There are many reasons our contacts are curious about the Dental Service Organization (DSO) space. Private equity backed dental groups are growing rapidly. It is estimated between 14-18% of dental practices are now associated with a DSO, and that percentage is expected to continue to rapidly increase. Our clients tend to have between 1 and 20 locations. They have the appetite to grow into a DSO or multisite group to roll up to a DSO, or be a platform for private equity.
When we engage with clients to build out a DSO, we move together through three phases. We immediately share with them a Project Timeline as well as an Operational Assessment Questionnaire. The Project Timeline provides the high-level concept, the process, and the time it takes to build. Our Operational Assessment Questionnaire gives us a better idea as to where our client currently stands as we think through how we want to structure the first meeting. We could learn the answers over time, but we prefer to go in to the planning meeting already knowing our client.
Building out a DSO is not easy, and it takes a significant commitment. That’s why we like to break it down into actionable phases, guiding our clients through each step.
The first phase is putting in place the strategy.
This phase typically can take anywhere from 1 to 6 months. It involves the planning and structure of our endeavor. Before setting the first stone, it is of paramount importance to know why we are building something and where that something is going to lead us. This will help drive decisions for the multitude of questions that come from this stage. The answer to each one informs us about the next.
How much EBITDA will we need?
How many locations we will need?
How much capital we will need?
How much capital is currently accessible?
How fast or how slow will we need to move?
What services will we offer?
What does the ownership structure look like?
Who will we grant ownership to?
Who will we partner with?
Will we grant it at the practice level, JV level, or management company level?
Who will get equity at each level?
The last question is extremely important. The owner is typically a doctor owner of a single or a few practices and will need to morph, over time, from being a doctor to being an executive.
Each of these questions guides us through two of the biggest challenges we will face as we walk down this path. First is funding, especially if it’s through banking as we hit the bank debt funding wall. Second is the identification and retention of quality associates.
Our second and longest phase is the Operating Model.
With the strategy phase as our guide, we implement the answers to our questions to create the systems and processes we need. This typically takes 8 to 12 months. During this phase, we form the service lines and functions that align with the company’s mission, vision, and values. For example, if we plan to have a finance department, we know we will need monthly reports, accounting functions, patient financial services, potentially a call center service.
We determine what systems we need to put in place to accomplish these functions, and compare it to what we currently have. Where appropriate, we vet new systems. Once the proper systems are identified and created, we standardize them across the company.
Next, we address the processes. We start with the question, “How will the systems be used to accomplish the functions?” The answer will become our Standard Operating Procedures (SOPs).
The final step is to determine human capital. Your new team members will need to understand and be accountable to the systems and processes we’ve created. In order to help them and maintain alignment in your vision, we serve new employees through tools like the employee handbook, job description, performance review, and employee development.
Our third and final stage is execution, implementation, and managing.
By this point we have moved all the way from why to how. Together, we are ready to introduce the systems, processes, procedures, and team members.
Leadership is what brings it all together. We “train the trainer” to ensure he or she has the knowledge and accountability to ensure the SOPs are adhered to and the systems are executing. In order to ensure these become second nature, follow-through and consistency are key during this phase. We help by implementing some control processes and suggesting check-ups to hold the team accountable and ensure we are walking along the same path.