Dr. Peter Weinstein owns PAW Consulting and is the former executive director of the Southern California Veterinary Medical Association and the former chair of the American Veterinary Medical Association’s Veterinary Economics Strategy Committee. He teaches a business and finance course at the Western University of Health Sciences College of Veterinary Medicine.Read Articles Written by Peter Weinstein
Some independent small animal veterinarians were stricken with panic in January when Banfield owner Mars Inc. announced that it would purchase hospital giant VCA Inc.
What changed in the veterinary world between Jan. 9, when the $7.7 billion transaction was unveiled, and the day before? Nothing really, except Mars now owns more than 2,000 hospitals in addition to diagnostic labs, boarding facilities, a genetic testing service and a plethora of chocolate candies.
Rest assured, independent hospitals still dominate the U.S. veterinary industry, making up an estimated 85 percent of all practices. So, with the initial emotional reaction behind us, let’s think about how to respond logically. As an independent practitioner, what can you do — and should you do — to strengthen your place in the veterinary world? What challenges do you face?
Let’s consider effectiveness, efficiency, predictability, profitability, people, service, value and relationships.
The business model for the delivery of veterinary care at corporate-owned practices is not that much different than yours. They put their pants on one leg at a time just like you do. They have the same problems:
- Compliance sucks.
- Transactions are down.
- Drug prices keep rising.
- Finding and hiring good staff and associates is hard.
- Labs forget to pick up a specimen, or the staff forgets to put it out.
The benefit of corporate practice comes from the mothership, which helps address some of these issues and may negotiate better pricing on certain products or services. However, the mothership is very hungry and needs to be fed.
But guess what?
- You can negotiate. Just do it.
- You can learn to hire and fire. Just do it.
- You can learn to train to trust. Just do it.
- You can improve compliance, service, value and relationships. Just do it.
- You don’t have a mothership to feed. Create profits so you can feed yourself. Just do it.
A plethora of resources, ranging from consultants and educational tools to veterinary-specific attorneys and financial planners, are out there, ready to help practices become more successful.
Independent practices can readily survive and even thrive in this rapidly changing world by focusing on the three P’s: people, processes and profits.
Clients are looking for value in the money they spend at your business. They want a personalized experience. They seek a consistent relationship with the people with whom they interact. Simply put, they want to be heard and acknowledged.
The client experience that can be offered in a private practice — fluidity and flexibility — is much harder to attain in the corporate practice. Remember that 20 percent of your clients provide 80 percent of your profits. Creating a personalized experience for these clients will go a long way in getting you ahead. By systematizing the client experience and delivering it the same way each time, every time, all the time, without fail, you can move into the Nordstrom world of client service and do so without much expense. The client experience is all about investing in your people.
The staff experience, from the hiring process through onboarding and training, is a huge differentiator. Building a team based upon a consistent culture is imperative. The leadership in an independent practice should be a strong constant. From the ownership to the management team, a strong foundation is imperative. If you build a team that delivers on the leadership vision, the client experience and an established culture, you will be ahead. A corporate practice may have difficulty maintaining that strong culture and leadership when the original owner leaves or when management is strictly by the numbers.
In summary, staff retention equals client retention. Retained clients come in more often, are more compliant, spend more money and will be your primary marketing source through referrals.
The internet allows consumers to customize their experience through a keyboard, mouse and monitor. These same consumers want a customized experience from brick-and-mortar places that are operated by people and not algorithms. Because the internet provides ease, value and consistency, some businesses are following suit in their own way. Starbucks and Uber have contributed to the “me” economy. You can as well, but you must have the systems in place to do so.
First off, systems and processes improve efficiencies. If you do it right the first time and every time, you save time and money by decreasing wastage. It is as simple as having a system to ensure that the right prescription, leash or collar goes home; that services are charged correctly and accurately; and that clients are checked into the exam room and all questions are asked each time.
You can focus on trying to make all clients happy and capture every pet owner in your demographic zone, or you can focus on making happy those clients who want to come to your practice, participate in your client experience and appreciate the value your practice model has to offer. By focusing on the latter group, you can create and perfect the experience that clients want and that gives them value. It is simply a matter of paying attention to the details and controlling the moments of truth.
Moments of truth are all the points of contact or exposure that a client has with your hospital, both within the practice and before and after they arrive. By identifying and creating systems for these moments of truth, you too can deliver the perfect grande latte each time every time. A recipe exists for the perfect client visit. Figure out the steps. Document them. Practice them. Role-play them. Deliver them. Modify them.
You can differentiate yourself by the value that you provide, starting with the client experience process.
Processes throughout the practice can ensure that packs are prepped, lab equipment quality control is conducted, lab work gets put out at night and cages are cleaned correctly. Each of these operations, when done right, saves time and money. And with the systems in place to improve efficiencies and effectiveness, you have a huge impact on staff satisfaction and profits.
One of the major focuses of corporate practice and the primary focus of stockholders is profitability. It should be a focus of every business in some fashion. After all bills are paid and a fair salary is paid to everybody, including the owners, some leftover profit is a good thing. The level of that profit can be a differentiator. But if you don’t measure it, you can’t manage it.
An area that corporate practices excel in is monitoring and tracking key performance indicators and benchmarks. Nothing prevents independent practices from doing it.
- Here are some must-dos to keep up with the Joneses:
- Track appropriate numbers daily, weekly, monthly, quarterly and annually.
- Create and review a monthly profit-and-loss statement.
- Monitor monthly cash flow. Where is it going? Where is it coming from?
- Maintain a budget.
The reason to have these numbers is the same reason you collect patient vital signs. You need numbers to determine both the health status of your patients and the health status of your practice.
When it comes to profitability, three major numbers on the expense side must be kept track of: cost of goods sold, staff salaries and DVM salaries. These numbers can easily eat away at more than 60 percent of your gross revenue every month.
What are some things an independent practice can do to control these numbers?
Inventory management is a huge challenge. Determining how much to have in stock at any one time is difficult. Can using an online pharmacy limit your overhead costs while maintaining your profits? I think so, if done correctly. Standards of care and medical protocols — as set by the doctors — can help minimize having six antibiotics for the same symptoms.
Do buying groups help? Savings may be realized by increasing the number of practices negotiating product contracts. This is what the big boys do. What about the independents? It depends on your product mix and dispensing habits. You’ll need to analyze that as there is no one-size-fits-all for buying groups.
When it comes to staff salaries — an appreciation here to “Good to Great” author Jim Collins — getting the right people on the bus, the wrong people off the bus and the right people in the right seats on the bus will go a long way. The best way to manage staff salaries is to staff correctly for your busyness, schedule appropriately for your busyness, and most significantly, delegate as much as possible. Delegation allows people to perform the highest-value tasks, increasing production.
With doctor salaries, the question of production-based pay versus salary versus a combination of the two is debated online and at major meetings. There is no one right way as this is people- and practice-dependent. In my experience, highly productive veterinarians have great communication and doctoring skills, and they have learned to leverage their team so they can focus on doing what doctors have to do and not what they want to do. There are so many variables in the how-to-pay-doctors discussion and in the “When should I add another doctor?” discussion.
Suffice it to say, the rule of five is a great place to start. To be profitable for a practice, doctors must generate five times their salary.
The Enemy Is Us
I would love to look into a crystal ball or pull out my tarot cards to predict where this is all headed. Unfortunately, like everything these days, surveys and predictions are rarely correct.
I think the independent practice is strong, vibrant and very competitive. The changing environment should generate new ways to think about strengthening your team. Hiring correctly, training sufficiently and creating careers — more so than jobs — is a competitive advantage. Consider adding nonveterinarians to your ownership model if your state allows.
The environment may force practices to look for new ways to bond clients. Pet owners, like Starbucks coffee mavens, seek a consistent experience. This comes from seeing the same people at the front desk, in the exam rooms and in the white coat. Client retention comes from value, care and staff retention. Build a team that stays together and plays together.
Today we have real challenges that demand attention and concern. But this also is a time of great excitement for the veterinary profession as we see more and more money being invested. Whether it is manufacturers selling new drugs or new equipment. Or pet owners investing in new treatment modalities or seeking more advanced care. Or venture capital groups seeking new ways to consolidate practices or deliver veterinary care.
Veterinary medicine, for years the poor cousin to human health care, is getting some attention. Sure, change is scary. Sure, the thought of big business is scary. Sure, losing control is scary.
To quote U.S. Army Gen. Eric Shinseki: If you don’t like change, you’re going to like irrelevance even less.