Better Business Models
Editor’s note: The DSO Secrets: Dentist Entrepreneurs Growing Dental Organizations Facebook page is a place to find resources, networking opportunities, information about upcoming industry events, and a forum to ask fellow dentist entrepreneurs questions you may have about running your business. The following was a recent discussion among DSO Secrets Facebook page members.
Praveen Gudipati asked:
Which business model is better?
1. Five $1 million offices
2. One $5 million office
1. More profitable
2. Less stressful
3. Easy exit-able
4. Pros and cons of each model
DSO Secrets Facebook page members responded:
“Five $1 million offices. You have to deal with five places, and do everything five times. If you have a strong support structure, it will be fruitful. But with one $5 million office, all your eggs are in one basket. If you’re excelling, your margins are higher, as the constant expenses like rent will be capped.” – Veerjinder Singh
“From a buyer’s perspective, the single practice is much more valuable. There are likely multiple providers (decreases risk), lower overhead compared to five locations (less overhead) and there is only one culture to manage. Give me the single location doing $5 million all day long.” – Kevin Cumbus
“No brainer for me. We have one $4 million office, two $1.5 million offices and one $800,000 office. Guess which model we’re going with for our next office?” – Joshua Elliss
“A single $5 million practice is better in almost every way except exit-able. Thinking long-term, larger practices are also more at the mercy of changing demographics and population movements. But besides that, I can’t imagine one thing I’d rather do five times versus once.” – Kai Weng
“It’s about risk management and diversification. Hurricanes, fires etc…. one location, you are done.”
– Enrique Acosta
“Depends on the exit strategy. A $5 million office is better in terms of EBIDTA. Most likely it’s dialed down for the efficiency of one large office. This type will sell to a doctor/provider, but most likely not attract an institutional investor. If you build one $5 million practice, you’re not showing the scale and lateral growth to capture different markets. That’s a major metric institutional investors are looking for. So both are good as long as the strategy is clearly identified. If you’re not planning to bring institutional funding in, a $5 million office is good. If the plan is to attract outside investors, multiple $1 million offices are good.” – Ellen Polsky.