Will Warren Buffet buy your business? Probably not considering it is likely to be a business that may not meet his criteria. But does your business meet all the other requirements that Buffet looks for when making investment decisions? Wouldn’t you want to find out?
Side note: If you are wondering why you should even worry about Buffet’s investment criteria, then it would help to know that he is inarguably one of the most consistently successful investors of all time (great emphasis on consistency by the way!). So if your business ticks his boxes, it will tick all the other factors for success.
Rule Number 1: Do I Have a Legitimate Reason for Being?
Need is the basic rule of a business. There has to be a need for a business. Most successful businesses are created out of a need. Does that mean you should only open a practice if there is a need for a dentist in your area? Well, this is what the unimaginative minds would tell you. What the success gurus would say instead is to CREATE that need. There is no harm in opening up a practice on the same street as four others, but what will be harmful is if you wouldn’t offer anything different. And that’s Buffet’s second rule.
Rule Number 2: Is This Business Successfully Violating Industry Norms?
So yeah, how do you create a successful practice alongside many others? You need to offer something that others don’t have. You need to create a niche for yourself. Perhaps if all others are offering budget friendly services, you could offer a boutique service. You need to reimagine your business model. Buffet really looks for businesses that challenge the status quo. What are they doing differently? How are they doing it differently, and most importantly, are they doing it successfully.
Rule Number 3: Do You Have Efficient Systems and Teams?
Successful businesses are created with efficient systems. You need to have team members that know what needs to be done. Most dental practice owners have it all figured out in their heads; but unfortunately, all that does not resonate in their day to day practice and performance evaluations. They approach each problem and task individually. They will only give directions when asked rather than leading their teams to create efficient systems.
These systems are your intellectual property assets. And as business owners, your job is to create assets in order to scale and add value to your business.
It is these assets that convert into revenue, which then converts into profits and then ultimately lead to free cash flow- another of Buffet’s favorite topics.
Rule Number 4: Do I have a consistent income year in and year out?
This has got to be the most crucial of Warren Buffet’s considerations when evaluating a business for investment. This is one place he likes to opt for regular, boring, and predictable outcomes. He does not look for extreme fluctuations in finances. So, when evaluating your practice success, don’t consider the last two or three years outcomes. Neither should you rely on data averages. What you should look for, instead, is consistency.
Can your business model create consistent healthy cash flow year after year? If not, then there’s a fair chance you are still riding on a rocky boat.
A consistent healthy cash flow gives the business owner the freedom to build more equity, pay themselves dividends or reinvest in the business to create more wealth. This again comes back to building assets. One of the main reasons behind income inequality is behavioral inequality, and behavioral inequality is a direct result of a business owner’s inability to build assets.
This is the reason why, regardless of having similar business structures, 20% of dental practices do really well while the remaining 80% struggle to even remain in business.
Rule Number 5: Is your business Safe?
Sounds like a pretty valid question to ask doesn’t it? Warren Buffet also considers how safe a business is. It needs to be able to withstand market fluctuations, economic downturns and other uncontrollable factors, like Covid 19.
So how do you make your business safe? There are a number of ways you can secure your business to remain relevant through feasts and famines as listed below:
Your financial moat needs to be deep and wide and probably even have some alligators swimming around for additional security. You want a barrier to entry or a margin of entry. But what are you trying to protect your business from?
One of the major threats to businesses is commoditisation. You want to be able to create a business structure that would withstand the commoditisation that this world is evolving into. Only a few years back, nobody would have thought that you could purchase orthodontics via online portals like Amazon. But that is exactly what is happening now. I am not saying that those products match services provided face to face by an orthodontist; but it does mean that an orthodontist needs to up his game to provide a service that will not be matched by any product or service elsewhere.
Understand Your Pricing
It is not just commoditisation that is a threat, but all other service providers too that might be offering similar services at competitive prices. If you are charging a higher fee, then your services, or the overall patient experience needs to be higher than those of your competitors. If someone else is offering exactly what you are offering, for a lesser fee, then it is time for a pricing revaluation.
Don’t Be Single Source Dependent
You guys have probably heard me talk about this time and time again, but it is one mistake that I see dentists making consistently. Whether it is your marketing strategies, your providers, your team members or other important stakeholders of your practice, you need to ensure that you aren’t dependent on a single source. Say all your marketing is via newsletters because you have a great email database. What if, one day, there is an automation of emails or change in rules and regulations for sending out emails to prospects and all of a sudden you will need to revamp your entire marketing strategy which will cost you time and effort.
Same is the case with being dependent on one team member for all your important tasks. What if one day they decide they don’t find joy in their current career path and would rather spend the rest of their days doing wildlife photography? Again, you don’t want to be in that position without having a system that is beyond dependency on a single source.
These are just some of the important factors Warren Buffet considers when investing in businesses. Time has proven that the few times he himself has broken these rules, he has suffered major losses as a result. So, reevaluate your business from Buffet’s perspective and you can be rest assured to weather each and every storm like a breeze.
P.S. Whenever you’re ready …. here are 4 ways I can help you grow your dental practice:
1. Grab a free chapter from my book “Retention – How to Plug the #1 Profit Leak in Your Dental Practice”
The book is the definitive guide to patient retention and how to use internal marketing to grow your practice – Click Here
2. Join the Savvy Dentist community and connect with dentists who are scaling their practice too
It’s our Facebook group where clever dentists learn to become commercially smart so that they have more patients, more profit and less stress. – Click Here
3. Attend a Practice Max Intensive live event
Our 2 day immersive events provide access to the latest entrepreneurial thinking and actionable strategies to drive your practice forward. You’ll leave with a game plan to take your results to the next level. If you’d like to join us, just send me a message with the word “Event and I’ll get you all the details! – Click here
4. Work with me and my team privately
If you’d like to work directly with me and my team to take your profit from 6 figures to 7 figures …. just send me a message with the word “Private”… tell me a little about your practice and what you would like to work on together, and I’ll get you all the details! – Click here