Be in the driver seat when selling to a DSO- with Emmet Scott

Welcome, everybody, to a new episode of the Dental Practice Sales Podcast. I'm excited today because today we're going to talk about a subject that has a lot of interest, a lot of confusion, I think. And there's a growing trend and has been actually for a while in this space, and it's in the space of DSOs, dental service organizations. So if you are a seller and many of our listeners are sellers, they are considering what is their exit plan for their practice. And there are multiple exit plans these days. There is the traditional find an associate who will buy your practice, get a conventional loan and step into ownership, and you may work back for a period of time, and then you let go of the baton and you sail off into the sunset, retiring or pivoting to whatever you're doing next. But now, especially over the past 10 years and really accelerated, I would say, over the past maybe five years, is selling to a DSO. There are a lot of types of DSOs. There's, there's a lot of ways that these are structured and there's some confusing language. A lot of them have institutional money that is private equity behind them. And dentists who don't have a training in finances sometimes feel there's an appeal to this, that conceptually they see why this is occurring, to give dentists sort of this power of economies of scale and sort of joining partners with or joining with a bigger group and getting some excitement there. But a lot of times they don't know how to do it, they don't understand it, and they don't want to make a wrong decision. So on the show today, I have somebody who I. Whose name I actually have known about for some time. So it's quite an honor. I have Emmett Scott with us. He is with deo. He's a partner with deo, which I'm going to share with you a little bit about in a second. Emmett, welcome to the Dental Practice Sale podcast.

Hey. So fun to be with you all. This is a topic I love. So excited to nerd out on both DSOs know, hopefully what we can do is give all of these owners a sword big enough so they can make sure that they get what they want out of their practice transaction.

Well, Emmett, I'm going to tell a little bit about you and your background just so everybody understands why I have you on the show talking about this subject. So you. I actually this I just learned about you. You were a financial planner and did some accounting in your early days days, is that correct?

Okay. I did one internship doing tax returns. I Will not do your tax return or anyone else's. I hated it. It just didn't have enough change for me. You know, it's fun because my uncle, who's an accountant, he's like, this is going to be really exciting because next year, these regulations will change slightly. I'm like, yeah, no, I'm out. I can't fill out any more of these forms. But it was a great place to start. And then I did. I went into the financial planning and grew two financial planning businesses, sold one and then the second one. But in that, I was always working with entrepreneurs. And there was a question that always came to me, which is, why are they investing in other people's businesses? I mean, that's what the stock market is. Why aren't they scaling their own business? So, I mean, long story short, give a little bit of my background. I ended up starting a consulting business called Entrepreneur Advisors. It was all about how do you move from entrepreneur to executive? There's a lot of books written on, like, how to be an entrepreneur and you should be an entrepreneur. But then, like, if you're successful, there's nothing around. Like, so how do I hire a cfo? How do I hire a coo? Like, how do I scale beyond that? So I got really fascinated with that was successful. And my best friend, who is a dentist best friend since I was 2 years old, reached out and said, hey, I'm an associate. I want to start a dental practice. And I was like, sure, I'll help you. I looked at dentistry, and I'm like, hey, Chad, like, dentistry sucks. Like, from a marketing perspective, this is not fun. You are not giving out iPhones or any cool product. The idioms within dentistry are used to describe the worst parts of our life. It's like pulling teeth. It's like getting a root canal, right? So it's like, from a marketing perspective, how are we going to make this dental office amazing? We built it like a storybook. It was for kids. You wanted to serve kids. We put it around this mascot called Charlie the chipmunk. Kids were called back as prince or princess. They got gold coins along the way at each of their different stations. At the end, they got crowned for their bravery and dentistry. They got a balloon, they got a sticker. Mom got a sticker because she was always freaking out. We asked them if they had any money. They had their gold coins. They got to spend those. And then they got a cookie and they forgot, like, what happened. But we associated oral health with something great. We had a thousand patients in the first three weeks, and it was just kind of off to the races. I didn't know what a DSO was. I was just kind of helping my buddy out. But we ended up opening more practices because we were doing well, you know, $5 million, $6 million practices kind of rocking and rolling. But then like, I went to, you'll appreciate this, I went to run an AR report like click in dentrix. This is of course, like 14 years ago, 12 hours. Like there wasn't anything wrong. This is actually how long it takes 12 hours to run. It only came out like by patient. I couldn't sort it by aging or sort it by insurance type or anything like that. And I'm like, holy smokes, this is going to be painful to scale. So I started putting structure in place and we can talk more about that. But that's what got me into eventually starting a podcast called DSO Secrets, which is now DEO Grow Secrets. Because I asked Chad, I'm like, hey, I'm hearing about these DSOs, like, are we doing something evil here? Like, I'm just trying to help you out. Am I doing something wrong? And so I thought, I'm gonna start a podcast and just like get people's feedback, tell them everything I'm doing. And it created this really cool community. Ended up writing a book called DSO Secrets. And yeah. And then about three years ago, kind of right in the middle of the pandemic, ended up being president of Adso, which is largest association of DSOs globally. And so I've gotten this really, like, I went to help my buddy out and then I ended up getting this crash course on everything. Dental growing from like 0 to 3 billion. Right. And our own group, we grew to 77 locations, 150 million in revenue. And then Jake Poole and I ended up partnering. He had started or had acquired the Dentist Entrepreneur organization and grow that coaching group now has like 250 members doing almost 3 billion together in revenue and just like sharing best practices together. It's really awesome.

Well, that's what I wanted to jump into a little bit is what is the D E O? Let me just say your background, I think is. Is ideal for somebody to educate others on the subject of dsos. Because you've operated it, you've operated one, you've seen it from the insides day to day management. You're not just talking as just a consultant per se, like you know this space personally. And now being a part of. I know you were on the board and still are, I believe of the Adso, which is the association of Dental Support Organizations, which I believe has some really good conferences itself. Right. The Adso, and then, of course, now the deo, which is. The DEO really interests me because it's called the Dentist Entrepreneurial Organization. And you started off your bio here talking about how you were fascinated by entrepreneurs. So DEO seems to be a good fit for you, but essentially, tell me if I'm wrong, but the DEO has a lot of younger DSOs, or we'll talk about what are called DPOs, or different titling of these organizations. But am I correct in thinking that a lot of these are maybe younger, they're more emerging, they're doctors, dentists who have been successful in their own practice, and they're now looking to scale into a DSO and form that. And so they're all entrepreneurs in a way, trying to bridge from practice to enterprise. Can you explain a little bit more about the Dentist Entrepreneurial Organization?

You know what entrepreneurs are? They're crossfitters. They're crossfitters for personal development, and they're just using business to create, you know, constant personal development. So really, what we have is the dentists who are constantly looking to up their impact. And you're exactly right. What ends up happening is you get really success when you first come out. You're like, I hope I can feed my family and pay these student loans, you know, and then you go, oh, wow, I'm actually pretty good at this. Oh, wow. I've got a successful practice. We have individuals with single practices doing over a million, for sure. All the way up to 10 million in one practice. Right. So, by the way, think of the synergies as they're, like, sharing with each other. But then we have groups doing over 100 million, you know, with 300 different practices, et cetera. So we've got the whole gamut. We've kind of divided them into separate groups because they're dealing with different challenges. We've got Facebook groups that they're chatting on. We've got WhatsApp groups that they're doing real time. Like, this just happened. What should I do? And we're so limited, especially in dentistry, you know, because it's so siloed. Most dentists, especially in the past, wouldn't have even seen another dentist work except for maybe a patient that comes out. But they definitely wouldn't say, hey, how do you deal with this? With an office manager? How are you hiring hygienists? How are you solving this? How are you solving that? There was no, like, ability to do synergies And I'll be honest, when I first got in the space 15 years ago, I jump into these dental towns and these forums and so forth. It was brutal. Like, Dennis would be like, hey, can I have some help on this? Like, oh, you suck. You're crappy. You shouldn't even be doing that. And what DEO wanted to create is, like, a safe place where we could develop, where we say, okay, this happened. What should I be doing? Less about the clinical, though sometimes the clinicians will geek out on that way more about the other 95% of what happens in a practice. You know, how do I have these conversations? How should I set this up? And this is a critical point for those who are, like, thinking about dso. One thing, if I could say this is everyone who has an associate in their practice is a dso. They might be a sucky one, but they are dso. And the reason I say that is because we've got to break that acronym down. Dental Support Organization. When you hire an associate, they don't say, hey, I'm really excited to be here because I want to find my own patients. I want to do payroll on Friday night. I want to fix any IT issues that you might have. I'm really excited about compliance, osha, revenue cycle management. I hope I can help with the billing, you know, stuff, blah, blah. No, no, no, no. Every associate expects you to be the dental support organization that takes care of that. And most of the time, when I hear dentists who are like, I can't hire an associate, they won't stay with me, what I really want to say to them is, because you're sucky at being a good dental support organization, and associates are smart, and they're going, okay, effort versus income. Effort versus income. If I can go to the right support organization, I'll have the least amount of effort for the highest amount of income. And that's really what DSOs are competing on. And the reason I'm going down to that principle, because when we get to selling your practice, you're going to be making the exact same analysis that an associate makes. What is the effort? Right? What's this relationship effort going to be versus the income? And that's what every dentist. Each generation gets smarter at this. We joke about millennials and gen zers and stuff, but if you think about it, they're constantly playing with that equation. Effort versus income. How do I get the most? And what's interesting is, as you go to scale, as you go to have more impact in your community, you have to bring on associates. You have to do it through a team. Now. There's nothing wrong. By the way, if you're like, I just want to be a clinician in the chair. I've got a great office manager and like who I see is who I see. That's great. But some individuals, especially entrepreneurs, are like, I think I could do more, I could be more, I could develop into more, I could get out of this chair, I could lead, I could be a thought leader on some things. And as soon as you get to that, you know it's kind of game on. Like there's a lot of new things you have to learn to have that level of impact and is where you go in order to be in the room with others who are doing that.

Got it. That makes sense.

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I want to start off with the basics here and then I want to move into so the basics of DSOs. I want to move into a little bit the formats of DSOs. I want to talk about what is the driving motivation behind a lot of these DSOs as well. And there's sort of short term motivations with CAP events, sellouts, you know, selling, all that. And then there's kind of long term motivation which is centralizing operations, creating a sustainable business model across dental offices. I'd love for you to comment a little bit on what's, what's the compelling motivation behind most of these DPOs that are forming. Is it the flip in a way or the return, the short term return or is it this sort of long term business model concept? And then I would love to hear from you. Where do you see the future going in this space of dental support organizations over the next five to 10 years? I think a lot of dentists are experiencing this concept of FOMO or fear of missing out. Like their friends are joining or talking to DSOs and they're hearing stories about how somebody got X number of millions for their practice. And a lot of that is. I think there's a lot of hype in it, but I also think there's a lot of reality underlying some of it too. And it's sometimes hard to filter out truth versus the sort of fantasy with DSOs. I'd love to hear from you. Where do you think realistically this industry is going to go? How many private practices might be converting kind of on a large scale to DSOs over the next 10 years? Is private still a space that's going to continue to exist in a meaningful amount in the industry or is it all going to go dso? So those are the subjects I want to talk about. Let's start with the basics. The basics of a D, I call it it a dental service organization. I think you're absolutely right. Dental support organization is a better use of that acronym. Tell us what is the basics of a DSO and then let's talk about the formats, some of the. There's so many of these, but if you could categorize them, maybe In a few formats, that would be great.

Sure. So I think the first part to start with is we've got to change a story that some dentists believe that's completely wrong. And that is private equity came in and started buying dental practices, and that changed the entire game. That's not what happened. Okay. What happened was dentists wanted to have bigger and bigger impact. They wanted to open more practices, and at some point, Wells Fargo, bank of America, who gave them any loan they wanted when they first got out of school, because they knew they could work their way out of it with their hands as they started getting bigger, 3, 4, 10 locations goes, whoa, whoa, whoa, we can't invest in this because the amount of money you want to borrow to do these practices, you can't work your way out of it with your hands in banking. It's going from business owner to the corporate side of banking. And so they're like, hey, we're out. So dentists who wanted to have bigger impact needed another financing tool. They could go to Mezdet, they could go to private equity. They just needed an investor. They needed somebody to give them money. Now, what was interesting is they unlocked something. This is what entrepreneurs always do. They're on a mission, and then they unlock something bigger. And what they unlocked happens in every business model, which is when it goes from being a job to a business, you go from something that you have to put in effort to make the money to something that has a passive income because it has a structure. And that passive income has a lot more value. Okay, so if I told you, hey, I've got this really great job, you have to work 40 hours a week, but you'll make 200,000, how much would you pay for that? Well, it tends to be a dentist to dentist sale. And it's like, I'll pay you X amount of revenue or three or four times EBITDA or whatever it might be. But it's kind of limited because you're selling me a job, like, I have to show up and I still have to work there. Also, I can only borrow so much money from the bank when they know I'm buying a job. Right. So we're limited there. So this is the fundamentals people should understand. When I create a structure and I say, hey, I get 200,000, I'm the CEO of this company, we could hire another CEO. But here's kind of where I'm going. I think at this scale, that 200,000 could be a million dollars, could be $5 million, et cetera. Well, People are willing to pay a lot more for that, by the way. If I set up a structure where non dentists can participate, if I can get the LLC structure in such a way that they can legally participate, that is, they participate through the management piece, not the clinical piece, then I open up the number of buyers and investors who can participate and it's just capitalism. It's like, oh, wait, so I can invest in this and I can get a return on my investment of this amount that looks better than the stock market and that started bringing in investors. This all goes away. The day dentists are like, yeah, we're not interested, we're not getting anything from this, then private equity can't do anything in the space. But what's happening is dentists are very interested in unlocking the full value of their practice. And what they realized was selling to another dentist is a limited market that can only borrow so much money. Getting into a DSO structure makes them look like a business or immediately pops up all this infrastructure for them and all of a sudden their practice is worth more. So I think that's important to understand. Now let me kind of calm the nerves of this, like fomo and we gotta hurry, we can look at other consolidated industries. And one thing we know, especially in dentistry, patients don't know if you're a DSO or not. Nobody walks in and it's like, oh, I was just gonna check, is this a DSO supported practice? No, they don't know. Patients actually don't even know your clinical capability. Patients only know one thing, and that is how did they feel? Like that's the only thing they're an expert on.

Right?

Like your receptionist was so friendly. The doctor had great bedside manner. They don't know if the clinical capability is good. They're just kind of hoping that like, that should be a standard, right? So one thing I'd say is whatever happens on the consolidation, which I think it will continue to do because it actually benefits dentists, that's the reason it will keep going. There will always be an opportunity for a dentist to open up a practice and make it worth a gazillion dollars, always. And we know this because we can look at other consolidated industries like banking. And I'm out in Crumb, Texas, and we probably have, you know, three or four banks out here that aren't Wells Fargo or Bank of America or JPMorgan Chase, et cetera. There is always opportunities to serve niche markets and to do something that the other people aren't. So that's kind of just the basics of entrepreneurship. So I think anybody right now, if they said, what do I need to do to get the max value of my practice? Number one, take care of patients. Like, you just got to be the best at that. I don't care what your back end infrastructure is. That back end infrastructure needs to make sure that's happening. Number two, take care of associates. If you can't take care of associates, then you can't scale. And what happens when you start to grow is the patient isn't your customer, the associate's your customer, and the patient is the customer of your customer. Right. And that's really the key to scaling a DSO is this is why dentists are winning, by the way. Like crazy. They were so nervous about DSOs, all they have now is a bunch of organizations trying to compete to take care of them better. Right? Like, no, no, no, we do this for you. No, no, no, we do this. I met a group, all women, and they have like 100% flexible schedule. Like we designed the practice around what you want to work. And they're crushing it.

Right?

Especially right now, got 50% of dentists are women graduating the space. Huge shift all of a sudden happening. They've got a lot more demands on their life. So you've got DSOs, like specializing in dentist. You have others that are like, hey, we're open 12 hours, we've got shifts. Here's how we're, you know, you can make 500,000 as an associate working in our practices. Like it's really cool what's getting developed from these different dss.

Yeah, I do see a lot of, a lot of different types of opportunities that can be configured in a way that meets that dentist's career goals and maybe their lifestyle goals as well. That's definitely one of the pluses coming out of it. Just a couple comments to echo some of the things that you're saying. Share some my own thoughts on it is I have found when doctors get to that third, fourth practice that they move out of the traditional healthcare lending division of the bank and it has to go to commercial lending. And that is a completely different type of lending that is not commoditized like the 10 year 5% loan with a 5, 4, 3, 2, 1 prepayment penalty. They're all very, very similar across all of the healthcare lending groups for the most part. Not to say that they don't have their individual sort of nuances, but when you move out of that and into your commercial lending, you get variable rates, you get underwriting that is all over the place. And most of the time you're not able to get a loan, at least a loan that makes sense for you. And so the doctor goes from this very healthy 10 year tax deductible, 5% rate, it used to be 3 and a half percent rate, to this like 7% floating rate with all these provisions on it and all these.

They learned a new word called covenants. Yeah, yeah. It's very weird for them too because they're like, I came out of school, I knew nothing about what I was doing and you gave me money. And now that I'm successfully doing three practices and I'm crushing it, you don't want to give me money. I don't get it. But that's exactly why is because they moved to that commercial lending side.

But I do think that banks have seen a lot of struggle to go from the two practices, maybe three to four or five. Because now it is entirely based on your ability to lead and manage and be an. And it has very, very little to do with your clinical and patient sort of skill set. And a lot of dentists, as a lot of anybody does, including me as my company on my cpa, so I practice CFO has grown. It is a whole different skill set to go from running a smaller practice or starting something to then managing something that's a little bit larger.

And you see this. One of the things that, and I'll give you, your listeners a warning. One of the things dentists say is I want to get out of the chair. And they'll come to you, by the way, and you'll do some great analysis on what their production is and what it would take and what an associate would need to do in order for them to quote, unquote, get out of the chair. Okay, but they think of it too binary, like, I just need to not be a dentist. And financially, how do I make that work? What they don't realize is they're stepping from a very one industry focused, that is how to be a great clinician into how do I be a great marketer so that I can bring in enough patience for my new associates? How do I get my finances clear enough? Right. Especially if they're not using someone like you. How do I get my finances clear enough to know what's going on for each of these practices and which levers I need to pull? Operationally, I'm getting crushed by all this turnover and by the way, the wages keep moving up, but PPO revenue's not. So my margin's getting crushed. How do I Manipulate, increase, improve what's happening with my payroll, you know, so this is exactly why DEO exists is because there was nothing in the space to say, okay, now that I'm out of the chair, holy smokes, I've got all these different areas that I need to run, like, can somebody help me? And what are the resources and sponsors and vendors out there that can help me in each of these different categories? Because I went from like one thing that's really important to like five to ten things that I now have to manage.

You know, the way I, it's sort of coming in my mind right now is they start off as a dental clinician and then to scale beyond their own chair and their own office, they have to become an operational clinician. And that means you have to be have some management program, you have to have some platform, some framework through which you operate your business. If you're just sort of off the cuff, like gunslinging it, it's going to implode on you. So I think what happens is they realize they need something like say the deo, where in the DEO they come in and they start seeing how other people are doing it. What are the frameworks and platforms that people are using to grow beyond their practice into a support organization at large. Or some people are saying, I'm just going to go plug into one. And so they sort of sell to an existing DSO and they try to piggyback essentially off of their operational system and then grow their practice that way, kind of as a part of that bigger organization.

One of the big issues is there is no tool that just automatically exists to become a leader, right? Especially over dentistry. So if I'm in accounting, like I open up my spreadsheets, I open up my QuickBooks or NetSuite or whatever it might be. If I'm a clinician, I've got my practice management software, I've got my tools, et cetera. As you move up in the org chart, it gets a little bit more nebulous. So one of the frameworks we created called the DEO growth model, breaks out the three different areas that you're constantly working on. The you area, which you're constantly trying to get you from anxiety to confidence. Right? Anxiety to confidence. The team area, which you're trying to move that from chaos to momentum, chaos to momentum. And then the business area, which always feels fragile, you're trying to move it to stable, right? And self managing. If you get the you and the team right, that's where you free up your time. If you get the team and the business right, you have bigger impact. If you get the you and the business right, you get the biggest profit, right? So we have these frameworks we call the DEO growth model. And then we have tools around each part. So if you know that you are the issue, like I don't have enough clarity or capability or connection skills on how to do the communication, we have tools for all that. If on the team side you're like, how do I hold these meetings? How do I hire and lead associates? How do I develop leaders? Developing leaders is different than developing followers. And then how does this total people operations work? How do I develop out a culture? I did my little values thing, but now what? How do I do write ups? How do I do hiring in a systematic way and not get like do something that's discriminatory on accident? That's all the team stuff we teach. And then a business, of course, the systems, revenue, finances, all of that stuff as you really start to scale up. So we give you a framework for now it's like color by numbers and we call it the Slinky because you kind of get it all figured out. And then you're like, here we go again. You know, it's like, I got my marketing figured out, now it's ops, now it's finance, Now I need to do more marketing, better ops, better finance and just keep moving up that slanting.

So at my main financial planning and CPA firm called Practice cfo, about two years ago, we adopted a program called eos, which stands for Entrepreneurial Operating System. You're nodding your head. So you've heard of that. Emmett.

So we have EOS individuals, or we'll call them former EOS implementers who came into deo, but there was nothing specific. EOS doesn't take it down tactically enough for what really happens in a dental practice. And we built out the DEO map, which kind of is EOS on steroids. We have our own project management.

That's exactly what I was gonna say. It feels like the DEO is a perfectly tuned version of what I'm doing on my CP and financial planning business with this EOS system. And I go to their conference, they have a series of seven books or so from Gino Wickman, the founder. We read all of these. I mean, we follow the meeting pulse. They have these meetings called L10s. There's a software for it. I mean, when I say you adopt a program, I'm not saying you read a book and talk about some philosophies it's like you go into a training program like you're getting ready for a CrossFit competition and you lead up to it and there's a cadence and a plan and it's very mechanical and systematic. Where I see the DEO being is that's specific to dental. So it's much more tailored to a dental practice than say a general leadership or management program. And so if there was a DEO for CPA firms and financial planning, I'd leave eos. I'd be all over that. So anyways, there's a little plug for you guys. A couple other comments too, is going back to the evolution of DSOs, how some people originally thought the big hungry money PE private equity suits came in and are trying to strip out all the profits. And so they're creating this sort of smoke and mirror concept that is luring a lot of people into what you're saying. It's actually, no, it's driven by the dentists themselves who are wanting to grow something bigger but don't have access to the capital because they grow out of the traditional healthcare lending. And so the space for that therefore is equity is investors, not banks. It's equity financing, not debt financing. And then that's what sort of actually brought them or invited them into the space. And then they create these management entities. Now one thing I want to say is that for all you dentists out there, this concept of a managed entity which allows non clinicians to have ownership and the economic benefit of that business in most states, or a lot of states like California, like I and you, Emmett, we can't own a dental practice directly because it can only be owned by the clinician, him or herself. And there's a lot of other industries like that too. Managed entities are set up to allow the non clinician, so to speak, to gain some of the benefit of ownership, that is by by taking out some of the profits and distributing those profits to the non clinician. This isn't unique to dentistry. There are manufacturing businesses, there are so many other types of industries where this is how things are structured in order to share in the economic profits by investors and other operators who come in to join and support the business owners themselves. So there's nothing malicious here. There's nothing, you know, there's not, there's nothing bad. This is just the way the industry is done when it comes to equity investing for a lot of, a lot of business owners.

Can I, can I add to this? It's better than that, it's better than that. In fact, the dentists are 100% in control of this whole thing, Right? Because they are, you know, the, the saying, those who have the gold make the rules. You know, the golden rule, right? So people think, well, private equity, they've got all the money. Dentists control all the revenue that's coming in through the practice, right? They have all the control. The management company is there to support that practice. And as that revenue comes in, if it benefits the dentist to have the management company, then they both can win. If it doesn't, what happens is the dentist says sayonara, and pretty soon, like, it goes away. Okay? Dentists have so much power in this. That's one thing I would emphasize, like, they're a management company without a dental practice that's performing well is worth zero.

Very true.

No DSO is ever going to grow bigger than the clinical vision. I'll give a very tactical example. If I have a treatment coordinator, let's call them the dso. They're an operations person, right? And I have a treatment coordinator who is amazing, and I have a clinician who is terrible. And my treatment coordinator goes out and sells a bunch of treatment that my clinician cannot do. What's that worth? Zero. It's worth zero. The DSO can never be bigger than the clinical capability, the clinical vision, and what they want to achieve. So if you want to grow your dso, grow your clinical vision first and then have the DSO come in behind and support that vision. That is the formula for success. Anything that's tried it, and I'm not saying others haven't tried something different, you know, I'm going to control this dentist, right? Everybody's in my book. I call them DCOs, dental control organizations. They've all failed. Because all that has to happen is a dentist says, yeah, I'm not interested. And, like, it's gone, it's done, right? I mean, a dentist just leaves. One of the things that I don't like is people are like, these DSOs, they're taking advantage. Really? Thousands of dentists are idiots. Thousands of dentists are just stuck in. No, no, no, no, no. These dentists are smart. They think through things. Okay, maybe we all get duped for like, 90 days, but, like, after that, like, we're just making great economic decisions. So when someone looks at a big DSO and tries to throw stones at it, I'm like, in order to throw stones, you have to say, everyone who works there is an idiot and doesn't know what they're doing, or they're in, like, some kind of slavery. That we don't know about. That's still existing. No, what's happening? So I, and I just put this out there, like have an open mind because you can steal the best ideas of what they're doing and how they're supporting and maybe give them a little bit of credit. Like someone doesn't get to 3 billion doll just like duping everybody. Right. They're doing some fundamental things that economically are working really well for those associates that staff those employees. Those same employees have choices to go somewhere else. So what's fun about it is once you have that mindset, you're like, okay, I know how to play this game. I have to be the best at taking care of my staff and associates. Well, think about what that means for the dental industry. If all of us really have to do that, like we're just going to elevate it. By the way, only 50% of Americans go to the dentist on a regular basis. Ada says maybe it's even 40%. That means if we can get it to 80%, we doubled the entire industry. Like we've got so much. We are not competing against each other, by the way. We're competing against Netflix. We're competing against, you know, going to the water park and other things. We're not competing against another dentist at this point. Now once we get to cell phones, it's like 110% penetration rate. Yeah, ATT and Verizon, you're just switching between providers at this point. No one's like, oh, cell phones, I should get into that.

You know.

But in dentistry we still have so much opportunity.

Yeah, there is. On my practice CFO side of my professional life, we work with a lot of private practice owners and we as a CPA firm haven't structured ourself yet to service the DSO. And that's prim because most DSOs, when they get to a certain sizes, they bring the accounting in house. And so we help some small DSOs, but we know if they get to a certain size, it's probably going to be smart to hire an internal full time accountant and maybe even a CFO to start doing that stuff in house. But when one of our clients comes to us and says, I'm being approached by a DSO or I've reached out to a dso, I'm considering the concept, we'll do the analysis. We do the analysis all the time for them. And again. But in some ways I say it's not that it's good or bad, it's a model that you have to choose which model is a better fit for you and what you want out of your career because essentially what you're exchanging is you're going to get cash today or if it's more of a dental partnership organization, it might be cash and, or a swap of your equity with some equity in the management company, but you're getting that cash today. And now you're going to get more support operationally today and you're part of this bigger organization and you're giving up some of the profits which are now going to be shifted over through a management fee to the support organization. So there's an exchange there. Now if you could get the cash today, get a little bit of equity swap, then grow your practice such that the profits that you retain or your total take home income, whether that's through, whether that's through your associate agreement or through a share of the profits at the local level, if you can take home the same that you're making now and you got cashed out, well, that's the best of all worlds, right? And that's where I would love to see them go. It's an exchange and a trade off of models. It's like when we get a prospect and they have an accountant who they're paying 300 bucks a month to and that's all they get is a basic P and L. And then they come to us and we charge, you know, three, four times that. But they're getting a CFO who's going to be doing cash flow projections, who's very involved, does personal financial planning, does cash flow management and we're essentially acting as their cfo. I always say, do you want a CFO model or do you want the bookkeeping accounting model? This is totally your choice. And what's going to make sense for you? Do you want to do the books or not? Do you want to have a real clear economic story of your practice and have a coach to help you through that or not? It's going to be your choice. Some people literally just want to go in and do the dentistry and leave. And we're not a good model for because we require engagement. So I don't say it's a bad choice or a good choice. I do think that they need to understand the economics of it and understand what is the proposal. Because there is a lot of fine print I'm finding, Emmett, in a lot of these proposals from the DSOs and sometimes it's not, I don't believe, delivered in a fully transparent way. What the economics is of that decision. I would Say there are better and more honest DSOs than others as there are in any business, and that due dilig should be done. And just because they're a DSO and everybody's seeing DSO trends doesn't mean you should just too quickly and rationally jump on board with the dso. No, be really smart about it. And if you're going to go that route and want to be something bigger and part of something bigger, great. But line up a few, Line up a few, Compare them. Talk to somebody. Like at deo, I really think they should join the DEO and say, hey, is there somebody here at DEO that can help me look at these different options and make a decision? I think would be a great idea. Out of curiosity, does DEO have some service like that that helps private practices evaluate their options for joining a dso?

A conversation that comes up all the time? Yeah. And so it's so fun. Cause you've got people who. We have people in DEO who've joined dss, right. But they still have equity, they're still running their side of the house, and they want to scale it and keep growing it. And again, they want to keep developing in their CrossFit capabilities year. So we've got all perspectives for people to be able to make that decision. I think you hit on a couple principles that I think your listeners could take away. Number one, remember, you're the customer. So as you're making this decision, what do I want? Like, there's a great saying. I can give a man anything he wants. The hard part is for him to figure out what he wants. Take the time to figure out, like, what is it that I actually want out of this relationship. You hit on a key point. What am I really selling? I mean, yeah, I am selling like my blood, sweat and tears and my cool brand and whatever I've developed. But I'm tactically selling my profits, okay? I'm tactically selling, if I'm making a million dollars, they're either buying 500,000, 600,000, or all $1 million of those profits. And think about it. Just fundamentally, they're just going, do I want to pay 4 years worth, 5 years worth, 7 years worth, 10 years worth of these profits till I finally am making money myself, right? And the reason some groups get higher multiples, they somebody was willing to pay them 10 years worth is because they actually think the million dollars is going to turn into $2 million, it's going to turn into $4 million. So they never really paid 10 years worth. And so if you can Sell that concept of, hey, here's where we're going and growing. That's where you get the higher multiples. Ultimately though, you have to do what you're saying and you have to sit down and assess and say, are they giving me the support and the transaction I'm looking for? If I'm 65 years old, I'm kind of done and I just want to get out of being in dentistry. There's a DSO for that. Remember that old saying, there's an app for that, there's a DSO for that. If I'm young, I'm scaling and I want somebody to maybe just be a minority partner because I don't want to go through the cost of hiring a CFO and a COO and all that. Because in my book I call it the dark tunnel, where you have to go backwards to go forwards. Well, there's a DSO for that. By the way, all these different names just pretend like they don't exist. They're all just DSOs. Okay, DPO, DLO, dental partnership organizations, Dental Leadership Organization. Why did they get created with those names? Because early on, dentists were able to turn DSO acronym into this evil corporate thing. But people wanted everything that a DSO provided. They wanted support, they wanted higher return multiple, all of that stuff. So people were like, well, if you hate the name dso, what if we just called it this instead and just did everything that a DSO did, but we just got, you know, so again, that's why I kind of take people down. Forget about the acronyms. You want support, that's what you want. That's what your associate wants. Negotiate that. Figure out what kind of support do you want? Do you want the support where you can scale more locations? Do you want the support where you can get out and leave? What does that need to look like? Negotiate that. And then to your point, exactly like you said, figure out financially, some of the times I think you're seeing this, dentists are like, I want this multiple. And DSOs are like, okay, if you want that multiple, we can do that in an earn out. If you grow your practice by this much. And sometimes the dentists don't realize, like there's caveats to how they get that money, right? They've got to actually grow to get it. And so they can take their foot off the gas thinking they're done, when really they need to put their foot on the gas in order to get the full value. So, I mean, take the time, utilize someone like you to really understand.

What goes into the financial piece here.

One of the things I'm building out in Practice Orbit, which is a sort of a redfin for dental practice sales, and it provides tools inside the system for sellers and buyers to connect and decide how to navigate that transition is. Is to have. There are. There's DSOs that are joining the platform who are interested to look at potential sellers inside of the platform. And some sellers, like you said, there's a DSO for. For every sort of situation. And a lot of these sellers will be just a few years out from retiring or even want to retire now, but they will have an opportunity to see a few different styles of DSOs inside of the Practice Orbit system. Great. So on that subject of the different names, I just want to put that one to close as well, because I mentioned we would talk about that dso, dpo, dlo, and there's other ones as well. Is it relevant to say that in some models, there is a ownership opportunity at the management level for the dentist, and in other models, there is no ownership opportunity in the management company, and that is what has distinguished them from being a traditional DSO to being this dental partnership concept. Do most of these offer ownership in the management entity, or is that more the exception than the rule?

I would say that it doesn't matter what the name is, is. So there's DSOs that offer everything you can imagine. Like, hey, we'll build a practice with you. Hey, you can own up at the, you know, holding company together. Hey, you can own at the practice level together. So the name doesn't give you that distinguishing mark. Now, someone might say, I called it this because we do that, but there's a DSO that does that too. So.

Yep, that makes sense.

What I would say. This is why it's so important for me to teach Dennis the principle. So. Because otherwise they play up here in the tactical and the branding. And it's a little bit like picking up Tylenol extra strength versus Tylenol migraine, right? Yeah, it's good marketing, but if you flip it over, it's the same ingredients. If you understand the ingredients, you can kind of go, okay, what am I really wanting and looking for?

That's a really good point. So if you're a dentist and you're being approached and somebody's saying, we're better because we're a dpo, not a dso, which I think is sort of slung around a bit, it's really important that you set that aside and you look at the terms of the relationship and the financial offering of the relationship and the culture and other things not the name of what they claim to be.

That's really good for coming up with a new name. It's just good marketing. But I just wouldn't limit yourself to somehow think, you know, even though they want you to. To limit that. Oh, now I can only do DLOs because that's what I like. There's somebody out there that has that similar model, so.

Great. Let me ask you. I think we'll end off on this one. And by the way, listeners, we. My co host, Drew Phillips, just did a podcast with a partner from Dykema, which is a law firm that really does a lot of work with DSOs, and they break down a lot of the. Really, the terms of these deals, which really, you could have many podcast episodes just on understanding the various terms of a DSO offer and relationship. So I won't go into that. I'm really curious. Curious from your perspective, Emmett, because you've been in this for so long. You're just. You're so deep in this space, especially now being part of the deo, having been part of a DSO yourself and also the dental support organization. Do you have any idea right now about what portion of the industry is managed and what is still private in the traditional sense? And where do you foresee the evolution in this space of DSO, perhaps going over the next five to 10 years?

Yeah, so we don't know ADA, ADSO. We've all worked on this. Here's the problem, when you get down to fundamentals is what do you call a dso? Is it the day I hire an associate and I'm supporting them? Well. Well, how would I track that? Is it when I have multiple locations? I have 10 locations in my DSO because I've got all the infrastructure, you know, is it that I have the LLC set up because Dicoma or Waller or McGuire Wood, somebody set this up for me? Is that what makes me. Is it because I joined the Adso and I'll tell you what ADA uses is you join the Adso because that's statistically the only way to track that. Right. They don't have access to everyone's private records on where they are in scale. So we really don't know and we don't really even have clear definitions, because what is a DSO versus a dental group versus how I'm defining it the moment you hire an associate. Right. So where is that? Some have said they think it's around 30, 40%. If you really got formal with, you know, how many members of Adso and how many practices you're probably in that 20, 25% range, it's very clear where it's going to trend to because of who we are as individuals, because of what Amazon has created for us. I want convenience. I want the lowest amount of effort for the highest income. I want the best convenience as a patient. I want things online. I don't want to have paperwork. I want more technology. And that happens through scale. That happens through investment. So as that continues to happen, and like I said, we have more dentists than ever, who generationally, we got Gen Z's who are really smart and going, how do I put in the least amount of effort and make the most income? We have more women who have a lot more complexity to deal with than men. And they're saying, hey, I want support. I need to go pick up my kids at this time. I need this to happen. All of this points towards some kind of support organization. So what I'd say is if you're a dentist out there, like, get educated on this, right? You can choose any path you want. In our DEO growth model, right in the middle is thrive. And you get to define what thriving means to you. But what you don't want to do is just like, hope it all works out. You want to choose a path, you want to go in and say, this is what the market wants. People want online scheduling. They want to know you but never talk to you. How do I develop that out? Right? And your dentists want as much support as possible. How are you going to build that up? So that's where the market's going, I think, you know, under the term dso. Absolutely. Dental support organizations, everybody's going to have to be that. And dentists are going to love it. They're going to graduate from school and they're like, do I want this kind of support or do I want this kind of support? Do I want to own practices? Do I want to own at the corporate level? Do I want to own here at this? Like, it's awesome. It's freaking awesome. Do you know the gap right now between dentist owners and associates is only 7% to be a dentist owner. ADA gave this data. You're only making 7% more than if you're an associate right now. So, like, the support piece that's coming in is wickedly awesome.

The thing that I love about the opportunity is that in all models, private or DSO.

Supported is if you are a motivated, good business leader and you're a good clinician and you can grow a culture and a team that rallies behind you, you can be financially As a financial planner, this is where I say you can be financially successful in either model. You can retire if you do this right. You can retire at early 50s, even in a private setting. And I have some private Doctors who have $2 million of adjusted gross income in one really large practice doing really, really well. And then there are doctors who have joined groups who do really well. Also, I say a little bit objective for the doctors and I say this met really what's driving this is what do you need? What is going to make you satisfied in your career path? And the dso, which used to be viewed as this sort of evil term, it's an option and it can be a great option for a lot of people who need and want that support. And what I'm finding, Emmett, is that sometimes people are joining a DSO not necessarily because of the cash now or because of the economics. They just really want to be a part of this camaraderie of a bigger group with a bigger mission. And they meet and they do fun and then they can have the synergy and they can sort of share hygienists if they're in a local area when they are short. And they have a lot of that just fun, really, that. That fun and convenience in the mentoring.

You know, I mean, it used to be like, I'm so scared about my autonomy. I think that's gone. Like, people realize, like, actually I want mentoring. I want to talk to other dentists. I want to know if I'm doing these procedures correctly. I want to scale my clinical capability. And guess what? There's DSOs doing that really well.

Yeah, this will be the last thing we'll touch on is so we see the momentum is still going. I mean, I feel like even though interest rates have gone up and money is a little more costly, it doesn't matter. The trend and the momentum in this space is still as strong as ever. If not picking up steam, one of the things I wanted to ask you is what do you think is. What do you think is the compelling force.

More than maybe any other force? Which is. Is it the economics for dentists or is it that they want a. Are the DSOs really going for this evergreen business concept where they're not intending to sell? They want to create a common platform for practices to run their business on. I mean, imagine if 50 practices got on the same practice management software, were the same order supply process, the same compliance process, maybe all these common processes billing with the insurance companies, being able to get more advantage there. Is that what you think will Drive it in the long run. Is those scale benefits or is it that, hey, in three years we could have a capitalization event and I can get 200% return on my money, which is. I call that the EBITDA game. And I'm not the biggest fan, I'll be honest, I'm not the biggest fan of the EBITDA game because to me that's a house of cards and at some point will come falling down and there will be somebody at the bottom of the pyramid who's not going to get the return that they thought. And there's sort of an MLM concept there a little bit. And I think that is in full force right now, the EBITDA multiplier game. And at some point that won't be there. But the concept of scaling everybody together, that to me speaks volumes and really is appealing to me to give the edge to the small practice to be able to get a lot of those benefits. Do you have any comments on that? Sort of compelling.

I think you nailed it. I think you nailed it. Anybody who says, I know what I'm going to do, I'm going to throw a bunch of practices together and then I'm going to sell it to somebody else because I got more ebitda, more profit together, I never ran a dental practice because they know that that is a pain. Terrible. And if they've had any turnover, which everyone has, and then they realize, oh crap, I've got to train them on this software and that software and this software and that software. The largest groups are standardized. The largest groups, again, make the effort versus income as simple as possible. If every practice is designed the same, same software, same patient type they're treating, etcetera, Et cetera, you get this economies of scale. Clinicians can work together, staff can trade offices work together. It's all about like. And they niche down and they take care of the patients. Amazingly, you can also make better investments into clinical technology when you're very clear on who you want to serve.

Yes. Yeah. Whenever somebody is thinking about joining a dso, I always tell them, and especially if they're an emerging dso, a smaller dso, if you is you're not gonna sign up and everything is gonna be like, you're getting on this assembly line and everything's just moving perfectly. No, it's gonna be work like get ready. And your staff sometimes has to get ready because, for example, if you're changing from Dentrix to Care stack or a different practice management software, it's a real painful process and might feel like a step back. So if I say you do it, be committed to it and don't think it's gonna solve all your problems. You have to join it to solve your problems, and that's going to create the highest probability of success. It's usually my storyline that I'll give.

There's a bad game that got played and it'll be interesting, which is, hey, dentist, I want to give you as much autonomy and we don't need to change anything. All I heard is I'm providing you zero support. Good luck.

Yes. And to me, when I hear that, I say, okay, somebody's trying to play the EBITDA game. They're trying to buy low, package you in and sell high in a couple years. And they're not really even thinking about your practice this. I'm totally with you in that way.

Just come back. What's the best support? You know, just go after the best support and you'll win. So, hey, thank you so much. It's been awesome to be on.

Emmett, thank you as well for everyone. Just again, the dental entrepreneur, Dentist entrepreneurial organization, look it up. And they have great conferences. I encourage everybody to do that. Emmett, thanks for being on the show. Much appreciated.

Yeah, check us out@deodental group.com. look forward to seeing you. Thank you.

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