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Henry Schein Dental: So you want to build a group practice?

Multi-location group practices and dental service organizations (“groups”) continue to evolve and more entrepreneurial dentists are entering the fray. Given the numerous advantages groups provide dentists and their patients, the attraction likely comes as no surprise and chances are you have thought about or begun the journey.

Over the last 15 years, we at OneSmile have looked closely at the operations of thousands of practices and, from our vantage point, we’ve observed a lot about the elements that go into building a successful group. While the list is long, two elements stand out:

  • Codifying your business model and staying true to it.
  • Defining your role and how it must evolve as the business grows.

Each element is heavily dependent on the other and underestimating the importance of or failing to execute either will undermine your success.

Your Business Model
What is your business model and why is so important to stick to it? Before answering this question you should know there is no one best model. We have observed and built dozens of successful business models and believe the key to a successful business model lies within how well all of its pieces fit together.

Think of a business model like the gears of a watch where each gear serves the others. The precision of the parts determines the accuracy of the timepiece. If components of a business model are poorly designed or mismatched, the business model is destined for inefficiency at best!

Some important business model components for groups include: target patient base/demographics, doctor relationships, scope of dental services, real estate/geographic location, marketing, technology, and support services.

While the watch analogy is simple, designing an efficient business model is complicated and it is even more challenging to execute it consistently. In short, it’s a full-time job.

We’ve observed that staying true to the model is often the biggest challenge for growing groups. This challenge often follows the owner incorrectly assuming economies of scale follow scale.

The reality is that economies of scale are not achieved through scale but rather by applying economies to scale. Unfortunately, the misapplication of this fundamental law of economics often leads to actions that are destructive to the business. How you ask? A business lacking the necessary infrastructure (i.e. the economies) to support its growth will face disruptions and inefficiencies which result in incremental costs. In addition, in the pursuit of scale, many groups under-estimate the importance of fit with their existing business model and, in turn, acquire or build practices that don’t fit (wrong size “gears”).

Your Role
What do you envision your role to be and how will it change as the business grows?

The first part of this question is often considered when starting up a group. However, the second part is often overlooked as the group expands.

Is your passion chair-side dentistry or leading the growth and expansion of your business? For many doctors, the answer is they want to do both. However, in most cases where dentists have built successful groups, meaningful success came after replacing themselves at the chair and devoting their time to building the business and leading its growth. In short, they transitioned from lead dentist to CEO.

Early on, most dentists don’t have a choice as to the role they play and must do it all (clinical leader, CEO, IT person, HR manager, etc.). This is for good reason since they are often the biggest producer in their group and they can’t afford to step away from the chair. Nor can they afford to hire people to fill other roles.

The tipping point for most dentists has been 3-4 locations. To successfully grow beyond this size, the business requires full-time leadership. If you haven’t prepared for this tipping point in advance – either by transitioning away from the chair or by hiring the necessary resources to lead the growth of the business – you’re likely to experience a very stressful period and your business will likely suffer operationally and financially in the process.

We’re not suggesting one can’t successfully grow beyond 3-4 locations without replacing themself at the chair. We know a few who have successfully done it, but only a few – and then rarely beyond 6-7 locations. The point is that careful, proactive consideration is needed here and at every juncture as opposed to adjusting reactively once the heavy demands of a group are upon you. We suspect most who have done it agree – replacing yourself at the chair without experiencing a decline in profitability requires a significant amount of time, preparation, and effort.

So what is your business model? Where are you building your group? Rural markets, suburban markets, or possibly urban markets? What is your real-estate strategy? Who is your target patient base? What services are you offering? What is your pricing strategy? What is your marketing strategy? What type of providers do you need? How will you maintain strong and long-lasting relationships with them? What is your compensation strategy? These are some of the questions you as the CEO need to ask and ask again.

Your daily struggle and full-time job will be to refine your answers and to keep your business’ execution consistent with those ever-evolving responses. You can do it, but it’s not a part time job for long!
By Sean Epp, Managing Director, Business Development, OneSmile, LLC
View the original article at Henry Schein Dental

Gryphon Investors and Dental Industry Veterans Launch OneSmile LLC

Steve Bilt, Brad Schmidt and Gryphon Investors announce the formation of OneSmile LLC. The core of the management and investor team that created and built Bright Now! Dental and Smile Brands into the first nationwide dental service organizations reunite.

Gryphon Investors (“Gryphon”), a San Francisco-based private equity firm, announced today that it has formed a partnership with Steven C. Bilt and Bradley E. Schmidt to establish OneSmile, LLC (“OneSmile”).  The new company will initially focus on acquiring existing dental practices and groups in the western United States, as part of a strategy to build a comprehensive Dental Services Organization (“DSO”) platform.

Mr. Bilt, a seventeen-year veteran of the dental industry, is OneSmile’s CEO.  He previously served as the president and CEO of Smile Brands, Inc., one of the largest providers of support services to general and multi-specialty dental groups in the United States.  Brad Schmidt will be OneSmile’s CFO, a position he previously held at Smile Brands, Inc.  Together with Gryphon’s financial backing, Mr. Bilt and Mr. Schmidt built that company from inception to over 250 locations with revenues of over $350 million before Gryphon sold a majority of its shares in 2005.  The executives continued to lead the company for subsequent investors, eventually expanding it to more than 400 locations and over $500 million in revenues.

Mr. Bilt, who is a founding member and former director and president of the Association of Dental Support Organizations (ADSO), said, “There is a compelling opportunity to build a leading DSO in the Western U.S., and I look forward to working with Gryphon again in this exciting new venture.  Their experience helping to build Smile Brands’ predecessor starting in 1998, along with their financial and operational support, will benefit us as we establish a unique model bringing comprehensive general, pediatric and specialty dental care and healthy, happy smiles to millions of people.”

Luke Schroeder, a principal in Gryphon’s Healthcare Group, said, “Gryphon has invested successfully in the dental sector in the past and we believe the opportunity in the space continues to be highly attractive.  There are a number of compelling acquisition opportunities in this fragmented space, and with our investment in OneSmile, we are well-positioned to prioritize and pursue these investments.”

Nick Orum, Gryphon’s president, added, “We have known and worked with Steve and Brad for many years and we are excited to support these talented executives in building a dental platform once again. Gryphon has a long track record of backing professional executive partners and teams with resources to build leading businesses through both acquisition and organic growth.”

 

Biographies of Key OneSmile Executives

Steven C. Bilt – Chief Executive Officer
Before joining OneSmile, Steven C. Bilt spent 17 years as president & CEO of Smile Brands Inc. and its predecessor BrightNow! Dental, then the largest provider of support services to general and multi-specialty dental groups in the United States with approximately $500 million in revenue. From 2005 – 2014 he also served as chairman and CEO of the Smiles for Everyone Foundation, a public non profit organization extending dental care to those in need both domestically and internationally. During his tenure with Smile Brands, Mr. Bilt oversaw growth from inception to over 400 offices nationwide, including through the acquisition and integration of Castle Dental and Monarch Dental, as well as the opening of over 150 new locations. Earlier, he spent almost five years as a vice president of Finance at Vivra Incorporated, a public, multi-specialty healthcare service company, and before that, five years as manager – Assurance at Ernst & Young. Mr. Bilt received a B.A. from the University of California at Santa Barbara and an M.B.A. from the George Graziadio School of Business and Management at Pepperdine University.

Bradley E. Schmidt – Chief Financial Officer
Prior to joining OneSmile, Bradley E. Schmidt served as chief financial officer of Smile Brands Inc. since April 2002, and controller from 1998 to 2002. Before that, he served as divisional controller and corporate accounting manager for Furon Company, a $450 million international manufacturer of specialized polymer components. Earlier in his career, he was a senior accountant/auditor with Ernst & Young, where he worked with a wide range of private and publicly held companies. Mr. Schmidt earned a B.S. from Eastern Michigan University.

 

About Gryphon Investors

Based in San Francisco, Gryphon Investors (www.gryphoninvestors.com) is a leading private equity (PE) firm focused on profitably growing and competitively enhancing middle-market companies in partnership with experienced management. For numerous consecutive quarters and years, Gryphon has been ranked in Preqin’s prestigious quarterly PE report as one of North America’s top-decile firms based on consistency of strong investment returns. With approximately $1.4 billion of cumulative equity commitments, the firm has an extensive track record of leading equity investments of $35 million to $100 million per portfolio company with sales ranging from approximately $50 million to $400 million. Gryphon prioritizes investment opportunities where it can form proactive partnerships with owners and executives to build leading companies, utilizing Gryphon’s capital, specialized professional resources and operational expertise.