practice | MANAGEMENT
Dental practice MoneyBall: How to uncover undervalued dental practices By Simon Palmer
“Most dental practice buyers are using the same metrics as other buyers to judge quality practices. These metrics take far too narrow a view of the available data and have blind spots and biases that let quality dental practices slip right past them...”
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n 2002, Billy Beane, the general manager of the Oakland A’s baseball team, was faced with the departure of star players and a limited budget to replace them. He realised that if he was going to look for players using the same metrics as all the other teams, he was going to find the same players as every other team and be outbid every time. His solution was to find and use new metrics (aka Sabermetrics), in order to find underappreciated and affordable players and create a winning team from them. Using these new metrics, the Oakland A’s were able to recruit a team that brought them to the playoffs in 2002 and 2003, with a third of the budget of their competitors. If the story of how Billy Beane revolutionised how baseball players were
88 Australasian Dental Practice
valued seems familiar, it’s because it was made into a book and a movie (starring Brad Pitt in 2011), called “Moneyball”. A nice story... A good movie... But what does all this have to do with buying dental practices? The central premise of Moneyball is that the metrics of baseball, used by insiders to rate players, missed some fundamental value that allowed great players to slip through and go unnoticed by recruiters. In my experience, many dental practice buyers are making a similar mistake with how they are assessing practices. Most dental practice buyers are using the same metrics as other buyers to judge quality practices. These metrics take far too narrow a view of the available data and have blind spots and biases that let quality dental practices slip right past them.
Buyer blind spots n order to assess the future financial prospects of a practice, most buyers will focus primarily on its historical performance. While this is extremely important... it is only important in so far as it informs future profit and revenue. If I launched the two practices shown in the table for sale at the same time, “Practice A” would get more enquiries and higher bids from buyers every time, as most buyers’ analysis will focus purely on historical trading and only use the first three rows of the table as inputs. I believe this buyer preference and method of assessment highlights some rather large blind spots in dental buyers’ views of practices:
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March/April 2022
