by David James
Let me just cut to the chase: The most important decision you
will make as you begin your dental career is the location of the
practice you will be starting, buying or joining.
Why? Because when you sort through all the clutter and
clamor, there is no denying the fact that location is the number-one
key to dental practice financial success.
Your generation is tech-savvy. You know technology. You
embrace social media. You are technically prepared. What you
may not fully understand is the business side of running a practice
and the impact of data, especially on the crucial business
decisions like where to set up shop. Big data is now everywhere
and has taken over how companies (mainly large companies)
make sales, marketing and other business decisions.
How about the dental industry? Is it using technology and big
data to make these decisions? No.
Corporate dentistry is the exception — they are growing by
using data to capture market share by figuring out where to start
practices, what practices they should try to buy and how to attract
the type of patients they are targeting.
But the individual practitioners that make up the vast majority
of the industry do not have access to this information, nor do
their advisers. They are not using technology and data for critical
strategic-and location-based decisions. Too often, these decisions
are made by gut feelings or incomplete or obsolete data. It’s not
their fault, as in the past the data has been extremely expensive to
obtain, not to mention difficult to analyze and interpret.
It is important for all dentists to understand that in order to stay
competitive, they need to start paying attention — now — to data.
In your case, as a new dentist, you do not want to start, buy
or join a practice that runs a high risk of not growing and not
being competitive in upcoming years, and thus losing value. If you
are going to be an associate, why not increase your probability of
growth and success?
In this environment of an uncertain economy, changing demographics
and industry changes, a premium will be placed on good
practice management to grow and build practice value.
The key to that is location — specifically your location strategic
It’s important to note that when I say location, I mean more
than just where your practice is on the map. Location isn’t just
whether your office is on a busy street. That’s a very dangerous
generality. It’s much more. Often the term demographics is used
throughout the industry when talking about a location. Yes, it is
an important factor to evaluate when selecting a spot. But it’s not
the only factor — not by a long shot. Demographics is just the tip
of the iceberg.
Whether you are looking to start a practice or join a practice,
you need to do your due diligence. You need a plan — a strategic
plan. Regardless of where a dentist is in his or her career, even if
things seem to be going well, I believe that it is critical that every
dentist should immediately create or review a strategic plan with
their trusted advisers and partners, centering around the vital
aspect of location strategy.
What does location include?
1. Demographic data: Here are 19 major demographic components
that should be evaluated: Total population, population
by age range, population change by age range, average
per capita income, average household income, households by
income brackets, households change by income bracket, average
household size, total households, total families, average
family size, housing units breakdown (owned versus rented),
total housing units change, average value of owner occupied
units, population by ethnicity, total number of businesses,
total number of employees, total sales, retail sales.
Tips for evaluating demographic data:
2. Competition or market saturation evaluation: It is critical
to understand how competitive the market is, specifically in understanding the ratio of practitioners (not practices)
to population and comparing it to standards that
help determine if a market is saturated and to what extent
opportunities and risks exist. Do you know your competitors’
ages? This factor will be a major input into your strategic
plan, especially as it relates to financing, cash fl ow,
growth projections, marketing spend and more.
- Understand your practice goals in terms of the demographics
of the patients you are trying to reach. Determine the radius
and especially the maximum reasonable drive time that a new
patient would drive to your practice.
- Do not look at zip code data. That is very dangerous due to
the irregular boundaries. Look for census block data as it is
exceptionally more precise.
- Are there natural or other boundaries (like an interstate) that
need to be considered?
- In addition to current data, look for five-year future forecasted
3. Future growth potential of the area: Are you in a high
growth area, or stuck in a declining area? Two important
factors here are evaluating where people work, not just
where people live, as well as the five-year forecasted demographic
4. Where are your existing patients? If you are considering
joining an existing practice, it is important to understand
the breakdown of patients by not just age and other common
factors, but by location and dispersion. You need to see where they are on a map and especially evaluate the
drive time ranges they encompass. For example, if the
drive time you believe patients will typically travel to your
practice is 20 minutes, how many patients live outside of
that distance? If you are buying or joining a practice, it’s
critical to know your patient drive-time dispersion from
a practice valuation and practice management standpoint,
because the answer determines how much “goodwill” you
should pay for and the risks you will encounter in retaining
it after you purchase the practice.
5. New patient marketing: Most dentists struggle with generating
a good return on the investment they make in marketing.
I believe that this is because there is not enough
emphasis on focusing just on neighborhoods and areas
that meet your desired demographic and drive time profile. I believe in focused multi-touch marketing campaigns
that provide value and create an impression of community
rather than one-off large-area postcard campaigns.
6. Building or office strategy: Should you own your office
building or lease? When is the lease term up? Do all of the
previous location characteristics support staying? Is there
room to grow or expand both your building and the market?
Should you remodel to add space or is it better to move,
or just add another office? Is there an opportunity to move
the office to take advantage of new growth and neighborhoods
without jeopardizing the current patient base?
7. Practice valuation: The most important factors in determining
what a practice is worth are the hardest to ascertain,
because they are intangible and not readily measured
like assets such as equipment and receivables. The main
factors are the patient base (including the ability to transfer
that goodwill to a buyer) and the future growth potential
of the practice. If you are joining a practice with the
goal of someday becoming a partner, you should know
this information up front.
8. Building or office characteristics: Once you get to the
point in the process where you actually start looking for a
specific location, there are several building characteristics
to evaluate. First of all, find a commercial broker who specializes
in working with dentists. Your needs are very specific, so ascertain your broker’s experience. The other factors
to evaluate when building or leasing are its accessibility from
major highways, major streets, visibility from the street,
monument signage, building signage, parking, handicap
accessibility and availability of public transportation.
9. Referral opportunities: What referral opportunities
exist in the area, not just from dentists but from other
10. Risk detection, avoidance and mitigation: Location
strategy is all about being proactive about planning ahead,
detecting and avoiding risk rather than being reactive and
having to figure out how to extricate yourself from a challenging
situation two to five years into a practice.
If the practice you are looking to start, buy or join does not
have satisfactory, objective data and answers to all of these questions,
Finally, let’s discuss underserved areas. The majority of new
dentists want to live and practice in a metro or suburban area
for many reasons. However, in most instances, these areas are
already incredibly oversaturated. Competition is fierce and it
may take many, many years of hard work and marketing to win
over patients from competitors, whether you are a start-up or an
existing practice needing to grow. It is very hard to build practice
value in such instances.
However, I believe that a multitude of underserved areas exist,
many of them close enough to have easy access to cities, where the
competition is not severe and the demographics and other factors
make sense. This allows exponential practice value to be created. The
issue for most young dentists comes down to having proof for themselves,
their lenders and especially their spouse, that the community
makes sense from a business, family and lifestyle standpoint.
The choices you make about location will determine everything:
your family legacy, your practice value, eventual estate and
more. Do not leave it to chance.