Dr. Erica Person: Lessons from Two Decades in Hearing Healthcare

Craig Castelli (00:04):

Welcome to The Close M&A Podcast with Caber Hill Advisors. I’m your host, Craig Castelli. Today our guest is Dr. Erica Person, founder of Flex Audiology in the Cincinnati, Ohio area. Erica, great to see you again. Welcome to the podcast.

Dr. Erica Person (00:20):

Hi. Thanks for having me.

Craig Castelli (00:21):

So you founded in Flex Audiology in 2018. Tell us what was the idea and why did you think it would work?

Dr. Erica Person (00:28):

So I’m going to go backwards a [00:00:30] little bit, but I actually didn’t know if it would work. I’m one of those people that get told things can’t work and I like to prove them wrong. And so for this concept, this idea was to be more of a fee for service model. I kind of felt like that’s where the industry has been moving over the last 10, 20 years. But nobody’s really jumped on board and I thought, let me try it, see if it works, and if it didn’t, I was no worse off.

Craig Castelli (00:54):

So I’ll just ask you a question on that quickly, because in different areas of healthcare, fee for service has [00:01:00] different meanings. So just tell everybody what you mean when you say fee for service in the context of an audiology practice.

Dr. Erica Person (01:06):

Yeah, so this particular audiology practice primarily focused on hearing aids for treatment. The basic set up of most retail hearing aid practices are going to be you pay one large sum and that includes your consultation, your fitting, your follow-up care, and that follow-up care could be for three to five years. The patient never pays anything. Everything after that is free, [00:01:30] free, free. And a fee for service really seeks to break down each of the components that the patient would go through and allows them to make a decision on their own behalf on what pieces and parts that they want to partake in. So the concept, the idea is that it’s just more transparent that the patient’s more in control and then their payments kind of spread out over time. It’s not as painful.

Craig Castelli (01:58):

So it’s what some people in the industry [00:02:00] call the unbundled model, but in reality it’s just moving closer to more of a traditional medical practice where there’s itemized fees for every single service that you are opting into or opting out of.

Dr. Erica Person (02:13):

Absolutely. That’s perfect.

Craig Castelli (02:15):

Great. So by all counts, it’s been a successful seven years, you’re onto two offices, you’re still in business. What’s been most critical to your success so far?

Dr. Erica Person (02:27):

I would say the most critical is letting the business [00:02:30] evolve. I’m in a different space than my first business. I have young children got married or had to really be mindful of my time, and I know that’s a stereotype, but as a female, I wanted to be available and available for my children. I wanted to be the primary caregiver for lack of a better term. And sometimes being a business owner, there’s a struggle there. And so I made a clear decision that with this particular business, I wasn’t going to let it control me. It wasn’t going to be rigid. [00:03:00] And so it has evolved with me as I have grown, as my children have grown. I would say that that makes a lot of sense. Probably the biggest success is not letting it dictate my life.

Craig Castelli (03:14):

Yeah. Well, congrats on pulling that off. If you actually have, I feel like that’s always a tough balance to achieve. Let’s go back a little bit. You alluded to a prior practice. So in 2016, you sold a very successful practice group in Minnesota, [00:03:30] and I think I assume at least that that experience has to have shaped some of your thinking, this go around. So you touched on at least one key difference between the prior practice and this one, which is the fee for service model. What are some of the similarities between this practice and here, life or formal practice, and anything else that really stands out as a big difference besides what you’ve already touched on?

Dr. Erica Person (03:57):

Yeah, there’s very, very little that’s [00:04:00] similar. I was trying to really think through my head if there was anything similar other than myself, probably very little that’s similar. I’ve utilized some of the processes and the procedures that I did in the old business. I brought those in because they were solid and they worked really well. But I really looked at this business as being a complete opposite of my old one because I needed to be able to bring to the market and prove to the market that this model is sustainable for our profession moving forward. So key things I would say that we’re different is our target market is a lot different. [00:04:30] We’re looking primarily for patients that are on their second and third devices, not necessarily their first one. That’s key. I’m looking for patients that are primarily focused on best practices. They want to go to professionals that follow, if you’ve heard of Dr.

(04:47):

Cliff, everything that he preaches, and if you haven’t, you should look him up. We want people that really value the time and expertise of the professional, the audiologist. We’re [00:05:00] not looking primarily just get him in sale, move it on, do treatment rates. And then the other thing that our company’s a lot different is that instead of focusing just on hearing aid devices for treatment, we’re looking at a broader scope of audiology practices, incorporating APD, cochlear implants, tinnitus management. We do some pediatrics, but maybe not as big of a focus as I was before. So those are kind of the bigger differences. And then sliding that into that fee for service model has been [00:05:30] critical.

Craig Castelli (05:30):

Gotcha. I mean, a lot of really comprehensive audiology as opposed to just selling hearing aids, which I’m sure has to be challenging at times because we’re all taught that hearing aids are where you make all your money. Yet somehow you’ve found a way to build a profitable, sustainable business, incorporated all these practices.

Dr. Erica Person (05:50):

Yeah, absolutely. Everybody focuses on the widget, and I think if we went there, we could look at other industries. Everybody brings up dental, but if you think about even the car industry, I hate [00:06:00] to even go there. I don’t want to be like the bad sales person. The huge used car salesman is what we get sometimes, but those types of businesses, they make money on the service component. They don’t care so much about the cost of the actual device or the car, whatever. It’s all about the aftercare. And I will say that that’s really what helped us get through COVID, and it’s helped us get through lean months. Our industry’s down almost, I think 25% this year, and we are doing solid because [00:06:30] we have people consistently coming back for services, so we get paid. That’s

Craig Castelli (06:34):

Amazing. That’s absolutely amazing. Thinking back to when you sold the first practice, because this is an M&A podcast after all, so we have to get into that a little bit. What did you learn through the actual sale process itself, and if it has shaped your thinking today, how did that influence how you went about starting the new practice?

Dr. Erica Person (06:58):

Yeah, I remember the very first time that [00:07:00] you showed me what we were selling, and I remember thinking, wow, I want to buy this practice. But that was part of it. I didn’t really truly understand all of the different facets of selling a business. And I think that I was very blessed that I had the pieces that you were looking for to be able to package the business from a sales position. Where that’s really helped me is really realized [00:07:30] in the initial beginning. I knew I didn’t have to do all the things. I wasn’t focused on selling. Now that I’m starting to look toward the future, I understand the pieces that I have to put in place, one of which is you have to replace yourself. Much more valuable. When we were able to come to the table and the business wasn’t me and the business was about a true business, not a baby, not a child, this thing that I didn’t want to get rid of.

(07:58):

So just being able to objectively step back [00:08:00] and say, what are the weaknesses? What are the strengths? And let’s look at that, whether that is tying in your expenses, making sure your employees are on board, making sure you’ve got processes and procedures that audiology is such a, this is my child. This is something I’ve had for 20 years. I’m emotionally invested, but when you come to sell it, you can’t look at it that way. And so that’s been a huge component, at least for me moving forward. And as the business has [00:08:30] evolved, it started to say, okay, what were the pieces that were unbelievably important to me? One of which was clean financials, super anal about that. I have two locations. I’m slowly starting to think about my exit strategy. And that was the first thing that we’re actually implementing this month, is making sure that we are coding things by location to get a better sense of profitability.

Craig Castelli (08:54):

So each one can be looked at on its own two feet and not have any other intermingling [00:09:00] between the two. Yeah, that’s smart.

Dr. Erica Person (09:02):

And then also for the whoever’s purchasing it to be able to say, okay, what are the expenses that Erica brings to the table? She’s gone, what do I have left?

Craig Castelli (09:13):

Right. Right, exactly. I mean, it’s smart to think that way. I think you’re not alone in audiology in treating businesses like their one more child. We see that in just about every sector, healthcare, non-healthcare. [00:09:30] Most business owners own one business. You’re extremely unique already in the fact that you’ve sold one started another one, you’re already thinking about selling it. But that ability to, you call it detach yourself from it, I like to say just think through the eyes of a buyer. Understand clearly what somebody on the other side of the table is going to look at and going to value and take the emotion out of it. It can be worth a lot more to you than it is to anybody else. You can choose not to sell into a certain point because [00:10:00] a sale doesn’t replace the value that that business gives you year in and year out. But when you actually get to that point, understanding the other perspective, taking the emotion off the table really is fundamental to a successful outcome. I’m telling you things you already know, but that’s ultimately the reality.

Dr. Erica Person (10:15):

It’s such a good point from the standpoint of, because again, especially in our field too, we like to do everything ourselves. And I would say that I was an outlier in the fact that I wanted a broker, and I understand this is your podcast and I’m not here to just blow smoke, [00:10:30] but it was,

Craig Castelli (10:31):

And you blow as much as you want. I’ll take it off.

Dr. Erica Person (10:34):

At least for me, I am an emotional person, so being able to have you as that person that I could vent to or give you my concerns, and there are things that I share with you and you’re like, good for me to know. Don’t you dare tell anybody else this. Having that person in the corner to be able to go back and negotiate, at least for me, that was unbelievably critical. And [00:11:00] that is what I have told many of my colleagues who are looking, I’m like, I know you can quote, do it yourself. I know you can use a manufacturer, but if you can find an independent broker that is out of all of that influence, I’m like, you’re going to be far, far superior, better off. So thank you.

Craig Castelli (11:19):

Well, you are very welcome. And not to make this too much about me, but honestly, our biggest competition is not another firm. It’s the business owner who has that mentality. I can do this on my own. And oftentimes [00:11:30] they come to us when they’ve tried and failed in that pursuit and finally realized, okay, I guess there’s more to this than just knowing who might be the buyer.

Dr. Erica Person (11:40):

Yeah, for sure, for sure.

Craig Castelli (11:43):

So you talked about some of the things you’re doing to prepare for your exit. Before we get into that any further, do you have any major growth ambitions beyond what you’ve built up to this point?

Dr. Erica Person (11:56):

Yeah, and

Craig Castelli (11:57):

It’s okay if the answer’s no,

Dr. Erica Person (12:00):

[00:12:00] I do. And I’m not going to share specifics. I’ve actually learned not to. I do better if I don’t put it into the universe. I find,

(12:10):

Which is the opposite of what I probably used to do. I feel like before my old practice, I was limited in my belief lid on what I could accomplish, and I was too caught up in what could go wrong in the fear of what could go wrong. This time around, I’m much more relaxed. I [00:12:30] don’t know if that’s because I’m older, I’m more seasoned, but I’m definitely more open. I have some pretty strong growth ambitions over the next five years. I say five to 10. And part of that, again, is going to come down to how does my life evolve with my children? What do I want it to look like? And so I’m staying open to being a business owner for another 10 years, but I’m positioning myself now in case I want to sell in five.

Craig Castelli (12:57):

Gotcha.

Dr. Erica Person (12:58):

So part of that’s going to be looking [00:13:00] at what is the current trend that you actually are on my list to get a hold of anyway, what are the current trends? We don’t know what the current trends are going to be in five years, but we know that I need to start laying the foundation now if I want to even potentially sell in five years. So whether that mean multiple locations, a revenue target, those are the things that I’m starting to investigate on what’s current.

Craig Castelli (13:25):

Well, if you really can plot it out, and it really starts [00:13:30] with thinking about the type of exit that you want. So you first go round, you had a sale to a hearing aid manufacturer, they were able to come in, take things over pretty quickly. You’d set the business up so that you had the ability to exit personally pretty quickly, and you did just that and were able to relocate and here you are. So those types of deals are fewer and farther between these days. As you may know better than me, the here day manufacturers just don’t have the same appetite [00:14:00] for acquisitions. So you have some opportunities to sell to your staff. You have some opportunities to sell to other larger audiology practices who are going through acquisitions. Private equity may be an opportunity if you get really, really big. We’ve seen minimal PE in the space, but at least the big one that was in the space a couple of years ago had a wildly successful exit when they sold that business.

(14:27):

So a lot of different outcomes, and you’re [00:14:30] going to build the business a little bit differently. If you decide any one of those three pillars is buyer one A, but ultimately, without getting too long-winded here, if you have a loyal team and great doctor and staff retention, if you are growing a little bit faster than the industry, I mean, if the industry’s down 25%, I still want to see you growing. But you don’t have to be growing at crazy double digit rates. But if you’re growing [00:15:00] double the industry rate organically without adding new offices, that’s really strong. If you’re profitable and hitting profit margin targets, you’re likely going to be attractive to any one of those buyer profiles. And then at that point, it’s just a function of scale and valuation. Who’s really best positioned to write the check that you’re looking for, to be blunt about it?

Dr. Erica Person (15:21):

Yeah, I’m very much, I’m always in love with having the provider [00:15:30] purchase a location within a reasonable mentality. But I also love the idea of not necessarily trying to find one provider on staff that would want it. All right. Looking at having independent clinics and what does that look like, which goes down to making sure all the expenses are separated out and that you’ve got a good solid team in place at each location.

Craig Castelli (15:54):

Yep, yep. Exactly. Exactly. I mean, I feel like we’ve gotten into [00:16:00] a lot really heavy conversation here about the exit and the exit planning. You’re definitely thinking further ahead than the average audiologist, and you’ll have a lot of opportunities. I think when you get to that point, whether it’s five years or 10, plan for 10 be ready in five, I might steal that line actually and use that as I’m talking with other people. This very topic,

Dr. Erica Person (16:25):

Definitely. I mean, I’m always, I don’t know why, I don’t know who [00:16:30] entrenched this in my brain, but I was always told, build the business with your exit in mind. So whether that exits in 20 years, what does that look like? And then build backwards what you need to accomplish.

Craig Castelli (16:42):

Yeah, I think that’s smart. So yeah, I know you don’t want to talk too much about your growth plans. Is M&A a part of that at all? Would you acquire another practice? And if so, is that high, mid or low priority?

Dr. Erica Person (17:00):

[00:17:00] I would love to acquire practices. A couple reasons. I can argue it both ways. I look for practices and then if I can’t find one that fits within my mold, that’s when I tend to open. So I think historically I’ve done organic opening. It’s definitely a lot harder to do than just buying a practice, but there’s definitely pros and cons in my head. My next thought was to [00:17:30] purchase just because I know people are starting to get to that age. However, I also know in my area there is a larger audiology group that is buying up practices. So I also don’t want to get into a bidding war with anybody at all. And I’ve already identified a couple key areas that definitely would need a nice independent practice. So if the occasion arises in the next year, yes, if not, then I’ll probably be opening again from scratch [00:18:00] because my glutton for punishment

Craig Castelli (18:04):

Do what you know, and clearly this works. So I’m not going to ask you about the markets that you have in mind to obit, but hopefully there are some other audiology practice owners that are going to listen to this at some point. What would be the most important two or three characteristics of a practice to acquire? So in the event that somebody’s listening that can check all those boxes, they know that they [00:18:30] should give you a call.

Dr. Erica Person (18:32):

I think the biggest thing is that their staff has got to be adaptable. That’s the number one thing. Because my model is so much different than the traditional. So if I go in and I purchase a practice that is a traditional bundled model, and we start unraveling these things, that can create issues with staff for sure. So adaptability would be key. How I figure that out, that’ll [00:19:00] be a later problem for me to figure out. Fundamentally, they’d have to have their finances in order. But I do find that most audiologists are not great at finances, and so they really need to be able to clean that up. And I actually don’t have a preference if the previous owner stays on or not. In fact, I think it would be a better if they phased out over 90 days just with everything [00:19:30] that I’ve seen. They absolutely cannot be the primary revenue generator in any way, shape, form. And I say that from the standpoint is I’ve had so many colleagues that have sold and were forced to stay with the new organization for three years, and they’re absolutely miserable. And I think in my head, if they’re that miserable, can you imagine if the business is probably suffering in some way, and frankly, [00:20:00] they probably become a cancer to the rest of the team. If they’re unhappy, their team’s probably unhappy.

Craig Castelli (20:07):

Right? A lot of people struggle to hide that and continue to bring the same energy and attitude when they’re showing up working for somebody else compared to what they were able to bring when they were the owner themselves. And it’s a challenge plaguing a lot of large organizations. But your comment about the owner not staying on actually raised the two interesting points for me. Number one, [00:20:30] if you’re going to fundamentally change certain aspects of the business model, that owner is the one who is likely to be the most skeptical and the least adaptable. And so transitioning them out quickly likely helps you get where you’re going a lot more quickly. Two, that’s going to be a huge selling point for you competing against other buyers. If there’s one thing that we have consistently seen owners willing to give up valuation in [00:21:00] exchange for, it’s in exchange for that quick departure because the premium prices are typically coming with those multi-year employment agreements and a lot of additional strings attached. So if you have a very clean, simple offer to them, a very clear visible path out the door into retirement, then you will definitely stand out in a crowded field of buyers with a doubt.

Dr. Erica Person (21:23):

Good to know.

Craig Castelli (21:25):

So last question. Give me a piece of advice for a business owner, something they might not have heard somewhere [00:21:30] else before.

Dr. Erica Person (21:31):

I would say, define what your success is and then reevaluate it every single year. And the second piece to that, and I can get more clear on what that means, at least for me. The second piece of that is to get buy-in from your family and make sure that you’re all on the same page. So success to me, that first year was literally just getting out of the house, being able to pay for childcare, and then as it grew, success changed, then it became some revenue goals. But if I start [00:22:00] looking at really growing exponentially or getting aggressive, that’s going to create extra time away from my family, my spouse, and being able to sit down with him on a yearly basis and say, this is what I’m planning on doing. Are we both in? Because both then means I’m gone or I’m working longer hours. And then really maybe checking in every quarter to six months because again, relationships can change so fast, but checking in and saying, this [00:22:30] is what we’re doing. Is this working? Are we still on the same page? Or do we need to reevaluate? Because at the end of the day, it doesn’t matter if I have a $10 million, $20 million business if my family is suffering, but that’s a choice that I’m making. So define success, check in, make sure everybody’s on the same page.

Craig Castelli (22:47):

I mean, that second piece is so valuable, and I feel like that doesn’t get talked about often enough at all. When you own a business and you have a family, everybody’s a part of it. Whether they [00:23:00] ever step foot through the physical doors of your office or not, you can’t help but bring some of it home with you. You have demands that are not limited to the traditional business hours, and you have demands from children that are not limited to the times outside of business hours and keeping all that in harmony. I dunno that anybody’s ever figured out perfectly. I certainly haven’t, but it’s definitely a topic that deserves more [00:23:30] airtime in conversations like this. Yeah. Erica, if anybody wants to get ahold of you, if that perfect seller is out there or that audiologist who’s inspired by your story and wants to come work for you or just learn more, what’s a good way for people to call you?

Dr. Erica Person (23:48):

Your best way is go to our website, flexaud.com, F-L-E-X-A-U-D.com, all those Contact me now. It comes straight to my inbox, so you don’t have to remember an [00:24:00] email. You just got to remember my business name. Right?

Craig Castelli (24:02):

Perfect flexaud.com. Well, Erica, thanks a lot for joining me on The Close M&A Podcast.

Dr. Erica Person (24:09):

Awesome. Thank you so much. It’s been a pleasure.