32: Navigating The Dark Tunnel

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Hello, everyone, and welcome to another episode of DSO Secrets. I'm your fearless host, Emmett Scott, and I'm so excited to be with you all today. I have gotten so much feedback from the last episode of the Dark Tunnel, and I've got PMs from it and phone calls and texts and people asking various questions on how do we navigate the realities of this Dark Tunnel? So let me give a visual to start off with. I think all of us imagine in our minds that we are at the bottom of this great mountain that we're about to climb. It's a mountain of value that we're going to create. We're going to bring practices together, we're going to bring the right technology and team members together. We're going to increase the value of these practices by putting them all as one group, as one team, as one support system. And someday we're going to stand at the top of that mountain. And we know it's a heavy climb, we know it's a hard climb, we know. We know that it will take a lot to get there, but we're excited about it and we're excited about the challenge. And so we start off walking and we bring that first practice in, maybe even that second and third. And we see the value starting to slope up and we're really excited. We see the net income is increasing and we're thrilled about that. And it just reinforces in our mind our excitement around climbing and building this huge mountain, this mountain of value for the industry. But then something weird starts to happen. We bring on additional practices and we have all the complexity, but we actually start feeling like we're moving backwards. In fact, in a lot of ways, we are. Our net income isn't nearly as much. It might be staying flat or even moving backwards. We find ourselves needing to hire people to get things more organized and to stay on top of things. Dr. Recruiting is harder and we need support there. We definitely need some marketing and patient acquisition help. And we need that ops, director, VP of OPS, or coo, whatever the title might be, to help us with practice efficiencies and HR components. And. And our financials just aren't telling us the whole picture anymore. We want to go accrual accounting, and we need additional finance and CFO help. We're trying to look at practices and project out what their real cash flow will be and how we should. What our expectations should be. And so as we start to move forward on building this mountain of value, we actually find ourselves starting to go down into this dark tunnel, this tunnel where we're building platform, but we're not building a net result. And I'm seeing a few tragedies happen here. One is that people get very discouraged, and it's understandably so, you know, especially doctors who are taking on a bunch of risk, they're taking on a bunch of debt, and they start to do the math calculations and they realize this just really isn't worth it. I'd be better off with my one location or just two. But going beyond that just really isn't playing out well. And you start to realize that your picture of the landscape wasn't exactly zoomed out completely. You saw this huge mountain of value in front of you, but what you didn't realize is you were initially standing on a plateau and it had a slight slant to it that kind of felt like, hey, I could start building some value. But then it stepped off into this really deep cavern and ravine, and that's what I call the dark tunnel. Now, eventually you can make your way through that, but some don't. Some end up getting lost down there. Like I said, some simply give up. It's a really test, a big test and trial for partnerships. Especially if there's mixed partnerships of business people and doctors, it can be very difficult to figure out how to navigate all the different needs and expectations. So the question I've been getting a lot that I want to answer and start talking through here on DSO Secrets is how do I navigate this? How do I skip over this reality? Is there a shortcut to it? Am I doing it the hard way? Is there a simpler way to do this? So I came up with three ideas on how to navigate the dark tunnel. Number one, I think, is if you want to pull together some practices and create value, do not try to create a dso. So one way to avoid the dark tunnel, or maybe partially so, is, is simply have a mindset that you're going to pull together a group of practices, maybe only three, maybe five, maybe less than that. And then you're going to go ahead and sell those off. Now, they can't be complete dogs. They need to be productive and profitable, but don't do much with them. It's one strategy. I'm not saying it's a good one. I'm not saying whether that lines up with your value system or how you think about the marketplace. I'm just saying it's a way to avoid the dark tunnel. And that is, I'm not going to build a bunch of value of a dso. I'm simply going to put practices together with the intention to sell them off to somebody else who's already been through the dark tunnel. I'm not going to get a huge multiple off of them. So I have to really be cost effective and cash flow effective. And I need to figure out how I'm going to get into these practices and bring enough value to get them profitable and make sure that they're trending well. But it's going to be mostly through my own effort and capability, not through bringing in a bunch of team members or building a platform. Option two, pack a lunch, Create a long term view. You're not going to avoid the dark tunnel. You just need to strap in and be prepared for a very long journey here. And when I say long journey, 10 years, 15 years seems to be the traditional amount of time. And prepare for it to be very rocky, prepare for it to be very discouraging and make sure that all the partners are aligned for a very long term view and perspective. If you can get everybody aligned there, then you're all rowing in the same direction. You just have to know that I really think that like the 10 year time frame is kind of minimum. To truly build a DSO and get all of the value out of it that you were hoping for is going to take at least that long. And then option three, I'm seeing more of these options than when we started and we actually have one of these options now and that is to bolt on to a dso. In essence, go ahead and ride off of them already having navigated the dark tunnel and they're on the other side starting to climb the mountain. You can literally kind of jump into their backpack. And I'll tell you why I love this and if I was starting a DSO today, why, what I would do is JV with another dso. Again, it didn't exist when I started, but we do it with our associates all the time and other business professionals and that is utilize the fact that they have already invested in a complete platform. Now, the biggest challenge here is finding culture alignment. And what I found is that for entrepreneurs and dentist entrepreneurs, there's a certain amount of pieces and complexity that they want to control and there's a certain amount that they're ready to give up and have someone else take on. And so you've got to get really clear on what you want to control and what you want to give up. And with that clarity, then match up with someone who's already built out a DSO and then ride on their coattails. Avoid all of the expenses of the dark tunnel and only have the incremental costs going forward. And I really think those are your three options for navigating the dark tunnel if you know it's there. Step one is decide. I don't want to go through the dark tunnel. I'm just going to do a group of practices, hang on to those, and then sell those to a DSO at some point. Or I'm going to go ahead and buckle down, know that my EBITDA is going to be zero or very low at a net level for a long time and get all my team members and partners aligned with that and thinking long term. Or lastly, I'm going to bolt on to a DSO and I'm going to find a partner that will allow me to control all the things I want to control in building out my DSO, whether that be branding, patient experience, etc. And I'm going to utilize the everything I don't want to have to pay for and build out from them. So anyway, we'll start to build out these these ideas a little bit more in future podcasts, but I really want to help people start to figure out how to navigate this dark tunnel. If you have additional questions around this, feel free to PM me or to come on to DSO Secrets on our Facebook page. And until next time, keep smiling.

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