How to Scale a Dental Business From $15M to $50M

[00:00:00]I'm a dentist so we have dental offices in four locations and we open the fifth one next month.

[00:00:06]>> Great.

[00:00:07]>> We are doing right now on 15 million.

[00:00:08]>> Amazing.

[00:00:09]>> And we would like to go when I went to pre-workshop I thought I'd go 25 now I want to go 35 after the two days.

[00:00:16]>> I heard I'm so sorry.

[00:00:17]>> So the pre-workshop I got up like something we had to fill in how much do you want to be at? So I wrote 25 but the last two days Now yes.

[00:00:25]>> Okay cool. Okay you want to triple instead of double all right.

[00:00:27]>> Yeah so what's stopping me is manpower because dental offices need doctors.

[00:00:33]>> Yeah.

[00:00:33]>> Who are trained and they have to work in the same culture and the way that we do it.

[00:00:37]>> Yeah.

[00:00:37]>> That takes time.

[00:00:38]>> Mhm.

[00:00:39]>> And second if we go to like 50 locations to to reach that number then we will also need more leads.

[00:00:45]>> Yeah.

[00:00:46]Well let's solve the constraint we have right now which is that you don't right now Do you need more technicians or more leads now?

[00:00:53]>> I think we'll go first for doctors and then the lead that is going parallel it has to be together yes.

[00:00:58]>> Well you can't solve doctor time you don't have So let's assume it's doctors for the sake of this. Um So I'll give you a fun little framework that will apply to who here's home services?

[00:01:09]Okay this will apply to a bunch of you guys. Um so basically a lot of home services are supply constrained you can't find good technicians can't find find good HVAC you know techs whatever.

[00:01:18]It's actually the same thing despite it being a dentist it's just specialized labor. Okay so what do you make in gross profit per year on a dentist?

[00:01:26]>> Gross profit per dentist?

[00:01:27]>> Per year yeah.

[00:01:28]>> Per year? On the on the 15 million is it our product?

[00:01:33]>> is each year? How much is each dentist creating gross profit per year?

[00:01:36]>> different because they are different specialties so it's not just one doctor doing so surgeons are doing more.

[00:01:40]>> do you need right now?

[00:01:42]>> I would need orthodontist more.

[00:01:43]>> Okay so what is the gross profit per year of an orthodontist?

[00:01:47]>> I would say 400,000.

[00:01:49]>> Gross profit okay.

[00:01:53]Okay.

[00:01:54]Um what are you paying right now to acquire an orthodontist?

[00:02:00]>> Uh, we don't pay anything because it's generally recommendations from other doctors coming to come to us.

[00:02:04]>> Mhm. What would you be willing to pay to make 400,000 extra gross profit per year?

[00:02:09]>> Um, 50k?

[00:02:13]>> Okay.

[00:02:13]So, an 8x you're like 8:1.

[00:02:16]You're like, if I if I'm investing in the S&P you're like, if I put this 80 grand or if I put this 50 grand in, if I don't get 400 grand this year >> I can do 100.

[00:02:22]>> Right? And then next year I'm also going to get 400 grand, too. Right?

[00:02:25]Right?

[00:02:25]>> So, let's do 200, yes.

[00:02:27]>> Okay.

[00:02:29]>> So, 1:1 is good.

[00:02:31]>> [laughter] >> Yes.

[00:02:36]>> So, you guys should hopefully be familiar with LTV to CAC ratios. For the love of God, if you were here and you don't know it yet, I'm going to I'll kill myself. So, you know, and then the building will go up and they'll be upset and it'll be a whole thing. Anyways, so hopefully everyone knows what their LTV to CAC is.

[00:02:49]Um, a So, if a more advanced way of thinking about business that took me a while to like figure out and I kind of referenced it with the um, Mosey 6 here, right? Is that in in one way or another all businesses are demand constrained. Even your business. It's demand constrained on the talent side.

[00:03:07]And so, in thinking about it like that, we have our LTV to CAC on our customer side, but there's an equivalent metric on the talent side, which is what is our lifetime gross profit per employee to our cost of acquiring talent. Now, I did lifetime, but it's really annual based on what you just said. If we did lifetime and the average stick of a dentist, let's say 6 years, then we look at this and it would be 2.4 million.

[00:03:28]And then the numbers get even crazier.

[00:03:29]Right? Would I be willing to break even on the best orthodontist of all time if I spent $400,000 to get him if I knew I was going to get 6 more years out of him? Probably. If I knew that. Now, you don't know that, so we have to factor in risk, right? And so, if you're willing to pay $50,000 for sure and or 100, you can absolutely go to headhunters, agencies, you can go to forums for uh, orthodontists. Pay the person who owns the community. What would it take for me to make posts in here to go recruit orthodontists?

[00:04:01]There's a lot of ways to get them.

[00:04:03]>> Okay.

[00:04:04]>> It's just that everyone's like, "Well, I mean, it cost me nothing up to this point." And I'm like, "Yeah, and that's why you are stuck."

[00:04:10]So, to give you guys an idea, um one of the portfolio companies we had an outsourced sales team cuz the the the the um company grew so fast.

[00:04:18]Um like to put in context, we went from $2 million a year to uh $10 million a month in like 18 months. So, like a lot, very very fast. Um and we decided to take the outsourced sales team and bring it in-house. And so, it took us 90 days, and we set up a 50-person sales team.

[00:04:35]Um we hired 80, kept 50 to put in context. Um and in order to do that, like many of you guys are supply constrained in some way. Maybe it's you need more editors, maybe you need more sales people, maybe you need more whatevers, right? Or developers. Um we just look at this math and say, "What are we willing to pay?" And so, that sales team, as soon as we plugged it in, added $5 million a month to the business.

[00:05:00]And so, we paid 10 different recruiting agencies to uh 10 10,000 a head per sales guy uh to bring those in. So, we paid 500 grand to bring to make 5 million a month after the fact. Great trade. But a lot of people are like, "Well, I just don't have enough recruit." It's like, dude, like let's use like again, it's like that's the constraint. Let's bomb the hell out of it, right?

[00:05:23]Shoot.

[00:05:24]>> So, my question [clears throat] would be because we're looking at multiple locations, so we need to find all these doctors at the same time.

[00:05:31]>> Yeah.

[00:05:32]>> And that means >> Do more. Spend more.

[00:05:34]>> Yeah, and and then that means we have to invest right now in the beginning a big number.

[00:05:37]>> Yeah.

[00:05:38]>> But the 400k will come later on. It's not going to come in the first month.

[00:05:41]>> Yeah.

[00:05:42]>> So, like we have to invest more.

[00:05:43]Actually, the CAC is very high compared to the LTV, which will come on here later.

[00:05:47]>> Yeah.

[00:05:48]>> So, that's okay.

[00:05:49]>> Yeah.

[00:05:52]Well, I'll say it differently. You either pay in profit or in growth rate.

[00:05:57]>> Growth rate.

[00:05:58]>> So, if you want it to happen slower, pay less.

[00:06:02]>> Yes. We want to do it in 2 years, not in 7 years.

[00:06:04]>> Okay. So, if you're Yeah, if that if that's worth it to you, and then you think, "Well, I'd rather start making an extra You said, let's say it's five five orthodontists that you want. I'd rather make an extra $2 million. Well, that's not going to be net net. That Let's call it Let's say you run good margins on the whatever. Let's say you make 200,000 extra per, right? So, you're making an extra million in EBITDA per. Where this gets really sexy is that dentists probably trade, if you have a group, probably trade at 10x, somewhere in there. And so, like, you making the $250,000 investment at 5 * 50 to get those five orthos, you make 10 million on that enterprise value, notwithstanding the cash.

[00:06:43]>> Yes.

[00:06:43]>> The cash is just gravy.

[00:06:45]>> Yeah, but that's come That comes in once we have the leads to give them the patients also. So, we'd have to >> What's profit on 15 right now?

[00:06:53]>> 4.5.

[00:06:54]>> Okay. So, are you willing to make 4.25 to pull the future forward?

[00:06:58]>> Yes. Yes.

[00:06:59]>> Right.

[00:07:01]>> [laughter] >> Thank you.

[00:07:03]>> Yeah.

[00:07:03]>> Thank you.

[00:07:04]>> If you are a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So, my team and I put together the $100 million scaling roadmap, which is basically 200 hours of us looking over all of the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so, we broke it into these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources and finance. And so, no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct the business and you're trying to scale, we'd love to help you out. On the thank you page, you can just book a call with my team, and we will look at the business, see if we can help, and if we can, we'll invite you out to Vegas, and we'll do this in person live.