Working as a consultant to dental practice owners I have become convinced of the value of a tool that I created during my MBA. For want of a better name I’ve called it the Abstraction Model. I’ve seen it make a difference for practice owners who engage with it over time, specifically in the way they think about how they spend their time, the future and their business potential.
The best way to understand it is face to face, where I input your circumstances and make it meaningful for you. I’d usually do that on a Diagnostic Day, where we have already gone through your financials, marketing systems, leadership and management structures. The aim of a Diagnostic Day is to understand the field position of your business and where you’d like to be in five years’ time, which allows us to build a road map to get there and work with you to create the conditions to ensure all the prescribed activities happen.
I also use the Abstraction Model on Discovery Days, where we work with associates who are looking for their next step. (Many other associates buy a practice then come to us for advice a year or two later when they are struggling. When we run the analysis at that point the opportunity cost is stark — if they’d come for help at the beginning our advice would have had more impact, but as it is they’ve lost momentum, burnt cash and energy and got no return. Jonny Cochrane at The Bristol Dental Practice is a case study in what can happen when you do the opposite.)
Discovery Days enable associates to understand what they’re doing. Some realise they shouldn’t be buying at all, having considered their objectives through the prisms of income, wealth, time and gratification. We aim to get dentists to see multiple ways of creating value with their time. This brings me to fee generation, the first level on the Abstraction Model. Here we’re talking about all paid services that happen in your practice. All practices have similar limitations and opportunities for wealth creation. If you only operate as a fee earner you will hit a glass ceiling. You can’t build a £2m practice that way. Having said that, it’s an essential ingredient common to all dental practices. There are four layers of value generation:
- Fee generation
- Operations
- Strategy
- Leadership and culture
Fee generation
In the Abstraction Model I’m showing how the above four approaches are limited by the forces acting on you as a business owner. On the x axis we have complexity, moving, left to right, from low to high. Being relatively straightforward, fee generation is low complexity. You know what you’re doing with it. It’s a known entity. On the y axis we have time until cash return, moving, bottom to top, from immediate payment to a 10 year delay. Your fee earning activities attract an immediate cash return. So as a mechanism for generating value, fee generation looks good, but if you look at the graph you’ll see that the price for these conveniences is a small area. You’re very limited with this type of value generation alone.
Operations
These are your KPIs, sales team, marketing systems and financial management — all of which manifest in profit (or not) in your accounts at the end of the year. There are more moving parts, more people involved and greater overall complexity. To make this activity pay you have to begin imposing order on chaos; rather than letting patients arrive willy-nilly you’re trying to create an empirical story of their journey through your business, then trying to optimise it. You may use a sales manager, otherwise known as a treatment coordinator in dentistry. Despite the higher complexity, though, you know what you have to do to impose order on chaos: systemise, create protocols, monitor, create efficiencies. On the graph operations cover our second smallest area. They make a reasonably fast cash return by feeding fee generation and they’re of modest complexity.
Strategy
Things get seriously complicated from here on out, and to cope with this you need discipline and formality. You have to document and stick to what you’ve agreed to. You’ll talk strategically less frequently but it will have a deeper overall effect on the direction of the business. Probably you’re bringing strategy up quarterly — you can’t shift it quicker than that. Doing this part properly gets rid of people who talk about great ideas but never execute. You have formal board meetings (I chair these for most of my clients) and agree on what assumptions you’re making and for what reasons, then actions are set and ownership prescribed. When you have a strategic objective you must combine your knowledge, capabilities, discipline and influence to ensure its delivery.
The cash rewards (again, via expanded fee generation) may take three to five years to realise. Profitability won’t be a priority for, say, two years, but because your strategy work is documented and everyone knows where they stand, you’re able to hold your course. As a chair my role would be to make sure everyone understands each other and the objective. Strategy work protects you from making big mistakes and from time wasting. It gives you a system for evaluating whether something is a good idea or not. It will, for example, enable you to decide whether to set up a squat down the road or not, so you can proceed or pivot rather than get stuck. On the graph strategy covers the second largest area: it’s complex and takes a long time to make money. The horizon of chaos you are now surveying is broader and so is the number of ways you might assert order.
Leadership and culture
This is where you can see some of the biggest gains in your business. But there is no scripted way of doing it. We know how you do the first two. There is loads of published material on number three. But leadership and culture is more abstracted because it’s personal and human led. It has to be. There’s certainly support that we can provide, but unless you’re working on it consciously it won’t happen. It can’t be shortcutted or tended to once a year. The time lag till payment is unknown, but if you do it properly for long enough you will be moving in the right direction. It permeates the other three layers — you probably can’t do two and three properly unless you’re doing this. It’s about holding yourself to account. You’ll never get told off for not doing two, three or four properly. Your accountant will tell you that you are doing fine, but their job is to measure what has happened, not what could happen, so the huge opportunity cost that would concern me is not real to them, it is too abstract. Now we’re talking about creating opportunity from potential. We’re working on capturing potential from the future.
What it means
I appreciate how esoteric these concepts sound. However, dentists that I’ve seen use them seriously have surprised themselves, using the Abstraction Model to explain to me what was going on in their businesses. Nearly every dental practice we see only operates in production and admin, which means that more or less every time we analyse a practice we find it’s got 3% to 5% EBITDA when the principal is paid properly for their clinical work. There is a lot of headroom in most practices, which is where this model can help. It’s a starting block and something we refer back to a lot. It will not immediately solve your problems, but I do see a little bit of light come into the eyes of my clients when they understand it. When they adopt it, more than anything, it shows them what they’re not doing in their business. The outcomes we have seen achieved from this enlightenment are some of the most rewarding parts of working with dentists.
