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STARBUCKS. . . AND PIZZA

BEWARE OF THE PRACTICE THAT OFFERS “GREAT POTENTIAL”

“IT’S GOT great potential! THAT’S why I really want to buy it. It needs some work, but once I make some changes, it will be amazing!”

Sounds like something you might hear on a home improvement TV show. And for a house, that might be the case. But if you’re in the market for a practice, that’s rarely true. A recent discussion with a client who was considering buying a practice illustrated this concept perfectly.

She had a keen interest in ocular disease and found an optical boutique that had been in the same high-end location for 19 years and in the same community for 30 years. An optician owned and managed the boutique. Rotating doctors saw patients in a small exam room two to three days per week. The client thought that with so few doctor hours and no emphasis on ocular disease, the potential to expand was significant. That was until we talked about Starbucks . . . and pizza.

With its vast resources and well-run infrastructure, Starbucks could choose to serve pizza, sushi or, for that matter, sell just about anything else. In fact, with its stream of repeat business, Starbucks could probably offer a sit down breakfast with waiter service. Yet, it doesn’t. The reason: Starbucks has built a loyal, to the point of evangelical, customer base, based on what it DOES sell and the way it DOES operate.

ADDING SUSHI

Adding sushi to the menu poses two risks. First, if you want sushi, you’ll go to a sushi restaurant and not Starbucks (for the same reason you don’t get your morning java at the sushi bar). Perhaps more importantly, but not nearly as obvious or as easily measured, current loyal Starbucks fans may be turned off from the disconnect in their expectations and what actually happens.

In our client’s case, patients who buy glasses at the boutique primarily come from other doctors. Encouraging them to stay at the boutique for their eye care could endanger the referral stream (whether it’s active or passive doesn’t matter — it’s at risk). Patients who buy glasses there aren’t expecting a pathology-oriented mojo and may be put off if the current hip millennial vibe is transformed into something more like a doctor’s office.

MISGUIDED POTENTIAL

Regarding potential revenue increases after the buyer makes changes, keep in mind that if the practice is being financed, banks loan money based on past performance, not on future projections, regardless of your ability to make those changes work. Sellers try to amp up sale prices based on this very point. They might claim, “I don’t do a lot of medical billing. But if you did, you’d make a lot more money!” That’s true, if you were able to attract patients who for years have been attracted to a nonmedical eyecare practice.

Also, be wary of sellers who claim, “I’m only open 2.5 days per week. If you worked 5 days, you’d double the practice the day you buy it!” Really? Does that mean a practice that’s open 40 hours/week will double its revenue if it stays open 80 hours/week? Will it cater to insomniacs? In this case, the 2.5-day/week practice has built a base of patients who are willing to come on those days. Patients wanting to be seen on the other days are already being seen — by someone else.

BUYER BEWARE

All practices have the potential to do better, but it’s not always from attempting to make shifts in their DNA. Buyer beware. OM

GARY GERBER, O.D. is the president of the Power Practice, a company specializing in making optometrists more profitable. Learn more at www.powerpractice.com, or call Dr. Gerber at (888) 356-4447.