Special – Veterinary Consolidation Outlook: Pushing Beyond Your Current Plateau

54min
Season 1
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Brakke Consulting, and City Way Animal Clinics join Dr. Ivan Zak for a special web panel, ‘Veterinary Consolidation Outlook: Pushing Beyond Your Current Plateau’.
John Volk of Brakke Consulting shares his research and Dr. Kurt Phillips of City Way Animal Clinics shares his experience to predict where the veterinary industry is heading.

During the webinar, we explore:

  • Findings from the 2021 Brakke Industry Overview: status of veterinary practice consolidation and future projections
  • Key revenue drivers in veterinary services for the next 5 years
  • Six essential components for growing a successful veterinary group
  • A business methodology to future-proof your enterprise

Speakers

John Volk is senior consultant with Brakke Consulting, the largest consulting firm serving the global animal health, veterinary and pet care markets. He is highly knowledgeable about companion animal, equine and food animal practice. John is principal author of five landmark studies of the veterinary profession: Brakke Study of Financial and Economic Behaviors of Veterinarians (1998), AVMA-Pfizer Business Practices Study (2005), Bayer Veterinary Care Usage Study (2011-13), VPI-Veterinary Economics Financial Health Study (2014), and Merck Animal Health Veterinary Wellbeing Study (2018, 2020). He has authored several articles for veterinary journals, and is highly sought after as a speaker at veterinary conferences, especially on topics such as practice consolidation, preventive care plans and pet insurance.

Transcript

Ivan-Zak
Dr. Ivan Zak

Hi everybody. I’m very excited to see everybody on the podcast. Thank you guys for joining us today. We’re going to talk about an interesting topic – veterinary consolidation outlook: pushing beyond your current plateau. I’m very excited to introduce our two very prominent speakers. So we have John Volk, he’s a senior consultant at Brakke Consulting, the largest consulting firm during the global animal health veterinary and pet care markets. John, if I can ask you to introduce yourself, that would be great.

john-volk
John Volk

Thank you. I’ve been with Brakke Consulting since 1994 and have been following industry consolidation, kind of monitoring it, for probably the last 20 years. And I have participated in about a dozen recapitalization events for consolidators as a consultant over the last eight to 10 years. So a very, very interesting topic. And I’m glad to be here this morning.

Ivan-Zak
Dr. Ivan Zak

Thank you for joining us! And we have Dr. Kurt Phillips. He’s a founder and CEO of City Way Animal Clinics. It’s a network of five visionary practices in downtown Indianapolis. Kurt, if I can ask you to give a couple of words about yourself.

dr-kurt-phillips
Dr. Kurt Phillips

Yeah, thanks for having me, Ivan. Kurt Phillips, City Way Animal Clinics in Indianapolis, Indiana. Graduated from Purdue University school of veterinary medicine in 1996 and was fortunate enough to be able to purchase my first practice, I was associated at in 1999 to the early 2000. So a young entrepreneur at 29 and a half years of age who didn’t know much and was thrust into the entrepreneurship of business ownership of veterinary business ownership and have just really enjoyed the ride ever since.

Ivan-Zak
Dr. Ivan Zak

Thank you for that introduction. Today we are going to discuss what is going on in the veterinary consolidation space. And what is the future of it? Obviously a very important topic.
The market is frothy, the multiples are high. This is happening for the past two decades in our domain. And it’s interesting to see the outlook of the specialist on what is going to happen in the future and what may influence the industry. We usually don’t do any formal presentations, but today we’re lucky to have John. He agreed to share some of the key findings from Brakke. So John, the floor is yours. I’m going to share your slides and please tell me when to move forward with them.

john-volk
John Volk

Thanks. So I think a little history is good for perspective. You know VCA veterinary centers of America was established in 1986 and really started the consolidation of veterinary practices. It deployed by technique that was used in many other industries, which is rolling up small, locally owned businesses. And then over the BC, I guess started then over the years over a number of companies that kind of copied what VCA did, and many of us were acquired by VCA after they had 20 or 30 practices. One of the things I find interesting is during much of the 1990s and early 2000s, the percentages of practices owned by consolidators was pretty steady at about five to six percent. The reason for that was that even though consolidators were buying practices, the number of practices in the industry was growing.

So when VCA started, there were about 16,000 small animal clinics, and now they’re roughly 30,000. The size of the industry has doubled. Following the great recession when the financial community saw that there was a great deal of resilience in the veterinary field, down the health field in general, that investment in consolidation really took off. Next slide.
So you can see here, this is chose the trend. 10 years ago, there were about 24,000 practices. About six percent were owned by consolidators. And today we’re up to about 30,000 practices. And about 20% of those. The number of practices has grown. The penetration of consolidation has outpaced that. Next slide.

2020 was a banner year for consolidation. We calculate that about a thousand practices in the U. S. were acquired by consolidators. Certainly like everything else in the U. S. things shut down in March and April as we came to grips with the COVID-19 pandemic, but then, starting in late April early May, things really started ramping up and fourth quarter consolidation activity was just intense.

We think it’s possible that consolidator purchases even overtook independent transactions for the first time last year. And if you look at the current status about 70% of specialty practices are owned by consolidators and more than 20% of general practices. What’s interesting though, is because consolidators tend to acquire the larger practices, the share of pet care done by consolidators, we estimate it is now in the neighborhood of 35 to 40% of total pet care. Next.

So why was activity so intense in 2020? I think there are a number of reasons. One is that 2020 was a banner year for many practices. Their income was up, which meant that their value was up. Many practices had revenues 20% or more over 2019. There’s also a lot of demands. So the low interest rates made money cheap for the private equity firms that finance consolidation. And we now have about 50 or more consolidators that are competing for practices when they become available.

I think another very important thing is that practices are much more widely shopped than they used to be. It was not uncommon a few years ago when a practice came up for sale, that there might be four or five prospective buyers, maybe a couple of associates or neighboring veterinarian plus maybe one or two consolidators.

But now we know that when the bigger practices go on the market, they’re often shocked. 30 to 50 consolidators, which has led to values really going up. So the value of good general practices have increased to eight to 10 times EBITDA up from seven to eight times just a year or so ago in specialty practices have really ramped up in value to about 12 to 15 times EBITDA up from about 10 to 12.

And we’ve even heard of values beyond that. And then there are a couple of environmental factors that we think are contributing to consolidation. One is that with these high valuations, we think a lot of owners want to make sure that they get in on it before maybe it slows down. So there’s a kind of a fear of missing out. Type of a thing where they want to go ahead and sell when the selling is good. And then with the election last November, people anticipated that if there was a change in administration, there may be a change in, in tax loss. So wanting to get in on the most favorable tax environment that they could.

So we think all those really contributing to a banner year for consolidation last year.

Ivan-Zak
Dr. Ivan Zak

That makes sense. And quite the statistics there, and it looks like the multiples are not gonna go down in the near future, but with that degree of opportunity, that everybody’s exploiting right now with 50, I heard by our statistics at VIS we counted, I think 69 consolidators right now [editor’s note: 69 – approximate worldwide, 58 – in North America]. So there’s quite a few in there, appearing every day.

That doesn’t look like it’s very sustainable, especially the strategy of arbitrage only because there’s two main sorts of feces of consolidation. One is to buy many practices at a certain multiple, and then to sell them at a bigger multiple, without too much operational improvements. So it looks like with this saturation of the market, it might be tough to just play with that ,just with arbitrage, and some operational changes will be required for new consolidators that appear.

But I have a question for Kurt. You’re obviously growing organically as an operator and you mentioned before you’re not planning to sell any in the future. So what are those benefits and what’s your general attitude towards consolidation versus growing organically versus building your own empire, if you will.

dr-kurt-phillips
Dr. Kurt Phillips

I think honestly right now, the number one reason why I stay owner-operator is the profit. I mean when practices are profiting 20% of their gross revenue year after year after year it’s nice just to keep that profit in my pocket for a while.

I’m not upset about running a practice. I enjoy the leadership opportunities. I enjoy being an entrepreneur. I enjoy creating structure and I enjoy watching people grow professionally and personally. So at this point in my life I’m really happy with where I am based on the fact that I’m totally in charge of my own culture and my practices. I’m totally in charge of every day-to-day decision. I have a great leadership team that helps me make all those decisions and we’re able to make them organically, as you said also locally. So we run all of our decisions through our paradigms of our values and our vision and our planning and we get to make those decisions on our own with a group of people that I completely trust.

Profit keeps me, leadership allows me to be happy and if I’m going to sell in the future, it’s going to have to be to the right company that allows me to, to use my strengths where they were needed or I’m going to have to have a different plan in my life. And I’m only 52. So I guess my age is the third category that keeps me plugging along.

Ivan-Zak
Dr. Ivan Zak

Well with the competition where it is right now we heard of the numbers that each practice is nurtured as a lead, if you will buy 40 to 50 brokers today. It’s a pretty tremendous inflow of calls in the hospital and how they manage them. John, you have a bit of statistics that you guys collected about the next year.

john-volk
John Volk

Alright, thanks. In January of 2021 we conducted a survey of around 300 veterinarian practices. And one of the questions we ask is that they were ‘likely to sell’ in 2021 and there were 143 that answered that question. And eight percent of them said yes, that they were likely to sell. Another 15% said that they may sell. But I think eight percent is probably the better number. And then we asked them if they were likely to sell their consolidator and that chart is on the right here. And on the one hand it looks like many of them were not planning to sell to consolidators. But there are two things I want to point out here: the first one is that we’re dealing with a relatively small number of responses. We can’t take this data to the bank by any means. It’s not projectable. The second one is when we look at who answered this question.The practices that were in the ‘somewhat’ or ‘highly likely’ to sell were the big practices and the ones that were in the ‘not very likely’ or ‘not at all likely’ to sell were much smaller in size.

So even in this data we see that bigger practices are much more interested in selling to consolidators. And of course, consolidators want the big practices, right? They’re less interested in the one or two doctor practices.

Ivan-Zak
Dr. Ivan Zak

This is an interesting statistic and you’re right. The sample is maybe not that big, but it is representative of what’s going to happen next year. I think I’ve heard it in the course I recently took: ‘in God we trust, the rest bring data’. So I think this is the case. John, why some consolidators are more attractive to the sellers than others? What are those specifics that help consolidators to break through the noise of this number of them?

john-volk
John Volk

Yeah, interesting. So there are a number of factors. One is a reputation. Some consolidators have been added a lot longer than others and they’ve become better known than the newer ones.

Size matters as well. The bigger consolidators have more people in the field that are out prospecting and calling them practices. They’re more likely to show up in exhibiting at veterinarian conferences, at trade shows. They just have had an opportunity to establish their reputations.

I think we see a number of smaller consolidators that are trying to get into the market. And I think one of the challenges for those newer consolidators is to differentiate themselves and to bring some new ideas or new concepts to the prospects. Because it is a competition as we pointed out earlier with the extent to which practices are shopped. Each of the potential bidders is going to have to make a pretty strong case for why they should be the prevailing buyer.

Ivan-Zak
Dr. Ivan Zak

Makes sense. And with that we heard some feedback from the practices that are being acquired or have been acquired. Sometimes there is a negative tone towards consolidators that are not owned by previous operators or veterinarians as the background.

Kurt, your team is all veterinarians as a management team. Do you think that has a competitive advantage, especially on the talent market, because talent is, you know, is scarce on both veterinary and staffing. Do you think that plays a role in when you’re looking for a talent?

dr-kurt-phillips
Dr. Kurt Phillips

I think there’s a difference between recruitment and retention in our talents. And I truly believe that the consolidators have it over us every single day when it comes to recruitment, their abilities to pass out a message nationally and to offer higher salaries. Honestly, I couldn’t meet their salaries, but what I can often do is meet their benefits packages with pet employee discounts, health insurance, and other types of things. Their premiums are lower just because of their size.

So recruitment has always been a challenge for us. At City Way Animal Clinics we’ve really spent the last year, just beefing up our recruitment department and trying to get out there and get in front of these talents that are coming out that are graduating, new techs, new nurses, new veterinarians. When it comes to an advantage for us, it’s in the retention. I think we find over and over again that once someone comes to join our team, it’s a family of local people who all know each other and work well with each other. We build a great culture and we put a lot of pride in our values and our decisions that we make locally.

That’s where we’ve found an advantage in keeping people. I talk to people every day who have been working at a large corporation practice. And they’re thinking about making a move because they just don’t get the support they need from their regional managers.
The salaries and the benefits are there, but the happiness, maybe, isn’t there. And we just try to tell them all the time, think about joining a smaller team. Someone who you have access to not every single day but they can call me, they can talk to me, they can text me, we can get answers to them pretty quickly. And that is definitely an advantage for us.

john-volk
John Volk

Yeah, we think that within a year or two corporations on general practices we’ll go over that 25% of total practice level. And when they get there, they probably will be doing about 50% of pet care. We have worked on a number of recapitalizations and one of the questions that always comes up is how much runway is left. Certainly we need to think of the market as being dynamic. The number of practices does increase in the number of three and four doctor practices each year, but typically in about half of all practices have been one or two doctors.

They are just not ideal for consolidation. There is a high degree of risk for consolidators. So they are going to pick from others – the 50% of the practices are larger than that. The fact the runway is getting shorter is indicated by a reality where consolidators buying consolidators. A number of the smaller consolidators have been acquired by bigger consolidators and with a large number of consolidators out there, I think, that’s going to be a very significant trend. At the same time we think there’s a bright future for independent practitioners. Like Kurt said, we think that locally owned practices, entrepreneurial veterinarians can do very well.

And when I speak at veterinarian conferences, I encourage associate’s interest in owning, to look at those one or two doctor practices, because if they are in a good market, they can build on those and have a very comfortable living. I think consolidation is going to continue. With some shift towards this shrinking the number of total consolidators, but still there is a good opportunity for independent veterinarians.

Ivan-Zak
Dr. Ivan Zak

That’s great. I have a follow-up question to that. What we see in the UK right now, there’s a total sort of frenzy in what has been happening for the last four or five years. I remember I went to one conference, to the London Vet Show. There were 40% corporate and 60% independent. And then I went to the next one. It was the other way around: 60% corporate and then 40% private.

Do you think that s can be compared to geography, a kind of plateau, when we get to north of 60+ percent?

john-volk
John Volk

I think that the UK and Australia go for another market that is consolidating very rapidly. One thing to keep in mind is these are countries with a much smaller number of veterinary practices.

And I would say that I can certainly envision a time in not many years in the future where consolidators may be doing 60% of the total pet care. Getting up to 60% of total practices, which means that they would probably be doing 85% or more of the pet care – I am not sure we’re going to hit that mark. But certainly I think we could get up into the 40-45% range pretty easily.

Ivan-Zak
Dr. Ivan Zak

That makes sense. And with that the groups need to differentiate themselves and they also need to be future-proof. I mean,I love the fact that veterinary medicine survived a COVID and proven to be immune to this virus. And that’s why we have so many pets and then the industry’s growing. But what is the future-proof consolidator? We have seen different management styles. We work at VIS with multiple consolidators and there are some groups that had a platform developed within it. And some of them adopted other platforms, so for example I know that Pathway adopted the framework that occurred you are operating your business with. And it’s an entrepreneurial operating system or a Traction by Gino Wickman.

Can you elaborate a little bit more on that and this methodology and how it helped you to apply to your business and to scale.

dr-kurt-phillips
Dr. Kurt Phillips

My first practice that I purchased at Willy Nilly I ran without any goals or a plan. And, you know, at the end of every month there was my left in the bank and everything was copacetic. We were growing every year, 12 to 17%, and I was proud of that. Proud of where I was practicing, proud of my patient care, proud of all the things, except for just the way I was running my businesses. When I started my companies in the downtown market of Indianapolis, Indiana,I made a solid idea to change how I was running my companies.

About two and a half to three years ago, we instituted the entrepreneur operating system, which as you said, is a book called ‘Traction’ by Gino Wickman, where he aligns an entire system of how to run any business from manufacturing to advertising, to accounting, to veterinary medicine. And I think that, unfortunately, our industry is always a little bit conservative in terms of jumping in on new methodologies. This is essentially a culmination of a lot of different methodologies and a lot of different books – Gino did a great job of putting an abridged version together of everything and just giving you a very specific system in which to utilize it. The system helps you set visions, your values, your goals. It helps you create accountability within your organization. It helps you create organization within your organization because, let’s be frank, many organizations aren’t very organized. It helps you to analyze the data on a regular basis that helps you create ‘to do’s’ for all of your team members, things for them to be working on. A regular basis helps you bring your ten-year plan down into a three-year goal and a one-year picture, ending up with 30 day Rocks, which are essentially goals that each person on your team is working towards. And the accountability comes into play there so as they’re working on a major goal everybody’s helping them, everybody’s keeping them accountable, everybody’s saying ‘Hey, are you going to finish the school by June 30th or not? Where are you with this? And then it also helps the processes we call the ‘City way’ – it’s just the way in which we do everything from ‘how do we set up to analyze a urine sample in our clinics’ to ‘how do we greet a patient and a client coming in the door’ and ‘how do we do end of life discussions’.

Although it’s not corporatized to the point where everybody has to play every single role the same way, it’s a scenario in which we are all working towards a common goal. And as the owner, as a CEO, as the founder of this company, that’s my number one thing to build a team. That’s all working towards a final goal. And the entrepreneurial operating system is the only methodology in my business career so far that has allowed me to be fully successful at that.

Ivan-Zak
Dr. Ivan Zak

That’s excellent. I love ‘Traction’. We applied it for probably every business in the last eight years I worked in.There were guys at MedSource, who suggested that to me a number of years ago. Then I adopted it for SmartFlow and then we applied it at IDEXX at the software division.I think it’s excellent. And that’s why we chose it at the core of the consolidator operating framework that we created for consolidators.

We try to create a cookbook for consolidations. If anybody’s interested, you can visit vetintegrations.com to get familiar with it.There’s no silver bullet for everything, but it’s sort of a guide that may help you to think ‘Oh, I didn’t think about that’.

With that any methodology is really created to outline the processes, make them scalable, set the goals and achieve them, just like you’ve described Kurt. But with the scarcity of veterinarians and with the abundance of pets, we’re really reaching that point where the demand is much higher than supply. And that’s really dangerous over the profession. It seems like we’re still very linear in the approach that we add more people, we can see more appointments, therefore we can produce more revenue. And my personal hypothesis is that we really need to think outside of the box and rediscover the more scalable workflows and more scalable operational tactics that can help us to do more with less.We are not hiring veterinarians and pushing them to do more, because we also have an issue of burnout and then pushing that to the limit. It is really about discovering new processes, new workflows and new revenue elements.

John, do you see any trends in that direction? How to do more with less in our industry?

john-volk
John Volk

I think the industry has struggled with a pretty inefficient business model for a long time and has not worked as hard as other medical professions to figure out more efficient workflows. Certainly if you compare veterinary medicine to human medicine, where you may have three exam rooms for every doctor and a lot more of the work is done by nurses, veterinarians prefer to be very hands-on. I think also veterinarians are kind of addicted to the idea of when someone calls for an appointment, they want to get them in tomorrow or the next day, instead of stretching out appointments and utilizing some of the typical downtime time that happens in every week, whether it’s Wednesday morning or Thursday evening. Whatever time tends to be less busy than others, I think that veterinarians can get in the habit of scheduling appointments – routine exams, annual exams two and three weeks out instead of tomorrow. I think that will help to work low a lot.

What I hear from young veterinarians is that they don’t feel that their needs are as accommodated in many practices. If the practice has 20 minute appointments somebody that’s a year out of school or less maybe needs 30 minutes per appointment. Considering the needs of individual practitioners, e.g. how they manage their time and what kind of support they have, is also very important.

Ivan-Zak
Dr. Ivan Zak

That makes complete sense. So currently in your experience the same question: how do we deal with the shortage of vets now? I know it’s hard to hire and you mentioned there are different ways to attract and retain. But are there ways to scale the processes so you can do more with less human capital?

dr-kurt-phillips
Dr. Kurt Phillips

I used to be a big follower of Dr.Ernie Ward. A long time ago talked about how to mobilize your staff and how to ultimately schedule your schedule in 20 minute blocks, so the doctors do diagnosis, prescribing and do surgery and that’s it. It was easier in an environment where there were technicians, there were area assistance and lots of CSRs were available. Today in a post COVID world, that’s also a struggle. So not only were we struggling to find veterinary talent, but we were struggling to find qualified veterinary nurses and veterinary assistants to help with back of the house processes.

The struggle is real right now, for sure.We talk a lot about spreading out time, spending more time with patients than less. I’ve empowered my veterinary team to say no more often. Luckily I live in a metropolitan area that has five to six 24/7 veterinary clinics within a short drive, so if we can’t see the patient, if it’s not the best thing for the patient for us to squeeze them in, when they are really sick, we empower our veterinarian team to say ‘We just can’t see you today’. We analyze white space regularly weekly and my white space numbers are down. There are very few opportunities for people to see a veterinarian in my practice. Strategic forward scheduling and things like that has helped, but you still get those people who call the day off, and need to get in. So we just have to make sure that we put patients first. That’s our number one value. And when we start to stop putting patients first, then that is not the reason why I became a veterinarian…

Ivan-Zak
Dr. Ivan Zak

I totally agree with you. More and more I hear this is interesting about saying no and being actually selective about your customers. When I graduated, the customer was always right and you did everything for the customer. But I love what you are talking about: first of all, think about the patient, not just the customer, because the customer is annoyed or he has to wait or whatever it is.

Very often when you call, it’s a two weeks wait time for spay or dental, or anything like that. The demand is definitely overwhelming. I was just talking to a colleague of mine in the UK and they are talking about the burnout angle of this. They said that we are becoming very selective about our customers. There is better adoption in Europe, so in the UK, I think, there is about a 20% adoption rate for insurance by the owners. But in some clinics they actually started differentiating. If you don’t think that a wellness plan, that covers things that should be covered, is a part of how much you want to care after your pet, then you are probably not the best customer for us. So they actually are being quite straightforward with the customers that, you know, if you’re not a very good customer, then maybe we don’t need you. It’s interesting how this is changing these days. Because the revenues are shrinking, because of the online pharmacies and now the Amazon and things like that. Is there anything else creative that clinics are doing right now? And that is the question to both of you guys. A new revenue streams, diversification into doing more, spa services – I know, Kurt, you have been working with that… New workflows in pharma. I know there are a couple of startups that are doing an alternative route to online pharmacy that is like your own pharmacy, but still delivered home.

So are there new sorts of revenue diversification for the better word that you guys can comment on?

dr-kurt-phillips
Dr. Kurt Phillips

We have a spa, as you said. It’s not a profit generator for us. It’s not a loser, but it stays pretty stable. We do it because we offer more services to our clients in the downtown area. We like to keep our people close and in the family. So when they started seeking that elsewhere, we just felt like we might have some lost opportunities there.

Our bigger push has been in professional services, away from pharmaceuticals. We have completely grabbed the bull by the horns when it comes to online pharmacies through utilizing that source and script sharing. Anything that we talk about is automatically sending the client a prescription for that. And that has helped our revenues go up as far as that goes. But a practice is too heavily loaded on pharmaceutical sales. It is also a risk and consolidators are super excited about them because that revenue stream can go away any minute now. That’s why we’re talking about ProHeart® 6, ProHeart® 12, about Convenia injections that are only delivered by veterinarians.

So that’s what the people are paying us for – our professional opinion and the services that we could provide to them. That’s where we have focused most of our efforts on. Although I have a spa it’s just kind of a fun thing for us, honestly.

john-volk
John Volk

Certainly in our data we have seen the growth of the home delivery market and online ordering for veterinarians. Now we see like 70% of practices have that service and they’re working through companies like VetSource, Kurt mentioned, or MyVetStore and I think there are a couple of others that are smaller.

I live in downtown Chicago and one of the things I see is veterinary practices offering ancillary services. There is one practice, I see their van where they offer pickup and delivery of pets for either appointments or for their daycare. We also see onsite grooming vans, so vans will go to home and do the gig, the other pad of shampoo, do the grooming on the pet owners site. There are also some neighborhoods with high rise buildings with many pet owners and we see some veterinarians offering in-home services there.

So those are ways that veterinarians are expanding their footprint. I also remember talking to a veterinarian in Dallas, Texas, probably about three years ago. But they got into the vaccine service business where they go to an HEB grocery store or whatever, and set up on a Saturday. And they weren’t using it as a competition with their regular practice. They were using it to identify pet owners that didn’t have a regular bedroom practice. They were doing a preliminary exam on a pet and using that to bring pets into the practice.

I’m not sure how many practices these days are looking for new ways of generating business. But certainly those things can be.

Ivan-Zak
Dr. Ivan Zak

There are a couple of questions from the audience that I thought were interesting in a good conversation to have. So one of them is what can consolidators do to make vets want to work for them? Kurt, do you have something on that?

dr-kurt-phillips
Dr. Kurt Phillips

The veterinarians that are selling to the consolidators or you are saying once they are consolidated, how can they recruit other veterinarians?

Ivan-Zak
Dr. Ivan Zak

I think it’s more of the latter. Just how do they recruit, so people want to work for them?

dr-kurt-phillips
Dr. Kurt Phillips

Yeah. Well, like I said earlier, they’re offering higher salaries and they’re giving better benefits. I think that what they need to do is to work on mentorship and leadership growth, potential for their people. Actually also identifying during the interview process if that is what the candidate wants or desires. I’m going to go a little off topic here, but where I’m frustrated that I don’t know that we’re looking for those types of candidates when we’re matriculating them from undergrad to veterinary school now, I wish veterinary schools would do a little bit better job of seeking out the type of candidates who are interested in clinical practice and interested in business ownership and business management and leadership stylings. Because when we continue to admit students who have very little desire to practice clinical veterinarian medicine in the future, then we wonder why we have a shortage of veterinarians 10 years later. I feel like that rides on the veterinary schools.

So consolidators could do the same. I know that’s one of the things that we put everyone of our new graduates, any new hire, through a mentorship program. The support staff does their own version, the CSR’s do their own version on, the veterinarians have their own version. And we talk a lot about professional growth and leadership and mentorship and how to communicate. That’s what we are doing. I think that the consolidators could mimic what I do better, perhaps.

john-volk
John Volk

I agree with Kurt. I think it depends on the consolidator to some extent. Some of them, I think, do a very good job of operations, even some of the very, very large ones. And I think one of the things that a consolidator can do is to offer a clear-cut career path to veterinarians. You know, when you have an organization that covers multiple locations and has corporate infrastructure, those veterinarians who seek to go into management someday, if there’s a career path opportunity there, they can mentor them.

Many consolidators now are offering ownership opportunities. Veterinarians can have ownership either in the company as a whole or in the particular location where they practice. So I do think there are a number of tools that consolidators in any practice can use, as Kurt said, to make sure that they have a really productive, welcoming and growth work environment for veterinarians and staff for that matter.

I think one of the soft underbelies of practices is that we have offered career paths to non veterinarians. So it’s hard for them to see once they start as high school kids, how they could possibly work there when they are 30 years old, right? How can they survive on their kind of salary? I think that some practices have done a better job of that.

Ivan-Zak
Dr. Ivan Zak

Absolutely. I agree with both of you guys. Yesterday we had a pretty advanced conversation about this. If you look at our profession, veterinary technicians are not going beyond 30 years old. So that means that our profession can not offer enough pay for adult life. You can’t sustain with the technician salary.So it is important to provide better material compensation for staff technicians that do most of the work in my opinion. And then basically what you said, Kurt, I really liked – finding out what people want.

And we’ve been talking a lot about this in several webinars by VIS, but it’s really understanding the intrinsic motivation of the person, because it’s always different for different people. Everybody gets a job to get paid, but what is it that drives you to come to work and actually one to stay here for long-term. I think it’s extremely important to have the series of webinars that we are doing, which is called ‘Leading with purpose’. If your purpose and if your goal of the organization is aligned with the intrinsic motivation of the person, that’s the key to having happy people working for you and sharing your purpose.

But if your purpose is to recap in two years, that’s not the purpose that they have. So unfortunately there is a very little buy-in to that and then people can leave. You sure you can throw money at them for a certain period of time, but after you have 75 K and over the statistics show that we are not very much motivated because that meets the basic needs.

There’s another interesting question here. A slightly different angle on the lab services. So the question is from Rachel: I’ve seen a lot of practices under utilized their laboratory services. Are consolidators considering leveraging the lab?Just jump in guys.

john-volk
John Volk

Well, I think that many consolidators focus on standards of care and they tend to be pretty good customers for so the diagnostic companies. I mean diagnostics are one of the services that clients have a hard time saying no to, because you can present a pretty good rationale for why this pet needs blood work. And in particular all the things that a lot of veterans were taught in school, that maybe he didn’t practice like pre-anesthesia blood work even for young pets and that sort of thing. So I think leveraging that is a very important revenue source. When I looked at data from some of the consolidators, some of them do a pretty good job of leveraging diagnostics. And not just blood work, your analysis and those things, but also radiology.

dr-kurt-phillips
Dr. Kurt Phillips

I think a lot of that comes back to just how they are measuring their work. Do you have someone on your leadership team who is looking at data and deciding that ‘Hey, it seems like we are doing the right amount of diagnostics. It seems like we are doing enough blood work and taking enough x-rays, doing enough ultrasounds’. But when you start to look at the actual data, you’ll see that your margins as far as compared to gross revenue. Perhaps your radiology is down in the two or three percent category and it should really be four to six percent of your gross revenue.

And when you identify that, it’s a simple fix either. You’re not charging enough for your x-rays or your ultrasounds, or you’re not doing enough of them. So take that opportunity to look at that data and have a healthy discussion with your doctoral staff, all in one. It was my suggestion, meet regularly. Our doctors have a monthly meeting where they can share their ideas.

And there is a little bit of data crunching that happens there. Just say ‘Hey guys, it appears that one of our practices is not doing enough radiology. Is that because you don’t like the machine? Is that because of the caseload? What is it? Because as compared to another one, which is two miles away, it’s quite vastly different numbers. So that has been helpful to us. And those are things I didn’t do in the first 10 years of owning a practice. It was just whatever came across on the appointment schedule, we just did it. And that was it. But we didn’t actually plan for things.

Ivan-Zak
Dr. Ivan Zak

I cannot agree more. I think that what we are seeing more and more in consolidation is that the data they are looking at, for the most part, stays at the corporate level. I have always been surprised how the organization that measures their productivity based on certain metrics, doesn’t provide those metrics to people that generate those metrics.

So essentially you are getting them once a quarter with a month delayed because of data that it is in the veterinary domain. And after that you are presenting to people post factum and they just can’t care about that. One of the things that we were doing at the VIS is a product that we are about to launch that actually serves the right data to the right people at the right time. You can always look in your phone and see what are those metrics that we all agree with in the organization that we are going to follow. And it’s not necessarily that you have to tie the compensation to the metrics but productivity and do you fit into a team?

I think it’s very important because I love that you compared your team to family, I like that. I like to refer to the team as well as the sports team, because we love everybody. But if you play to a certain level, then you don’t fit in our team. A lot of operators though there are shy to serve metrics to veterinarians. Some of them don’t like to see the metrics, but it is usually those that are not performing well.

So maybe it is the people that you need to inform about that and to remember that veterinary medicine is a form of art. I love the emergency and everything else, but it does generate revenue and it feeds the people that are on the team, generates for the company overall. It is very important to have the right data in the right hands.

And back to the lab, I love the comment I want to quote. I don’t know if Jon stole it from someone who came out with it. But I had the pleasure of working with Jon Ayers when he was the CEO of IDEXX in a year when I extended. I remember one thing that he kept saying about blood work and I thought it was phenomenal that ‘lab work gives the ability to the pet to talk to their owners’. You are interpreting what’s going on. And I thought that was brilliant, especially for IDEXX, because 95% of their business is lab work. But that’s true!

Your dog can’t tell you that it’s slightly uncomfortable somewhere. But if you take the blood work and you have quite sensitive tests that can detect early kidney disease, liver disease, and everything else, then you’re really kind of monitoring your pet to a different level.

And back to the wellness plans. If that is very well articulated to the owners, then that wellness plan includes the annual lab work. I think that closes the loop on the care of pets that we are expecting from our owners and everything else.

john-volk
John Volk

I’d like to circle back just briefly on something Kurt said, about data sharing. I have worked in the business for a long time and I’ve seen a lot of companies. And to me one of the things that really differentiates companies is how much information they give their employees. Most of the really good well-managed companies that I’ve worked with, are companies that tell their employees everything. They are very open about how the business is doing, how they are measuring their progress. And it’s not always about revenue. It can be how they measure up on employee benefits? What are their policies and how those generate data? Or the number of days lost to sickness. Those kinds of things.

The more information that employees have about the operation business at the practice level and how they impact those numbers, the more they can see themselves in the practice.

Ivan-Zak
Dr. Ivan Zak

Absolutely. I agree with that. There’s another question here: what do ownership opportunities look like for recent veterinarians graduates given the consolidation trend in the veterinary medicine.

dr-kurt-phillips
Dr. Kurt Phillips

I tell people every day when I recruit that you have the opportunity to be a part of this company going forward. But I have a very clear 10 year plan that I have placed in place mainly for myself and for my family of retirement and leaving this company and getting paid for what I have built.

And I tell them with the right group of people, they don’t have to all be veterinarians. You can structure it in such a way that non veterinary professionals can have a piece of the pie. And I think we should be heralding that more often. I have a chief operating officer who has been with me for upwards nine years. He started as a kennel kid 11 years ago. And now he is my second in command and he is extremely valuable to me. He is very important to our company. I hope and pray that someday he will have a bigger piece of the pie that he has right now. That is something that we, as private owners, can offer comparative to going door work for VCA or Banfield tomorrow. You are never going to be a leader or an owner there. And if you think you are, that is not going to happen.

Maybe I misspoke about the Banfield opportunity – they have some ownership opportunities, but you are not gonna be able to own a VCA. That’s where we are. That’s it. That’s how we recruit. That’s how we stand apart. And if you have good books, if we are profiting as well as we are profiting, banks will loan the money to the people who need it. For sure.

john-volk
John Volk

I think they are excellent ownership opportunities for veterinarians. Among all the professional categories veterinarians have the lowest risk for lenders, so getting money to buy or start a practice is not that challenging. I sometimes humorously say that if you have a DVM degree and can fog a mirror, you can loan for a practice. And again they’re just excellent. And when I speak at conferences, I encourage young veterinarians to seek ownership, because overall owners make more than associates. And with levels of student debt, that people have come out of vets school, they can pay off that debt faster if they’re getting owner money versus associate money. One of the things that differentiates some of the consolidators is that they’re providing ownership opportunities to some of their associates and that is differentiating them from those that don’t have any mechanism for that.

Ivan-Zak
Dr. Ivan Zak

Absolutely. I think that’s an important factor and I love what you are doing, Kurt, creating your organization. I think that the inclusion of the veterinary staff is sort of the destiny where the consolidation is going to, because we will have shortage of those as well. Especially if we have such a short window of people that are getting into that profession and qualified. And then they retire from this profession, because they can’t sustain their spending on this. So I think that the business models that will include everybody into sharing the pie, I think this is what we are seeing in the near future.

We have another question. I think maybe that is for both of you guys. So rapid consolidation, frothy environment, the multiples are high. If something can slow down the consolidation of clinics, what is it?

john-volk
John Volk

Well, there are two things. One is that all the good clinics that want to sell will have been acquired right. And not all of them are going to want to sell. So a lot of people like Kurt are gonna want to remain independent for a long time. So we don’t have an infinite number of practices.

The other thing is that we have been blessed with having really good private equity partners in consolidating veterinary practices. We have not had any implosions and like at least any sizable. Some industries have gone through what a private equity firm comes in loads, a newly acquired company with a lot of debt and then drives it into the ground and picks a lot of money in fees and that sort of thing. And I think given the nature of veterinarians and their sensitivity towards repayment, if we had an implosion of a major consolidator because of poor private equity practices, that would really almost stop the desire of veterinarians to sell to a private equity backed company.

But again, I haven’t seen that happen. I have worked with many of the private equity companies and they are really good managers, and I don’t expect that to happen. But if it did, I think that we would have a big impact on the profession.

Ivan-Zak
Dr. Ivan Zak

Thank you. Kurt, do you have any to go back to?

dr-kurt-phillips
Dr. Kurt Phillips

I go back to my earlier discussion about veterinary schools need to do better. We are graduating graduates every single year who don’t even know what they want to do. The veterinary schools are highly suggesting scenarios that aren’t really ripe for fighting consolidators. We are not encouraging business ownership, we are not encouraging business management courses. We are not teaching them anything about business at all. I’m specifically talking about the veterinary school administrators and there are people who are telling the students they have to find a job that has a commission-based salary. And I don’t believe that is the truth. I don’t think that we should be forcing every single kid, who wants to practice in clinical practice to be a specialist either. We need general practitioners and we need owners.

I’m really proud of this profession. And I’m proud of how we were able to serve our patients at our local and organic level. And if these trends continue and we continue to choose the wrong students who don’t care about the profession 30 years from now, then the profession will look quite differently in 30 years. No doubt about it.

Ivan-Zak
Dr. Ivan Zak

Absolutely. The quality of the students that we have both from a business perspective, as well as the professional skills, it’s changing. Especially on skills like surgery. That is a big challenge, I think, we are graduating veterinarians that are not there. And I think it’s also related tof the generation. I’ve been talking about this in some other webinars. And I think the majority of veterinarians right now are from the millennial time frame. They just care more about work-life balance and there is a different ethic to work.They are valuing.

So well, with that I want to thank you gentlemen for participation. This has been great. Thank you for your time and thank you for your expertise added to this webinar.

dr-kurt-phillips
Dr. Kurt Phillips

Thank you very much.

john-volk
John Volk

Thank you.