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1308 Andy Graham on Building Quality DSO's : Dentistry Uncensored with Howard Farran

1308 Andy Graham on Building Quality DSO's : Dentistry Uncensored with Howard Farran

12/9/2019 6:00:00 AM   |   Comments: 1   |   Views: 197
Andy Graham has nearly 40 years of investment, advisory and financial services experience. He has worked with a wide variety of businesses sectors and stages. Mr. Graham has demonstrated the ability to identify companies with unique products or services, and he has actively supported their growth. Andy Graham’s first experience with dental support organizations was acquiring the assets of Upstate Dental, the predecessor to Aspen Dental. Upstate was a seven-office group practice with offices in northern New York and Connecticut. After the business was stabilized, Upstate completed the acquisition of a three-office group owned and operated by Bob Fontana. Soon thereafter, the company was re-formed as Aspen Dental Management and Bob Fontana was named its CEO.  Mr. Graham served as Aspen’s Chairman. From 1997 to 2006, Aspen developed all aspects of its business model and grew exclusively through organic measures from 10 to 100 offices, generating annualized revenue and earnings growth of 30% and 31%, respectively. Ares Capital acquired Aspen Dental in 2006. Today, Bob Fontana remains CEO of Aspen. Bob’s leadership has built the company into one of the largest and most successful dental practice management companies in the industry.

VIDEO - DUwHF #1308 - Andy Graham

AUDIO - DUwHF #1308 - Andy Graham

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Howard: It's just a huge honor for me today to be podcast interviewing Andy Graham MBA founder and managing director of APG Partners, partner at Acorn Dental Partners who provide growth capital and active advisory services the dental groups with more than five offices. Acorn was founded by Dr. Todd Christie I assume his brother Tim Christie is that his brother?

Andy: That's right

Howard: and Andy Graham who has no relation to Dr. Graham who invented the graham cracker it's an indigestion treatment I already asked him. The Christie's have worked together over the past 20 years having developed Christi dental and dental partners Andy Graham has been a private equity investor for nearly 30 years his firm APG partners focuses on identifying businesses which require 1 to 10 million of capital for growth or recapitalisation and whose business models are highly unique. Once invested APG partners works in concert with management to create market share leaders and maximize shareholder value. Mr. Graham also provides board-level advisory services to select companies in the healthcare industry his specialties include management buyouts recapitalisation growth financing and governance. He has participated as chairman board and Weiser e board of Aspen dental Andy Graham led the acquisition of upstate dental management subsequently renamed Aspen dental management from its founder upstate offered dental practice management services to ten offices located in the Northeast, the founder of upstate dental had created at a unique business model combining practice management with in-house lab services focused on serving non-compliant patients APG perceived the business model is unique and addressing an unmet need by upgrading and scaling the operations APG believed the company had the opportunity to become a dominant provider of dental practice management services by 2006 Aspen Dental was considered one of the largest and most successful dental practice management businesses in the country. The company had developed a high quality leadership team a proven model for providing valuable practice management services and a comprehensive set of unique long-term incentive programs. Executing a steady growth strategy the company's value grew appreciably over an eight-year period in 2006 the company was sold to Eris management. I think we should just start there I mean how cool is it that you were the initial private equity Aspen Dental I saw Bob Fontana the CEO here about a month ago and he's the president and CEO of Aspen Dental my gosh, is that the biggest home run in dentistry you've done to date?

Andy: Yeah it'll take a while before I can do that one again it was a real thrill.

Howard: Well you know I wanted to get you on and talked about that because you know when I got out of school the big bad boogeyman was capitation dental that was back in 87 there's always something and right now a lot I remember when the first Aspen rolled into Wichita Kansas you know is like one location and like 300 dentists were just like freaked out of their minds and it was like they were invaded by aliens but I'm gonna start with them DSO's I mean you're the guy who first sought out Aspen what what are your thoughts at the DSO market now as we're approaching we're just a month away from 2020 where everyone will see clearly how do you see DSOs clearly?

Andy: I think there's a real place for DSOs but I also think that they need to be considered and organized as they are intended as people I think commonly understand there's a regulatory distinction that is in place between the management company and the PCs of the clinical operations and the intention I think is really well founded and so my belief is that management companies that serve their patient their patients and their their clinical community really well serve a really great purpose where I think some DSOs falls short is when they don't fulfill that promise of high quality management services. When I first got to introduce to Aspen I was brand new to the dental industry and so this was something which I came to learn pretty quickly but what I was initially seeing was that they had identified a very meaningful unmet patient need and they had a unique way to deliver their service and in particular they'd integrated lab services into their management company so what they were able to do for a core portion of their patient base was provide them a lot more timely service by providing their lab services either same-day or very timely after the patient come in and that integration of service really propelled their focus on that particular patient but also gave them something that distinguished themselves in the market. Of course we built a lot around that there were many many services or functions that needed to be developed to create the de novo model that asketh become but at its core I perceived that there was something really unique and distinctive that could help patients and was being unmet and so that is a very good example in my opinion of how there can be a distinction between management services that provide real value in the clinical portion of these systems that are providing real real quality patient care.

Howard: You know I lost a great patient on to Aspen Dental for that very reason when I realized his denture I had to take an impression send it to the lab and he said Howard I mean if I just go to Aspen and it's half the price you they do it right there while I wait I don't have to walk around without my my teeth in and be embarrassed I just go in there and sit on my smartphone for an hour and they'd you know so and I also liked about Aspen where they're focused they go to the lower-cost areas where it's Medicaid and the dentist all over dentaltown they tell you they don't like Medicaid I don't like Medicaid because when you do business with the government and somebody makes a mistake you're you're a criminal and you know when you make a mistake with Delta, Delta looks at it like okay here's a mistake we need to work on this but the government is so heavy-handed in Medicaid they run off all these providers they pay significantly less money and then they threaten you to go to jail if you make a mistake. I know a dentist whose wife made a ton of mistakes and it ended up they were both gonna go to prison so they had to go to Mexico he's practicing in Mexico because his dingbat wife made a gazillion Medicaid mistakes and they said you know she's a criminal.

Andy: Interestingly enough Howard when we first got started we actually just made the decision to diminish the amount of the number of patients we were seeing from government-provided payers now that was not an easy decision for us to make but we were really actively managing schedules and we had to make some judgments about how to best fill our schedule so at least when we were first developing Aspen this may have changed since but during my period there we took much less of the government payer mix than people might have assumed we were actually dealing to a large degree with the uninsured and very little of the government the government payer mix was part of our business plan there was a lot of people there were a lot of people and I think probably still are who simply had meaningful long-standing dental issues and to some significant degree were a bit ashamed to go to the dentist and what happened over about a nine year period while I was involved was we worked really really hard to come up with you know over some overall positioning where that type of patient who they could have been very gainfully employed but they may have had some long-standing health issues they simply weren't comfortable going to the dentist and so we came up with a set of initiatives as well as a way to market Aspen to make it more comfortable for people to come in in our clinic in a clinical setting and receive the treatment that they needed of course it didn't go well the whole time we you know we were learning as we were going but we that fundamentally was the basis for the Aspen's develop and and very little to do with the government payer system.

Howard: So you acquired the business Aspen from founder and served as chairman and grew it from ten million to a hundred million then sold to Ares Capital when you acquire the business from the founder was that Bob Fontana?

Andy: No it's an interesting story the founder had been an individual who had owned some dental labs and so what he had been doing was providing dentures and various prosthetics to the dental community and he decided that he could create his own management company he felt he could help dentists manage their practices and also effectively benefit from the I'll call it the retail sale of prosthetics and not simply selling directly to the dentist so he started his own version of a DSO and he had gotten that up to about seven offices and then I heard that I hadn't met I didn't know this gentleman but I heard that somebody wanted to basically sell what he had developed and so I got on the phone met him understood what he was doing and came to see that what he was doing in my view was unique in this integration of lab services and the type of patient that he was focused on and so I bought the business from the founder soon after acquiring

Howard: Who was who was the founder?

Andy: His name was Richard Adolfi and he's no longer with us as I understand it I haven't been in touch with him for decades but he stayed involved for a very brief period the business that I bought actually was had some challenges initially so we needed to stabilize the company and the only acquisition that Aspen made while I was involved with it was buying Bob Fontana's three office system. So it turns out Bob had actually worked for the original business and learned something about how the company had operated and so this original company was called upstate dental an upstate dental was found was started by Richard Adolfi. Bob had actually started his career in the dental industry with upstate but saw that there was a better way to do it and so he had left and he had developed his own three offices because I wanted to improve some various aspects of upstate we ended up buying Bob's three practices to meet his through his his his operation that included three practices at that point we became ten we had started with seven we became ten after we bought Bob's and Bob was very soon thereafter made the president and CEO of Aspen so that all occurred within the first year of my ownership of Upstate. So after we had purchased Bob's three offices we renamed upstate to Aspen Dental Management so the Aspen as we know it today the name and and the positioning all occurred after we had brought Bob in and made him the CEO. Bob's an incredible operator he there wouldn't be an Aspen as we know it today without Bob, I was very involved in actively interacting with Bob as the business developed but fundamentally it's all about he's a he's an incredible operator.

Howard: Yeah I was surprised I saw Bob like say a few weeks ago just opened up his third call center and he's got one in New York one in Chicago one in Phoenix and they're only for his stores his what six hundred seven hundred locations and I mean it's this huge building call center and then I'm trying to explain the dentist that you know how serious these guys are operators that handle their phones and Dennis there's 168 hours in a week they only answer the phone 32 hours they'd never know how many incoming calls they have they advertise you know Aspen advertises a separate number for new patients versus existing patients they prioritize that because they know an existing patient will put up with a little more inconvenience than a new patient who can just call someone else I mean they're just massive operators to you know yeah that is an amazing story. I see that Richard Adolfi founding member Aspen dental and dental sense former CEO of mydental.org in Charleston South Carolina.

Andy: Oh I'm sorry that actually I should I need to correct you on that I think that maybe his son he and he was with Upstate briefly after I acquired the business and then he went on to do other things but it was the father who was Richard and then there was a son whose name is RJ. and that's probably or goes by RJ and that's probably who you're seeing based on your search. The father who is the founder of Upstate dental I believe has passed away.

Howard: Okay interesting, so when you're in the very beginning you start explaining that that you said that I'm that alluded to that the management team needs to do its job helping the dentist manage I noticed like on Aspen Dental like if you pull up today there's a news deal on Aspen that says three Aspen dental practice owners Dr. Ashley Keene Florida, Dr. Curt Lose and and Dr. Nathan Oaks are now board of directors of the American Academy of clear liners but when you go to the website it says you know Ashley Keene Ramirez lead dentist but when it says the Aspen location it says our Dustin Dixon DMD Holdings plc so that's the local dentist corporation that Aspen sets up so they can manage it and you you were saying that the dentist needed to do you know there's out that that you like to design it that because that's what's better for the patient?

Andy: I don't know that specific example but I think what let me let me respond the way I based on what I think you're getting at there we there's the there's clearly a group of activities that occur within the management company itself and then of course all the all the dentistry is occurring on this side on the professional corporation side obviously depending on you know might have a different reference depending on the state but we during our during my tenure with Bob and this was really Bob's initiative one of the key things we were focused on is how to best align people's interests and so in this case clearly the doctors are critical to the success of you know the provision of any sort of dental care and they're critical to the success of the DSO and Bob really wanted to elevate the alignment between the doctors and the management company in a traditional sense they were not necessarily at odds but they weren't nearly as aligned as they could be there as you probably know there were any number or wait you know fundamentally people would be compensated based on their level of production that was the most basic way to compensate your doctors. What we worked on and what what Bob developed was a version of an ownership plan where doctors could end up owning their clinic and with a fee structure that would be paid over to the management company. That got started while I was involved with Aspen and exists to this day and so when you look at the system I know I haven't looked at this myself recently but there probably are references to clinical operations that might have a different name might might relate to the doctors name and that would be something that the doctor actually owns and has as you would expect full control over but with the support of the management company. That was very very novel when we when this was instituted it was about 2005 ish when that was instituted so it goes back a ways now but I'm not sure anybody had done that prior to Aspen and Bob coming up with this concept at that time and that gave doctors a great deal of motivation to develop their practices and gave them a real sense of ownership in a literal and figurative sense for developing their four walls or their multiple clinics because what ended up happening was there were opportunities given to doctors to own more than one and with it with their own opportunity to monetize that down the road so they were developing both their current income opportunities as well as their long-term ownership and equity opportunity and that was distinct from the management company.

Howard: So a lot of them I always wonder myself personally it seems like the DSO model there's only three publicly traded ones in the world there's two in australia 1 300 smiles and pacific dental and then there's a there's another one M&Q in singapore but how come your Aspen's and Heartland and Pacific tunnels what why are none of these on NASDAQ?

Andy: It's a really interesting question out I'm going to answer this in a way that's a little indirect Aspen has grown worked almost exclusively on a denovo basis so that they're not acquiring they're developing they've developed virtually all their offices so you know I started with ten now they think they're close to 800 that's all denovo activity which is fantastic.

Howard: A quarter my listeners are still in dental school explain denovo.

Andy: I'm sorry so that if you denovo simply is going out finding a site and developing that site for the purpose of a dental clinic and then opening your doors and attracting patients and building your practice from there. That's distinct from acquiring an existing practice which is extremely common so most of the DSO market has developed based on acquiring existing practices there are too many very few that have developed through building their own practices Aspen is gone from ten to I think as I said it look close to 800 almost exclusively it might be exclusively from building their own practices and the reason I'm emphasizing this is that to a few things one the only way that works is if you really really know your model and what will attract patients it can take far too long and you the profitability develops pretty slowly if you're if you're not bringing in your patient flow pretty pretty timely in developing profitability pretty timely the Aspen's developed an approach which attracts patients really quickly and the profitability is developed quickly and it's very attractive both to the doctor and to the management company. It gives them control over their growth they can identify where their needs are and they can effectively plan for their future in a way that most dsos can't. So Aspen and my judgment would be an example of a company that could potentially access the public markets because they have a lot more that they have within their control there. Of course they're interested in so-called same store growth or same clinic growth where their each of their existing operations would be improving year-over-year that's critical but in terms of their growth and of course the public markets like to support growth they can control their growth in a way that very very few other DSOs can do that, so when you go to the more traditional model to answer your question their growth is driven by what their opportunities to buy things and you know you can you can always buy something if you're willing to overpay for it and ideally you don't do that ideally people are making good judgments and they're probably in there aligning interests and so on and so forth but it would be my view that if you're if your growth is being driven primarily through acquisition that's not something that underwriters that are that keen to support and the public markets themselves might have questions about can this be sustained and what am I willing to how should that be valued. It can be done it can be done effectively some groups have done it quite effectively. I believe I don't actually know the Heartland model terribly well that I believe the Heartland model also has its own Verte it doesn't operate the same way Aspen does but I believe they have a lot more ability to probably identify and control their growth so conceivably that could be another example I know they different ownership structure doubt but the real point of accessing those public markets is how people perceive your ability to sustain your growth and Aspen has proven to be able to do that I think others it's it's just a lot more variable the function of who's for sale what can you pay how are you gonna capitalize things there are all these variables that go into it probably make it harder to value and maybe raise money against that against those business models.

Howard: The naming affects the business model Bob Fontana of Aspen and Pacific Dental they brand their own names whereas if Heartland acquires a dental office they just go under their name right would you say that the most likely that could go public the who's starting mostly denovo's is just Aspen and Pacific?

Andy: Well I don't want to prognosticate on who might be different public but I do that I personally really like brand, coming up with a branded system that that's not a common many people would disagree with me in this regard the reason I like branding is that it to my way of thinking forces some common elements on both the management company as well as certain aspects of clinical operations which can be beneficial so that there are many things that I do like about branding there are there are other ways to do it where if you're providing real value from your management company you it strikes me you can operate and support independently operated clinics again to what I understand Heartland to do but the idea that an individual doctor who's retaining complete autonomy can pick and choose for instance if they're picking and choosing what they want operational almost untenable. So ideally you you've got some common elements of what people are agreeing to in the way the management services and then you're able to portray what you're offering to the community in a more efficient manner and I think branding enables you to do that so if you have yeah and at this point Aspen is probably doing a little bit of a little bit of both they're probably branding and supporting their management company brand and in the in the local markets I'm sure they're allowing people to find those individual doctors that own those practices, the whole approach to marketing has changed a great deal since since I was involved so it's a lot more localized and I'm sure there are ways that they're turning people to their local affiliated practices.

Howard: So when just one last question on public markets the smiles direct Club IPO was kind of let's say less than ideal I mean it fell substantially do you think that them going public and and what happened there um keeps people from wanting to take their dsos public or what was your assessment of the DSO the IPO of smile direct club.

Andy: I haven't studied the smile direct offering so it's a little hard for me to comment on that so I you know I don't actually know that that business model terribly well, ideally what you're putting out whether it's marketing to your patients or otherwise you're fulfilling whatever promise you're putting out so to the degree you know there's how do I want to play with this I'm I know that there's my understanding is that there's some clinical applications for what's what smile direct is offering that really work and there are others that don't so you've got you you may have some some feed if you will from the market which might lead people to believe that the opportunity for the overall market may not be quite as large as what people might what that what they might have originally thought when they when they bought into the IPO but I'm you know that's more of a product oriented business as I understand it than it is a services group so I'm less familiar with with what their what their business model is.

Howard: So let's that was a thanks for all the information about it Aspen the history you did another one on Dental Partners. Dental partners sold on priority dental partners Dr. Christie was founder and CEO majority owner Christie dental a Florida based dental practice management platform that he started as a single clinic and successfully sold two american dental partners in 2009 in 2011 Dr. Christie founded dental partners with the acquisition of a single clinic in Tennessee by 2016 dental partners had grown to 18 clinics in Tennessee Kentucky Georgia and Florida Andy Graham you know was chairman of gentle partners from 2014 to 2016 and you built that up and sold that I think you changed the name to what okay so dental partners was focused heavily on proving its core value proposition market positioning business process and control systems as well as refining the underpinnings of its growth strategy reflecting the strength of its dental network systems a management team, dental partners were sold to dynamic dental partners a portfolio company if here on Capital Partners in January 2017 at an attractive valuation soon after the transaction dynamic dental partners changed his name to dental partners and Dr. Christie became CEO of the company subsequently here on partners merged with another of its investments spring and cloud a pediatric and orthodontics specialty group into dental partners following the merger the company was renamed pure dental brands provides practice management service dental offices right here where I live in Arizona, Florida, Georgia, Kentucky, Michigan, Ohio, Pennsylvania, Tennessee, Texas, Virginia, that was another huge home run that you hit out of the ballpark how was a Pure Dental Brands doing now?

Andy: Well Pure Dental Brands is doing fine I'm no longer involved with that my experience with Dr. Todd Christie was fantastic I had met him after he had sold Christie dental to American Dental partners and he was interested in developing his second crew so he and I met as we were just you know sort of networking in the industry and he wanted to get some help on developing his second platform which was dental partners. So we started some work together and what he really wanted to do was two things he wanted to make sure that his existing management infrastructure was solid so that if he wanted to continue to buy which is how he had grown he had acquired some practices we wanted to ensure that his infrastructure was solid and that he could bring on new practices and fulfill the promise that he was making to his acquired required practices and at the same time we were taking a look at what he had really done well at the point that I joined so we and we we concluded two things that there was opportunity to really improve certain aspects which he accomplished he improved his marketing he improved his regional management he improved his payer mix he improved a variety of things and at the same time we concluded that he had chosen to acquire practices that basically weren't doing as well as the owner would like so he had identified relatively small practices that he knew he could help improve and so we spent a good deal of time sort of saying let's take a look at this more closely and develop for ourselves what that means for a future game plan as well as how anybody else who you might want to sell this this platform to would understand how you could help them and he had he had consistently been able to identify what amounted to underperforming practices improve them meaningfully and then everybody was happy so the doctor who was not necessarily struggling but not doing as well as they liked he got some he got paid some something for what he had developed and then over time he started to make a lot more money working within the dental partner system so that was a win-win for everybody. Todd decided that he wanted to sell the dental partners system and we went through a process and the folks at dynamic dental partners became the buyer and after the acquisition they made Todd the CEO based on his background and I joined the board as well and we did some work together there neither of us are with that business any longer that business was renamed pure dental brands and that was after they had merged their general dentistry practice with their orthodontic practice they had that the owners own two different groups and they brought them together and that's currently being operated that we're no longer involved.

Howard: That was on and if anybody from pure dental in Arizona I know there's a dr. Daniel King out here and on Scottsdale I know there's a Scott Josephson on DMD if you guys ever want to come into the studio and talk all things Pure Dental Brands that would be a very fun show. It's just amazing how many successful companies are going to go to another one yeah that we talked about Aspen and we talked about dental partners I know you're with ms it m is this right now and another one with Monaco but those aren't really dental related are they?

Andy: No I'm involved with two other well three other dental businesses currently one is called TenBrook  Orthodontics which is in New Jersey.

Howard: TenBrook ?

Andy: TenBrook  

Howard: Orthodontics?

Andy: mm-hmm

Howard: Okay

Andy: and that's a 11 office group owned by dr. Jim tan Brooke and dr. Tim TenBrook  

Howard: Jim?

Andy: Jim

Howard: Oh Jim

Andy: Yep TenBrook  

Howard: TenBrook  okay and tell us about the and then what's the other one you said you're in two other ones?

Andy: Well the other one is something called Access Health dental they're based in Las Vegas that's an eighth office group in Las Vegas and the third activity that I have that you mentioned at the beginning which is Acorn Dental Capital so I have my you know I'm involved with these three different opportunities now and it seems like I'm making a bit of a have a focus these days in the dental industry which I actually really enjoy it I really enjoy working with smaller groups and developing their systems. In the case of TenBrook  it's a it's fascinating in me at some level it feels a little similar to Aspen he has a unique he calls it theTTenBrook  system so he's got a he's got his own proprietary product that he's developed himself that he utilizes for his his orthodontia and he's got a focus on a particular target market in his communities in South New Jersey that's been very successful he's a very profitable system he's like toucan he'd like to grow it and so I'm gonna be helping him to develop his system further. In the case of access health it's a it's a group that is an example of a of an it's less branded then some I've been involved with we're working to develop that system a little bit further both both in terms of its branding or its positioning in the market also it's it's at the operational underpinnings it's it's doing quite well it just completed an acquisition of a great practice and we're continuing to develop that system. Each one of these has its own unique challenges it's one of the things that I really enjoy there's no way to really adopt a cookie cutter approach every founder or every leader of these companies has a different view of their future and what they're trying to accomplish what I try and do is assist that leader in accomplishing their goal since it come in different it can it can it can come in different ways and that's part of what I enjoy part of why I enjoy what I do is that you know every every project is different and every day is different.

Howard: So you want to start with a Jim first Jim TenBrook of TenBrook Orthodontics, now when you said in the beginning you step in when someone needs about one to ten million dollars and all the services you provide do when you enter do you have an exit strategy or a time period we hear rules of thumb that when people get involved they want to be out in five years is that safe to say you're not really?

Andy: Well in this in this case in these cases what what I've been what I'm doing is actually advising the company I'm not an investor so it's different it doesn't really apply you were summarizing from my website doesn't apply. My timeframe is basically the owners timeframe what I try and do is whatever it takes to help them accomplish their goals and the way I approach these things is I ask for a pretty modest monthly retainer and then I we arranged basically some upside over and agreed-upon current value of the company so that as it does well I participate in that upside with the owner so I'm not a direct investor in these and the time frames can range in this case in Dr. TenBrook  case it'll probably be well I don't even know it's probably anywhere between three and ten years and that's completely up to him.

Howard: You and I what what year did you graduate of my school I graduated 1980?

Andy: From high school?

Howard: Yeah what year?

Andy: 1976

Howard: You were in 76 so you're as soon as my sister Mary Kay who's a cloistered Carmelite nun 1980 was the worst economy I'd ever seen I mean we had 21% interest rates double digit unemployment inflation then I graduated from dental school 87 you know just right before Black Monday then we had the y2k collapse March 2000 then we had Lehman's day a decade ago to the older to the younger folks that does this smell like another I've lived through for economic contractions do you smell another one in the air I mean we know Warren Buffett sitting on a hundred and thirty seven billion in cash and does that affect your investments or your time period because you know if you were to invest a bunch of money and then the market D leveraged your exit strategy would be put off for five or ten years.

Andy: It's a really good question I guess the guy I don't sense that right now it's a very different environment than what you're alluding to in the 1980 where interest rates were extremely high created up to 20% for those who remember that was unbelievable I do see that there's a great deal of capital that's available I do have a little bit of concern that we're starting to see some I don't know bubbles if you will that it relate a little bit to valuation on certain sectors that are really hot although I don't you know I don't really spend a lot of time worrying about your question and here's why what I really am to do is build quality businesses without regard to an exit timeframe if you're building a quality business everything takes care of itself whenever the markets are ready. You do need to pay attention to the quality of the market condition and so if you've got the opportunity if you've got a really vibrant market as we do right now you need to be mindful of that and you know if you're ready then take advantage of it but if the business isn't ready or the owner isn't ready you don't want to just force something into a market because the market is good I think that if you're building a quality business if it's not one cycle a cycle it'll be another. There are those institutional investors out there who do have more rigid timeframes but they have to work within but I'm not one of them the timeframes are really not critical as far as I'm concerned as long as the business is developing and I feel like we're creating long term value then the exit sort of takes care of itself.

Howard: So what do you think Dr. TenBrook  long term plan is I mean he's got 11 locations they're all in New Jersey I'm he's a Harvard trained orthodontist who's been practicing for over two decades and has treated over 20,000 patients in South Jersey he developed a revolutionary TenBrook  t1 and T clear cell flight grading system which dramatically reduces patient's actual time in braces and provides more comfort during the process of tooth alignment what's your what do you think his long-term plan is he trying to get himself light grating braces system in the hands of the ten thousand eight hundred American orthodontists?

Andy: His plan is to currently develop his system further he has a great deal of opportunity within the communities he currently serves and then he he intends to grow his system beyond the eleven locations and he's looking at different markets that are in and around New Jersey in New York and Pennsylvania those that are you know relatively close to where he's currently operating you know he he does want to build his system which is distinct from selling a product obviously when you there are those people who sell they exist Damon and I otherwise to sell their brackets right now his bracket is sold almost exclusively within his system so we don't really have an ambition to develop a separate manufacturing operation and selling the bracket to independent orthodontist but that could happen over time he really believes in it he believes there are meaningful benefits in terms of the procedure time and how effective it is for his patience his pricing is different his again his procedure time is different and better so he believes he's offering something that's very distinctive and valuable for his patients and we intend to develop that further but not so much on a to sell the product direct to independent third parties.

Howard: So then so that was a great explanation of a Jim TenBrook  interesting name it's got two capital letters in it it's either a capital T n then capital B R hey I am I love a name or origination and it's a big deal out here I got a friend in it and they say basically in 1888 90% of the world's population couldn't read and write so when they rolled out the schools only the little girls went to school because if you're a boy and could build a fence or do something with cattle and dad wouldn't give you up and they taught that little girl phonetics and they said what's your last name and however she spelled it that's your last name and that's why you see last names pop up spelled four or five different ways and in a big County and the name people say yeah though they're all related just your entire the sacredness of your last name is how some eight-year-old girl spelled at a century ago so let's do the same with access health dental the president of that is Bill bootie air did I pronounce his name right?

Andy:  Yeah this one's different again this one was a system that had some this goes back a few years now this was developed by people who had more of a finance background and they had helped one business get established that's that's in the dental benefits area in Las Vegas and that business has been very very successful and through that dental benefits business they saw that there were opportunities to buy some dental practices in the Las Vegas community one of which was a mobile dental office and then there were some other more traditional land-based offices so they had gone about acquiring some and then they were determining where to go next and just through professional contacts they found me and they wanted to get somebody who is familiar with the industry onboard just to provide some guidance to the folks who were running the access health system and Bill in particular bills the CEO Bill's great guys doing a great job but he's not you know originally from the industry and so we've been focusing really heavily on on their operations and you know what they have what they don't have how to develop it and as I said a minute ago they just acquired why they have a dental director who's an excellent doctor he he practices with his brother and so we've just acquired the practice of the dental director and now we have both him and his brother a part of the system they have a...

Howard: Who is that?

Andy: I'm sorry

Howard: Who's that who's the clinical director?

Andy: He's doctor Gubler Dr. Chad Gubler had been and still is the dental director.

Howard: How do you spell Gubler?

Andy: Gubler

Howard: and well you know that was the that's a great segue for my next question because i think it's safe to say you know when i got a school in 87 there wasn't really any dsos to speak of then except for orthodontic centers of america and you know that was the only one that made it on the new york stock exchange and that was an entry-level business model of again just mergers and acquisitions of orthodontic practices that were too big you know the average dental office that sells is maybe 750 thousand to a million and they the founder of OCA realized these two three four billion dollar worth a daunting practices were illiquid he got a big hundred million dollar line of credit rolled them all up it was a liquidity deal but I am and then it imploded because when the selling doctor sold he had to stay for say three years and as soon as he left they replaced him with some young kid out of school and it didn't work and so I've always thought in my lifetime that the final business model of how a DSO would work or a chain of dental offices would work has not been invented yet it's been invented in law firms I know that people that go to school eight years to become a dentist physician lawyer they didn't go to school eight years to be my employee you know these are self directed ambitious people but the lawyers seem to have figured out half the lawyers are practiced solo and half the lawyers are in big group practices because it's an advantage in Phoenix to being a law firm that has locations in Washington Tokyo London you know depending on what you're doing and you have put a lot of thought into a unique dentist incentive plan aligning the dentist with the company yet when I look at these DSOs I mean they're they're average dentists only stays one year one to two years. I almost never meet a dentist who got out of school got a job of some big DSO and it's still there five years later seems like they top job to job year to year year to year until they're so miserable they finally open up their own dental practice so I know you've put in twenty years of thought in aligning a dentist's incentive with a larger corporation senate what are your thoughts on that?

Andy: It's a really good point okay I was commenting as you said I was commenting on this earlier there are two things that are on my mind as it relates to this topic the first is what the phrase that I commonly use is why do people show up it's which is you know as simple a question as you could ask in the first case it has to do with patients but it also has to do with your doctors why are they with you what are the benefits and ownership structures there are many ways to think about own you've alluded to legal practices they have their own version of that Aspen's come up with their own version of that. Other firms these days I think many are thinking about the same topic of how can they provide long-term incentives for doctors to stay within the system turnover is incredibly costly and you know in many cases you're better doctors if they feel like they have alternatives when they leave they'd be they you know they sometimes think of leaving and when they do leave it's a it's an enormous problem. So first people have to think carefully about how you can create long-term meaningful incentives for the doctors that's for number one the second is is the nature of the current income attractive and I commonly ask people are people better off with with our system than they would be with alternatives, well would they consider themselves better off if they were on their own would they consider themselves better off if they went to another group. Obviously people that I were they should companies should want to get to the point where they have a very strong feeling that the people are better off with them than with the alternative and so if you can find a basis for more patients coming being more efficient more profitable ultimately that will make its way to higher dental content as compensation. So it's another example of providing economic incentives which of course we all have to you know this is a part of life people really do care about this so can the doctor make more currently can they make more over time within the system you know is it simply a promise or is it realistic that they can do better the third thing that I focus on and this this is I think a bit unusual I quite literally ask people to think about the management company as an independent entity from the clinical entity. As I think we all know they get managed in some way where they're related to one another legally and rate from a regulatory standpoint they're they're different but there's obviously a close relationship but I ask people to say if you were running if you started a management company from scratch what would be the nature of the services the quality of the services that you'd have to provide so that people would pay you a healthy fee every month, that frame of reference should lead there to be very you know high-quality services being provided by the management company to their affiliated clinics so that there again if you can accomplish that you're giving a reason for people to stay than to leave is it easier to you know is it easier to have the management company do the billing is it easier to deal with payers is it easier to find your patients these are all things that if done well the management company provides to their affiliated dentists. I think in lots of cases it doesn't happen and so when it doesn't happen you find doctors who are looking around and it doesn't surprise me too much that people would if they're not satisfied with things that are being the services that are being provided that they'll look around.

Howard: So the dental management company needs to make a compelling argument that they provide more value and make your life easier for you said billing, payers, marketing, billing is that that's insurance billing payers marketing go go into more of what you think the value propositions be from a DSO to provide to a dentist where they would want to stay on the team because they just have to wear many hats. I'm a dentist I I saw I you know I worked several days this month it's it's hard enough to stay up on a root canal filling a crown you just have to wear so many hats what are these hats that you think a DSO should make it easier?

Andy: I think it's multifaceted with me we if you're running a business you know you you need to find your patients you need to collect your money you need to hire people we need to finance yourself you need to you know buy your supplies or your capital equipment you need to run your systems you need to find new locations you need to deal with your landlords you know as all you folks who are in the industry or your entrepreneurs you're running a business but you're also providing an important health service so you're having to wear these two hats and clearly the basic premise is that the management companies will make the doctor's life easier that's really a simple idea, I think sadly it doesn't happen as often as it should and that's what I'm emphasizing that across you know all aspects of the business side that things are done or it's made easier for the doctor and better. Now some doctors do it really well they may not see the value in a lot of cases you know it's a chore it may not be done nearly as well and so there can be real value here at some level I hate to be too simplistic about it but if if a management company is able to drive more patients than a doctor might otherwise see that has a ton of value all by itself and so I regularly focus on what are my systems doing in the way of marketing it's a very broad topic of how their how their attracting their patients.

Howard: Is that what are your core expertise?

Andy: I wouldn't say that no I'm not a marketer but I care an awful lot about it so I am ffice eyes it a lot.

Howard: When you say marketing for to attract new patients do you is that also the same as the call center do you see a call center as a big function of marketing moving forward?

Andy: It's a really yeah it's a I actually think that having that type of service can make a difference but if you do if you do it well if you don't do it well then it's like anything else it's going to it's going to become a problem. In the old days marketing was as basic as the 4ps product price promotion in place and so marketing is a you know a very it's an umbrella of a variety of things that have a bearing on what you're offering to your your consumer or your patient. That 4p reference is more of a product orientation that it is a service orientation but it can still be applicable within this industry it strikes me so when you're you know euphemistically a call center is a place so you the first point of contact by a lot of patients is who they have on the phone can they reach somebody and you know in a lot of cases as I think we know the phone isn't always picked up so clearly if that can be done better that that you know clearly is a benefit you don't necessarily know where your people are coming from in a lot of cases if you're running a traditional practice so here again and you come in early on with Aspen and they you can do a lot these days to identify who's contacting you and there a great deal that you can do I mean one of the basic questions is do you well. I commonly ask people what do we see what are we standing for but what does this serve what does this system stand for which sounds like a lofty concept but if it's as basic as what we provide dentistry or we want to grow that's not sufficient in my judgment it's better if you have a point of view on something so are you is it a family practice is it is there especially that you want to focus on or a particular service is it are you offering more value or you more convenient there are various ways to think about the nature of the people who you're trying to attract and then how you identify them and bring them in. This is not easy at all but and it's not something that most doctors would would have the background for or necessarily think about in my opinion I think more and more they may be the world of marketing and customer engagement awareness has changed so but but nevertheless it's something which I think can really make a big difference if you can do it well, it becomes a real basis for doctors to be a part of the system they come into their clinic and they have a vibrant you know active clinic if the management company is doing what it what it should do they're busy people love to be busy and the doctor might not have to do quite as much as they would otherwise do.

Howard: I know the young kids when you say the for marketing is simplistically defined as putting the right product in the right place at the right price at the right time the marketing makes the most commonly executed through the four p's of marketing price product promotion place and they get hung up that done is dentistry a product they call it a serave, how would you answer that to the kids in dental kindergarten school?

Andy: Yeah I would say that they're right, it's a service, it's an important service and you know they're critical the doctors are critical to the provision of that service there's no getting around that.

Howard: Well another cliche that they always get you always hear which to services well how does or we offer three kinds of services good cheap fast but you can only pick two good and cheap won't be fast fast and good won't be cheap cheap and fast won't be good do you buy into that or is that a yesteryear cliche that doesn't really apply anymore?

Andy: I don't know I think I kind of do I think when I what I feel how it is have a point of view that can help you with with your market positioning if if you simply want if you're trying to market yourself to broadly you're you're not going to distinguish yourself you're not going to stand out the question becomes why would somebody it's not there are many many alternatives ultimately and you know clearly there can be a reason if someone's moved into a community they want to find a dentist that becomes one type of consumer that you want to you know you want to stand out and and and find there can be other instances where people are not happy with their existing doctor what's going to distinguish you from the myriad of other alternatives that exist out there it could be that you say look I'm on this corner and those people who are within three miles of me I want to make sure that they know who I am it could go well beyond that but I feel like having a point of view is important, so are you trying to you know be the premium are you trying to be something different than that and then make sure that people understand what you stand for.

Howard: Well will you be if we're access health dental or the one the other one Jim TenBrook is it over supplication to say that you're coaching him to be good in chief which won't be fast fast and good which won't be cheap cheap and fast which won't be good or is that just again an oversimplification?

Andy: Yeah no I think there's no you know in the case of Dr. TenBrook  , he would I think very strongly suggests that he's all three of those he can do it more more timely at a lower cost and the quality is excellent so in that particular case you know there can be trade-offs you don't you know if you're if you're having to run or choosing to run too rapidly through your patience and you know there could be some issue on quality but I don't look I go back to the I'll go back to the Aspen example and this is one that I really believe very firmly in, what I perceived was a patient population that many people didn't want to treat and they didn't perceive the kind of options that most people had my perspective was and I emphasize this all the time is that there's no reason why they can't receive the same quality dentistry that the rest of the population receives so we may be able to do it a little bit less expensively but we ought to be able to do it with quality doctors in a quality environment where they're respected and because we were integrated with the lab services we could do it more timely and I think in fact that's what's occurred that's been proven out to a large degree through the development of the of the system.

Howard: So who is listening to you right now that should contact you what I'm you're on the show, lots of people are listening to you who are you talking to that should pick up the phone and talk to you?

Andy: Thanks for the question what we haven't we haven't talked about Acorn Dental Capital and I think that could yeah that could be a part of the answer here Dr. Christie and his brother Tim and I have formed Acorn Dental Capital to help small groups become bigger and we're doing that by investing or by advising so if you have a group and you want to basically look learn and access the expertise of our group we'd be happy to hear from them. We all really enjoy working in the industry Todd's built two different groups sold them variously he's been very successful so he's been there down that he knows where you know where there can be challenges he knows how to overcome them Tim was a CFO twice over and Tim's great at reporting and providing information that'll help people run their businesses which is critical.

Howard: Is he the little brother or older brother?

Andy: You know it's a good question I don't know the answer to that.

Howard: I got four boys, there's a pecking order with four boys Eric will always be the oldest brother so you're starting you've started acorn dental partners are you the founding are you a founding member of that are you the founder?

Andy: Yes the three of us in the founding partners.

Howard: So and is there a website for Acorn Dental partner?

Andy: Yeah not yet we're this is just we've been we were out in the market but not as officially as we will be and so the more the website hasn't been put out quite yet it's nearly ready but not up yet.

Howard: and again what are you exactly looking for with Acorn?

Andy: Groups that have five offices or more and simply want some support to learn what it means to get to 20 or more and so these folks will either want regular advice or they'll be looking for capital so it will be investing between five hundred thousand and two at two and a half million dollars to help these groups accomplish their growth plans.

Howard: Require 500k to two to five offices or more who require capitalization of 500k to 2.5 million?

Andy: Right, growth capital in that range from five hundred thousand to two and a half million.

Howard: and who okay so if somebody has five dental office or more and so you're a league up there my obviously this guy was the founder I mean he launched Aspen this is about as big as it gets I'm it was an honor that you came on the show so you're not messing with any wannabes who are a single dentist who someday want to be a DSO five dental officer more is a very interesting shows your level of understanding because I think three to five offices is the number one spot that I see dentists bankrupt you know they have one offices that's killer they open up another one they don't have the systems in place but they're muscle and driving around and having you know their assistant and spouse go fix that but by the time you get to three or four offices you're so big that your systems are not handling that little barking dog in the corner now that dogs that Tyrannosaurus Rex and takes out the whole institution so I would say at five dental offices or more you've already passed the mass extinction level event for most dsos so to get off the ground I mean is is that why you say five dental offices or more?

Andy: Yeah and as you might appreciate you know whether it's four or six what we do want is here's one of the things that I find so fascinating about the industry you got skill sets that are pretty different you can be a really excellent dentist but not necessarily have the background to to run the business as you would like you could be a really good business person but not have any comprehension of what it means to really be a good dentist. The DSO market brings these things together where you need both and what you have with these groups as they're developing you have to work through other people you you clearly can't do it all yourself so if you're a fantastic dentist you you know in Dr. TenBrook  's case he has two or three dentists but he started by himself and then he had to get himself comfortable with hiring the second orthodontist and then the third and what's important to us is that there's some comprehension of what it's gonna mean to utilize functional expertise and work through others but you can see that and you can have some experience with that but it's hard, it's hard to make judgments about who and when and how and so were you know we're really eager to help those folks out who have a perspective of where they want to go yeah for myself I'm really keen to understand what are you trying to do here and I'd written you something before we got on the phone together but I'm really not that keen if someone says well I want to buy businesses I want to consolidate the industry and then I want to sell this that falls flat for me that isn't a good reason to develop a DSO and might in my judgment. The DSO should be a very high quality business in its own right and provide real value to the clinical community and there could be real value to the doctor's real value to everybody that's real work and we want somebody we want those groups that have identified that we sort of gotten through that initial phase and have some level of comfort that they had to hire a few people for functional roles give them responsibilities manage a few doctors who don't necessarily own part of the practice or you know maybe a little bit or none and so this whole distributed reset of responsibilities is something that we want to see some evidence of and then we then we're gonna help people grow from there.

Howard: and how do they contact you?

Andy: They could contact my they could contact my email or or me by cell phone probably email would be best and I'm not sure if that's gonna be up on the site or not and I wish I had the Acorn information in front of me but I I don't so my email do you have that unless a partner.

Howard: Yes

Andy: Okay so that would be the easiest way for now.

Howard: Do you want to give it out over on the podcast or not really?

Andy: Yeah it's a Graham@apgpartner.com

Howard: and also we have on dentaltown which is since it's a message board format all the posts are index and organized it's searchable which is very hard to do on all the other social media platforms but we have under Dental Association's we have large group dentistry and DSOs I wish you would make a post under the large group dentistry DSOs then when this podcast is pushed out next week I can post it there and then that'd be a good place for them to contact you too because I know a lot of people their dream is to do this someday they they want to be they want to be a DSO a major player.

Andy: You're probably familiar with the dental I think it's dental entrepreneur organization DEO they just had sure it's not too long ago I was actually not able to attend but the Christie's were and it was really remarkable at what I heard just there a great number of people who attended and a great number of people who actually have made real progress and there's a lot of groups out there that are doing a really nice job early on, you know and these same groups that are doing a nice job might need some help might need some capital. You know we were quite encouraged to see it's clearly become there's more interest in this topic than there ever used to be that we want to help those groups that really have any ambition and a real perspective of where they want to take their business and that we would love to hear from them.

Howard: Alright well it was an honor that you came on the show I hope you can gosh for follow-ups I love to have Jim TenBrook come on the show I'd love to have a Bill president Aspen Dental or his clinical directors you said Chad Gubler could be his brother Shawn Gubler and I think his their dad was a dentist too wasn't he?

Andy: Yeah they have a real family of dentists.

Howard: Yeah so I'd love to have the Gubler brothers come out and talk about it and again it was just an honor and a privilege for you to come on the show and sharing so much your expertise thank you for coming on the show today.

Andy: Thank You Howard  

 
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