Dr. Giannini was the founder of Comfortable Care Dental Group’s initial office in 1989 in Sarasota, Florida. The group aggressively grew and then with an investment from Heartland Dental Care in 2002 the growth was exponential. In late 2003, he sold the group to Heartland Dental Care and became a shareholder. Dr. Giannini then took a sabbatical from dentistry in 2005 and developed hotel and commercial projects all the country which totaled over $140 Million. In 2008, he formed Dynamic Dental Partners Group (DDPG). In 2014, DDPG was listed at #14 on the Inc. 5000 list for the fastest-growing private companies in America. The DSO was sold to Huron Capital. In 2015, Dr. Giannini served as full-time Chief Executive Officer at Blackford Dental Management. He has over 29 years of experience in dental practice administration, support, and management. Dr. Giannini practiced high-end fee for service dentistry in Florida for 9 years, after which time he co-owned and managed dental practices in Florida, Arizona, Virginia, Pennsylvania, NJ and Georgia. Today. Dr. Giannini is the owner Founder of Aligned Dental Partners and Pi-DDS Management which is a dental Management and Consulting. In addition, Dr. Giannini has been featured as a guest speaker at many Practice Management conferences throughout the nation. Dr. Giannini’s role as CEO of Blackford Dental Management includes doctor recruitment, complete business development, marketing, strategic planning as a business analyst to oversee the financial operations including the dental systems, forecasting, budgeting, and goal setting of each individual affiliated office and company.
VIDEO - DUwHF #956 - Alex Giannini
AUDIO - DUwHF #956 - Alex Giannini
Howard Farran: It is just a huge, huge honor for me today to be podcast interviewing Dr. Alessandro [Adazio 00:00:12] Giannini. Did I say that right?
Alex A Giannini: You did.
Howard Farran: Dr. Giannini was the founder of Comfortable Care Dental Group's initial office in 1989 in Sarasota, Florida. The group aggressively grew and then with an investment from Heartland Dental Care in 2002, the growth was exponential. In late 2003, he sold the group to Heartland Dental Care and became a shareholder. Dr. Giannini, who goes by Alex, then took a sabbatical from dentistry in 2005 and developed hotel and commercial projects all over the country which total over a hundred and forty million. In 2008, he formed Dynamic Dental Partners Group, DDPG. In 2014, DDPG was listed at number fourteen on the Inc. 5000 List for the fastest growing private companies in America. The DSO was sold to Heron Capital. In 2015, Alex served as full-time chief executive officer at Blackford Dental Management. He has over twenty-nine years of experience in dental practice, administration, support management. Alex practiced high-end fee-for-service dentistry in Florida for nine years, after which time he co-owned and managed dental practices in Florida, Arizona, Virginia, Pennsylvania, New Jersey, and Georgia. Today, he is the owner, founder of Aligned Dental Partners and PI-DDS Management, which is a dental management and consulting. In addition, Alex has been featured as a guest speaker at many practice management conferences throughout the nation and Alex's role as CEO of Blackford Dental Management includes doctor recruitment, complete business development, marketing, strategic planning as a business analyst, overseeing the financial operations including the dental systems, forecasting, budgeting, goal setting of each individual affiliate office and company. Now his parents were born in Italy and then moved to South Africa and he must've met up with Elon Musk because you are truly the Elon Musk of dentistry.
Alex A Giannini: Thanks Howard. I appreciate the invitation and appreciate the opportunity to be on and speaking with an old friend like you.
Howard Farran: Oh my God. I remember the first time we met at a lecture in Sarasota.
Alex A Giannini: That’s right.
Howard Farran: My roommate was there - from Creighton, a dentist, Randy Kerwin, who practiced in Sarasota. And then he moved back to Kansas because they had better deer hunting. A big shout out to Randy Kerwin, he’s a great guy. So last time I saw you, you were lecturing at the Arizona State Dental Association.
Alex A Giannini: Correct. That was during my DDP days, my Dynamic Dental Partners days, yeah.
Howard Farran: I wanted to get you on there because this is the biggest new deal in dentistry - DSOs. And you know, dentists think about it all the time. It's had explosive growth. How big do you think DSOs is right now in America? What percent of the market do you think they are as dentists?
Alex A Giannini: All the estimates that I'm seeing or hearing, they're anywhere between 15 and 20%. When I first got into dentistry, got involved with group practice, nobody knew what DSO- there was no real definition of DSO back in the early nineties. Everybody was in a group, right? You either had a solo or there was a group. You were a group dentist. And so today there's a distinction between a group practice and a DSO. But back then, I would say less than 1% of all dentists were quote unquote in a group practice. By 2000, it was around 3%. In around 2010, it was around 9% to 11%. All estimates today is that it’s probably around 18% of all dentists are in a group or DSO. And that probably by the end of 2030, most likely it'll be closer to 40, 45%. I forgot to mention, but this year, I'm now the president of the American Academy of Dental Group Practice and we just had our conference in Las Vegas this past weekend. It was a great meeting, a record attendance. That's really what's going on in the industry today. There's a tremendous amount of interest, and people are just flocking wanting to understand what's going on in the industry and how to group up.
Alex A Giannini: What's funny is I don't think a lot of folks really understand the difference between a group practice and a DSO. I think even some people who are in the DSO, mislabel or misunderstand what that is. A DSO, it's supposed to be a dental support organization versus a dental service organization. A DSO provides no clinical services whatsoever. It is purely a support function, organization or company that provides centralized services to dentists, or to a group of dentists, versus a group practice which is owned by dentists. Of course DSO is also owned by a dentists, but ownership doesn't really play into the equation as far as what's the difference between a group and a DSO. The big difference between a group and a DSO is whether or not you have centralized function support: business, HR, accounting, marketing, IT, those kinds of things.
Howard Farran: When did you say group practice was 1%? You said in 2000 it was 3%.
Alex A Giannini: In the nineties.
Howard Farran: So 1990s, group practice or DSO was 1%. 2000 was 3%. 2010, 10%. 2018, it's 18%. And you're saying in 2030 it'll be 40 to 45%. What do you think it will max out at?
Alex A Giannini: I think it will max out at around 45, 50%.
Howard Farran: And you know who first predicted that? It was my son Greg. When he got out of college, he worked for me for a couple years at Dentaltown and he showed me some of the research you did where law firms who started group practice decades before dentistry did max out at 50. So 50% of lawyers are solo practice and 50% are group. And he thought that that was dentists, physicians, lawyers... [inaudible 00:07:35] and I agree, but, but one of the things that troubles me on the DSO model- first, a lot of dentists were saying that there was a lot of dentist turnover in DSOs, but when you look at private practice, they have the same thing with the young employee turnover. But when you leave dentistry and go to the biggest stocks, FAANG - Facebook, Apple, Amazon, Netflix, Google, Microsoft - their average employees are only staying one to two years.
Howard Farran: Millennials. My mom's brother, Pat, got a job at Mobil Oil in Parsons, Kansas when he was sixteen and retired there when he was sixty five, and that was the baby boomers. And in my thirty years as a dentist, when I hired a baby boomer, the average one stayed with me for a decade. But whenever I hired a millennial, my God, in one or two years, they're single, they move for God only knows all these reasons. I mean, here I have a million dollar facility, state-of-the-art, everything, and it's not just me. Look at Facebook and Google; they have all the pinball machines and foosballs. They give them everything you could ever want that the boomers who never had at GM and Chrysler and the employee turnover is incredible. What do you think the average employee turnover is in a DSO on millennial versus baby boomer dentists?
Alex A Giannini: I can speak from experience on my end, in the DSOs that I've been involved in, and ours was in the mid-teens.
Howard Farran: Mid-teens? What does that mean? Mid-teens what?
Alex A Giannini: 15%.
Howard Farran: Oh 15% employee turnover-
Alex A Giannini: Of dentists.
Howard Farran: Per year?
Alex A Giannini: Yeah.
Howard Farran: Well that's low. That means your average associate was staying with you almost five years. What is a one hundred divided by fifteen equals... That means your average doctor stayed with you six point six six years. That's the devil. So you're saying at the DSOs you work with the average dentist stayed with you six point six, six, six years?
Alex A Giannini: Yeah. And that's not true of all of them, of course, because it really depends on the model and who they're catering to. And really-
Howard Farran: But did you get that six point six six the same way I got it from my office where the older guys stayed with you a decade and the young millennial stayed with you a year or two? And then you take a guy that stays ten and a guy that stays two - that'll be twelve divided by two equals six. Were you seeing that too?
Alex A Giannini: Yeah. My model has typically been working with more mature, experienced doctors. Not done well with doctors coming right out of school.
Howard Farran: Amen and amen, amen, amen, amen. And it's because they're slow. They don't have the experience. When they leave you, you have a lot of warranty work for the next two or three years to come as stuff they did falls out and falls apart, and their turnover. All it takes is a-
Alex A Giannini: I think the biggest thing is, and this is true of most dentists, they really don't understand their role in a dental office. They don't understand that they're leaders first and clinicians second. Especially if you're trying to run a good fee-for-service dental office, you got to build the relationships. You've got to build the relationships with the patients and you've got to build the relationships with your team. And so even though the clinical level of the doctors that are coming out of school today is way less than the standards and the requirements that we had in dental school- I think I had to do forty five units of crown and bridge in order to graduate and endo and all that. And it is a lot of schools today that there's no more endo requirements. You only need to do one or two units of crown and bridge. But let's put the clinical skills aside. Part of the issue with younger doctors is the communication, and wanting to communicate not eye to eye, knee to knee, face to face. It's partly uncomfortable and so there needs to be some level of maturity from a leadership perspective in order to start to learn how to connect with patients and connect with your team and not communicate via text or Facebook or Instagram or Snapchat or anything like that.
Howard Farran: I am so lucky to have you on the phone. You have no idea. I mean really, Alex is the Elon Musk of DSOs, dentistry group practice, I mean, you are, man. You're highly innovative. Must be a South African thing. I mean, you're a highly innovative. You're fearless. You tried all these different models. I'm so impressed by you, but the thing that confuses my little miniature walnut brain is that when you and I got out of school, Orthodontic Centers of America, they did an IPO on the New York Stock Exchange. The only one today had a billion dollar valuation that imploded. There was like a dozen on Nasdaq and then they all went away. And then today, like even on your group practice, you said when you sold it, you didn't do an IPO like Snapchat or Facebook or anything. You sold it to Heron Capital and I'm just curious. Why are none of these huge DSOs like Heartland not trading on Nasdaq? Why does it just go from smaller private equity or venture capital to bigger private equity and a private equity firm that deals in five to ten million after they've had a five years [unclear 00:14:01] and fifty billion, and five to ten years... You know what I mean? Why do they not go public?
Alex A Giannini: I have all the answers for you. I've got a lot to say about all of this. Let me rewind a little bit to the beginning of your question. In 1997, there were thirteen or so dental publicly traded companies and most of them went out of business. They either went private or they went out of business. It was funny because I was asked to speak at the AADGP conference in New Orleans and I got booed off the stage because I said that a lot of these companies were going to fail because they were financially engineered. There was no real value that was being created. It wasn't one plus one equals two. Really, that's what they were doing: one plus one equals two. It needs to be one plus one equals three. And there needs to be synergies, there needs to be a bunch of economies of scale that come together. The DSO, the support side of the organization, needs to really create value. The reason I've been successful is because I am a dentist. And it's funny; that's another thing that's going on in the DSO side. I've seen that evolve over the last ten years or so.
Alex A Giannini: About ten years ago, unless you were [unclear 00:16:00], you weren't really fit to be the CEO of a DSO. You needed to be in MBA and be completely outside of the dental field. Today, it seems like the thinking has been changing with these private equity firms that really it needs to be doctor-lead. But how I approach all the partnerships and how I approach the dentist internally is this by taking a look at the fundamentals of what's going on in their practices. A lot of times, there's more accountability, believe or not, in the DSO and the group practice than dentists who are practicing on their own. I've seen more solo dentists not use a probe, not take FMX, and believe it or not, I've seen where majority of the new patients that walk into a dental office in a solo practice, they never complete a comprehensive exam or do a full exam. You gotta add and create value. Besides, you got to attack it from a clinical perspective which is not true of all DSOs. I am at liberty to do that because I'm a dentist. There's plenty of money in the marketplace today; there's a lot of institutions that are flush with cash and so today, Heartland would probably need to go public within the next three to five years - I would think - in order to continue to get capital. This is a very capital-intensive business and you need cash in order to continue acquisitions and in order to grow. Whether you're buying dental offices or whether you're starting new dental offices, it is a capital-intensive business.
And while you can use the cash that you produce to do that, if you want to grow aggressively, you need capital to come in from other sources. And so private equity is there today to supply that capital, but at the same time, if it's going to be a three, four billion dollar transaction or valuation, eventually I believe DSOs who get that big are going to have to go down the road of taking a look at going public. It's scary because it's always about control when it comes to working with private equity and so you're giving up control to a certain extent. In going public, you got to meet expectations and there's a tremendous amount of compliance and regulatory things and the amount of reporting is tremendous.
Howard Farran: Explain to my [unclear 00:19:33]; they hear terms private equity versus venture capital. What's the difference concerning DSO?
Alex A Giannini: I think private equity and venture capital is almost the same. I think today venture capital is mostly used for companies that invent some sort of a widget or is a high risk business opportunity or business venture, and they come in with seed capital knowing that there's a high likelihood that they would lose their money. Private equity is primarily funds; it's either fund or it's what they call "family office", and family office could be a wealthy individual, billionaire or millionaire and it's basically a whale investor - one investor that's invested in a lot of different things and they use a team to basically deploy and invest the capital out into the marketplace.
Majority of the private equity firms that are out there today, they go out and they raise capital. They go to all the big companies, they go to endowment funds, they go to universities, they go to insurance companies, and they create a limited partnership. These investors that these private equity firms pick up are called limited partners, and they'll put together a fund that has a certain raise. Say they'll raise $100,000,000 and they'll go to all these different investors and they'll get commitments from all these investors, and one of the investors says, "Alright, I'm in for ten." The PE firm will give them back some sort of a coupon, meaning some sort of base interest rate, and then some sort of split of profits as the fund matures, grows and the investments in that fund continues to grow. Then the private equity firm, they source the deals of where to put the money, they manage the company, the portfolio, and they'll in turn go up to an operator or founder or somebody like that and then they'll say, "We get a sliver of preferred interest or preferred capital," which means say if they've given a company 5% return on their money, they'll probably charge the company back 10%. Not everybody's the same; each fund has different underwriting criteria in terms of the fund, the deal. They also have different charters per say in terms of how they put the capital out, what they put- It has to fit a bunch of investment criteria in order to put the money in.
Howard Farran: You know, in order to scale a business- You take something like Facebook or Twitter or an [unclear 00:23:49]. To go from one user to a million users doesn't require much more capital, but to scale dental offices is extremely capital intensive. Do you cut that capital intensive in half by not owning land and building and real estate and just leasing?
Alex A Giannini: Correct. I just called on a group that realized after being in business for fifteen years, they were buying all the real estate that they had their dental offices in and they were spending about a million dollars per office. And they realized that the dental offices themselves were [unclear 00:24:39] EBITDA which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization - it's also called a contribution margin - and the typical dental office will have about 20 to 25% clinical EBITDA or contribution margin. So these offices, these folks that I was talking to, their contribution margin was relatively high and they were almost 28%, so they were make lots of money and they realized that if they would have invested in buying more dental offices rather than the real estate, they probably would've been four or five times bigger in that same time span. So the real estate is a great investment to a certain extent, but nothing beats investing in your own business because that's really where you're producing the money.
Howard Farran: When you look at these dental offices for a group practice or a DSO- I mean, a lot of dentists don't know basic accounting, like a dentist'll say to you, "Well my overhead is 60%." I'm like, "Wow, you have a 40% margin. You're like Intel, that's amazing." But they don't realize that they're the dentist producing, so they're peanut butter and jelly-ing the earnings, the income from me being a dentist doing all this dentistry versus me from having capital invested and deployed in a dental office. So when you're looking at accounting where you pay the dentist the free market value of what it would cost to replace you, go through the overheads of what is reasonable for a group practice that has 10 locations. What would be rent, mortgage, equipment, [unclear 00:26:44], computer, insurance, dentist labor, staff labor, sundry supplies, lab, just the basic metrics that you're looking at it.
Alex A Giannini: Staffing team with taxes, benefits and salaries, you're probably looking around 25%. The salaries for a dentist is usually around another 25% by the time you put in their taxes and so forth, and that assumes that hygiene revenue versus dentist revenue is probably going to be in the 80-20 split. Most dentists in DSOs get paid anywhere between 25% to 35% of collections or net production, so I'm using 30 percent as an average. Then if you take a look at supplies in labs, you can probably add another 10 to 12% for those two.
Howard Farran: So you add supplies and labs.
Alex A Giannini: Well I keep them separate. That's an area that we add a tremendous amount of value because most general dentists, their supply bills are running anywhere from 6 to 10% and we can normally get that down to 4% simply because we've got economies of scale. We also get all the dentists together and say, "Listen guys, can you please create a formulary?" And then we take that formulary and we go negotiate with the suppliers. For example, the one organization I got involved in, there was twenty, twenty one offices, they had fourteen thousand different items on their SKUs - dozens and dozens of different impression material, gloves... I said, "Guys, just pick the best. Just pick the three best ones. I'm not telling you which one. Just pick the best ones that you think are the best. The same thing with gloves. Instead ordering six different brands of gloves, let's just pick two of the best. And so we got that formulary down to a thousand items, then we went to the supplier and said, "Alright, give us your best price and all of this." And so we were able to cut their supply costs from 8% down to 4%. Same thing goes with labs. Most dentists never really focused their attention to- They'll use like thirty different labs, but use the best. Nobody's telling you to compromise on quality or anything like that, and then give your lab an opportunity to be competitive and to give you a quality product at a good price. We normally can get that down to about 5, 6%.
Howard Farran: When you meet up with them, what is their lab? You say you got down to 5, 6% but from what?
Alex A Giannini: Usually eight to twelve?
Howard Farran: Yeah, and you know, when you're looking at people's Facebook page, you're seeing the greatest hits album, so you're scrolling through Facebook and your friends are on cruises and in love and getting married and having babies and you think, "Oh, I'm a loser." You're looking at a greatest hits reel and it's not reality. I saw a paper of what you're posting on Facebook versus what you're searching on google. They call Google God because you're asking- So you post on Facebook your happy anniversary of marriage, but Google's God and [unclear 00:30:54] you're saying divorce attorney. So your Google searches are not transparent and is real and your Facebook posts are crazy and these dentists are sitting in study clubs and the guy next to him is saying, "Yeah, my overhead's 50%"
Howard Farran: And then you go in there and you find that there's nothing further from the truth or he paid off his building so he doesn't charge himself rent, so he's not charging himself cost to capital and it's just peanut butter and jelly. And another thing on that CAD/CAM. People say, "I bought my CAD/CAM and I cut my lab bill from 10% to 5%, but then their supply bill went from 6% to 10% because you're buying all these blocks and they're buying all these other stuff. So I liked the way you're peanut butter and jelly-ing supplies and labs and saying ten to twelve.
Alex A Giannini: Yeah, I'm a fee-for-service high-end dentist. I've had a lot of experience with these CAD/CAM and CEREC and from an economic perspective, it's tough. It's a hobby. There's a high learning curve. You got to do at least 35 units of crown and bridge a month just to break even. And you're right, the supply costs go up.
Howard Farran: Say that again because you're talking to a lot of dentists who walked out of school with two hundred and fifty, three hundred- I was lecturing at the local dental school last Sunday - and there's one kid in there $400,000 in debt - and then they say, "Well do I have to buy $140,000 CAD/CAM to be a high-quality dentist?" What would you say to that kid?
Alex A Giannini: Absolutely not.
Howard Farran: And from all your vast experience, from all these DSOs and offices, do you think CAD/CAM is an economic return on investment or a hobby?
Alex A Giannini: It's a hobby.
Howard Farran: Do you think it's profitable? Or do you think they'd make more money using a lab?
Alex A Giannini: They would make more money using a lab. I realize it's more more convenient for the patient, but I got to tell you, the amount of open margins- I've seen dentists experimenting and trying to get through the learning curve using these CAD/CAMs or these CERECs. It's tough and that's not good for the patient.
Howard Farran: Also when they're pitching the CAD/CAM, they tell you that you can do the whole thing in an hour and then they bring up some guy, he's done like ten thousand units, he does an hour. But when you're in the field, how long does it tie up that chair?
Alex A Giannini: An hour and a half?
Howard Farran: Oh no, it's two to three. And back in the day, you could have done three different patients: numb up, prep and press, flip the chair, do another one, flip the chair, do another one. And now Ms. Cranston has been sitting in room four for two and a half hours. Back to supplies. When you're negotiating supplies, is there one major supplier who's just cheaper than the rest when you're dealing with these groups?
Alex A Giannini: I do a lot of business with Henry Schein and so they've been very good to me and my partners over the years. I have found them to be very competitive. Obviously there's others-
Howard Farran: But that's the go-to for the low-cost provider, right?
Alex A Giannini: I think so.
Howard Farran: They're the Costco, Walmart of the deal. So at the Greater New York meeting last year Amazon had a major booth, and you and I both know that at the DSO meetings and the Dental Manufacturers Association meetings, they've had a couple of men in black at those meetings, [unclear 00:34:30] five years sneaking off to the bar in the hotel room with different manufacturers. Do you think that's going to be a disruptor or not in dentistry - Amazon in the next five years in the dental supply business?
Alex A Giannini: I think all dentists, including myself sometimes, we're like sheep and so we want to see what everybody else does, and the minute that catches, everybody's going to do it. We're going down that path anyway, with all these malls and big retailers all going out of business and everybody's gravitating towards online ordering. I think that's just a natural progression and it won't be long before a lot of folks are ordering supplies from Amazon.
Howard Farran: And for you young kids, not only did he tell you that dentistry is a capital-intensive business, you already have a bunch of student loan money. Put your money in your business, don't tie up a bunch of capital and land and building. But my gosh, with Amazon, they've created so much available retail space. You can go anywhere and get retail space for half the price of the guy who's three doors down, who signed a ten year lease five years ago. My God, if I've just come out of school... And plus when you and I got out of school, we both graduated with Fred Flintstone and Barney Rubble and Wilma. A lot of these high-end retail places said, "I don't want a dentist. I want a clothing shop. I want a coffee shop, I don't want a dentist." Now they're begging you. They would take a witch doctor just to fill that space. I tell everybody the fastest-growing retail chain in Phoenix is space available. There's a store in every mall, sometimes two or three in every mall. So you said people are paying dentists 25% of collection or adjusted production-
Alex A Giannini: Mostly 30%, I would say.
Howard Farran: 30% of adjusted production?
Alex A Giannini: Yeah.
Howard Farran: And you said in an office the dentist has 75% of the production and the hygienist do twenty five?
Alex A Giannini: Yeah.
Howard Farran: Okay and then there's team salaries including tax benefits: 25%. Then you said supply and lab: 10 to 12%. Are there any other items that you would…
Alex A Giannini: Yeah, so then you've got rent. Facilities cost probably around another 8%, so rent is anywhere between 3 and 4%. And then other facility costs, repairs, maintenance, insurance, things like that is probably another 4%. Marketing is another one; I would say anywhere between 2 to 4% depending your need for new patients. By the way, I've been in thousands of practices and the doors are usually wide open to bring all these new patients in; the back door is wide open too. There's more and more patients leaving the practice because you don't have good protocols in place, and with technology today, you really should be in a position to really keep your patients I say quote unquote in the pipeline, always active in touching them and communicating with them electronically with email or text. The fact is that this whole discussion has been about expenses, but you got to look at the revenue side and I said seventy five - twenty five as far as doctor revenue to hygiene revenue, but for a lot of practices, it's not that way. Hygiene is maybe between 10 and 15% of revenue. There's a tremendous amount of dollars left in the hygiene department.
If you would require your patients to leave with an appointment, having a good appointment policy, it doesn't matter whether or not they schedule. Give them an appointment, schedule them an appointment, and then at the same time having great clinical protocols, make sure that you're doing a comprehensive exam, make sure you're taking an FMX, make sure you're doing full-mouth perio probe. Buy a [unclear 00:39:48]. Have some sort of carries detection system that allows you to effectively communicate with your patients. Let the machine tell the patient the number of cavities that they got versus you dropping the bad news on them and build the relationships with your patients first and foremost because patients buy from folks that they believe and trust in. So spend the time on building the relationships with the patients that come into your chair every single hour rather than trying to go out and come up with the latest marketing or technique to bring people in. A huge component to lowering your overhead and your fixed variable cost is by increasing revenue. And we don't do that enough.
Howard Farran: So what you just said, to everybody in dental kindergarten, that's still in dental school or just out- Let's say you have $1 in expenses to run your business and you do $1 in dentistry. Well, your overhead would be 100%. The fastest way to drop that overhead is to have $1 in overhead and do $2 in dentistry. And now you've just cut your overhead in half. So there's two ways to look at that. In marriage, they say the divorces are a third over money, a third over sex, and a third over substance abuse, and it's all about communication. So you're always trying to earn more money. That's an option. You're trying to get a raise or a better job, but just as equally important is you have a spending problem, not just a earning problem, so reduce your spending. You don't have to eat out. The average millennial eats out nineteen for every thirty meals. You can make a pot of coffee at home for 50 cents. Why did you just pay $5 at Starbucks?
Back to supplies. You go into a group practice and I feel the most sorry for the assistants because every dentist is using a different type of glove, a different bonding agent, and a lot of times they'll say, "Just use this one from 3M. Well, I don't like that one." Dude, they sell a $1,000,000,000, $300,000,000 of it, okay? Somebody frickin' likes it. The guy next to you likes it. Use that. Same thing with gloves, but where I see the most psychosis is in burs. These poor dental assistants got three different dentists and old crazy-ass Howie needs nine different burs for a crown and Alex is nuts and he needs nine completely different burs and you try to get the dentist to say, "Can we just agree on five burs for a crown and another five burs for a filling?" And the dentists are like, I mean it's like you'd have to club them upside the head. Do you see that problem with burs?
Alex A Giannini: Absolutely.
Howard Farran: In fact, I'm trying to get the guy from [unclear 00:42:55] on there because I get it. You and I get it because we're dentists. I'm just a better dentist with these burs so it's all art, but what I think there needs to be is the burs need to single disposable packet and there just needs to be a box back there and then free the assistants. The assistants are pulling their hair out. They look like you and me - two bald beauties - trying to figure out your burs and then when you are going in there and you see, "Okay I'm going in there to do a crown on number nineteen, you go to the bur box and you punch out the three or four burs that you need, put them in your hand and lay them on the table and that's that. And you know where I buy a lot of my composite equipment? I shouldn't even say this. Hobby Lobby, because when you're doing like direct veneers and stuff like that- Those artists at Hobby Lobby, I mean they've got nice little spatulas and things like that - they're like 99 cents. If I bought that instrument in dentistry what would it cost?
Alex A Giannini: Probably 10 bucks right?
Howard Farran: Yeah. So man, I love composite, the stuff that they're using to make clay pots and bowlls. Okay so I wanted to know another thing, because podcasters, Alex, are usually pretty young. I always tell everybody, ask everybody, "Please send me an email, email@example.com. Tell me a little about yourself. What's your name, what country you're from, where you're at?" But 25% are still in dental school. The rest are all under thirty. I only get like one email a week where some guy says, "Dude, I'm older than you."
Howard Farran: But these kids, they're asking- Like Phoenix or let's say Kansas City. I just lectured there a couple of weeks ago at the dental school. It's a beautiful city; they got The Chiefs and they got The Plaza and Crowne Plaza and West Court... I mean, who the hell wouldn't want to live in Kansas City? But you got a damn dental school downtown knocking out a hundred a year. Do demographics matter? They're coming out of Phoenix. I was there last Sunday at the dental school and they were saying, "But I love Phoenix. I mean The Cardinals and The Suns and The Tempe and Mill Avenue. I want to stay in Phoenix." So when you're analyzing dental offices, do demographics matter? Do dental offices in rural areas and towns, smaller markets do better? Is it a bad idea to open up a dental office in San Fran when they got University of Pacific and University of California, San Francisco? Do demographics matter?
Alex A Giannini: It doesn't matter, but if I was a young dentist and I was just going to stay focused primarily on dentistry, the amount of dentistry to be done and had in small towns is incredible. Everybody keeps wanting to come in to the big cities and that's typically because they don't want to live in small little towns, but we had offices in Pennsylvania for example, that there was like one dentist in a forty, fifty mile radius with a population of a hundred thousand and there was no nobody to service these patients. And so finding a convenient place to put up an office, even if it's a couple of days a week, it would be inundated with patients. And so there's a tremendous amount of dentistry to be done out in rural America, there really is.
Howard Farran: And I think driverless cars are going to change everything because right now what I see is dentists waking up in the morning and commuting an hour into downtown, and they're commuting the wrong way if they commuted an hour out of town. And who cares if it's an hour and a half or two hours if we're going to have a driverless car and you're sitting in the backseat-
Alex A Giannini: Listening to your podcast.
Howard Farran: Yeah but back to the overhead deal. When you're looking at accounting where the dentist is paid, like a dental associate was paid, what is the average profit margin to be reasonable? What is the average expected profit margin after you pay the dentist 25%, salary twelve, supply ten to twelve, 8% for rent, facility, repair, maintenance, insurance, 2 to 4% marketing. What would be the gross profit, the net income?
Alex A Giannini: 20%.
Howard Farran: But do you really see that in the marketplace?
Alex A Giannini: I need to make adjustments in some- I wouldn't say a lot, no.
Howard Farran: So you're saying 20% is what you can get or that's a goal, but what do you see in real life when you're out there and you looked at 10 different DSOs, what do you think the average DSO net profit margin is?
Alex A Giannini: All DSOs shoot for 20% contribution margin, and then you got to deduct your corporate overhead, which is going to be anywhere between 6 and 8% or 10%. If it's a new DSO it's probably going to run near 10 to 12%. You're going to eat up a lot of your profit margins in the beginning when you're a young deer, but once you're established and you're rolling, and your offices are producing 20, 22% EBITDA, clinical EBITDA, you're gonna eat up probably around 5, 6% max from a corporate perspective.
Howard Farran: And then be netting what?
Alex A Giannini: And then be netting 15 to 16%. That's DSO.
Howard Farran: What about some doc that's in someplace with twelve [unclear 00:48:55], he's got four or five associates, he pays himself like he does the associates. What should that nett?
Alex A Giannini: It should absolutely be 20% because if you've got that, you've going to have to pay interest, you're going to have to pay taxes, depreciation, you're going to wear out your equipment and you're going to eventually have to replace a chair or even have to make improvements to your facility. So you need that 20%. If you're not getting 20%, you're really operating at a deficit as a solo dentist and you got to be thinking that. I just saw something come through on email yesterday that the average dental practice in the US is grossing six hundred and forty seven thousand . For solo dentists, by the time they pay themselves, let's say they pay themselves 30% of the four hundred thousand. That's not bad; they'll take home about two hundred and forty thousand loss. It really needs to be that. I want to go back to a minute ago. You said you got a lot of young dentists. When I started DDP in 2008, I actually came out to Phoenix and there was about two hundred and forty dentists and actually they started to go out of business in the Phoenix area during- I'm sure you know that.
Howard Farran: The 2008 meltdown.
Alex A Giannini: 2008, 2009 right? And so I got to tell you that the issue wasn't the practices; it was all the extra curricular activity that was going on, and what I mean by that young dentists have to realize that their personal lives truly impacts their business. I call it the misery index. In the misery index there's death, there's drugs, there's disability, there's divorce, there's dumbness. What I mean by dumbness is the dentist will get married, they'll get bored in the marriage, they'll go pick up a mistress and they'll buy them a house or a condo and the second car and this and the other thing. And then as business contracts, instead of focusing on adjusting the business and trying to grow the business, they start cutting back on marketing and start doing things that will actually start to spiral the practice down. And so dentists get themselves into trouble, not because their practice, but because of what I call this extra curricular or misery index. You have to do what makes you happy but understand the decisions that you make and how it impacts your practice. I've bailed hundreds of dentists out of trouble because of these situations. I mean, at one point in my career I actually had a psychologist on staff just to help the dentist cope with a lot of these things. So yeah, we keep talking about managing expenses, but you got to properly manage your life.
Howard Farran: So was that your list? The five Ds of dental destruction? Is that your list?
Alex A Giannini: Yeah that's my list.
Howard Farran: Death, drugs, disability, divorce, dumbness. I got all five, Ryan. I've got a perfect score. It's the only [unclear 00:53:06] on the test. Can I make a meme of that with your face and name because it's so beautiful? By the way, if you're listening to this on iTunes, you got to log off and go subscribe to our channel on Youtube - youtube/[inaudible 00:53:24] - because you're looking at two of the most handsome bald beauties in all of dentistry, and we're both wearing matching blue shirts.
Alex A Giannini: When I met you we both had great barbers and you know... I don't know what happened.
Howard Farran: So you have two websites. Talk about the two different websites because right now I know you as pi- What do you call that?
Alex A Giannini: P-I.
Howard Farran: Oh P-I? What's the P-I stand for?
Alex A Giannini: You know I was waiting for you to ask me that question. It actually started off as "Pure Italian".
Howard Farran: Pure Italian? I thought it was the pi - three point one four.
Alex A Giannini: So then my wife says to me, "You better stop telling people that." I'm like, "Why?" She goes, "Just change it to Professionally Intensive." I said, "You know, that's good. So we're professionally intensive."
Howard Farran: I'm going "Pure Italian". By the way, my oldest boy is twenty eight and of all the places I took him around the world, the one he talks about the most- You know what it is? Venice. My God, that boy. Didn't he want to come back to Venice. And then when dentists in Miami were concerned about the rising ocean, I said, "Well, worst-case scenario, Miami's is going to turn into Venice. What's wrong with that?" But anyway, what is "Pure Italian" or what did your wife call it? Professionally Intensive?
Alex A Giannini: Professionally Intensive, yeah.
Howard Farran: Professionally intensive slash - or hyphen - DDS management dot com. And how was that different than your other website: Aligned Dental Partners dot com?
Alex A Giannini: Well with Aligned Dental Partners, I have two partners John and Chris McClure and basically we-
Howard Farran: Oh I know them.
Alex A Giannini: You know them?
Howard Farran: Yeah, I didn't know they were your partners. Now where are they out of?
Alex A Giannini: John is in Pennsylvania and Chris is in Ohio.
Howard Farran: John McClure. And then what was the other name? Chris with a C or K?
Alex A Giannini: With a C.
Howard Farran: Chris what?
Alex A Giannini: McClure
Howard Farran: So are they brothers?
Alex A Giannini: Yeah, they're brothers.
Howard Farran: And John McClure's in- you said Pennsylvania?
Alex A Giannini: Yeah, in York, Pennsylvania.
Howard Farran: And where's Chris at?
Alex A Giannini: He's in Cleveland, Ohio.
Howard Farran: So he's a James Bron fan. Tell those two they can each Skype in at the same time. Do you think that'd be fun?
Alex A Giannini: They'd love to do that.
Howard Farran: We'll have them do that. And Ryan, we should have them follow these guys because they're all part of the same website: Aligned Dental Partners.
Alex A Giannini: Correct.
Howard Farran: So what is this?
Alex A Giannini: We take dentists that are looking to grow their business, that are looking to streamline- I call it EBITDA coaching, which is basically looking for ways to increase their profitability via helping them implement protocols, operational protocols, some clinical protocols, and then some business, work with negotiating deals with vendors, lab, supplies, insurance companies, marketing folks... Help them increase revenue and then cut expenses.
Howard Farran: And who is your clientele for this? Who's your average customer? Is it a solo dentist? Is it a large DSO? Who's going with PI slash or hyphen DDS management dot com?
Alex A Giannini: It's mostly solo dentists and we have a few groups. On the group side, I provide strategic coaching to the dentists. I basically give them a dental MBA, because I strategically walk them through how to- I sit and we create a virtual board and I'm just a strategic officer and I'm basically helping the dentist or the CEO. We help provide the business plan, the structure and all the different things that they need to go implement and execute in order for them to grow their own business.
Howard Farran: And what does this service cost?
Alex A Giannini: It depends on all the different services that we provide, but it will range from a flat fee to a percentage of increased revenue and increased EBITDA. So we'll start anywhere from $2,000 a month, and we provide them with all the protocols, the coaching support, the weekly calls and monthly meetings or quarterly meetings in order to help them grow. We put our money where our mouth is from that aspect because we know what we can do from that perspective in terms of growing revenue and increasing the bottom line. So we'll wait to get our share through those increased profits.
Howard Farran: How did you find the McClure brothers? Chris McClure and John McClure, was their dad a dentist? How did two brothers end up in dentistry?
Alex A Giannini: They actually sought me out while I was [unclear 00:59:27] up in Pennsylvania. They were in the consulting business. They worked for Roger Levin or Levine.
Howard Farran: Oh Roger Levine?
Alex A Giannini: Levin, it's Roger Levin. John worked for him for like twelve years and oversaw all the consultants and Chris worked for him also for three, four years and then they ran off to go start a DSO in New York. That didn't go so well and they ended up coming to see me and I get a lot of dentists calling me, looking for help and so with their background, with their experience and expertise, I was able to get them these dentists that needed help desperately. Honestly, they've done a phenomenal job of growing and stabilizing these offices and really adding a tremendous amount of value to this.
Howard Farran: Does Aligned Dental Partners have a Twitter account? I don't see any social media links on here.
Alex A Giannini: No.
Howard Farran: No social media? Okay. Alex can't have any social media links because he's Italian, so he's probably just- He's got all these mafia connections. He doesn't want you to find out where they're at. By the way, as an Italian, did The Sopranos on HBO offend you? Some Italians said it was racist to the Italians. Did that offend you? Did you find that offensive?
Alex A Giannini: Not at all, no, I think it's funny. Listen, I'm a big guy, right?
Howard Farran: How tall are you?
Alex A Giannini: I got the bracelet, I got the little pinky ring and so I fly southwest a lot. I mean I did a hundred and eighty flights last year and there's no assigned seating, right? But the plane has to be completely full, full, full, full to the point where there's only one seat left on the plane, and listening to the point where there's only one seat left on the plane and nobody wants to sit next to me because I'm just doing the Tony Soprano look and they stay away.
Howard Farran: Okay, so what's the difference between PI-DDSmanagement.com and Aligned Dental Partners?
Alex A Giannini: PI-DDS is- My wife, she's a dentist - she's an MBA. That's just personalized coaching. It's separate and apart; it's mostly her business where she provides a lot of coaching and training for dentists as well. It mostly consulting.
Howard Farran: And how long have you guys been married?
Alex A Giannini: Three years.
Howard Farran: Three? Nice. So does she have a background in dentistry or consulting or did you teach her everything she knows in dentistry or what's her background?
Alex A Giannini: No, she's got an MBA in healthcare management and she's from the Phoenix area; I met her in Phoenix.
Howard Farran: Right on. And now she's been living in Sarasota?
Alex A Giannini: She's living in Sarasota, yeah.
Howard Farran: And what does she like more - Phoenix or Sarasota?
Alex A Giannini: She loves Florida. She absolutely loves Florida.
Howard Farran: So who's your ideal client for PI-DDS with you and your wife? What's her name?
Alex A Giannini: Veronica.
Howard Farran: So who's the ideal client for PI-DDS with Alex and Veronica?
Alex A Giannini: She's really good at turning practices around. In fact, her forte is taking dentists that are in trouble because she provides a lot of coaching and a lot of leadership. She does a lot of hand-holding from that aspect. So guys that are losing a lot of money, folks that need help, that just have lost their way.
Howard Farran: So lost their way was one of the five Ds of dental destruction. Ryan's going to make a meme. We're going to put your beautiful- By the way, how tall are you?
Alex A Giannini: I'm six three.
Howard Farran: Yeah, I remembered when I said it that I'm five seven. But five Ds of dental destruction - death, drugs, disability, divorce, dumbness. I've got to tell you, just don't die because when you die it really, really hurts your income. Usually, it really drops. Drugs-
Alex A Giannini: Well no, so let me explain that one. I had several dentists early in my career where the dentist was a female dentist and it was her husband who was taking care of all their finances and the husband died. And really, a lot of these dentists were lost, so it's not the dentists dying, but it's somebody that's close to you or has been been handling your business for you or partners that pass away suddenly or a critical or key dentist in the group that pass away.
Howard Farran: Yeah, hell when President Roosevelt died, Truman didn't even know the Manhattan project was done. You know what I mean? And then drugs- Everybody talks about drugs, but everything I've been reading on dentists for the last thirty years, it's about 14% that will have a problem with them. 12 to 14%, which is the exact same as the American public, but it is about 85% alcohol and 15% is Vicodin and a little bit of cocaine. Disability. They got to be ensured. Do you have any advice on their disability insurance because all these kids are coming out of school and all I say about disability insurance is you better get it when you're young and out of school because as soon as you have an injury, a back surgery, as soon as something happens, you're not going to get it. Divorce. There's just no reason to ever sign a contract with a consultant, with a marriage partner. I mean, so you love this girl, she's the best girl in the world. Well, why did you get a lawyer involved? Just live together. You don't need to get a damn lawyer. And dumbness. I still don't know if I was born dumb or my mom dropped me. She denies dropping me on my head, but I want to go to- I went overtime. Can I keep you for a little longer?
Alex A Giannini: Absolutely.
Howard Farran: Okay, because I want to go to the final segment of this interview. There's more ways to value a dental office. I mean, you got dentists and they're saying, "Well, I'll retire because I'm going to sell my practice for $2,000,000." I mean, they just pull numbers out of their head. What's a sophisticated guy like you- How do you value a dental practice? Some guy's listening right now who's like fifty or sixty and he's saying, "I'm going to sell my practice in five years." What's reasonable?
Alex A Giannini: Well if you look at it as how lenders will take a look at it, there's really only two primary methods. There's asset-based lenders-
Howard Farran: Acid?
Alex A Giannini: Asset. A-S-S- Yeah. I couldn't speak English till I was five years old. First day of grade one, I couldn't speak English and they stuck me next to this other kid whose name was Alessandro also, and for like three months, we just talked to each other until the teacher figured out, "Hey, we better separate these two because they're not learning anything." So sometimes I still have a little trouble with English.
Howard Farran: Well hey, the only D I ever made in my life was freshman high school Spanish with Mr. [unclear 00:07:56] and my mom was all upset so she went there for a parent-teacher conference. She goes, "Coleen, your son is linguistically retarded. I will say a Spanish word 10 times and he repeats it 10 different ways. His ears are going to break." And then - you can't make this up - just a year earlier the piano teacher, my Wednesday after school lesson that me and my five sisters had to do, she fired me. She told my mom, she said, "Howard can't carry a tune in a lunch bell." So I'm sitting here thinking, "You're right, I can't play piano and I can't learn Spanish. This is not my dig. What do you call a person who speaks two languages?
Alex A Giannini: What?
Howard Farran: Bilingual. You're bilingual, right? English and Spanish. What you call a person who speaks one language?
Alex A Giannini: What?
Howard Farran: American. Okay, so there's two ways to do this. Asset-based lending and then what was the other one?
Alex A Giannini: And then cash flow. Of course there's market, right? There's also quote unquote market, but they wouldn't look at that, right? A lender, they'll take a look at an asset-based type and they'll take a look at- This is all your dental equipment, this is all your leasehold improvements, this the amount of [unclear 01:09:27] you've got and they'll add those all up, and then that's what they put as quote unquote the value. Then on the other side, you've got cash flow, which is kind of what we were talking about earlier: how much net revenue, how much profitability is there out of the business as- what's the performance of the business from a cash flow perspective? As I said, the typical dental office is around 20%. So you've got a lot of different brokers out there who sell dental offices and they'll come in and they'll do a valuation and no matter what you end up doing- So you may have a new dental office with a $1,000,000 worth of assets, right? And you're doing a million dollars in revenue. Well, they're just going to say it's worth $720,000 because they just use 72%. The average valuation from most brokers is just taking a percentage of our revenue. From a cashflow perspective, if an office has got 20% EBITDA or contribution margin, then it would be anywhere between three to five times EBITDA so that that translates to 100% of one year's revenue.
I use all three approaches, so I'll take a look at the kind of assets that are there, because if you go to two offices that are identical in revenue, they're both doing $1,000,000, they're both throwing $200,000 to the bottom line as far as EBITDA. One office is five years old, it's got state-of-the-art equipment, and the other one is forty five years old, still got shag carpet and wood paneling in the office. You can't say to me that they're both worth $720,000. So I like to take a look at both and see what's the cash flow and then what's it going to take in order to improve or get rid of the shag carpet, improve the equipment and the leaseholders and so forth. I don't know if I went too fast on that but that's generally how I take a look at valu-
Howard Farran: Is that awesome or what?
Alex A Giannini: It's awesome.
Howard Farran: While we've been yakking, Ryan made the meme, the five Ds of dental destruction: death, drugs, disability, divorce, dumbness.
Alex A Giannini: Well I have another one. They are actually six, but I can't say what the sixth one is.
Howard Farran: Oh tell me, tell me.
Alex A Giannini: No, you're going to have to edit it out.
Howard Farran: We'll edit it out.
Alex A Giannini: Dickhead.
Howard Farran: Ryan, add "dickhead". Because it's so true. There's so many patients come to me and I had it with associates- There was this one associate I loved so much. It was back in the early nineties and he was so nice to me, he was nice to the staff, but when he started talking to the patients, he always talked down to them and condescending- I mean, he would even say things like, "I know this will be hard for you to understand." And it's like, dude, that's saying you're stupid. Is there another word for dickhead that starts with D? Do you know why dentists wear ties?
Alex A Giannini: No why?
Howard Farran: It keeps the foreskin from coming up over their head. Alright, so now we've offended all of our viewers, but you know I've seen it when- I've been alive for fifty five years. When some girl says, "I'm pregnant." She goes, "Oh my God, go to my OB-GYN. She's so sweet, she's so nice." She never knows where she went to med school. She doesn't know if she's board-certified. She doesn't know shit about her. They just rant and rave over the chair-side personality. I'd rather bet my money on a lousy clinical dentist with an excellent chair-side personality then the best clinical dentist in the world who's a dickhead. And then when dentists say, "Well, I'm just not like that." I wrote a column called Doc Hollywood. Dude, you couldn't pretend to be nice? I mean, look at these movie stars. They go and play movie roles where they're murderers and killers and crazy people that ride into town and shoot people. I mean, look at 'Tombstone'. I love that movie because that's the most famous dentist in the world - Doc Holliday. Is it Victoria you said?
Alex A Giannini: Veronica.
Howard Farran: Veronica? Did you ever go to Tombstone, Arizona?
Alex A Giannini: Yes, I have.
Howard Farran: Oh my God, that's so cool.
Alex A Giannini: And I've pictures of ghosts. We were snapping photos as we were driving and then we look and we've got a ghost sitting in the backseat of our car. It freaked me out.
Howard Farran: Yeah. But I mean, you can play a nice guy and sometimes when a patient is really, really irritating and you want to sit there and tell her to go to hell, you just pretend that- You need empathy and sympathy and once you can fake empathy and sympathy, you got it made.
Alex A Giannini: You got to build those relationships.
Howard Farran: Yeah, it's all relationships-based, everything and same thing in the family. But hey, I just want to tell you, seriously dude, you're a rockstar. You're an innovator. I mean really, you were at the forefront of these innovations. You were getting into this space before anybody even knew what this space was called. I just think the world of you. It's a huge honor that you came on the show. I sure hope you get your partners in crime to come on. Do you think you can them to come on?
Alex A Giannini: I will, I will.
Howard Farran: Because what I'd love to do is- We've already set them up, so I'd like to release theirs the day after yours so it's kind of a one, two punch.
Alex A Giannini: I'll get in touch with Ryan. Now listen, thank you for the opportunity. You're doing wonders for our profession and talking about innovation, you've been completely out-of-the-box and I love going to see those seminars. I would laugh- I just kept going just to laugh. I really enjoyed your seminars. I remember buying your VHS tapes and so, you're a big influence in my life and I thank you for that.
Howard Farran: Well, have you ever noticed that all the greatest dentists in dentistry, were always bald-headed? I mean you, me, Peter Dawson. The fastest way to find out if some dentist is full of shit is if they got a bunch of nappy hair on their head. You go find the bald ones and you'll be following the right source. Hey, seriously, thank you so much for coming on the show today. Hope you have a rocking hot day.
Alex A Giannini: Thank you. You too, man. Take care.