The "Business Marriage"
A happy partnership is based on communication and common goals.
PRACTICE MADE PERFECT
Real-life cases of optometrists' practice dilemmas and how these seasoned consultants resolved them.
|Donna Suter||Marilee Blackwell|
If you're thinking about hiring an associate to eventually become a partner, we urge you to think of the relationship as a "business marriage." Just like a real marriage, a happy, long-term partnership is based on open communication and common goals to which both partners are truly committed.
We see many O.D.s who love the idea of bringing on an associate but aren't committed to the hard work it takes to make the relationship work. Associates and owner doctors jump into a relationship without honestly discussing expectations. Understanding each other's expectations is critical to a successful associateship and the eventual partnership. This month, we'll discuss what you need to know to make this relationship work.
What's in it for everyone
Before an associate begins, both parties must come to an agreement on critical matters -- things like what triggers the beginning of the partnership (i.e., what has to happen for the associate to move to the next step of partnership), compensation and how to share decision-making.
The advantages of bringing in an associate include:
- enhanced profitability (assuming the associate is bringing in new patients)
- the freedom for the doctor to work fewer hours if he desires
- the opportunity to accelerate the growth of the practice by expanding practice hours.
One of the biggest benefits is that the owner has a built-in buyer when he's ready to retire, or if he dies unexpectedly.
The junior doctor, on the other hand, is given an opportunity to build a patient base without immediately assuming the risk of solo ownership. Financially, it's usually easier to buy into an established practice than to open cold. Becoming an associate usually guarantees that the associate will always have positive cash flow. It also gives the associate a career, not just a job.
In January 1999, we were contacted by Dr. Roberts (not his real name), who needed advice about his relationship with his associate, Dr. Dennings. Dr. Roberts' practice, located in a small town in the Midwest, was grossing approximately $400,000.
His primary objectives for bringing in another O.D. were to continue growing the practice without working additional hours and to get some help managing the staff. At 40, Dr. Rob-
erts was making the move to bring on an associate about 10 years earlier than most doctors.
Dr. Roberts hired Dr. Dennings in June 1998 with the intention of making him a partner if things went well. He knew that the practice's existing patient base of about 5,000 wasn't big enough to support two full-time optometrists, but he was optimistic that with two doctors promoting the practice total annual exams would grow from 1,600 to the 2,300 needed.
A 3-month trial
Dr. Roberts liked the idea that he'd be giving a fellow O.D. the opportunity to eventually own part of a practice without going through the same hardships that he'd endured when he opened cold 10 years earlier. While he was getting his practice started, like most doctors, Dr. Roberts had lived very frugally.
Dr. Dennings had only been out of school 2 years and wanted to move back to the area where he'd grown up. He and his wife were newly married and looking to start a family. They were ready to put down roots.
Dr. Roberts and Dr. Dennings had talked enough to feel they had similar clinical views and were comfortable with offering their small-town patients full-service therapeutic care. Both quickly agreed that Dr. Dennings should have a 3-month trial period to make sure that he fit into the practice.
Because unemployment was only 2% in their area, Dr. Roberts also wanted to make sure that the new doctor wouldn't alienate staff and that his clinical skills were as good as he claimed they were. Some general expectations were discussed, but they didn't agree on a timeframe or specific tasks that would lead to the fulfillment of specific goals.
Birds of a feather
In addition to expecting his first child, Dr. Dennings was paying off a student debt for the full amount of his 4 years in optometry school. Therefore, he wanted to be paid a flat salary, so he would know for sure how much he would earn each month. Dr. Roberts completely understood and agreed to pay Dr. Dennings $350 per day.
Because paying Dr. Dennings a set salary meant giving up some income himself, Dr. Roberts felt that he was doing Dr. Dennings a huge favor. Dr. Roberts felt that Dr. Dennings should be grateful that he was being given the opportunity to build a patient following for himself and then to turn that into a partnership without undertaking a great deal of risk.
In exchange for this sacrifice, Dr. Roberts assumed that Dr. Dennings would make honest efforts to help build the practice. They had discussed several ways that Dr. Dennings could do this. For example, Dr. Dennings agreed to join local civic clubs and to begin networking in the community.
Dr. Roberts felt that he and Dr. Dennings had similar values -- good quality care for patients, integrity and a similar approach to handling people. At the end of the 3-month trial period, Dr. Roberts was ready to move forward with the relationship. Patients liked Dr. Dennings, the staff liked him and the two doctors' personalities had "clicked." They had become fast friends.
True to his word, Dr. Roberts started promoting Dr. Dennings. He introduced his new associate in the local newspaper with a series of paid ads. He made sure that local congregations knew that more exam slots were available by putting the new doctor's name in church bulletins. He also paid for new business stationery with Dr. Dennings' name on it.
What could go wrong?
But after 7 months, something went wrong. Dr. Roberts contacted us because revenues hadn't increased enough to cover Dr. Dennings' salary, and now Dr. Roberts was feeling the pinch. A big issue was Dr. Roberts' belief that his new associate wasn't doing a good job of bringing new patients into the practice. Dr. Roberts had spoken to Dr. Dennings about this concern before he called us. But they were friends. It's much easier to candidly discuss job performance expectations with people who aren't your close friends.
During the on-site portion of our consultation, we had a chance to observe Dr. Dennings first hand. His interaction with patients was excellent. We also spoke to both doctors privately about their relationship.
Dr. Roberts told us that Dr. Dennings worked his set hours, but hadn't brought in any new patients and didn't appear to have any interest in learning how to run the practice. He felt that Dr. Dennings was thinking like an employee rather than an owner and was very disappointed with him.
Dr. Dennings told us about the employee in charge of filing insurance who had quit and how he'd taken over that function. He was very proud that he'd re-filed denied claims and reduced the turnaround time for money owed by third-party carriers to fewer than 90 days. He'd then trained another employee to file insurance and keep up with accounts receivables. He also said that he could think of several patients whose families had transferred their eye care to him.
We urged both doctors to be more open with each other and not to be afraid to put their expectations on the table. We also advised Dr. Roberts to begin paying Dr. Dennings based on production. We felt that this would allow Dr. Roberts to resume drawing his pre-associate income and give Dr. Dennings an incentive to start to think and act like an owner.
We explained to Dr. Roberts that Dr. Dennings would actually be able to earn much more than $350 per day as patient volume increased.
Dr. Dennings didn't like the idea of being compensated purely on production. He feared that his income would dip below the amount that he needed to live on and to pay off his student debt. Dr. Roberts agreed that he would continue to draw the same base salary; Dr. Dennings agreed to switch to a production-based approach as soon as 3 consecutive months of collections from his exams indicated that this form of compensation would be higher than his base salary.
During our year-long consultation, we worked with staff to grow the practice's patient base through internal marketing -- converting telephone shoppers into patients, asking patients to make appointments for other family members and beefing up recall efforts. Dr. Roberts wanted Dr. Dennings to oversee these efforts, but was not satisfied with the results.
As the months passed, Dr. Roberts became more concerned about his associate. Dr. Dennings was still not producing enough to be paid based on production. He had even offered staff extra money if they'd fill his schedule before Dr. Roberts'.
When he wasn't seeing patients, he was hanging out in the kitchen with the staff. Dr. Roberts felt that he had become much too friendly with them.
Dr. Roberts resented what he perceived as Dr. Dennings' lack of effort to bring in new patients. He felt that he was giving Dr. Dennings a great opportunity and that Dr. Dennings wasn't holding up his end of the bargain. Dr. Dennings was seeing Dr. Roberts' patients (not his own) and still wasn't producing enough to pay for himself.
Dr. Roberts had another conversation with Dr. Dennings. This time he told him that he would have to reduce the number of days that Dr. Dennings would work in the practice because he couldn't take money out of his own pocket to pay Dr. Dennings any longer.
Dr. Roberts told Dr. Dennings that he wasn't marketing himself, that he didn't seem to have an owner mentality and that it wasn't realistic to think that he could become a partner without taking some risks and working harder to promote himself. He also told him that his friendly relationship with the staff was unprofessional.
Dr. Dennings had openly aligned himself with the staff and had started to create morale problems by telling them that they could make more money working elsewhere, for example. This was another indication that Dr. Dennings thought like an employee, not a partner-to-be.
Dr. Dennings felt that he could earn more by working in a chain or for a large ophthalmology group. He'd been told in school that graduates should expect to begin making $100,000 a year immediately. Dr. Roberts told him, however, that this figure was unrealistic, especially for a practice in a small town. We explained to Dr. Roberts that our experience working with new graduates was that they often had unrealistic expectations about compensation.
Dr. Dennings also felt that he should be compensated for community service work. He wasn't willing to contact his family's acquaintances and invite them to change eyecare providers unless Dr. Roberts guaranteed him a future as a partner. He also felt that he should receive extra compensation for training and managing staff when Dr Roberts was out.
The doctors' relationship had become strained; neither could see the other's side of the issue.
Why the relationship failed
Two underlying issues caused this partnership to fail.
- Patient volume. We don't recommend bringing on a full-time associate unless your practice is grossing a minimum of $500,0000 per year. Dr. Roberts had hoped that bringing on an associate before patient volume could support two full-time O.D.s would motivate the young associate to work harder to grow the practice and promote a sense of ownership. Instead, paying the associate took away too much of Dr. Roberts' net.
- Unrealistic expectations. Perhaps most important, each doctor had unrealistic expectations. Dr. Roberts had wanted someone with an entrepreneurial spirit who was willing to promote the practice as if he owned it even before becoming a partner. Dr. Dennings was more concerned about a regular stream of income and wasn't willing to take on extra job responsibilities without extra compensation.
We had numerous discussions with Dr. Roberts about the situation. We explained that Dr. Dennings might not be the right partner for him because Dr. Dennings hadn't learned to think like an owner.
We agreed, and Dr. Roberts admitted that the bulk of the responsibility for the associate's failure was his own. He hadn't put enough emphasis on what had to happen and by when to form the partnership. In hindsight, he understood that once a relationship is set, it's difficult to go back and discuss expectations. This is simply human nature. Dr. Roberts and Dr. Dennings had been such good friends that it was difficult to openly discuss expectations and critique job performance.
Lessons learned from failure
Different people have different goals and different expectations. Some have an entrepreneurial spirit and some don't. There's nothing wrong with those differences. The point is that expectations should be clearly matched to improve the likelihood of a successful associateship and partnership.
Dr. Roberts now knows what he wants and doesn't want in an associate. So many of our clients start out thinking they know what they want -- someone to help grow the practice and manage the staff. Unfortunately, that goal isn't concrete enough to provide the associate with a clear understanding of what's expected from him.
If you're looking for an associate to eventually become your partner, we recommend that you consider the following:
- Some partnerships are doomed to failure because the practice isn't able to support the associate through the start-up phase without the senior doctor taking a big cut ($500,000 is the minimum level of income we think you should have before you consider an associate).
- Very few associates fresh out of school or coming to your practice from another job will have an owner mentality. The senior doctor needs to realize that it can take years to develop an owner mentality.
- Although every associate wants a set salary, this reinforces the employee mentality. You can't pay an associate like an employee and expect him to act like an owner. Start the associate on a guaranteed draw that transitions into a production-based draw on a pre-defined schedule.
- Have a clear, written understanding between you and the junior doctor. Conduct follow-up meetings to discuss progress.
- Maintain some distance from your associate to foster and maintain a true manager/mentor role. It's much easier to provide honest feedback when the associate thinks of you as a boss rather than a friend.
As the more experienced O.D., you need to give the junior doctor the experiences he needs to become a successful associate and partner. This includes honestly discussing expectations and providing feedback. It should also include modeling key duties -- like staff training and management -- before turning these duties over to the associate.
An associate is much more likely to become a great partner if he's interested in and cares about the same things you care about. In essence, a good partner thinks like an owner and is willing to go that extra mile to help meet practice goals.
Marilee Blackwell, M.B.A., C.P.A., A.I.B.A., senior consultant for Hayes Consulting (904-273-1115), and Donna Suter, president, Suter Consulting Group (423-892-3638), team up to offer financial guidance and on-site consulting services designed to increase your gross revenue while significantly improving your net income percentage.