.

Well, so nature bores a vacuum, right? So what happens is that if there's in this case a fear or a preconception, and you say, well, I covered it once, you know, if that really is a fear or a preconception, you were correct. Then you need to fill that refill that every time you meet. So if I'm in that world where they had a preconceived notion that, hey, you sold a couple times, you're comfortable, you're not sweating it, you know where this thing goes. Our careers are on the line because we just made this the best. However you think about it, that you don't cover once that you cover at every board meeting. Hey guys, I'm still worried about our growth rate. I'm still worried that we said we'd be growing faster than we are right now. I feel like we need to do something, what should we do? And they say, nope, we're okay. We're in the middle of the recession, let's just wait a little longer, check, do it again the next meeting. I'm concerned we're not growing fast enough. So if there was a preconceived notion or fear that you were right on, you have to go back to that every time because it doesn't fill just once. It needs to be refilled, readdressed regularly to avoid it coming back up is what I would say. That's one lesson. And then you asked about the, the other lesson is really just setting the vision, constantly reinforcing the vision and then letting people run inside that vision so they find themselves, they grow further. Right. So there is an element as I look back of like, well, you know, the business was struggling. I was the co founder, I was the one who had to step into the void, the er doc, if you will save it. Then there was this strength of personality to grow it through the struggles it had post transaction to another successful transaction. And so there's this element of, well, you know, I've got to be involved in everything I've got. It's not going to happen unless I lift it up to, you know, now I'm surrounded by a team of people who, they're often much better when I'm not in the room, quite frankly. But you know, my job is to set the vision. My job is to keep us in the direction of our true north and constantly challenge if we're serving that higher purpose that we're going for with our day to day activities, but not necessarily to be the architect of those day to day activities and leave more room in that regard. So that'd probably be the other, to answer your question on the other.

Yeah. No, it's powerful because again with you knowing that internal wiring, you also know what the company can handle and how it will curve up as you're developing out your leadership. But sometimes outside private equity could be concerned that you're just allowing things to collapse apathetically.

Right. Well, you know what I was going to say, Amit, is there's a difference between support and abandonment. And so you could say, oh yeah, I totally support all these outside people I've brought into my company because I let them run. And if they're Going to run off a cliff. Well, they'll learn from it. Well, that's not necessarily the best way to bring them along. So if I understand the internal wiring, to use that metaphor I used earlier, and someone who's really talented and capable is in, they're charging hard, and I'm there to be their support, their mentor, their coach, leader, whatever term you want to put on. And I say, you know what, hold on a second here, Emmett. I hear what you're trying to do. I think you're about to run into a wall because of this. Let's talk about it and then guide back. Not a yes or a no, but it's this coaching process. Hold on. That could lead us to trouble for these reasons. I've seen this before, right? So you have to take a deep level of responsibility for their success, coaching to that success, but not necessarily making each decision. There's a big difference, right, between that level of support, not letting them fail if you can avoid it, but still allowing them to grow the vision to be bigger than just the sentence they got as direction for what they're trying to accomplish.

Will, one of the questions we got, Steve, kind of speaks to some of your mental frameworks that you've done a lot of work around. You know, I would imagine moving from cfo, where you have a series of tools, very clear processes, FP and A, You've got, you know, accounting software. You've got places tactically where you can dig in and feel like, okay, I know what my job is. As you move into CEO, there is no spreadsheet for that. It's like, all right, when this happens, plug it into this cell and this will be the output. Was that one of the more difficult transitions for you is developing out now a new series of tools, or was it something different? When you think about that CEO position versus some of the other executive positions, where was it the. And I know you came from the cfo. Where was the hardest transition in that?

Well, you know, my CFO mentality was always, if it involves money, I should be involved in it. If it doesn't, keep me out of it. Which didn't limit a lot of things in business. So I kind of always had that approach anyway. I would say that the biggest initial transition was that we had a company that was clearly in deep trouble. It was relatively easy, maybe the ultimate.

Yeah, duh.

To diagnose that the biggest problem in the dental company was the fact we didn't have the right relationships with our dentists. So it turned out that dentists are important to a dental company. That was my first blinding glimpse of brilliance there, Right? So say, okay, that's really important. So remember, I said that mental models were the first thing that I really wanted to focus on. My own mental model, the ER doc. The other mental model, which we quickly dove into, was the Win win relationship model with our doctors. And so this initial phase of growth wasn't anything terribly complex. It was. We have, I don't know, 70% turnover than the prior year with our lead doctors in our offices at 45 offices, and had turned over almost all of them in the prior year. Okay, that's a problem.

That's a bad thing, right?

Yeah, that's a bad thing. And again, that was the kind of insights I could bring to this business with my deep analytical capability was, that's probably bad, right? So, okay, so that's bad. How do we make that good? And it made sense to me that the way you make that good is you sit down with these doctors, person to person and say, what would actually get you to stay? Like, how would you feel? Good, if you're leaving, how do I get to stay? So we sat down and we said, what would that Win win relationship look like? And I would tell you that probably the career maker, if you will, for me, was almost as simple. I sat down. Now I was having coffee three or four times in a morning. So, you know, and having, you know, after work, you know, a happy hour once a day, because you got to get to all these doctors and spend time with them. So it's a lot of morning coffees before work. It's, you know, maybe a lunch, maybe an afternoon.

You were amped. Yeah. By the afternoon you were amped.

Have a high caffeine tolerance to this day because of it. But the one thing that, again, it kind of instinctively came to me as I was talking to these doctors, and you're hearing a litany of issues that are really hard to overcome. There was two things that happened, but one kind of critical step at sealing the meeting. One was looked at. I need you to take our results seriously also. So I'll go fight for you. I need you to fight for me. So this Win win concept, I need you to take our P and L as seriously as you take your paycheck. And I'm going to take your paycheck as seriously as I take my P and L. We have to do this together. And we talked about the fact that, Doc, if you were able to lean on me and say, I need 45% or 55% or some number of production, you know, to be successful. And I had no other alternative and I gave it to you. What do you think I'm going to do? As soon as I leave this meeting, I'm going to call recruiting and I'm going to say, I got a problem here. I'm getting held hostage. We need another doctor. I said so. That wouldn't actually be good for you, even though you got this great rate. It would be temporary. By the same token, if you were completely asleep at the wheel and you were working for 10% of production and I'm making a 57, 58, 60% margin in this office, is that good for me? Probably not, because you're going to get a call tomorrow from someone who's going to pay you triple that and then I'm going to be left empty. So that would be bad. So we need a balance in it. That's win, win. You've also laid out, and this is the critical part I want to add, you've also laid out some issues here that are really hard to work and they're going to take me some time. So what I want you to do is promise me you'll give me a little bit of time to work these and you won't disappear on me while I'm off fighting this battle for you. Not going to turn around and find out. In my inbox I've got your notice, right? So you call me first just so I don't embarrass myself out there fighting for you and then have people go, well, you're quite awful hard for a doctor who just gave us notice. That would be embarrassing for me. So call me first. Just tell me that I'm failing. I'm not going to tell you you can't leave, but tell me I'm failing. That's not a call docs like to make. That gives you extra time. They're going to give you some extra time to do that. So a couple things. One, we followed through on really trying to make these things right, and I think we did a good job of it. Two, I said, you've got to call me first. You put those two together. I talk about that success period where we grew as much as we did. Our turnover dropped to 8% during that period of time at the lead doc.

Do you think that was the primary driver, was that opportunity? Because, you know, first of all, some PE firms going to say, well, Steve Bildt, he solved a 15 debt to EBITDA ratio and grew the business 60%. So we'd like all you CEOs to do the same also. Hey, Steve, can you just do that year over year? Right? So I'm curious. And one of the questions was, how did you actually achieve that, you think? And was it an opportunity that is sustainable or was it something based on the situation at the time?

Well, you know, sustainable is an interesting term, right? Can you grow 60% a year organically in perpetuity? No, that's not ever going to happen, Right? Can you grow it that much and then sustain it and then grow from there? Yes, we absolutely did do that. So, I mean, you know, there's a limit obviously on how much one dental office is going to grow, but when you're down, you could definitely turn a dental office. But it was really two factors, Emmett. It was that it was going doctor by doctor and getting this win, win mindset. The other was July 10, 2000. So not that I remember the day, but July 10, 2000, in our conference room is all of our regional market leaders and they're sitting there saying, we don't know how much deeper we can cut in order to get our margins up. And they were just in a world of confusion. This whole concept called ebitda, right? They're just like, I don't know what's more important, like cash flow or ebitda, Like, I don't know what to do, like, and they're just like having the hardest time saying how deep to cut. And I remember it obviously, as I can tell you by the date, but I remember the conversation vividly. And I looked at these folks on the table, I'm like, you understand, like, where I came from, I had six people on the finance team or reporting into the finance team that had Harvard MBAs. They were the first six people I'd probably ever met with Harvard MBAs. At the time they happened to be end up on this, on my team, I'm like, this is amazing. I said, and they're like, wow, okay. And you could tell they were just like, yeah, that's probably what you'd like to have here. I said, I wouldn't trade any one of you for any one of them. There's no way. I said, you know, one of my people started as a dental assistant, right? And I talked about her. One of you started as a front desk person. Talk with her. You know how to turn a dental office when you're inside a dental office faster than I'll ever know and they'll ever know. I said, so here's what we're going to do today's July 10th. Between now and July 31st, if I see one of you in this corporate office, it better be because I'm on fire and you're pouring a bucket of water on me. If it's not that, I want you in dental offices figuring out how to maximize performance in each dental office one day by one, one by one. And that might mean hiring more staff, that might mean cutting staff, that might mean we're driving marketing, that might mean we're cutting marketing. But maximize the plan in those individual offices. And I tell the story July 10th because we were sitting as I recall it, at about 65, 66% of revenue budget. Now I was coming off the July 4th weekend, so it really helped put a dip into it, but it was low. We finished at 90% of revenue budget. And then in August of that same year, so just a month later, we did as much ebitda. We did probably about, can't remember the exact number. I think we did about 25% of the EBITDA we had done in the prior year. So they made their plans, they got aggressive, they grew the business. But it was this notion of unlocking the capability of the team. So one to one with the doctors, win win relationship, set that mental model, one to one with the operators, set that mental model of you guys are the best in the world at what you do. Now go do it, you're free to do it, then we'll come back and talk about it later after you do it. I don't even want to talk to you about it before you do it. I want you to just go do it and then afterwards we'll talk about it and try to learn from those lessons. And that was really an unlocking moment, if you will. And now I share that because I'll tell you, we just bought a big DSO a few months ago. That journey is the journey we're on right now is what I just described. It's the same kind of stuff, same kind of unlock the leadership team to go do it, unlock the Dr. Relationships to create alignment. We're doing the same thing. So it's not necessarily a 20 year old lesson. It's exactly what we're doing today.

It's very powerful. I mean, knowing how to unlock the team is a two hour, two day discussion. But knowing that, start with the clinicians, how are you going to unlock those? Start with the team, how are you going to unlock those? So if you were going to try to summarize the Steve built mental model in a couple sentences, I Know that's difficult to do. How would you summarize it, though?

Well, so you think about the sky you're growing to. This is that purpose you have for your company. Why did you set this purpose right? What is it you want to do? Do you, you want to make this big contribution to dentistry? Do you want to change it? Do you want to increase the number of people in care? What's the big why of your business? Then you've got the notion of the philosophy or the mental model of your business. In our case, you see these three words, smiles for everyone, over my shoulder, you see them on my wrist. We talk about this notion of smiles for everyone. So if my purpose is to increase overall sector participation, the level of dentistry as with regard to its place in healthcare, Right, to elevate the profession, if that's my purpose, the sky, what's this tree that's growing? This tree is the smiles for everyone. The way we do it, the way we do it. And that's this win win relationship with all of our constituents. And then the mental model is, how do I connect everything I do? So it's clearly a branch on that tree. So you think about the win win relationship with the doctor. We talked about that mental model. That's clearly a branch on that tree. It's clearly related to the smiles for everyone philosophy and building a better profession where we're growing to. You think about unlocking the team to make decisions in the field that support the local dental office, that unlocks value towards the purpose. Then the other thing I'd add from a dental perspective, the other mental model I probably haven't shared with you guys is this notion of a cube. Okay, so you think about everything I said, right? I said local doctor, local practice, how do you run it? How do you support it? That's the face of the cube. That's the one dental office. So when you look at the one dental office, that's the only thing that matters is that one dental office. Because to the team in that dental office, they don't care if Smile Brands has 700 offices or 900 offices or 100 offices or 10. They're just like, how is my life here? So that's what they care about. And by the way, that's all they should care about at the end of the day now. They should understand that if there's not a healthy organism around them, it's going to hurt them. But that's not their deal. But so now you go, well, hold on, how do I run a scaled RCM Function, right? Revenue cycle management function. If the only thing that matters is every one dental office. And so every time one dental office falls behind on its receivables, I'm supposed to drop everything, freak out and stop the world? No, the RCM function, you flip the cube. The face of the cube they're looking at is their macro statistics. They're saying, how are we doing overall on dso? What's our overall collection rate? How many delegated credentialing plans do we have? Right? They look at their macro statistics and then they have a customer who's the operating person, whose job it is to sound the alarm and say, hey, help me on this single office. Right? You can never have your RCM function be successful looking at your balance sheet and obsessing over every office. That's what your operators do. Same thing with your marketing team. Your marketing team can go, wow, we're up 12% this year on new patients. We're knocking it out of the park. That's right. But a doctor could still very, very validly say, that's great that you're up 12%, I'm down 10. It's a problem. That's your operator's job to say, well, the reason we're down is we're short staffed, we lost a provider, so it's okay that we're down until we get a next provider or, nope, we have a new doctor and we don't have enough patient flow. Marketing, help me. So the other big philosophy, and this is the soil that you plant. This tree I'm talking about, right? So we're growing to the purpose, which is the sky. We've got this tree, which is this. Smiles for everyone. And the branches have to relate to smiles for everyone. The soil that that tree is growing in is your organizational design. And this is where everybody starts to yawn and go, God, OD or hr. This is the most critical thing as a CEO you do is who do you have in your organization and are they clear on their roles, their face of the cube that they're responsible for and then do they work together? Understanding this is a cube that has to function together. Yes, I've got my responsibilities. Yes, I'm looking at this, but when the alarm sounds now, I do respond to it. But it's not my job necessarily to watch every office. My job if you're the RCM function is to watch the balance sheet. My job if you're marketing, is to watch overall patient traffic. Your span of control, your OD brings it down to the local office level. And make sure someone is obsessing over that local office performance. Otherwise, your actual constituent. We say the dentist matters. Right? And everyone's like, well, of course the dentist matters. Well, if you get to a certain scale, you're actually saying the dentists matter. Right? Because as long as I'm doing okay as an organization, the dentists matter. You're not really saying the dentist matters, Right? That's what your organizational design does. Your organizational design breaks it down to a level where you are serving that local unit as if it was the only unit that existed. But you can't do that from a macro perspective unless your OD considers that face of the cube and drives it all the way down to that level.

This has been amazing. Speaking of Harvard, this has been amazing CEO level coaching. So I really appreciate you being willing to transparently share these frameworks that you've used. I'm going to switch because we only have a few minutes. And I've got a couple questions that have come from the membership here. One of them is you've done some incredible things with joint venture deals. You just did a large acquisition merger. Curious. Some of the things that you're looking at to determine what's right for Smile Brands as you've creatively done these deals,

the biggest thing is the cultural fit of what you're trying to accomplish. So we mentioned that. The sky, the tree, what do you really want to accomplish? And can you get the transparency with one another to say, this is what I'm trying to accomplish, this is my goal. And the reality is you can structure a deal that can meet any of those goals as long as the partner is being transparent with you as to what that goal is. So if a doc says, look, I'm ready to retire, or I want to move on to a different career, I want to sail the world with my family, that's okay. But let's lay that out there. Don't tell me you want to be my partner for the next decade, growing the business and making sort of the next category killer. Right? So there's this goal of really getting true transparency on what you want and then structuring the deal that aligns to that goal set. Right? Because we in our organization, we have dental groups that are 50 years old where the founder's long since gone, but the dental group's very successful. But it's structured with doctors who are next generation doctors. But if you buy a cult of personality and that personality is no longer interested in being engaged, that's a big problem. If that personality wants to be deeply engaged, then you can structure that level of engagement. And then as it grows, you're coaching so that the organization is growing up properly around that individual, so it's going through its stages properly. So it's really for us, that philosophical alignment as to what we're out trying to accomplish together is the biggest thing. Then you can structure a deal that works. And we do a lot of different types of deal structures that consider those things.

Is there certain deals that maybe you see happening that concern you? Or another question would be, are there certain deals that you would say, I wouldn't do it. And here would be kind of the factors. Is it simply culture fit or are there other things that.

Well, I think there's, you know, there's different elements, right? You have very high producing doctors with very specialized skills and you say, okay, what happens if that specialized skill isn't present in the practice anymore? That could be a big problem. All right, fine. So you want to do a deal where that doctor retains a meaningful ownership percentage, probably. Right. And therefore you're moving forward with that doc truly aligned with you. You wouldn't necessarily want to say, here's a doc who produces, pick a number, a million dollars by yourself, and I'm going to do 100% buyout deal and pay the DOC 28% of revenue and go, okay, well, if that million dollar doc who does all on four cases decides not to work anymore, this practice just dropped to nothing. Well, that's a bad outcome. Could still happen, key person risk. But you'd want to structure your deal to hopefully keep that doctor engaged. For example, now if that doc happens to have six locations and is doing that across six locations, you might go, okay, that could be okay, that's a million spread over those six locations. And that's a different risk profile. So I think it's just that eyes open piece. What I would suggest is that if you do a deal and you're attracted to that deal because you think it's going to create arbitrage, it's going to be worth more in someone else's hands, I'm going to do this deal ahead of a transaction, Those deals don't do well for you, generally speaking. And think about it just from a purely personal standpoint, if you're truly the founder leader of this dental organization and you go do a private equity transaction and you did a deal with a doc that you go, oh boy, I can't sustain this growth on the other side of the transaction, you're going to roll 40, 50% of your money over with the new investor, then the value of that asset is going to decline on your watch, which you're going to get blamed for. You're going to be comping against from the same store perspective. And the 40% you retained just dropped that same value. You didn't make any money on that personally. So it's like, why did I do this to myself? Now, if you do sustainable deals where you continue to grow those assets on the other side of the deal all day, every day, but that's where you get into this alignment. Is this an asset I want part of my company in perpetuity, or is this one I'm doing because I can hit a growth rate? And I will tell you, I don't say this lightly. I've closed deals where we're like, yeah, we're ahead of a transaction or we need to do this and let's get it done and kind of hold your nose and jump. And not one of those has worked out well. Not one time have I been like, ah, this deals just kind of okay, or I don't really love this person person. Not one time is that person traded up after the deal. Right? It's always been like, oh, every bad characteristic I thought that I was sniffing ends up coming out in spades. And those are terrible deals. Now, I'm not saying some of the ones where I thought they were going to be good didn't turn out to be bad. But when you're going into a deal and you're like, this does not feel like my business partner, like, this does not feel like someone I partner with, it's bad news. It's bad news.

Yes. It comes back to some of the best deals you ever do is the ones you don't do. Right? So, Steve, we ran up against time here. This has been awesome. We could do another hour and I'm sure everyone would actually love it. But I really appreciate, again, your transparency. What's great about these conversations is every CEO has been willing to go a little bit more into the personal philosophy psychology and the business piece, and you did the same. So thank you very much for being on here. I don't know if you have any final thoughts here before we close.

I would just share that when Adso started it, really. And what makes people passionate about Adso, the old timers makes us passionate about it is there was a lot of this idea sharing and openness that hopefully gives people a chance to learn from each other and grow and develop their businesses based on the shared learning. And we are really rooting as an organization. Our purpose is to hopefully further everyone's business. So everyone who's in Adso says I'm a little further downfield than I would have been if I wasn't part of Adso. And so I feel like folks who've done these conversations so far, hopefully this one have been a return to those days, if you will, where we're doing more of that, where we're sharing a little bit more of the lessons. And I think, you know, there's incredible membership and it continues to grow and there's so many people that can share these kind of stories. And I think it's, it's really what makes Ads O special. So I'd love to see it continue.

Well, thank you. I think every executive on here took something away.

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