The Olympic Model for Strategic Growth: Part 01
Based on the election and recent economic changes, we believe acquirers will be very focused on making acquisitions in 2025. It's time to start your growth plan, and this week is all about how to execute a successful start-up clinic over and over again.
Full transcript
Generated from the episode audio and lightly edited for readability.
Hello, I'm Paul Martin, founder and president of Martin Healthcare Advisors, and I welcome all of you to another episode of the Martin Rehab M&A Advisory. So today what we want to cover is in relation to making best decisions for 2025 and looking at your growth strategy for 2025. We talked last week or two weeks ago about how to gear that growth strategy potentially for some acquisitions as well as for some startup and denovos. And today what we want to talk about is a strategy for denovo or startup growth.
And we call this the Olympic model for strategic growth. And I think as we go through this, you're going to see what we mean by the Olympic model with those intersecting circles that you're seeing. So in this current market, why should you be growing? Well, first of all, based on the most recent economic changes and the election outcome, I believe that acquirers will be very focused on doing acquisitions in 2025. And I think that they will be very focused on companies that we would consider in this market as middle market companies.
Those are companies really between seven and 100 clinics. Size and growth success is without question the number one driver of value. And so as much as you can increase cash flow and while doing that make a minimal investment in a startup typically a startup you can do allin for about 50 to maybe $150,000. Some of the bigger companies they will bookmark about $200,000 for their startups. But those are typically much larger facilities etc. But we've seen companies do very good startups for anywhere from 50 to 150.
And I think this what this does for you and your company is it provides some management opportunities. There's some upside opportunity for your staff members. They can absolutely see a career path to becoming a clinic manager or a clinic director if you are opening new clinics. And as I said, it is absolutely going to improve your value if you can show that you can successfully carry out and execute on startup new clinics. So why would we look to do denovos? And I'm looking at this potentially as compared to doing an acquisition.
Well, some of the pros on why denovo clinics really make sense is you have the relationships. And I think when you see how we go through and analyze how to do your next denovo, you have the relationships to do these clinics. You also have the systems in place or do you do you have the systems that can scale from your EMR to your marketing to your leadership core etc? Do you have the systems to grow? So that's an important question. Startups that are successful are lowcost and give huge returns.
I mean compared to buying real estate or any other investment, this is a lowcost very high return investment. And it also will improve your value with more profitable clinics. Clinics that don't drive any profitability will not be seen as valuable. And there's always an understanding that a company should be able to have a new clinic, but within six to nine months, that clinic should be green on the bottom line. Some of the cons, especially in this market, is you know, it's a very difficult recruiting environment.
So, as you're looking to recruit, really you want to make sure you may have some backlog to staff this new startup. And know that a bad startup can really cause a giant pause in your growth. So, we want to make sure that every one of your startups are a success. Let me show you how we do that. You know, there's three reasons that we see a startup will fail and we want you to avoid that predicament. First and foremost, there's not enough referral sources within the market to carry a clinic.
Second is you're in the wrong or an inadequate location. And the third is that the leader or the director of the clinic is just not the right person and they become unsuccessful. And again, as I said, the reality is one bad startup can really severely injure a company. And a large majority of the risk can be controlled by an enhanced startup process. And we really see that process with 10 steps. Today we're only going to cover the first five. And those are really, I think, the key steps and the most important steps.
Step one, analysis of physicians, patients, and the competition around you. Whether it's your one clinic or whether it's three clinics, an analysis of physicians, patients, and competition. From that analysis, you're going to choose one to three markets. We're going to add demographic information to that analysis. And then fourth, we're going to go have you live in that market, maybe two, maybe three markets. And from living in those markets, you're going to walk away from that with a physician list of what are the physicians that are going to refer and approximately how many will they refer.
Now, step one, step one starts with a zip code analysis of your physicians and your patients. And what we're looking for is a number of physicians and patients that have referred by market area. So you're going to go around your existing clinic or clinics and you're going to look within those zip codes and from your system you're going to pull physicians and patients that were referred by market area. Then by zip code, you're going to look at the number of patients that have come from those zip car zip codes around you.
And we utilize online tools to do this and to map this. You can use Google Maps. We use a mapping program called Espatial. And this information gets analyzed and looked at on a very acute basis. Okay. So, we're going to look really deep and what is the perfect new market for and what should this analysis look like for the perfect new market in terms of physicians, patients, and competition? And then how do we rank the potential markets around you? This is really the secret sauce of this program.
And what you're looking for is a high number of physicians in a particular zip code outside of one of your existing clinics of course that have sent a high number of patients to one of your clinics already. So they're a referring source already but from that zip code a low number of patients have come to you from that zip code. Why? That's the magic of the Olympic rings. If we are consistently moving into markets that there are already patients that are driving to your existing clinics, we're going to cannibalize many of your existing clinics.
And so you want to obviously look at that very carefully. And then finally, it's the competition. We want to map the competition. This is typically when you look at the competition, we typically would not want to dismiss a market just because there's competition in that market because we're going to dig deeper into that competition. We want to then choose at least three markets. So, we may have mapped and come up with the physician, referral, and patient data in seven or eight markets around you. Again, this is a very tedious process, but believe me, it's front end loaded and it gives success on the back end.
And what it's going to do again is they're going to keep you from cannibalizing existing sites and you're going to make sure that you have solid referral sources for the new site. You should have at least three plus markets to rank. And we want to start very objectively from okay where are the markets that have a high number of physicians that have referred a high number of patients that they have referred but a low number of patients that have actually come to your clinic from there.
That's really the objective part. The art is where does my market knowledge and gut tell me we need to be? And at this point, we're going to then choose two or three markets to now go into much more detail. Note, we have not looked for space. We have not, you know, gone to the market and looked for where we're going to put this clinic. Right now, we're still digging very deep again, referral sources. We're looking at patients, and we're looking at zip codes. All right. Now, we want to add the demographic information.
This is pretty easily done by an analyst. What we're going to do is we're going to look at some age demographics. We're going to look at population increase over time of the city that we're looking at or the or the zip code we're looking at. And we can also look at a market area and combine a number of cities by giving them lower percentages to put a real target area for referrals as well as for who in terms of demographics are in that range. We obviously add the competition and look at that.
And so what we're going to be able to do is in analyzing that competition as well, we're going to reveal by market the market share available of potential patients. And that's done by a formula based on patients that have been seen by an orthopedist and the number of those patients that are typically referred to physical therapy. And then we have an actual number and we've have some idea of the other clinics in those towns and you know how potentially we're going to make a we're going to make a ballpark on how busy they are.
And what we're looking for is a market share of patients that you could grow at least a million-doll clinic. If you can't get to a million dollars based on available market share, that's probably not a place that you want to do a startup. All right, step four. We have one to three markets. You're going to pick your top one and literally you need to go and live in that market. When we did this, literally I or one of my partners would go live in a market for an entire week.
You'd wake up there literally. You want to visit sources for referral sources, schools, municipalities, churches, and peak in on that competition. We don't want to spy on our competition, but to do a driveby, see in the window how many patients it looks like are in there. And just get an idea of about the square footage of it. Again, this all goes into that demographic information, but it gives you a real good idea as to how busy these clinics are. And you want to visit those referral sources because remember, these are referral sources that have already referred to you.
And you want to get at least 10 physicians that you in your mind when you walk out of that meeting with them or just walking in on them and talking to them and setting up a time to briefly chat with them. Again, these are physicians that have already referred to you. You're not going out to new physicians here. That's the magic of this. And you're going to place a number on how many referrals you think they're going to send by week. And again, this is much more of an art than it is a science.
But I you we're amazed at how close people come. So again, you're going to list those top referral sources and again many of them you and how many of them will refer and how many per week. Again, you lived there. You know these physicians. They are referral sources that have already referred to your other clinics and we're amazed at how close our clients become on these predictions. And this will then be the basis at some point for operations and financial proforma. Again this is very frontend loaded.
But this whole process can be done in four to six weeks. So that is steps one through five. Next time this is the easy stuff. You know steps six through 10. Now we're looking at space. Certainly finding a clinical director is not going to be easy. But typically people confuse and they start with, "Hey, I saw a space on the corner and we either need to buy that building or we need to lease that space. It's a perfect space." That actually comes last because without referral sources and referral sources that have committed, you could be making a very big mistake.
So, if you would like to talk to me about those first five steps or any other topic that comes to your mind, click below and let's talk. Thanks for coming out today and I look forward to talking to you in the very near future.
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