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When Scaling Healthcare Quietly Breaks Everything - The Pin Factory Problem · The Operator | Healthcare Business

0:12
There's a phrase that shows up in every
0:14
health care boardroom,
0:15
every investor deck and every acquisition
0:17
announcement.
0:18
We're going to scale this.
0:21
And on paper, sounds like the goal.
0:23
More locations, more patients,
0:24
more growth, more reach.
0:26
But if you've been around long enough,
0:27
you've probably seen the opposite happen.
0:29
The thing that made the clinic great
0:32
gets watered down, culture shifts,
0:35
clinicians feel it first and eventually
0:37
the patients do too.
0:38
So today we're digging into a question
0:41
that sounds simple,
0:42
but is actually pretty uncomfortable.
0:44
What if scale is the thing breaking
0:48
healthcare platforms?
0:49
Larry just dropped a piece and talked
0:51
about the pin factory problem,
0:53
and it challenges one of the most accepted
0:55
ideas in business.
0:57
So let's get into it on the operator.
1:00
All right, Larry,
1:01
you open with that phrase.
1:02
We're going to scale this,
1:04
which sounds like we're going to go to
1:06
the moon.
1:06
Let's just we just need some rocket fuel
1:08
and let's and we'll aim up.
1:10
a phrase that everybody nods along to
1:12
because it sounds like it makes sense.
1:14
But at what point did you start realizing
1:16
that that phrase,
1:18
we're going to scale this,
1:19
might actually be dangerous in health
1:21
care?
1:21
Yeah, if I'm being completely candid,
1:25
I started overhearing it.
1:27
And really,
1:28
the moment that I heard complete
1:31
confidence by people who had never run a
1:33
clinic,
1:34
who were either a non-clinician or a
1:36
clinician of an unrelated matter,
1:38
And they were taking this pride in their
1:41
ability to be a professional manager.
1:43
And it's like the gobble speak that
1:45
professional managers have to say.
1:49
And the phrase isn't in and of itself
1:51
wrong.
1:52
It's the certainty, I should say,
1:55
behind it that will absolutely terrify
1:57
you.
1:58
In my experience,
2:00
and we're talking about four decades of
2:02
building and watching these things,
2:04
we're going to scale almost always means
2:06
one of two things.
2:07
Either someone has figured out a genuine
2:09
model worth replicating,
2:11
or someone has raised enough capital that
2:14
we've confused funding for proof.
2:19
In the healthcare world,
2:20
that matters because you're not scaling a
2:22
software product,
2:23
you're scaling human systems.
2:26
So licensed professionals,
2:27
complex patient relationships,
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regulatory environments that change
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constantly,
2:32
reimbursement environments that change
2:33
several times a year,
2:35
and they don't care how good your pitch
2:37
deck is or who is on your board.
2:40
And so the moment that I knew the
2:41
phrase had completely just was dangerous
2:45
is when I started seeing organizations
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celebrate what I would call clinic count,
2:51
pins in the map,
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rather than clinical outcomes.
2:54
We went from twelve to forty seven sites
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in eighteen months.
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We opened X number of De Novo's.
3:00
We did X number of tuck ins and
3:02
everybody applauds.
3:04
Nobody asked, did the model hold?
3:06
Nobody asked what happened to the people
3:08
already working there?
3:09
the numbers go up, the room claps,
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and somewhere in clinic thirty-one,
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a front desk coordinator is drowning and
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nobody on the home office even knows their
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name anymore.
3:18
That's when scale stops being a strategy
3:22
and really becomes more of a story you
3:23
tell your investors.
3:25
What I've tracked in my last two articles
3:27
was where platforms go awry.
3:30
And this fits into it perfectly because
3:34
unlike metrics that really are dangerous,
3:36
the series before it,
3:37
these are really more about concepts that
3:40
also throw you awry.
3:41
Yeah.
3:42
Well, you bring up Adam Smith.
3:44
For people not familiar,
3:45
Adam Smith's Pin Factory.
3:48
basically said the foundation of economies
3:49
of scale might be misunderstood.
3:51
That's what you sort of wrote about.
3:53
Why does this matter for someone running a
3:55
PT clinic, a healthcare platform today?
3:57
Yeah,
3:58
so in my presentations to my company,
4:00
State of the Unions,
4:01
I traditionally would show a picture of a
4:04
potato chip.
4:06
And I would say, you know,
4:07
what is it about that potato chip that
4:10
you need to scale?
4:11
Manufacturing, the size, the flavor,
4:14
the packaging.
4:15
all of those kind of things,
4:16
all of which is very true.
4:18
But you know what happens?
4:19
That potato chip will never talk back to
4:21
you, at least articulate language, right?
4:24
And oftentimes,
4:25
we've been running health care like we've
4:27
been running potato chip factories,
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or in the case of Adam Smith,
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like we've been manufacturing pins and
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we're not.
4:35
Smith's pin factory is the argument for
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specialization in the division of labor.
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Break the task into simple assigned steps
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to a specialist or a subject matter
4:45
expert, watch the output explode,
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and it works brilliantly for pins.
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The problem is that healthcare borrowed
4:53
this logic and it applied it to a
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relationship intensive work.
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In healthcare,
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we're in the relationship business.
5:02
That's the business that we're in.
5:04
The two things that make Smith's model
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work,
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standardization and interchangeability,
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for lack of a better word,
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are exactly the things that erode
5:13
clinical value.
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Now,
5:15
I'm not talking about standardization of
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clinical treatment protocols and the
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science of evidence.
5:19
I'm talking about standardization and
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widget making and the commoditization of
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doctors, PTs, dentists,
5:25
and thinking they're interchangeable parts
5:28
like widget makers.
5:30
PIN doesn't care which worker touched it
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on step four,
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but your patient absolutely cares which
5:36
clinician they saw on visit number three.
5:39
Continuity is the product of a
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relationship business.
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It's the therapeutic mechanism is the
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tacit business of healthcare.
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It's not a sentiment that's actually
5:50
supported by the way by the outcomes.
5:53
So when we apply a factory logic to
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a clinical environment,
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when we start thinking about thorough put,
5:59
interchangeable providers,
6:00
optimization of schedule density,
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we get efficiency metrics that look great,
6:05
but outcomes that quickly and quietly
6:08
deteriorate.
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And that's when we're surprised.
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It's why I think the number one metric
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in health care is how many of your
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new patients are former patients,
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friends and family,
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because it forces you into the
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relationship counting rather than in
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counting.
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Adam Smith, by the way, was a genius.
6:25
He just wasn't writing about PT or dental
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hygiene or primary care.
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And people, you know,
6:30
running a lot of these platforms and this
6:32
private equity emphasis and this board
6:34
emphasis on, oh,
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we got to get to scale.
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We got to run off founders and run
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off people because they're interchangeable
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to the commodity driven widget making PTs
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that we need to put in place.
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And that's what tends to happen.
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And that's been what I've seen in my
6:48
experience.
6:49
Yeah, you make this distinction,
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and maybe the real estate example applies.
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The difference between scaling a
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footprint, pins in a map,
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and scaling a model.
6:59
These two things are not the same,
7:01
but one looks good on a spreadsheet or
7:03
a heat map in a pitch deck.
7:05
So what's the difference?
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Let's draw a line between these two.
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And where do most healthcare platforms get
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that wrong?
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One looks pretty,
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and one's actually profitable and
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productive.
7:16
That's right.
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We tend to,
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the fundamental issue with scale is we
7:20
tend to want to get things more
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comfortable and more easy to measure.
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A footprint is easier to measure.
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Model is hard to verify,
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so guess which one gets tracked.
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And things that are difficult and things
7:33
that don't make it easy
7:35
because by nature they can't be scaled is
7:37
where we make that leap and that mistake.
7:41
Scaling a footprint means opening
7:43
locations, signing leases, hiring staff,
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putting your logo on the door.
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You can count that.
7:47
You can put it on a slide.
7:49
The photography of ribbon cuttings looks
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wonderful, right?
7:53
But scaling a model means that the things
7:55
that worked in one location
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is actually what's working in location.
8:00
And that is all around culture,
8:02
the accountability structure,
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the results oriented work environment that
8:06
you do,
8:06
the day-to-day decisions that you entrust
8:08
people at the level,
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most closest to patient care to make the
8:12
way a manager handles difficult
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conversations on a Tuesday afternoon,
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those things do not lend themselves well
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to photography.
8:20
They're harder to verify.
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And so most platforms operate around
8:24
trying to
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normalized comfort rather than what they
8:28
should be normalizing,
8:29
which is discomfort.
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What happens instead,
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you open location number twelve,
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you staff it,
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you give the manager a manual and a
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login to reporting dashboard,
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and you call that replication.
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What you've actually replicated is the
8:43
container,
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the thing that makes the original work,
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the judgment, the culture,
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the clinical relationships,
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the informal leadership that develops over
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time.
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That takes years to develop,
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and it relies on retention.
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It relies on leadership.
8:56
And you can't franchise it with an
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onboarding checklist.
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You just can't.
9:00
Platforms that go sideways almost always
9:02
expanded faster,
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not necessarily in de novos.
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It could be,
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but it could also be an M&A.
9:08
And their management depth couldn't
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support it.
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Or they ran off their managers because
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they were trying to scale and build for
9:13
an exit, you know,
9:15
and get a better transaction multiple at
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the end.
9:18
You know,
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they built the shell faster than they
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built the soul.
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And by the time the metrics flagged it,
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the damage was already structural.
9:27
And then you get what's happened over the
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last several years,
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which is post-COVID shortages,
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high interest rate, inflation,
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a much more difficult operating
9:37
environment that not only can't scale
9:40
well, is more dependent on retention,
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more dependent on being a destination
9:44
employer with a high culture.
9:46
And that's why you've run into the
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problems that you have in healthcare right
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now.
9:51
And some people might look at some of
9:52
the things that you're writing or hear
9:54
some of this and say that you're
9:55
anti-scale.
9:56
So to be clear,
9:56
you're you're not anti-scale,
9:58
but you're saying some of the things scale
10:00
really well and some don't.
10:02
So what parts of health care businesses
10:06
should be scaled and what parts absolutely
10:09
should not?
10:09
I think if people are paying attention,
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they're saying care decisions and the
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things that the very the humanness.
10:14
But what parts should and should not
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absolutely be scaled?
10:18
No, you're exactly right.
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I'm not anti-scale at all.
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I'm just also not anti-delusional.
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And I think you always have to rethink
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concepts and metrics.
10:28
It's when you become so familiar that
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familiarity bias is when you get ruined.
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So some things in health care absolutely
10:35
scale well.
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I like to think about it as what
10:37
are the non-patient facing things,
10:40
so a technology infrastructure.
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your EMR, your billing system,
10:43
your scheduling platform,
10:45
all your compliance architecture,
10:47
that scales really well.
10:49
Operational protocols, credentialing,
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payer contracting, supply chain,
10:53
training frameworks,
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concepts around training, the curriculum,
10:57
for example,
10:58
clinical standards that you try to deploy
11:00
and make people think about the evidence
11:03
to guide them.
11:06
Those are really genuine leverage points,
11:08
build them well, scale them aggressively.
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But here's what doesn't scale clinical
11:12
judgment,
11:13
the capacity of a therapist or a dentist
11:16
or a physician to read a room,
11:18
to empathize and to bring compassion,
11:22
to adapt to a patient,
11:24
to decide what needs to be flexed today
11:26
or prioritized.
11:27
You could train for it,
11:28
you can systemize it into a workflow and
11:31
call it done, but it's really,
11:33
really difficult to scale because it
11:35
relies on trust,
11:37
which doesn't scale automatically.
11:38
Trust between a patient and their
11:40
clinician, their manager, the frontline,
11:42
how they operate, I have your back,
11:44
all those environmental things does not
11:46
scale.
11:46
It gets built locally over time and
11:48
repeated through interactions in time and
11:51
experience.
11:52
You create an environment and conditions
11:54
for it,
11:54
but you cannot mandate it from the home
11:57
office.
11:59
Culture,
12:00
probably the biggest thing that can't
12:02
change.
12:02
It's the one thing that kills platforms
12:04
when they get it wrong.
12:05
Culture doesn't travel in a memo,
12:07
it travels through behavior and actions.
12:11
How leaders act when it's inconvenient.
12:13
How leaders act when their direct report
12:15
or their supervisor isn't in the room.
12:19
What gets rewarded and what gets tolerated
12:21
in your culture?
12:22
That's the way I think about it.
12:23
When you grow faster than your culture
12:26
transmission mechanism,
12:27
you get a diluted culture.
12:30
And you get a vacuum that fills with
12:31
whatever's locally available.
12:33
Sometimes it's fine.
12:33
Oftentimes it's not.
12:34
And what I see is they bring these
12:36
sort of professional managers in and they
12:38
talk about culture,
12:39
but what their culture is, you know,
12:40
their reward is their stock and when I
12:43
can get an X transaction,
12:44
what my multiples are going to be and
12:46
how much EBITDA I've got.
12:48
And that just blows the doors.
12:51
It is the,
12:51
if you put that in a Petri dish
12:53
with culture, it destroys it.
12:55
Scale the systems,
12:56
but protect the things that make the
12:58
systems,
13:00
worth running yeah that was that phrase
13:02
that you said a minute ago you replicated
13:03
the shell you diluted the soul what does
13:06
that look like what's the Canary in the
13:08
coal mine what are the what are the
13:10
leading indicators as you had said before
13:12
what does it actually look like in a
13:13
clinic when it's happening real time so
13:15
maybe you could put the brakes on it
13:17
you know it's interesting because it's the
13:20
antithesis of it that you would notice but
13:22
when it is going well
13:25
It looks incredibly normal.
13:27
That's the terrifying part.
13:28
The clinic opens on time.
13:30
The software works.
13:31
The signage is right.
13:32
The intake forms are all in their place.
13:34
Someone did their onboard training and
13:36
their orientation.
13:37
There's a manager who passed the sort of
13:39
hiring screen through the talent
13:41
acquisition group.
13:43
And then six months later,
13:46
small things start accumulating.
13:48
The manager's making a decision based on
13:50
what they think corporate wants to hear,
13:52
not what the floor actually needs,
13:54
not what the bell in their head is
13:56
telling them is the right thing to do.
13:58
Staff ask questions and get directed to
14:00
the policy document instead of a person
14:02
who knows them.
14:04
A clinician who's senior has a concern
14:06
about the patient care volume and they
14:07
raise it.
14:08
They get a pleasant non-answer and they
14:10
stop raising it and say,
14:11
we are trying to optimize.
14:13
The front desk coordinator is doing the
14:15
job of three people.
14:16
Nobody at the regional office is paying
14:18
attention to what they really should be
14:20
doing,
14:20
which is how do I take more water
14:22
away from them or take more problems,
14:24
more tasks away for them.
14:25
Patient waiting time, dropout,
14:27
people start not caring.
14:31
And that's the thing that's hard to notice
14:32
because it's an intangible, right?
14:35
Nothing's on fire,
14:36
but the thing that made the location work,
14:38
the trust,
14:40
the clinical confidence that someone in
14:42
leadership has actually understood,
14:43
the vibe, if you will, what's going on,
14:46
the ability of people to just want to
14:47
go there and hang out.
14:49
None of that starts to, you know,
14:50
it all goes awry.
14:52
And it's replaced by process,
14:54
which isn't nothing, but it's not enough.
14:55
And so the soul is the judgment
14:58
that sits above the protocol.
15:01
Would I do this?
15:02
Is it the right thing to do?
15:04
Would my mother be proud of it?
15:05
All of those things start to happen.
15:07
And the shell is the protocol itself.
15:10
You can replicate the protocol in a week.
15:12
The judgment takes years and develops,
15:15
requires mentorship to transmit.
15:18
And really most scaling plans,
15:21
they just don't have a plan for that.
15:24
People will say, and I've heard this,
15:25
especially in physical therapy, right?
15:27
If we don't scale, we die.
15:28
If we're not getting stronger,
15:30
we're atrophying.
15:31
So how should people think about growth if
15:35
more locations or just scale it isn't the
15:38
answer?
15:39
The premise has a ring of truth to
15:42
it.
15:42
And mostly after time,
15:45
people use that as an excuse.
15:47
So yes,
15:47
staying small certainly isn't
15:49
automatically safe.
15:51
Market shift, payer dynamics change,
15:53
labor costs rise.
15:55
technology right now and use of AI and
15:57
all these things creates all kinds of
15:59
pressures, including competitive pressure.
16:01
There are real forces that require growth
16:04
to respond to.
16:04
I'm not going to pretend a ten clinic
16:06
PT company is immune to what's happening
16:08
in the industry right now.
16:09
But scale or die is often deployed as
16:12
a thought terminating cliche.
16:14
It forecloses the actual question,
16:16
which is what kind of growth,
16:17
at what pace,
16:19
and at what preconditions are we going to
16:22
do?
16:22
What are we going to stand for?
16:24
And what are we going to,
16:25
at the end of the day,
16:26
be proud of?
16:28
The answer I'd offer is this,
16:31
grow from strength, not FOMO.
16:34
The platforms that survive,
16:35
and I mean genuinely survive and thrive,
16:38
they not just stay alive long enough for
16:40
recap,
16:41
they're the ones that added locations when
16:43
the existing ones were operationally
16:45
healthy.
16:45
When the management bench was deep enough
16:47
to absorb another site without diluting
16:50
supervision.
16:51
when the culture was strong enough to
16:53
transmit its leadership and action.
16:55
The ones that fail open locations between
16:57
seventeen when locations nine and twelve
16:59
are still struggling because that's what
17:01
their capital had available and that's
17:03
what their board deck said that they were
17:04
going to do.
17:04
That's what their growth committee said.
17:07
Its managers form way too many committees.
17:10
And they try to build consensus through
17:12
committees that nobody knows who's on
17:13
them.
17:14
And the pressure from the board is very
17:16
real.
17:17
And that creates even more dysfunction.
17:20
That's not a strategy.
17:21
That's like a momentum with no steering
17:24
wheel.
17:24
So organic growth during periods when your
17:27
existing platform is under stress is not
17:29
growth.
17:30
It's distraction that looks like ambition.
17:32
What I mean by organic growth there is
17:34
the de novo M&A side,
17:36
not true organic or same store growth.
17:39
You tease part two in this series,
17:42
what actually can't be scaled,
17:43
but I'll ask it now and you can
17:44
give it away a little bit or a
17:45
lot.
17:46
What are the one or two things in
17:47
healthcare that no matter how big you get,
17:49
you have to protect at all costs?
17:51
You've teased a few of those today.
17:54
If I was boiling it down to two,
17:56
Jimmy,
17:56
I would say clinical sovereignty and
17:59
management presence.
18:01
Clinical sovereignty,
18:03
and I'm just starting to play with that
18:04
idea in a more conceptual framework,
18:06
is the idea that the clinician is in
18:07
the room.
18:09
that they're the one actually that
18:10
delivering care.
18:10
They're the priority.
18:12
They're the centric of which the sun,
18:15
you know,
18:15
the center which the sun rolls around.
18:16
And so they have to have meaningful
18:18
authority over clinical decisions and they
18:21
have to have decision rights about things
18:23
that matter over time.
18:25
The moment that authority, you know,
18:27
migrates upward to a regional VP,
18:29
for example,
18:30
optimizing for utilization or a finance
18:32
team, you've broken a value proposition,
18:35
you know, not metaphorically,
18:36
but literally.
18:39
This is an anti-management, by the way.
18:41
It's a pro model.
18:43
The clinical relationship is the asset.
18:45
If you structure your organization in a
18:46
way that erodes clinical judgment in favor
18:48
of productivity or compliance,
18:50
you're liquidating your own equity.
18:53
Come on.
18:55
There we go.
18:56
All right, we'll redo that one.
18:57
So you're teasing part two in this
18:59
two-part series,
19:00
what actually can't be scaled.
19:02
But I'll ask it now,
19:03
if you had to boil it down to
19:05
one or two things in healthcare that off
19:08
limits, no matter how big you get,
19:10
you have to protect at all costs or
19:12
else.
19:13
Yeah,
19:13
the concepts that I'm articulating around
19:17
this are really two,
19:18
and that is clinical sovereignty and
19:21
management presence.
19:23
So clinical sovereignty is this kind of
19:25
concept that you're always mindful of the
19:28
clinician in the room,
19:29
that they are the centerpiece.
19:32
They're the one delivering the care and
19:34
they have to have obviously authority over
19:36
clinical decisions,
19:37
but they have to have decision rights over
19:39
many other decisions day to day.
19:41
You can't scale all decision making.
19:43
When you try to do that,
19:45
you really impugn clinical sovereignty.
19:47
So the moment the authority kind of
19:49
migrates upward to a regional VP,
19:52
they're responsible for making that
19:54
decision for optimizing utilization or you
19:58
defer it to a finance team.
20:00
You really start to break that value
20:02
proposition of this clinical sovereignty,
20:05
literally.
20:05
And so you're now producing a different
20:07
product than your marketing.
20:08
The patients, by the way, feel it.
20:11
You have to have, you know,
20:12
patients want their provider to have this
20:16
aura about them that is not just,
20:19
you know, over clinical,
20:20
but it's almost like they want the
20:22
Superman complex.
20:23
It really reinforces the comfort and the
20:25
trust relationship.
20:26
you know, that you have.
20:27
So you kind of build, you know,
20:29
this pro model around it.
20:31
And I would say the other one is
20:32
management presence.
20:34
And I mean presence in the literal sense,
20:36
leaders who are physically and
20:38
relationship-wise close enough to the
20:41
floor, what's actually happening,
20:43
not dashboards, not regional calls,
20:45
not people who are working remotely.
20:47
What I see in a lot of these
20:48
platforms now is the clinicians are all
20:51
working day-to-day and the clinician is
20:53
and the so-called you know job hopping
20:54
professional managers who've never had any
20:56
success they're working from their home
20:58
and they brag about it and you know
21:01
i think if you looked at one question
21:02
you could have in a healthcare company is
21:05
do people show up in an office every
21:06
day we fundamentally believed in my roles
21:11
that you have to show up because your
21:13
clinicians have to be there every day
21:16
And that is a symbolic thing.
21:18
And so you could almost judge
21:19
organizations.
21:20
And what I see in private equity is
21:21
they default to, well,
21:22
the whole world has gone to remote living.
21:24
So we're going to allow our CEO to
21:26
live in Texas,
21:27
even though their headquarters is in
21:28
Missouri.
21:29
You know,
21:30
those kinds of little things start to
21:32
become,
21:32
you start to normally accept all these
21:35
little no-nos that ruin culture and ruin
21:38
sovereignty and ruin presence.
21:41
I feel like if there's one thing to
21:42
take from this conversation, it's this.
21:44
Scale doesn't necessarily create strength,
21:46
but it might reveal strength or reveal
21:49
where the weakness actually is.
21:52
I think you have to have a mantra
21:54
around or a philosophy around what you're
21:56
going to scale and what you're going to
21:58
say no to.
21:58
Companies are typically not...
22:01
know legendary by what they say yes to
22:03
it's what they say no to i would
22:05
say the same thing about good leaders and
22:06
good managers what do you tolerate what do
22:08
you tolerate is a fundamental cultural
22:10
question culture is the driver of all
22:12
these other things and you know there's a
22:14
really really profound business strategy
22:18
concept that says you know strategies that
22:20
are very very difficult to imitate are a
22:24
source of sustained competitive advantage
22:27
if it's difficult to imitate it's really
22:29
difficult
22:31
For somebody that allows you to sustain a
22:33
very, very flourishing, you know,
22:36
above normal economic performance culture,
22:40
which is really difficult even for a lot
22:42
of organizations to define,
22:44
becomes the source of competitive
22:45
advantage because your others can't
22:47
imitate it.
22:48
And yet at the same time,
22:50
you recognize it in part of how you
22:52
recognize the actions,
22:53
thoughts and the way you behave around
22:55
each other and all your ways you support
22:57
your mission,
22:58
your vision and values is what you're
23:00
willing to tolerate and what you're not
23:02
willing, your ability to say no.
23:03
And I hope organizations try to scale
23:06
everything out under the mistaken belief
23:09
that a humanoid
23:11
is much better than, you know,
23:14
somebody who's able to make decisions.
23:15
I'm seeing the same thing around AI
23:17
decision-making right now.
23:18
I mean, the number one thing,
23:19
this is going to be a subject of
23:20
upcoming articles, Jimmy,
23:21
is the frame or the lens for use
23:24
of AI in an organization of a healthcare
23:26
complexity ought to be,
23:29
what am I doing AI around that allow
23:31
my human, my provider to be more humane?
23:36
that's the framework that you ought to be
23:37
prioritizing in your AI spec,
23:40
not some shiny new object that does a
23:42
little bit of efficiency.
23:44
See these same type of mistakes,
23:46
whether it's a new technology or something
23:48
brand new, like an evolving, like AI,
23:51
all beget the same problems that started
23:53
years ago when you are looking at
23:55
something from the long lens and long
23:57
framework of that clinical, again,
24:00
sovereignty is what I like referring to it
24:02
as.
24:02
Yeah, and in healthcare,
24:03
the product itself is trust and
24:05
relationships and outcomes, as you said,
24:07
and suggesting someone to your own
24:11
grandmother,
24:11
you don't get to hide behind growth for
24:13
very long if those things are eroded.
24:15
That's exactly right.
24:16
So if you're building, leading,
24:17
or thinking about joining a platform,
24:18
the real question isn't how fast can we
24:20
grow?
24:21
It sounds like it's,
24:22
are we building something that deserves to
24:25
grow?
24:26
If you want to go deeper,
24:27
Larry's full article is in his sub stack,
24:30
The Operator.
24:31
It's also linked below.
24:32
And if this hit a little too close
24:33
to home, good.
24:35
That's sort of the point.
24:37
Larry, thanks for the time.
24:38
Thank you, buddy.
24:40
All right,
24:41
did you have time to try a couple
24:42
of those phoners?
24:44
Some of the, like, you know,
24:45
we'll do some mock first time.
24:48
I'll essentially read a question and act
24:51
like someone wrote it in.
24:53
Okay, great.
24:53
I didn't, yeah, I didn't look at those,
24:55
but I... These are all pretty, like,
24:58
we'll start... I don't need to.
24:59
I like talking in separate...
25:01
I like stealing formats from people.
25:04
So there's a woman who's got a massive
25:06
following and all she does is...
25:08
like IEPs and education plans.
25:11
And every year there's another group of
25:13
million moms and dads who are like,
25:15
what does this mean?
25:16
And all she does essentially is her
25:18
assistant just raise her questions.
25:19
And then she just sort of answers for
25:21
five seconds, and then it's,
25:23
that's how she grew her audience.
25:25
No, I love it.
25:26
So we'll treat it like that.
25:27
All right.
25:29
I'm doing two and a half million dollars
25:30
a year, decent margins, but I feel stuck.
25:34
What's the real bottleneck at that level
25:36
that no one talks about?
25:38
Yeah, so in health care,
25:40
there are certain thresholds that you get
25:41
to that you stagnate for a while until
25:45
you break through them.
25:46
And they can start, actually,
25:47
I think in health care,
25:48
they started a half a million in physical
25:50
therapy,
25:50
in part because that's about what the
25:52
average physical therapy clinic does,
25:54
which is about two clinicians,
25:55
each clinician billing about two hundred
25:57
seventy five.
25:58
thousand dollars a year.
25:59
So the way I think about it is
26:01
you get stuck when your number of
26:04
clinicians has reached sort of its max
26:06
revenue.
26:07
What's the breakthrough?
26:08
Then you have to go to a hiring
26:10
system, a talent acquisition process,
26:11
become a destination employer around
26:13
hiring more headcount of that particular,
26:16
whether it be dental hygienists or
26:17
dentists.
26:18
And so that's the way I think of
26:19
breakthroughs.
26:20
We see the same thing in the large
26:21
corporate world when you go from five
26:23
million of EBITDA to twenty.
26:25
In the physical therapy world,
26:26
once a company has gone through a hundred
26:28
million of EBITDA,
26:29
they tend to not only stall,
26:30
they tend to go backwards historically.
26:33
But that's how I think about it is
26:34
the thresholds typically related to
26:36
headcount.
26:37
At that threshold,
26:37
you need a talent acquisition system.
26:39
When you get the next threshold,
26:41
it's probably you need to refine your
26:43
payer, you know,
26:44
contracting and negotiation system.
26:46
When you get to the next one, multi-site,
26:47
you might need to normalize the same EMR,
26:50
credentialing purposes, those.
26:52
You try to bring a little bit of
26:54
scale in the right way once you get
26:57
to certain thresholds.
26:59
Next question.
27:00
It's in hiring.
27:00
I can't tell if I have a hiring
27:02
problem or a culture problem.
27:05
How do I spot the difference?
27:07
Yeah.
27:07
So you have a hiring problem based on
27:10
the percentage of turnover or said
27:12
positively, how many of the therapists,
27:15
doctors,
27:15
whatever you retain at the one year point.
27:18
And I'll tell you why that occurs.
27:20
The dirty little secret,
27:21
whether it be a physical therapist or a
27:22
dentist, is that the average new graduate,
27:26
new dentist, new doctor,
27:27
new therapist stays on their first job
27:29
less than a year.
27:30
So that would imply a hundred percent
27:32
turnover at the end of the year.
27:33
Well, of course,
27:33
nobody's going to have a hundred percent
27:35
turnover.
27:36
And so you have a hiring problem if
27:39
you are finding that the majority of your
27:41
folks, more than fifty percent,
27:42
are leaving the organization within nine
27:45
months or at the end of the year.
27:46
Then you have to look at what are
27:47
the proprietary insights?
27:49
Is it a compensation issue?
27:50
Is it an onboarding or a training or
27:52
a mentorship issue?
27:54
Or is it because they moved and had
27:56
other things going on?
27:58
That will lead you to tell you whether
27:59
you have a hiring problem or a culture
28:02
benefit retention problem.
28:03
They're very, very,
28:05
very different kind of things.
28:07
Okay.
28:08
If you had to be honest,
28:09
when does selling actually make sense?
28:12
And when is it just an ego move?
28:15
Yeah,
28:15
I think there are a number of parameters
28:17
or concepts around when you should sell.
28:19
The first and foremost is we tend to
28:21
in small business, any small business,
28:24
whether it's a dry cleaning store or a
28:25
healthcare platform,
28:27
tend to get over-invested in our own
28:29
business.
28:29
Over-invested meaning that we have the
28:31
majority of our personal worth laid out in
28:33
that investment.
28:34
So a diversification theme and strategy to
28:37
say,
28:37
I need to have some money in the
28:38
market.
28:39
I need to have some money in bonds.
28:40
I need to have some money in my
28:41
real estate portfolio.
28:42
I need to have some money in my
28:43
business.
28:44
If you are overly lopsided at some point
28:46
in your career,
28:47
that would lead you to sell.
28:49
A second reason would be around the area
28:53
of where your dream and your roadmap is.
28:56
Most folks start to sell.
28:58
That's a good reason.
28:59
When you've exercised your ability to
29:01
self-fund or bring in your own financial
29:04
resources to continue to fund your dream
29:06
and your operation or your dream,
29:08
and your vision have reached a plateau and
29:11
you don't have the risk tolerance or the
29:13
profile to go on that would be a
29:15
reason to sell a third would be what
29:17
the market dictates so there are times
29:19
when opportunistically uh you can take
29:22
chips off the table and have that be
29:24
a very very positive thing for you
29:25
especially if it was like reason number
29:27
one where you're able to then diversify
29:29
that portfolio um and then the last piece
29:32
is if it's ruining your life health-wise
29:35
I know so many business owners.
29:37
I used to see in my early career,
29:40
lots of private practice PTs, for example,
29:42
do so much volunteer work in their
29:44
professional association or in their
29:45
community that they
29:48
ignored their business.
29:49
But the flip side of that is also
29:51
true.
29:51
If you were spending so much time in
29:53
your business, you know,
29:54
if your resting heart rate in the morning
29:56
is eighty and your blood pressure is up
29:58
and your values are not good,
30:00
it's not worth it.
30:01
You know,
30:01
there are plenty of opportunities.
30:03
And so you have to look at,
30:04
is it impairing your ability to be a
30:06
parent, a spouse, your health, your,
30:09
you know, your brain,
30:11
all of those kinds of things,
30:12
your mindfulness.
30:14
All of those things matter.
30:15
And if that is the case,
30:16
these things are meant to engage you,
30:18
liberate you, and allow you to flourish,
30:21
not allow you to decline.
30:22
So I would put that in the last
30:23
category.
30:26
Two more.
30:29
What's a metric clinic owners obsess over
30:32
that actually doesn't matter?
30:35
I would say visits.
30:37
Yeah,
30:38
what I see is you can either obsess
30:39
over the amount of new patients you want
30:41
or obsess over the number of visits that
30:44
you have.
30:45
Both are bad.
30:46
Both will lead you to awry.
30:47
If you're only getting visits and not
30:49
throughput of new patients,
30:51
you're going to eventually oversee your
30:53
patients with too many visits.
30:55
The flip side of that is,
30:56
and we've talked about this before,
30:58
if you obsess over new patients,
31:00
you might be not taking advantage of the
31:02
patients that are already in the door.
31:04
So either extreme is neither good.
31:07
And I see most PTs obsess over the
31:10
extremes.
31:11
It's the moderation that usually wins in
31:14
that example.
31:15
Last question is a leadership question.
31:17
Larry,
31:18
what's something you believed as a CEO ten
31:20
years ago that now you think is completely
31:24
wrong?
31:25
Yeah,
31:25
I believed at one point that great
31:30
clinicians can become great managers.
31:33
I also believe that to be true today
31:36
with the exception that I'll go into in
31:37
a second,
31:38
meaning that your skills as a clinician,
31:40
diagnosis, evaluation, people, compassion,
31:43
empathy, high quality connections,
31:45
transport themselves really,
31:47
really well to a manager and to a
31:50
leader.
31:51
Where I was wrong was the assumption that
31:54
every clinician wanted to become a leader
31:56
or a manager.
31:58
And the reality is, guess what?
32:00
you know, PTs, doctors,
32:02
dentists want to become managers,
32:04
a smaller subset than the number there are
32:06
clinicians.
32:08
And so I made mistakes by pushing people
32:10
who are such great clinicians into
32:11
management and leadership when the reality
32:13
is in our models,
32:15
we found that only twenty percent even
32:17
wanted to be.
32:18
So then you take those twenty percent,
32:20
you apply more training, you know,
32:21
more education and more framework around
32:24
them.
32:24
And so the mistake is to think that
32:26
everybody wants to be an owner.
32:27
Everybody wants to be a leader in that
32:29
clinic.
32:29
Everybody wants to be a manager.
32:30
And by the way,
32:30
there's absolutely nothing wrong about the
32:33
eighty percent that want to become
32:34
clinicians.
32:35
They become great mentors.
32:36
They become great leaders of fellowship
32:38
and residency programs.
32:39
They become master clinicians.
32:41
They get all kinds of initials after their
32:42
last name.
32:43
They have brilliant careers and they make
32:45
good money.
32:46
Well done.
32:47
Yeah,
32:47
I think I'll frame these as like ask
32:49
Larry and I'll use these separately from
32:52
from