This week on the Consolidate That! Ivan and Ryan are joined by Dr. Thom Jenkins, CEO & Co-founder of PetsApp, to discuss cultural assessment methods and cultural integration.
Welcome back to Consolidate That! Really excited to have our first guest and a wonderful guest here. If I will, I’ll go ahead and hand it over to Ivan and let him introduce our guests, and welcome everyone back to the podcast.
Hi everybody. Ivan Zak here.
Our topic today is about culture and post-merger culture integration strategy for consolidators. I’m going to introduce our guests. So let me try to fit along here. So he is a co-founder and the CEO of PetsApp, a mobile veteran telemedicine platform enabling visionary clinics to offer text, chat, and video consultations to pet owners. He had served as a chief operating officer for multi-site private-equity-backed veterinary groups in both Europe and Asia, operating clinics in Mainland China, Hong Kong, Singapore, and the UK. He is a chair of VetForum and international series of B2B veterinary sector events across the USA, UK, and APAC, which is a wonderful event that we go there every time now.
And, he is a Non-Executive Director at Recruit4vets – a leading veterinary recruitment agency and advisor of YLD – one of London’s fastest-growing software engineering and design consultancies, working with brands such as the Economists, British Gas and Trainline. On the education side of things.
He is a veterinarian with a degree from the University of Cambridge, where he was a president of Christ’s College Medical Society, Treasurer of Cambridge University Veterinary Zoological Society. He completed the executive program at Stanford at the University of Graduate School of Business. And he was a co-founder of Team Rhino as a volunteer. Plus he has a couple of certificates: Introduction to Financial Accounting, Certified Predictive Index Analyst.
So he was born in his Scotland Highlands in 1592, a member of the clan McCloud and later discovered he’s an immortal. His name is Duncan McLeod. Just kidding. This is a good friend of mine, Thom Jenkins. Welcome to the show. I got really tired reading that.
Thank you, Ivan. That was a very thorough introduction.
Thom also is a father of three children, but they knew as addition given to him as a new year, a gift on January 2nd, which when I heard that I was a little upset, I got a pen. So congratulations. That’s why you carry so long and you look so good because you achieved all of that stuff and I’m balding.
So Thom, to just start up with this, we are super interested in your experience with consolidation in Asia and in the APAC region. Because you were in the UK, right? Right now you’re based out of the UK. And then, I know you spent some time in the US with your family and you do a lot of business in the US, but how did you end up in Asia consolidating vet practices?
Yeah. I knew I wanted to work on the sort of commercial side of that re medicine. I saw a real opportunity to sort of close compliance gaps and increase the standard of care that patients were getting through the operations behind bacne clinics. And I happened to read a book called the Growth Map by Jim O’neil in my last year at vet school.
I think it was sort of just another way to procrastinate and not study for the exams. And he came up with the brick concepе, labeling Brazil, Russia, India, and China as the emerging economies. And I thought, well, where you have an emerging middle class, you’re likely to have an emerging pet-owning population and they’re going to need that new care.
So I thought it would be a really exciting place to kick off my career. And that certainly proved to be true.
So I’m going to pause there for a second. So when you decide that, like, let’s say I’m sitting here in Canada, graduating from vet school planning to be a veterinarian in British Columbia.
That’s how I ended up building the first diagnostic lab in Russia. So what was your path of graduating as a veterinarian in the UK? Thinking of being a veterinarian and finding a job in Asia, how one seeks for a job in Asia and finds one to do that? You’ve done pretty executive-level stuff.
It’s Googling. The art of Googling is my one and only true skill, I would say so. But I started out Googling vet clinics in Brazil. I didn’t think that just turning up in one of these growth markets and trying to build something from scratch myself would be a terribly productive route.
So I was looking for a small platform to join and help grow. I didn’t find any platform like that in Brazil. And so then the next search term was China and I found this group of four clinics in Beijing. I said, look, I’m just about to qualify as a vet hopefully if I get around to that studying at some point, I’m happy to throw my hat in the ring in that regard. But my real passion is for the business side of things. So if you’ve got growth ambitions, I’d love to join you. And they did. And so, yeah, without having been to China for, without knowing anyone there, worries around, does this company actually really exist in the real world?
Yeah. Jumped on a plane and ended up in China and it did exist and it was a real fun, sort of, four and a half years.
How fluent were you in Chinese at that point? Mandarin, I should say.
Yeah. If we went for coffee, you’d think I was pretty fluent, but, if everyone tried to have a conversation with me, I’d soon be rumbled.
That’s impressive. I’ve studied Spanish my whole life and I would probably say that maybe coffee-conversational as well. So Chinese is a whole, both Chinese languages are like a whole nother can of worms there. So some of your experience and a lot of your experiences talking about the mergers and acquisitions. Mackenzie has the stat that 70% of mergers fail. We were reading a Harvard business article about how the Amazon and whole foods, merger, and acquisition came together, and how there was a cultural misalignment. How much of that 70% do you think is due to a misalignment within cultures between the two organizations?
Yeah, I think, I think a heck of a lot of it you’ll be unsurprised to hear.
I think it starts with a misunderstanding of your own culture. So the first thing for anyone that wants to go out and acquire businesses, the first thing to do is to understand their own culture. And also, I think another part of it is incentives. If you’ve got a whole load of capital to allocate and you’ve decided to acquire that that’s a dangerous starting point.
You want to be really careful with that. The best acquisitions happen so incidentally. And so if you’re a roll-up vehicle and your stated ambition is to acquire veterinary clinics, you’re kind of at a disadvantage because your distinct competence needs to become M&A. M&A is really hard, especially if you just go out there and your job is to do M&A.
So if you’re going to start at a disadvantage, it’s all the more important that you understand your culture, so that you can then understand how that’s going to play off against other potential cultures that you might merge with.
So, do you think your background of not only a veterinary degree but a veterinary passion was important to bring to that culture?
Obviously, there are the international cultures, right? Coming over you to China and talking about those things, but perhaps some of your background and knowledge in veterinary medicine, do you think that was a key part to the success of some of those acquisitions?
Yeah. So, on the international cultures, I mean, we had a team composed of people from 20 plus different countries.
And so we were all bringing our own sort of national culture, personal culture to bear against this business culture that ultimately if we’re to succeed, how to facilitate us in doing our best work. And so that, that certainly is a challenge, but also it’s an opportunity because there’s no sort of a default there if you’ve got this, sort of multicultural aspect, it’s harder to just default to a norm. In terms of the veterinary culture, we’re super lucky to operate in the sector that we operate in, where you have this self-selecting population of just very passionate individuals, very driven individuals who just really-really want what’s best for the patient.
And, you know, that’s really nice and curious, that’s why I became a vet and why I’m so passionate about animals. But really the direction of the passion, the sort of target of that passion the fact that it’s for animals, it isn’t the big thing here. It’s that you’ve got this easy alignment.
You’ve got something that you can almost take for granted that there’s this common language, this common starting point, that creates common vocabulary that you can work from in aligning your center incentives, which then creates the culture.
When you’re talking about establishing the culture of your own organization, I assume you’re talking about the strategic cultural alignment across all the executives and then developing your mission, your vision, your core values.
And then you’re trying to map the clinics that will fit with that because in one of the things that is important to us, we always talk about the burnout and that’s sort of became my passion of research. One of the burnout triggers, the classic six burnout triggers, is the core value misalignment. So when we’re talking about developing that, when you got to China, to those organizations, did they have that established, did they really value the organizational core value, mission, vision, and how they operate before even the acquisitions?
Certainly there’s already a culture established then. There are two, sorry, three strong founders in the organization who had their own opinions about what made the organization different. I think it’s really interesting that you’ve mentioned strategy, because there’s that old saying, that the culture eats strategy for breakfast, but really they feed off each other and the strategic decisions that you make and by strategic decisions, I mean, hard to reverse decisions that consequentially allocate resource. Those decisions, as you make them, as you make those hard decisions, that creates your culture. And I think there’s a misunderstanding often with new groups. There’s a lot of talk about becoming an employer of the first choice, and I think that’s often taken to mean, you know, who wouldn’t want to work here? What if you can’t answer the question of who wouldn’t want to work here, if you can’t clearly define the people that the compromises you have made in creating your culture would put off working there, then frankly, you don’t have a culture. So you won’t become an employer of choice.
The compromises will mean you will be nobody’s first choice. Your job is to create a culture where you can create an environment where some subset of people can do their best work. And that means some people won’t be a fit for your culture. It’s hard, you’ve got to take it, and the positive elements and the negative elements, and there’s a real negative element to having a strong culture, which is going to be aversive to some people, but you know what? That’s okay.
I think that’s interesting. We’ve talked a lot about the book Traction and the ideas of Traction within businesses and one of the big ideas there is how some people won’t fit into what your culture is and it doesn’t make them a good person or a bad person. I’m glad you mentioned that.
Cause I’ve never thought about that as something that should be important to know who doesn’t fit. I think a lot of times everyone talks about, and a lot of the consolidators that we talked to is this is going to be the best place for a veterinarian to work. But maybe honing that it is something that you’re saying there, Thom, to really make sure that, you know, The exact veterinarian or the exact team members that will make the most sense there.
So that’s an invaluable takeaway. So I appreciate that.
I think it extends right in that we’re talking about team members and how they fit. But then you’re talking about acquisitions and you’ve got to remember, you’re acquiring a team and this is where the incentives become difficult for acquisition vehicles.
And, you know, I’ve been on that side of things. You have this mandate to acquire veterinary clinics, right? And it’s the same for hiring. You need to hire that. You need to hire that techs, that nurses. And it’s a talent led market. You know, talent shore is, it’s hard to make decisions and it’s hard not to just hire another bomb on a seat, you know, just fill that vacant position. But you need to have some discernment baked in.
You need to be able to say, this person does not fit our culture. This acquisition target does not fit our culture. And therefore we won’t hire them. Therefore we won’t acquire them. If there’s not that consequence to it, then it’s just words on a sheet of paper and it doesn’t become strategic.
It needs to be consequential for it to become strategic. And these consequences decisions build culture. You can’t just talk about culture. There’s this really interesting model by professor Bergman and he worked on it with Andy Grove, from Intel, it’s called the rubber band model. And on one access, you sort of aligning what you say with what you do.
And on the other axis, you align what you have as an organization versus what it takes to win. And where those intersect and where those come out of alignment that defines your internal selection environment. In other words, your culture. So I think that’s sort of what we say versus what we do revisiting that all the time, know, just with the sort of great enthusiasm and great frequency. That’s what can very intentionally drive a culture.
So there’s a lot of what you said there, and I want to come back to what you started with. There’s a mandate to acquire hospitals. And when I worked at IDEXX, you know, I build this model where, what I was looking for the motivators for different businesses to engage with external vendors, I was just thinking, “Okay. Why it’s so hard to sell to consolidators?”. Because everybody who sells to vet clinics versus consolidators experience, completely two different things with the Smartflow. I could talk to any vet within two minutes, I’ll have buy-in and they will have a credit card out. And then you go to talk to consolidators and it’s like, they can’t hear you and you’re telling, but it does all these wonderful things for the workflow.
It saves you money. Veterinarians love it. So what I realized is that the interest of the veterinarian, as you said, Thom, this industry loves animals, loves helping animals, loves the team that helps animals. And when you lift it to the level of consolidators, they need to provide the return on investment or produce a return on investment to their investors. So this is the conflict, I think, that lays in the layer, which could be solved with this culture where a lot of consolidators pick that up right now in North America, and a lot of them are saying we here to improve the lives of the veterinarians. Well, as you said, then in a lot of them, this is really a good statement, but it’s not necessarily practiced at every decision they make. In a previous episode or the one before we talked a lot about the strategic filter with Ryan, and it’s one of those things that you incorporate and you put into the flow of your acquisitions. That leads to a question.
I know Thom, we brainstorm, I think it was in Florida. We kind of geeked out on the whole value stream and the theory of constraints. So we see consolidation as a value stream, and it’s a process of sort of, you know, different phases where there are certain bottlenecks along the way. And when we map it out that way, if you’ll think about, you know, let’s just imagine the value stream. There’s prospecting, there’s due diligence, then an acquisition happens, and then there’s integration, and then there’s change management of additional growth levers, and then the clinic goes into continuous improvement. Those are the steps. So where along that value stream, where do you think assessing culture is most important?
Pre-acquisition? Post-acquisition? Pre and post, or where this should be done along the process of creating value in the consolidation?
Yeah, it’s all of it. And I know that’s not a very helpful answer because that’s a lot of work, but it is a lot of work. And it’s interesting with consolidation you often have in the initial phases of consolidation is the acquisition, is the distinctive competence of the acquiring organization, right? So they’re very good at acquisition. And really the sort of primary economic driver here is EBITDA arbitrage. It’s taking small businesses, rolling them up into a bigger business that is then de-risk through the fact that it’s a bigger business, right.
And that means that sometimes consolidators can be quite slim in terms of operational bandwidth. Their distinct competence has yet to become, “We operate veterinary clinics better than anyone else”. You know, we acquire them better than anyone else, but we kind of hope that we’ll carry on much as they work.
That’s the sort of acquisitions as a distinct competence. Now, if you’re going to do that without hitting too many bumps in the road, then you need a cultural alignment. You need to be discerning in that regard. On the flip side, if you’re a little further along in this pathway, then you need to extract synergies, right?
So you need revenue enhancing or cost-reducing synergies. If you’re going to be able to do that, you need strategic initiatives to be able to do that. If you’re going to be able to successfully implement strategic initiatives, guess what, you need a cultural alignment. So I think it’s just important every which way.
And in terms of whether that you check for that pre or post. Well, if you don’t check beforehand, then you’ve already got the problem. And acquiring an organization that is culturally not aligned. And of course, there’s, you know, you can accept your own tolerance. You can set your own tolerance for what degree of remembering that rubber band model I mentioned very briefly, you can, you can accept different levels of stretching your rubber band, but if they’re not aligned, then you have a project on your hands and it’s can be a turnaround project. And you know what, that can be a good business, but it’s a full-time effort.
It’s a distinct competence. And so you got its side. Is your business in turning around cultures that from your perspective are toxic? Or is your distinct competence, acquisition further acquisition or is it operational excellence or some combination of those? You’ve got to decide then. If you’ve decided that, you know, the turnaround place is not for, you would be a destruction of bandwidth and resource, then doing a pre-acquisition. Due diligence on culture. Yeah, I mean, it’s imperfect, but it’s worth doing.
So doing that, that assessment is important. But how do you go about actually doing that cultural assessment? Are there specific metrics that you’re looking for? Are there triggers, are there, red flags or green flags maybe that are must-haves when you’re looking at those things?
And just, just before you jump in there, Thom, to qualify Thom, which I don’t think I have done in his long list of things, is that that’s exactly. What was your role in Asia? You were doing cultural assessments and then cultural integration. Is that correct?
Yeah, that was part of the non-financial due diligence that I would lead on.
So can you please answer then Ryan’s question about, how do you go about doing that pre/post/during and what do you do if there is a non-fit?
Yeah. So, it’s one of those things that’s much easier said than done, right? Because you are at an informational disadvantage and you probably can’t talk to team members other than the owners of the partners in the business, but that’s a good starting point getting to know them.
It is a good starting point. Often they will have informed the culture of their business and you can make some extrapolations from there. You can also look at the current team composition and including looking at the relative revenue contribution from different team members. Again, you’re looking at not just key person risk in a financial sense.
That’s not just a risk financially. Why is this whole team operates around making them ones’ person super-efficient? And what are the consequences of a business that operates in that way in terms of culture? You can look at the historic churn, the staff turnover, the average employee lifetime, you can ask for that.
You can ask for the most recent set of appraisals. If they say appraisals, you know, that’s a cultural indication. If they’re like, what do you mean? If they’re not willing to share them? That’s a cultural indication. It that’s perfectly there. Right? But you can take some signal in that. You can look at their website, do they have a website?
You know, if one of the post-merger synergies you’re targeting is a technological synergy and they don’t have a website yet, or they’re still on paper records or something like that. Then that could be a huge opportunity for you. You could be like, “Oh wow, there’s so much on the table here. I know I can drive improvement”.
Or it could be, “This team are not going to respond well to this sort of change”. That’s a judgment that you have to make and how much time and effort you’re willing to put into extracting those synergies. But again, it’s a cultural indication. Once you’re on the website, tone of voice, how do they present themselves?
Their branding? These feed into a culture and get the employment agreements. What are their HR policies? What do they look like? A lot of time can be spent in aligning HR policies. If they’re the same in spirit as your existing HR policies, then that makes things a lot easier, sort of what direction do they air in?
Are they employee-friendly? And that can tell you about the culture of the business. Locum spend, how much money have they spent on locums in the last couple of years? Relief, veterinarians, and that sort of thing. None of these things in and of themselves are just completely telling. But if you create this sort of balanced scorecard or these soft metrics, then you can get a feel for it.
And you want to do the same audit on your, your clinics that you have already. If you’ve already acquired some, do the same audit as if you were at an informational disadvantage. So don’t look under the covers or anything that a potential vendor would give you and see. Okay, what kind of impression do I get from these clinics?
And then look at how that compares. I think that benchmarking even for these kinds of soft indicators is valuable.
So you mentioned the informational disadvantage of the acquisition because usually there’s nothing disclosed before the sale. And I hear this all the time because that’s what’s happening in the world.
And nobody says to their team that they’re sold before they’re sold. And I was just thinking about the whole, again, going back to burnout during this process and the feeling of betrayed that happens at the time you inform everybody, “Hi people, I just sold you all”. So have you seen a consolidator that used, or even practices that, or a consolidator that advices, as a part of a change management process, to have a buy-in of the team early in the game announcing that this is what we’re planning to do? And then everybody is getting a slow understanding of the why behind it. And then when it comes to acquisition, people are prepared.
I think there’s, there would be a huge advantage in the consolidator advising to do that. But helping the veterinarian who is selling their business to do this in a soft manner with the change management tactics incorporated into it.
Yeah, I think, from a values perspective, very sympathetic to what you’re saying that Ivan. I think, usually what I see is that it’s the decision rests with the vendor, because really the risks here sit with a vendor.
I have seen situations that go badly wrong, where the vendor lets on and then the employees say, “Well, we’re going to go and set up our own clinic down the road”. There’s sort of nightmare scenarios, but candidly, from the acquirer’s perspective, that communicates something about that company.
Right? So from the acquirer’s perspective, the team being aware and being on board and being, you know, if not enthusiastic, at least, open is an advantage, but there are vendor risks there. So I think it would be slightly disingenuous to say, “Oh yeah, let’s find out what your team thinks”, and not educate the vendor that actually, this can be a difficult process to take people through.
I would always ask, as much as it’s the vendor’s decision, how would you plan to communicate this to your team? How surprised do you think the team would be? What are the expectations of your team with regards to progression? And this is another thing that comes up in the financial due diligence but doesn’t often get considered in the sort of cultural way, which is like, who on your team is do a promotion or a pay rise or combination of those things.
How overdue is that? When was the last time that you got one? Those sorts of factors. That all comes into play here, I think.
Yeah, that happens a lot immediately after acquisition, the entire hospital goes, “And I want to raise”. Because they think that this rich acquire came in and now they have a bunch of money and the other guy was a cheap bastard and we can ask for a raise from new owners and the consolidators don’t have that in their financial due diligence. It’s not outlined.
You know what, it can be a really good thing to do. If you, if you have considered it and you have put it in your models.
If you do have tolerance for that. Is a really nice start where there has to be a promise to this consolidation. There has to be some kind of upside where the lives of veterinarians, nurses, veterinary receptionists, practice managers, our patients, pet owners are going to improve because of the professionalization of the management of these organizations.
And if you can communicate that value, that uplift to key stakeholders like team members early on, you start things on the right foot. I think.
Yeah, we did that at Smartflow actually, when, when IDEXX acquired Smartflow, then we pre-acquisition negotiated that everybody’s pay. Guys were in Ukraine, a lot of them, but their pay went up and there was a pre-deal negotiation, and IDEXX was really nice about it.
So I’ll try to wrap it up, the time flies always talking to you. I think that we need to catch each other at some conference again when it will happen. So let’s say we bought a practice and now we realize that or we look back, and now we started to implement this thing and there’s a cultural misfit.
Are there tactics that you can do post-acquisition to gain alignment back on track and then yet the cultures merged better?
Yeah. So, I think, there are things you can do immediately post that position that sort of tease out the bad news. Post-acquisition is always bad news. You know, you write these 30-page essays on why it’s such a good idea to acquire the business.
And you convince yourself that there’s never been a better clinic in the whole world and it’s going to be great. And then post that position, you find all the skeletons. But you want to find them as soon as possible, right? Because now you shouldn’t be at, you want to close that informational disadvantage as quickly as possible.
And so open your integration management office and the open-door policy. So whoever’s integrate leading on the integration you can conduct a sort of one-on-one with each team member. And a really, sort of cliched question, that I found useful was to ask every team member, you know, the person cleaning the kennels to the head vet.
If you were boss for a day, what, what would you do? What would you change? That can culturally that can tease out a whole lot of stuff in terms of what great about it, the esteem in which they hold the previous owner, often people just don’t want to say, give any suggestion because that person was just so brilliant that they don’t want to contradict how they manage the business at all.
Sometimes it’s like, you know, we all know about this stuff. Like we know what’s wrong and we’re working towards it. And that’s a really nice sort of team-based view of that day. They have candor and transparency, but it’s not moaning. If you see what I mean. And then, you know, there’s the other side where everyone just has a whole list of grievances culminating in a request for a pay increase and that sort of thing that you were sort of alluding to early Ivan.
So I think that’s useful. I also think the employee net promoter score is really powerful, this is something that you can benchmark across your existing business. So ask the acquired team, how likely they would be to recommend that they acquired connect as a place of work and score that on, on 0 to 10 and then ask them, what’s the main reason for that score.
And that’s something that you can very easily benchmark. What is the main reason for your score? It’s a sufficiently open question that you’ll get some really good feedback on what’s done well and what can be done better. And it’s also a leading indicator of churn. And really in the immediate post-acquisition phase.
You really want to focus on managing churn, just you don’t want anyone to leave that you don’t want to leave. And so let’s get you off to a headstart on that.
I love the NPS score. The other thing that I think is also a good addition to that, would you recommend your friends or your family members to work here?
The other one, “Would you bring your pet here?”. That’s another one. It’s like, you know, it’s like you asked the waiter, “Would you eat here? God, no!”
Also but you said, you know, you don’t want people to churn, but also if you start to do these one-on-ones if you identify, you know, bad apple, that also a reason to proactively turn people that are toxic, right? So you can identify them.
Yeah. You don’t want anyone to turn that you don’t want to turn. There’ll be some people that, that just, you know, there, this is a change process.
Things have changed and they might not like the change. And that might mean that they’re going to do their best work somewhere else. And I think you shouldn’t patronize people just in general, as a general management piece. If you have, if you really value someone and you believe in someone, you know, that they’re going to do great work somewhere.
Yeah. If it’s not where you are, if it’s not in your organization, don’t think you’re doing anyone any favors by sort of keeping them somewhere where they can’t do their best work.
Thom, time flies. And we will be asking the question here and you already mentioned the book. I want you to repeat it, please, because I love the rubber band concept.
And then also you mentioned Growth Maps. I don’t know if that’s something that you would recommend, but on the topic that we’re talking is there anything else that you would like to recommend to read?
There are various manuals on a post-merger integration strategy. I think if you can access one of those that, you know, there’s not too many of them.
So I just go on the Amazon reviews and pick one. But to be honest, I think it’s more about not forgetting what you’re doing with acquisitions. I think it can be too siloed and just remember you’re running a business. So, apply the same principles to run that you apply to running your existing business.
So how you would run the expanded business and just think, you know if my business today already included this other organization, how would I feel about that? How would things be going these things? I think it’s more about heuristics and our own sort of internal decision-making models that we need to improve.
And I think you can improve those just as well, reading sort of Far from the Madding Crowd by Thomas Hardy or as you can reading sort of post-merger integration strategy manuals, right.
Yup, and the other question that I wanted to ask you, do you have anybody on your network that would be interesting to interview on the topic of acquisition and anything related to it in the veterinary or not veterinary domain?
Yeah. So when I was running veterinary clinics, when I was on sort of that side of the creative problem-solving set, I reported into two very strong CEOs, Nis Lorentzen out in Asia and Brendan Robinson here in the UK at Village Vet. Both of those guys had a heck of a lot to teach me and I’m sure they’d have a lot to share with others.
All right. Awesome. Well, Thom, I know we zoom through 35 minutes, like in a second. It’s a pleasure to see you again. I hope that the PetsApp is getting their recognition and I see you creating a lot of webinars and hopefully this pandemic benefited your current business, as well as your family expansion.
Yeah. Thanks. Thanks, Ryan.