In the ever-changing dental industry, the big seem to be getting bigger.
Is there still room for the “little guy?”
by Bill Fitzpatrick
Have you noticed in the last few years how the dental industry has become a global focal point for investments, mergers, and acquisitions? It’s difficult to miss it. Large non-dental corporations are acquiring market share leaders as a platform for strategic expansion. Huge private equity firms, eager to find a home for their growing war chests, are bidding aggressively for a seat at the dental table while corporations already entrenched in the dental industry eagerly pursue the same targets.
All of this competition is increasing the cost of getting into the dental business. Today, we are seeing companies being purchased based on multiples of earnings previously unheard of in our industry. Where will it end ... and what will become of the hundreds and hundreds of entrepreneurial companies that still dot the dental landscape? Can the entrepreneurial business owner survive in a world where the big keep getting bigger, and strategic alliances among the giants are creating new barriers to distribution for smaller privately-held companies?
The entrepreneur, as an institution, will always survive because entrepreneurship is a perpetual catalyst for product innovation and economic development. However, some entrepreneurial companies in the industry probably will not.
Here’s the entrepreneur’s dilemma - for business owners who have been successful, like many in the dental industry, there is a natural tendency to continue doing things the way they’ve always been done. Why change what’s working? However, in today’s evolving business climate, relying on the “status quo” to compete with corporate giants can be a risky business strategy.
Big corporations have clear advantages - trained managers, sophisticated strategy, large budgets, and lots of horsepower. With their broad product lines and seemingly endless resources, large corporations can bundle products into attractive promotions, create lucrative dealer rebate programs, and increase efficiency through economies of scale.
However, “bigness” is not without its challenges, and herein lays the opportunity for the entrepreneur. Corporate giants can be rigid in their thinking, unable to respond quickly to changing trends and unwilling to entertain feedback that is contrary to a plan that is already in motion. Big ships turn slowly!
To survive and prosper, the small business owner has to adapt his or her thinking to the ever-changing environment. The days of simply “making stuff and selling stuff” are rapidly coming to an end. Today, it takes vision, strategy, and a relentless focus on what’s going on in the marketplace, especially what’s going on between your competitors and channel partners.
The first critical step for the private business owner who wants to thrive in the “new game” is to spend less time doing and more time thinking. By far, this is the most difficult transition for an entrepreneurial business owner to make. Entrepreneurs are natural doers, and their response to every challenge is to work harder and run faster. The problem is that no one can outrun the predictable catastrophic results of poor strategy - or worse, no strategy. Enthusiasm and hard work aren’t enough, and wishful thinking isn’t a strategy.
To initiate the strategic process, begin with a vision for your business and develop a clear picture of what you’d like your company to look like over the next three years. Be specific about products, revenue, profitability, distribution channel, market share, and image, then select the strategies that will get you there, and build your business structure and marketing plan around them.
In his book “Competitive Strategy,” Michael Porter defined the three categories into which all conceivable strategies will fall - differentiation, focus, and price. It’s not uncommon for a company (or a product) to rely on more than one type of strategy, but it’s rare that a company can be built around all three. For example, the technological leader (striving for differentiation) can almost never be the lowest cost producer of goods. The converse is also true. The low-cost competitor (building market share based on price) isn’t about innovation, and he or she is not going to invest a dime in research and development.
If your management team has never done strategic planning before, they’ll probably need some guidance the first time around. Development of effective strategy requires a comprehensive understanding of the strategic process itself, and demands a measure of unemotional detachment that is rarely found inside an entrepreneurial culture.
There are, however, resources that are available to the private business owner:
• Establish an “advisory board” comprised of experienced executives from inside and outside the industry. Don’t select close friends! People who care about your personal feelings generally don’t make good advisors.
• Seek counsel from colleagues in the industry who have worked in more sophisticated corporate environments. They will most likely be able to guide you through the strategic planning process and offer their own unique insights along the way.
• Seek the assistance of professionals who specialize in the development of winning strategies. They have the skills to facilitate creative dialogue and the objectivity to challenge long-held beliefs about your business that might no longer be valid.
The infusion of new competition in the dental industry is a positive development. It motivates all of us to become better at what we do and inspires us to higher levels of achievement - but it also adds risk to the equation.
In the history of the dental industry, there has never been a more competitive business environment. Today’s corporate executives are skilled strategic thinkers. They are not simply participating in the dental marketplace; they’re redefining it.
Can entrepreneurial business owners survive in a market that is so strongly influenced by big corporate strategy? They can if they understand that in order to compete with strategy, they have to have a strategy. Hard work by itself won’t carry the day.
The influx of new competition is a healthy trend. It stimulates creative thinking and encourages business professionals to learn new skills. It’s a time of opportunity for entrepreneurs, a time when they can scan their environments, cultivate strategic discipline, and reinvent themselves and their companies.
Entrepreneurs are natural-born activists, known for their “can-do” attitude, creativity, and persistence. Those who implement winning strategies will not only survive the uncertainty of today, they will position themselves to become the market leaders of tomorrow.
Bill Fitzpatrick is president of Fitzpatrick Management Resources (FMR), a consulting firm that specializes in developing winning strategies for dental manufacturers and service providers. FMR consultants work hand-in-hand with their clients to analyze their businesses and create unique marketing strategies that increase sales, expand market share, and strengthen dealer support. Fitzpatrick Management is located in Charlotte, N.C., and may be reached at (704) 542-2685 or [email protected].
