134: The State of Dentistry with Howard Farran, Founder of Dentaltown - Part 2

Welcome back everybody. This is part two of my interview with Howard Fran, founder and CEO of Dental Town. Enjoy. You know, I have let me reflect back a number of thoughts on these different topics from my side as a financial advisor and CPA focusing exclusively in the dental space with these students that come out of school. I did. I'll start there and then I'm going to move into these emerging DSOs, sort of more established doctors who want to go that route of opening up a second, third, fourth office plus and then maybe just talk a little bit about the industry in general. But I have a website called associatesonfire.com and it's free for dental associates freshly out of school. And it has three categories.

On this education platform called associatesonfire.com the first one is when you first come out of dental school, what are the key financial decisions you need to make and how do you be prudent with your money? What I find is dentists come out of school and like you said, they buy that Tesla or they buy those cars. I call this pent up consumerism. They stayed in school a lot longer than most of their peers. They see a lot of their peers driving X or buying yes. And they feel that they deserve to have the same thing. And maybe they do deserve to have the same thing, but the economics of it is not in their favor when they immediately come out and unleash that pent up consumerism. When they do that, they have lower liquidity. That's cash in the bank and it ties them up and prevents them from being able to do things that are wealth building decisions like buying a good practice. Now banks typically don't require that much liquidity for from a buyer when they lend to a young doctor to buy a practice. But they love it. And your options are going to go up if you have extra cash in the bank. So I always say when you come out of dental school, keep living like a dental student. Just do it and you will find compound returns because you were so good with your defense and you created surplus. Even if you were doing things like maxing your IRA accounts or putting some extra money in 401ks or a brokerage account and you let that compound over 30 or 40 years. The geometric curve on that is phenomenal. Now when it comes to where do you make more money every time I do this analysis and practice. CFO tends to work with larger practices who really need a CFO function, not just a bookkeeper. They need a strategic thinking partner is what I call ourselves. We are a strategic financial thinking Partner to you, the business owner. And so we have a lot of our practices that are being pitched by larger DSOs because they're bigger. And DSOs typically want bigger practices because for the same amount of work in a deal, they can get more EBITDA, that is more profit, and that's efficient. For them to get 500,000 of EBITDA in one practice than $500,000 of EBITDA in five practices, it's a much better return on investment when they buy that larger practice. So practice CFO working with our average doctor is doing 1.5 to 2 million. Typically, it varies, but our doctors get pitched all the time. And so we've evaluated so many of these offer letters from DSOs to my sellers. And on occasion they do sell. Most of the time they don't. And here's why.

On the surface, the offer price is really good and it is a higher multiple than what they get from a private buyer. From a private buyer, they may get three and a half to four times EBITDA. From an institutional buyer, they'll typically get five to seven times EBITDA, which is basically a 30 to 50% increase in the offer price. But here's the thing. A lot of that offer price isn't given on day one when they sell the practice. It's given through what's called an earn out. And the seller has to produce as well, if not better, for the ensuing three to five years in order to capture that premium that the DSO is offering. They don't just give that premium with no strings attached. These are clever people. PE private equity is, is very, very clever. And I can tell you, unless you are phenom, that PE backing that DSO is going to be way more intelligent than you are when it comes to the numbers and the contract. This is why you got to be represented very well. And a lot of doctors sell with underrepresentation and they regret it. I've got a doctor I'm supposed to meet with tomorrow who sold his large practice about four years ago. And I was telling him, you, you're going to come to regret this. And he said, we need to have a I told you so conversation. Wes, I hate to say it, but this wasn't the right decision. You're not going to talk about this. And I see that all the time. And it's because in order to get that full premium value that's being offered from an institutional buyer, you have to work your butt off. There's a lot of strings attached, there's earnouts, there's holdbacks and there's no slowing down. This is not a I'm going to sell and phase out into retirement. No, this is I'm going to sell and shift into a higher gear because that's what it takes to get that premium. Are you looking to buy or sell a dental practice? If you're a seller, how do you find a strong list of potential buyers? There's no MLS or Zillow for dental practice sales. In such a fragmented market, many dentists selling their practice feel discouraged. That's why I built practiceOrbit.com practice orbit is modernizing how dental practices are bought and sold. It's a platform technology. Y' all know them Zillow, Airbnb, Uber, and OpenTable, just to name a few. These technologies do two things. First, they help match buyers and sellers by centralizing the marketplace. Second, once the match between buyer and seller is made, these technologies help them navigate the sale to a successful close. Here are a few of the features inside of Practice Orbit Users can determine a reasonable sale price for practice in just minutes. All they need is the most recent business tax return. Practice owners can use the directory to find important service providers like practice brokers, attorneys, accountants and bankers. Practice owners and their brokers can invite those service providers into the platform so all parties are coordinating the sale together. Practice owners will have a beautiful digital listing of their practice, like a home on Redfin. And importantly, the listing will be anonymous and personal information like your address, name and pictures are only released after an NDA is signed and approved by you or your broker. Practice buyers can create saved searches to be auto notified when new listings come on the platform that fit their desired specialty and location. And hey, dental practice brokers, you can list all your practices on the site for free. By doing so, you'll get access to Practice Orbit's large pool of buyers, all of whom have created profiles and saved searches to be autonotified. And when new listings come for sale, you can use the platform to introduce your listings to a targeted set of buyers. Additionally, and optionally, you can use the platform tools such as a built in NDA, a customizable loi, and a workflow tool to navigate the sale from LOI to closing. In fact, you can manage all your listings on the system, from listing the practice to NDA to loi, and finally to closing the deal. Create your free account today at www.practiceorbit.com.

And every time I say if that if the rollover equity that you get and the rollover equity is if I sell my practice it's valued at 3 million, but I exchange 1 million in the equity of the DSO. So I get, let's say in that scenario I get a million and a half down 500,000, earn out over a three to five year period and a $1 million rollover that equals $3 million. If that $1 million rollover doesn't pan out because that DSO goes belly up or it's just not as profitable as they say it's going to be, they don't have a capital event from the investor or maybe it goes down in value to 500,000. If that doesn't work, you are way better off just selling to a private buyer. So the rollover equity tends to be the differentiator. And so if you go in with the dso, the that's growing well and you're sort of earlier on in their cap table. Yeah, you may have. And I've seen this a doctor who sold to us Endo and was about the 8th Doctor, he ended up walking away all in when the dust settles, probably going to be 8 to $10 million on a $2 million endo. DS endo private practice that is by far though the exception to the rule. I've seen a lot of these go the other way. Now for young doctors, the doctors that I see making 800,000 take home. Take home, not collection, not profit. I mean take home 800,000 plus. These are doctors every single time they're in private practice and they've learned how to run a really good business like Ray Kroc. And these doctors have learned the following, that they view their practice not just as a dental practice. They don't view it that way. It's dental practice that's a services business. They view it the following way. They say, my business is 1/3 services, that is dental. It's one third dental and my business is one third logistics and my business is one third tech. Those three things I always notice this is the doctors who are running a great business, not a practice, a great business are the ones who view it that way, which means they're very involved in their processes. They're very involved in workflow. They're very involved in how the front office is answering phone calls. They're very involved in what the assistant and the hygienist are saying to that person. They're very involved in learning processes and business systems just like Ray Kroc did. And that takes time. Maybe that does take 10 years before you've got that dialed in. But unless you look at your business like Amazon they're not a product business, they're not a website business, they're a logistics business. And this is why they're so successful is they have mastered logistics. Same with Walmart. I'm viewing my business this way. How do I create efficiencies and quality deliverable by structuring the processes and workflows and all of that to deliver a quick, efficient, low cost, high quality outcome to my clients. That's how they view it. And then take tech. Tech is the area where you can leverage in order to compete with the big boys. If you use tech really, really well. And this is where I think AI has some real opportunities for the private practice is it can level the playing field between them and the big doctors if they learn how to use it correctly in their practice. So a third services, a third logistics and a third tech. And, and if they focus on specific rocks or projects in each one of those areas, they can become really good. But the challenge is, especially with these young docs, no offense to you young docs, you like to go play and all of this stuff is work that doesn't have an immediate return on investment. That return on investment may not come for months or years or even multiple years. And yet that's what it takes to build a platform. Now, a lot of doctors I'm finding in this emerging DSO space, going back to your comment about most DSOs have between, I think it was 4 and 8 offices. That's because you have a lot of doctors who are sold on the idea either because they convince themselves or the market convinces them that if they have two offices, they'll double their income. If they have three offices, they'll triple their income. If they get to 10 offices, they're going to sell and walk away with 10 million bucks in their pocket and they're done. And that is a romantic notion that isn't real because there's only one of them. And to open up a second office. Doctor's offices are very high fixed costs, they're very capital intensive. And when you have high fixed costs and only one of you going around, you end up stretching yourself very thin. And what I see all the time is the first successful office ends up leaking its cash flow into the second and third offices to subsidize the losses that are created over there. This happens all the time. And they're thinking, well this is okay because if I could just get to 10, a DSO is going to come in and pay me 10, 15, 20 million bucks and I'm good. And then they're Going to make it all profitable? No. The DSOs will look at all your offices as one business. One P and L1 EBITDA, one multiple, one valuation. And if it's not profitable, if it's EBITDA isn't there, they're not going to buy you just because you have different physical addresses and different websites. They're not going to buy you for that. They're going to want to know, are all of your practices on the same practice management platform, the same accounting and hr, the same marketing platform. Everything is working and operating exactly the same, just like Ray Kroc did with McDonald's. And you figured out how to hire, compensate and retain good people. You figure that out now, you will literally triple, quadruple your income. But that is very, very hard. And it takes an entirely different skill set than what they learned in all of their time being educated. And so that's why it is just so difficult. And they get into this place where they got three or four offices. I call this no man's land. They're too small to be big, and they're too big to be small. And that's the area that is so precarious because they have all these fixed costs. They can't unwind. They're in these leases, they're in these loans. They're kind of bigger now. They're not big enough to really get all the economies of scale figured out yet. And so they don't break through. And that no man's land. There's a lot of deaths that happen in that no man's land trying to unwind. And then you really set back your financial planning and your personal life for 10 years plus. And that's why that is just so difficult. So I'm not saying I'm for or against the DSO space. Private practice. CFO works with the private practice. So from that standpoint, I am incentivized to promote the private practice. But I will say I've never seen doctors make it much working as an employee of a DSO as they are working privately, but doing that exceptionally well, not leaning on PPOs to fill their seats, but learning about good human relationships, good processes, good marketing. And that's what makes really great, successful doctors. All right, that's my soapbox right there. Howard. Any final.

Wait.

All right, bring it.

I gotta push back on everything. I gotta push back. Can we go to overtime on this?

Let's do it.

You know, first of all. Okay, so when I was. I graduated from high school in 1980, right? And the average age of a Fortune 500 company was like 65 years old. And now I'm almost 65. And half of those publicly traded companies are gone now. They've all gone to private equity. And the average age of a. Of a company in 2000 gone from 65 to like 30 now. Now it's down to damn near under about 10 years old. I mean, and these private equity deals are illiquid. Have you ever heard of Harvard University? They tried to cash out some of their private equity stuff and they had to go drop a bond to raise capital because they had all these $150 billion in private equity, but they can't get out of it. Private equity is illiquid. It's not transparent, and it's not all that's made up to be. So when you say DSO, you're talking about an illiquid, opaque American DSO. Let's look at the real DSOs. When you go down to Australia, go, go look at 1, 300 smiles, which is publicly traded. Go look at Pacific Smiles Group, publicly traded. Go look at Q and M. They all have the same business model. And you know what it is? They all have the same Bismol. They don't have any hygienists. You know why? It's not because hygienists make $50 an hour and insurance only pays $60 for the cleaning. It's because they looked at when dentists do a new patient exam, let's say that you sell $5 worth of dentistry, and then when you do a recall exam, you do a dollar. So what do they do? They got. They measured and they found out it's time spent, that when it's a new patient, you're in there with the patient 15 to 20 minutes. And then whatever you tell them they need, they do it. And then when you do a recall exam, you're in there for two or three minutes, the patient's upside down, and you say, yeah, you on two and A deal. And they don't get any of it done. So what did, what did 1, 300 smiles do? What did Pacific Smiles do? What did Q and M do? They say, look, no hygienist. You come in. We have a dental assistant. She, she prepares a room, she seats the patient, she takes X rays. Then the doctor goes in there, he does the probe, she does the record, and then he does all the scaling. He gets out the intro cameras. He reads the X rays. He's in there for 20 minutes, and then he leaves. And the assistant comes in and finishes it up and they get the new patient exam dentistry and their overhead and is 50%. That's why I said when you start a DSO, your first office is 10 years. And if your office is 10 years old and you got 65 to 80% overhead, you don't need to be bought by Heartland or, or sell to a dso. You need to get your house in order. There are a gazillion dentists that have 50% overhead. Rick Kershner has a hundred comfort dental offices and all their overheads are between 50 and 60%. He thinks a high office overhead is, is 60%. And, and I look at all the publicly traded where they grow 1, 300 smiles grows new locations every year in cash. They save up so much cash, they buy new offices of cash. There's no leverage, there's no debt. And I'm talking to Dr. Lazy right now. He hasn't done one cleaning in the last 10 years. He, he's sitting in his office while the assistant. Let me tell you how a crown works. They, they schedule 90 minutes for a single crown. That's how lazy they are. They'll go in there and, and the assistant comes and begs them to go numb. They go numb. Then they go back to the office, get back on dental town post for 10 minutes. And then she begs him to go back in there. He preps it and then he leaves again because he thinks these extended functions, he's letting the assistant back to court. There's another 10 or 15 minutes, then he goes back there and takes an impression. Then he leaves and she spends half an hour making it temporary. Then you will look at a doctor to hustle like I would do. I would go in there, press the flesh. How you doing, Wes? What's up? Ask you about your wife, your dog, your cat. And then I sit there and I'd numb you up. And then I'd set a timer for four minutes. I'd use septicane. I'd double the whole carpa on it and I'd set that four minutes. I take the shade. I'd start writing the lab script. Then I'd take an impression for the temporary. Then that time goes ding. And then I prep the tooth and then I pack the zero, I pack the one. And by the way, when, when you pack the zero and the one, you learn a lot about your prep. You find that all up and then you make the temporary. Well, look at these dentists. Ask them on their lab bill how many reduction copings were set. You should ask every one of your clients. They got high overhead. Oh, yeah, they got a high amount of reduction coping because the lab had to send it back with a reduction coping for you to level some off to make the crown fit. There's no. That means you made the temporary after you took the impression. If you made the temporary first, as you're just your temporary, you'd adjust to the temporary and you say, damn, I don't have any clearance. And you'd make your clearance right there and you'd make another temporary. You learn all about your prep and, and if you can't pick up the margins on a temporary, how the hell are you going to have a fitting crown? And then, and then you're all done. You take the impression, you go do a hygiene check, you come back and you see the temporary. That's a 30 minute appointment. And you're, you're saying that you don't want to take Delta dental because they don't. They, you know, you charge $1,000 for a crown, but they only give you 650. That's 650 for 90 minutes. I know, Dennis. They get that 650 and they schedule 30 minutes for a single unit crown. So they're doing three single UN crowns in an hour and a half. While you're doing one. It comes back down to hustle. I mean, Superman worked out of a phone booth and my doctor's got an office the size of an operatory and he's in there half the day and he doesn't do cleanings, he doesn't know his practice management software, he doesn't make temporaries, and his overhead 65 to 80%. So maybe you get hustle back. And another thing, I see dentists that go in there and you know, comfort, dental, all their locations are six. Why? Because they have one doctor come in and, and work the six operatories in the morning. And then when they leave at one, they have another doctor come in, work it all afternoon. So their consumerism is double. But I see doctors that come in there and just rip for six hours doing more production than the doctors that are doing eight or nine. Because look how fast you run when you got to do a 5k versus how fast you run when you got a hundred yard sprint. When you got a hundred yard sprint, you're all out. And when you get like, look at a marathon. I've done three marathons and I started every one of them. Walking the first mile till the crowd kind of spread out and then I go to my slow jog. And I mean, you know that, that ain't 100 yard dash. And you know when you're doing the 100 meter and when you go in there and you say look team, we're going to be here six hours, no lunch, no breaks. If you got to pee, here's a cup, just take a cup with you. And you know, my gosh. And they just, they just rip. They do hygiene checks, they check out patients, they jump in and they do cleanings. They're making their own temporaries. DOC can load an autoclave, they don't see their office for six hours and they're doing twice the production for half the overhead of Dr. Lazy. So if you want to talk about DSOs, don't talk about American, illiquid, opaque, non publicly traded. And when you go to get your money out, you got to beg for years and years and years. Go down to Australia, go down to Singapore, go down and see what Asia and Australia are doing. DSOs and they are nothing but net, nothing but cash. No hygienists. They all have the same business model. Yeah, that's my.

Well, I do want to, I do want to validate what you're saying here in that there are DSOs. I think PDS is remarkably. The valuation of that as a private company is insane. I think they have figured that out. From what I do know. I did have a client for a while that was a owner doctor with PDS specific dental services and got to kind of know their model a bit there and how they do it and they really run a very profitable thing. So I don't want to say that DSOS can't be unbelievably profitable because they can.

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Right.

Right. But why don't they go public? Go public? Man up, man. Go to the bar. Go belly up to the bar. It's called nasdaq. The valuation and then, and then, and then think how long you could keep your doctors if. Stephen L. Thorne Every paycheck was giving you a share of the stock and it was liquid. It was. You know how many of these people are buying into DSOs? And if you don't own 51%, if you own less than 51% of DSO, you are a hostage situation. You're buying into these DSOs, you have 25%, you have no liquidity. I mean, I mean that. If you believe in that, then look at the, look at the economy before we had Wall street and by the way, we got the idea of Wall street from the Dutch. What was that Dutch company called? The, what was the Big East Indies.

Trading Company and the Amsterdam.

Yeah, we stole that idea straight from the Dutch. The Dutch. When you say Wall Street, I mean we stole that from the Dutch. And before that, if you owned a share of a company, you had to go to church and talk around, have church. Hey, hey, Wes, would you like to buy a share of this company? I bought 10 years ago. And you'd have to think about it and talk. We're no liquidity, let me tell you. That's what private equity.

Let me tell you why I bet Steve Thorne and PDS is not going public since 2000 and roughly 5 we. You've seen a massive delisting taking place of public companies. And the reason why they're delisting and going private after being on Wall street in public is because the cost of being public is very high and margins are thin. And if you're giving up of your net income, let's say you're giving up 1.5% to 2% of revenues just to stay compliant with Sarbanes Oxley and all of these securities and exchange rules around being public, that is very costly. And since that time, what's emerged is this marketplace that's happening under the surface and that's called private equity. And so there's been a massive transfer of money from public stock exchanges to these private exchanges. And the people that make These private exchanges work are the private equity companies. And private equity companies, they act like the Nasdaq or they act like the stock exchanges, the New York Stock Exchange, and that they help find and pair up those with capital and those looking for capital or investors with business owners, and they make that match and they take, you know, a 5 to 10% share of whatever the raise is for that. Now, I think one of the reasons why we saw such a massive incline in DSO consolidation starting around 2014, 2015 or so is because a, all of these delisting meant there's a ton of money swimming around looking for a home. And these private equity managers don't get compensated. And until they take this money that they got from investors and they deploy it when it's just sitting there in their account, they're not getting paid their 2%, they're not getting paid anything on that. So they are highly motivated to find a home for all this gunpowder that's just sitting there in the barrel. And so they go and they unload it eagerly within companies. And what happens is when you have a flood of capital coming into an industry and these PE companies are looking at all these mom and pop industries and saying, we could just roll these up and get economies of scale. Let's develop protocols and platforms to run these. Well, well, they looked at dental and they said, holy cow, dental is incredibly profitable. Let's go roll up dental. Now, in a lot of states, they can't do that because the state only allows dentists to own a dental practice. But of course, PE is highly creative. They're spreadsheet jockeys, and they build systems to work around those state laws, and they do it through separate entities and management fee agreements that sweep the profits out of the dental practice into that management entity. So they figured out a way to be an owner without legally be an owner. So all that gunpowder sitting there with PE managers highly incentivized to deploy that gunpowder to doctors led to this massive inflow of capital into the dental space. And in addition to that, you had essentially free money from the banks because interest rates were so low for so long. And so the PE companies pair up their capital they get from investors with debt financing at a very low 4 or 5% tax deductible interest rate. And it means that there is huge buying power from these PE companies. And that's why it was just on a tear there for about five to 10 years because of the demand. And so they were going from five multiple on a dental, private dental practice, up to seven and Eight multiples just to get these dental practices. Well, since COVID and inflation going up, interest rates going up, that low financing money that they would get from banks is no longer as cheap. It's more expensive capital now. And so you're seeing, and I'm seeing a slowing up a little bit in the dental consolidation space with institutional. And what these DSOs are wanting now is they're wanting quality. It's not about quantity anymore. They want quality. And so their quality of earnings that they do once the offer letter is submitted is intense. And they are weeding out practices that are not good quality cash flows. And the terms aren't favorable to the dso. It's not a numbers game because before it was let me buy 20, 30, 40 dental practices and then immediately try to sell them to a bigger fish. And, and I'm going to make a spread because I'm going to buy all these at an average of 6 EBITDA multiple and I'm going to sell them at a 13 EBITDA multiple and I'm just going to bank the spread there. It's like an arbitrage. That's all they were doing. They weren't actually creating systems and platforms across all these practices to get the benefits of operational economies of scale. Now they're coming in and they're saying money isn't as cheap and therefore we want quality practices. So if a doctor's got four offices, how quality are the earnings, how quality are the operations of those practices? Otherwise they're not going to buy those practices. So I do want to confirm with you that there are. There is a ton of profit to be made in a large dental institution, public or private. If you got a lot of offices and they're run exceptionally well, tons of money. I'm just saying that most doctors don't have the background, the skill or the time. I think they could learn the skill, but it's the time is the biggest bottleneck to learn what it takes. Nor do they always have access to the same capital that these bigger institutions have in order to run a loss for a period of time to build out the systems and then eventually scale that. So it's very. All I'm saying is it's very, very difficult for a dentist to become a Pacific Dental Services. And remember, PDS was started by a dental cpa. It wasn't started by a dentist. A lot of these big companies weren't actually started by dentists. They were started by who I call the suits, the business people. That's how they did that. Anyways. That's my take on I get a pushback again.

You can't leave me hanging with all that. You can't say all that. Can I respond to that at all?

Let's do it. Yes.

Okay. Well number one, so the same dentist is regretting that they became a dentist and they're like all bummed out. They got 500,000 student loans and now they're a dentist and they're whining. And yet when you look at the private equity money, it's all pouring into health care. I mean, I mean, I mean look at, look at some of the deals. I mean just in the last year, I mean archimed completed a $730 million take pride to Zimbie dental implants, dental materials, dental workforce because they want to own the whole ecosystem. Steris agreed to sell its dental segment Hugh Freddie Group to peak Rock Capital for 787 million. The carve out closed this year. KKR built a roughly 12% stake in Henry Schein and one two board seats signaling activist pressure at the largest U.S. dental distributor because they want the whole ecosystem. Warburg Pincus recapitalized MB2 Dental with 525 million growth investment along with Charleston Bank. MB2 still buying practices all the way through 2025. Dental365 backed by Jordan Co. Added mainline periodontics to dental implants and they're continuing to roll up offices and E US and EU. Imagine dental partners across new states with multiple Partner additions reach 100 practices in late 24 Rock Dental Brands announced six more clinics. But again, I want to clarify a couple things. Number one, don't forget that, that pendulum, I've been watching it swing for 20 flipping years and Harvard had to go borrow money because there's no liquidity in these guys. And when they Harvard needed their cash, all their billions in private equity, they said yeah, yeah, you're doing good, you're making money. And they keep telling you have less volatility because the market will go up and down. But private equity, they just keep posting these earnings. But then when you go to get the cash, they're having illiquid problems. And, and, and when they're rolling up offices, the roll up exactly the opposite of what McDonald's and Chick Fil A did. Chick Fil A McDonald's and what your homies should do is spend 10 years perfecting the prototype. You don't expand to multiple locations and have profitability issues and burning up your cash flow hoping that you can sell it to a big DSO. And they'll fix your business problems. No, you spend 10 years minimum in your prototype and you perfect it. And one way. And a roll up is when you get a big old loan and you go buy 10 different offices and you roll up into one. And one uses Dentrix, one uses Eagle Soft, one uses open dental. They all different systems, all different accounting. Some are 4 ops, 8 ops, 10 ops. That roll ups are a joke. And what is the opposite of a roll up? When you sit there and you Perfect your first KFC. That guy was 65 years old before he opened up his first. He'd been thinking about that his whole life. And he opened up one location and it was perfect. And from 65 to 85, he became a gazillionaire. And so you don't roll up anything. You roll it out. Roll ups are for people who got way too much money. And it usually comes from an illiquid source. It's not transparent. And they can tell you any bullshit they want. Because when you say, hey, I want to go cash out of my, of my, of my private equity investment, they say, sorry, that might take a long time. You wouldn't believe it. Even in Vanguard, you think, well, Vanguard, they're the, they're the Hallmark 401K. Yeah, go call them up and tell them you want to cash out your 401k. That might take you four, five, six months. But with something like Vanguard, you know how long it's taken to get out of private equity. Call Harvard University and ask them how long it takes. So the real players of my deal are the transparent, the liquid, the publicly traded, the 1300 Smiles. I mean, I, I like the DSOs. Publicly traded, no leverage, growing in cash. And when those guys get their earnings after 100 locations, they'll decide, well, next year, do we want to open up two or three or four more new locations? And they don't even buy the land and building. I, I learned that from Dan Carney from Founder Pizza. Went to the same church I did in Wichita, Kansas. Told me, he says, you could have all the land of buildings under all my Pizza Huts. He goes, that's not where I make my money. I make my money in the restaurant. And, and 1, 300 smiles, they'll go get the hottest flipping location because they're not buying the land and building. They're renting. They don't even want to own illiquid land, Illiquid building. So we could go, we could go on in this. I mean, this is the battle of the brains. And I love it.

Help Clarify for me where the different viewpoint is. I'm actually struggling to see where the different viewpoint is.

Well, I mean, I just think that private equity, it's been a long swing, but I see ever since that Harvard debacle and illiquid asset, I see the swing coming back because there's a lot of people who've had money in private equity for five, six, seven years and they're still having a hard time getting it out. So you can say that. Oh, yeah. In here it's a whole glass of champagne. Okay, well, give me a sip of it. Oh, no. Oh, no. It's a whole glass. It's a 1912. It's the best champagne. Can I have a drink? No, but it's. It's just aging fine. I mean, come on, man. Where's the liquid? Why did Wall street come into. You really think Wall Street's going away? Because private equity doesn't want to put up with all these regulations and, and they, they're tired of getting pushback from the SEC and the FTC and they're tired of that. So they decided to cover up under blanket, no transparency, no liquidity. And they're going to hide. Well, if that's the business model, then America would have been the greatest country in the world before it had Wall Street. So I just see that. I see everything Ying yang, I. A DSO can't be good if it can't be bad. Private practice can't be good if it can't be bad. I mean, and take AI Radiology. These guys, these dentists think that if they get Pearl or, or they get Pearl overjet, that it's going to be a dream. Yeah. Wait till Delta Dental finishes out their AI roll up reading X ray and say, hey Wes. Yeah. We just got the final film of your root canal and you missed a canal. And our ended on a say that should be within a half millimeter apex. And we're not even paying you for that root canal. In fact, from now on, we're not even going to allow you to do endo. You're going to have to send it to someone who finds all the canals. Get the. And they got the data saying, Wes, you, you did a hundred molar root canals for us. And within five years, 30% of them had to be retreated by ended on us. We paid you a thousand to do it and we had to pay them 15. So we're going to take away. And that's what I call about yin yang. You can't be up without down there. Can't Be a right without left and it can't be good without bad. I love DSOs. They offer liquidity selling doctors. They offer jobs to the ones that come out of school. They offer more convenient hours, more marketing. I think the greatest DSO was actually Clear Choice. They came into town because they added the dentist, they added the surgeon plus the lab tech and then they put it all under one roof. It was 1 plus 1 plus 1 equals 3. They got the prosthodontist, they got the surgeon to place it, they got the prosthodontist and the lab man to restore it and the surgeon to place it. And they came in and they carpet bombed the TV and the radio and at first all the oral surgeon periodontists saying, who are these DSOs, man? They're bad. They're, you know, I don't like this at all. And they did so much marketing, all these, all your patients would come back and say, yeah, I just saw that half hour infomercial on from Clear Choice. I mean, could I do that? Then all the periodontists and oral surgeons and they lifted the entire dental implant. I, I think Rick Workman is one of the greatest people. He's one of my mentors and idols. I love that guy. He has taught me so much and I, I think he's great. But you can't say that a DSO is perfect and solo practice bad. There, there's, it's a yin yang. You can't say AI radiographic technology is great for the private practicing dentists when you're going to find out that Delta Dental and Blue Cross Blue Shield and Connecticut General are going to get a, going to get their own AI. So there's a balance and I think private equity is great. It's done a lot of great things. Right now it's funding, it's funding chat gdp. I mean it's funding all these big AI projects. I mean, I mean they're, they're saving America. Because you certainly don't want an autocratic communist country to get super intelligence and quantum computing or we're going to be, we're going to, they're going to be our overlords. And I know, I've lectured in those countries. I mean you can say anything you want about those countries, but them are big poor countries, okay? And I know Silicon Valley is going to win this race. Private equities, then the money, they're my heroes. But you can't tell me that there's not a dark side to all that stuff. And it's called opaque instead of transparency it's called illiquid instead of liquidity. And I want my, here's my bias. I'll tell you what my bias is. I got eight grandchildren and I don't want my little Taylor Marie and my little Evelyn and Lillian and Audrey to be going to a dentist that works for Wall Street. And they're telling him that, you know, that all these mods are crown opportunities. I mean if the dentist work for Wall street, who's, who, who's my granddaughter going to go to? I want my granddaughter to go to an owner operator that wants to see Taylor her whole life until Taylor gets married and has a kid and that kid gets older. I want a dentist to be, I want owner operated dentists where Taylor can have a relationship with one dentist for her whole damn 20, 30, 40 years. And I don't want some revolving door Wall Street. And I'll tell you another thing, and I know that this creates a lot of enemies for me, but I don't even believe it should be legal for a non dentist to be running a dso. I mean look at Boeing. I mean I grew up in Wichita, which was their second biggest manufacturing. The CEO of Boeing used to be the greatest aeronautical engineer you could find. And all the engineers, it'd be like you working for Carl Mitch or Pete Dawson or Gordon Christian. You're just in awe that this is your leader. And then Wall street came along and said, ah, screw those boys in Seattle and Wichita, Kansas. We're going to move the headquarters to Washington D.C. that's where all the money is. Money's the answer. What's the question? And it didn't even take two or three years. And their planes were falling out of the sky and their quality went to shit and their product sucks. I think, I think Rick Workman, he, he is a dentist and he knows dentistry and, and he might not do it every day, but he knows the difference in a good, he knows dentistry. And I think those states said you got to be a dentist, owned a dental office, there's a reason for that. And so you know, I, I want, and if you're going to be a DSO and take care of my grandchildren, well be Walgreens man. Keep your pharmacist for 30 years in the same location. But if you can't keep your dentist, you're not going to earn my trust, you're not going to own the patient's trust. So you know, everybody can be better. I could be better. I could eat less fat stuff, I could work out more. I mean I, everybody can be Better. And when I'm sitting here telling a DSO they can be better, it comes from the heart for dentistry. It's not. It's not that, you know, I don't believe in evil and stop them and shut them down. I just think we can all be better.

So.

And I, I think, I think. I think everybody in dentistry is one conversation away from serving our patients better.

So to be clear, what you're saying is DSOs have their place. DSOs are not good or bad, but DSOs that are led by a former dentist are the ones that are.

The DSOs that you would support, as opposed to the DSOs that are just run by PE. Am I understanding what you're saying?

Right? Yeah. I mean, look what happened to Boeing when they went from being ran by the best electrical engineers. I mean, aeronautical engineers in the world with PhDs to the boys in the C suite with MBAs. Their planes were falling out of sky because they made really stupid, dumb decisions. And I've seen a lot of really stupid, dumb decisions coming out of DSOs where I love the guy, but I'm cringing because a dentist would never say something like that. And I think dentistry is a sacred, sovereign profession. We're not. We're not selling little, you know, little tricks and little plastic toys that you give away at Halloween. I mean, this is a human relationship, a human doing so. You know, 90% of your MD, physicians and DOs never do surgery on a patient. And dentistry, every interaction, it's surgery. It's in operatory. I'm going to lean you back, my hands are going to go in your mouth, and I'm going to cut on tissue and I'm going to. I'm going to alter tissue. I mean, it's surgery. It's a secret relationship. It's not going to be replaced by AI. And I just think that what, what, what is weird about saying that dentistry should be led by a dentist? And let me go back to Delta Dental. When I got out of school, Ed Judd was the director of Delta Dental, and everyone on his board was a specialist that you would send your own kids to, that they were the best oral surgeons, best periodontists. I mean, the board was like a who's who of who you should be referring your dentistry to. And then they said, well, you know, enough about that. We need someone to represent the patient. Oh, I thought a doctor, he treats himself as a fool for a patient. So they got rid of their boards and replaced them with a rubber stamp. Consumers that were there to protect the patients in dentistry they don't know what dentistry is. And I think that. I think that Delta has lost a ton of trust and respect with the dentist. Who are their providers? I mean, who is Delta Dentistry or Blue Cross or Connecticut? Who are they without the dentist? This is dentistry, and that board should be the best dentist in America, not a bunch of consumers who don't know the difference between Sargenti root canal and obtura and thermopyl. I mean, I mean, come on. And this is dentistry. Yeah. And I think that when you get up to bat and dentistry, maybe you should be a dentist. I mean, God, am I crazy?

No, I agree with you on that. I. Where I'm at kind of in the ground level and helping these private doctors ultimately have a financially productive life and attached meaning to their money and trying to help them have just a good life. I see things from my. And when I talk about the private equity space, I'm not necessarily advocating for or against. I've seen a lot of. I think private equity people are very clever and they figure out how to extract a lot of value out of the system to their gain and at the expense of other people who are pitched what appears to be something that's very strong and glistening. But when it comes to it, PE people know how to manipulate the numbers in the system to extract the value back out to themselves. This is why Pen, the investors and people who have capital make a lot of money. And partially, I think, why there's a growing wealth gap in this country is that those people with capital and PE know how to extract more return on that money. But the music is going to stop when the economy turns and the economy will turn. It's just a matter of when. We just don't know. It's not a matter of if. We just don't know when it's going to occur.

And.

And as in all sort of breakthrough technologies or innovations, there's always a bubble created. Now, are we inflated in that AI bubble right now? I don't know. Personally, I think we are. I think that in order for these companies to monetize the spend that they've put into this AI, Nvidia is a $4.5 trillion company. It's worth more than Apple, it's worth more than Microsoft, it's worth more than. More than any of those companies, and this is a relatively new phenomenon, for it to monetize a $4.5 trillion market valuation means that its earnings in the future are going to have to be unbelievably, virtually impossibly high. For investors to ultimately make up a return on what they paid for the stock of that price right now. And just like in the dot com, everybody saw it, they just thought it was going to happen in 1998, 1999, it happened in 2000 and the S&P fell 60% plus plus during that period of time. It's not a matter of if, it's a matter of when. And when this happens, the money, the gunpowder, dries up, private equity lending dries up. And if you're not a really stable operating entity as a dental practice operating under a DSO model or a PE model, you are going to fail. I think there's going to be a lot of PE backed businesses that ultimately fail because when the tough gets going and you're not running well, a business, it will surface that it's not a well run business and it will go under. So my advice for these young doctors is I agree with you in that if a DSO exists and grows, I would love for it to be headed up by a dentist who understands dentistry and thinks about the patient and the clinical in mind as a sort of a beacon in the way they design everything in their offices. Yes. But I do think it's a very high hurdle for a dentist who has spent all their time training to fix teeth and reduce pain, to suddenly pivot into a skill set that requires a tremendous amount of learning and talent to build a operating entity of any type, in this case dental, an operating entity to be able to scale. And this is where I think you and I are very aligned in that if they do, it probably does take 10 years to get that one entity dialed in really, really well. That's probably how long it takes to learn it and to adopt it. To where you say, okay, if I die tomorrow, this thing's probably going to keep running without me. That's the question. If you died tomorrow, could this practice keep running for the most part without you? Because your operating system is so good in that business? If the answer is yes now you're probably ready to go open up a second office and carbon copy that thing and plug in a really good dentist. Maybe find that dentist who's young, married, stay at home, kids, and you know, who is hungry and doesn't have a choice but to be hungry. Pick your roster very well. You'd get the operating side really well and your roster really well and you can break through. I'm just saying it takes a long time and doctors tend to underestimate what it takes to build a replicable model of a Dental operation to really scale it to become a dso. Which is why I say, look, do you want balance in your life? Do you want like a tried and true method? Grow a really good, healthy practice? And once you do that, maybe we'll lift your head about a second or third office. Don't even think about that. Think about your current practice. Get it to where this thing's cranking out a million dollars to you to take home, and then we'll decide where to go from there. And that's a tried and true way for dentists that they still have that opportunity is still there. In spite of the pressures of the PPOs, in spite of the economic pressures, it is still there. To make a million dollars a year with a really well run dental practice, it just means you got to spend a lot of time outside of the operatory perfecting your talents as a business operator and not just a clinical operator.

And let me tell you something about Rick Workman, the dentist CEO, okay? He's on Dental Town when they start talking about Harlan. He's engaging them and they change each other's mind and they're growing together and his docs are on there and, and there's several of these, you know, these 2,800 DSOs that are between four and nine locations. There's a lot of them on there. And then there's other CEOs, like, no, I don't want to mess. I, you know, I'm not, no, I'm not talking to the dentist. Like, wow, yeah, you're in dentistry. He's creating a community, talking.

Well, that's the other thing is creating like, he's available.

He makes a religion out of availability. Yeah, this, any dentist in America could call Rick Workman right now.

You know why I think Rick has created a phenomenal culture. It's almost, it's not just a set of a bunch of offices. I think he's created somewhat of a community across his doctors and his, his organization. So credit to him on that.

By the way, by the way, my staff is ready to shoot me. They're reminding me, I've been on this for an hour and 45 minutes. And I keep telling them to go away, go away, go away. But they are gonna, at this point, they're just gonna shoot me.

Well, let's adjourn.

I'm either gonna get shot on your podcast or we're gonna have to. Or we're gonna have to pick us out. It was, it was the greatest 1 hour and 46 minutes of the week. I love, I'VE been. I'm your biggest fan. I think you have an amazing mind. I hope that Dennis User Services if you're thinking about doing anything about a million dollar practice and you're talking about maybe even starting your own dso, you need Wes. You need a team that knows it all to help you. You don't go get some run of the mill lawyer who only has two clients that are dentists and a run of the mill lawyer CPA that only has two clients. You get someone who specializes in dentistry. If you need a root canal, you get it ended on us. And you're in accounting. You need Wes.

Yeah. Everything in our deliverable, Our P&LS, our balance sheet, our tax return, our tax planning, our personal financial planning, everything is geared around the nuances of a dentist. And when you structure everything in that ecosystem effectively dental specific, it's amazing the financial outcome to the doctor on a very personal level. Well, Howard, thank you for joining the show. This was fantastic. You and I could riff for another five hours if we wanted to. I have all these notes and other things that I wanted to cover, but excited to come on your show on Dentaltown here soon and I'll talk all about the financial aspects of a private dental practice. Really excited to do that. Thanks again for joining the dental Boardroom podcast.

All right. And I hope you start putting your podcast on Dental Town. Man, these guys.

Have an hour commute to work every single day. They I don't care how many episodes you had, they'd listen to every one of them before Christmas.

You got it. I will. Thanks again, Howard. And we will be in touch.