Episode 21 – Don’t Fear the DSO with Dr. David Porritt

“There are good DSOs and less good DSOs, but there’s no need to fear them.” ~Dr. David Porritt

There’s good reason to not fear the DSO. You have to understand that in every industry that is fragmented, consolidation is a natural occurrence. It may seem that DSOs are taking over the market, and if you don’t hop on board you’ll be left out in the cold.  But nothing could be further from the truth. 

This is why I am so pleased to have Dr. Dave Porritt joining me on today’s episode. Dr. Porritt recently finished a doctoral study about job satisfaction in dentists and their involvement in DSOs. I don’t think there are many people right now who know more about job satisfaction, dentistry, and DSOs!  

The fact is that DSOs represent less than 25 % of the market. In the meantime, Dr. Porritt shares that there is a great opportunity for private practices to position themselves for a transition that optimizes their return on their investment in their practice. 

Remember, building an Investment Grade Practice doesn’t mean you’re the biggest or the flashiest. It means do you have a well-run practice within the schematic of the people you’re serving. 

If you are looking at the future of your practice and what your options are 5, 10, 15 years from now, then you’ll want to join us for today’s episode where Dr. Porritt and I examine:

  • Where the industry is consolidating
  • An understanding of the options available for private practices
  • If you know you’re on track for retirement

Want to know if you have an Investment Grade PracticeTM? Check out the Investment Grade PracticeTM calculator here: https://productivedentist.com/do-i-have-an-investment-grade-practice/financial-freedom-calculator/
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Victoria Peterson
Welcome to Investment Grade Practices. And today I am so blessed to be here with Dr. David Porritt. David has had a rich history in dentistry, he and I go back at least 20 years. And David, I’m going to let you share with our audience members a couple of highlights from your career so that I can paint the picture of why I love having you on this topic of investment. Great practice.

Dr. David Porritt
Well, thank you, Victoria. It’s an absolute honor to be here. But I’ll tell you that my career got started as a lowly retail representative for a dental supply company. And I say that with honor as well, because that introduced me to the practice environment of dentistry. Very quickly, I got pulled into the vortex of clinical continuing education under the influence of John Coase and Frank spear. I had the good fortune to meet them early in my career, and early in their iteration of being key opinion leaders and leaders in continuing education. Well, that evolved into obviously a long, rich career and continuing education with summit dental study group national dental network. But I then had the good fortune in 2004, to meet both you and Dr. Bruce Baird. And that to change the arc of my career to be more focused on the business side of dentistry. And that really gave me a new perspective on what we could do to serve the dental professionals, culminating with a study that I completed in 2021 as part of my doctoral dissertation, in order to be able to help doctors understand the environment in which they’re operating today, with DSOs prevalent in the marketplace.

Victoria Peterson
I have to say, David, I think you are a group of one a kind of one who has actually completed a doctoral dissertation on the impact of DSOs and dentistry and career satisfaction. I don’t know of anyone else who has studied it at the level that you have.

Dr. David Porritt
It’s been an honor, again, to actually be a part of this. And I was influenced by Dr. Marko Vujacic, who is the Chief Economist with the American Dental Association. But there are very few studies that actually focus on that emphasis within dentistry. And if I may, I’m going to do a quick little pitch. My study, the title of it is factors that influence a dentist’s decision to affiliate with a dental service organization and their corresponding job satisfaction. I think we’d all agree that job satisfaction should be a key component of consideration in all of our career decisions.

Victoria Peterson
I love it. So in the time that we have today, I want to talk about where do you see your research revealed a lot about how the industry is consolidating how long it might take that to happen. We have a lot of clients that PDA because they’re so productive, and we’ve optimized their revenues. They are getting offers daily. It used to be our doctors were getting the attention of advertising companies, right, the marketing and the yellow pages and the SEOs and everybody that was knocking on the door. They still get that today. They also have a lot of buyers wanting to buy them out. I’m going to ask you what the title of this episode should be. You have to tell our audience what you said.

Dr. David Porritt
Don’t fear the DSO.

Victoria Peterson
Okay, let’s talk about

Dr. David Porritt
there’s a good reason not to fear the DSO. First and foremost, you have to understand that in every market that is fragmented, consolidation is a natural occurrence. And that’s what we’re seeing in dentistry today. What I would also tell our audience is that while it may seem as though DSOs are taking over the market, and they’re everywhere, if I don’t act quickly, or take an offer from a DSO, I’m going to be left out in the cold. Nothing could be further from the truth. And I also want to go on record as saying, I have nothing against DSOs I think they’re, again a naturally occurring incident in a fragmented market. That’s what we’re seeing. And there are good DSOs there are fewer good DSOs but don’t fear them and they represent less than 25% of the overall marketplace today. If you follow consolidation curve theory, they are not going to be at the tipping point where they’re in a majority of this marketplace for years, and I mean years to come. In the meantime, there’s a great opportunity for private practices to position themselves for a transition at some point in the near future, to where they can optimize their return on the investment in their practice.

Victoria Peterson
Oh, I love that. So when you say yours, um, you know, I have a lot of clients that are in their mid-40s, mid-50s, they still feel like they have 15 or 20 years left in their clinical career. So what does that put us at 2035? Let’s say, where will we be then?

Dr. David Porritt
Well, according to the ATPase, which owns studies in the Health Policy Institute, they’re saying that it will still be less than 50% of the market consolidated by the two by 2035. And that’s if we significantly exceed their predictions. So we all seem to think that DSOs are picking up speed as we go along. But there are some reasons for why we perceive that, and they’re very good at marketing. They’re very good at telling us what they want us to think about this marketplace.

Victoria Peterson
Oh, I love that. So you’re a very pro-private practitioner, there’s still a lot of private room for private practice.

Dr. David Porritt
Absolutely. Pro private practice pro dentistry. I think there’s room in the marketplace for DSOs. There’s room for group practices, there’s room for private practice, and certainly room for public health. I think there’s an opportunity for dentists to continue to feel very bullish as it were in dentistry for years to come.

Victoria Peterson
I’m so glad you included private health and private healthcare in there too. Because, you know, my heart is for people on every economic spectrum. And I think that the men and women who work in public health and community service are serving the most vulnerable in our population. And I really, my hat is off to them because their hearts are big. And so you know, building an Investment Grade Practice doesn’t mean that you are the biggest, it doesn’t mean that you’re the flashiest, it doesn’t mean you know any of that. It means Do you have a well-run practice within the schematic, if you will, of the people that you’re serving. So if I’m high into Stetic, practice, I’m probably not going to have you know, Naugahyde furniture in my reception area, right, everything’s going to be premiere. And it’s going to look like that feel like that. It’ll be very congruent. If I’m serving working-class America, the furniture is going to match that. So investment grade is about congruency throughout and living your core values. And I know that’s something that you and I really have in common. And your study revealed a lot about career satisfaction and what young doctors are looking for versus older doctors. Can you tell us a little bit about career satisfaction?

Dr. David Porritt
Well, I love how you use values as the foundation because market segmentation means that there’s a high end and there’s a low end. And the low end doesn’t imply anything less than it just means that it’s a lower economic component of the marketplace. What I love about the values, the discussion is that for job satisfaction for career satisfaction, individuals need to be able to find an environment that aligns with those values. And out of my study, the clearest indicator of job satisfaction for anybody and it didn’t matter what segment you were serving, it was that those values of the organization or the environment in which you operate align with your personal values. One of the greater challenges that I think the doctors have, if they’re considering transition, then let’s just use the DSO environment as an example. How do you then align your values with the values of an organization like a DSO? What metrics do you use to measure that? And how are you going to remain satisfied or happy in your career choice when you’ve made that transition? What I have been given validation on this on economic terms as well from those that are in the broker side of the business, saying that the highest offer or the largest bid for practice, oftentimes won’t win out in the end, because the values aren’t in alignment with the doctor. So going back to what you were saying earlier, I agree. I have a big heart for those that served the public in that sector. And I also like to reflect on my friends in the practice world who, To whom much has been given, much as expected, and they can give back so much more and they often do. And I think that’s one of the benefits of having a throne Writing private practices that gives you the ability to do more for your community.

Victoria Peterson
I love that maybe that’s, that’s one of the keys to optimizing it is that you have that philanthropic piece built-in. I know, Bruce always said that he said, You know, I became productive. And then if I want to, if I choose to do a case for free, then I know I’m consciously doing it. It’s when you aren’t doing good financial options, and the patient’s getting the work done, and then they don’t pay you, you know, so when you’re for free, accidentally, that’s a lot different than consciously doing it. Oh, man, this is incredible. So you and I were just at the Predict productivity workshop, we hosted a breakout session for doctors on building an Investment Grade Practice estment grade practice. And for all you listeners, this is incredible. We now have a tool, and I’ll have Kashmir put the link with this episode, where you can go on and determine a couple of things. And the tool you helped us build David is incredible first and helps you know, what is my financial freedom number? What will it take to fuel my lifestyle for the next 30 years? And listeners? I’ll tell you, I chose 30 years because Ryan Isaacs at dentist advisors told me to and he’s really smart and sharp are smart. So there’ll be a table there you can from your annual spending, you can quickly calculate what will I need in order to hang up the handpiece and survive for 30 years. So we took that piece. And then we put in a pace for collections of your practice and net profits of your practice. And it calculated a few things. So talk to me about this, David, because you can go in this calculator and say, How long will it take for me to hit my financial freedom number? And then there are three options that we baked in here. Can you talk about those three options of ways of looking at your practice?

Dr. David Porritt
Well, that’s the key, isn’t it? Victoria, it’s having options. And it’s knowing what are the results of those options? It’s all cause and effect, what are the consequences of my decisions, if I choose to continue to operate business as usual, and take this to the finish line, we painted these scenarios in a five year window. But it’s easy to expand upon that we can go much further than that. But business as usual, will typically get you there within a timeframe that may not match with your desire to retire from the practice. So it’s good to know am I on target? Am I trending? Am I on track to accomplish what I want? And if not, it’s an opportunity then to adjust. Another scenario may?

Victoria Peterson
I’m sorry, I’m sorry to interrupt what does business as usual mean? What was the plant?

Dr. David Porritt
What was the business as usual? If you look at the average dental practice growth is about 5% per year. So if you continue on the path you are with the profitability that you’re generating from that practice, and this isn’t a judgment as to whether or not you’re profitable or not that profitable, it’s a matter of using the very same metrics that we would apply to the other scenarios, how long will it take you to get to that freedom number. If we consider selling to a DSO, you’ve got an offer on the table, they’re offering you a lot of money sounds like a great deal. There’s some additional perks that come along with that, will that get me to where I want to go, we can paint that scenario as well and help you understand based on what your numbers are. And what that offer represents. How long will it take you to get to your financial freedom number under that scenario? And then the third scenario is, let’s look at your practice as though it could be or should be optimized. How do we get the optimized EBITDA the net profitability out of your practice? And then, under that scenario, how long will it take you to get your financial freedom number, then what you’ll typically find is most practices are not optimized for a transition, they’re certainly not optimized for a transaction when they come to the market. But if you do so, you’ll see that it’s typically anywhere between half the number of years to even a third of the number of years that it would take you to do it the other way.

Victoria Peterson
Wow. So I, again, listeners, I know I wish you could be here with us. We should host a webinar on this David coming up soon. But use the link below. You really only need two or three pieces of information in it. And you can start to predict how long it will take for you to hit your financial freedom. And I’ll tell you today, but for all the doctors I’ve coached for the last 20 years. Once they know that number, and there’s an end game it I instantly see doctors get energized. It’s like Oh, I’m almost there and it feels like the hustle and the grind somehow seems worth it. For that there’s light at the end of the rainbow. I don’t really know how to explain the emotion that we were seeing. But doctors were truly have seemed empowered. When we preview this this week,

Dr. David Porritt
well, that’s a great word empowered, because that’s exactly what our objective here is, it’s not to make you feel bad that you you haven’t accomplished yet, or that maybe your pathway isn’t getting you there as fast as you would hope that would. It’s never too late. But in this instance, what we believe is, having all of the information will make you a more informed individual to decide what is the right pathway for me.

Victoria Peterson
Yeah, I love that. Given that consolidation is going to take a long time, it’s never too late. Like you’ve got lots of time to make the decision about someone, but it may be too early. We have doctors in their 30s 3540 years, and you know, come work for me, I think there’s going to be a lot, we’re going to bring a lot more depth to the marketplace and asking the deeper questions like, Okay, now you got the money, and now you’re not making the choices in your practice. How does that fit with your vision and helping people really, you know, understand and making great conscious choices? Do you think that there are young doctors that are so entrepreneurial that want to come in and buy practices?

Dr. David Porritt
I see it all the time. In fact, what’s interesting to me, is I’m seeing some of the most entrepreneurial individuals in that 35 and under segment coming into dentistry, and it’s so encouraging a small group that we met over the workshop in this last weekend. That’s what I know is there’s a demographic in, in the dental profession today, that is hungry for the information that they need in order to be successful entrepreneurs, private practice owners, small group owners, and they’re not attracted to the solution of somebody just come make all my decisions. For me. That’s why I was saying with kundala consolidation curve theory, it will show you that in every consolidating market, there’s always a bandwidth at the top of that market for those who want to remain independent. And we’ll see the same thing in dentistry.

Victoria Peterson
I love it. Well, there you have it, don’t fear the DSO, don’t be afraid that there won’t be young buyers to come and take over when you’re ready. Optimize your practice. And I we have so many clients right now that are they’re planning their succession, you know, 1520 years in advance, they’re bringing in the second doctor, that third doctor and I see that as a thriving model. I don’t hear about that a lot in the marketplace. As you said there. There’s a lot of media noise on the other end. But I really appreciate you bringing perspective from your decades of experience in the industry as well as your doctoral thesis. So congratulations, David, you’re bringing so much light into this topic. Thank you,

Dr. David Porritt
Victor. It’s exciting to be in this time in dentistry. It’s a what is it? Our friend Bruce says it’s the platinum age. And I truly believe that I love it.

Thank you for tuning in to this episode of Investment Grade Practices podcast. If you find value in this episode, help us spread the word by passing it along to a dental friend. Subscribe and give us a Like on iTunes or Spotify. Learn more about building your Investment Grade Practice at productivedentist.com Today

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