Dr. Pete Smidt: Driving Big Growth at Smalltown Dental

Dr. Pete Smidt (00:04):

Welcome to The Close M&A Podcast with Caber Hill Advisors. I’m your host, Craig Castelli. Today my guest is Dr. Pete Smidt, founder of Smalltown Dental in central Illinois. Pete, you started Smalltown Dental in 2018. Tell us what was the idea and why’d you think it would work?

(00:19):

Well, to be honest with you, I kind of started out of accident out of school. I never thought I would go multi-site. Went home, practiced in the hometow where I grew up in. The [00:00:30] dentist that I’d known forever. I was out on vacation one time in Georgia and thought I wanted to move there, and so put my practice up for sale. And Georgia didn’t take dental boards for a two-year period from Illinois, and I found that out down the road. So what ended up happening was the groups that I was going to be selling to, they went to the dentist across town and tried to buy him out. And so I ended up buying another practice in my hometown to keep them out and ended [00:01:00] up going multi-site then.

Craig Castelli (01:02):

Yeah. And in 2020, you grew more rapidly than most do at an early age. Do I have this correct that you went from two to eight practices essentially in the course of a year?

Dr. Pete Smidt (01:14):

It was a lot. It was the COVID madness.

Craig Castelli (01:18):

Yeah. Tell us about that whole process. I guess just starting, were you on the hunt for these practices or was this just a function of the times and people found you?

Dr. Pete Smidt (01:30):

[00:01:30] Yeah, was, I mean, it was one of those things where obviously COVID happened. A lot of these senior docs, they just didn’t want to deal with all the restrictions and all the rules that were coming in. And because I had purchased another practice, some of ’em reached out and said, Hey, are you trying to go multisite? What are your plans? And I got some pretty good deals on some practices. So I did basically what any dentist could do and that’s just acquire. So we acquired a number of practices in a year and created a whole bunch of chaos and headache, but it kind of [00:02:00] kickstarted Smalltown.

Craig Castelli (02:03):

In a big way. I know you’re a big culture guy, so talk about what this did to the culture. I mean, first you have your own team and you have to prevent them from having a mutiny with everything you’re bringing on board and asking them to do. And then you have all these independent offices that probably bring their own unique ways of doing things and styles to the table. So with that table set, talk about both sides of that and how you brought everyone together.

Dr. Pete Smidt (02:28):

I mean, mutiny was a great [00:02:30] word for that because I mean, we did have some strikes and walkouts. It was a headache. We didn’t have the leadership team, we didn’t have the management team. It was one of those things where I had one other individual that came on board to kind of help run everything. And we had eight locations, eight different cultures, eight different ways of doing things, eight different staffs. And I think at first our culture was kind of like, I wanted it to be the fun place to work. So we did a lot of team building. I had every single office [00:03:00] in charge of some event for a month, and so we had a lot of parties. We had a good time, but we had a mess. And so we spent the last few years really trying to systemize processes, getting our leadership team set to get to finally to a healthy spot. But looking back, it was a headache. I grade a lot faster than I anticipated, but definitely needed it to get to the point that we’re at now.

Craig Castelli (03:29):

Were [00:03:30] you able to promote from within or did you have to go looking outside of the organization to build that leadership team?

Dr. Pete Smidt (03:35):

Both. Luckily I had a couple very, very strong internal candidates to fill some roles and I needed them. I mean, you needed to have people that you trusted to have your back. They didn’t get paid probably for the amount of work that they had to do throughout that time period. But yeah, fortunately I had some really great internal staff members that helped me out.

Craig Castelli (04:00):

[00:04:00] So your nine offices today, I think you said it’s been about 16 or 17 acquisitions including merging several offices together. What do you know now that you wish you would’ve known back when you were making acquisitions number two and number three?

Dr. Pete Smidt (04:16):

Well, I mean, acquiring is easy. I mean, like I said, anybody can go out and acquire. And I think that even though a practice might look good on paper, you are always walking into challenges. And so [00:04:30] we’ve acquired all different types of practices, and so now we’re very much more strategic on even the type of practice we’d even consider bringing on board. So I mean, that was a big thing. I think your eyes get opened up when you think it’s a great deal or you look on paper, it looks like an amazing practice, but you get in there and you get to know the staff, you get to know the equipment, you get to know all the challenges, and it’s not always easy

Craig Castelli (04:56):

In my job, everything looks good on paper. Just give me a spreadsheet or [00:05:00] give my team a spreadsheet. We can make it all look sexy.

Dr. Pete Smidt (05:02):

That’s right.

Craig Castelli (05:05):

And you’re now embarking on something new, which is building out a de novo. What gave you guys that idea?

Dr. Pete Smidt (05:13):

We finally have a brand in place. I think we’ve got a very good reputation in the communities that we practice in. And to me, I’m excited to at least try out a de novo in the sense of I am bypassing all the headaches that you potentially could have [00:05:30] in an acquisition. You are not having to necessarily negotiate with brokers. You’re not taking on old dentists with, you don’t know what their work looks like. You don’t know what the team members look like. You’re just starting from scratch. So I’m hoping the patients show up and all of our projections show that it’s in a great location. Thankfully, we’re not in a very saturated area, but it’s going to be nice to put a new building up rather than [00:06:00] playing catch up on some of these.

Craig Castelli (06:03):

It is not the most popular move, but it is one of those strategies where if you can figure out the formula and start to just replicate that at scale, it can be such an efficient way to grow.

Dr. Pete Smidt (06:13):

Yeah. Yeah. And we did. I mean, our intent with this building is to, that hopefully will be our future route of growth. I mean, it’s one that we can just plant in locations. The floor plan shouldn’t change much. It allows us to grow into a secondary doctor if we need to. So we’ve done our homework on trying [00:06:30] to get something that’s scalable.

Craig Castelli (06:32):

How big of a market do you think you can go into and still stay true to the brand name of Smalltown Dental?

Dr. Pete Smidt (06:39):

Everybody loves Smalltown. I go down to Nashville and every song they sing is small town down there. And even in Chicago, I was up in school in Chicago and you had your small town folks. So I mean the market, I think for us, we just have, I mean, like you said, everybody says they’re about culture, but everything we do is very culturally mindset. And we have a [00:07:00] brand, I know you speak with a lot of DSOs and I’m in that market, but we’re going to be a company that lives by the brand that’s on our chest. And I think that there’s opportunity, especially for doctors within our doctor ownership model to come in and have a great work-life balance, make great money, and then also have opportunities for future investments with future denovos or future acquisitions, creating some passive income streams. And so I don’t know what the growth will necessarily look like, but [00:07:30] we’ve got really strong teams and strong leadership that I’m excited to see where we’re going to head

Craig Castelli (07:36):

Touch on that doctor ownership model a little bit. To the extent you’re comfortable sharing with the audience, if I’m a young doctor coming to work for you, what are my opportunities in that regard?

Dr. Pete Smidt (07:47):

Yeah, so great question. So I mean, we try to offer entry, so it’s not necessarily where you’re coming in, you’re buying a hundred percent of a practice. So we have a service company that you’re going to contract with that’s going to help run the [00:08:00] practice. A lot of these DSOs you have opportunity to own up to 95% of these locations as well as having opportunity to have investments in, like I said, future acquisitions or other practices. We don’t have any private equity backing. So my goal right now, and I think this helps with our culture, is really to be doctor owned, doctor funded. So we’re not going to go put up 10 next year, but we might put up one or two, [00:08:30] but my hope with that is that our doctors have their skin in the game and see those returns rather than going out and get private equity money.

Craig Castelli (08:41):

You think as you grow those doctors can become your private equity money.

Dr. Pete Smidt (08:45):

I mean, that’s the goal.

Craig Castelli (08:46):

Yeah, sounds like it.

Dr. Pete Smidt (08:47):

That’s the goal. If we have enough people making good amounts of money, that’s the goal is that we continue to grow with our own money.

Craig Castelli (08:56):

And do you see that long, long-term? I mean, eventually [00:09:00] as you have to have an exit from this business, would that be the idea is that it keeps cycling through with other doctor owners?

Dr. Pete Smidt (09:07):

Yeah, I mean, I don’t know what the exit strategy necessarily will look like yet. Dentistry is rapidly changing and the types of practices that private equity or DSOs are even interested in the landscape might change down the road too, but my intent right now is really just to probably grow at the rate that cultural allows [00:09:30] us to be happy and continue to have opportunity for people to have further ownership or challenge our staff internally. But that doesn’t mean that at some point we don’t entertain the idea of partnering with a larger entity.

Craig Castelli (09:45):

I mean, I thik we’ve seen DSOs change what they’re looking for in private equity firms change what they’re looking for three or four times in the last decade based on size, specialty, where the ownership of the doctor sits, how much [00:10:00] doctor ownership they want. It seems to constantly be evolving

Dr. Pete Smidt (10:04):

A hundred percent.

Craig Castelli (10:06):

One thing I am hearing from you that you’ve figured out that is tougher to do at scale is maintain that personal touch, maintain that culture. You avoid just buying EBITDA for the sake of buying EBITDA, just buying offices for the sake of hitting a certain target. You don’t grow as quickly and when you’re not beholden to investors that as a luxury you can take, but you avoid stepping in [00:10:30] traps that we’ve seen a lot of others step in, which can tie into the reputation a bit.

Dr. Pete Smidt (10:34):

Yep. Yeah, a hundred percent. I mean, it seems like my colleagues that have tried to go multi-location, it’s almost like that third practice really bites ’em because they’re spread too thin now. They got to go find somebody externally. But yeah, culture, it’s always a challenge.

Craig Castelli (10:51):

Three practices, 10 practices, and then somewhere in the 20 to 30 practice range, those seem to be the cut points at which it gets [00:11:00] measurably harder to manage what you’ve built up until that point.

Dr. Pete Smidt (11:04):

Yeah. Well then trying to go externally and find help on your C-suite level or whatever it might be, I mean, that’s kind of where our challenges will be next is finding those key figures that can come in and help sustain and grow.

Craig Castelli (11:18):

Do you have anybody that you would say is a true C-level executives today? I don’t want to put you on the spot.

Dr. Pete Smidt (11:23):

Yeah, no. I mean, Luke Overcash, I consider my CIO mean. He does everything that’s nonclinical. [00:11:30] And so I’ve got an operational team that comes in and helps on the clinical side as well. I’ve got regional management of hygiene, regional management of operations, but from an actual behind the scenes, not in the clinical chair, I’ve got somebody that oversees all that, which has been, I don’t know how I would be able to do it without him.

Craig Castelli (11:51):

Yeah, well, with a name like Overcash, he should be your CFO too.

Dr. Pete Smidt (11:55):

You’re right. Yeah. He set the bar high just with his last name, so

Craig Castelli (11:58):

Yeah, that [00:12:00] got past the first filter, right? When you’re collecting resumes.

Dr. Pete Smidt (12:03):

Yeah. Well, actually I grew up with him, and it’s kind of a funny story because, and I hope he listens to this because I want the world to know. He was a senior in high school and he was on the basketball team, and I was a freshman, and I took some of his playing time, and I just remember the way that he handled it and the leadership he had at the age of 17. I knew that he was going to be a great person for that spot, so I reached back out to him and [00:12:30] he was managing some medical offices at the time, but he’s been just an awesome asset to Smalltown.

Craig Castelli (12:36):

I mean, that’s a great story. You have an early indication of character and it sounds like he had the experience coming in that you guys were looking for.

Dr. Pete Smidt (12:42):

Definitely.

Craig Castelli (12:43):

Yeah.

Dr. Pete Smidt (12:43):

Great guy.

Craig Castelli (12:44):

Yeah. Well, if we have other owners listening to this who are thinking they may want to sell in the next couple of years, how do they know that they’re right for Smalltown and that they should give you a call?

Dr. Pete Smidt (13:00):

[00:13:00] You say other owners looking to sell

Craig Castelli (13:02):

Other owners who are thinking about selling in the near term. What would they look at their own practice or looking inward at themselves and say, I’m a good fit for Smalltown?

Dr. Pete Smidt (13:13):

Yeah, obviously we prioritize patients over profits. I mean, I think where we’ve really resonated with a lot of these owners looking to sell or senior docs, or even now, we’re kind hitting into that market too, where we have a lot of people in their forties and fifties reaching out because they’re kind of just stressed [00:13:30] and over it. And it doesn’t mean that your practice necessarily aligns culturally with ours, but you got to be open to change. I mean, there’s always going to be change, but you got to understand where our change is coming from and those that just won’t support and honestly just to have an opportunity for their staff to be taken care of or at least have an opportunity, right? We’re not a company that’s going to come in and tell you. We try to stand by everything that we tell you. I mean, I take a lot of, I’m very proud of the [00:14:00] fact that we maintain most of the staff when we take a practice over, but that does not mean that every staff member is going to be a fit for Smalltown.

(14:08):

And so the practices that we typically attract are the ones that have their 30, 40 year type of practice that they really care about their patients. A lot of these senior doctors, they’ve done well in their careers. They have profitable practices. Their retirement isn’t necessarily, or the actual practice sale may not be their retirement nest egg. They’re just so concerned about their [00:14:30] staff being taken care of as well as their patients being taken care of. So I find that we’ve become a very good fit for that type of practice because we probably go above and beyond just trying to make sure that the employees and the patients are taken care of.

Craig Castelli (14:45):

Well, if you’re staying in your community after you sell your practice and retire, especially if it is a smaller community, you’re going to run into your former patients at the grocery store, at the popular restaurants, and you’re going to hear about it either [00:15:00] way, whether it’s going well or not. And that’s certainly, I know on the mind of many as they get to this point is, I don’t want to make this sound negative, but I have to see these people after I sell the practices is kind of the mindset. And so I want to know that it’s been a positive outcome for ’em.

Dr. Pete Smidt (15:17):

Right. Well, we’ve been very intentional in trying to match make good associates with senior docs, especially ones that are coming home back to their hometowns, really investing in them. But we’ve spent [00:15:30] a lot of recruiting efforts, especially in the last couple of years, just trying to find really good associates because the last thing you want for some of these senior docs is doc turnover, the second that they sell, and that hurts the patients, obviously.

Craig Castelli (15:43):

That hurts everybody.

Dr. Pete Smidt (15:44):

Yeah.

Craig Castelli (15:46):

Alright, well, Pete, it’s been a lot of fun. Last question here before I let you go. Give us a piece of advice for the business owners and the audience that they might not hear somewhere else.

Dr. Pete Smidt (15:56):

Yeah, that’s a good question. I think one thing, [00:16:00] especially when I started or even looking at my peers, if you’re thinking about going multi-site or growing in general, just make sure you’re doing it for the right reasons. Money doesn’t inspire people, a vision does, so you have to create something that you can stand behind that people want to stand behind that’s bigger than just profits. And so as we’ve grown and kind of had the stressors of just growth in general, our staff members really understanding and having a clear vision for where we’re trying to has been [00:16:30] very beneficial. And so I think that’s a great advice to somebody who’s even thinking about just growth or going multi-site is just make sure you’re very clear in your purpose. And if you’re doing it just about money, you may want to rethink your plan.

Craig Castelli (16:45):

Yeah, I think there’s an interesting nuance. Money can motivate, especially in the short term, but it doesn’t inspire. It is not going to create long-term inspiration.

Dr. Pete Smidt (16:54):

A hundred percent.

Craig Castelli (16:56):

Well, Pete, if anybody listening wants to learn more about Smalltown [00:17:00] or get ahold of you, where are you going to send ’em?

Dr. Pete Smidt (17:04):

You can reach me at dr.pete@smalltowndental.com. I started a podcast too called Smalltown Small Talk. It’s a cheesy name like you said, but it’s a good way to reach out and I’d love to talk to anybody that wants to chat.

Craig Castelli (17:20):

Didn’t say it was cheesy. Don’t put that blame on me!

Dr. Pete Smidt (17:22):

Oh no. What was it? Bourbon? It was the Bourbon and?

Craig Castelli (17:25):

I was talking about my own original ideas!

Dr. Pete Smidt (17:27):

Cheesy names!

Craig Castelli (17:28):

That’s right, that’s right. I’ll [00:17:30] pick myself on myself, not you. But yeah, go check out the Smalltown Small Talk podcast anywhere you get your podcast. Dr. Pete Smidt from Smalltown Dental, thanks for joining and thanks for all of you for watching us on The Close.

Dr. Pete Smidt (17:42):

Yeah, thanks, Craig.