Consolidation Leaves Veterinary Practices in the Balance
Done correctly, merging veterinary practices leads to growth. Done poorly, it leads the opposite way.
Veterinary Advantage readers recognize a successful consolidation – as well as an unsuccessful one – when they see it. At its best, consolidation leads to growth, professional satisfaction, and continuous improvement in the delivery of care. But poorly executed consolidation can lead to burnout, staff resignations, and a decline in practice revenues.
The difference between success and failure in consolidation lies primarily in the intent and maturity (from a business perspective) of the consolidator, said Dr. Ivan Zak, CEO of Veterinary Integration Solutions, Saint John, New Brunswick.
“Any change is likely to create frustration and uncertainty, eventually causing burnout,” said Zak, who founded Veterinary Integration Solutions in 2019. Prior to that, he worked in veterinary hospitals across Canada, then founded SmartFlow, a workflow optimization system. “This is the case with consolidation. Change in ownership, workflow, processes, corporate culture, and values can lead to unwanted employee turnover post-acquisition.”
Creating an environment in which employees are forever happy is impossible, he said. “But I have come to the conclusion that implementation of Lean thinking can bring a certain relief.”
What can consolidators do?
Lean isn’t a new concept in veterinary medicine, he said, pointing to Emanuel “Chip” Ponsford, DVM, author of “Lean Veterinary Practice Management” and blogger about Lean techniques for several years. “It’s a methodology that isn’t very natural in veterinary medicine and is not taught in veterinary schools.”
But consolidators have the opportunity to apply innovative management techniques, including Lean, to scale – if they choose to do so. “This is especially important because the corporatization of the veterinary industry continues, and soon, a large portion of veterinary professionals will be employed by consolidators.” In fact, there is more than 20% consolidation in the North American veterinary profession already.
There are many approaches to Lean, Zak said. Most important are the principles behind it, including continuous improvement, value creation (and elimination of wasted processes), and alignment of goals and objectives.
“One of the key Lean thinking principles is an appreciation for employees who do the actual work,” he continued. “Veterinary technicians are often the ones who do the actual work, but they are often undervalued and stretched thin. A way to fix this is to offer a more flexible work schedule, better recognize the team’s contribution, and introduce new non-monetary incentives and growth opportunities. Lack of growth opportunities is one reason leading to burnout.”
For veterinary practices, the value stream consists of delivering excellent patient care as efficiently as possible. And for consolidators, the value stream begins with identifying potential clinics to acquire, then integrating them into the overall structure and generating profit for investors. But here’s the rub: “[The consolidator] may care about the patients and people who work in the practices, but sometimes they don’t exercise that vision,” said Zak. He attributes part of that to the current “gold rush,” as consolidators compete to acquire independent practices.
As fewer independent practices come on the market, however, “the game will change from simply buying practices to improving them,” he said. Overall efficiency and methodology will become of paramount importance, and Lean is one way to achieve both.
Zak’s mission – and that of VIS – is to help consolidators take stock of their intentions and capabilities. VIS’s Consolidator Maturity Model© helps organizations assess where they are in the consolidator life cycle – from initial funding to continuous improvement – and then build a roadmap to create value for the enterprise. It consists of strategic and tactical layers.
In the strategic phase, the consolidator gains a high-level overview of business processes, systems, and data integration required for sustainable consolidation of small businesses into an enterprise. The tactical layer of the model is the expanded version, detailing the criteria and steps to take for each level of maturity. The tactical model guides consolidators through each maturity level of 11 aspects of a business: processes, policies, systems, competencies/roles/teams, business rhythm, metrics, feedback loops, visualization boards, intellectual property products, corporate overhead, and partnerships.
“We have found that when we show this model to consolidators, two things typically happen,” he said. “First, they are surprised there even is a framework for consolidation; and second, they are forced to admit they may only be at the very first levels of maturity, in which case they realize that before jumping in, they need to establish systems that will create ‘antifragile’ organizations.”
Done successfully, consolidation can lead to satisfied, empowered people said Zak. That includes baby boomers, who prioritize stability in their work-life, as well as millennials, who are used to a fast pace, new challenges, and quick rewards.
Six levels of consolidator maturity
Veterinary Integration Solutions’ Consolidator Maturity Model© lists six levels of a business development path, describes what is required to move forward, and illustrates what happens to teams and leadership when doing so. VIS co-founder Dr. Ivan Zak described each level.
Level 0: Initial funding.
The most fragile state of an organization is when it pools resources to get started, developing a vision and a value creation strategy, and gathering a team. To transition to the next level, the consolidator must be capable of managing the prospect hospital pipeline, defining the investment management process, and documenting data in a customer relationship management system.
Level 1: Inception.
A newly minted consolidator begins acquiring its first practices and starts developing knowledge and core processes, such as HR and accounting. At this stage, the organization is still fragile – only discovering its product-market fit and long-term strategy.
Level 2: Process development.
At this stage, the consolidator starts building resilience. The corporate structure becomes more complex, branching into departments and launching the Learning Management System. Core function processes and systems are implemented and a business rhythm is established.
Level 3: Value creation tools.
In this level, basic business operations run like clockwork. Now it’s time to set the bar higher for the quality criteria and start implementing the value creation plan (VCP) processes and metrics developed at the previous level. Collected data guides techniques to lower overhead costs and stay strategically aligned.
Level 4: Quantitatively managed.
At this level, the consolidator is shaping a robust enterprise. It is an inflection point for potential recapitalization. Measurable metrics, key performance indicators (KPIs), and processes allow the consolidator to acquire and seamlessly integrate new practices with existing business strategy and maximize EBITDA.
Level 5: Continuous improvement.
Core systems, processes, policies, and VCP are well-managed and running autonomously, allowing the enterprise to start innovating and focusing on strategy, rather than operations.
Level 6. Prediction.
This is the top level of maturity when a consolidator becomes “anti-fragile.” It starts using data science and AI to predict future industry trends and capitalize on market opportunities. The enterprise is ready to create a new purpose.