CINE Start-up Study

Prasanna Kumar Jagannathan

Fine Feather Dental

CONTENTSBackground..................................................................................................................................................................3

First venture - School health diagnostics.....................................................................................................................3

Starting Fine Feather....................................................................................................................................................4

IIMA and CIIE................................................................................................................................................................4

Initial Growth of Fine Feather......................................................................................................................................5

Management and Administration................................................................................................................................5

Hiring Professionals and staff.......................................................................................................................................6

Compensation Structure..............................................................................................................................................6

Dental Services Provided.............................................................................................................................................6

Customers and Ethics - Private and Corporate.............................................................................................................7

Pain points in Dental care............................................................................................................................................7

Innovation and Differentiation.....................................................................................................................................7

Competition.................................................................................................................................................................8

The Challenge - Second phase of growth.....................................................................................................................8

Conclusion................................................................................................................................................................... 9

Learnings – Fine Feather (Part B)...............................................................................................................................10

BACKGROUND

Manish Jobanputra (MJ) & Manish Sharma (MS) - (M&M) are PGPX graduates of the 2009-10 batch. After second term of studies they decided to work on ideas for entrepreneurship. Once a week they looked at ideas for entrepreneurship for an hour. There were six students who were part of the entrepreneurship focus group. After a few sessions and about a month later only Manish Jobanputra, Manish Sharma, Dheeraj were left with the group and still working on such ideas.

FIRST VENTURE - SCHOOL HEALTH DIAGNOSTICS

During the last two terms of PGPX the three friends worked on renewable energy and healthcare. Renewable energy they work on for six to seven months -- five to six months while still in studies and about two months after graduation. After a few models for energy efficiency improvement business and presenting the ideas to the industry people, they realized that this business will not work for them as it was a capital intensive sector and not for them.

Later they moved to the healthcare sector. They started with the school health business in May 2010. The trio started meeting principals, trustees to develop sales. They started creating software, buying equipment, deciding on the type of product/service to be launched. They started the service at Rs 150/- per kid. They got a few schools enrolled to reach about 6,000 students in the first year. The revenue generated for the first year was about 8 to 9 lakh. During the school break they had time reflect. They realized that it would be difficult to scale this model. They would have the same 6, 000 kids in the system even in the second year. In the excel model was good. But the market was only top 1% of the schools. Whoever liked the idea had already enrolled. The realities of the market became clear to them. They realized that the size of the market was very limited. In the meantime, Dheeraj became impatient with the pace of the business and left the venture.

During the school health service experience, when they sent diagnostics reports to the parents of the kids they would invariably ask them which doctor to see, where to go, and what next. This provided them with the idea to go into providing clinical services also, instead of just the routine health check-ups that they were offering so far. Also, it would be easier to scale-up in clinical and treatment services.

STARTING FINE FEATHER

After almost a year into the health services initial business, they started formulating the business plans around providing dental services, getting in touch and partnering dentists. The market had several players with deep pockets already, e.g., Mydentist, Exis etc with more than 20 crores of funding. They were faced with two choices -- raise enough funds before getting in the current game or to come with a slightly different business model to obviate the need of large capital upfront. They chose the latter option and developed a franchise model – M&M will do the branding, and marketing, take the capital from the dentist, make him a partner. Thus Fine Feather (FF) was born. But this did not interest the dentists much as they perceived that M&M did not have any stake in the game. After about three months and discussions with few more dentists, they changed partnership model and decided to put M&M’s own money into it to give the dentists certain level of comfort that M&M’s skin was also in the game. They started partners’ first clinic in December 2011, the second in also in December 2011, and the third in April 2012. First three clinics they invested 25%, and the dentist 75%. They split the revenue accordingly.

The initial doctors were acquaintances of Dr. Keval and his associates. They knew Dr.Keval from their days in the school health diagnostics business. Dr.Keval was associated with a dental institute and had very good contacts in the industry. Incidentally, he also wanted to do something different too. Therefore, it was easy to convince him to come on board. With him on their side gave them certain level of credibility made their task convincing other dentists to come on board easier.

IIMA AND CIIE

Without the help of Proof Sunil Hand and the support extended by CIIE, it would not have been possible for them to see the light of the day. CIIE provided the financial support, moral support, and support through introduction to people who could be of help. At CIIE they got the office and a six months extension to stay in the campus after the PGPX course. After a year they also official incubated with CIIE and took the initial seed fund of 25 lakh and an office space at IIMA. This provided them the brand and credibility.

INITIAL GROWTH OF FINE FEATHER

So far they have grown 4 clinics a year. While they felt that it was not a rapid growth, they were satisfied for the initial year or two. At this time they have 8 clinics in Ahmedabad, 2 in Surat, and 2 in Vadodara. Most of the partners are already connected with FF as assistant dentists. After a year, they setup their own branch in the new area. This enabled an organic growth without altering the culture and reputation of FF. FF has taken an angel investor for initial fund outlay apart from the partners’ own funds.

MANAGEMENT AND ADMINISTRATION

The clinic level administration is handled by the partner doctors. Overall, firm-wide administration is provided by Dr.Keval Shah, Manish and Manish. The organization is very flat.

Dr.Keval looks after the clinical tech part, MS looks after the marketing and MIS technology, and MJ look at the franchise, locations, and purchase.

Each clinic has its own P&L. A patient management database controls the patient entry/enrolment, fee payment tracking, and information management system on follow up procedures. Each clinic also has own joint bank account with the group. This helps minimize and leakage in billing or pilferage by partners. The management is of the view that 3% to 5% leakage is acceptable due to the cost of monitoring and issues of trust due to resorting to extensive monitoring; trust and relationship is more important to them than full control -- it is a balance between autonomy vs control.

HIRING PROFESSIONALS AND STAFF

They hire and train the clinic staff ourselves. In the areas they operate they have generated enough good will to attract good staff people. They also get interest from dentist in the current area to come and work with them. But, in the newer areas is where they do not have any reputation to precede them and they face constraints in attracting dentist and staff.

COMPENSATION STRUCTURE

A junior dentist gets a fixed salary. They are on the rolls of the clinic. A senior doctor’s compensation is based on the earnings from the clinic. In general, in the very first year they get in the range of R 25,000 to 30,000 per month. With FF 7 out of 10 dentist partners would earn Rs.70000 per month after 3 years. In FF there is no chance of closure of the clinic. Besides, the risk for the dentists is lower, returns are better, and the probabilities of getting better returns with them are far better. Therefore, there is a huge incentive to the dentists to partner with them.

DENTAL SERVICES PROVIDED

In dentistry there are six sub specialities: speciality of gums, tooth extraction, orthodontics, paediatric dentistry, root canal and surgery. FF offers all the above services. All the clinics are set with same infrastructure. The clinics do not differ infrastructure-wise.

Generally, the dentist that they start a clinic with would be specialized in one area and could provide service in one more area with certain comfort level. A normal new BDS would be able to do orthodontics and root canal with minimal hand holding. They provide them enough training to handle about 80% of the cases. The rest of the cases are seen by specialist visiting from other clinics. Therefore, whenever a complex work comes in; common specialists with good experience come in to do the treatment. Also, a senior dentist goes over the treatment plans of each and every patient from all the clinics to identify any quality issue in the treatment

and suggest corrective methods. This way they are able to monitor and maintain quality of service across clinics.

Infrastructure is standardized. They have also established a Standard Operating Procedure for diagnosis. There is monitoring after the treatment is done. All these are to provide consistent service to the patients.

CUSTOMERS AND ETHICS - PRIVATE AND CORPORATE Service fees are charged by cash or credit card. There is no fully acceptable mode of insurance; therefore, they do not accept insurance at partners’ clinics.

Some companies, e.g., PSUs offer dental benefit to their employees. But this is provided by only the empaneled clinics through a L1 bidding process. The rates are so low that they do not want to join it. There are some reputed organization ONGC, Tata Nan and HUDCO, and they are empaneled with them. In the private sectors, they have tied up with corporate and provide some discount on treatment plans on a transparent pricing basis. Though the false billing is quite prevalent in India-- both for public sector and private sector employees-- they do not engage in such activities. They lose some business, but they do not want to go into the unethical business practices; they have made a conscious choice about it.

PAIN POINTS IN DENTAL CARE

Still, due to the nature of specialized service and nature of human judgement involved, there are cases where the patient is not satisfied. A lot of times the quality of service also suffers due to the patient either choosing a lesser thorough plan of treatment due either to cost implications or time constraints but still expecting the best outcome or the patient not sticking to the treatment plan due to hurried up treatment plan being followed on the patients’ request. Dentist sometimes do not have an option but to oblige the patient and in this partners’ reputation get some hit. They impress on partners’ newer dentist that no patient is better than an unhappy patient. But they sometimes do not stick to this. This wisdom takes some time to sink in for newer dentists. Fortunately, most of partners’ experienced and senior dentists make it clear to their patients that the patients keep to the treatment plan advised by the doctors or the doctors will not provide the treatment at all. This helps maintain the quality. The newer doctors are learning the way fast compared to a regular dentist who operates by himself.

INNOVATION AND DIFFERENTIATION

FF has the unique concept of connecting with the patient - after service to ascertain the quality of the dental work. Further prices are revealed upfront. The purpose is to provide a better service uniformly in any branch of FF. The dentists provide a clearer explanation to the patients.

The standardization of dental procedures have been done by Rd. Kevel Shah. The family relationship is maintained by the dentist as he/she will not move as his family base is near his office. The customer acquisition is about 35% by word of mouth. Competitors have referrals in the single digits.

COMPETITION

The competition consists of two types. The first type consists of single unorganized dentist and the second type is the dental chains.

The single unorganized dentists are not well trained. They improve their skills on the patients. There is a lot of failure in these entrepreneurial ventures as there is poor quality of service. In the case of unorganized dental clinics, 5 out of 10 lose money in the 1st year, 3 out of 10 close within 1st year. Only 2 out of 10 - achieve 70000 INR per month after 3 years and remain successful for a longer time.

In the case of dental chains the dentists are employees. Since they are employees once they learn the skills, they leave the chain. Therefore the quality of service is poor and there is no relationship between the doctor and patient.

THE CHALLENGE - SECOND PHASE OF GROWTH

M&M model has evolved over time -- for some dentists they offered 50:50, 25:75 partnership. Later they realized that only two kinds of model would work for them-- either 50:50 or 00: 100; either a 50% or pure franchise model with no investment from them.

There are 3 dentists who are pure franchisees and own 100% of their clinic. FF charges a franchisee fee for the brand name and the benefits it provides.

Going forward they want to grow at about 3 clinics in a quarter or about 12 clinics a year. This year partners’ target for the first quarter was to open 3 clinics. But they have not opened any new clinics so far; they have identified the location and partnered with dentists for two already though. The expansion plan covers the cities of Ahmedabad, Surat, and Vadodara only so far. M&M’s preference is to go for 50:50 partnership models. They are planning to expand fast because they face stiff competition from deep pocketed investors. They still think about 75% chance of success. The growth depends on how fast the identified dentists make their decision to come aboard; they are not in a hurry, but they are. Their success depends on the lead-conversion ratio of the dentists. They have the choice of either sticking to the model or to

change it to how partners’ competitors are doing. But if follow their model of high initial capital investment, then they do not stand a chance. If they want to stand and win, they have to change the rules of the game as per partners’ model.

They have also identified good locations in these areas. They have already identified 2 new areas in Surat, 2 in Vadodara, and 2 in Ahmedabad. But due to financial constraints they cannot start opening up in all these 6 to 8 areas. According to MJ, FF is not ready for the expansion yet. They do not have the bandwidth of training dentists, technicians, business admin staffs by taking all the risks and responsibility by investing only partners’ money. They want the dentists to have substantial skin in the game to reduce the agency problem through their investment. Once they have the investment, they would bear the responsibility of managing the day to day business of the clinic with little monitoring from them after initially setting and training the dentist and staff. This is proving to be a little challenge for new areas for them, as the dentists do not have or do not want to invest their money.

In their journey so far FF has selected only the initial three doctors of the business. Rest of the doctors have either been working within partners’ system as assistant dentist or have approached FF by themselves. They did not have to convince the doctors much as the growth rate they targeted was not high. Besides, Ahmedabad has almost saturated in terms of dentist/clinic density. Therefore, they have to start expanding in new area to meet partners’ new growth target. Now, they have to approach them. Now that they approach them they are expected to agree to their terms and conditions. This is proving to be a roadblock. They did not have to convince the doctors much before, now they have to and have to. They had not generated enough leads before; they did not anticipate this difficulty beforehand. Unfortunately, they have not been able to communicate the benefits more effectively to newer dentists in the newer areas more effectively to attract them to partners’ fold.

A solution alternative for the short-term is to compromise on partners’ benefit, and agree to the terms of the dentists in the new area. They do not compromise on the quality of either the dentist or the quality of service to the clients. They have also started working with partners’ marketing partner now to identify and generate leads for partnering with dentists in the new areas.

CONCLUSION

Fine Feather is a start-up firm offering dental services in India. Fine Feather dental chain has an excellent innovation and business model in the dental services in India. While it is reaching the second stage of its growth model, it is facing increasing challenges in expanding its reach.

Fine Feathers firm shows that it is poised to make a leap in its reach. To ensure the high quality of service provided is replicated after expansion, it needs to come up with an innovative approach.

The FF partners can recruit assistant dentists with the plan of starting a new branch. So the assistant dentists should be from the locale where FF is targeting to expand.

An alternative is a dental training academy. However to train dentists in all the varieties of services offered will take time. FF has to compress the training to a short period of a month which will enable dentists from throughout India to come and get trained. FF can take venture capital funding for this and expand rapidly while maintaining the same quality.

Manish and Manish are in a crucial juncture in their journey. Let’s wait and watch the next step in their venture.