Recruitment

How do Dentists Building a Group Attract, Motivate, and Retain Associates for the Long Haul?

Exploring growth strategies that facilitate building, incentivizing, and exiting group practices.


DSOPRo: Tell us what brought you both into the dental industry.

Perrin: I was born into the business. My family owned a dental distribution business called Thompson Dental Company, which was started in 1899. I was the fourth generation in the company when we elected to sell it to Patterson Dental in April 2002.

I was fortunate to stay on with Patterson Dental for 15 years and ran 3 businesses for them during that time. The company was unbelievably good to me, and I learned a phenomenal amount about business from a Fortune 1000 company that I would not have learned in a family-held business.

During my time at Patterson, many of our core customers were forming group practices and having challenges with executing growth strategy, retaining associates, and running more than one location. I saw some of the calamities that created. I wanted to do something different for the second half of my career and I kept coming back to the group practice idea. It seemed to be a fast-moving segment of the dental space with a lot of opportunity.

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Diwakar and I realized there was no consulting resource to help these business owners execute a growth strategy to build a bigger, better business that wasn’t dependent upon their clinical skillset. And we felt if we could help them with growth strategy, along with some other services, they stood a better chance. Those were the principles that Diwakar and I learned from working in “Corporate America.” We simply reverse engineered a lot of that and made it applicable to the groups we work with.

Diwakar: I entered the commercial banking space in the early 2000s, initially in the private practice space. If a doctor wanted to do a de novo location or buy their first practice, we offered that kind of lending capital.

In 2008, I joined Leaf Financial. They were on the larger ticket size and their pricing was higher. When people take a loan, most of us look for the best rate. So, as an institution, we had to identify our competitive advantage. We couldn’t be in the same space as all the other institutions that are more commoditized. So, we started to move upstream a little bit, doing $1 million to $3 million, which were very large loan amounts.

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From there, I transitioned to East West Bank where I ran the healthcare group. East West had a similar challenge; their pricing was 0.5% and 1% higher than the market. We started looking at this emerging group space and could see there weren’t any lenders providing capital like the groups needed. The top five banks in the United States had some sort of healthcare practice division that focused on the private practice space, but nobody was going upstream.

There were also some huge middle market companies, where you needed to have $100 million in revenue. Our question was, who is lending to the business between $2 million and a $100 million in revenue?

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In 2013, East West started doing a two-day seminar to educate dentists on what building a group practice was all about. Perrin could see the direction we were headed, and we started thinking about our next chapter.

We felt nobody was providing guidance on how to build a group to begin with. There were operational consultants talking about patient and hygiene scheduling, clinical treatment, and running the operations of a dental practice. But nobody was educating the doctors on how to become a better leader, or how to go from a clinician to a CEO seat.

We saw there was a true need in the space for a transactional advisory and capital solutions firm. That became our value proposition—consulting services, capital solution services, sell-side advisory, and providing an all-encompassing solution for emerging group practices.

Polaris officially started March 17th, 2021. If you want to talk about strategic planning, we’re your guys.

DSOPro: How did you come up with the company name?

Perrin: We didn’t want the company to be named after us; we wanted to create a business that was bigger than us. So, we decided to call it Polaris because Polaris is the North Star and people used it to navigate across the ocean. It’s the point in the Northern Hemisphere in the celestial sky that doesn’t change its orientation, hence the phrase “true north.” The name just kept coming back to us because we believe in the guidance we give to clients. It’s based on our experience and what we’ve learned through years of building businesses and leading teams.

There’s a degree of navigation when building a group practice of what to and what not to do. We help clients avoid the trial-and-error method. That’s not a great way to build a business, by making mistakes and hoping you survive.

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DSOPro: What was your initial focus and how did you grow from there?

Diwakar: In our previous companies, we focused our time on consulting services and capital solutions. When we launched Polaris, the initial clients who migrated with us included clients who were doing strategic consulting and capital solutions for debt advisory. We quickly added sell-side advisory due to existing client demand.

Diwakar and Perrin Updated

Perrin: I would add that the way Diwakar and I think about the business is that we have a handful of core solutions and services for our target market. We’ve perfected them over the years. Our Discovery Days service is one-on-one with clients and teaches them the fundamentals of group practices.

Our Partnership Pathways models solve the biggest problem in group practices, which is, how does an entrepreneurial dentist building a group attract, motivate, and retain associates for the long haul and stop the revolving door of attrition and turnover? We have different associate equity models that are unique called Restricted Stock Units (RSUs) and Profits Interest Units (PIUs).

The debt recapitalization and Growth Capital services we offer solve the second-biggest problem, which is how does an entrepreneurial dentist maintain some access to funding to continue his or her growth strategy? Without a bank lending them money, it doesn’t matter what the growth strategy is. If they can’t fund it, they’re not going to grow. Access to capital is critically important.

Every client is unique. They all want to build slightly different businesses, but some of the principles are the same. When they reach a level of success, being able to find a capital partner or exit the business outright is our sell-side advisory.

There are a lot of other plug-in core services we knew clients would demand and that we could grow by either joint venture partnerships, acquiring some other service providers, or launching complimentary services under the Polaris umbrella. So, we’re not just maintaining what we’ve built—we’re looking to expand up and down the client life cycle. We are also adding complimentary services that expand the touchpoints for our core target audience.

DSOPro: Explain what you mean by “sell-side advisory.”

When a client reaches some level of size, scale, and success, and they want to sell the business outright, we work with them to understand what their needs and desires are, both financially and by identifying what role, if any, they want to play after the transaction. Maybe they want to sell part of their business to a larger capital partner, like a private equity group, and continue with them in partnership to grow the business to a bigger level. We help them find interested third parties willing to either buy or buy into their business. We help them navigate the process and negotiate the transaction.

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DSOPro: How can your equity models help with recruitment and retention?

Perrin: We believe dentists are entrepreneurially minded. Dentistry is probably the largest sector with the largest percentage that is still solo professional/solo practice. They go to dental school with a mindset of owning their own business.

DSOs can afford to invest the time and the resources into hiring a lot of young associate dentists to work in their larger groups, knowing that they’ll probably turnover within a couple of years. That’s built into their model, and they’re successful at it.

An entrepreneurial dentist building his or her own group is in a phase of transition. The founder is probably still working clinically a significant amount of the time while also transitioning into a more leadership type of role. As they’re transitioning out of the chair, they’re hiring associates to pick up the clinical work they’re no longer doing while they’re working on business development.

Associate turnover is bad for the operational continuity of the business. It’s certainly bad for the financial performance of the business. And it’s terrible for the continuity of patient care. It’s the largest problem of every group practice, whether you have two locations or 1,200.

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Everyone confronts the associate turnover problem differently. The natural answer is to “just pay them more.” But that’s not quite right. It’s not all about the money. It’s more about the opportunity and the fulfillment side of somebody’s career, especially when they’re a few years out of dental school and they’re getting good at their craft. They can make money, but how do they become an owner?

Historically, becoming an owner meant borrowing a bunch of money from a bank, finding a broker who sells practices, buying a practice outright, and taking it over. But dental school graduates are carrying on average of $300,000 of educational debt. They’re probably starting families or buying their first house.

They may not want to take on another seven-figure loan to start their own business. Even if they did, they might be apprehensive about having the business capabilities to run it on their own. It’s a daunting proposition for the associate. And it’s a challenge for the entrepreneur who’s building a group practice.

The earned equity model is a service we refer to as “Partnership Pathways.” They are based on either RSUs or PIUs. These models are commonplace in Corporate America and we both benefitted from them in our previous careers. So, we understand what it means to be a business leader, a highly motivated employee, and somebody who’s earned stock shares or equity in businesses without buying them. This approach has never been used before in group healthcare practices, or at least not to the degree that we’ve been talking about.

The benefit to the associate who’s carrying a huge personal debt burden is that while they want to be an owner but don’t want the risk, they can earn equity in a group through their clinical performance. It’s usually based on collection levels exceeding some goal. If you exceed the goal, you earn some percentage of company equity or company shares, and they vest over time. A vesting schedule simply means that they become real, or they actualize over some period.

The great thing is they can end up with an economic outcome after 10 years that is equal to, or better than, what they could have achieved by taking on a 10-year loan and doing it alone. We model them out over a 10-year period simply because that is usually the term of a business loan.

For the founder who started the group, the result is highly motivated associates driving clinical performance and staying for the long haul. They’re taking better care of patients and mentoring younger associates. It is a win-win situation, and it truly works in group dental practices.

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Keep in mind when recruiting an associate, you’re not the only person recruiting them. Other solo and group practices are going after them. What makes you any different? If it’s just clinical compensation rate, that’s not enough. But if you can say, “We’ve got a great group. We’re growing quickly. We’re doctor-founded and doctor-owned. We’ll help you develop your clinical skills. And oh, by the way, you have the opportunity to become an owner and earn equity in the business without actually buying it. What do you think about that?” that’s a point of differentiation and compelling for an associate. Retention is aided by the vesting schedule. If they leave prematurely, they forfeit a part of it. And the founder gets to be an owner of a much more valuable business.

If the associate ever does decide to leave the business, or if they’re asked to leave, the founder must buy out their shares. It’s real equity, not phantom stock. The associate is a minority partner in the business. Their ownership in the business has some value and that must be redeemed.

Conversely, if the associate wants to stay on for the entire journey, maybe far beyond 10 years, if any distributions are declared out of the business, they get money just like the owner does. And if the decision is to sell the business, whatever it values at times whatever percentage the associate owns, they receive a payout for that, too. So, the equity has real economic value and it has real consequence in terms of the way the partnership is constituted.

Diwakar: Most people, when it comes to wealth, retirement, and income streams, have a W-2 income and contribute to a 401k, which becomes their retirement income plus any Social Security benefits. When people go into dentistry, owning a business becomes one of their strategies for creating wealth. Traditionally doctors realize income or create wealth two ways. One is through their paycheck, being a dentist. They may also have a 401k. What we’ve thought about is how we can bring in an equity tool for doctors so they can create wealth beyond income and savings, or post-tax dollars in their retirement.

We felt that was a better way for associate doctors to create wealth. We also thought about the doctors who own 1 to 25 locations who want to invest in and don’t want to risk losing an associate. They’ve trusted them with their patients, their staff likes them, they like them. Dental practices are a very intimate group; neither party wants to disengage from each other.

DSOPro: What about incentivizing the other members of the dental team?

Diwakar: A lot of groups come to us for executive incentive plans or team incentive plans. We can create an incentive plan that drives alignment from the front desk person all the way to the regional or director of operations of a group practice. Those are usually non-equity, non-partnership-based models.

That said, equity can be available for other team members. We have done several rollouts of partnerships for executive team members—regional or operations managers, practice managers—to get a smaller piece of the pie. These are mathematical solutions based on where you’re headed over the next 3 to 5 years, how many partners you bring in, and the amount of profit. You don’t want to put something out there without understanding what it means to your business. If you start giving everybody a little bit—1% here, 2% there—you could end up being a minority owner in your own business. So be cognizant of that.

We try to create a holistic viewpoint when clients come to us for a partnership, ownership, or an ownership plan.

DSOPro: How is your own company growth coming along?

Diwakar: Initially there were only three of us. Today we have a total of 10 team members. Our goal is to add 12 or 13 by the end of the year and probably 15 to 20 by the end of 2023. Our 10-year business plan is to be at 100 full-time employees.

We have a dedicated consultant to work with our consulting clients, a dedicated partnerships person, and a practice equity structure consultant. We recently hired a dedicated capital solutions person who has over 20 years’ experience in banking providing credit structures to healthcare providers.

 

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About Perrin DesPortes and Diwakar Sinha

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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’ experience in the business side of dentistry. 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.

Diwakar+Sinha_headshot

Diwakar Sinha is one of the Co-Founders of Polaris Healthcare Partners. He attended The Ohio State University for undergrad. Diwakar has over 20 years’ experience in the business side of dentistry. He has a 4-year-old daughter. In his spare time, he is an avid cyclist and enjoys good food and good red wine.


Polaris Healthcare Partners

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 not work with solo dental practices or Private Equity-backed DSOs. They’re hyper-focused in that they only work with “doctor-founded and debt-funded” group dental practices.

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