Issues in Optometry

Practice Transitions: ODs Need to Think Like Private Equity Firms

By Jerome A. Legerton, OD, MS, MBA, FAAO

August 9, 2017

As ODs, we tend to think like ODs. Our optometric training leads us to solve problems, think scientifically and serve patient needs. Oh, yes, we also run a practice.

This has worked for generations, but the world doesn’t stand still. Our ways of practice, and methods of conducting business, face extreme challenges.

To succeed as business owners today, we need to think like business owners–and, in particular, like the private equity (PE) people who are buying optometric practices.

There has been lively discussion on this web site (see Private Equity report below and links to related pieces), and elsewhere, of the effect of PE’s interest in optometry. And much of the commentary reflects how ODs…think like ODs.

Click HERE or the image above to read ROB special report “Private Equity & the Investment Effect. And read more about the opportunity of private equity from our contributors: “Private Equity vs. the CEO Model” by Neil Gailmard, OD, MBA, FAAO, and “Is Independent Optometry Still Desirable” by Brian Chou, OD, FAAO.

In my own career, I have been guilty of some of the same limited thinking. But after 21 years of practice, I went back to school and earned an MBA–and learned an expanded way of thinking. It is said that medicine is about diagnosing and treating, in service of improving lives while eliminating harm, but business is about something entirely different: identifying opportunity, strategizing how to capture it and managing risk while doing so.

Let’s look at how ODs view our profession–and at how PE firms may view our opportunity differently. This is important because I believe that the PE trend now gaining momentum will take hold, whether it pleases us or not, and offers viable exit options for many forward-thinking ODs now in practice.

How do PE firms view optometry? Likely, they see an under-valued business. Many practices have healthy cash flow, but lack strong business management. They see opportunity…with a manageable level of risk. Sounds like a great opportunity.

Why can’t ODs capture that same opportunity? The truth is, we can. But we need to act like business managers and apply business principles. And PE firms can be our teachers.

Let’s look at differences in how PE firms and OD-owners tend to view their businesses.

PE FIRMS
Plan their exit strategy from the start. They spot at an under-valued business and construct a five-year plan to build value and sell it for multiples of their investment.

OD-OWNERS
Methodically build up a practice over decades. We hope that the value we create over 30-40 years provides for our retirement. What’s our exit plan? A plan will emerge over time, we think. Wrong: We need to begin practice, and expand or acquire additional practices, with a plan to get out profitably. Begin with an exit in mind.

PE FIRMS
Spot opportunities for growth. They look for practices that can grow exponentially if provided good management, cost cutting, centralized services and a goal and vision.

OD-OWNERS
Count the value of what we have. In fact, we often over-value our own practices, based on emotion. Fact is, the value of a business is what a buyer is willing to pay for it. To build value in your practice, study recent practice sales to PE firms. Analyze what gives those acquired practices perceived value to the buyer.

PE FIRMS
Look where others are not looking. In this country, medical needs (including eyecare needs) are greatly under-served in rural areas. PE firms look at practices in under-served areas as holding great potential.

OD-OWNERS
Tend to practice in bunches. ODs tend to open practices in over-served areas, sometimes a few blocks from other practices. Practices also become sedentary, for fear of losing core patients, when, in fact, young families provide growth opportunities in new and upcoming areas.

PE FIRMS
See the big picture–and act big. PE firms are highly interested in the MD/OD model where optometry practices are feeder spokes for surgical hubs. Eye surgery centers are very profitable at full capacity–but profits are diminished by the high cost of patient acquisition. By creating networks of optometry practices, they can build a dragnet across a region and solve the patient acquisition cost problem while profiting on non-surgical services and materials.

OD-OWNERS
Miss opportunities. OD-Owners need to take a page from PE firms, especially if PE firms are a sustained part of our transforming industry. Who better can grow an under-developed practice in a challenging area than a smart and ambitious OD? The requirement is that he or she must relocate there–not for a 30-40-year career, but for the five years it takes to build value and then sell the practice to the very PE firm and MD/OD network that is impacting our future.

When in clinic, think clinic; when in business, think business!

 

Jerome A. Legerton, OD, MS, MBA, FAAO, is Co-founder and Chief Clinical and Regulatory Officer with Innovega Inc. He is the Co-founder of SynergEyes Inc and Co-Inventor of Paragon CRT. Dr. Legerton was the managing partner of a seven doctor, four office, multi-specialty practice in San Diego. He holds 52 issued US patents and has 70 pending applications registered in more than 45 countries and has enabled eye care practitioners to earn more than $1 billion in fees for services and lenses in the last 15 years. Contact : jlegerton@aol.com.

 

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