Right to Win EP.5: Building an Edge in Multi-Site Healthcare with Zach Jones – EP.284

(00:00:00) – Intro

(00:00:42) – Why physicians resist private equity partnerships

(00:04:36) – From finance to healthcare entrepreneurship

(00:06:19) – Why healthcare fits the search model

(00:08:08) – Playing a different game than private equity

(00:10:13) – Building trust with physician sellers

(00:14:07) – Organic growth as competitive advantage

(00:15:58) – Why M&A doesn’t work in healthcare

(00:18:11) – The supply-demand imbalance driving growth

(00:20:04) – Capital efficient center expansion

(00:29:11) – Hiring and retaining top physicians

(00:34:33) – Learning the clinical business as CEO

(00:39:09) – Expanding across multiple states

(00:40:40) – Best healthcare subsectors for searchers

Zac Jones: I think most providers are very wary of private equity because a lot of private equity funds have come in and asked providers to produce a lot more than they had historically, you know, removed their clinical independence, or just were generally not good partners. I don’t think that a lot of the private equity funds or hospital systems are so focused on physician happiness, retention, and just treating them as true partners, and we have 100% retention of not only the sellers, but all physicians we’ve hired since.

Zac Jones: And I think that really speaks to the fact that we’ve been able to create a really constructive clinical partnership with them.

Alex Bridgeman: Welcome to Think Like an Owner and the finale episode of our Right to Win episode series, covering how search entrepreneurs can develop rights to win deals, companies, new customers, big hires, and all sorts of other things.

Alex Bridgeman: And Zach Jones joined us for this episode all about a right to win in healthcare that was really unique and well understood and well executed, and it was a ton of fun. And joining me is Aaron Perine from Trilogy and Keith Rose from Pacific Lake to help introduce Zach.

Aaron Perrine: Yeah, great. Hi, Alex. Hi, Keith. I just want to say how much I appreciate and Trilogy appreciates the partnership with the podcast and with Pacific Lake on this series.

Aaron Perrine: It’s been really fun to do. We continue to just get great reactions from folks who feel like they’ve got something out of it, which of course is, is the point and, and, and, and why we do all this. So thank you both for that. And I guess I would just kick off by saying it’s been a… You know, I’ve had the pleasure of working with Zach and the gastro platform that he acquired and has then built.

Aaron Perrine: And, you know, I think people will really get a lot out of this conversation. You know, we’re often starting from the perspective of somewhat generalist investors, and there’s something really great about that, this real intellectual curiosity in that. I, I think, you know, in healthcare i-it also really pays to know something about something.

Aaron Perrine: And I think people listening to this conversation will just appreciate the depth to which Zach, you know, understands physician compensation, physician recruitment, physician, you know, just the operational complexities of a procedure-based practice. So that was, that was really fun to listen to from him, and, and I think people will, will, will enjoy hearing.

Keith Gross: Yeah. I, I agree, Aaron. It was really cool to hear Zach just talk about the same themes that, that embody just the way he approaches business with physicians in partnership and trust and relationship, and he just kept coming back to these themes no matter what the topic was that Alex was, was hitting him with.

Keith Gross: It just came back to the same thing, like, “I wake up every day wondering how to be a good partner to my physicians.” And that is, I think, true of buying any business, but is particularly true in healthcare and provider-based businesses.

Aaron Perrine: Yeah, and you know, he didn’t… It’s like part of that’s of course just Zach’s approach, but I think he also made the point, which as a, as a ETA investor, I appreciate, that the model itself h- is, is structurally a really good fit for physicians looking for that kind of partnership.

Aaron Perrine: And, and I think that’s right. I think even Keith, I think in our portfolios, like we see that over and over again, where like this, this model’s been effective as long as it has, partially because of the fantastically talented operators that we bring into it, but also because it’s, it’s structured for that kind of, of partnership.

Aaron Perrine: And then, you know, Zach took that and, and like just titrated it exactly right for the kind of provider that he’s partnering with and has really set an example of, of how to do this in a, in an exciting way.

Keith Gross: Yeah, I totally agree. And I think what, what’s great is, you know, he’s playing a different game and it’s his game, and it’s the right game for him and for his partners.

Keith Gross: He’s not trying to be… Some ways not, it’s not trying to be a BE firm. He’s just trying to be a great leader and partner, and it c- comes through in everything he talks about

Alex Bridgeman: Welcome to Think Like an Owner. This podcast is all about how small businesses are grown. And, uh, Zach, thank you for joining the concluding episode in our Right to Win series.

Alex Bridgeman: This series focuses on how search CEOs kinda identify different rights to win, whether that’s a right to win a deal or a relationship with a seller, or customers, or new key hires, or anything in between. So every ep- every episode, every CEO in the series has brought a different right to win. It has been fun to, to digest and look through.

Alex Bridgeman: So I’m excited to chat with you today about all things clinical. The … Can you quick walk us through your, your background and kinda how you got to this business in particular and healthcare as an industry and, and all that?

Zac Jones: Sure. And thanks so much for having me on the podcast. Excited to be here. So I started, like many in the search ecosystem, in finance.

Zac Jones: Did equity research at Sanford Bernstein. Quickly realized that I wanted to do something more operational in nature. Moved into an ops role in a outsourcing company and eventually became a healthcare entrepreneur, founding a VC-backed home healthcare company. Post that, spent some time at Amazon, but really w- realized that I wanted to get back into operationally focused businesses in the healthcare industry.

Zac Jones: I am Really an operator, you know, through and through, and very much enjoy getting up every day and solving operational problems, and that’s what led me to search.

Alex Bridgeman: W- what did that start to feel like or look like at Amazon and your other career points where, uh, you kind of felt the need or, like, interest in doing something different?

Zac Jones: Yeah, so I, I think for me, s- finance was too, a little bit too removed from the action. It was a lot of analysis and, and writing and not enough doing, and I think at Amazon there was a lot of doing, but I never really had ownership of the entire picture. And so that’s why I wanted to get into small b- business and search because for me, I really enjoy owning both the strategy and the execution and, and that’s what I most enjoy about leading Gasos Centers of America.

Alex Bridgeman: What attracted you to maybe healthcare generally? Were there a few industries that you kind of were spending some time around, and you eventually kind of narrowed your focus?

Zac Jones: When I raised my fund, I was 100% focused on buying a healthcare business, and I think for me there were kind of two key parts of that.

Zac Jones: The, the first was I felt that my background in healthcare entrepreneurship would make me more credible when I talk to sellers. And then I think healthcare is also a great industry for searchers because it is the quintessential Main Street business. So if you think about provider groups, there’s thousands of provider groups nationally, and the sellers are very wary of working with private equity.

Zac Jones: They, you know, are the lead clinician in the group typically, and, you know, under our structure, they actually have to stay post-acquisition for five years. And so they really wanna make sure that whoever they partner with is the right partner, and they’re certainly more interested in being the platform than joining a platform.

Zac Jones: So I think that plays really well to, you know, the search model and searcher’s strengths.

Alex Bridgeman: What are some other benefits of just number of targets? Like, the fact that there’s thousands of similar-looking businesses, like, as you dove into the industry more and spent more time around it, what were some maybe advantages to just the sheer size of it?

Zac Jones: Yeah, I mean, a-as you know, it’s very hard to acquire a business. So the, the, the more targets, I think leads to a higher probability of success. And I think because it’s so fragmented, has really attracted private equity, and the game that they’re playing in healthcare is very different than the game we’re playing.

Zac Jones: So, you know, their model really is an M&A model focused on multiple arbitrage. They’re trying to buy these really small businesses and aggregate them together into a much larger business that play… that would command a much higher multiple. F-for us, w-we’re playing a different game in the sense that we’re trying to find a single small business that has a lot of the attributes of what, you know, a large business needs, and then grow it organically.

Zac Jones: And so I think that’s kind of one of the key things in healthcare that’s a little bit different than other industries, where both of the owner groups that you compete against post-acquisition, so you think, you know, clinician-owned groups, the owners tend to, you know, run their business, they’re the most productive clinician, and they’re managing their business in their spare time, and they don’t typically have, like, a dedicated business support team a-and access to institutional capital.

Zac Jones: And, you know, private equity, as we just discussed, is really focused on the M&A play. You know, organic growth is long. It, it takes a lot, uh, it takes a lot of, uh, time to, to come to fruition. It takes a lot of capital, and it’s really hard for it to move the needle for their returns. So Searcher’s kind of sit in this interesting place in between both of those types of owners where, you know, w-we have, uh, the business skills, we have the access to capital, and we have the time to really build a, you know, industry-leading business completely organically

Alex Bridgeman: I’m sure over the course of the search too, the story you tell to owners about who you are, what you’re trying to do, you know, gets refined and improved and focused after each, you know, seller meeting.

Alex Bridgeman: Were there any key points or key owner discussions or relationships you had where it was kind of the aha moment, like, okay, like here’s the kinda niche as a search entrepreneur that I can have in the industry, and maybe here’s how I tell that story in a cohesive and, and clean way?

Zac Jones: Yeah. I think the narrative that they’re going to retain their clinical independence post-acquisition, and that we’re gonna be able to lead a physician or a provider-first organization, is something that really resonates with them.

Zac Jones: Because if you think about it, they are a very different type of seller than the vast majority of lower middle market sellers in that they have to stay long-term, you know, post-sale, and that this is the profession that they’ve trained for decades to be able to practice. And so if they sell their business and have a bad interaction or, you know, end up getting let go, um, they’re probably gonna have to move their family, you know, to a different metro area to be able to be outside their non-compete and be able to do their, you know, their preferred profession.

Zac Jones: And so I think the seller-searcher fit is a lot more important in healthcare than it is in other industries where the seller’s gonna exit the business in six months.

Alex Bridgeman: Yeah, you mentioned it, it took a year to officially close the business, and that is a point I hadn’t thought about, that there’s a, the degree of risk for the seller is that much higher due to non-competes and just the dynamic of running a clinic.

Alex Bridgeman: I

Zac Jones: think it, it takes a lot more focus on building trust, because this person’s along for the ride with you, so they’re really a business partner. This is not they’re selling the business and moving on.

Alex Bridgeman: What was most helpful in developing that trust? Would you try to… What were some, like, repeated things you tried to do or spend time together?

Alex Bridgeman: What were your focuses?

Zac Jones: So at the time, I was living in Seattle and the, and the business is in the DC area, and so I was flying out here really every month, meeting with the seller, and trying to kinda understand what his concerns were. And a lot of that, as we kind of already mentioned, was around, you know, clinical independence, making sure he gets a fair deal, a- and really just ensuring that we don’t act like what, you know, every private equity fund that he’s ever heard of.

Zac Jones: And so then we really tried to document a lot of that in the transaction documents, and I think as, you know, he got to know me over a year, he got more and more comfortable that, uh, we would do what we said we were gonna do.

Alex Bridgeman: I bet it was pretty impactful too, spending in-person time despite being cross-country.

Alex Bridgeman: I mean, that, that definitely helps move the needle too.

Zac Jones: M- most definitely. And if you think about provider groups, most of these groups have a large number of sellers, right? So our, our group, while they had a primary seller, there were five total sellers, and all five sellers are still in the business. And we have 100% retention of not only the sellers, but all physicians we’ve hired since.

Zac Jones: And I think that really speaks to the fact that we’ve been able to create a really constructive clinical partnership with them.

Alex Bridgeman: Yeah. I imagine that also takes time, having that many sellers, each who have, you know, they’re united around this mission for the business, but there’s all these personal dynamics, or each one wants something a little, maybe a little bit different that you have to navigate.

Alex Bridgeman: How’d you navigate with that many kind of parties to make sure everyone’s kind of working in the right direction?

Zac Jones: Yeah. So we had a lead seller who was the person who founded the business, and then we had the, you know, sellers who were minority shareholders. And we tried to just have a lot of in-person meetings where we talked about, you know, what the post-deal business was gonna look like, make sure we’re all aligned in terms of mission, uh, and really demonstrate that we are credible partners and are gonna do what we said we were gonna do, which I think is really, really important.

Zac Jones: I think most providers are very wary of private equity because a lot of private equity funds have come in and asked providers to produce a lot more than they had historically, you know, remove their clinical independence or just were generally not good partners

Alex Bridgeman: You also talked about organic growth being a differentiator as a searcher that PE is probably less interested in.

Alex Bridgeman: How did you outline your ambition for the business compared to other buyers that they inevitably have run into before and talked to?

Zac Jones: Yeah, I think we were– had a little bit of a unique opportunity with this business where this business has– had grown organically very quickly for a number of years before we acquired it.

Zac Jones: So they were really comfortable with that playbook, and really the question was, you know, are– do you subscribe to the playbook and are you going to, you know, really build on the great foundation that they’ve put in place and be a good partner going forward? And so while I think we’ve done a lot of different things than they did initially, they had really k-kind of created the playbook that we’re now leveraging.

Zac Jones: And so it wasn’t too hard a sell, but I think the sellers very much understood that they had built something really great that could be a platform, and they didn’t need to be an add-on to someone else’s platform

Alex Bridgeman: Earlier you mentioned that th-this being kind of the quintessential mainstream business, there’s, you know, uh, providers who are trained medically to do their, their role, but they’re also running a business on the side.

Alex Bridgeman: The number of targets makes it… Maybe there’s more opportunity for you as a searcher to buy a company, but on the flip side, you also talked about that makes M&A growth. So once you have the platform doing add-ons, actually a challenge because now there’s just different… E-Each clinic is run a different way and there’s a, there’s different cultures to try to combine and, and work together with.

Alex Bridgeman: Can you talk about kind of what your strategy with M&A versus organic has been and kinda how you’ve come to this conclusion?

Zac Jones: So we focus exclusively on organic growth, and the reason for that is I think M&A in healthcare is really, really difficult to execute. Acquisition multiples are very high, but beyond that, if you look at it, just like you had mentioned, you’re really acquiring a group of clinicians.

Zac Jones: I mean, it’s a business, but it’s really a group of clinicians that has practiced independently, done things their own way, and then you’re asking them to stay on for five years as part of the deal. And so if you’re really executing a exclusively M&A strategy, what you end up with is a, you know, a, an assortment of a bunch of independent, previously independent physicians that may or may not wanna do things your way.

Zac Jones: I think that’s a really tough way to build a business as well as create a consistent patient experience. Our focus has been exclusively on organic growth, and so that’s hiring new physicians and setting up new centers, and we believe that we have a really right to win, to steal the phrase, in that space, and the reason is that no one else is really doing it, right?

Zac Jones: So those clinician-led groups, um, with the exception of the group that we partnered with, uh, don’t typically have the heavy focus on organic growth because they’re running a lifestyle business. They don’t have access to capital. You know, why take all of that risk to try to grow exponentially? And the private equity guys, as we, as we mentioned before, are really focused on You know, multiple arbitrage, buying busi- uh, buying businesses and piecing them together and hoping to sell them at a higher multiple.

Zac Jones: And organic growth is just not that attractive to them. If you think about the largest player in our space, it’s a thousand-physician group. So to grow by ten percent organically, they would have to add a hundred physicians in a year and set up sites for them to practice at. So that’s probably not gonna move the needle for them.

Zac Jones: It costs a lot of money and takes a really long time. But for us, hiring ten physicians in a single year is twice the business we bought and is, and is, you know, truly a game changer for us. So we’ve been extremely focused on organic growth, and I do think there are ways to do it in a very capital efficient manner.

Alex Bridgeman: Yeah, I’m excited to get into the capital efficient piece too. But what drives organic growth? Is it purely… Is it a supply-demand imbalance in terms of just the, the amount of demand for the service is really high, or is there a… How do you out-compete maybe local clinics into, in the areas you’re expanding into?

Alex Bridgeman: Maybe, maybe talk through kind of what organic growth feels like.

Zac Jones: Yeah, the nice thing about healthcare is there’s far too many patients and not enough providers. So really the key to organic growth is being able to hire clinicians and then in turn set up sites for them to practice at. And the reason that there are just too many patients is in almost every subsector in healthcare, there are some kind of structural challenges in terms of producing enough clinicians to meet the current need.

Zac Jones: And so in, you know, specialty care, so in, uh, if, if you think like prod-production of specialists, there was a government act in the late nineties that capped the number of fellowship seats, so we just don’t produce enough, enough ophthalmologists and ENTs and GIs, which means there will al-always be too many patients.

Zac Jones: So when we’re expanding into a new area, we are not really out-competing a local group, we are just pulling off of their backlog. So they have too many patients. There’s a wait at every other group. We’re going in and saying, you know, “We can see people a little bit sooner.” So that’s the unique thing about healthcare, and that is really across subsectors in healthcare.

Zac Jones: So be it ABA therapy or, or PT or specialty care, there are just not enough providers and far too many patients as the population ages and disease incidence increases. So this is really an execution-oriented business. Can you hire people, and can you set up new locations? If you can do those two things, you can be successful.

Alex Bridgeman: I want to get into hiring too, but the, in terms of capital efficiently opening new locations, what goes into a new center in terms of the building or equipment, any licensing or regulatory requirements? What, what happens when you open a new location? What needs to happen?

Zac Jones: Yeah. It’s a very costly and regulatory intensive build-out, so it, it takes at least a year and it costs millions of dollars to do.

Zac Jones: So th-that is a real no. It’s not an easy thing. But there are ways to, you know, reduce your build-out costs by finding sites that have a lot of the attributes you need, and trying to repurpose those sites and leverage dollars that your landlord can give you in the form of TI. So an example might be, you know, if you are an ABA company, uh, so that’s…

Zac Jones: ABA companies are focused on autism, uh, treatment for children, right? Finding a, what used to be a daycare and repurposing that would save you some on build-out. So, you know, the, the build-out costs and timelines vary by subsector. Ours are probably some of the most significant of any subsector in healthcare.

Zac Jones: But there’s, I think, a playbook of, you know, being thoughtful about your real estate strategy, as well as partnering with institutional landlords and giving material TI that can allow you to expand in a much more capital efficient way than just building stuff from scratch

Alex Bridgeman: So then real estate becomes a really big part of how you think about expansion.

Alex Bridgeman: There’s a… Here in Portland, there’s a Toys R Us that closed recently where I went to high school, and it’s now a cancer center, and it, I guess it worked. It was a huge parking lot that apparently is very full. What kind of centers, what buildings tend to work well for your business and what– If you’re just on Google Maps or driving around an area, what are you kinda looking for and trying to focus on?

Zac Jones: We are not a retail business, so it’s not like an urgent care where someone needs to be able to see you when they drive by and, you know, stop in if they’re sick. So r-really anywhere works for us, and we’re typically, like, in office parks, uh, you know, focused on lower cost per square foot and, you know, more generous TI packages from those landlords.

Zac Jones: But as you correctly mentioned, there’s a lot of landlords right now that are trying to retrofit their centers from either retail or office where, ’cause office has been a really challenged part of, uh, of, uh, real estate due to, you know, the work from home trend and are willing to spend the money to kind of transition that to healthcare.

Zac Jones: So the nice thing is we are in a very attractive subsector from the landlord’s perspective, and so a lot of landlords would wanna work with us.

Alex Bridgeman: I imagine it also helps showing that you haven’t closed a clinic, you know, that the clinics you open stick around for a long time and you in-intend to be a long-term clinic versus a, you know, industry or business where maybe it’s more volatile and there’s more closings that happen too.

Zac Jones: Yeah, I think healthcare is a very defensive industry, which a lot of landlords like. And then I think within healthcare, again, it’s, we occupy a pretty unique place amongst the universe of potential tenants, right? So we had talked about before, there’s clinician-led groups, and then there’s PE. You know, I think landlords are pretty wary of clinician-led groups because they, you know, the solvency of the group is really tied to what happens with that individual clinician.

Zac Jones: There can be disagreements between clinicians, and these groups often fail. And on private equity side, I think, you know, landlords can be pretty wary of private equity too. The feeling being that a lot of private equity platforms have put far too much debt on the business and then, you know, really tipped over and had to shut down.

Zac Jones: We really think about how can we grow in such a way that we can produce, you know, very strong returns for our investors, but in a responsible way. So we’re not going out and, you know, tru-truly trying to grow exponentially. We’re really, um, focused on, uh, growing in a, uh, measured way. So we, you know, when we bought the business, we had thr-three surgery centers.

Zac Jones: We have ten this year, so five years later, um, four of which are in flight. So it is a pretty significant percentage growth rate, but it’s, you know, from the size of the business perspective, it is a very measured approach.

Alex Bridgeman: So with any new center, what are the big buckets of cost and where have you found ways to finance them more efficiently?

Zac Jones: So I, I don’t think we’ve really figured out a better way to do this in terms of doing it at a much lower cost than others beyond finding facilities that, you know, are amenable to a lower build-out cost. I think what we’ve been able to do is utilize lenders that I think are not as prevalent in the search ecosystem.

Zac Jones: So when we started, you know, we started with a typical bank lender, and that really become a… became a rate limiting factor in how… terms of how fast we could grow. And over time, we’ve transitioned to a private credit fund, and that fund really thinks about its willingness to deploy debt in terms of if it will create EV, and that’s really how we think as equity investors and, uh, and owners, right?

Zac Jones: We’re really dif- we’re not so concerned about current profitability and, you know, coverage ratios. We’re much more concerned about what is the amount of EV we’re building in this business, and I think that’s really important in healthcare where it can take three or four years for a provider to fully ramp up.

Zac Jones: Can

Alex Bridgeman: you talk through that in more depth on why your debt provider views it through enterprise value creation and kinda what that means in practice as you evaluate a new location?

Zac Jones: Sure. So, you know, we’re not running the business for distributions right now. We’re really trying to reinvest all of the cash flow in growing the enterprise value, and a lot of lenders would not really be comfortable with, you know, depressing EBITDA to create a much larger business.

Zac Jones: But the lender we, you know, we work with, and I think a lot of private credit funds, have understood that their security is ultimately tied to the size of the business. It’s not, you know, tied to, you know, coverage ratio so much. And so, and that’s important in healthcare because when you set up a new EBITDA, a new location, it can take a year or two to set it up.

Zac Jones: You know, providers, you have to provide often significant guarantees when they join, and there’s a really long ramp process and significant J curve for any location. So, you know, you could be building to a business that’s two or three times the size you’re currently at and have that install base and, you know, a relatively low EBITDA margin as a result.

Zac Jones: But if everyone understands that the kinda first principles of this industry, that there are far too many patients, if you have the providers and locations, you know, eventually they will ramp up and create a lot of, uh, enterprise value for everyone involved.

Alex Bridgeman: How predictable has that ramp-up been in your new locations?

Alex Bridgeman: When you talk about that supply-demand imbalance with lenders, does that, like, show through pretty quickly in your ramp-up? Like, it’s not, it’s, it’s not this five-year process to become profitable.

Zac Jones: Yeah. No, I, I think that is a very predictable ramp, and it took us a few years to figure this out, and we’ve gotten much better at ramping, simulating demand and ramping providers more and more quickly.

Zac Jones: But I think as that has become a predictable playbook At scale. So, you know, we’ve added 15 physicians, you know, as of this year since we’ve joined. I think people get more and more comfortable with the, what, you know, the ramp timeline w- and what those dynamics look like, and what the ultimate enterprise value you’re creating is.

Zac Jones: So, you know, this is a, a learned playbook. It’s not something you’re gonna come in and, you know, immediately two or three X the size of your business from a capacity standpoint. It’s, you know, our first year we hired one physician and, and saw how it went, and then, you know, we hired three the second year and went, and went from there.

Zac Jones: And the, the business had a strong history of doing this themselves. You know, the, the business was founded by Dr. Raii, was, you know, part of the GI program at Hopkins. He left, started this business, and then, you know, went through a period when he was decided to go organically, added one physician a year and ramped them up.

Zac Jones: So we could look at that data and see his track record of ramping physicians, and then think about, you know, if we had a dedicated person and business team working on this, maybe we could do it slightly faster

Alex Bridgeman: And then you, you kind of mentioned this with hiring the right talent once you have a new location planned or in process.

Alex Bridgeman: And like, what does it take to hire the right talent for a location? Maybe how do you evaluate if this doctor is… There’s like the provider side, then there’s the business maybe manager side. H-how do you hire for both? Does the provider do both, or is there a separate role for business manager? How do you think about the talent side of a new location?

Zac Jones: I think the key to being a good partner to the physicians, and a-again, we don’t directly own the group, we are a service provider to the group, and we can talk about that in a little bit. But, you know, really how we think about it is we want to solve everything for them, so they just have to practice medicine.

Zac Jones: So we do all of the business side of things. You know, we take care of the center, we set it up, we ramp it up, we think about marketing. So we’re really providing a holistic solution where they just need to practice medicine. And I think that combined with we are able to offer a better quality of life to clinicians, so a really predictable schedule.

Zac Jones: It’s ba- effectively a 100% outpatient job. You don’t really need to go to the hospital. And people are able to live in very aspirational locations. So, you know, we’re in– we started off in DC, we’ve since launched in Philly and as well as northern Virginia. Those are places people wanna work at. So if you think, you know, how physicians evaluate opportunities, it’s very much the same way that we would, which is, you know, “Can I live somewhere I wanna live?

Zac Jones: Can I have a good quality of life and work-life balance? And can I have a good compensation package?” And Because we’re in desirable locations, we f- really focus on quality of life and work-life balance, and then pair that with an organization that’s completely built around the physician, that allows them to be more productive.

Zac Jones: And in healthcare you get paid per piece, which means you can do more pieces during your eight hours that you’re at work, and in turn, make more money. And so I think, you know, the value prop that we’re offering is not materially different than the value prop that, you know, you and I would want if we want an interview for a job.

Zac Jones: It’s just that I don’t think most healthcare systems or private equity platforms are thinking about it that way, where this is a physician-led organization, and the physicians are our partners, and we’re really trying to think about every day, how do we make their life better? And I think if you’re able to do that, that really comes through during the, the recruiting process.

Alex Bridgeman: You also mentioned retention had been really good, and you hadn’t lost a provider to this point. W- what goes into that? There’s the… Obvi- getting them hired is, is, is great, but what keeps them engaged and retained in the business? What, what makes them excited to continue?

Zac Jones: So I think it gets back to the are you a good partner or not?

Zac Jones: And we really focus everybody on how can we be a good partner. And so clinicians want a lot of independence and

Zac Jones: be able to practice with like-minded, with a like-minded group of clinicians that are really focused on high quality of care. And so I think we’re able to do that internally and inculcate that sense of clinical excellence. But they don’t wanna do anything beyond that. So they’re really not interested in running the day-to-day business, but they wanna be able to be stakeholders and provide input on that, because it’s very hard for us to understand as business people how things work on a daily basis and, you know, what are the clinical implications of a business decision.

Zac Jones: So we really focus on always seeking physician input on any business decision we’re gonna make, and ensuring that they don’t have to do any of the business responsibilities. So it is really run as a partnership between Dr. Rai and myself and the original sellers and the new physicians as well, and myself, and we’re always have this iterative process where we’re trying to figure out ways to do it better.

Zac Jones: I don’t think that a lot of the private equity funds or hospital systems are so focused on physician happiness, retention, and just treating them as true partners, and I think that shows through in your career people as well as in our retention metrics

Alex Bridgeman: What did their role and day-to-day look like when you bought the business?

Alex Bridgeman: And what were some things you started working on and prioritizing to kinda improve their day-to-day life and give them more time to work with patients versus make business decisions? Like, what were the kinda first things you worked on in the business after you acquired it?

Zac Jones: So the first things we worked on were thinking about how to streamline operations.

Zac Jones: So how can we, for example, scope more patients and utilize the endo time more efficiently? So endo time is our surgery center time, and really, if you’re a, a GI, you, you wanna scope patients. That’s what you’ve trained to do. And scoping patients is performing colonoscopies or GDs. And so we really thought about how can we see, you know, see more patients more efficiently in the endo centers?

Zac Jones: How can we do a better job of marketing the physicians’ practices and ensuring that, you know, they have plenty of patients every day? And then we also thought about how can we reduce the operational overhead that these guys had to deal with as business owners? So we really, from day one, took over all of the business, you know, components of the group and, you know, run those to this day.

Zac Jones: And we have the physicians be subject matter experts that we, you know, we run ideas by and get their feedback on in a very iterative process, but we’re the actually ones doing all of the heavy lifting. Whereas before, particularly the seller, Dr. I, the primary seller, you know, he was doing all of this on his, in his spare time, and not just a lot to be the most productive physician in the group as well as, you know, run a business on the side.

Alex Bridgeman: What felt like the biggest learning curve for you as CEO?

Zac Jones: I think for me it was really learning the industry. I don’t think healthcare is that much different at its m-most basic from really any other kind of operationally intensive business, and I really love running operationally intensive businesses.

Zac Jones: But this is a very complex industry. There’s a lot of specificity that you’re never really gonna be able to understand if you didn’t go to medical school. And so a lot of it was just being curious and spending time with the sellers and asking questions about how things work. And I think being willing to admit that you’re a novice and that, you know, it’s gonna take a long time for you to get dangerous in the space.

Alex Bridgeman: Do you have any family members in, in healthcare or relatives or close friends you could kind of bounce questions off of as you got up to speed?

Zac Jones: N-not really. This was really learning from scratch and, you know, when you’re building a SIM, it… You know, you have some rudimentary understanding of an industry, but obviously being in the seat is materially different.

Zac Jones: And so I think it’s… I think what’s important and what I would… The advice I would impart to other search CEOs or people that are searching in the industry is just that humility to be able to say, like, “I don’t know what the answer is,” or, “I don’t understand,” and kind of seek out those right answers from, uh, the seller group is really, really important.

Zac Jones: And I think it, it speaks to the fact that you need to have good partners. You need to partner with good people, right? Because these businesses are not businesses that, you know, a, a, a searcher with, you know, a background in finance operations can run without a friendly seller partner who’s willing to, you know, be a true business partner and be engaged for years.

Zac Jones: I mean, the really great thing about this group is wonderful group of people. We have a great relationship with everyone in the group five years later and have built something really great together, and I think they all feel that sense of ownership and accomplishment, and I think that is not a normal search outcome.

Zac Jones: I think a lot of times, you know, sellers are not in it for the long term or, you know, relationships fray. I just feel very thankful that we’ve been able to find a really great group of people that is excited to, you know, work together and have been great partners.

Alex Bridgeman: As you talk to providers and other businesses, were there kind of green lights or yellow lights that you would pick up on over time that could tell you more about how they view your business or you as a potential, potential partner to kind of evaluate who the right fit for you would be?

Zac Jones: Yeah. I think I was looking for a fellow entrepreneur, so someone who was business savvy as well as an outstanding clinician, and I think that’s what I found. So Peter, Dr. Rai is, I think, one of the preeminent GIs in the area, but also a really thoughtful businessperson, and that’s, that’s what I was looking for.

Zac Jones: A lot of sellers felt like they couldn’t really understand the value proposition that we brought versus private equity, or they were looking to just retire and leave the business, and that’s not what you want. You want someone who’s gonna really stick around and build the business with you and be a true business partner.

Zac Jones: And, and we– I don’t think this would’ve been possible without, you know, such a friendly group of clinicians that really wanted to help build the business long term. And I think it’s often said that the most common… You know, all things being equal, the most important metric in a business acquisition is terminal year growth rate, and this business grew forty percent in its last year.

Zac Jones: And I like to joke with the sellers that, you know, they were doing it part-time, and it had grown faster in that last year than we grew– have grown any year since we bought the business. So I just think it speaks to the fact that, you know, growth rates say a lot. You can do a lot of analysis, but ultimately it’s very hard to argue with results.

Zac Jones: Um, these guys created a really great, you know, really great organic growth machine within the structural limitations they had of, you know, not having access to institutional capital, having to PG everything, you know, running it in your spare time. And so we’ve really just kinda come in and been partners where we’ve taken a lot of that playbook, refined it, and tried to do it at a greater scale

Alex Bridgeman: What are you most excited to see in the next two or three years, and kind of what, what stops you getting there?

Zac Jones: So we recently launched in the Philly area and are launching Northern Virginia later this year. And so we have pivoted from Gastro Centers of Maryland to Gastro Centers of America, where we are setting up sister groups in these different states and really trying to see how modular the model actually is.

Zac Jones: And, you know, this is something that I don’t think there’s been precedent for, at least in our specialty. And I think it goes back to what we had talked about before, which is searchers occupy a very unique space in healthcare between clinician-led groups and private equity groups, and just benefit from different incentives, right?

Zac Jones: For us to grow over, you know, for five years, another five years, and if we can grow across a bunch of different states and, you know, two or three X the business from where it is currently, that’d be a really great outcome for us, but probably not move the needle for a private equity shop or, you know, it’s not really in the wheelhouse of a clinician-led group.

Zac Jones: And so we’re continuing to try to lean into this organic growth play and see, you know, can we go from the twenty physicians we’re at today to forty to sixty physicians in the next few years across these different states.

Alex Bridgeman: Thinking about your, your healthcare search again, knowing what you know now from executing your own playbook and refining it, what other areas of healthcare stand out where there’s kind of similar dynamics that you could build a business around successfully?

Zac Jones: It’s a great question. I, I think we spent a bunch of time talking about how great organic growth is in specialty care, but I actually think if you look at healthcare as a continuum, it’s actually the hardest to implement in specialty care. Whereas I think there’s a lot of sub-sectors that if I were searching again, I would focus on, and there’s really, you know, three that stand out.

Zac Jones: So the first is ABA therapy. This is a kind of perennial favorite of, of search funds to focus on, you know, autism therapy for kids. But what’s really great about it is y- you benefit from the same supply-demand mismatch you have in specialty care and throughout healthcare. It’s highly recurring revenue, so the kids are typically enrolled for twenty or forty hours a week, and each kid’s worth, say, a hundred and fifty to two hundred thousand dollars in recurring revenue.

Zac Jones: And it’s a relatively simple business. You’re setting up what are effectively childcare centers with, uh, behavioral R- RBTs and BCBAs, which are master level behavioral experts. And so those… What the great thing about that business is, is you can truly grow exponentially, and it’s essentially con- almost contractually recurring revenue.

Zac Jones: So I think that is probably the best place to focus if you’re really excited about organic growth in this space. And it was the same case when I was searching, uh, and an area I had focused on as well. I think the second area that’s really interesting is ambulatory infusion centers. And w- what ambulatory infusion centers are is historically, if you wanted an infusion, you go to a hospital, and infusion’s a drug that you are having put in your veins via an IV for a very specific issue.

Zac Jones: So it might be a GI issue, it could be a rheumatology issue, et cetera. And they’re very high-value drugs, you know, five, ten, twenty thousand dollar drugs. And, you know, historically, you had to go to a hospital to do that, or you had to go to a, a, a physician group, and a lot of physician groups have moved away from doing infusions because it’s a very high working capital business, and reimbursements can be challenging.

Zac Jones: There’s been a new development in healthcare where people are setting up what’s called ambulatory infusion centers, which are these third-party infusion centers that are set up typically, like, in a strip mall. And you can go there and get infused for everything from, you know, like, an iron supplement up to, you know, very specific specialty drugs that cost twenty-five thousand dollars.

Zac Jones: And they’re able to benefit from better contracts because they are set up not as a physician group, but actually as a infusion business. And similarly to ABA business, the ABA therapy businesses, these are very simple businesses. They set up in strip malls, uh, typically. They have, uh, are overseen by nurse practitioners and not physicians.

Zac Jones: Most of the work’s really done by registered nurses. And so setting up a center is very capital light and very scalable. So you can really exponentially grow in the space if you’re able to do it in a, uh, a very capital efficient way and are thoughtful about working capital. And then I think the third is really behavioral health more generally.

Zac Jones: I think there’s a pretty interesting opportunity, uh, in specialized therapy, um, so kind of talk therapy. And to some degree, there is an opportunity in addiction treatment and recovery, but there tends to be a lot of regulatory issues there. So I think those are all really interesting sub-sectors in healthcare that I would focus on if I was searching again, with an emphasis on provider-led businesses.

Alex Bridgeman: Is there a lot of people looking in those spaces, or does it feel still pretty, pretty nascent in search?

Zac Jones: I think that there’s historically been a decent number of deals in ABA therapy, but I think there’s still huge amount of white space beyond, like even with all the kind of payer blowback that’s happened recently, you know, the…

Zac Jones: There’s just such an increase in the prevalence of kids with autism that someone needs to take care of. And I think there’s been very little focus historically on ambulatory infusion centers as well as behavioral health. So I think both of those are really interesting opportunities for searchers, you know, coming in that want to kind of find the next big thing to focus on, and timing’s really important in healthcare.

Zac Jones: So if you look at even in specialty care, there tend to be waves. So like dental care was the first to be rolled up. You know, GI, dermatology w- were kind of second, um, and are the most mature. So really making sure that you’re entering at a time when private equity’s kind of just starting to get interested in that space and there’s significant white space is really important from an exit perspective.

Alex Bridgeman: Any closing piece of advice if searchers pursue one of those three, kind of what to look for and, and pay attention to or focus on or avoid?

Zac Jones: I think similarly to, uh, in specialty care, you know, you’re really looking for a very strong selling clinician that can be your partner. That is very hard to replicate post-transaction.

Zac Jones: And so if you, if you cannot partner with the wrong person, it can be almost an immediate deal killer. So I think you have to diligence out the quality of the people you are partnering with in a healthcare business much more so than you do in, you know, a traditional business. And I think the second thing is, these are highly local businesses, so the state you’re in matters a lot, um, in terms of regulations, but also how favorable reimbursements are, how scalable the business is.

Zac Jones: You know, are there gonna be future restrictions on corporate owner– you know, PE ownership of healthcare businesses? So I think it, it, it’s not… The opportunity is great nationwide, but there are certainly pockets that are better than others.

Alex Bridgeman: I love it. Well, Zach, thank you for coming on the podcast. It’s been a ton of fun, and I appreciate you sharing more on the episode.

Alex Bridgeman: Where can people kind of reach out to you if they wanna chat more or hear more about what you’re working on?

Zac Jones: Yeah. Thanks so much for having me, and I’m always happy to chat with people. Please hit me up on LinkedIn.

Alex Bridgeman: Perfect. Awesome. Thank you, Zach.

Zac Jones: Thanks so much, Alex. Appreciate it.

Alex Bridgeman: Thank you for listening. I hope you enjoyed today’s episode of Think Like an Owner. If you enjoyed the show, please consider leaving us a review and telling a friend to help more folks find Think Like an Owner. For full episode transcripts and our weekly newsletter, please visit our website at tlaopodcast.com.