Your veterinary consolidation business will encounter different sets of challenges as it matures and grows in complexity. Without a clear roadmap, many businesses lose their momentum and fail to attract capital. Today we break out our playbook and share the dos and don’ts of developing your company. These insights will help you go from a fragile start-up to a strategic organization that’s built to survive and thrive. We open our conversation by unpacking what happens in the early stages of founding a consolidation business. After highlighting the need for early rapid growth and creating systems that align your team with your business, we discuss how unproven consolidators can best appeal to practices. As we explore each level of organizational development, we touch on many key topics, including — the importance of creating processes to transfer knowledge; why the second level is so difficult to progress beyond; how you can improve your business and create value-creation tools; and how data can drive the value you create. Near the end of the episode, we reflect on the opportunities that unlock once you reach the last business development stages. Tune in to hear more about scaling your business and discovering new strategic horizons.
Key Points From This Episode:
You’re listening to Consolidate That Podcast.
Hey, everybody and welcome back to Consolidate That Podcast. We’re going to talk today about dos and don’ts of the consolidation based on the maturity level. Today we have Bill Griffin with us, an ex-COO of Pathway and the co-founder of VIS. Bill, welcome.
Hey, how are you today, Ivan?
Pretty good. Very exciting topic to discuss. We had quite a few conversations about it. This episode will make a whole lot of sense if you guys go to our website, vetintegrations.com and open the strategic version of our maturity model, which is under the tab, “Maturity Model and Strategic CMM.” We’re going to be talking about this model, so let’s just jump into it. Why do we call the maturity model as dos and don’ts for the consolidators?
Well, it’s interesting. It took us a while to get to that various simple perspective, but I think it’s a powerful way to consider how consolidators potentially create value and how consolidators can potentially undermine value. And understanding what you should do and what you should not do at different phases of consolidated maturity is pretty powerful.
We talked about the experience that some veterinarians in the teams are going through, and I think that this plays a significant role in that. Because what we see with consolidators, they have this plan — how they’re going to create value for their investors and for themselves. And then they start buying practices, and it becomes really exciting. So you immediately want to after you buy the practice under the pressure of the board and the investors, you want to do the improvements right away. That’s, I think, where we kind of stumbled on to it. When do you start doing improvements? And that’s where I think the whole maturity model came about. Can you talk a little bit about the experience of what happens actually at the practice level and why we want to sort of separate and parse the steps of the process? And what may happen if you don’t?
Yeah, sure. There’s a lot of moving pieces. If we take this from a young consolidator perspective or a startup consolidator perspective — which, many of the groups in this space fit that category. First, you have to create the business to become a consolidator and the infrastructure. Then you’re obviously going through the BD M&A integrations, and then ultimately operational phase of the value stream that a consolidator creates. It’s a very complex process that requires an awful lot of data, and a fair amount of people, and a deep understanding of how you’re going to create value with a given group of practice.
The challenge is that, listen, this is the race to become relevant, and you can’t be a consolidator if you don’t acquire practices. There is so much competition in the space that slow and steady at this point isn’t going to get you to be a meaningful consolidator if that is the goal. Meaningful as far as number of practices or EBITDA. Given that, it is a rapid, rapid pace of acquisition overlayed on top of it is the — and it’s typically part of the value creation plan, is to improve margin at the practice level. That’s operational improvement post-acquisition. And the combination of those two dynamics, the rapid acquisition, as well as the operational improvement on top of creating the consolidated infrastructure is a monumental task.
We know that the organization is being built at this point. And the expectation sometimes that the clinics have from consolidator. This is a large corporate structure and everything, it’s well-aligned and this is a work in mechanism. But in reality, they’re developing as well. So in a way, this is sort of like building a flying plane. Bill, how does a strategic consolidator maturity model explain what the organization is going through?
Yeah. We spent a lot of time thinking about this, because it is really all about people. There is a lot of positive energy in the space about creating a better experience for employees. It’s just a better model in general. We’re seeing more of that, we’re seeing young consolidators come out with models that are more inclusive. But given that, we’ve spent some time and we created a maturity model with two core pieces in mind. One is the organizational design, and the other is people. For the people side, we look at behavior, we look at team development, we look at trust, and we looked at leadership and actions. And how at different phases of growth those different elements evolve and change.
This isn’t just about flocking, and tackling, and process, and systems. But it’s also really about the emotional pieces that drive behavior and being fully aware of that as the organization grows.
That’s a great way to look at it, because the way the team and leadership matures through this process and the emotions change, there’s different levels of organizational structure. What are those levels? What is the very first level that we’re looking at?
First level is considered maturity level zero, and that’s the initial funding. We chose zero because it represents a foundation or base. It’s a critical phase, because this is taking a vision and looking at an opportunity in the consolidation space, and turning into a real business. The biggest part of that is the funding piece.
The second element is really how you’re going to create value in a crowded space. Consolidation today versus 5 or 10 years ago is rather different. The value creation plan that comes of the level zero really needs to be targeted. Not only on the acquisition side, but also on the operational side and with a keen eye towards experience.
Then kind of looping into that experience. At this point, the team as it’s forming and the level of organization. Now we’re talking not about the practice, but about the consolidator is really trying to figure out ‘who am I?’ This is sort of the question that the team would have, isn’t it?
It’s sure is, and that’s a little bit of the mystery phase that these young organizations are in is, ‘who am I and how do I fit in?’ It is a critical phase.
As they go into the next level, what happens there?
Next level is when it gets more interesting. Level zero is, it’s the concept, it’s the vision, it’s the funding. Level one is inception, and level one is when practice acquisitions begins. This is really where it’s quite important for the first practices to be a good cultural fit, be the right financial acquisition. There’s a fair amount of risk at this stage. It’s a new company. As a veterinarian, I am going to sell my 20 or 30-year-old business to a young consolidator that’s unproven. So I really need to be emotionally bought into this and I need my team to be bought into this, because this is really a growth opportunity for those practices and to truly be founders. To be founders of the consolidator.
One of the challenges that’s going to be experienced at this level is, you’re going from a core group of people that have vision, and you’re moving now into a team expansion. With that team expansion, there has to be a knowledge development. It can’t just be a feeling, or a vision. It needs to start to be actually structured. That’s a really important step in order to move into the next phase of maturity.
Awesome. I always put that phase, similar to start-up in the technical world that I’m more familiar with. It’s sort of when you’re just trying your pitch, you’re trying to find these clinics that will be sold on your vision. And you’re getting to this product market fit. But the team as it develops, it’s emotionally there now. Thinking not ‘who I am’ as in the first phase, but now they are the team. As you said, they’re expanding so they’re trying to get into this question, ‘who we are together?’ Then they’re maturing to the next level, which is process developments. What happens there?
Since this is a rinse and repeat model, right? Of practice acquisitions. And in order to become a meaningful consolidator, again, if you’re looking at scale, not as importance but size, which most are, that you really do need to be relatively efficient in how you engage with, and acquire, and integrate practices. If you’re not able to do that effectively or efficiently, you don’t really get to become a large-scale consolidator.
So creating process around all of these pieces that are repetitious creates efficiency. Creates consistency, increases capacity for the team, right? So that it’s not — we do it differently every time that we buy a practice. This does take some time to develop, right? This level two is about process development. Now, along with this is you’re continuing to expand those teams. This is really teams of teams. This is where the knowledge development that you did in the first level now becomes knowledge transfer. Because “Hey, it was great when there were five or six of us. We all use the same brain to think because we travel together, we eat together.” But now as we’re expanding teams, you really do have to pass that knowledge along, and it has to be passed along in a meaningful way that someone can come, and really jump right in and to advance the culture, advance the knowledge and just create the process as the company starts to grow.
Yeah, absolutely. What we’ve seen with quite a few consolidators, because now, you’re starting to expand on the team. Someone is out there sourcing practices, and then maybe the same vision that you had at the first phase when you’re buying these clinics is not the same and it pivoted. But if you don’t connect, then don’t let them into the common knowledge base, then there’s slight misalignment when at this level happens, then it really fractures the organization going forward, so it’s super important. If you do it right, the company truly becomes resilient. This is the phase where the teams are now thinking about why we exist, and what is that message and really hone on the message that we deliver, and do we really practice what we preach.
That’s a super important level and this is the level where a lot of consolidators just jump in and start improving. They’re just starting to say, “Okay. These are the growth levers that we decide to apply.” And sometimes it is just too early, isn’t it Bill?
We see a lot of consolidators that don’t get beyond level two. The process development piece, it’s not hard to do but it’s hard to do when you’re so busy buying and operating practices and putting out fires, especially when your support overhead budget may be rather lean. People are really focused on what’s in the moment versus building something for the future.
This is really a pivotal stage to basically understand and to be out ahead of versus behind. Because once you’re behind, it’s pretty much too late unless you’re going to slow down acquisitions and pause. Then basically clean up some of the process pieces, and then start back up. Which we are seeing some consolidators actually do.
Absolutely. We’re also seeing how COVID helped with that. To slow down and just rethink your processes, maybe not that intentional, but actually that was an opportunity for some of them to slow down and rethink the processes. Then that knowledge piece is really, really crucial. Because when you are starting, you’re trying to pull all your connections, and all your past sort of engagements, employees, colleagues into your organization. Then you’re bringing all the awesome talent. But if you don’t have the knowledge transfer mechanism, that could be detrimental to the organization.
The next level then is the value creation tool development. Let’s talk about that. What happens there?
Yeah, this level gets all the excitement. This looks good on a deck, and it also is something that is meaningful to veterinarians when looking to potentially sell their practice. “What are you going to do for me that I can’t do otherwise?” What we often see is that value creation tools at the practice local tend to be at best strategic. They’re not operational. If we look at the margin expansion functions of the consolidator, if they’re looking at lowering labor cost or product costs. We tend to see maybe a little bit more of a tactical approach to it.
But nonetheless, it is a phase where the goal is to have your core functions built in a way that you can drive them blind. Where everyone in the organization understands that — “This is how we acquire practices, this is how we integrate them and this is how we operate them.” How we operate them is really important because, simply, once you close the practice, it doesn’t mean that you can suddenly start implementing all of these value creation items. Because you know what? That practice has just gone through a pretty traumatic change event. It’s often best to truly understand when to implement practice level change.
Then the other element for this phase is, refining the fit for purpose, because at this stage, you really now have a critical mass of practices. You’ve got a fair amount of experience of understanding how you create value and what are the best practice fits. Then to understand how to create, say, more congruent solution to improve practice level value.
This is where the team really is defining what we do, and these value creation of growth levers that expand the margin, that’s really what we do. Once that’s defined, then the organization as you said really becomes fit for purpose. The resiliency of organizational growth is because, right now, you’re not just running your processes that hold the core, but also you’re now improving. That’s what the investors are expecting from you. This is the moment when a lot of consolidators are facing the additional raise. They are going to B round or just into additional investors. And they will ask them, they will say, “We have practices for six months or year or so, and where are the improvements or at least show us what you do to improve these practices.” If you don’t have this well-defined in the third phase, which is the value creation tools, you will find it challenging finding additional capital.
Well, 100%. I mean, just one of the comments. What we do is critical, but just as important to what we don’t do, is equally important. Too often, that’s potentially ignored.
Hundred percent. Then you just reminded me that basically, that is the purpose of this model, to show where you jump into things. If it’s not a part of your value creation plan or not something that you’ve defined, you really need to change your strategy before you do that. Otherwise, it becomes a distraction to what you were focused on doing, and now you are not doing what you’re aim was.
Let’s go to the quantitatively measured. That’s the level four and what the organization is usually doing at that level.
Yeah. Level four is a really, really interesting level. Because at this phase, the organization should be quantitatively managed. What does that mean? That means that the initial value creation plan and strategy is aligned from the acquisition’s perspective — through integration and operations. That means that there has been knowledge development and knowledge transfer as the teams have grown. That means that the value creation items and tools are truly fit for purpose. Then we understand exactly how those elements create value for the practice and the organization.
Along the way, as process is being developed, systems are implemented, and metrics come out of those systems. At level four, we’ve got process, we’ve got systems, we’ve got teams, and we’ve got metrics. That results in the ability to have a quantitatively managed organization. Where data drives decisions. So value creation can actually be measured to an operational level. Again, building on the same theme, we’re now moving from fit for purpose to a fitter for purpose. Again, we’re continually improving, we’re finding the product, and the solution and truly understanding as an organization how we create value.
Absolutely, and I love how you said that at this point, you did develop your process, you develop your policies, you now have systems and people to run those systems. What’s super important here is that, what you measure is what is important. What’s important at this level is your value creation plan. If you promise something to do to increase the value of your organization, if you execute it on that in the first two levels to stabilize, and the third level to start applying these growth levers. And in the fourth level, you need to be measuring those growth levers, because otherwise, there’s so much data that the consolidators pull from their pins, they determine so many cool metrics. But cool metrics can easily become vanity metrics
that are cool to discuss in the bar. How many fattest cats you’ve seen last week in Illinois? But what matters is, if you said you’re going to improve marketing, you want to show what your changes in marketing showed in the EBITDA and overall productivity of the organization. Quantitatively measured is about measuring what matters. Now, we are going into level five. What is the level five?
Level five, I wouldn’t call it aspirational because I think that undermines the opportunity. But getting to level four is no small feat. Level five, at this point, we’re looking at this as a robust organization that has alignment of people process systems and metrics. And now is looking to continuously improve, continuously improve at all levels of the value creation stream and value creation plan. This is the fine-tuning of economics. This is the highest level of fit for purpose. In this case it’s called fittest for purpose. And this continuous improvement phase is a super exciting phase because everyone knows what they do, why they do it and how they do it. Then it’s really opportunity to really change people’s lives, pet’s lives, employee’s lives. Also, to create significant wealth for shareholders.
My favorite analogy with this level is, if you just started going to the gym, in the first four levels, you really build up the mass. And you’re now strong and big. But the level five is really when you’re looking at that new muscle to work on, that definition. So in the organization, you’re doing things right. But now you’re looking for new opportunities, where you can refine certain processes. Or include something new across the organization with all deployment in the program management that you already created to create additional value. That leaves us with the final level, and that’s level six. What were you talking about there?
Level six is considered antifragile, so we started off as fragile and now we move to antifragile. We call it built for survival. This is a future-forward phase. Where now the organization has the ability to look outside of what they consider to be current state. And look for opportunities that may be very disruptive in the industry, look for ways to expand. And one example could be a consolidator buys practices and operates them.
But what about ecommerce? What about different elements of client engagement beyond brick-and-mortar. And there are consolidators are looking at this; however, they’re probably not fully congruent within the model, they’re probably not quantitatively manage. Then there’s some risk that can come in here if you’re leaning a little too far over your skis here and you’re really trying to create new business opportunities before you are fittest for purpose.
It’s also an opportunity, potentially to create new purpose, and it’s not just a new purpose as far as new business opportunities. But this could be altruistic, this could be social, this could be — I mean, look, we’re talking about the pet space, right? Really making some meaningful changes in the world of pets, whether that’s euthanasia, or shelters or abuse. Just think about the opportunities that are out there to make meaningful change.
This is the level where we call ‘predictive.’ It’s a predictive level where you have all your processes aligned, you exhaust a sort of low-hanging fruit opportunities of continuous improvement and now you’re really thinking about new strategic horizons. That’s where you’re thinking of these new strategies to generate value by pivoting at the whole organizational level. You’re antifragile and you can really resist all the market volatility, and you can predict it by using the data. To be honest, that’s the phase that we’ve never seen and this is something that we think that the organizations will get there, especially with the data and the data analysis that we can get to. But this is a pretty tough level to get to.
Those are your six levels of organizational maturity. If this caught your attention guys, then you’re probably asking yourself, “Why do I care about the level?” And one thing that this helps, and we’re going to be talking about it in the future episodes, is that the maturity model is really a tool to create the roadmap to success. If you do know your level, then the model will suggest what is there to do to get to the next level. To determine your level, you can go to our website, so vetintegrations.com. Go to strategic and tactical model, which is at the top of the page, and then you can do an assessment, which will lend you and we will show you which level you’re at. And we’ll be talking about the congruency and other factors in the next upcoming episodes.
Bill, thank you very much. It was great to talk about this topic and see you guys next week.
Thanks, Ivan. Looking forward to it.
Thank you so much for listening to the Consolidate That Podcast. If you want to hear about our new episodes, please find us on any podcast platform. Also, you can learn more about us on our website at vertintegrations.com. Stay Safe.