3 things DSO's Don't Want You To Know Featuring Kyle Francis and Gary Kadi February 2022

The year was 1995. And I'm sitting on the beach in Coronado island in San Diego. And in the distance there's a pristine beach and it's a hot day. I'm sweating and I wasn't as happy as I am today. I actually was finding myself $880,000 in debt. And I was looking around and you would see the Navy landing strip is right in the forefront of, as I'm looking out into the water and I see these Navy planes doing their, their training missions. And over to the right is Hotel del Coronado. And I think it's, you know, for, for some of the older folks on today's call, you know, Fantasy island and tattoo and bosty plane, like that's where they film that. But the plane that I was thinking about was the one that I just wanted to crash because I don't know about you, but being in debt and no way out is just a really drowning feeling. And so at 24 years old, I made a choice to say I had a choice. I was really staring down, do I go bankrupt or do I really stare this down and get the lesson? And an amazing gift was that I met this gentleman who's a business coach, his name is Roger Lane, who is a dear friend to this day. And, and he said, Gary, look, the problem doesn't go away until you get the lesson. And if you want to have this reoccurring issue, you can do that and go bankrupt and not take responsibility or you can step in and own it. And I did just that. And I vowed that day when I just had no hope that the people that I was going to serve, this was before I got into dentistry. The people that I was going to serve, whoever it was, was never going to have to go through that struggle on their own. So the struggle of being pounded by debt. And not only that, let's fast forward creating wealth so that you can be financially free. And I'm so, so excited to be here with a dear friend and the best in the world. We have Kyle Francis with us and we are going to be talking about creating financial freedom and in the context of considering selling to a DSO, the three things that DSOs don't want you to know. Kyle, good to see you and thanks for taking the time out of your.

Day, Gary, thank you very much. I'm super excited to be here as well.

Yeah, you bet. And you know this is going to be a podcast style format. Yes. There's going to be visuals and we're going to show you some Visuals. But, like, this is a hot topic and we have the best in the world with Kyle here. You know, I want to brag for you, Kyle, because, you know, I spent a lot of years looking for the best in the world. And you know, someone like yourself who has done, you know, 200 million in transactions, you've changed people's lives. You've changed the future of families because you've been able to maximize their asset. You've represented the buyer, you represented the seller. You represented groups like, this is not a guy in a diner here. This guy cares deeply about human beings. Your values are like, blow me away, Kyle, because you care deeply about people and make sure everybody wins along the way. So I don't know if I've done justice for everything that you do, but that's why I found you, and I feel grateful to find you as my collaborative partner in really taking on this concept of DSO management and making choices and setting our sellers up for success.

Well, man, I don't know if I've ever gotten a compliment quite like that. So, first of all, I don't know. This is small world, right? And it's just doing right ends up going a long way, you know, and you're absolutely right. It's the people that really matter and it's the soft stuff that really matters. So once that soft stuff is kind of handled. Yeah, there's. There's lots of ways of creating that outsized wealth structure on the back end. Sure.

Yeah. And you know, Kyle, I've been in the industry ever since that day on Coronado Island. You know, one of the things I had an advertising firm that brought patients to the front door of practices. And then what I learned very quickly was they would come in the front door and they would go out the back and they really didn't want to be there. The team didn't want to be there. So I spent time sitting in everyone's chair, Kyle, and really understanding the business model. Because, you know, when I started working with Dennis, it was to bring new patients in because that's what they were asking for. But what I've learned very quickly was what Dennis really needed was a business model that they could have full control over and scale and be profitable. Because here's the thing, dentists leave dental school ill equipped to actually take on running a business. And that's why we hold dentists as heroes. You know, they have to be great with their hands, and then they have to be great with being an entrepreneur, a banker, a motivator, and all those things. That are just like, they're not set up for success. So one of the things that I've took on was I sold my marketing firm and I took on implementing a business model where they would have full control, full certainty, and then really press play. It's like lights, camera, action, and everybody knows what they need to do. And there's a systematized way and a fully controlled way to produce outcomes. And you know, since that 25 years, I was trying to quantify because you inspired me. You said he did 200 million. Well, and this is not to king your queen, Kyle, but we've done over a billion dollars in increased collections over that estimated. And the biggest success is millennial families and Gen Z's, Gen Y's and the end of the baby boomer world who are our clients, husband and wives and really single moms and single dads who run companies. But they don't have to sacrifice not being a parent or taking care of life simultaneously when they're building this asset. And that's the biggest thing for me that, that I'm most proud of that over the 6,000 practices that we work with directly and 100,000 that we've impacted, that to me is like the biggest joy that we get to get. And now we have a model with your partnership to really bring together practices so that you can maximize your asset and get the multiples of return that you truly deserve. Right. That's what we're here to do.

Yep. Couldn't agree more. Yep. Let's talk about it.

You know, let's talk about the trend going on in dentistry. So, you know, the pandemic hit and you know, it didn't do. It wasn't done to us. It was done for us. And a lot of people have made moves. Let's talk about the facts about what has changed in our industry. Let's talk about the great sell off.

Sure, absolutely. Well, to backtrack just a second, essentially, whenever I started this company 15 years ago, DSO is not a thing. Right. So there was really no such thing as that. There were, you know, group practices that existed, but essentially there was a Senate, there was zero percent consolidation in this industry. And you know, over the next 13 years or so, the consolidation wave kind of continued to grow. Now that that growth ended up kind of landing at about 20% consolidation over the last call it. Over the first 12 years. However, we had this issue in 2020 that essentially put everything on steroids. Right. And during these last year and a half, we've seen consolidation just absolutely go Bananas. Right. So we are at now something like 30% consolidated. If we look at other countries, other industries that are very similar to dentistry, other medicine that has already been consolidated, they end up coming up with a stasis point of something like 60 to 70% consolidated. We expect that's going to be hit over the next seven to 10 years. Right. So there's a couple different ways you can kind of think about this, but overall, uh, it's growing and it's growing fast. It's the fastest growing part of dentistry in total. Yeah.

And to have the expert in the trend and to be ahead of it, but also has done many transactions. He and I together have developed a methodology because I want to really deepen this even further. That is unacceptable to me and my stand for the docs that we have the privilege of serving 4% of dentists. This is crazy. Retire financially free. That means that their assets can outperform their liabilities without working. Right. So that's why we came up with the course that we're going to be talking about here that's going to be in Arizona, March 17th and 18th, called 5M over 5Y. 5M is 5 million over 5 years. And the key part of that is we, you know, docs always go, well, how much do I need to retire? Well, I, you know, depending on where you live, 5 million and let's just say you can get 6% on your money. That's 300,000. You know, that usually can cover someone's, you know, liabilities typically. So that's the game we, we've been putting in place. And you know, the other thing that is completely unacceptable, Kyle, is that from, and these are stats from the ADA from 2000. The year2062 is the average retirement age. 2020, it was 69. That's unacceptable that we have to extend people's careers. Yes, there was the Great Recession in there. Yes. There was nine, 11. Yes. Look, one thing, one message that I want you to get. You're not your circumstances and I want you to know we have compassion and no judgment on people. So if, you know, nine out of 10 doctors, Kyle, when I talk to them, they go, oh, I should be doing better than I am. That's the judgment that we make on ourself. And I want you to know, like there's. So no matter where you're starting from in this conversation, if you have multiple units and you're looking to really maximize that, or if you're, you know, you have a million dollar practice and you know, you could be doing better. It's all good right now. It's just, I always say, Kyle, it's all good in the gated hood, you know, everybody thinks dentists are. It's like Tom Brady, Peyton Manning, a dentist. You know, they all think they're in that gated hood. Meanwhile, I look at PNLs all day. You look at PNLs all day. We know that that's not true. So you. You're not allowed to beat yourself up on this. You know, when you talk about finances, like talking about something as intimate as weight, right, Kyle? It's like, oh, my gosh. And then if you talk about, you know, your practice, it's like, you know, top three in most people's lives, whether you have faith, your family. You know, for me, it's my sobriety. I'm 14 years sober. Like, I got to keep those things ahead of everything, because if I don't have faith, if I don't have family, if I don't have my sobriety, I'm not going to be able to do this work. And so, you know, it's always, you know, when we're talking about really leveraging your ass, always in the top three or four, right? So we believe that dentists are heroes. We believe that you are not equipped to do the work. And then we believe that there's a way out. And, you know, the promise here is that we've taken on, Kyle and I, to be on a mission to get people financially free, time free and frustration free. So that's what's happening behind the scenes here. And if you want to talk about the stats here, here about some of the things that are going on, let's start really digging in here and going deeper into what is a dso and why is it. Let's unpack this thing called the DSO here, Kyle.

Sure, absolutely. Well, really, whenever I think about what you just mentioned, which is going to be different ways of leveraging the assets you end up having, the only way 15 years ago of leveraging your practice value was going to be via a bank and via selling it to an individual, right? That was thing one, that was the only way of doing it. Now, you could sell it in parts, right? So you could sell it one part at a time, maybe 33% stakes or 50% stakes. But overall, it was very much limited on what a bank would lend on a practice. It just so happens that over the course of these last 20 years or so, we put ourselves in the demographic position. The consolidation is necessary. Right? So one of those things is going to be high cost of student loan debt. Right. And the student loan numbers that I'm seeing coming out are absolutely amazing. Right. By terms of saying amazing, I definitely mean negative, not positive. Right. And the other thing is going to be changing demographics. Right. So the life experiences of what that doctor is wanting coming out is going to be very, very different than what is what was wanted 20 years ago. And really I think that whenever I think about the way that a bank ends up looking at a transaction like this, a bank really wants to make sure that they're making a good investment. And if that individual bank is making a loan on that individual, they can only go to a certain amount of leverage on the deal. The interesting thing about the way the DSOs have formed over the course of time was going to be that they can end up paying more because once you bundle practices together, the they're worth more. Right. That's really what it comes down to. It becomes a less risky asset class. So if it's a less risky asset class, suddenly you can lever up the total value that can be paid over the course of time. So the initial beneficiaries of this was just going to be the private equity groups themselves, Right. They would go around and they would purchase practices for a higher than market multiple. Right. So if you have a million dollar practice, they might come in and buy it for 1.2 million. Whenever you could only sell it for $900,000 on the market, they would have those doctors work for something like three to five years beyond it and it would very much feel like a reverse mortgage. Now the private equity companies made money hand over fist on these types of transactions. The interesting thing of what's happened over the last 10 years is going to be competition has increased dramatically. And whenever competition increases, the types of deals that are offered and the structure of those deals offered are going to change dramatically as well. So what you end up having is going to be ways of leveraging that asset which is going to be typically your largest or second largest asset in a way that you could just, just couldn't have done beforehand. And by the way, in 10 years you won't be able to do either. Right. So we're just in this kind of unique little section of dental history that consolidation only happens once.

Yeah, I really love your take on this and really understanding the landscape of what's actually happening here. Right. And you know, who really wins. Like you're talking about a reverse mortgage. It's like I'm actually earning out the money that I already made. And it's like, well, that kind of stinks. If I'm not only going to get a certain multiple, it's like, you know, am I really getting something here? So, you know, it's really interesting to look at it from that perspective. And then do you think this is really good for dentistry in the long run? Like, what are your thoughts about, like, you know, you're talking about 60% here, Kyle. You know, in seven to 10 years, like, what do you think that's going to do for our industry if we really look out and the service that we're going to be able to provide?

It depends. It probably depends on who the winners end up being. Right. So I consider DSOs pretty darn similar to dentists. I think that there are good ones and I think that there are bad ones. Right. And so because of that, I've had lots of individual transactions that did not go the way that the seller wanted it to go or did not go the way that the buyer wanted to go because there's bad actors on the other side. Same thing with DSOs. So once you develop those comps, you determine who's who's good and who's not good, who's patient centric, who is, who is staff centric, who is doctor. Doctor centric, who doesn't get in the way of making sure that the patient doctor relationship is not going to be infringed upon. And then also who is the big beneficiary? Right. So in each individual group, is the big beneficiary going to be a numbers guy like me? Right. Or is that going to be the provider? And so I think that we have an opportunity by grouping together and doing something special here that is going to be way different than what else is going on in the marketplace. And I think that there can be a big win, not just for the folks who are the providers, the dentists, but I think it's going to be really good for the patients in the long run as well, because the providers can be the big beneficiaries of the financial access that has been made made aware to us during this consolidation.

Yeah. And, you know, I want to be clear here. This is not, you know, DSO bashing one on one. This is, you know, there is good in anything and there's things that are not so good. Right. So really, the first thing that has to happen, and we believe this, that's why we're working other, is the private practitioner has to realize their full value of what they've actually amassed and created. And, you know, I want to go into right here, Kyle, one of the things that the DSO doesn't want you to know as a private practitioner. So I'm going to unveil that, I'm actually going to share my screen. And I love John Madden, Kyle, because like he, he, you know, described things using a teleprompter. So I want to really bring a visual to the education that this is opportunity number one, that the DSOs don't want the private practitioner to know. And that is that there's three ways to build your practice and there's case acceptance, right? So that is number one, retention, patient retention, and then the experience and acquisition of new patients. See this is last, this is these two here, these two ways to grow your practice is once you plug the holes of these two things, Kyle, then the value of your and potential of your practice goes dramatically up. So let me, let me show this to you numerically. So let's just say you're a one doctor, one hygienist practice and you accept PPOs. So the average case acceptance when you have a good system in place and we've been installing these systems for years. And by the way, it's not about selling dentistry, Kyle, this is the big one. Most dentists are like, hey, are you going to have me come in? And I don't believe in selling dentistry. No, it's about we share intelligent things with intelligent patients so they can make intelligent decisions. Very simple process education system, the value of a crown and a buildup in a PPO practice. Let's just call it a thousand bucks just to round it off. Then the retention is two profits, two exams and one set of bitewings. Let's just call that 300 bucks coming in twice. So the average adult is $1300 right now if you have 2000 patients, let's just say it's 2000 patients. This practice potential without new, any new patients is $2.6 million. The buyer of your practice doesn't want you to know this because this practice, when we first start working with them, Kyle, is somewhere between 750 to a million bucks. They don't want you to know this because what they're actually buying is, is the potential capacity that exists inside your practice. Now if they have to go out and market it, it's uncertain and it's, it's, it's going to be costly. But if the patient base exists here, the way practices are evaluated, let's talk about it. Kyle. You know, you and I agree on this. You know, it's basically 80% of collections on average. Right. Would you say that that's about right?

It's a fair indicator, sure.

Right. Just generic algorithm. Right. But let's look at that. If we're basing it upon 80% of collections, it's what you and your team can present, get accepted and get collected. And just consider that the root cause of why that's so low is because here's the source of the problem. When was the last time you were purchasing something that you didn't think you needed, was going to cost you thousands of dollars, may hurt you and take time out of your day? You know, one of my events, Kyle, somebody said, well, two. Two funny ones. I'll give you two funny ones here. It's awesome. One guy said, my wife. I said, oh, you're not going to be married very long. And another guy said, my boat. I was like, oh, I get it. I get that one too. Right, okay, so, all right, but here's the thing. When you fix this problem, and it's not a big, hard, difficult problem, it's just that most practices don't have a systematic way to get asymptomatic care to be tangible and emotional for the patient. Once you fix that problem now, all of a sudden your patient retention goes up and then your full potential is realized. Do you have anything to add here from your perspective, Kyle?

You know what, I think that I've never heard it said that way. So first of all, I really appreciate the way that you went through that and I love your John Madden as well. So that's first. The second thing to that is going to be, look, there's two different things about the or two different things to consider in terms of the way the practices are evaluated. One is going to be what is the investment value of the practice that's normally stated in the terms of ebitda. Right. We don't want to go through that nuts and bolts at this moment, I don't believe. But the second thing is going to be what is the multiple associated with that? Ebitda. Many people think that you just have a generic multiple for that, for that investment value. That is not the case. There is an attractiveness multiple that is put on it. So if you have two different million dollar practices, just like what you were mentioning before, one of them has $200,000 in EBITDA, the other one has $200,000 in Ebitda. One of them has 700 patients, the other one has 1300. One of them has some of their systems down and one of them Doesn't I'm going to get way, way different deals on both of them. And the reason being is that one is just inherently more attractive and have started to prove out your concept. So I love it and I do think that's something that DSOs do not want you to know.

Yeah. And you know, I just want to highlight Kyle is we're partnered here because we're doing a course in Arizona on March 17th and 18th. It's called 5M over 5Y. Kyle is one of the key aspects of buying and selling and also rolling up a group of practices. We're going to be talking about that and if you just heard words that you don't know, EBITDA and multiples, we're going to be going over all that detail and then if you're advanced and you already know what that is and you want to really maximize that, you know, it's good to get a refresher from the perspective that we're going to be bringing to this. And we have other experts that are going to be there to do a buy sell. Amazing attorney. And by the way, this is not there's going to be zero selling at this. It's all education. So I'm going to be there, Kyle's going to be there, attorney, cpa and then we're also going to have my wealth advisor, Jim do at do wealth and you're going to be able to create your wealth. So if you're not interested in selling but you're interested in creating 5 million over five years, this is the place for you. It's two days. Going to be fun, warm Scottsdale spring training going on. It's going to be fun and light, airy, intimate setting. 30 people right now we have 22 registered. So you definitely want to register. If you want to register the links there, zero selling all education. You're going to walk away really understanding how to amass wealth of at least 5 million over five years. And if you really want to take advantage of the work we've done and the ground we've laid to roll up a practice and be a part of a unique group of practitioners, we're going to be talking about that. And you'll have an opportunity once you complete that course. One other thing that I want to add value here. This is just a gift. I want to make sure people know I blocked out five additional hours in my schedule for half hour meetings. If you want to talk about your asset of your practice, I just ran through those numbers. If you want to do that on a Call or if you have questions about this course, Extremely nonjudgmental safe space. We'd get on a zoom half hour. Just click the calendly link below as well. If you have questions about the course and you want to ask me those personally or if you want to see if you qualify, if you're a right candidate for this, I'm going to invest some time here just to make sure we are going to have the right people in this room to do something really, really cool. Where it's a safe space. You don't have to share your information. It'll be, you know, near to you if you choose, but you'll go to work on your numbers and to get you to be where you want to be. So it's a hands on course. We're going to get to work, roll up the sleeves and get it done. It's going to be really amazing. It's going to be a lot of fun too.

Just as a side note, I wish all of my clients went through something like that. I really do. So if all of them came in with that type of knowledge base to start out with, man, we'd be, we would have more valuable assets to sell one, right. And then thing two, I think the knowledge base is only going to benefit them as they kind of decide what it is that is going to be best for them in the future. So that's great.

Yeah, thanks, Kyle. And one of the things I want you all to know, I state my standard is world class. My standard is being the best in the world. My standard is high level of customer service, high level of the latest information so you can make good decisions and the best people that have been vetted and are safe, are trusted, have a long track record. That's who's going to be here that you're going to get wisdom from. And it's a one of a kind. Nobody's doing this type of work for the candidate. That's either, you know, maybe you have three or four practices and you want to roll it up into something bigger and you're considering that or you're an individual and you have enough, you know, in your practice that you want to be a part of something bigger. That's what this is for, right. Or none of that. And now you're an educated person, you don't have to do anything, but you're a lot smarter about creating wealth and financial freedom and retirement and transition and exit strategies. You'll be ready to go. So I want to get to the two others, Kyle and I really want you to highlight them. I know I could talk. You know, obviously we can talk for two days on this because we will and we're going to give them everything. But you know, I really want to dig in. So first is they don't want to. They don't want you to know as a private practitioner what your true potential is in your practice. That's number one. What's number two, Kyle?

Number two is going to be the issue of autonomy. Right? And so if you end up thinking about autonomy as a singular practitioner, you essentially have all the autonomy in the world. You are the owner, you are the boss, you make all the decisions. And there is nobody there that can technically second guess, right? It is going to be your baby. You're the one to take care of it. And whenever you bring on either a partner or if you decide to sell in whole, there is a theory out there that is called the invisible DSO that I just don't believe. Right. Overall, I think that as a partner, hopefully you want them to help you to do some things right. And then you also want them to help you build some wealth. Now if they do those things well, that could be a really great partner. Right? But overall the fact that you would not give up any autonomy is just incorrect. Right? So whether it's going to be from a business side and then what I would consider a bad actor DSO giving up autonomy from a clinical side as well, all those things have to be considered. But there's just no way that somebody is going to be coming in and investing that much money into the practice and not having some sort of say. There does need to be some sort of autonomy given up.

Yeah, you bet. And you know, this is a key part because, you know, a lot of doctors tell me like, hey, you know, we've had a lot of our clients sell to DSOs and then the DSO has become our client. It's really interesting because we're finding DSOs like these DSOs. Yes. There's the heartlands of the world and the Aspens and those types of Pacific. Right. Those big monster jams. But there's these mid markets, these smaller games, like these new starts that really are finding their way. Kyle.

Right.

And we're seeing that's another group that's appealing but you know, because they're finding their own way. What we're seeing is they make the promise on the front end, but they're not really profitable so they have to make more aggressive moves and they're coming into the practice and taking over where they made the promise because they could. And they thought they didn't need to touch the autonomy, but they really do because if they don't get a certain dollar amount increase, they can't survive. And we're seeing this group of these guys that have 10 to 20 start becoming fledgling groups that need, you know, money and they need to. And they start going into the practice and start strong arm people, not because they want to or even want to change their agreement, but because they have to because they're not surviving.

Yeah, that, that definitely can happen. I guess what I would say is, on the flip side, we do see good ones as well. And so there are different comps that we can use that say this can be done correctly. Right. And so it's, it's not just all about margin. It's not just about money. Again, it's about the way that you treat people as the soft stuff. Because if you do that stuff correctly, the money's going to come.

Yeah. And that's what you want to look for. We're going to go over what should you look for when you're choosing a dso? And we'll, we'll unpack that pretty well. There's one more thing that is similar, like the autonomy, but I think it means even more to doctors, especially doctors. Like, for some docs it makes sense. Like, hey, I want to sell to a DSO because I don't want the, the hassle, I'm exhausted. I don't want to do this, take over the business side. I'm good like that. But there's that group of docs that, you know, they're control freaks. They're, you know, like me. I like to control my, my world. And, you know, there's the promise of, you know, oh, yeah, you'll still be in control of your destiny. But let's talk about this piece because I think this is a blind spot for some people. Let's talk about this third one. What is the third one?

Yeah, so the way that I end up thinking about this is going to be much more in terms of there are these legacy DSO groups that are out there that essentially do a ton of marketing. Right. And that ton of marketing is going to be to attract as many different practitioners to their ecosystem as they can. What they don't really want you to know from a control standpoint is going to be those are typically the ones that have the most control. Right. And if you look at, you know, smaller, more fledgling groups and if you look at being able to do something with people that you like and Trust already in terms of a roll up, those kind of things. It allows you much more autonomy in terms of your choice structure on the back end. Right. How is it that you want to design this type of group and how is it that you can affect that design of the group? In a large group, they essentially already have their machine created. Right. And so if that machine is already created, how much, how much influence can you really have? There's. And so I love the idea of having a much more influential provider if we're trying to do something good for dentistry in the long run as well.

Yeah. And we've been getting questions in here, Kyle, and I just, you know, we're not going to get to them all today, but I do want to let you know that we will respond to you within 24 hours on your questions, some very specific questions, and we'll make sure that you get your questions answered. Also, if you want to jump on to my calendar, we could just do it over a zoom call. So, you know, whatever feels more comfortable to you, we'll get that done. But really, that we're at time. Do you believe we are at time, Kyle? So the three things to really know that DSOs don't want private practitioners to know is what's your true potential? Because they want to really realize it for themselves. They don't want you to realize it. Now, number two is the autonomy piece. And then number three is really loss of power. And, you know, the quality of your life is going to change. The way you interact is going to be changed. And are you willing to give up three to five years for that? Well, you have to look at, look and see what that is. And are you getting the multiples that you deserve and the full, you know, realized asset that you've worked so hard for? So, you know, man, I mean, there's we, you know, there's so much to cover. And that's why we're going to have this in two days. It's going to be in Arizona. It's called 5M over 5Y. And you can register below as well. Kyle, any parting thoughts as we sign off today?

I'm excited to put faces with names, I really am. So I've really enjoyed our interactions over the last period of time. And I'll tell you what, I really do think that we can do something great. And so if we can do something great, let's kind of learn about how that can happen.

You bet. You bet. And what I love is my favorite quote is from Maya Angelou, and she says, never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has. And a small group of committed citizens will be getting together in Arizona in March to really take a look at winning individually and really collaborating the possibility of collaborating as a group to make a bigger difference in dentistry and leave a legacy. So I'm super excited. I look forward to seeing you in Arizona and look forward to answering your questions and seeing you on my calendar. Have a great night, everybody. Good to see you all, and thanks for joining us.

Thanks, y'. All.