Secure Dental_Perrin DesPortes and Adin Bradley Part 2: Audio automatically transcribed by Sonix

Secure Dental_Perrin DesPortes and Adin Bradley Part 2: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Dr. Noel Liu:
Welcome to the Secure Dental Podcast. Through conversations with the brightest minds in the dental and business communities, we'll share practical tips you can use to scale your practice and create financial freedom for yourself and your family. My name is Dr. Noel Liu, CEO and Dentist at Secure Dental, and also co-founder of DentVia. I'm your host for the Secure Dental podcast, and I'm so glad you're joining in.

Dr. Noel Liu:
Hello, everyone! Welcome to another episode of our Secure Dental podcast, where we bring in many different talents from both inside and outside our dental industry. And like always today we have Perrin and Adin again on part two of our podcast. And this is more exciting because we had a first part where we spoke about operations, and this time, we want to dive a little bit deeper into associate equity model as well as profit-sharing units. So, without further ado, we already know who these guys are from Polaris. I'm going to pass the mic off to Perrin and then Adin, and let's get the intro done, and let's get this rolling.

Perrin DesPortes:
Yeah, sure. Thanks for having us back on again, Noel. This is always such a treat for us, especially around the holidays. But hanging out with people like you on a podcast never feels like work. So, thanks for a little bit of a diversion. Yeah. So, my name is Perrin DesPortes. I'm one of the co-founders of Polaris Healthcare Partners, and previous to that, Tusk Partners. I've been in the dental space for almost well over three decades now. I have to think twice before I actually utter those words. But I spent 15 years with Patterson Dental, running three different businesses for them. Obviously two successful startups in Tusk and Polaris, both of which were consulting associate partnerships, equity partnerships for group practices, and then transaction advisory, which could either be sell side for equity or debt recapitalization offering. So all of our work, all of my work over the last better part of a decade or so, has been around the entrepreneurial group practice space. For me, moving forward into 2025, I'll actually be exiting Polaris as an owner, but will be staying in the space and launching a business that'll be an executive coaching business called The Next Level Executive. And that is the URL, actually TheNextLevelExecutive.com, and it's a one-to-many group coaching model for dentists and other healthcare professionals who have achieved practice mastery, they've achieved clinical mastery, if you will, and are looking to answer the question, what's next in their entrepreneurial journey? And that is really more about an executive skill set. It's professional development over clinical skill development. So it's a lot of leadership. It's a lot of structural alignment about how these businesses fit together. And if you decide to take it the full distance and actually build a group practice. Obviously you pick up and probably become a Polaris client at that point moving forward. So, I think the new business that I'll be focusing on in the market for it will be a little bit upstream from traditional dental practice management consultants and a little bit downstream from the Polarises of the world. So looking forward to it very much.

Dr. Noel Liu:
It seems like it sounds like it's a continuation of the journey, right?

Perrin DesPortes:
Yeah, I think so. I mean, I think for a client, right? Yeah. There are a lot of people, and Adin can attest to this as well, that there are a lot of people who would come to us at Polaris, and they might have 1 to 2 to 3 locations and would follow our podcast, would follow some of our content, our presentations, and things, and want to work with us. But their business wasn't, for lack of a better term, mature enough or developed enough to really warrant a full-scale commitment. And while we love talking with people like that, it's a heavy lift to to work with guys like me and Adin and Mark and Walker and everybody else at Polaris. And if you don't have enough meat on the bone yet, or you don't have a big enough business to apply all of that guidance to, it can become a little bit of a drag on it. So, for me, Next Level Executive will address a segment of the market that'll be pre-Polaris, and for those who aren't sure if they want to build a group, I'm not there to talk them into it, but at least I'm going to give them some better guidance around becoming a more effective executive for the business that they're building. And if they do decide to really go and commit to the journey of building a group practice, then that's a nice segue into everything that Adin and Polaris does. So I think it'll be a nice complement between the two businesses for sure.

Dr. Noel Liu:
Love it. Love the synergistic effect. And Adin, let's go, man.

Adin Bradley:
Yeah, thanks for having us on. And happy holidays to both of you and everyone out there. Yeah, just to piggyback, before I introduce myself again on what Perrin is talking about is personally, I'm really excited for Perrin. I think this is a great lifestyle change, and I genuinely believe it's a symbiotic relationship with us and what Perrin is doing because we've already proved that concept with a few clients that have gone through with Perrin with sent an executive and another vertical that we had where we have begun working with them on a fractional COO basis, they've decided to go to the next level. So, with Perrin incubating a lot of clients, determining what their journey looks like, you have an opportunity to work with them. And the inverse is true. Sometimes, a client will come to us, and they're just not quite big enough to yield the end results that they want to achieve. And I think they'd be better served, you know, working with Perrin for a time. So, while I'm going to miss Perrin greatly on our weekly calls and being a sounding board, I think that relationship is going to continue. So best to Perrin for sure. So, for the listeners that haven't heard us or just need a quick reminder. My name is Adin Bradley. I bring about 20 years of corporate experience, starting in HR and, ultimately, executive-level operations in multi-site healthcare. I'm employee number two, officially at Polaris. Been here almost since the beginning, and it's been a great journey. I bring about 15 years of C-level experience to the table, and while we continue to learn every day, our business, market, and segment is really starting to heat up. I think a lot of group practice owners out there are starting to understand that do it yourself model is not quite working, and our fractional COO vertical has been a really hot topic lately, where we do a little bit deeper dive into the management team and the processes of each group. So, I see things starting to pick up, and I'm excited and bullish about 2025 for sure.

Dr. Noel Liu:
That's great, Adin, thanks a lot. Appreciate you I appreciate, Perrin. This recording is taking place just exactly two days after Christmas. So Perrin is going to be transitioning to his new role, and I'm really looking forward to hear more about it afterwards. Today is something really important for a lot of group practices because it's something which is near and dear to their hearts: associate doctors. There's one aspect where we actually go ahead and attract them. Then, there is one aspect where we train them, and that's where leadership comes in. And then there's one aspect where we retain them. So those two first aspect is a totally different topic, right? What we are going to be diving into today is associate equity. How does it work? What are some of the models out there and what is it that actually works? So, without further ado, I'm going to be passing to Perrin. I wanted to take the first jab at this. The different kinds of models out there. What do you guys do at Polaris, and what is it that somebody will want to stick with a group, and why?

Perrin DesPortes:
Yeah. So this Noel, this is probably the biggest challenge, arguably, of any group practice. And if you can solve it and create stability, you stand a chance of creating a pretty decent business for yourself. If you can't solve it, you're going to create what amounts to a revolving door, and it's going to create chaos in the organization. It's going to create a lot of stress for the founder. It's bad for continuity of patient care, and it's really bad for cash flow. So if you get if you want to build a group practice and you get nothing else right, this is the one piece you got to solve. And even before maybe we touch on models, I would just back up maybe one step. And I think there are a handful of questions we want to think through from both an owner or a founder perspective as well as from an associate perspective. Associates come out of dental school and residency being taught by educators from what I would call a traditional perspective. And in the world of dentistry, partnerships were a 50/50 partner. Noel, you're the senior founder, you have a practice. I'm the young associate. I come in, I want to be a partner. I take on a bank loan, I buy 50% of your business, and we're 50/50 partners. And in ten years, when you retire, I buy out the other 50%, and that's partnerships, right? And dentistry has been unbelievably stable and I think successful off of that model. That being said, group practices are a completely different animal. And the young dentist entering the workforce, I think most of them are going to be employed by a group practice, whether it's private equity backed or otherwise. That's a different conversation. But I think the safe bet is that many of them are going into some semblance of a group practice. So when they come into our working world with that mindset around, let me buy 50% of the business and become a partner, that may not be realistic for quite a number of reasons. The most foremost, the group may be, it may value high enough that for somebody to become an immediate 50/50 partner would be an insurmountable hurdle. From a banking standpoint, they don't qualify for enough of a loan to buy into the business at that level. And for those of us as founders, we might not want to sell them 50%. So whenever an associate comes into a group practice and we, Adin and I get the question of, hey, can we hop on a call real quick? I got to talk with you about a conversation I had with an associate. I don't even need to hear anymore. I know what the conversation is, what the call is all about, and what we're going to be discussing, and it is the following. I was talking to my associate in between patients, and he or she mentioned the fact that they want to become a partner in the business. What do I do? And I think that's a good thing, because the associate is operating from a, or starting to operate from a commitment and an owner mindset with some degree of longevity, and that is a healthy thing, but we want to slow down, and we want to have a substantive conversation not in between patients, but as an owner and a prospective owner. And here are a couple of things that you want to ask your associate: one, okay, assuming that you want to entertain partnership, obviously, okay, doctor associate, when you talk about partnership, what does that mean to you in terms of dollar amount and percentage? What does that mean to you in terms of dollar amount and percentage? You want to understand their frame of reference and how they're coming into this conversation. Do they think partnership is equal 50/50? And a lot of them don't know any differently. So, we need to educate them about what partnership means. It can mean something completely different than 50/50. And then what's beyond the percentage piece? The dollar amount is indirectly. How big of a loan are you comfortable guaranteeing? Because if my business value's at $5 million and you want to take on a $2.5 million loan, I don't think the bank's going to loan it to you. But I also don't think you can make it cash flow positively over a ten-year term. So, a 50/50 partnership might not be in your best interest right now. We want to give them a yes. We're interested in continuing the conversation with you, but we want to back them down. If they have irrational expectations that may not be achievable by them or by us, okay? And there may be a heck of a lot of merits in somebody buying into the business at a seemingly inconsequential 5% or 10% today, that could still be $1 million, right? So they don't understand what valuation is. They only think about partnership as it means equal partnership, and that's 50/50, which might not be achievable. The second question you want to ask them is, okay, I'm interested in bringing in additional partners or having you possibly become a partner in the business. What does partnership and business ownership mean to you? What does it look like for you? That's a very open-ended question. And what you the reason you want to ask a question like this is because you want to get inside their head and see why do they want to become a partner. Nine times out of ten, all employees think that those of us who own businesses have an unlimited ATM machine, right? And we just pull cash out of the business anytime we want to. And we can buy anything we want to at any point in time, and we don't even have to work that hard to do it. If the business generated $10 million in revenue, 10 million bucks was in profit to us. Now, you and I both know that's not the case. Adin knows that's not the case. But for a young associate, they have no idea what business ownership really entails. And they think incorrectly, usually, that there's a lot more cash coming out of these businesses than there actually is. The other thing about it is those of us who built businesses, operated businesses, and seen the good, the bad, and the ugly know that business ownership comes with a heck of a lot of additional responsibility that is below the iceberg, below the waterline that nobody ever sees. The things that keep you up at night, that we all sweat the answers about that nobody else has the responsibility for. So if this person buys in or earns into the business, how do they think their role is going to change? What? How do they want their role to change? Do they want to take on a greater role in the business, or do they want to take more time off? And these are sort of some of the qualifying questions you need, a founder needs to ask of their associate prospective partner. Because Adin and I will tell you that philosophical misalignment around partners, the way we own the business, operate the business, grow the business, take risks within the business, and what our day-to-day responsibilities are that are beyond clinical chairside responsibilities. The misalignment of that creates insurmountable hurdles and will bring a business to its knees. And if you put partnership and somebody's buying in ahead of those questions, and you bring in a partner who's bought into the business, and they become a partner and sign the operating agreement, and then you figure out that our ideas about the way we run the business are different. Let me tell you what the legal process looks like to that. So, let's not answer yes to the associate equity question prematurely. Let's make sure we have rational expectations on associate and founder side, and also, to a degree, alignment or at least the opportunity to educate the young associate on what partnership looks like from our founding eyes. Follow me there, Adin, I don't know how much you want to chime in on some of that.

Dr. Noel Liu:
That, that is amazing.

Adin Bradley:
Yeah, I think you you hit on all the high points. I think the alignment and the expectations from the associate when they approach and know you may have experienced this yourself with someone approaching you. I just began reading a little bit about what's called open-book management, a philosophy of sharing enough information with everyone on the team to give them that ownership Mindset. I'm a fan of indexing that a little bit instead of being overly transparent, but the point is that educating them of some of the things that Perrin spoke about is that the business may not be as cashflow heavy as they think, there could be debt, there's obviously large overhead expenses, wages continue to outpace the cost of PPO reimbursements. So, I think there's a heavy emphasis on setting expectations and what I would call level-setting reality. Once you're there, the concept of associate equity is extremely powerful, whether you're looking to grow or scale, because we have seen instances in both, one, ... share with your group as everybody trains clinically with you and Dr. Jafri in one site, and then they go to another one. You've got a very consistent way of doing things. That's the way it should be. Other times, groups that have looked to partner strategically with a group. They add value to the business when they have associate equity partners locked up. Because it brings predictability to the purchase, they are, there, they have an equity role as well. And the private equity group that is partnering with you feels much more confident, if you will, ensuring that your lead docs are there. And one thing I'd be remiss about saying, because this has happened with a couple clients recently, we've seen, traditionally, group practices increasing year over year steadily, right? We have rate increases. We have like a 3% lift. And lately, we've seen some very strong practices starting to level out, and everyone's racking their brain about it. And I'm a big fan of the theory of Occam's razor. If you've never heard it, which generally is the easiest answer, is the right answer the most logical. And what we found is the exit of some real strong associates that had a very wide scope of clinical expertise that has not been replicated by the remaining docs or an associate that they've hired since then. So if you have a super GP or a specialist or somebody that really contributes beyond the norm, those are somebody you may want to lock up because they bring a considerable amount of value as it relates to their clinical expertise as well. So sometimes this is this has to be mutually beneficial, I think is the point I'm really trying to make, and it can be. So for those owners out there that think I don't want to dilute, I don't want to give up anything of what I've, you know, created. It is a, it's definitely an emotional and mental hurdle to jump over. However, if you look down the horizon, locking up some of these associates will generate far greater value on paper than it will in the little amount that you are potentially diluting.

Perrin DesPortes:
Yeah. And we can dive into some of the mechanics and the models like you were mentioning. I don't want to dodge the initial question, but I want to make sure we.

Dr. Noel Liu:
Sorry for interruption. I don't want to ask you, like when you say valuation, right, are you talking about valuation or just that one practice or like the enterprise value or is it like that one practice? And if it's like part of the enterprise now the multiples go up. So is that how the associate is going to be looking at things, or is it just individual like if it was a solo practice?

Perrin DesPortes:
So Adin loves to hear me answer every question with the phrase, it depends, but.

Adin Bradley:
I'm just thinking.

Perrin DesPortes:
Yeah, it actually does. So let's dive into some of the different aspects of models and solutions and things because I think you bring up a good point, and it's a nice stepping-off point from the traditional model that I referenced earlier. When a group practice, you've got a couple of different opportunities; I would say both for models and mechanics. So, when a group practice, you have a management company that sits above all the group practices. From a legal structure standpoint, the management company can play any number of different roles, depending on how big the business is and how developed the management company is. And so you can have ownership and equity at either a practice level or at a management company level. There's pluses and minuses to both, for sure, from the associate standpoint. Associates tend to think about ownership more from a standpoint of what they can influence and control and can control, which is usually things that a practice level; they're in a clinical role, after all, and they think they understand practice ownership. When it comes to management companies, that's a little bit more of a nebulous concept and one that's not very familiar to them. So, if you have an ownership opportunity at a practice level, it could be a buy-in, meaning I borrow money from a bank and buy into the valuation of the practice. It could be an earning model like either profits units or restricted stock units, which is based on either the practice's growth and development or my individual collection levels achieving some level of goal attainment beyond a threshold. I can actually earn ownership in the business without having to actually pay for it. There's a lot of intricacies to that, obviously, and practice ownership can be a great thing. If you're the founder and you're looking to have an anchor dentist in a location that's always going to be there and is really committed to that practice, achieving its full capacity. I would say if you intend to migrate dentists between locations, it may be that you want them to have ownership at a management company level. They would own a smaller piece of the entire pie, not just the practice level. Now, if we do that, this gets into your question around valuation. Practices have finite valuations, at least theoretically, because there's only so many walls, so many chairs, so many hours in the day. You can run a practice 24/7, but you're going to reach a threshold of you're going to reach terminal velocity as it relates to maximum revenue and profitability at some point. Ownership in a management company and thereby owning a smaller piece of the entire pie; well, the theory behind a management company is it provides administrative services that creates greater profitability and efficiency across the entire organization, and in theory, you could add as many practices as you wanted. So, the upside potential as it relates to valuation at a management company is far greater than what the valuation potential of a practice is. So now, from an ownership standpoint, I think we want to come back to the first point that I led off with, which is the stability aspect of associate owners in the business that owners don't tend to leave, right? So, as long as they're good clinicians, they're hopefully going to stay for the long haul. We're not going to turn them over as often. So from a founder standpoint, if we want to have more associates, be owners in the business, even if they only own 1%, 2%, 0.5%, or whatever, if we own 1% of Google, you and I are doing pretty good right now. So it's really not about the percentage. It's the dollar value. The management company values higher, it's more, you can continue to add additional practices underneath it. So, the opportunity for somebody ownership stake at a management company, even if it's seemingly inconsequential like 1%, the upside potential of valuation is much greater at a management company. And for those of us as founders, we can bring more people in because our diluted dollar goes further. So it still allows us to maintain control, even though we're adding more partners and number, but more partners with a smaller percentage in terms of voting power. So, I know I wandered around a little bit on that answer, but let me know if I left anything gray or untied.

Dr. Noel Liu:
Yeah, I just have a follow-up with that. So you are not recommending like on an office level, right? You are recommending like on a management level. So the money is so the percentage is diluted.

Perrin DesPortes:
So again, it depends. I would tell you that I tend to, I like ownership at a management company level more, more or more often because I think it aligns everybody's interests. Now, Noel, you may own 90% of the business, and Adin, I may only each own 5% of the business, but if we're all at the same level of the business, then all of the strategic direction and growth and everything impacts all of us positively and negatively. You own more than we do, but we're in this. We're rowing in the same boat with you, hopefully to the same end game. Now, if I'm an owner at a practice level, I'm only interested in maximizing the valuation, profitability, and cash flows out of that practice. If you go fire Adin in location number two, that's a you problem, not a me problem. My practice is going just fine. So I don't care what happens in location two, three, four, and on down the road if I'm ownership at a practice level, if I'm ownership at a company level, a management company level, I may only work in location number one. But now when you fire Adin in location number two, that impacts my ownership because it depletes the cash flow. So I might be willing to pick up a day shift or something like that in location do, until you can get it back filled, right? So, I think the thing about ownership at a management company is it tends to make governance and alignment of interests a little bit more congruent. Whereas if I'm ownership at a practice level, I'm interested in profit distributions out of this location only. And I don't really care what happens in other locations. There's good and bad to both. There's this is not a one size fits all and we spend a lot of time. Mark Flock at Polaris does a great job working with the clients that want to build equity solutions, and he spends an exhaustive amount of time asking questions like this that are current based, future based. He wants to know all about the associates, the founder's philosophy, about what they're trying to build, and why do you want to sell the business as a cash flow business. How much risk? What do you want the role like all this kind of stuff. And then it's usually the best solution of many that could be applicable.

Dr. Noel Liu:
And with these options, both these options, they can either buy in or they can earn it, correct?

Perrin DesPortes:
That's right, yeah.

Dr. Noel Liu:
And if it's at a management level, then they are basically buying. Let's say, if it's a buying, they'll be buying it at the enterprise level, the valuation level.

Perrin DesPortes:
That's right. The company-wide valuation level. That's right. So, the practice may value at $1 million. The company may value at $20 million. If I take on a $500,000 loan, I'm a 50% owner and a practice, and I'm, what, 2.5% owner of the business overall. If I buy in at a management company level, the dollar value is the same. The percentages are dramatically different.

Dr. Noel Liu:
Gotcha. And which is why you just mentioned, like it's so important to ask them exactly if it's what's a dollar value they're looking for, because sometimes it's 2% and 5% may not even make sense for them.

Perrin DesPortes:
Right. It's people in, maybe this is me coming from a world of a publicly traded company in my previous life, but I understood. You know, the equity that I earned at Patterson, I was a manager there, and we had these types of earned equity opportunities, stock option, and restricted stock. So, I was the beneficiary of that, but I also had some stock purchase options that I could exercise as an employee. And so whether it was an earning or a buy-in, my ownership in Patterson was never going to amount to a hill of beans. But if the stock appreciated, I could do pretty well for me and my family. So I think we want to understand the dollar impact of that. If we're going to borrow money and we want to understand the dollar impact of ownership, if the value of the business is going to increase.

Dr. Noel Liu:
Right, right. No, that was great, Perrin, because this is one of those things where a lot of people get like convoluted. They're not really sure exactly which route to go. And as a matter of fact, because they're not really informed on how this whole thing operates. So I remember you touching base when in the past about profit sharing. How is that different from the equity model, and why would somebody go with this route versus that route?

Perrin DesPortes:
So, we do a few incentive comp models. I would, you know, profit sharing is an incentive compensation model. It's either based on the leftover profit or some type of an achievable hurdle. But profit sharing is pretty straightforward in terms of what it is. It's leftover profit that's income and cash to the recipient, whereas equity is an ownership stake in the company that hopefully appreciates over time, it may or may not have voting rights, it may or may not have distribution rights. But being an owner in a company equity is substantially different than simply some amount of leftover distributable cash at the end of a period. So I think they can be, either, can be good if used in the appropriate way and with the appropriate candidate. To me, profit sharing is good at a, to a degree, a practice level for line employees, sometimes with associates if there is no equity opportunity. But if you're talking about C-suite or leadership in the business, anchor doctors and things like that, you want people that are aligned with the business we're trying to build and committed to improving the company beyond just what their individual role is. And nine times out of ten, Adin can tell you, I'm sure that if you're recruiting a COO or a CEO or CFO or something like that, or even some of your VP levels, these are going to be people that you are entrusting to improve the performance of the company overall. And if they do that, sure they want to be compensated for it, but they want a stake in the game too. They're going to want some aspect of equity that will improve with their commitment and their performance to the company. So I don't know if you want to dive in on taking apart profit sharing versus equity, but you've done a number of these two.

Adin Bradley:
Yeah, I think either model, again, it depends on what, on both what the owners or owners trying to solve for and also what the associate, or even at a management level, some of the executive team deems to be valuable. We see so many scenarios, and I think this is why Polaris is a pioneer in this is because we may also, as we look at the valuation of the organization, not only do we help try to educate and calibrate the expectations of the associate and show them more in dollars than percentages, what downstream looks like. But also, if we feel like the doc or the ownership group is still has some meat on the bone, we may recommend optimizing a few things before. Because if you allocate shares vis a vis this earned equity model prior to being fully optimized, you will give an imbalanced lift to an associate. So there are times where we have said or advised to clean up a few things first and then allocate equity based on that. So, the owner always needs to be protected, or the ownership group needs to be protected with their capital investment. First and foremost, they should never go backwards. And really, it's to reward associates that take the group or their particular practice to that proverbial next level, meaning they have increased production. They've helped increase margin through expansive dentistry, have added services that were not there that hit top line. But there's a second part that we didn't really talk about yet, which I think is critically important is, what does your target associate profile look like? Someone can be a great performer. They can knock it out of the park as a super GP, earning one and a half to $2 million a year, but you find that they're just not a good culture fit. While they're great in helping the business from a purely financial standpoint, they may not be the right person that you want to hitch your wagon to. And lastly, I'd be remiss to say that we have seen situations where groups did not get in front of this before an exit, and the associates, for lack of a better word, have held them hostage at the table and wanted equity for the deal to go through. So there's a lot of legal agreements that come in here. There's drag-along tag-along clauses. There's voting rights, there's moral clauses. There's a lot to protect the associate, and there's a lot to protect the owner. So there's a lot of alignment in there. So, for any of our listeners that think that a potential strategic partnership, exit growth strategy, merge joint venture, you name it is on the horizon in 3 to 5 years or sooner, I would begin thinking about what associates you think could hurt the entity if they were to fly the coop. And where I see a real danger are higher end fee for service offices, where the docs are generating far greater W-2 income. They're generating $400,000 or $500,000, $600,000 a year. And as Perrin alluded to earlier, their ability to balance a mortgage, a family, and then a loan is far easier at that income level, and those are the groups, it's sort of a double whammy because, number one, you lose a very high-performing associate in a niche market, and they've become a competitor. So we've got to ensure that those that are really integral, particularly specialists that have you've built a business around a referral base, marketing all of those things to brand somebody. You may want to think about locking them up and making it attractive to stay on the team than saying, I've been making so much money, and I've got this pot. You've made it look so easy, Noel. I'm just going to go do it myself, right? And it's happened. So again, it depends, but it's much easier to try to lock up those associates that really the key question is, number one, I think is before production, dentistry, anything clinical. Is this the type of person I want with me on my journey? That's number one. And if that answer is yes, do they bring value and would they be motivated and committed to staying with us on our journey if we were to share in the upside with them? And if the answer to both of those are yes, and then the third question is if they leave, will my business suffer? I think that it would be time to consider some sort of earned equity program. Or if they want to buy in, you can do a hybrid of both, which we've done where they've bought in a certain amount, and they've also had the ability to earn additional sweat equity.

Dr. Noel Liu:
Love it. Those are great nuggets because this is something where everybody has this problem, but nobody ever actually tries to tackle it. And I think what you guys just shared was I think it's going to help a lot of people. One of those questions that approached a few of my colleagues, it's, now these guys coming in. And when I say guys associates coming in, they're not really interested in buying in or being part of the existing group they are looking to expand. What's your take on that? So, let's say I have a Tennessee location in my area. Brand new office, brand new location, no patients. Somebody approaches me and go like, hey doc, you know what? I'll go down there. I'll sweat it out. But I want a piece of the pie. Your thoughts, and how would you manage something like that?

Adin Bradley:
It depends.

Dr. Noel Liu:
Yeah, no.

Perrin DesPortes:
Yeah, right? I think this is a tough one, honestly, because I think that.

Dr. Noel Liu:
But he still wants to get paid as an associate also while down there.

Adin Bradley:
Sure, right.

Perrin DesPortes:
So do I, right? Hey, Noel. I got a great idea. I'm going to go open up a business. Why don't you put all the capital in to start it and make sure I get paid? But I'll be there, right? So I think we got to be careful in these situations from a couple of fronts here. I believe in the merit of competent, qualified associates and their ownership potential and to be an anchor doctor for us. I believe in all that. I also believe in those of us who own or who have developed a management company that is efficient and really effective at the services it provides, and creates a financial impact in the practices that it manages. There, these businesses, in order for all of this to work, we have to be profitable, efficient, effective at a clinic operational level. And without that, we're on, we're not on firm ground. So when you start talking about going across state lines or going out of your geography or over the horizon or something like that, it's my opinion that we lose. We, as founders, start to lose operational control of the businesses that we're responsible for managing. And if we are taking on more of the risk from an initial investment standpoint, then if it goes bad, well, the associate didn't have to put in as much or didn't have to put in any, and whatever went bad, not through their fault. They were there to cut crown preps and greet patients and everything else, but we're left holding the bag here. So, this is an element of cash flow and risk. In my mind, I'm much more I'm a bigger advocate for tighter geographies with more operational control. And I certainly agree in the merits, again, of, you know, minority partnerships and things for the right people. But when we start getting like way from a geographic standpoint, we get way over the horizon. I get a little bit squeamish about that. I mean, Adin, you're more of an operator than I am. And you work with Noel, obviously, in his model, but that, I'll let you chime in on some of that.

Adin Bradley:
Yeah, it depends. I was just reflecting back. I'm not sure if this perfectly segues, but I was the chief operating officer for a multi-site veterinary group years ago, and the gentleman that owned it, the founder, who was a, he still is, a wonderful man. When I first saw the model of what he was doing, I thought, gosh, you're overly generous. But what I found was the genius of what was, in fact, a profits interest model. The associates worked at the flagship office. He would then want to build a new location. So he owned the real estate 100%. They would open a new practice under the same brand. The associate would go there. Once all of the debt was paid, the capital costs were paid. They split everything 50/50, and there were distribution schedules. There were legal documents. They were changing control all of the things that you need to protect yourself. And I thought, gosh, what a generous man. And he was. I think it was born out of generosity. But what it turned into was like seven offices that he did this with. And he thought, and you'll know this, know with you and Dr. Jafri. And I say this to high producing owner docs. You can't clone yourself. So the best thing you can do is, and I'm going to inject your 70% rule, is get your associates to 70% of what you can do clinically the Secure Dental way, if you will, and then put them in offices that you have strategically decided is a good geographic location, which is a totally different conversation here, and what I found was this is brilliant, and it was something going back more than ten years now, and that model worked because the real estate became more valuable. The business continued to pay the real estate company rent, so that investment was secure. Once the debt for the capital costs and the running of the actual practice was paid, then he said, listen, everything that you do above this, we're going to split half. You'll get a salary and then we'll split half after all expenses. And when coming to Polaris and I saw that model, I thought it's ingenious for those that really embrace the concept. And I will say this again: for all the group practice owners and those that would say that have had practices for probably 20-plus years, there is probably a very tightly knit set of values. Or like, I don't want to give up what I've built. Don't look at it as not giving it up. Look at it as how can I expand further if I reward those that help me grow a little bit. And you will find at the end of that rainbow, your net worth has grown substantially because of that. So, I'm not sure if that answered the question directly. But, you know, I've seen this model work in different industries, even though it wasn't as formal, if you will, as Polaris would do. It was just back of the envelope. Hey, I'm $2 million into it. Once I get my two-mill back, you get half of it, and it worked. But again, what I will say is that a couple of the owners were not aligned, and there was not a real formal, tight-knit set of expectations at the top level to make sure that everybody was rowing in the same direction as Perrin said, because everyone's worried about their own office. So it works. It's proven to work, it's proven to bring value. It's proven to increase value because of the predictability. Anytime a private equity group comes in as a partner, and there's any flight risk of a top performer leaving, that's a problem. And one last thing I just want to share. I've got a couple of clients where I don't think I mentioned this earlier, where things have gone awry a little bit because that very predictable trend upward, and we try to look at what the inflection point is, and we often overlook the obvious. Both group practices lost 1 or 2 of their highest-producing docs that had an expansive clinical skill set that they did not replace. End of story. So they're focused on marketing and branding and patient flow. What's going on? And I'm like, guys, you lost your top quarterback, and you didn't replace them. So, to avoid that hiccup, I bet you if they had known then what they're experiencing now, they would have tried to lock them up, so don't do it after the horse has left the barn. Try to be very proactive because it also builds goodwill. You don't want to go into this type of relationship feeling like you are doing it under duress or for selfish reasons. It just creates a bad energy between the two. You want the associate to feel really good that the ownership group selected them and wanted them, and you want the owner to feel really good that, hey, this is a person I want with me throughout my journey before some sort of external force thrust the need upon you.

Dr. Noel Liu:
Epic, epic. Love it when you were speaking it in the whole time. I just a light bulb went off in my head to.

Adin Bradley:
What was that? Share with us.

Dr. Noel Liu:
No, you just laid it all out at like how it is. Like you go to a new location, you get it done, you get the associate down there? They're still getting paid. You're still getting all the marketing done. You're still putting in all the capital costs to get it up and running. Hey, let's get that paid off first. Love the idea. And this way, everybody wins. And then now they have some sort of an equity in there. They have this whole thing that they are the owners as well. And I feel like this is something which you just took it out of my head because this is something which I was thinking for the whole time because we have so many doctors who are like entrepreneurs, but they want to collaborate, they want to stay with the group, they want to grow with a group, but they want to be the part of the driving force. And remember, you and I, we spoke about this like wherever the Secure Dental stands right now, we lock in the valuation at this time, anything these guys are going to help us expand and scale. That is just an addition to the to the pie. And if they're getting 50%, who cares, right? That was never there, to begin with. Yeah, and that's one of those things where I like to tell a lot of my colleagues was actually running group practices that we got to share the pie. You cannot just be like, hey, I'm all in, and it is all mine. It doesn't work like that, and, which is why I wanted to bring this equity thing up.

Adin Bradley:
I say this, and you and Dr. Jafri have continued to prove what discipline foresight vision brings. No, I hope you don't mind me sharing, but we've touched on this in other podcasts. Back in the beginning of 2024, actually the end of '23, we created a very, I wouldn't call it aggressive, a very doable forecast for the business by month. We forecasted every single month we laid out the percentage of revenue for every expense line. And we said, if we achieve these goals in your managers and your director, David, sticks to this recipe right here. We're going to increase margin of profitability substantially. And every month, we would lay the actuals over the forecasted amount. And it would tell you how close you were to go above, at, or below. And I got an awesome text by Noel the other day, if you don't mind sharing, and just say how we did in '24 without giving a number, without giving numbers out. But as far as the plan is concerned, how do we do?

Dr. Noel Liu:
So here's the deal. We started off 2024 Q1 really slow. It was below 2023. Q2 was right there, but it wasn't so much happening. And that's where David was getting worried. He was like, man; I don't think we're making it. But I was like, hey, you know what? The game's not over yet. We still got two more quarters to go. And it was just half-time, right? And then Q3 and Q4, we crushed it. So Q3 and Q4, we doubled up what we did in Q3 and Q4 of last year. So there are more than just caught up what we did Q2, Q3, and Q4 in 2023 and Q1 and Q2 in 2024. So can't be happier.

Perrin DesPortes:
... the football going into the end of the calendar year, man. That's awesome.

Dr. Noel Liu:
Right? That's like one of those games where you see like a long pass at the end and just winning the Super Bowl kind of deal, right?

Adin Bradley:
I think the reason I mentioned it is, and it brings such a smile to my face, is that we knew the business; we made a plan. And even though we had a little bit of adversity, you said, no, we're going to stick to it. Just trust the process. Just keep trusting the process. And therefore, at the end, when you got your report card, if you will, all A's, no matter what happened earlier in the year. And it really heartened me to know and just watch this journey with all of you and your team. So congrats to all of you on an amazing 2020, continued success into '25. I have no doubt it's going to be even better. I'm looking forward to your Tennessee practice and seeing how that turns out.

Dr. Noel Liu:
That's still in the works. Still in the works. I was really shocked when the CPA called in and was like, all right, we got good news and bad news. And we all know what that means, right?

Perrin DesPortes:
Yeah. Give me the bad news first.

Dr. Noel Liu:
Well, guys, thank you so much for coming in and chiming in your knowledge and your expertise, because this is one aspect everyone suffers from, regardless of how small or how big the group is. And I know that the fact that we are going to have these kind of challenges as well as we grow and as we go along year after year. So with that being said, I'm going to land the plane here. Any last comments, Perrin?

Perrin DesPortes:
Well, Noel, thanks for having us back on. This is such a treat for me and Adin. And like I say, it doesn't feel like work, but really excited about sharing some knowledge with your audience today. And hopefully, they found it beneficial and thought-provoking. And obviously, if you want to get in touch with me or Adin, Adin is A D I N @ Polaris Healthcare, Partners.com Adin@PolarisHealthcarePartners.com, and I'm Perrin, Perrin@TheNextLevelExecutive.com. Look forward to being back on with you again in 2025. Going to be a great year for all of us, I know.

Dr. Noel Liu:
100%. I would love for you guys to come back. Next-level practice, that's what we're going to talk about next year.

Adin Bradley:
Amen to that.

Dr. Noel Liu:
All righty. Make sure you guys like and subscribe. We were going to land the plane here. Thanks for watching and thanks for hearing us, and we will come back on our next episode.

Dr. Noel Liu:
Thanks for tuning in to the Secure Dental Podcast. We hope you found today's podcast inspiring and useful to your practice and financial growth. For show notes, resources, and ways to stay engaged with us, visit us at NoelLiuDDS.com. That's N O E L L I U D D S.com.

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