Perrin DesPortes, Polaris Healthcare Partners, helps entrepreneurial dentists build and exit successful group practices. Here’s his advice on how to minimize Associate turnover.
Owning and operating a group dental practice brings with it a myriad of challenges, but arguably the greatest centers around Associates. At Polaris, we help entrepreneurial dentists build and exit successful group practices, but success often means creating and executing a plan to minimize Associate turnover. Too many—from enterprise-level DSOs down to emerging, doctor-founded groups—seem to be a revolving door with dramatic turnover rates.
Where do you even start? Maybe right here….
We’ve all seen the statistics from the American Dental Association (ADA) as well as other agencies. The American Dental Education Association (ADEA) research (for 2020) states that 82% of dental school seniors graduated carrying an average of almost $305,000 in educational debt. That’s staggering, and probably accounts for the reason that “30% of the graduating seniors plan to join a DSO” (ADA’s Health Policy Institute), up from 12% only 5 years ago. I don’t blame them for not wanting to buy their own practice and add on a significant amount more to their already sizeable debt load.
Since 1997, we have added 13 new dental schools and 2020 saw a record of first-year enrollments at more than 6,300. Couple that with the fact that, for the first time ever, less than half of dentists now own a solo private practice.
The conclusion is inescapable: for those who are building group practices, you’re going to have a lot of Associates to potentially hire.
Is recruiting one of your Top 3 priories? Or is it an afterthought until you’re in need? Be honest with yourself.
The best companies—be they Corporate America or group dental practices—make recruiting a priority. They realize it’s a never-ending process. The goal is to always have more viable candidates than you have openings. Those candidates must come from a variety of sources: referrals from current Associates; study clubs and dental societies; the military; dental schools other than the one closest to you; third-party advisors; recruiting agencies; social media, etc. How many sources do you have in your network?
Young Associates are in high demand—and they know it. The question you must solve is: why should they choose you?
Most professionals don’t react well to uncertainty, so create clarity for them.
There’s a lot more than just what I’ve outlined above, but the key is that you want them to want to be part of what you’re building. Help them see themselves being a part of it. Make it so they can’t imagine working anywhere else. At a minimum, use a “Defining Success” document like we have for our recruiting at Polaris. You can download a copy by clicking the button below.
It’s better to build a recruiting presentation deck….
If you’re building a group practice, you’re competing against seasoned HR professionals at the top of their game. Verbally walking a candidate through everything about your business, then giving them a copy of the comp plan with an employment contract isn’t going to cut it.
Have everything about your business laid out coherently in a 10+ page presentation that answers the question: why you? PDF it. Print it with a clear cover and spiral binding. And then give them a copy to take with them, so they can refer back to it (hopefully often). People learn visually and don’t retain nearly as much audibly, so always have something to give them that represents you long after you’re gone. Honestly, building this presentation is one of the most fun aspects of working with clients because it brings to life aspects of their business that are special, but they often take for granted.
I noted earlier how much debt the typical new dentist is carrying and that they probably didn’t want to add more to it by buying their own business; however, that doesn’t mean they don’t want to become an owner. Quite the contrary. They do. And they will—just maybe not with you, if you don’t have a way to make that happen.
There are basically three ways to crack the Associate Equity nut: traditional buy-in; earn-in through Restricted Stock Units; or earn-in through Profits Interest Units.
This is pretty straight-forward. Your business is valued at $10,000,000. You offer me the opportunity to become a 10% partner. I borrow $1,000,000 from a bank to buy in. Depending on the loan covenants on your existing debt, you may not be able to “pocket” that $1,000,000 from my buy in and may have to use those proceeds to pay down existing debt. Also, while I (as the Associate) would personally guarantee the loan, the business would ultimately back-stop it, which could create complications on the overall amount of debt you could borrow for future expansion. Something to think about, depending on how quickly you intend to grow and what your current leverage scenario is. As you can probably imagine, we work with clients frequently on debt recapitalization in an effort to secure more committed growth capital as well as cap table mergers and/or Associate buy-ins.
I was the beneficiary of these during my time in Corporate America and they’re quite popular in publicly traded companies. RSUs are “real equity” and not phantom equity. They’re performance based and they have a vesting schedule (“golden handcuffs”).
In a group practice, the concept is that the Associate has a collection goal and for every dollar above that goal, they earn some percentage in company stock. The goal goes up every year, so they can’t “ring the bell and coast.” Every share of stock they earn has a vesting schedule, so it becomes theirs gradually over time (usually 3 to 5 years). If they leave, they forfeit the unvested shares—which is the built-in retention mechanism. The founder ultimately takes dilution, but the increase in the value of the shares should offset any dilutive impact. Think of it this way: “Would you rather be the 100% owner of a business valued at $5,000,000 or the 80% owner of a business valued at $10,000,000?” There are a lot more details, but you probably get the idea. These models work very well for growing groups with established practices.
Similar to RSUs in terms of a goal and the vesting concept, but arguably better suited to a DeNovo model. The goal is more of a threshold of EBITDA and valuation. Every dollar of value below the goal accrues to the founder, but they split any dollars above the threshold with the Associate. The split percentages are a variable in the model, as are the thresholds. Again, a vesting schedule ensures you retain the Associate for the long haul. As with RSUs, there are a lot more details, but hopefully you get the concept.
The overall point here is that in today’s world of Associate turnover, you really must have a partnership solution in place. It won’t cure your turnover 100%, but you’ll arguably be able to recruit a higher level of candidate who will work harder and stay longer.
And if you can do that, it’s better for patient care, the continuity of the business, and your sanity.
Are you ready to start, but not sure where? Click the button below for a webinar we recently recorded that brings it all together.
Perrin DesPortes is one of the co-founders of Polaris Healthcare Partners. He attended Washington & Lee University for undergrad and earned his MBA from the Darla Moore School of Business at the University of South Carolina. Perrin has over 25 years of experience in the business side of dentistry, having started as a fourth-generation family member of Thompson Dental Company, then as a General Manager of 15 years with Patterson Dental Supply where he ran three different businesses for them. In 2017, he left Patterson and along with two others launched TUSK Partners. In 2021, he and Diwakar Sinha departed to launch Polaris. Perrin is happily married and has an 8-year-old daughter. In his spare time, he is an avid cyclist and tennis player, enjoys cooking and reading, and loves good red wine and strong coffee. Contact information: Perrin@PolarisHealthcarePartners.com.
Polaris Healthcare Partners is a Strategic Consulting and M&A Advisory firm that focuses exclusively in the group dental practice space. Their purpose is to help entrepreneurial dentists build and exit successful group dental practices. They do that by helping their clients:
Develop and execute their growth strategy
Negotiate and obtain committed sources of growth capital (debt and/or equity)
Build and implement associate equity partnership structures
Guide and fulfill their exit strategy through their marketed sales process.
They do not work with solo dental practices and do not work with Private Equity-backed DSOs. They’re hyper-focused in that they only work with “doctor-funded and debt-funded” group dental practices. Visit PolarisHealthcarePartners.com for more information.
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