Starting a Dental Practice
The link between my experience as an entrepreneur and that of a politician is all in one word: freedom.
This chapter describes some of the critical variables and steps related to starting a dental practice. While the chapter is not exhaustive in its discussion of a practice start-up, you will find that most of the issues are presented, including specific step-by-step do-lists for starting a practice.
Applicants for dental college are routinely asked, so, why do you want to be a dentist? or some variation on this question. Answers to this query often embrace references to caring for people and to “lifestyle” (a code of sorts referring to a relatively high income and freedom of work schedule). Another commonly heard and honest reply is, I want to be my own boss. The truth is that dentists tend as a group to be very independent people who enjoy calling the shots (no pun intended). This tendency often does not lend itself to being told what to do by others or to being an ideal employee who spontaneously abides by the wishes of an employer. Clearly, some individuals take the path of a practice start-up (or a practice buyout) simply because they are wired to be their own bosses. This “I want to be my own boss” mentality may also reflect in some dentists a more deeply abiding spirit of entrepreneurship.
Exactly what is an entrepreneur? The Online Etymology Dictionary indicates that this concept originated from the French language, defining entrepreneur as “one who undertakes or manages.” J.A. Timmons (1994) formulated this more precise definition: “Entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled.”
Historically, entrepreneurship, like leadership, has been understood in terms of personal characteristics and skills. Here is an incomplete list: moneyconscious, competitive, risk-taking, professional, self-control, self-confident, a sense of urgency, ability to comprehend complexity, realism, emotional stability, social networker, a high need to achieve, positive “can-do” attitude, ability to anticipate developments, results-oriented, technical knowledge, a hard worker, disciplined, a focus on profits, total commitment (BusinessTown.com 2007; Byers et al. 1997; Di-Masi 2007; Gaebler.com 2007; Tucker 2007; University of Alabama 2007).
You can get a glimpse, albeit perhaps not scientifically, of your entrepreneurial tendencies by doing an internet search for “entrepreneur quiz” and “entrepreneur test.” A search in the summer of 2007 uncovered several such tests at these locations: bizmove.com, bcd.ca, bankrate.com, davincimethod.com. Use these with caution—the results may not be accurate for you, though you will likely get a sense of your inclination toward being an entrepreneur.
Your Sense of Efficacy: Do You Believe?
One newer approach focuses on an individual’s entrepreneurship self-efficacy (ESE; Chen et al. 1998). That is, do you have a deep and abiding sense that you can achieve in this particular role, particularly along these five dimensions: marketing, innovation, management, risk taking, and financial control? This formal assessment of entrepreneurship seems to represent a distinct construct and also appears to have some capability of distinguishing entrepreneurs from others. A study in 2005 (Zhao et al.) showed that ESE helps to explain individual tendencies toward entrepreneurship and intentions to become an entrepreneur. The authors of this text are not aware of the general availability of the ESE assessment instrument.
So, what do the definition of entrepreneur/-ship, the admittedly incomplete list of entrepreneur characteristics, and the concept of entrepreneurial self-efficacy have to do with you? Simply this: you are like the little engine in the children’s classic story that “thought it could.” If you think you can, you are much more likely to succeed. If you think you cannot, you are much more likely to be unsuccessful. As applied to starting a dental practice, you really have to do a major “gut check.” Even though you may have some doubt, you better believe deep down in your soul that you “can” do this before launching this adventure.
What Special Competitive Advantage Can You Leverage?
We are now going to contradict ourselves, at least partially. The definition cited previously about entrepreneurship included, “creating or seizing an opportunity and pursuing it regardless of the resources currently controlled” (italics added). It has been our experience that most successful dental practice start-ups involve some special resource. The entrepreneur leverages this resource in order to make the practice start successful (namely, profitable) in a relatively short amount of time, perhaps weeks or months. Here is an incomplete but representative list of these types of resources: having an incredible level of energy to work 80–100 hours a week (this seems a bit more than being a hard worker from the earlier list); benefiting from the sage wisdom of a relative (grandfather/grandmother, parent, sibling, cousin, etc.) with business experience, particularly in dentistry; enjoying the obvious benefits of a parent who is a general contractor and who will build-out lease space or build a gorgeous facility at or near cost; locating the practice in an area in which you have unparalleled strategic and/or financial advantage. Examples of the last scenario would include a rural area with a population of 3,500 and no competing dentist within 25 miles; and start-up incentives from state or local government or community programs that might involve no or low-interest loans, property tax waivers, student loan forgiveness programs for practicing in designated shortage areas, and so on. Some of these unique leveraging opportunities might be able to be “stacked” or added on top of each other by creative entrepreneurs.
We, of course, are not saying it is impossible to start a practice from scratch without a competitive advantage such as those listed above. We are saying that such resources offer incredible assistance in launching a practice.
Special Marketing Ideas
For a much more thorough treatment of marketing issues, please refer to the chapters on internal marketing/customer service (chapter 15) and external marketing (chapter 16). Our purpose here is, obviously, not to review the discipline of marketing but, rather, to convey a couple of successful approaches to marketing used by people who have started dental practices. Ted Turner is quoted as saying, “Early to bed, early to rise, work like hell and advertise” (Shapiro 2004). This aphorism has some application for practice start-ups. One of the coauthors of this chapter went literally from door-to-door in the surrounding neighborhoods to market himself and his practice. While a unique approach, especially for a professional services business, meeting and greeting hundreds if not thousands of potential patients provided a direct method for communicating with the public.
Another dentist we know opened a practice in a small town in the Midwest and utilized an existing facility from a previous dentist. His advertising strategy included a distinctive series of black and white contrast newspaper ads. He purchased a portion of a page that featured a simple image of a molar. Beginning with a small molar, the tooth “grew” with each weekly issue of the paper. After several weeks, with the community talking about what in the world the tooth was all about, the dentist then utilized the same page space and announced the opening of his practice and the availability to schedule appointments. The simple and relatively inexpensive strategy worked effectively.
Special Real Estate Issues
A practice start-up raises concerns related to buying or leasing a practice facility. These parallel similar decision-making variables involved in buying/buying out a practice. However, with a start-up, the entrepreneurial dentist has no reliable patient cash flow and no accounts receivable. In all likelihood, a line of credit from a lender or some other revenue source (a spouse with steady and sufficient income) will have to fill the gap when the doors open in order to cover all the overhead expenses plus a minimal draw if needed as a living wage for the dentist.
Given this tenuous situation, the decision about buying or leasing a facility may be a sticky one. Monthly cash flow is one variable—that is, what it will cost to lease and what will be the monthly cost to make a mortgage payment plus insurance, real estate taxes, and upkeep. In most areas, it is more cost-effective to lease, especially when money is tight. This, however, is not always the case.
Dr. Gene Heller (2005), national director of Sullivan-Schein’s Transition Services, identifies three criteria in deciding to buy real estate for a dental office: (1) if replacement cost is 50–75% (or less) in comparing the building/office to new construction, (2) if the building is anticipated to be in a good location for 7–10 years or more, and (3) if the building is large enough for the practice or can be expanded to be large enough. So, in addition to issues of cash flow and affordability, these three criteria need to be examined in making the decision to lease or buy real estate for a dental practice.
In addition, some people have more of a “renter” mindset and prefer to avoid the hassles of “ownership” (leaky roofs and plumbing leaks, for example). It does not appear obvious to us that a person starting a practice from scratch would tend to side one way or the other on this particular issue. Still, it must also be considered. One entrepreneur might prefer to focus on producing dentistry instead of a building. Another with superhuman energy levels and construction skills might relish fixing roof and plumbing problems.
Financing is another issue related to real estate. Recent graduates may have to push the tolerances of lenders in starting a practice due to the expenses of building-out lease-hold space and purchasing cabinets, chairs, equipment, technology, and supplies. While real estate in some sense involves less risk to a lender (given a building to resell if necessary), there may be limitations on the total amount to be borrowed in a more risky start-up venture. Thus, inability to get financing to purchase a practice facility may render moot the issue of buying a facility.
Finally, there exist some rare and lucrative opportunities, especially in rural areas, in which towns, cities, or owner-dentists may have some unique incentives involving real estate for practice start-ups. We know of situations where a student has purchased a practice, in essence, for only the cost of a building (with older but serviceable equipment considered part of the price of the building). Obviously, not having to pay for any goodwill or blue-sky could readily “tip” the scales and make the purchase of a building a smart business move.
Chapter 5 provides detailed information about equipment issues within the context of practice ownership. We simply would like to remind anyone who starts a dental practice to have any used equipment inspected and maintained. Further, it is vital to have a trustworthy relationship with someone who can readily make a service call for “down” equipment. A fledgling dental practice being sustained in part by cash flow can ill afford to have a compressor fail and lose the income that would have been produced for, potentially, several days.
It is also vital to pay fair market value for any used (or new) equipment purchases for a start-up. If necessary, an independent appraiser can inspect and value used equipment.
One other comment related to equipment is noteworthy here. As nationally acclaimed registered architect-dentist Dr. Mike Unthank warns (and this is a paraphrase), any piece of equipment that says “dentist” on it, literally or figuratively, will cost more money (Unthank 2007). This may particularly apply to cabinetry. So, as always, be a wise consumer of what you purchase.
Business Plans and Financing
We believe a metaphor is helpful in understanding the importance of business plans and financing in starting a dental practice: you have to build a bridge over the span of a river to reach the other side of profitability. The bridge consists of all of your business decisions, your skill-set, and your indispensable staff. The river to be spanned consists of all the market forces and overhead expenses with which you must contend in building a practice. Depending on the source with whom you talk, and depending on market forces and overhead expenses, it may take from a few months to a year or more to “span the river”/build the bridge to profitability. In other words, it is likely to take months before you can pay for your overhead AND earn a profit. For the initial months of start-up, you will likely need a line of credit from which you can borrow to pay for your living expenses, unless you have some wonderful support (such as a spouse with a solid income).
Chapters 2, 3, and 8 cover business plans, dentistry by the numbers, and financing a practice in great detail. The bridge to profitability reinforces the vital importance of these topics for a start-up situation. Your business plan can be augmented by building upon software programs such as Business Plan Pro and Matsco’s Practice Success Series, which includes an interactive practice planner to help establish expense and income projections. Make sure that your business plan includes available loan money, probably a line of credit, for spanning the river.
As far as financing a start-up, our advice is to persevere, persevere, and persevere. The lending industry seems to ebb and flow in mysterious and unpredictable ways with market nuances. In other words, it is sometimes relatively easier and more difficult to obtain loans for start-ups. In any case, if you are turned down by one lender, especially a bank, we encourage you to go to another, and to another, and to another if necessary.
You cannot overestimate the need to plan and prepare. In most of the mistak/>