THINKING BUSINESS
a blog by Chris Barrow

Clusters and structures

As you may imagine, I’m in conversation with many practices at the moment – a vertical learning curve on practice valuations and on “what to look for”. This morning I wanted to share some trends I’m noticing that might be of interest. Trend 1 – size clusters:

  1. Cluster 1 – the “one-man band” – a dentist with two chairs, the other occupied by part-time associate and/or hygienist/therapist. Turnover of between £300,000 and £500,000 – profitability can be quite high – up to 45%

  2. Cluster 2 – the “three-chair practice” – a dentist with full-time associates and hygienists/therapists. Turnover between £800,000 and £1.3 million – profitability at 25-30%

  3. Cluster 3 – the dental poly-clinic – a principal with general and specialist associates and a full hygiene team – possibly part or all referral practice – profitability at 20-25%

Observation – 10% of practices I meet at at Cluster 1, 80% at Cluster 2 and 10% at Cluster 3. I deliberately exclude expense-sharing partnerships – because they are simply Cluster 1 practices all occupying the same premises – but usually with all the co-ordination of Gary Rhodes on the dance floor. Beyond cluster 3 – nothing. Why? That leads me to: Trend 2 – organisational structure:

  1. Cluster 1 – the dentist is main income generator and overwhelmed Managing Director. The part-time practice manager (spouse?) handles book-keeping and keeps the girls happy. Financial modeling, marketing, customer service and sales just don’t get done;

  2. Cluster 2 – the dentist is still main income generator AND Managing Director AND Clinical Director. The full-time practice manager (spouse?) handles book-keeping and keeps the girls happy and does a little bit of marketing and customer service. Financial modeling is a finger in the air to test the wind, there is no sales training;

  3. Cluster 3 – the dentist is cutting down on income generation and focusing on clinical lead and strategic leadership. There is a full-time business manager who works alongside the practice manager. Business manager is responsible for financial modeling and monitoring PRODUCTIVITY of all income generators, also looks after the departmental managers. There is a full-time marketing manager, there is a comprehensive programme of customer service and sales development. The practice manager looks after operational controls and the team.

So far, so good – until we get to: Trend 3 – single site versus multi-site. Whatever “Cluster” you occupy or aspire to – the real fun starts when there is more than one practice location. Because without the organisational structure of Cluster 3 – the principal is doomed. I am currently in conversation with a dentist who is at Cluster 2 but from two sites – and is considering a third site and aspires to a Cluster 3 financial performance. Even with the current two locations, he is running around with his hair on fire – and, when “Elvis” leaves one building, guess what happens? The team slow down. Now – a third site has been located and his team are deeply concerned that he will burn himself out. They are perceptive – he will. So after much cajoling from myself, his wife and his current practice manager – he has appointed a Managing Director to project manage the evolution of the business – and her first task will be the recruitment of a full-time marketing manager. Instead of worrying about where the £150,000 “capex” (capital expenditure) will come from to refit the new premises, we are calculating where the £50- 75,000 per annum will come from to recruit, train and inspire the new people in the team and to reward and encourage the existing staff. You cannot move from one “Cluster” to another with the same habits and the same team – you MUST do things differently. You MUST invest in the human capital I mentioned a few posts ago. And is there a “Cluster 4”? I’m not sure yet – if I see one I’ll let you know what it looks like.

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