Our last recession was proof that the standard way of achieving financial security and retirement as a dentist is no longer viable. Standard financial planning for dentists has long involved putting a certain amount money away in a qualified retirement account. Once that money reached critical mass, we were able to retire. But the recession demonstrated that our retirement accounts should only be one part of an overall comprehensive financial strategy.
The dentist-owned dental service organization (DDSO) concept has become so important for thousands of dentists around the United States in securing a financial future, creating multiple streams of income, and finding one’s passion in dentistry. Some of these DDSO streams of income require active work on behalf of the dentist, while others are passive streams of income.
Solo practitioners have very little leverage. If they’re not treating patients, they’re not bringing in any income. Many other businesses possess leverage in the form of residual or passive income. Franchisors receive franchise fees, authors and inventors receive royalties, patent holders receive licensing fees, and real estate investors receive positive cash flow. So why do more than 90% of dentists receive no such residual income for their labors?
It’s because dentists are only trained to be dentists, not business owners. They have no experience with the many different business models and structures that build residual income into the equation. Dentists are in a very secure position because it is so difficult to replace us. But this same security also shackles us.
Residual income is the component that frees us and allows for scalability. Whether you are a solo dentist or own multiple locations across several states, DDSO concepts will bring growth, income, added value, and scalability to your practice or practices.
What Is a DDSO?
First, it’s important to first define the terms. A DSO generally utilizes a dual-entity approach including a clinical entity and a non-clinical entity. The clinical entity may only include licensed dentist owners, and the non-clinical entity houses the non-licensed parties to include private equity companies and other institutional investors. The clinical and non-clinical entities are generally connected by multiple agreements to avoid violating corporate practice law.
A DDSO has two distinct definitions. A D-DSO is defined as a dentist-owned DSO that may be a solo location or multiple locations. Oftentimes a dual-entity approach is not needed because all of the owners of the D-DSO are licensed dentists. A DDS-O is a dentist-owned organization that may include a dental lab, commercial dental real estate holding company, dental supply/implant/equipment company, continuing education (CE) organization, dental software company, or dental services company.
In the 1960s, most dental supply companies, dental equipment companies, and dental services organizations were owned by licensed dentists—thus, they were DDS-Os. There has been a slow shift over the last 50 years, and now most “big dental” companies are owned as public companies, private equity companies, or institutional investors. Billions and billions of dollars of income have been shifted from private practice dentists to “big dental.”
There is certainly nothing wrong with this trend. We live in the greatest capitalistic country in the world, and big money has certainly found its way into one of the most profitable fields, dentistry, in a major way. Many dentists fight this trend. I say, embrace it! You have the advantage of being a licensed dentist.
Most dentists are one step away from their biggest business breakthroughs in dentistry. They just need to be educated about how “big dental” achieved its success and replicate it through a DDSO.
Yet dentists do need to be aware of the strategic differences between DDSOs and DSOs as they move you closer to participating in this recent trend of dentist-owned organizations in the business of dentistry.
Differences Between DSOs and DDSOs
When it comes to funding and ownership, DSOs are owned by private equity, public equity, institutional investor, and pension fund organizations. DDSOs are funded and owned by the dentist or dentists, other dentists as private lenders, traditional bank financing, seller-financing for acquisitions, or creative financing techniques like a production-purchase for a merger.
When it’s time to exit the profession, DSOs are sold for the highest multiple of earnings before tax, depreciation, and amortization, or EBITDA. DDSOs use a self-sustaining, growing business model that increases over time while at the same time adding vertical components or streams of income, continuing to increase and build greater monthly cashflow.
DSOs expand via de novo acquisitions at market or above-market rates. DDSOs grow by value-added acquisitions for a rapid revenue increase. They oftentimes expand through joint ventures with a new clinical dentist owner as well.
DSOs develop multiple streams of income through full-service in-house labs, CE, branded dental savings plans, branded patient financining software, and other strategies. DDSOs launch CE to serve their own doctors and other private practitioners, host “virtual” dental labs, offer branded dental savings and in-house financial plans, and produce sponsorship and product sale revenue in conjunction with the CE program.
Furthermore, DSOs lease space, while DDSOs purchase real estate to add another stream of income and equity. Also, DSOs host internal clinical CE programs for their own clinicians, while DDSOs open their CE programs to other practitioners, including clinical and practice management topics alike.
Dealing with vendors, DSOs see lab, supply, implant, and aligner savings through economies of scale. DDSOs can take advantage of alliance or institute vendor discounts, creating DSO-like savings.
When it’s time to scale up, DSOs do so through more rounds of funding from private equity companies. DDSOs, though, enter into joint ventures with other like-minded dentists in new regions, receive private lending resources from other dentists, or employ creative financing strategies, allowing for little to no money down.
Case Studies
Seth Wasson, DMD, is a dentist in Brentwood, Missouri, who has been utilizing DDSO concepts for about a year. Last month, he added a second location funded by another dentist using private lending resources that didn’t require any personal guarantee such as traditional bank financing. He also has plans for additional growth.
“I am opening a 3-D printing center for aligner cases to provide retail aligner lab revenue as another stream of income. I am opening an aligner institute to educate other dentists, recruit dentists to my group, and add new business to the 3-D printing center,” Wasson said.
“I have also created a mentorship program to help new dentists shave five years off of their learning curve and hit the ground running with practice ownership, specifically leveraging the growing aligner market,” he added. “Though my DDSO, I currently work two days per week doing the types of dentistry of which I am most passionate.”
Samson Liu, DDS, is the owner founder of SOHDental in Chesterfield, Missouri. After starting with Heartland Dental and following the vision of Dr. Rick Workman, he became a prominent clinician within the group and was promoted to vice president of clinical operations before leaving to found SOHDental.
“I feel honored have been so deeply involved with Heartland’s growth. When Heartland was going through its second majority transaction with KKR, a major private equity company, I realized that the time for me to make a change had arrived, being a significant shareholder with Heartland,” said Liu.
“I began my DDSO vision in March of 2018. Since that time I have added 27 practices in six states with plans to acquire another 20 by the end of 2020. Our focuses are on implants and clear aligners, and we are on track to open two implant institutes in the first quarter of 2020,” he said.
“Real estate ownership is a part of our strategy too. We are focusing on operational excellence and practice expansion to include systems and processes, adding doctor and operator use and patient access hours. The future is bright for those choosing to be part of a DDSO,” Liu said.
KJ Sturhahn, DMD, founded Buffalo Prairie Dental in 1996 in Pittsfield, Illinois. He has since owned three other locations and continues to practice. But his road to success has not been easy.
“After having a couple of my cervical vertebra fused, I realized that I should not rely 100% on the clinical practice of dentistry to provide for my family and future. I have embraced the DDSO concept and watching the fruits from those concepts in multiple forms,” Sturhahn said.
“Less than one year ago, I had a solo location that was very profitable, but reliant entirely on myself as the clinical provider. I now have a multiple-location sleep practice and multiple general dentistry practices with commercial real estate, am opening an implant institute very soon, practice side-by-side like minded entreprenurial dentists, and feel much more at ease about the financial blueprint of my future,” he said.
Kevin Ison, DMD, MS, is an orthodontic specialist with eight locations in Kentucky and Ohio. Early in his career when he was working for Orthodontic Centers of America, he realized that he wanted to develop a dentist-owned and dentist-driven practice or small group. By launching several DDS-Os, he has created streams of income to benefit individual practices and groups.
“One of the most misunderstood DDSO concepts is that it is not necessary to have multiple locations to benefit from DDSO concepts. In my DDSO, I have incorporated a 3-D printing center to save on aligner costs (as low as $52 per aligner case) and also add retail revenue from serving other dental practices,” Ison said.
“My DDSO has created a CE institute for training on multiple aligner subjects. I have completed multiple joint ventures with other dentists on practice and real estate acquisitions in the last six months around the nation. I also have created my own private equity/private lending organization to keep interest and equity returns within the DDSO,” he said.
“One of my favorite components of the DDSO concept is that every practice, whether solo or group, finds benefit from the strategies. I have also found that no two DDSOs are the same, in that each dentist incorporates strategies based on their own interests, goals, and financial maturity. This allows dentists at every stage of their career to participate and reap the benefits of the DDSO concepts as the practice or practices grow and mature,” Ison said.
Creating your personal DDSO conceptual blueprint generally begins with the fields that you are most passionate about in dentistry. Some of the more popular areas include implants, aligners, sleep apnea, commercial real estate, and multiple location ownership. Each of these categories provides multiple streams of income to add to your financial portfolio.
Why look outside of our profession when investing in dentistry is one of the most profitable ventures of any profession or service in the United States today? I hope you are now encouraged to dig deep and develop your own unique twist to the DDSO concept.
Dr. Frank is an international clinical and business lecturer, an inventor, and founder of multiple companies in the dental space. Since graduating from the Marquette University School of Dentistry in 2001, he has owned multiple private dentist-owned dental support organizations (DDSOs). He is a founding member of the DDSOlive.com network. He can be reached at brady@bradyfrankconsulting.com.
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