Many dental colleagues feel pressure to measure success in a certain way – growth, production, number of practices. All of that is well and good – but is that what you really want? Toward what end are you working?
I recently spoke to a young doc who had aggressively expanded to a three-practice empire. Smart. Ambitious. Hard work. Yet after two years of trying to juggle the demands of being in three places at once, managing staff and overhead, he finally had an epiphany… “Why was it that he had gotten into dentistry in the first place?” Beyond providing excellent clinical care, and a certain lifestyle for his family, what was this all for? Was it worth it to miss baseball games and dance recitals?
He had bought the narrative that a multi-practice empire was the path to success. Higher production, growth, expansion. Perhaps all sold to him with the dream of a big multiples upon exiting to private equity or a DSO (hint: the window for this is passing – the days of “cheap money” are over).
Fortunately for him, he was early enough in his career to pivot hard. He made the move to shutter his least profitable location (at a loss). He resisted the pressure to appear “successful” in the eyes of peers and colleagues and is now focused on maximizing his most profitable practice assets and getting back control of his time.
His realization – “I can only do so much.”
The Day is Worth More Than the Dollar
Aspirationally so many of us, we want to build something, we want to expand it. “More” can be intoxicating. What if I could triple my income?
I often ask practitioners I have the privilege of consulting with today… “what is this really all about?” Other than taking our skill set and helping people, okay, I got that. But beyond that? Yes we want to provide for our family financially. Okay, got that. So, what else?
“I need to provide for my family.”
“Ok. What else?”
“After that… build wealth.”
“How much wealth?”
At this point – practitioners almost always either reply with a blank stare, or start throwing out large round numbers – often made up or provided by a financial advisor with very little reasoning or strategy.
“Well, if I could triple my income…”
“Okay, what does that do?”
“In xyz years, I’d have so much saved ($4M, $6M, $8M… pick a number)”
“Right. Exactly. So now what?”
Eventually, if pursued with enough persistence, the answer almost always comes back to TIME. What you really want is to feel confident that you are able to buy back your time.
Ok. Now we’re getting somewhere. What we really want is to have choices and options in life. Yes, you can buy a certain lifestyle with higher income. But at some point, what use are the “things” that money can buy without the Freedom to be able to fully enjoy them? Being able to do good through the clinical skill sets is wonderful. There comes a time when all of us want to translate the success we’ve achieved into meaningful choices and options on how we spend our time.
Beware of High-Income Indentured Servitude
Dentists in one sense are indentured servants. We buy into a system with the promise that it’ll be lucrative in the end. Work hard today to create Freedom and a certain lifestyle in the future.
Yes, there is a tradeoff – a “sacrifice” period that is necessary to create the life that we want to create. You don’t get to enjoy that on day one. There are some younger dentists that act like on day one that they’ve arrived. They forget that getting the lottery pick in the draft is just the start. You still must get out on the field and play the game. Completing dental school is merely a license to begin working with your hands. It’s just a chance to get in the game.
A Sea Change Ahead – Lower Growth and Back to Fundamentals in Operational Efficiency
Many young docs I see graduating from school are already looking for a fast roll up – hitting a home run with a quick sell to private equity for big multiples and riding into the sunset. They haven’t even completed a single case yet and are already looking for an exit strategy.
This mindset did not exist back in the 80s and 90s as I was graduating dental school and entering the profession.
It has been fueled by the cheap money of the last decade. The go-go period of the last thirteen years, characterized by large multiples and cheap money allowed for significant growth and large exits. While many practice owners made out very well – it was based more on artificial valuations driven by speculation and unprecedented amounts of cheap money seeking yield.
But in the words of Bob Dylan – “the times they are a changin’”.
The headwinds of inflation at a 40-year high, and the Fed back-walking its claim of “transitory” has rapidly morphed into what longtime investor Howard Marks refers to as a “Sea Change.” The large multiples and cheap money of previous decades (fueled by low interest rates and unprecedented debt) are becoming a thing of the past.
A New Era of Getting More from Fewer and Less
We are entering an era that necessitates “Getting more from fewer and less” (Dan Kennedy – small business legend). Success will be defined by your ability to optimize for the profitability of your practice as an asset. Times of recession force a reversion to fundamentals.
There will be naive people who have not led or owned an organization, and all the risks that accompany it, who will criticize you for prioritizing profits. Be careful not to let others define success for you. Any company living beyond its means with poor or non-existent financial models, or a lack of accounting principles, will eventually face tough choices that will negatively affect all other desired priorities. Your ability to produce profit from fewer and less (not bigger and more) will define your ability to generate sustainable wealth and subsequently buy back what you really want – control of your TIME.
Creating more Freedom in your life will require introspection and clarity about your objectives on how much you want to work and the financial models to use to get to that profitability with the least amount of friction and risk. Only then can you determine changes that need to be made with your practice model, scale, market niche, and the needed infrastructure and support staff.
My aforementioned colleague wisely realized that the multi-practice conglomerate he was building was going to be priced out of reach for the average young dental graduate buyer. His ability to take equity off the table (escape the rat race) would be dependent on private equity continuing to pay outsized multiples – a risky play given current interest rates and the volatility of the investment capital markets.
Meanwhile, it was burning him out and leaving him unable to live life on his terms while he was still young enough to enjoy it.
Alternative Pathways – Turning Wealth into Freedom of Time
What is the #1 reason most dentists are unable to have more options, more choices, more freedom? They don’t know how to make their money work for them.
Many take a sequential approach to retirement planning: dental school – acquire a practice – long career – retirement “someday”, vs simultaneously learning skill sets to build a portfolio of assets that create cash flow and income without the need to trade time for dollars.
Many doctors have diligently accumulated net worth that is under-utilized and not working hard for them. They often believe that the solution is to work harder, develop bigger practices (often placing further constraints on their Freedom) rather than making the wealth they already have work create better, more efficient returns.
At a certain stage of life – prioritization should be placed on developing the skill sets necessary to strategically orchestrate the assets you have accumulated. Having a defined plan with clear parameters and proven models is essential. One should not think they can abdicate this to a 3rd party. Practitioners who have successfully “bet on themselves” their entire lives – reinvesting again and again in themselves through dental school, building a practice, equipment acquisition and heavy investments in CE – find themselves disappointed in the results of outsourcing the stewardship of a lifetime of hard work to a 3rd party financial advisor only to wonder… “what went wrong?”
The Path Less Traveled – What Will You Choose?
Optimizing your practice to create more profit from “fewer and less” while simultaneously developing the skill set to translate profits into sustainable, passive cash flow streams that are not dependent on trading time for dollars is the key to winning back control of your time.
Done well and with the right blueprint, this can be accomplished decades ahead of a distant retirement “someday”. Many docs are much closer than they think.
This model stands in sharp contrast to the “work hard, grow bigger and bigger practices and save into a 401(k)” model advocated by most consultants and advisors. Unfortunately, many docs build larger and larger practice prisons in the name of success while sacrificing what they truly want – the Freedom to live life on their own terms.
What path will you take?