Finances

Three Rules to Make Your Practice Great

By Ken Krivacic, OD, MBA

January 28, 2015

SYNOPSIS

Following three simple rules can take a company—or an OD practice–from good to great.

ACTION POINTS

BETTER BEFORE CHEAPER.Top the competition by offering great brands, exciting styles, excellent functionality, durability and convenience–rather than being price-driven.
REVENUE BEFORE COST. Budget to control costs, but increasingrevenues is more valuable than cutting costs.

THERE ARE NO OTHER RULES. Concentrate on the first two rules: Offer superior non-price benefits and increaserevenue more than cutting costs.

There are just three key rules for any company–including optometric practices–to follow to go from good to great, according to “Three Rules for Making a Company Truly Great,” an article by Michael Raynor and Mumtaz Ahmed that appeared in Harvard Business Review and was developed into a book, Three Rules: How Exceptional Companies Think. The authors’ premise is that much of the management advice business leaders turn to is unreliable or impractical. The authorsundertook a statistical study of thousands of companies and identified several hundred that had done well enough for a long enough period to be identified as truly exceptional. Thesetruly greatcompanies followthree elementary rules:

1. Better before cheaper: compete on differentiators other than price.
2. Revenue before cost: prioritize increasing revenue over reducing costs.
3. There are no other rules:to change anything, you must to follow rules 1 and 2.

So, how can these rules apply to what we do in an optometric practice?

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Rule 1: Better Before Cheaper

The authors write: “Every company faces a choice: It can compete mainly by offering superior non-price benefits such as a great brand, an exciting style, or excellent functionality, durability or convenience; or it can meet some minimal acceptable standard along these dimensions and try to attract customers with lower prices.”

What It Means to ODs:

Strive to provide the best eye exam possible. That means we should concentrate on keeping our clinical skills up to date, keeping our equipment up to date and honing our communication skills. For example, in my practice, we added auto-phoropters to our exam lanes a few years ago. To optometrists, that may not sound very exciting, but to the patient,that addition continues to be a great “wow” factor. I still have patients–especially new patients–comment everyday on how our equipment is so much more modern than their previous eye doctor’s.

Differentiate your practice in how you communicate with patients. How many times have you heard a new patient say that the last eye doctor they went to either spent very little time with them or didn’t seem that interested in them as a patient? If we can make a more favorable impression in the exam room, then that separates us from our competition.Take a communication skills class at a local college, take a Dale Carnegie course, read books on communication skills and take tips from speakers who move you.

In the optical, concentrate on quality products over price. With big box retailers pushing prices down, and online retailers cutting into sales of eyeglasses, it’s tempting to try to compete on the price level by offering low-package pricing. I agree with the authors on this: you will never win that battle in the long run. There will always be someone who can undercut you on price. Also, what does it say to your patient when you offer a complete pair of eyeglasses for $99 about the quality of product you are carrying, and, in turn, the overall quality of the practice?

The same holds true in contact lenses: don’t try to be the cheapest. Offer competitive pricing. In our practice, we strive to be at or slightly higher than 1-800 Contacts. We offer patients a slight advantage in bulk pricing and return of product if not satisfied. Recent unilateral price policies have helped level the playing field in contact lenses, but even with prices the same, you have to differentiate yourself in other ways: offer in-stock boxes so patients can leave with their contacts the same day as their exam, offer no shipping charges or an easy return policy.

Rule 2: Revenue Before Cost

Companies must not only create value, but also capture it in the form of profits,” the authors write. “By an overwhelming margin, exceptional companies garner superior profits by achieving higher revenue than their rivals, through either higher prices or greater volume. Very rarely is cost leadership a driver of superior profitability.”

What it Means to ODs:

In optometry, we should concentrate more on revenue than cost cutting. I paraphrase optometric management guru Neil Gailmard, OD, when he says: “You will not cut your way to the top.” You should have a budget that you follow so that costs don’t get out of control, but we all should value increase in revenue more than cutting costs.

How do we increase revenue?

• Increase prices
• See more patients
• Increase per patient revenue (i.e.,higher sales per patient or multiple sales)

For 2015, consider raising prices and fees across the board. If you are hesitant, try a small increase and gauge the feedback. In most cases, patients won’t notice the difference or it won’t bother them enough to comment. Also consider revamping your scheduling of patients. Can you add one extra exam to the schedule per day? If the average patient generates $300 of revenue, then one extra patient a day over a year will generate $72,000 per year in extra revenue ($300day x 240 working days per year).

Rule 3: There Are No Other Rules

When I first read the authors’ advice, I thought “you’ve got to be kidding–you sucked me into reading this article and then it turns out that there really are only two rules.” The authors explain that when they looked at all the other factors that determine company performance–operational excellence, talent development, leadership style, corporate culture, reward systems, you name it–that they saw a wide variation among companies. There was no pattern as to how these other factors contributed to success. The authors concluded: “Here’s how to put the rules into operation: The next time you find yourself having to allocate scarce resources among competing priorities, think about which initiatives will contribute most to enhancing the non-price elements of your position and which will allow you to charge higher prices or to sell in greater volume. Then give those the nod.”

What it Means to ODs:

For example, when looking at your budget for 2015, if you are debating whether to make a splashy renovation of the office or to add a new instrument that will improve the level of care you provide and send the message that your practice is on the cutting edge, consider which will have the greater impact on the patient. Assuming the office environment is fully functional, safe, clean and already eye appealing, the instrument would be a better choice as it makes the greater impact, thereby differentiating you from competitors.

Resources

For more information about the article “Three Rules for Making a Company Truly Great, visit www.thethreerules.com. The authors have also followed up on the article with a book The Three Rules: How Exceptional Companies Think. Other books you may find helpful on this subject: Thomas Peters and Robert Waterman’s In Search of Excellence and Jim Collins’s Good to Great.

Ken Krivacic, OD, is the owner of Las Colinas Vision Center in Irving, Texas. To contact him: kkrivacic@aol.com.

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