31: The Dark Tunnel

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Hello, everyone, and welcome to another episode of DSO Secrets. All right, so I mentioned in my last episode that I went to the DEO Shark Tank event, Dentist Entrepreneur Organization, and. And they had me as one of the sharks. And I want to walk through kind of a theme that came out of that day that I would love to share with everyone else because it's so critical to scaling dental practices, especially in those early stages. So let me kind of set up what happened first and then I'll tell you the theme. So obviously they set it up a lot like Shark Tank, and we had investors of different types and attorneys sitting up on a, kind of on a stage, and then people would present with big PowerPoints, et cetera. And they did awesome. Everybody did great. But that first presenter, of course, you know, they're nervous and they did a great job presenting and they walked through a business model that's doing really well. In fact, on the surface, looking at financials, EBITDA margins are really strong, and it just looked like a great business model. And they're excited to scale. They've done a few practices and there's been some hiccups with them and so forth. But again, their margins are good and. And they're excited to scale and wanted feedback, and they were getting some really good feedback and, you know, a little bit of constructive criticism that was helpful to them. And then it came to me, and the concept that came to me that I shared with them was I said, you are about to go through a very dark tunnel. Now, that's a term I've used with other entrepreneurs before, but not necessarily in the dental setting. And it just was so clear to me. I don't know why that visual, but that's exactly what it feels like emotionally when you go from a very profitable business and you go to scale to it. And so I want to talk about this dark tunnel today because I got lots of questions. And in fact, almost every Presenter after that asked me, so am I about to go through the dark tunnel? Let me explain a little bit what the dark tunnel is when you're scaling a business, specifically in dental, if you're scaling, it's because. And you want to do multiple location, it's because you've already done one location really well. I mean, occasionally there's somebody who you know is terrible at one and wants to do 10, but I don't rarely ever see that. It's mostly someone has done really well on one location and then they've done done a second one and maybe even that's gone fairly well. Never as good as that first location, but it's gone well. And now they're excited to do more. In fact, maybe they got to three or four, but they're excited to scale this even bigger. And they have this big vision that if they just had access to more capital, they could scale really large. Here's the problem that most people don't know is to scale, you have to go backwards in so many areas, financially, emotionally, and in your own talents and skills. What do I mean by that? If you've got a very profitable single practice, you're probably. And maybe even two, you're probably maxing out what your personal income is going to be at that point. As you open up 3, 4, 5, 6, it's less about a certain number, but somewhere in there you start feeling the need to have more help. You can't do it all on your own. You might be able to even get to 10. But then the farther you get having not made some of the investments into team, it's almost the worst it is later on because now as you go to do number 11, you realize the whole thing's going to break and fall apart and you need 10 times as many people than you have. So let's say a doctor is making X amount of money in order to scale his or her business, he might have to end up making half that amount. He might see the margins on his business start to collapse. You know, oftentimes I can tell when someone's getting ready to go through the dark tunnel because they have these really great margins on just a few locations and now they want to open up a bunch more and they think they're going to maintain that margin going forward. It's not going to happen until you get your full platform in place. You don't know exactly where your margin is going to land. I hear comments like, emmett, I just need to hire a CEO and then I can scale this thing to the sky. I wish CEOs were that talented that they could do all these different tasks. And that's really if you're lucky enough to get a CEO that really aligns with all your culture and values and needs and has the skills and talents that you need to navigate everything that is in this DSO world. But that CEO is going to need help once they hit a certain number. And you, you may already be at the number that even hiring a CEO, he or she says, well, now I need some help if you really want to get to that next location, because you really don't have the right process systems to scale beyond where you're at. So pretty soon you find yourself making a lot of investments. I hear people say, I just need to get a cfo and then everything will go from there. It's not that you have to hire the world day one. I'm not saying that, but I am saying mentally, emotionally, you need to prepare that your margins, your income are not going to stay the same as you get bigger. Especially, you know, from those beginning stages to your next set, there will be. Once you get through the dark tunnel, you'll be on the other side where the opposite starts happening. Where you've paid for the CEO and the CFO and all this different platform pieces and technology needs, you need. And now every practice you have adds to your margin because you don't have to hire a new CEO every time or a new CFO every time. But in the beginning, it's all about getting through that dark tunnel. I can tell someone is still getting ready to go through the dark tunnel or maybe has started entering it. When they're opening up locations and the profitability is dropping off like, like crazy. They'll have one location, that first location, that's just two, three, four times as much revenue, as much margin as their subsequent locations. And it's just getting worse. You know, every de novo, every acquisition they do, the margins just aren't there and they're trying to push through it. I can tell when someone's going through the dark tunnel when they say, yeah, we're just going to add some specialties in. Oh, man, that is so much more complicated than what the spreadsheet says is going to happen. You know, I'm just going to throw a little ortho into this and boom, everything's going to work out. Or orthodontist. I'm just going to start bringing on, you know, pedo and boom, it's just all going to work out. No, you're about to go Through a dark tunnel. A lot of learning, facility changes, patient flow changes, software, technology, people, personnel, all of those processes that have to be worked out. That's part of this theme I call the dark tunnel. Even at this presentation we had people who said, yeah, I'm really excited, you know, we've been doing ppo, we're going to add some of these Medicaid practices to our mix or you might be PPO and I'm going to go fee

for service or on fee for service,

I'm going to start doing some ppo. Especially if you're stepping over into the line of Medicaid. Let me tell you, you need to get ready to go through a dark tunnel because you need to build platform around compliance and billing that was nowhere close to what was required for PPO or fee for service. Remember in Medicaid you don't make billing mistakes, you do fraud, waste and abuse, right? So you need to have a platform that can step up and protect you and make sure that your doctor notes and your compliance and now your alignment with OSHA and everything else is top notch because you're playing a different game. I call all of that going through the dark tunnel because I'm going to have to start building more things out than I ever had to worry about before. And as exciting as is, as accretive and additive that this will be later on, the reality is for today and for the probably foreseeable future, there's going to be a lot of moving backwards on your net income and maybe even on your cash flow. These are investments that you're making. So why do I bring this up? I mean it sounds pretty negative, you know, what am I supposed to do Emmett, Just sit here in paralysis? I think for me it's so important that we just have the mindset to know what we're stepping into. So you do need to make a decision with this in mind of do I want to scale? I mean the best thing for you, for your company may be to stop where you are right now and just enjoy the fruits of that labor. In fact, there might be one or two practices that you just need to get rid of and, and enjoy the fruits of a much smaller kingdom, if you will, to manage. In fact for many, the best thing they can do is just do one location, do it really well and manage that, you know, going forward. Scaling is not for the faint hearted. So as you walk into it, those who say no Emmett, I want more, I want to get that passive income of multi location. I'm just so excited and the entrepreneur in me couldn't sit here and just do one location. Hey, I get it. But know what you're walking into. Have the right expectations that you're making an investment for maybe the next five, ten years where you might look at yourself and say, man, it would have been better if I just stayed at one location. It would have been better with just two locations versus trying to get to the 5 and 6 and 10 and 20 mark. Now eventually you will be through that dark tunnel and oh, what a great feeling that is. But before that, you know, people will say, oh man, you have so much platform. Your, your EBITDA could be so much better if you didn't have all of this. And I can tell you that you just gotta say, I'm in the dark tunnel. I'm building for a much bigger game here and I'm okay with where I'm at. Alright, so if you have questions around whether you're about to go through the dark tunnel or not, or if that's something that you need to do, or maybe even just want to kind of talk through, is it worth it? Should I just stay with where I'm at or should I go to that next level? Come join us over on DSO Secrets, you know, post some questions if you'd like for everyone there. Great little community over on Facebook or feel free to private message me. But the most important thing is we can have the mindset and the self awareness to know what we're we're getting into and then just go attack it. So hopefully this is helpful and as you start to prepare for scaling, you prepare also mentally to take everything to that next level. All right, hope you enjoyed this. Come join us over on Facebook. Until next time, keep smiling.

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