The Mindset That Brought This Acquirer From 1 to 42 Clinics
Starting off the new year, Paul talks with Dan Rootenberg, CEO and Co-Founder of Spear Physical Therapy. Dan explains what he believes differentiates his company from other acquirers in this market, and what the benefits could be from partnering with Spear.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. Today we're going to continue in a number of sessions that we had done many months back, but today's going to be a special one and it's our series that we call the next generation of acquirers. And this could not be more timely with moving into 2024, hearing from some of these next generation of acquirers. And today we have with us Dan Rutenberg. Dan is the physical therapist and he is also the CEO and co-founder of Spear Physical Therapy.
Let me tell you a little bit about Spear. Spear is a privately held company physical and occupational therapy. It's based in New York, New York. They currently have 42 clinics. When did that happen? These clinics are in New York and New Jersey. You guys have snuck up on all of us, Dan, and it is great to have you with us today. Thank you, Paul. It is great to be here and you and I met many years ago and we had one clinic then. So, I know the feeling and it's been great to to know you all these years and terrific to be with you today.
And Dan, I'm glad you brought that up because I'm sure many of the listeners out there today are either single clinic or two to three clinic. And I think you can be an inspiration to them talking about how you guys right now are continuing your growth and how you've gotten to where and what all the success you've been able to achieve over these years. Let's jump in. So, so how does Spear differentiate itself from the other acquirers in the rehab industry? Yeah, it's a good question.
We are Spear is a PTEL, founder-led organization that started from treating one patient in one private treatment room that we rented in a gym in 1999. Which is when we met, Paul. And so you know I like many people listening started by doing every single thing in the business and I think that does give you a bit of an edge to really learn not just what it's like to you know to treat a patient to have to verify benefits have to negotiate with insurance companies have to learn how to market learn how to relationship build with physicians see what it's see what it's like to to hire therapists and keep therapists and be able to be flexible enough to see when times change and needs change.
So, I think just being in touch with the with the needs of our of our team members really having that resonance as a leader is super important. Our orientation of being therapist first and really focusing on that on the therapist on building up the therapist training, teaching, providing support for and those are going to be the next leaders in our clinics. They have been the next leaders in our clinics and that's how we've grown. So I think that's the orientation that's that's emphasized and that's enabled us to grow.
Yeah. Interesting stuff. And you know I think Dan something I would add to that is that you know the two things that you that stuck out most to me when I first met you in 1999 was first was how curious you were. You were curious about everything. And you know for young entrepreneur physical therapy business owners who are looking to grow their businesses that level of curiosity enabled you to take everything in that you were able to learn from myself and many others. And so I think that curiosity was the first thing that I noted that was different and unique about you.
And something that you also have done extremely well and I think this is something that would be teachable moments for companies that you would acquire is you always had the ability to look beyond clinical care. You had a huge focus on clinical care. But many business owners have difficulty looking beyond that clinical care focus. You were able to do that and I think that is one of the main, you know, two reasons why you've been able to grow. So as a seller out there, a seller out there who may be looking for a company to partner with, what are some of the unique benefits that an a seller could experience by working with Spear?
I think for in terms of someone that's looking for a partner where we can thrive and be a great ad asset is is that owner that really is looking to create value for their therapists. To be able to enhance training to be able to take the talent that you have and be a multiplier for them. Unlock the potential in the people that are on your team. I think that's what we do really well. Nobody grows alone. And we're about to celebrate our 25th year. We just had our holiday party and a huge performance from our own spear sparkle dancers.
Believe it or not, we have a performing arts center. We're doing five Broadway shows right now. So, we have actually extremely professional talent. And they were featured at our holiday party to great applause. But we really do focus there and on our residency programs and we have a huge following in our spear future leader program where we literally teach a year-long program to turn therapists that into leaders and so we're really good at that and can really provide that kind of training. We've also professionalized our recruiting our recruitment arm and you know what I also see a lot of people struggle with payment and reimbursement and we do have expertise 25 years of really speaking the payer's language and and I think it's important to be able to do that where and sometimes it's hard to do on an individual basis.
I know even large companies have difficulty with it. So that's an area that we've got some great expertise in and you know other aspects that I think are are really important is you know philosophical ones where the focus really is I think what's also unique and may many people can probably say this but our orientation is to focus on our team our philosophy is to focus on building up our our team members and we think and I believe that by focusing on our team that enables them to focus on our customers, patients, physicians and the result of which we're not necessarily focusing on.
That is not where the emphasis is, but where the magic lies is that by focusing on these interpersonal relationships, building people up, building our team up, we actually do achieve operational results that are bestin-class and have two private practice APA practice of the year awards to prove it and all that. You know but so I think we try to do things the right way and focus on those little things and focusing on those little things yield big results. You know a lot of what you just described Dan really is in you know you talked about training of your staff strategies in order to make this experience for your staff better which then goes right through to the patient.
How do you think that has impacted your ability to attract professional as well as ancillary staff and retain professional as well as ancillary staff? As you and I both know, that is probably the biggest challenge in the industry today, right? I mean, I think you've got to be a great place to work. What are the things that make you a great place to work? You have to know your people. We did three different focus groups this year where we brought in groups of probably let's call it a dozen people from around the company.
We did three of those and really try to understand the changing needs of the team and that's how you get plugged in. That's how you can make decisions. You can't make decisions, you know, locked away in some ivory tower. You have to really be as understanding as you can and we have made changes whether it's compensation whether it's scheduling whether it's to an EMR but we don't do these things in a vacuum we really communicate and we teach communication we teach dynamic tension being a good thing and not something to shy away from so so we really have we do our best and nobody's Perfect.
But we really do our best to open up communication throughout the organization so that we take different viewpoints into consideration when we make a decision. And and that's it's just a fundamental. But sometimes the difference whether it's in and I've talked to professional athletes about this. I've talked to we had a speaker that came in who was on SEAL team six and the what success the formula for success is no different and it's the fundamentals. The fundamentals are going to change if you're in battle or if you're trying to make it on a on a professional playing field or running an organization, but it's still fundamentals and communication is one of the biggest ones.
So, we really try to focus on those types of things and it works. Yeah. Seems Dan is as almost as simple as you know how do we how do we make and run this organization so that it is a great place to work as you described let's ask our staff ask our staff let's ask see what they have to say and then you listen then you listen then you go back and yeah and that's unique that is unique and when we asked you know unique benefits of a seller working with spear that's a big one you guys ask.
So let's turn to the other side now. When you're looking for an acquisition, talk to me a little bit about, you know, what the priorities are for you guys for a target company that you're looking to acquire in terms of clinical, operational, financial aspects of the business that you're looking to acquire. What are you guys looking for? You know, first and foremost, we're looking for strong leadership. We're looking for people with a growth mindset that are eager to learn. We're looking at people that are doing things the right way and that we can we can really help by providing support, providing resources to some knowhow.
Our systems and processes because some people who are really when their company is doing a lot of things right, they will benefit more from and in and in a quick time they will be able to grow much faster by combining forces with us. If they're already leading in some clinical ways, if they already offer a great product, there's certain things you can't teach. And so you're looking for talent. You're looking for people that have that they have a focus on they have some focus on systems and processes.
They have some focus. Culture is tremendous, but everybody says it. So it sort of gets misinterpreted. It's not a word that's just so easily used like like I sort of hear it's got to be felt. Just because somebody says culture doesn't mean it's there. But you know what? Are you as a leader emphasizing with your team? So even you know for us for instance we just had our holiday party and what are we emphasizing? We had a we had a PT tech let's call it therapy tech because we have OT as well and the relationship building that this tech did was phenomenal.
We had an elderly woman that was coming to our location at Grand Central and she had an aid. It was hard for her to get in and one day her aid couldn't come in to work. Now the PT tech said it's okay. I'm going to come and get you and went to the went to the patient's home and brought her in. We didn't ask this tech to do that but that's the kind of like feeling that she had. She actually reads books that this patient recommends so that she has something to talk about.
It's all about human connection and that's what we emphasize human connection. And so what are the things that are being emphasized by the leaders in your organization? What are those cultural beacons that are being shown and spread throughout the company? Like I want to see those things being very positive and you know that's not that's first and foremost. And then and then of course everything else falls into place. Do you have a good reputation with your community? Do you have good relationships with your physician referrals?
But even more important than that, how do your how does your team view the organization and do they know that you have their back and do they want to grow with you? And what would it be like if we if we added all these resources? Would there be people hungry to take advantage of it? And you know when those boxes are checked, we get very excited. Yeah, Dan, that sounds like spear about 20 years ago. Paul, you know it. You know it was. We met every month for early in my career and you had a really positive impact on our trajectory.
I mean, because you're right, I was curious and you had done it already. So, I asked you tons of questions and you really were super helpful. And anyone that asks, I always tell them how helpful you were, especially early in my career. You need somebody to that you can look to that does things the right way. When I first started, but when I met you, I didn't have budgets. I didn't have operational budgets, financial budgets. You helped with so many of those things early on. And and a lot of the tools 25 years later we are still using.
Maybe they're modified a little bit, but we're using them. Yeah, that's awesome. That's awesome. So looking into the industry, what do you see kind of going into 2024 and beyond are some of the biggest challenges that small physical therapy companies, let's call it 10 clinics or less, and how does that ch how do how do those challenges impact their attractiveness to you as an acquisition candidate? You know the I always come back to the three Rs which are the big challenges. Recruitment, retention, reimbursement, and each one of those buckets has to make sense.
Recruitment, you've got to have a way to grow without that. And we know, I'm not going to belabor the point, 22,000 people left the profession during the pandemic. I think the pendulum is starting to come back. It may be not until 2025 that we see major change, but it's already looking better. Retention. You've got to have a great place to work, a place that a players are attracted to and and reimbursement. There needs to be a payer strategy and that's where a lot of folks do have difficulty and I understand it.
And I think that these are the three buckets that we can really make a difference pretty quickly. Yeah. Dan, are is your company continually in recruiting mode all the time? Absolutely. Yeah. I mean, also because we're in growth mode and you know, when you're opening up 10, 15 clinics a year, you're always looking for talent and and so so we, you know, we never stop recruiting. Yeah. Yeah. So you you're triple R, but you're also ABR. Always be recruiting. Nice. I like that. You got both of those.
You got both of those. So, if you would give some advice to a small to midsize physical therapy company that's looking to increase value that's going to, you know, they're preparing for the market and for a potential partnership of a with a larger company. What advice would that be to help them to increase their value to prepare for that? You know, I always believe in looking at something through three different lenses, right? You you have your own viewpoint, but there's going to be three other viewpoints, right?
So, you have to be working on your business, not just in your business. And so, then when you zoom out, look at your business as if it was a through an acquirer's lens or a partner's lens. And and how do you add value there? Right? Generally the three lenses is going to be patient physician and employee. Now in this case it's you're going to add one more lens to that which is somebody looking at your business. And u you know I think that listenatic approach to the concepts we spoke about is going to lead to success.
So if it's and I've been there where I've been so busy as a the as a treating therapist that I haven't had the time but if you want to have a if you want to have a great result you have to make the time zoom out take that you know you your experience as a therapist no matter how great of a therapist you are can be replaced let's call it 70% 80% of the best therapist can be replaced by another PT. Luckily, we have great PTs, but your leadership skills, your ability to look at the company, your ability to to grow and to grow people, not just grow your business, but to grow and coach the people around you, that can't be replaced as easily.
So just ensuring that you are putting as much time and effort into that and into lifting the people up around you than you are as working as a therapist in your business to me is very important. Yeah. I'm hearing from you and re rephrase this but really looking for companies and or you're suggesting to companies to really know their people and really invest in their people. Yeah. I mean, it's a people business. It's a, you know, a man-to-man business and womanto-woman business. And, you know, it's we're it's a serviceoriented business.
And so that human connection is what it's all about. So you know nobody's in the back making widgets. So that's it's an extra it's an extra burden on us on us and it's also an a blessing because people went into this profession to do good for people. And so we don't have to create up create stories. Like I hear a friend of mine is in a hospital setting and you know he hears people telling the cleanup crew listen you're cleaning up but it's actually to create and you create a story around that which is true.
We have the benefit that all of our team members have really gone into this to help people and so it's such a we're so lucky and fortunate that that's the type of business we're in. So I think there's some there's something special there. Absolutely. Absolutely. So kind of looking at your current position in this market and looking moving forward into 24 2024. How are the current economic conditions impacting your ability to do acquisitions and what challenges or opportunities in this environment moving forward does that present for you as an acquirer?
Yeah, you know for us and this is fairly unique. The environment does not affect us at all. Primarily because we have no debt and a strong cash position and a lot of borrowing capacity. So, the fact that inflation's been out of control and all these things that none of us want and thankfully it looks like it's starting to come to come back under control, it does allow us to be really selective in who we want to partner with. We want to partner with the best and and then when we have that and when we found that we can make it happen without some of the baggage that that some may have.
Describe what you mean by baggage. Well, with the with the current environment, especially through 2023, we're at a historically high inflation environment where lenders and the debt markets have frozen and it's harder for people to extend themselves. It's hard it's harder for certain individuals or companies and even for lenders to to extend and so I guess that's what I'm saying is we're a little bit insulated from that and but that is what the environments look like and but hey look I think 2024 the last Fed meeting it looks like those those raises of interest rates are hopefully a thing of the past.
That's what they're indicating and nobody has a crystal ball, but it looks like things should should get better. Yeah. No, absolutely. Absolutely. And it sounds like again given that you are debtree it puts you in a real good position. Would you agree with this statement that you as an acquirer as compared to let's say back in 2021 and 2022 you as an acquirer in 24 will do some acquisitions but you may be a little more selective with those companies that you're willing to acquire. I'll say equally selective.
So I think premium companies are still getting very healthy valuations. We want to partner with premium companies. We want to to be able to add great value to those companies. And so you know when I'm looking at the differences between 20 2021 or 2024 to me it doesn't matter. I think other people answer that question differently. And so I'll let them. But you know for us we are we're looking to partner with the best and and I think that's where we can do some really great things.
Yeah. Yeah. That's exciting. Exciting. So if you could and of course we don't want you to give any names or even where the business is but share an example of a recent successful acquisition that your company made and what were some of the key factors that actually contributed to that success? You know I think for us and we're not we're one of your newer acquirers, right? That's part of the idea here. Yeah. Yeah, what we do so well is open up new locations, right? Some call them denovos to use a fancy term.
But our playbook, if you will, denovo playbook is exceptional and so we feel like we can really bring that to our teams. We utilize it ourselves. But that is going to be part of our formula for growth around an acquisition, around a partnership. Being able to to add this expertise of our cost structure, the way we do it the and then you know the results we have where when you know we're breaking even in three months we are paying back capital in 12. I mean, it's pretty it's pretty astounding and best-in-class and, you know, not that it's going to happen everywhere, but we do things we do things well that we feel like we can bring to others to be able to to grow faster.
And of course, we want to do it more thought we want to do it thoughtfully. It's never just about dots on a map or any of that. It's but we want to create situations where we could we can all win. And that's what I think we can bring. So, one of the key factors that would contribute and you know, as we talked about, you know, some of your past acquisitions is the ability to show them and teach them and help them to open up new clinics if that's if that's part of the goals and objectives of an acquired company.
Is that fair to say? It is. I mean, I think that's really where you know, we can create a situation where we're going to help grow that market and with your local expertise, our systems and processes that are already in play. That'll be a powerful result. Yeah. Yeah. So I know you don't have a crystal ball but you know given some of the current market dynamics if you now look into 2024 and even beyond in 2024 how is spear positioning itself for the future in this market.
A lot of things going on with innovation now. You know AI is jumping around the physical therapy industry out there in some places. How are you positioning yourself for success in this market? [clears throat] Yeah, I am extremely u excited bullish on on Spear and on the industry frankly. Where we are we are seeing ourselves as great solutions for the msk spend which is now the number one spend of all categories in healthcare even exceeding cancer treatment and so we've had I've had conversations with insurance companies I've had conversations with hospital systems and I've had conversations with employer groups where we are actually a the glue that's going to help sort of reorient how the approach to msk is going to be.
And I know we're all pushing this PT first solution which really does make a big difference and we should all be pushing it because when physical therapists see patients early and first the savings per case is astounding. And we've been able to show this and and that's why we've been chosen on a number of these employer groups and hospital systems where where we are putting physical therapy in the sort of limelight where it deserves to be where we can add that value and drive cost down.
So I feel like we've been saying it for maybe the last 10 years but it is being heard in a different way. Sometimes it takes pain to to look for solutions and I think that's where all of a sudden these I I've seen and been part of these conversations much more frequently and in 2023 like we're about to start a big undertaking with direct to employer starting in 2024 and and with unions. So I see physical therapy really helping. We're right in the middle of it.
And we're just being looked at as solutions rather than silos and and payment centers. So, it's a it's a very it's a very nice place to be and I think we're part of that innovation process. Yeah. And I believe the more innovation and I would ask you if you see this as well. At some point maybe we do make that conversion over to valuebased care. And my opinion is we're the greatest value in healthcare and if it can be truly explained you know to insurance companies on how we can save them considerable monies by paying us more and paying us for the value we bring to patients.
I think the floodgates will open for really good solid operators, clin clinicians and operators to have enormous success in the next 10 years. Yeah, I agree Paul and I'm seeing it in conversations I've had even in the last three weeks different payers, health systems, employer groups, physical therapy and OT as well is really on the right side of the cost curve. And have those conversations even if you've tried to have them and failed many times in the past. Things are funible, things are moving, and I think we're getting the recognition that that we really deserve.
So, I'm very excited about where we're headed. Well, expect a request, Dan, because we're going to do a series in January on innovation in the physical therapy industry. So, expect another invitation. Sounds great, Paul. Always enjoy talking to you. So Dan, again, really appreciate you coming on with us today. I think you gave our listeners a lot of value and a lot of information. Thank you. I appreciate it. Thank you, Paul. And, appreciate what you're doing for the for the profession. So, thank you. And for all of you out there today who have listened in, if you would like to talk to me or if you'd like to have a conversation or a follow-up conversation with Dan, just click below and let's talk. Thanks for joining us today and I look forward to seeing you in the very near future. Thank you.
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