Brandon: Hey everybody. I would like to welcome y’all to Rich Beckman. Rich Beckman is the former CEO of Great Expressions Dental Centers, one of the largest DSOs in the United States. Under his leadership, Great Expressions grew from supporting 21 dental centers in Michigan into a nationally branded DSO with 300 offices across 10 states and approximately $400 million in revenue. 

Rich is also one of the founding members of the Association of Dental Support Organizations, ADSO. He is currently a consultant in the DSO space serving on several boards as an investor in several startup companies. Thanks Rich for joining us this morning and excited to chat with you about some PE stuff. Cool, welcome.

Rich: Thank you. 

Brandon: Awesome. I guess the first thing to talk about here would be give a little bit more background of yourself, why and how you got into the dental space and just to give people who don’t know who you are a little bit more about yourself. 

Rich: Well, I mean, realistically the Reader’s Digest version is that this was a client of mine at Arthur Anderson and Company. I’d left Arthur Anderson and went to a company called Credit Acceptance. Then I left that company and the founder, it was called American Dental Group group at the time, called me up and asked me if I wanted to help him grow the entity. I wanted to stay in Michigan so I said yes. That’s an unsexy answer, but that’s what it is. 

What we did was look at the business model. I knew it needed a lot of changes because it essentially was a closed panel, something called dental plans, which was a capitated dental DMO that serviced the automobile industry. It was pretty big, but it sold in 1996 to United Concordia, and it still exists today. We were the largest group inside. Anyway, we needed to dilute that capitated business somewhat to make sure we had some sort of sound base. We also had to decide where we were going to go and what we were going to do. We decided we wanted to offer dentistry for the masses versus the classes. What that simply means is we took all insurance. We wanted to be regionally dense because I didn’t believe in going all over the place. Actually ADG had a few locations outside of Michigan that we subsequently closed because one was in California and one was in Louisville. We eventually closed those.

Anyway, the other thing I didn’t want to do was do the model because we didn’t want to build stores we wanted to buy. So, that’s what we really started to do. First off we had to change the name because frankly it didn’t have the best name or reputation in the world. So, we changed the name, changed what the offices looked like, and began expansion. For the next ten years we simply looked for opportunities to buy dental practices that were in regionally dense areas. 

So the first thing we did was we bought some more practices in Michigan. We bought practices in Atlanta. We bought some practices in Florida, some on the East Coast. After ten years we decided it was time to probably venture into the PE world, and so we did. We engaged an investment banker. We eventually sold to a company called Audax, and Audax was really great, was a great partner. They had just purchased something called Dental Health Group, which was primarily in Florida and with some stores in Michigan so it fit like a glove, frankly.

So we just merged them together, changed the name, changed the systems and integrated it. Three and a half years later we made other acquisitions. We grew so fast that Audax decided to sell us. They sold the entity to Owners Private Equity, which is simply the investment arm of the Canadian Municipal Workers. So, they bought us, did the same thing, bought a bunch more stores. They helped us develop a doctor career path. I’m kind of adamant about the whole doctor thing. I mean they’re the key. People ask me this all the time, and at the end of the day, the doctor is the key and we’ve let people forget about that. 

Anyways so they bought it, helped us put the career path in. We grew over that five year period to over 300 stores and we’re doing about $400 million. We sold to an entity called Roark, and they’re known for fast food. Those three transactions were $1.2 billion, so over a period of time we sold for $1.2 billion. 

Like I said, the business model is really what’s important. You have to have the doctors involved. They’ve got to have a career path so that’s what we did. It worked pretty well. I would like to tell you it’s doing as well today as when we were running it, but it isn’t but it’s okay. There’s the history. 

Brandon: What is the timeline of this from when you got started there and the thing you just talked about, can you give us a little bit of a timeline of how long that took?

Rich: Yeah, it took 10 years to get to $60 million. The next 10 years, it took us another 10 years to get to $400 million. We could have probably grown faster, but I believe in good integration. What we did was we changed the name of all the practices we bought. We put the Great Expressions name up and we remodeled so they all looked the same. We had a common system. That’s a kind of weakness in the DSO world is the systems are not very robust. We built our own. 

At the end of the day, we were multifunctional. What I mean by that is that we addressed all aspects of the dental world. GP was about 65% of our business, especially with the other part. We had big orthodontic practices. Realistically the way the business model worked is that we had “hub and spoke.” Simply what that means is we had GP practices and then we’d build a specialty center in geographic closeness to them and we’d send all of our patients. So, we captured all our patients. We didn’t let them escape. So, if they needed third molars removed, we had oral surgery. The paradental practices were very robust. The orthodontics practices were doing 1,200 to 1,500 traditional contracts every month and about 400 to 600 Invisalign contracts. 

You have to have that business mix because if you don’t, you rely on one thing rather than others. The dental business is kind of funky, and it’s very seasonal and very cyclical. It took 20 years to do that. 

Brandon: Question I have for you, you talked about getting in the PE world and you decided to do that. What were some of the decisions or the scenarios in which drove you to do that, and what were some of the criterias that you were looking for or advice you would give about when you’re looking for a PE firm to support you? Why would somebody want to do that, and what are the things you are looking for in a great partner?

Rich: After that first 10 years, we were simply relying on the guarantee of the founder’s personal guarantee of a line of credit. He was uncomfortable with that. It was $50 million so he wanted out. He didn’t want to guarantee anymore. Who can blame him? He wanted to become liquid. So, realistically that’s what he did, but the partners we were looking for, we wanted somebody that could help us get to the next step. 

We had a pretty small team, and Audax brought all of those things to the table. They had a much larger team. They were very much acquisition oriented … They were very supportive. They had a group of folks that were troubleshooters, and so they kind of helped us do some things. After having three years of that, when they exited after three and a half years, we were looking for something entirely different because we were looking for something entirely different because we were a much more mature organization. We were able to build a management team and able to build support staff.

With PE all we were looking for was whoever the next partner was. We were looking for funding to continue the acquisition trail, and that’s what they brought to the table. I think there’s different phases as the entity grows. Initially you have to be some size to attract a PE firm. Once you get that, you’ve got to get used to that and figure out what they’re all about. As you get bigger you’re attracting different PE groups, not to pick on Heartland, but if you look at Heartland over the years, they’ve had a variety of PE groups. Now they have KKR. KKR at the end of the day has a different set of criteria for them and probably a longer time horizon in investing in that entity. 

I’m going to say they can do things a little differently, and probably I think KKR is a little more patient. The smaller PE firms aren’t as patient. They want to get a return on their money; three years and out, five years and out. You’ve got to be able to deal with that. Sometimes there’s a clash between management and the PE firms as to what to expect. If you’ve got a good one, that usually works out pretty good. Like I said, it depends on the phase of your life. Obviously the larger the DSO the different PE firms that you can attract. 

Brandon: One of the things with my experience in dental, I’ve been in the space four or five years now, and I know when I initially got here there was this whole idea of consolidations, PE firms growing, that type of thing. That journey is much longer than five years. So, the question I have for you is what have you seen from consolidation maybe 10, 15, 20 years ago and how has it evolved today? Are there any differences? Were there learnings that occurred back then that we’re implementing now?

Rich: Well it’s dramatically different. So, in the late 80s and early 90s there were entities that were put together and taken public. The public market has a whole different reason to buy. They’re looking for meteoric growth, and that’s what the DSOs promise them. The problem is that meteoric growth doesn’t always work in the dental business because you’ve got a lot of different personalities. You’ve got a lot of different things you’ve got to do. It’s a much more complex business, and I don’t think anybody realized how seasonal or cyclical the business is. 

So, companies that went public – Monarch, Castle Dental, Interdent, OCA, ADPI and Burner – those companies exist in different ways now. Monarch and Castle both went bankrupt. OCA just disappeared because of fraud. ADPI got taken private, and Burner got bought by somebody, I forget who. One of your customers, if I remember right. So, all of a sudden people decided these can’t be public entities. They don’t fit the criteria for a public market, but they do fit the criteria for PE. 

Most PEs are reasonably patient and realistically there’s not a lot of outside scrutiny. Castle Dental and Monarch they exist as Smile Brands. They got merged into Smile Brands. ADPI just got bought by Harwin, if I remember right. Burner got bought by your guys.

The point is that the criteria of a long time ago, 20 to 25 years ago, people thought these would be great growth public companies. Today, I’m not so sure they are. I suspect you will see one of these companies go public though. The bigger you get the easier it is to overcome that cyclical nature or seasonal nature because you’ve got different parts of the country reporting. The other thing that doesn’t work out very well I think is people found that if you have 128 stores in 40 markets, that doesn’t work out very good. It’s hard to manage those practices. 

So, I think you’re going to see or you’re seeing a lot of regional density occur. To me, that’s the only thing that makes sense. I think from a futuristic point of view, you’re going to see some of these DSOs get into the insurance business. I actually saw somebody trying to do that. Actually, we tried to do that. We weren’t very successful because we couldn’t get a court of order, the HR folks to agree, but I think you’re going to see that happening. When that happens, you’re going to see a leapfrog over the dental insurance world, I think that will be an interesting time. 

Brandon: A question I have is obviously what are PEs so attracted to in the DSO space today? What’s driving the consolidation? What are the ideal outcomes for the PE firms? Maybe you can talk about that.

Rich: Yeah, sure. Realistically, based upon what I understand in talking to the folks in the industry and kind of looking at the statistics, you’ve got less than 20% of the dental world is consolidated. So, there’s a big runway, a huge runway still. Dentists tend to be entrepreneurial. So, that’s kind of a hurdle you’ve got to leap over because they like to be their own bosses, and you’ve got to be able to figure out how to do that. Pacific has kind of figured that out because at the end of the day they have partners in all their practices. I think Aspen does to some degree too. 

But I think that runway is still pretty long. Will we ever see 100% of the dental world consolidated? No. Will we see 50%? I doubt it. I think you’re going to see some place between twenty and fifty. The other thing is the kids come out of dental school, shoot they have $200,000 to $250,000 worth of debt. They really can’t start their own practice. It’s hard for them to do that because they have the debt and they’re going to have to start up their practice. So, unless they’ve got some sort of funding behind them from either their folks or relatives or whatever, it’s hard for them to do that so they need a place to go. I think that’s what’s happening. 

I think you see a lot of DSOs letting the doctors in on the equity, and that kind of satisfies their entrepreneurial desires. So, I think that helps too. If you let them alone and let them practice, there’s obviously got to be some criteria, but at the end of the day let them do what they do, I think that will work out. Plus remember, the PE world has got tons of money. They’re awash in money right now, and they’re looking for places to put it. The dental world, again while seasonal and cyclical, it’s still sort of predictable and you can kind of figure it out. The one thing that still hasn’t been solved, as I just talked about earlier, the whole insurance. The insurance benefits on the dental side are not kept up. They’re about the same as they were 15 years ago. The benefits have got to get better.

Brandon: A question would be why do you feel PE firms are being more involved in the dental space versus maybe ten years ago or so? What is it that they see or what are they looking for that makes this seem like the best place to put their money?

Rich: They’re looking for successes. I mean realistically there’s a number of really positive successes, and so as they look at that and they look at those successes, their time window. Like I said, you typically hear five years. So, at the end of the day, if you’ve gotten your money in five years, that’s pretty dang decent, and I think that’s what they see. One of the mistakes everybody makes is they end up overleveraging, and they like to do that. 

Brandon: Just to clarify on that, when a PE firm gets involved, it probably changes depending on the firm, but what are the typical goals for them in terms of a return, and what is the period of time they’re usually looking for in this?

Rich: Like I said, I think it’s five years. I think doubling their money is probably, that’s a double, Audax tripled their money so that is a homerun. And if anybody can triple their money, I think at the end of the day that’s pretty dang good. I do think that some of the bigger ones, the exit, I mean the exit strategy, although – I’ve mentioned this to a few people – and they said no this is going to happen. I think they’re going to go public because why wouldn’t you. Once you’re such a size, are the private equity guys going to keep those businesses around? Because again, they’ve got to pay their investors, and either they pay them through – I guess they could take dividends from the organizations – but that doesn’t give you the same satisfaction of taking your buck and making two or three bucks.

I think the public markets probably will let that happen. Like I said, you’ve got to figure out and you’ve got to be able to manage the businesses so that they can deal with the public markets. I don’t think the Castles of the world or Monarch ever thought about that. They just kind of threw them together and they thought it would work. The money markets are different today too than they were 25 years ago. There is a huge demand for IPOs and a huge demand for SPACs and all the things that are out there. Like I said, I think some of the entities may be ready to do that.

Brandon: When you say a goal of five years doubling your money, what are some of the major factors that a DSO should be looking at that allows them to double their money? What are some of the factors?

Rich: There’s probably three or four factors. First is growth, top line growth and how do you achieve that. A doctor only has 2,000 hours or so, plus or minus, in a year. So, the whole same store sales thing, which the PE world definitely thinks about. The only way to achieve same store sales growth in a dental practice is change the mix, which is possible. Introduction of new services, and there haven’t been a lot of those, but notably whitening probably ten years ago, Invisalign now or any kind of clear aligner product and implantology. Those are things that can change what the dentist does. 

But the only other way is to add a dentist because you really can’t add hours. That’s all there is to it. This is a tough job, a dentist, it’s hard. It’s hard work. Somehow you’ve got to figure out how to improve that. The other thing is negotiations with the insurers and can you in fact improve your recovery rate on your fees. My belief and why we were all regionally dense is because you have a lot of clout with the insurers. 

The second thing to do the top line is to just buy. As you buy practices, obviously that’s going to help you out. You can be the de novo Model. I’m not a fan of the de novo Model. The good news is all your stores and stuff can look alike. The bad news is it’s expensive. I heard a statistic that one out of three de novos fail. So, you’ve got to strap yourself in and decide if that’s really where you want to go. Aspen’s done it, Pacific’s done it, and they’ve been pretty successful at it. Others just not so much. Great Expressions, I think we’ve built 30 practices in 20 years, but most of those were specialties, specialty practices where we do have specialists and we put one in. Again, that’s a top line thing.

The third thing you can do is control costs. Related to CureMint, you guys bring a service to the world. Realistically, prior to Covid, the whole procurement of PPE was three percent, three and a half percent. But today, I just looked at one the other day, they were like at 8%. That’s huge, think about 3%. If you’re selling to PE, 3% is a big deal. If you have $100 million, that’s $3 million worth of EBITDA. So, you’re paying 10 times that’s $30 million. That’s a huge amount of money. So, I think the whole cost control is certainly a place where you can control costs. You can sort of in the lab. You can do different deals with things. The whole off shore thing has fallen out of favor which is good. 

If you’re big enough, you’ve got pretty decent landlords and things like that, those are kinds of costs you can control. If you can do all of that stuff and still keep everybody happy, it makes a lot of sense. So, that’s another plus. 


Other than that, how do you move the needle? There aren’t a lot of other ways to move the needle. 

Brandon: When you look at and advise on boards of different DSOs, sometimes there feels like there’s a tendency to potentially grow a practice to five to ten and have a quick exit or something along those lines. Do you see a focus primarily on the growth of revenue – your first two options – or do you see cost control as a component? Is there favoritism towards one approach?

Rich: Realistically, if you’re buying ten practices, your focus is simply getting the top line because you end up with a lot pro forma adjustments. I think pro forma adjustments are sort of loony sometimes, but realistically you want to get that top line going because if you don’t have the top line growth, the PE guys aren’t that interested. They’re looking at trajectory. So, they’re looking for growth. How do you do that? You’ve got to do it like I just said. Realistically, that’s really the top line. You always need to control costs. You always need to integrate, especially on the affiliation side. But realistically, to the extent you can move that top number, that’s what excites PE guys. 

Brandon: Earlier you mentioned that one of the things about Great Expressions was that you had systems in place that were universal throughout the organization. What is the effect, from a cost control perspective, to ensure you have all your organizations together, especially if you grow from 20 to 300 locations. Would the systems in place be universal and what’s the impact on the cost control side of things?

Rich: Somebody told me a long time ago that if you can’t measure it, you can’t manage it. That kind of hit in my head. It hit my head at the very beginning of my career. Realistically, the robust systems, if you’re all on a common system, you don’t have to have a bunch of folks trying to generate and take the data from disparate systems and put it together. Our system literally tracked everything. 

We looked at everything every day. And that does a couple of things. Number one, you can see if you’ve got some sort of weak link in your offices. You can identify offices very quickly who are having issues and so you can put the resources there. I mean, you can see, if you are in the Medicaid world, you can track and see if you’ve got any doctors who are doing some things that they shouldn’t do and that’s very important. Our system tracked all. Every day, every doctor got the report, everybody in the whole company. They saw what they did every day. They saw the ortho starts every day. They saw the differences between GP, hygiene, specialty. We saw that every day. 

That makes it competitive, which is what you want. From a cultural perspective, you want competitive. If you’ve got your system that can provide all that stuff, it’s worth the investment in. We simply took something called Dental Vision, which was a Henry Schein product. We bought the code, and we modified it to our practices because we had big capitation practices, which most systems don’t really address. We had big orthodontic practices, which most everybody has some sort of side system, but the orthodontic business is totally different than the dental business. I mean, you’re selling patient financing essentially. 

While the codes are limited, you’ve got to know what’s going on with all of your patients and who is paying and who is not because if you don’t all of a sudden you’re going to end up  with a lot of bad debts. That whole system reach, it touches a bunch of stuff. It touches your collections. It touches your insurance. It touches whether you have bad debts, whether you have issues. That’s why we came to a common system. There aren’t a lot of guys right now that really have common systems. 

That was one of the caveats when we acquired. If you don’t want a change of system, you’re dealing with the wrong guys. Because we’re going to change your system. We’re going to train you. We’re going to put you on it, and realistically at the end of the day you’ll love it. 

Brandon: For smaller organizations, 20 to 30 locations let’s say, you mentioned for you guys you were able to build some of your own solutions to make those systems. I guess my question to you, for the smaller organizations, what are some common pitfalls, if they are 20 to 30 locations and they’re looking to potentially grow to 100 to 200 locations, what is some advice or pitfalls you would recommend to give them? In addition to, if they can’t build their own systems here, what’s the advice you have for them to have the same success that you have had? 

Rich: I think they need to over-invest in an IT professional. That’s really the criteria. If you can find the right IT folks, you can kind of overcome some of those things. It takes a lot of money to do it, but realistically if you under-invest there, I think you don’t identify problems. If you have 30 or 40 offices and you have 2 or 3 systems, you’ve got to be able to get that data. Like I said, you need to invest in an IT guy or gal. All of this is as important as the HR function. You really need HR. Those two things are critical. A dark office can kill you.

Brandon: Just going back to the data part, the importance, do you have any go to numbers that you look at to do a quick gauge of financial health? You said you look at the data every day. What were some of your key data points that were driving factors you look at on a daily basis? 

Rich: The report was fairly complex, but you know the first pass at it is you look at what the numbers look like. We have budget, what the UCR would be, our recovery rate on those fees would be a breakout between hygiene and GP. On the specialty side, separate reports to see what they would do. You look at how they were vis a vie the budget, and if they were close to that or on target or whatever. There’s nothing else you need to do. You would identify locations that were way high or way low so you knew if you had some sort of issue. Like I said, it just identified potential problem points.

Most of the time there weren’t a lot of problems. They just might have had a bad day, but sometimes there were. The report was complex. Like I said, there was a lot of people that looked at that thing every day to make sure that it was operating well. Everybody has their own set of criteria. That report and what it is today and what it was when we started is totally different. As we got bigger it got expanded because people wanted to look at different things. Recovery rate is important. We also knew, because we had so much capitation, especially in Michigan, we looked at that and saw how we were doing on the capitation side versus the other business. 

You can lose capitation payments. Somehow you thought you had them but you don’t. So, you need to follow up on that too. There’s so many business items that need to be identified. If you have it so that everybody understands it, we trained everybody on how to use it, what it means and what you need to do. That information is critical. A lot of people don’t do that. A lot of people at the end of the month, they push funding, but by the end of the month it’s too late. 

Brandon: One of the things I wanted to unpack a little bit is around the cost control side of things. From CureMint’s perspective, we’ve been in the space for about four or five years, we’ve seen a gradual increase around cost control, particularly around spend management and supply expenses and that type of thing. It’s still interesting sometimes. We will have conversations with really large dental organizations with hundreds of practices that have no procurement process in place. It’s typically multiple e-commerce sites. All of their data is reactive, like what you just mentioned, where they will get a report 45 days after the fact. They’ll look at it and train. What are some of the reasons why you think that procurement versus other industries is something that hasn’t really caught on as a priority to the DSOs? And what is it do you think has happened where it’s becoming more on the radar of something they should approach?

Rich: Prior to Covid, it really wasn’t on people’s radar because it was such a small percentage of their P&L. Now at Great Expressions we had a purchasing department. We had somebody that looked at that stuff a lot and did negotiations, but at the end of the day I think everybody negotiates with the Scheins of the world, the Bencos of world. I think people negotiate and they think they get a good deal. What they don’t think about is the use. 

So, you might have a good deal from Schein, but if you need to use one and you use three every day, there’s a problem. When I go into a dental practice there are first places I go. The first place I go is the supply room to see what they got. The other reason I do that is because I rarely see one that has a tight control over that. That stuff is slippery. It vanishes. You need to get that tied down. It’s hard for people to understand. Like I said, when you go from three percent to six percent that’s why they’re looking at it because they see it. I’m losing a couple percent. Our target was always 20 percent of practice income. If we hit that, we felt we were doing okay, but all of a sudden your practice income goes from 20 percent to 12 percent, you got to look at that P&L. 

That’s an important thing. You need to have some sort of inventory control, which I think you guys provide. But also, you need to understand if you need the ability to do multiple vendors and CureMint can do that, you don’t really care where it comes from. That’s why they’re looking at it now because it’s kicking the crap out of their P&L. That’s an issue. Number one, if you’re thinking about selling to a PE guy, you want to have the best EBITDA you can. If you’ve already got one and all of a sudden that EBITDA disappears, the PE guys are tapping you on the shoulder and saying what the hell is going on, and you’ve got to be able to figure that out. 

That’s why because like I said, everybody can negotiate, but you’ve got to control those costs. They don’t seem like a lot but they are. They’re a big deal.

Brandon: On that note, obviously there’s this idea of having solo practices or your solo practitioners, individual offices versus the DSO space. What is your thought on the market in general? Do you see them as competition? Are there things that solo practices or smaller practices can look at in DSOs to replicate? What are your thoughts on the dynamics between group practices versus the solo small offices?

Rich: The one-off guys realistically control all of that in their head, unless they have a big practice. I don’t think it’s as important to them because they probably feel they can’t really negotiate with the Scheins of the world like the DSOs can. They know they’re using it, so they’re probably okay with it. But once you have more than ten stores all of a sudden it becomes a big deal. I think it goes up on the radar. What do you suppose Heartland purchases a month? It’s got to be a huge number, right? Because it is a huge number, the bigger you get, I think that’s why there’s so much focus. Plus frankly, the DSOs have resources. They have the ability to go hire people. They’ve just got to recognize it’s a problem. 

I agree with you. I think a lot of people don’t think of it. They think of it dimensionally. They think oh I got the best price I can from Schein, when in fact, that’s not really the issue. It’s what do I use. I don’t know, there are very few organizations – I don’t know if you have run into any – that really track the usage. If I get back in the space again, that’s one of the places we’re going to look. You’ve got to keep track of that usage. That’s all there is to it.

Brandon: That’s an interesting point. One of the things that we discuss is we’ll often have clients that will come to us and their goal, the way they approach the CureMint platform will be how do you save us money. So, thought is I’m at six percent. How do I get to four percent. Their initial solution that they bring is “when I buy this widget I want to be able to shop that widget around to find the best price of that widget at any given time.” We call that the marketplace or price comparison. 

So, one of the things we often try to educate here is we don’t want to make sourcing decisions at the point of purchase because that’s not very scalable at the practice level, your lead assistants, and that type of thing. What you want to do is actually have the negotiations like you just talked about. So, the idea here is that it’s a repeated process that goes through and places the consistent orders on the probability that that’s the lowest price point over time. As you look through an organization, if you were to buy five to ten locations and you started going into their supply closet and their P&L, what advice or how would you convince or convey the importance of it’s not about the widget itself price point. Obviously that’s important, but it’s the ability to drive consistency around what are you ordering and at scale. How would you communicate that to some of the smaller offices who don’t see it that way?

Rich: That’s a tough question. I think what they need to do and what I would do is simply spend a day or two and see what the heck happens. How are you using it and where are you using it and why. I think if you did that there would be a revelation of stuff that just gets tossed out. The way I would design it, and this is what I would tell them, I would literally have the supply room, have that shut off, where there’s software that can track things in and out. I would have an inventory of the basic stuff at every operatory, and then once that was completed, every day I would replace it. Then you have some assemblance of control of what’s going on. Who knows what’s getting thrown in the wastebasket or going out the door. I’m trying to think of dental things that might go out the door, like gloves or whatever. I think that’s really where they have to focus. That’s not a lot of time, but that’s what I would do. 

That’s where CureMint can help the solo guy out a lot because he or she doesn’t have that ability right now. You give them that ability so they can say, oh crap, “I’m using all this stuff, I wonder why? Maybe I shouldn’t be.” That will click in their head. Selling to one off guys is as hard as selling to a DSO. It’s still an important part of the deal.

Brandon: The idea here is consistency, driving compliance towards a handful of items that you feel is best for your practice, the most value versus kind of having the wild west of whatever you need at that moment. 

Rich: It is the wild west or it can be.

Brandon: As you look at an PE firm and their role in an organization, where do you feel a PE can encourage a DSO around their bottom line? We’ve talked about revenue and growth. If you partner with a PE firm, what can the expectation be of their involvement with your dental organization or what would you recommend the involvement be, and where do you feel like they most provide value to the DSO?

Rich: Certainly at the larger organizations they play the role of the board, they’re obviously on the board. They have board member advice. It’s more like asking questions of why are you doing it this way, what’s going on? If we just look at the P&L, this is the kind of thing that stands out and why is that happening? I think that’s at the higher end. At the lower end, I’ve dealt with a couple of PE firms recently that are smaller. Literally, they will put somebody on site to help you out. And that’s an extra pair of hands, it doesn’t cost you anything either. You get free stuff. They all charge a management fee, but it’s included in that, if you can get that kind of help. 

Most of those guys are pretty smart. They’ve come out of some MBA program some place so they’re knowledgeable and they can help you take the data and figure out what it means. If you can find PE guys to do that, assuming that’s what you want, I think that’s helpful. 

Brandon: On that topic, as you talk to and advise, what’s one point or some advice you would give to a smaller merging DSO in the market? What would be some of the things you would advise on?

Rich: Well number one, I’d look at the business model, because I’ve looked at a number of smaller DSOs recently. I think they make a mistake. The mistake is they try to buy too much diverse stuff at too many different places. That’s my bias. My bias is I want things more the same, and if I buy something that’s different, why did I buy it? People buy high end practices because they think they are very profitable, and on the surface they are, but if you lose that doctor, all of a sudden that kind of goes away. 

If you don’t have some idea of where you think you should be from a model perspective, I think you have got to think real hard about why you’re doing it. If you’re just doing it to flip it, you will be able to do that once or twice maybe, but that’s going to catch up to you. I went to GEC to make it a legitimate business. Not that it wasn’t a legitimate business, but one that I’m particularly proud of and it’s got a good reputation, a good name. But if you’re just kind of coddling the things together, you’ve got to think about – if I’m going to sell it fine – but does that really represent what you really want to do? That is fine, but realistically, I want something that’s lasting. I’m preaching a little bit, but that’s what I believe in.

Brandon: That’s good. I think it’s great advice for people looking to pursue this.

Rich: Yeah, because it seems easy. What everybody needs to understand is that all of these are professional service organizations, and I think people kind of forget that. It’s not any different than a law firm or a public accounting firm or medical practice. These are professional services organizations, and they’re dealing with patients. So, you want to make sure that you’re doing the right thing by the patient. There’s no problem making money at it. If you do the right thing by the patient, you’re going to make money. That just happens. 

You have to think of it that way because a lot of the time people don’t think about the dentist or the hygienist as professionals and that’s essentially what they are. The dentist has gone to school for probably eight years. You got to respect them and respect what they’re about. You can guide them because a lot of them don’t have a lot of financial acumen. 

At Great Expressions we called it “church and state.” We had committees, groups that talked amongst each other. So, church and state is simply you leave the clinical stuff to the clinical people. You leave the business stuff to the business stuff to the business people. You need to have some sort of intermediaries that when you get together you talk about what you’re going to do. I’m going to give you a great example. I have two great examples at Great Expressions which are changing experiences. 

One is introduction of into the practices. Realistically that changed our hygiene model dramatically. From a business perspective you just saw what you could do, but you had to make sure the clinicians were onboard, because some didn’t like it. So, you had to make sure they kind of got together.

And the introduction to Invisalign, I have to tell you, I had to fight to get Invisalign into Great Expressions. We had strong orthodontic practices. I think the orthodontists have come a long way in understanding what Invisalign does, but I had to convince them that that was the thing to do, and we were going to train everybody. That took some time. Eventually at the end of the day, I mean I can tell you there’s probably not an orthodontist or a GP at Great Expressions that doesn’t love Invisalign now because it’s an additional service. It opens different markets. 

You have to communicate with them. That’s the big thing that I believe in is that the doctors and business people have got to communicate. You don’t always talk each other’s language so you kind of get interpreters. 

Brandon: Final topic I wanted to talk on was around the industry itself and the trajectory of it. First, there’s a certain amount of offices that exist in the United States. Do you see the market purchasing each other? So, the continued growth in the DSO and the acquired already existing practices, or do you still see a growth of de novo and the actual amount of locations continuing to increase?

Rich: Let’s take Aspen and Pacific, they’re not in every market. Again, the way their business works is they just don’t buy. Although, Aspen did buy Clear Choice. That works for them. Do I think that will work? I think it continues to work. That’s not what I would do because I think it’s a lot easier to buy practices, I believe, than to build them. The path to profitability is a lot quicker. 

Do I think there is going to be a giant explosion? No, actually not. I think they’ll enter into markets, but the population of the United States isn’t exactly skyrocketing so it’s going to take on that same kind of trajectory. Now, if all of a sudden Aspen wants to go into some market that they’re not into, they’re going to probably build 20 offices. Again, that’s not going to be a big impact on those markets. We just have to see, but I don’t think there’s going to be a huge trajectory in the number of dental practices in the United States. I just don’t think that’s going to happen. 

Brandon: Earlier you mentioned roughly 20 percent of the market, I think that was the number you mentioned, that’s consolidated. Will it ever be all are consolidated or 50 percent? What do you see in terms of that trajectory? Do you feel like the market has peaked? Do you see it continuing to grow? What do you see over the next couple to ten years?

Rich: I think that 20 percent is, you know, going to be in the high 30s. That would be my guess. There’s going to be some place where it probably will plateau. I don’t know where, but I can’t imagine it going much over 50 percent. It doesn’t make a lot of sense. It depends on the healthcare delivery system too. There’s still a bunch of one-off MDs all over the place. That’s been consolidated over a number years but it’s still been very slow. I think the impact is going to be – will some of the larger organizations get involved in the insurance business? Will they leap over the suppliers and go directly to manufacturers?

Some I suppose you could put together your own dental school if you wanted to. Produce your own. The dental schools are shockingly as different as the DSOs. Some dental schools concentrate on one type of dentists, others on another. Will they ever do that? Yeah, I think that’s possible as they get bigger. 

Brandon: I think that’s an interesting point around the supply side of things, going direct rather through distribution. What would be some of the reasons why? If the goal is obviously to decrease costs, in particular the P&L around expenses per revenue, what are some of the reasons why dental organizations will continue to go through distribution? What’s the value add for them there versus potentially going direct? I want to get your thoughts on that. 

Rich: The direct has to be simpler and it’s got to be at volume because the manufacturer is not going to want to ship to the one-off dental guy or the guy or gal that’s got ten practices. There’s got to be something in it for them. Schein is a public company. Benco is not but Schein is. I think Patterson is a public company. I mean they make a lot of money. Some point, somehow if you can take that cut out of there, the Schein people would kill me, but if you take that cut out of there, that’s going to go right to the dental practices. So for supplies, could they be one percent? I don’t know the answer to that. Could they be two percent? Maybe. 

Brandon: For the dental organizations you look at distribution around the other components, whether it’s services and quality or anything like that, what are factors or reasons why you don’t think it’s happened from a DSO perspective yet? Some of the bigger ones?

Rich: I don’t think they’re big enough yet. As we talked before, I’m not so sure it hasn’t been as important in the past. Realistically they’re going to enter into another business. They’re in the dental business. Some of them are in the lab business – we haven’t really talked about lab – but some are in the lab business. Do we want to get into the procurement business? Is there enough saved by going direct to the manufacturer? Can that happen? I think the answer is yes. Again, it’s the same thing in the insurance business. The insurance companies make money. So, does that make sense and can you provide better dental benefits to employers by going direct?

In the past nobody has been big enough to really be able to do that from a nationwide perspective. Heartland is creeping up on it. Also, if you’ve got regional density, like Great Expressions, we have big regional density in Michigan. We had decent relationships with the car companies. We struck out once, but if I was still there we’d keep going back at them to see if can’t get their business. I don’t know how many Ford Motor employees there are in southeastern or lower Michigan but a lot. We had plenty of offices, 60 some offices. Again, it’s going to lower the price for them too or better yet, it’s going to make the benefits to their employees better and the HR folks are always trying to do that. 

Brandon:  Right. Awesome, well I think that’s pretty much my list of questions. So I guess to wrap up, is there anything that I didn’t cover that you think would be a good topic to discuss?

Rich: No, I think you pretty much hit all the hot topics.

Brandon: Awesome.