123: The Unique Scaling Model of an Ortho DSO with Nick Korhonen, CFO, Corus Orthodontists

Welcome to DSO Secrets. I know what it's like to be an entrepreneur in the dental industry. I've had my ups and downs just like you. There's so much opportunity to be excited about but so few resources to get answers. From here on DSO Secrets, we get you those answers so you can change the lives you're meant to bless and achieve your personal success.

When I was working as an associate rat at a school, I never imagined

I could own these many practices with this amount of support.

So thank you.

You have helped build my marketing mind

to a whole new level.

You have this natural talent, this unique ability. Happy day to you and welcome to another episode of DSO Secrets. I am Ken Kaufman, your host today and I'm filling in for the illustrious Emmett Scott. I'm thrilled and excited to introduce our guest today, Nick Kohornan. Nick is the CFO of Korus Orthodontics which is headquartered in Toronto, Canada. And I know that you're supporting practices in both Canada and the United States. So we're going to call you an international orthodso. Prior to joining Korus, you were with a couple of well known, well respected accounting firms there in Canada, CPA and a chartered accountant. Nick, thank you so much for being on the show today.

Thanks so much for having me, Ken.

Awesome. Well, here's the starter question. Everybody gets the same question when they come on the show. What is it that led you into this DSO industry and what in the world are you still doing here?

That's perfectly fair. It's a little bit of a long story and I'll keep it relatively short. So in my previous career I was a partner with an accounting firm, Myers Norse and Penney M and P here in Canada. That firm is a firm that focuses on working with owner managed businesses and has a specific focus on professionals. So in my role with them, I actually led the tax practice for professionals for Canada. And in Canada, unlike the U.S. the concept of consolidation and DSOS is actually a pretty new one. The first real company to do that is called Dental Corp. And they showed up on the market about 10 years ago. So that was really the starting of consolidation in Canada. And at the time I represented as part of the firm about 3,000 dentists across the country. And all of a sudden they were all selling to this group, Dental Corp. And this large consolidation. And so very quickly we had to learn what it was all about through that process, got really familiar with the structures, some of the complexity that went into it and everybody who saw the success of this organization, I had A lot of doctors saying, hey, can I do that? I want to create my own version of a dso. So I carved out a little niche for myself where I was helping to establish DSOs across Canada and advising doctors who wanted to create their own model, their own version, to be able to grow and compete with some of these larger groups. So that's how I got introduced to it. And then one of those doctors, Dr. Paul Halperd, our founder and CEO, is just crazy enough that he convinced me to leave my partner gig with the firm and join a startup DSO and build something for ourselves. So we've been running with this since late 2019, and I'm still having a tremendous amount of fun.

That's awesome. What was it specifically that was attractive enough for you to leave the partnership you had and join this organization? What was it about the mission and what it was committed to that motivated you to make the change?

Yeah, you know, that's really what it came down to is a lot of the groups that I helped to establish, it was purely about the financial engineering of the structure. Right. It was realizing that we can go around, acquire as much EBITDA as we can as quickly as we can, and turn around and sell the whole thing for a quick buck. And that didn't really drive me. It's a great business model. Obviously it works very well. But Paul came at it from a completely different perspective in that he wanted to create a model that was not purely focused around profit and an exit, but an infinite business that was going to be here to service our grandchildren and our grandchildren's grandchildren and focus on creating a home for doctors for our teams and a great environment for our patients well into the future as we go through this rapidly changing space. So it was really that focus on people, culture and values that really kind of caught my eye and was something I wanted to be a part of building.

Awesome. I really, really appreciate that and that perspective. Can you give us an idea of the current size and where the practices are at and number of doctors supported? Somewhere in that range, yeah.

So as of right now, we have 40 practices across both Canada and the U.S. we're in four provinces in Canada, and I believe at last count, we're in 10 states in the United States.

Within that, Ortho only, right? You're just Ortho 100% or Ortho only.

Within that, we have just over 50 doctors that we support, all of which are also shareholders in the organization. So we're a doctor owned model.

Outstanding. All right, so one question before we dive Deeper into some of the problems and challenges that you're trying to resolve within your current organization. What was it like making the change from being in accounting and being a partner in an accounting firm to becoming the executive of an organization? Obviously growing fast. There's a shift, right, where instead of working on a bunch of companies and advising a bunch of companies, you're going very deep down into one. And there's value in both. Right. You get a lot of experience seeing lots of different companies when you're in the firm. And then when you join industry and jump into one company, it gives you a chance to just get all the way deep and understand what have been the challenges with moving from sort of the public accounting realm to becoming the executive. An executive in this organization.

Yeah, I guess I would say overall it's really the. Just the scope and the breadth of some of the work that I'm doing as well. So within the firm, I was very focused on M and A activity, which that has crossed over and that's very similar to a lot of what I do right now, advising and transactions. I'm on the other side of transactions now, but the process is similar. What I would say in this role, it's that even though I'm CFO and even though it's a finance focused role, so much of the time is spent around human resources management, people development, developing culture and strategy. How do we best support our practices from an operating perspective? And so there's a lot of depth on the financial piece, but there's a lot of breadth in every other aspect of the business that I might not have been involved in with the firm, where I usually had a narrow mandate about what I was trying to deliver for clients.

Interesting. And so what are some of the main challenges that you face right now? Obviously, being rapid growth and those sorts of things. What are some of the main challenges and what are you doing to overcome them or offset them in some way?

Yeah, I would say the biggest challenge facing our organization is finding the right balance between culture and growth. So I often tell my team that growth is the enemy of culture and we are a high growth organization focused on culture. So that is front and center of every decision we make. Where we want to build this network and build this platform with the right mission and vision in mind. Where we're here to support our people, we're here to support our doctors and keeping that feel of being focused on the people element while managing the growth. As you go to 40, 50, 100 practices, it's very easy to slide into A world of metrics, driven management where you're just trying to put your arms around it and hold control of everything based on a couple numbers on a spreadsheet. Really the challenge is how do we make sure we don't fall into that trap and continue to be focused on real conversations with our people and hearing what they're experiencing on the ground and how we can best support them. And with that focus on really, you know, it's really the exceptional client service experience is how do you provide good service to our clinics and make sure that they're getting what they need out of it?

Yeah, that's amazing. Why don't you walk us through the course model kind of your capitalization, debt equity, what does your capital stack look like? How are you affiliating and partnering and are you generally trying to buy a practice out completely and exit a doctor that's maybe retiring versus you're interested in acquired a practice where there's a doctor that's still got some gas in the tank, so to speak, that wants to, you know, grow and affiliate and do those sorts of things?

Yeah, so. So, you know, I'd say that that's, you know, our overall financial and legal structure is one of the most unique things about our organization where, where we are kind of a little different and outside the box. So, you know, on the financing side, we, we don't have any sort of equity sponsor or strategic partner. We are 100% doctor owned and we are financed through a senior credit facility with our lending institutions to support our growth and ongoing expansion. So all of our success really goes back into the hands of our doctors who are ultimately our shareholders. In terms of our overall kind of partnership and affiliation structure, we're a little bit different. So when I asked Paul, or when I was advising Paul as an external advisor on how do you set up a dso, I walked them through the standard structure where you have a friendly doctor in a jurisdiction. You have, I refer to it as a captive professional entity that holds the patient records and you have the relationship with the dso. And Paul looked at that and said, I don't want to do that. I don't want to have one entity per jurisdiction. So our affiliation model is one that the practicing doctor in each of our locations maintains ownership and custodianship over the professional assets and the patient records. And then each of those entities has an affiliation agreement with Corus to bring everything together. So where, you know, a group operating in, you know, say one state might have that one professional entity. If we have, if we have 20 practices in that state. We have 20 entities that we're working with and working closely with those doctors on managing.

Interesting. Okay, so there's got to be a ton of challenges if you're affiliating and still trying to like, build and maintain this culture. Walk us through. I don't know. I kind of have an appetite to come at it from two angles. I'm interested in sort of the high level, how you do it, but it'd be interesting to hear when you're looking at affiliating with a practice and an existing doctor. How do you do that and how do you vet that? And how. Because if preserving culture and building culture is so critical in your organization,

it

seems like you'd have to be saying no a lot or driving massive change management a lot. Like one of the two. And I'm sure it's somewhere in the middle. So could you maybe walk us through your vetting process and how you. How you make culture sort of the number one. The economics have to make sense, but cultures, it seems like, is the number one most important thing that helps you decide if it's a fit or not. Go ahead.

Yeah, absolutely. So that's obviously one of the biggest challenges, and it's one of the things that we dedicate the most time to. And how do you measure culture? And how do you measure culture in the context of an M and A transaction that is already incredibly demanding on the doctor who's looking to affiliate and on their advisors and their team. So really, for us, it largely comes down to conversation. And when we think of an affiliation or a transaction, by its very nature it tends to be quite transactional. When you look at a lot of groups that are heavy into M and A and growth, often what I see is they send a letter to a large swath of practices saying, hey, would you like a practice valuation? And they open by providing evaluation and they put a letter of intent on the table that says, this is our starting point for negotiations and it's transactional around a document. We take a different approach. We reach out to doctors that have a connection to us already. It is usually our starting point. So whether they're referred to by a doctor in our network, whether we know them from a study club or we've got some other sort of one or two degrees of separation from them, and we have a conversation and we tell them what the chorus is about, what its story is, what makes us different, and what we're hoping to build and we're hoping to accomplish together, we go from there, we probably have three or four conversations before we even get to a financial discussion. And at that point, we then start looking at the economics and say, do the economics make sense on both sides? It has to make sense on both sides, and that's the next kind of gate that you have to get through. We spend some time looking at operations, seeing what their operating methodology is, because something that's important to us is that our doctors maintain their economy on the ground in terms of how they like to treat patients and how they approach orthodontic practice. You can't.

And I would just want to interject here. So it seems like if that first conversation didn't go well, like, I'm sort of curious how many make it to this point in the dialogue. In the conversation where you start to talk economics, because you said it starts with this conversation. In this dialogue, can you give us an idea of how many? Are you kind of saying, hey, no, this probably, you know, we'll part ways, we'll be friends, but doesn't make sense for us to go down the road.

So on average, we see, you know, 30 to 40% of doctors that we engage in initial conversations with don't move forward to the financial modeling. It's usually a mutual decision that this just doesn't sound like what we're looking for. And it doesn't seem like the right. The right fit and go our separate ways and maintain very good relationships. Then we get to the financial modeling piece. We work through that, and throughout that process, we're continuing to evaluate culture. Right. And we can do that through the ways that the doctor is able to respond to our questions or the answers. They're able to give into some of the results that we're seeing and why they are. That way, you're able to look at things like staff turnover, and you find a practice that's had the same staff for 20 years, you know they're doing something right, and you know that people are happy and engaged in what they're doing. So all of that continues to factor into it as we go through the process. We also like to work with doctors that are innovative in their approach and like to try new things and like to, you know, experience, experiment with the patient experience and constantly providing a better level of care. And we see that through our operational diligence that we're doing, where we look at their treatment methodology, their timelines, you know, how does all that work and their willingness to collaborate, because I think ultimately, bigger picture, when I think about the culture, of course, it's one of a network where we all share in each other's success, both financially and operationally, and we support each other. So we bring our doctors together. When they join us, they don't just carry on on their. Their path. They come together with our other doctors in study clubs, subcommittees to share their ideas, their best practices and learn from each other. So we all improve, we all get better by sharing and collaborating. And it's a very different world from, I think, what a lot of doctors in traditional practice experience where it can be very isolating and very solo. You have study clubs, you have friends, you have colleagues that you talk to, but you don't, so to speak, open the kimono and show everything that you're doing and allow everybody else to come up together and learn from each other. So that mentality of sharing in each other's success and of growing together is one that is imperative to making sure that they're going to be a good fit with the course network.

Yeah. So you're looking at, we like to refer to it as the secret sauce, where that orthodontist has come up with some type of a secret sauce that the patients really appreciate and enjoy the experience and they're doing something that's making an impact in the community where they're at. And so they're obviously being successful. And then when you bring these doctors onto your platform, are they owning part of the Holdco as well? Do they, do they have access to that? Or are they just kind of invested in the practice or practices that they're running and that they've affiliated through?

Yeah, yeah. So. So all of our doctors hold their investment in the Holdco in the parent company. And it really comes back to that, that concept of shared success in that if we as a network do well, then all of our doctors do well. And it really creates that sense of true partnership and togetherness that drives that shared success across the network.

Interesting. So generally speaking, then when you go through the affiliation process, you're bringing on innovative or entrepreneurially minded folks who are trying to do those sorts of things. Are you finding that with the engagement of the network that then performance actually is improved? I'll come back to the culture piece.

But.

But are you finding that there's accretive things that they learn from the platform or that they bring and share in the platform? That kind of, I don't know, the phrase is that comes to mind is the rising tide floats all boats. Right. Everybody gets better as a result of it. I'm interested in your thought There. And then I want to jump back to the culture side.

Yeah, that. That's exactly what we're seeing. So, you know, part, part of this, this whole thing and working together is that, you know, we're sharing these ideas, but then you actually need to implement. So if we have a doctor who's looking to implement a new idea, if you were solo, you're. You're going in a little blind, you're asking around, you're getting some ideas, but you're figuring it out as you go along. Whereas in our network, we can say, hey, if you're looking to try this, here's three doctors in the network that successfully did it. Give them a call, and they're able to call those doctors and say, you know, what were your challenges implementing this new idea or this new strategy? What would you do differently if you were doing it again? They learn from that and they're able to avoid all those bumps in the road that these other doctors, their partners, have already experienced. So it just makes for a much smoother transition in putting in operational efficiencies, and it is driving increased productivity across the network and better results overall.

And what are the mechanisms that you use so that this network feels connected? Right. Because it's one thing to say, hey, you're now part of us, but are you doing a regular cadence of meetings and study clubs? And I'm interested how organized that is versus how much of that just happens organically.

Yeah. So we have a few different mechanisms that we go with. So one is on a monthly basis, we have a all doctors meeting. This includes owner doctors, it includes associates, it includes every doctor across the network where we talk about what's going on in the network, what projects are coming down the pipeline, and how are we working together with the practices to help improve and make changes. We also do sessions where we, in those meetings, will ask a doctor to share one of their best practices and their learnings and lead a really good conversation with the entire group around what's working well and what's not. So that just creates a very organic conversation.

It's a bit of a mastermind to some degree, right?

It is. It really is. That's exactly what it is.

Okay.

And then I would say on a more frequent basis, we actually have three, we call them Dr. Subcommittees, and they help to work with the home office team on creating programs and creating solutions to help support the wider network. So we have a committee that's focused on the clinical administration side, that's focused on the provision of, of clinical care. And patient care. And then we have a committee around marketing, communications, and then every once in a while, so we have a technology subcommittee and an M and A subcommittee as this continues to grow. So doctors that have a particular interest in one area of practice or one area of the business can participate in these smaller groups and help guide the overall direction of chorus as a whole and share with their. Their partners. The last piece that I'll throw out there is we just finally or finalized the implementation of our corporate intranet about two months ago. And because everything I've talked about so far is about doctors and bringing doctors together. But if we're trying to build this shared culture, this shared community, it has to permeate to every member of the team. Everybody is a chorus employee and everybody's, you know, rowing this boat in the same direction. So our intranet, it's kind of like our own little private social media website where we're able to share updates about what's happening in the network. People have profiles, they share pictures, they have, you know, discussion groups where they can talk about challenges that they're facing and share ideas. So it goes right from the doctor down to the dental assistant, the hygienist, you know, the receptionist or the financial coordinator. They're all working together and sharing ideas and coming together as a collaborative network.

That's outstanding. And is that a platform you built internally or did you leverage some existing technology for that intranet tool?

We leveraged some existing technology for that intranet tool and then built on top of it and customized it to really make it our own field and meet our own needs.

Okay, outstanding. So I want to go for just a second on a slightly different vein because there's something as we're talking that sticks out to me that I think our listeners could really benefit from, and it's that you are holding the title of CFO Chief Financial Officer. You're an executive. A lot of our listeners believe that CFOs are sitting, working on spreadsheets all day long and crunching numbers. And the reality is, is that great CFOs have build great teams underneath them that execute on a lot of that and you lead that team. But it's clear, in addition, that you're very engaged in the M and A activities and getting to know these doctors and deciding what affiliations you guys should and shouldn't consider. Could you maybe just for a minute, walk us through the infrastructure underneath you that you've built of team and technology that allows you to function as a true executive and being the Right hand or right there with the CEO in terms of carrying the vision forward and helping grow the company. I think our listeners could really benefit from how you've built that up and how you think about that. Because a lot of them are at the point where they need a fractional CFO or they're thinking about getting a full time cfo. And it's all within the context of oh, I need to get an audit done and I need to do this and need to do that. The reality is the CFO is not going to be the one that does that. The great CFOs are the ones who build teams around them, can lead through those processes and make sure, you know, vendor relationships are managed well. But really they're helping build the model and helping grow the organization. So I'd be interested. We didn't prepare for any of this, but you're eloquent and can touch on these things. I'd be interested in the infrastructure you've got underneath you.

Yeah. So I guess I would start off by saying CFO is not a role that has a standard role description. Right. What a CFO is in one organization is going to be completely different from what it is in another organization. It all depends on the needs and it depends on the, the skill set of the people that you have. So, you know, I think we're very fortunate in the success that we've had as a network that we've grown to a size that I'm able to build a team below me that allows me to focus on what I do best and highest and best use. So, you know, I think the focus on building that team has really been, you know, my main focus for the last 18 months as we built the network. Because finding the right people takes a long time. Right. And similar to how we have a very long front loaded process for bringing on affiliate practices, we have the same process as it comes to bringing in team members because we're all working hard together, long hours with COVID we're working remotely. And so there has to be a high degree of trust across the team that people are able to take an idea and run with it and execute on it without being followed up with constantly. So right now I actually have five teams that report up to me. So I have our financial reporting and corporate accounting group, I have our business development and M and A group, financial planning and analysis, tax and legal. And over, over the course of our existence, I've been able to recruit leaders for each of those groups who really drive the day to day and part of the strategic vision for each of those groups. So we have two directors of business development who are really directors of orthodontic partnerships we refer to them as. And they're the ones who are tasked with finding the right partners and going to ground and having those conversations and telling the core story and identifying those right cultural fits. I have a director of Mergers and acquisitions finance and FP&A. So he does him and his team do all the financial modeling for oncoming affiliate practices, but also support the analysis of our results, how we're doing projects that we're thinking of rolling forward and what it's going to look like financially. I have a general counsel who handles all of our legal Senior manager of taxation, which as you can imagine in a cross border company, taxation is a whole other level of complicated from what it needs to be. And she manages all of that day to day. And then I have a director of finance for financial reporting and corporate accounting who leads the entire accounting group and reporting on our practice results and our overall results on a monthly basis. So, you know, each of those people is frankly exceptional. I've been blessed to have the team that I have and they're really all of a caliber now that I can trust them to do what they need to do in their function. And my job then becomes looking forward to the future. You know, what does the future hold for our business? What does it hold for the specialty, the industry as a whole and you know, stakeholder management? What's really important is, you know, keeping close conversations with our shareholders, with our doctors, making sure they're engaged, making sure they feel heard and making sure that, that we're pivoting as we need to, to address those needs as they arise.

I don't know if you'd agree with this. I want to try this out on you. I've always felt like the ultimate role of the CFO is to be the defender of and the first person trying to innovate around the overall business model. And that involves the financial elements that need to come together to make margins and those things fall in line and. But it also involves the softer things too, which is the culture, the strategic

planning,

the strategic discussions that need to happen with internal and external stakeholders, all of those sorts of things. That is really where the highest and best use comes from. But there's all these functional tactical things as well that can take our time and pull us away. So I appreciate you going down that road and just exploring that for a minute. I think our listener will get a fair amount of value from that, we're at the point now where we're going to jump into our lightning round. This is also thing we do. We do with everybody. These are just meant to be short. Quick answers, seven quick questions. What are you currently working on?

Biggest thing I'm working on right now is developing an internal stock trading market for our shareholders to be able to buy and sell stock among each other.

Oh, that's awesome.

Love it.

What are you most proud of?

I am most proud of the team that we've built and what they've been able to accomplish in a very short amount of time.

Perfect. Favorite sports team?

You're going to laugh at me. Rams. So it used to be St. Louis Rams when I became a fan. Greatest show on turf. But now the LA Rams.

Very nice. Okay, we have that in common. Growing up, my favorite football team was the Los Angeles Rams, but it dates

me a little bit.

It's when they were in Los Angeles the first time, I guess. All right, Favorite hobby?

Fishing. I just love getting in the outdoors, escaping, you know, the busyness of the city and decompressing.

Nice. And is that like fly fishing or.

No, mostly. Mostly sport bass. A little bit of walleye up here, some trout. Yeah. So no fly fishing, but mostly just either trolling or casting.

Awesome. All right, favorite app on your phone.

Favorite app on my phone. This is going to sound like a classic CFO answer, but probably my Yahoo Finance app that lets me keep track of the markets and what's going on.

That has been a common answer. And your favorite spreadsheet function.

Oh, okay. So I'm going to go with a different one, which is xlookup. A lot of people know Vlookup or Index Match, and xlookup, I find, is a very versatile function that lets you really organize data.

Yeah, I love it. We could do a whole episode just around xlookup, I think, probably.

Right.

So talked about some great things here. We're at a point where we've got to start wrapping the episode up. As you think about smaller emerging groups that are thinking, whoa, 40 practices, how do I get there? And they're feeling frustrated or challenged and stuck in certain ways. What are some pieces of advice you give to those that are in emerging groups that are trying to figure out how to grow. What would be some of your pearls of wisdom to pass along if we were, so to speak, in a mastermind of some sort?

Yeah, if I had to say one thing, it would be staying true to your vision of what you set out to accomplish. I think in those early months, like when I think we started October 2019, we didn't do our first deal until June of 2020. And we had a lot of people in our group that were concerned or worried that asking, you know, is the model not resonating? Is it not working? Is there something we need to change? Do we need to pivot? And we kind of stood up, stood firm, and said, no, this is working. People are hearing it. It just takes time, and you just have to get the message through and get the message across and it's going to work. And we did that, and it took off when the time was right. So I think it's very tempting when you're frustrated, you're not seeing the growth that you wanted to see, to think that you need to completely break down your model and rebuild and pivot your vision and your strategy. It's important to keep an eye on it, but you don't jump too soon in terms of giving up on what you're trying to accomplish.

Fantastic advice. Well, we can't thank you enough for joining. This has been a great dialogue back and forth. I think there's a lot of great pearls of wisdom and nuggets that our listeners are going to get from all of this. Nick, I just. I can't thank you enough for joining us.

Well, thanks so much for having me, Ken. It was a lot of fun.

All right, so some of my key takeaways here for the listeners, they are really around these three things. The first one is how to focus. I think we have learned a lot on how to focus on building a culture while growing rapidly. Nick gave us some great insight into doing that. The second one is how to think about how you measure culture. We probably could do a whole nother episode on that, but that concept of measuring it and making an important metric besides financial metrics is huge. And then here at the end, we went off on a little bit of a tangent, but I think also is value added. How does the CFO role position itself to actually bring the most value to the organization and to the shareholders? So we've covered some great topics. Nick. Oh, I forgot to ask you the best way for listeners to get in touch with you if they've got questions or they want to connect.

Yep. Best way would be to reach out to me by email, which is ncorhonenorisortho.com right.

And then I can't remember, did we get you into the DSO Secrets Facebook group?

I don't believe so, no. So I'll have to get into that for sure.

Yeah, we need to get you in there because I just want to invite the listeners. If there's something Nick said here that triggered something or that you want to chat about, just come over to the DSO Secrets page. You can drop a question in there. We can engage in dialogue like we do on many topics. It's pretty active group so that's, that's always a place where we can engage and keep the dialogue and conversation going. Many, many thanks to everyone for joining today. This is a wrap for an episode Nick Cohorin all things building an organization focused on culture. Happy day.

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