How Close is TOO Close for a Competing Practice?

We get this question often enough that a few "truths" might be worth sharing:

Many practice types do not suffer in any way from having a direct competitor right next door. First of all are those practices that depend 100% upon professional referrals. An example here is a pediatric nephrologist. Included in this are those practices that will tend to dominate a particular insurance type (i.e., the only practice to accept a particular insurance type.)

General Dentists, Ophthalmologists, and Primary Care Physicians (including internists, and pediatricians) tend to fall into a middle range. You don't want to find yourself in an area with too many of them. For each, there is a certain "range" of how many an area will support. For example, with general dentists, we found a ratio of one dentist per 1,400 patients to be about right. But with all of these professionals, having a clear "brand" or identity is vital. In short, potential patients must understand what makes one practice different (not necessarily better) than another. 

When it comes to more "retail" types of practices, they have to be far more careful that they have some "geographic integrity." These practices include optometrists, dermatologists, and plastic surgeons. That is why we place such emphasis upon traffic patterns, accessibility, and competition signage when we are looking at these locations. 

Of all practices in which local competition is a big deal, veterinarians are perhaps the most important. With the exception of specialists (i.e., exotics, equestrian, bovine, or avian), we think that having another practice with a mile may be more than can be handled under most circumstances. Of course, there are always exceptions. 

An Open Letter to a Young Client

We can go back and forth time and again but the results are going to be the same. I do not believe that you will ever find a location that will be so good (“Perfect”) that it will overcome your shortfalls in production, business experience, and an empty patient roster. Let me put it another way:

There are many wonderful places to practice that will have low overhead. By definition, these places won’t be perfect. As a young professional wanting to build a long-term practice, you have to keep overhead in mind. A reasonable location (not Perfect) will help mitigate some of the risks you face with having a large debt service when you start practice. Remember, the lease will be only a fraction of your operating costs. You still have to hire a competent and experienced staff. Does it mean that you may want to change locations as the practice grows and you have beaten the wolf back from the door a little ways? Absolutely! The problem with coming directly out of school and wanting to open a “Taj Mahal” practice is really found in the risks you undertake when opening as a scratch practice.

I am sure you have had friends who claim to have left school and opening a practice on a shoestring and NOW they are rich beyond belief. Experience tells me that there is always part of the equation that is missing. They may not be lying (many are) but there is something you don’t know. Certainly a reasonable location will be important (a good demographic character + favorable competition ratio + growth + luck) but there are other factors that will matter far more in determining your success. One of those factors is how quickly you can treat patients without (them or you) feeling too rushed. Experience can be gained only with time. It will make the practice more profitable. Further, having some time in a practice and seeing the various staff “types” will also give you insights that cannot be purchased. As many experienced hands in the professional will tell you, the most expensive mistake you can make is hiring the wrong person.

Please do not think that I am trying to talk you out of opening a practice nor should you think that I am trying to tell you that a particular location you have fallen in love with won’t support a successful office. What I am trying to say is that there are risks and issues associated with an office that is frankly larger than you will need for five years in a retail environment that will place you deeply in risk of failure for two years even if everything goes reasonably well. In short, don’t make things harder on your self that you must.

Yes, I know your supply representative has sworn that with the right kind of equipment, you cannot fail. He may actually believe it with all his heart. It does not mean that he is right. Listening to sales people rather than those who have been through “the mill” will probably get you into trouble. Do all the furnishing REALLY need to be new? Can you get along with a smaller staff (but one with experience)? The questions are not inconsequential. Let’s find a location you can afford, that will lower your risk and help you to stay in practice for the long-run.

Is This Some Kind of Real Estate Blog?

Before you get too concerned that we are trying to be realtors, please keep in mind what our REAL purpose is: we want to tell you where people are going and how they are living so you can get ahead of the curve to figure out where to put YOUR practice. We don't want to take time to talk about what happened yesterday or even today. It will be too late. We have to stay ahead of the curve and that is why we discuss "trends" rather than "history." 

New Trends in Affordable Housing

During strong economic times, we always recommend practices take into account single-family detached housing increases. In other words, when you see lots of homes being built, it is usually an indication of strength within an area. The recent changes in the credit market are making this trend reverse itself FOR NOW.

Do not assume that large tracts of single-family homes are a thing of the past. We expect that within four years, this trend will hold true. We also expect that the “square footage” of homes to be steady but that the tract of land they are one will shrink significantly. But we are noticing a change in the “middle class, affordable housing market” that you should consider.

Young families are going to have a harder time getting into the housing market than ever before. Having been burned by foreclosures in the sub-prime market and being under closer scrutiny of regulators, the effect is a pendulum swing toward more middle-class apartment projects. Single people always have tended to live in apartments. But young families try to get into single-family homes as early as possible. That possibility of moving in may have to put off as larger down payments and higher credit scores are required to qualify. That does not mean that these young families are going to consider living in mom and dad’s basement.

Young families are going to be offered larger and nicer apartments for rent that will cater to middle class families with children. Rather than looking like the apartment complexes from their single-years, they will have common playgrounds and swimming pools that are supervised, study halls for children coming home before their parents, increased access to food delivery services (delivery is not just pizza anymore!), and more parking spaces per apartment.

Practices that are conveniently located near these rental apartment units will have a distinct advantage. This is especially true for orthodontists and pedodontists.

Where can these new locations be found? In our experience, we are seeing more and more of them grow up near city “beltways.” It is a serious trend that most cities are developing a beltway for easy access to the city center as well as far-flung, newly developing locations. The new suburbs (particularly those that are upscale) lied outside of these beltways, often within a 45-minute drive of the downtown. These apartment centers are usually closer in and seem to be associated with new regional shopping centers (such as the Lifestyle Centers we have described in previous articles). The trend seems strongest in the New South and Southwest (Atlanta, Jacksonville, South Beach, Dallas, Phoenix, Columbus, etc.) as well as the Central Valley in California, North Las Vegas, and many communities in Northern Utah.

But be warned, the housing market is fickle. These apartment complexes will likely not survive more than a single generation of middle class families before the single-family housing market picks up again. After that, who knows who will live in these apartments?

The New Trend in Affluent Housing

Just because trends change and the economic fluctuates (often radically), the desire to build is strong, particularly among the wealthy. So, where are the wealthy going?

We have noted a trend in Bainbridge Island, Washington, Napa, California, Simsbury, Connecticut and Dutchess County, New York that seems to be solid enough for us to mention to our doctors who want to know where the affluent are going. Rather than look at modern looking homes, these developers are selling history by the foot. We have to credit Christina S. N. Lewis of the Wall Street Journal for the lead. The developers are looking to mimic historic styles called “New Ruralism.” Homes are unique inside and out from their neighbors. They have all the latest conveniences of new-built homes but they have a character to them that is more like the homes of 200 years past. They all have in common the look of an agrarian past. Many have working farms of vineyards as part of the development.

These homes look as though they fit better with the landscape rather than seeming to “master” it.

These developments can be fairly large. One called “Serenbe” near Atlanta has more than 420 homes. Most of these homes start in the $600,000s in the more rural parts of the country and can easily go for more than $1,000,000. The idea is to offer “character” with the homes. Less expensive versions of these trend are found in Bainbridge Island, WA which as just opened 70 “bungalows” of 2,200 to 2,600 square feet.

While we are neither critics nor fans of this development, we certainly have recognized that from those who can afford spec homes, we believe that this is a long-term trend among the wealthy. Rather than offer cramped neighborhoods, these places look like there are individuals in that community.

Professional office space is something of a challenge because developers seem almost antagonistic toward non-residential buildings. That is why we have seen “town centers’ coming into these areas that closely resemble the professional offices of a century ago. Very often, these are offices that appear to be homes but built near a shopping district. When possible, we would advise the motif of the community to be carried into the reception areas an even treatment rooms. But as we have toured these spaces, we note that they TEND to be smaller (narrower) and offer less square footage than many mature practices would prefer.