Veterinary Industry Consolidation: The good, the bad, and the ugly

The veterinary industry is undergoing “consolidation”, a trend mirroring nearly every other industry in the contemporary economy. Consolidation carries a lot of economic benefits including improved operational efficiency, reduction of redundancy, economies of scale, and reduced failure risk. However, it is not without downsides. As is true with owners of businesses of any size, the quality of ownership and company values play a significant role in how much of the “good” or the “bad” a business experiences as they become part of a larger industry group.

The good:

1) Operational efficiency and sharing of best business practices: Just as the saying goes “two brains are better than one”, a hundred brains are even better! Collecting operational knowledge and data from many businesses in the same industry allows consolidators to discover and refine best business practices, leveraging the advantage of knowledge against their competition.

2) Elimination of redundancies: There are many tasks that every independently owned business has to take care of on their own, such as human resources, marketing, bookkeeping, accounting, and IT services. However, when a group of businesses are brought together those tasks can be centralized leading to lower cost and in many cases better quality of services.

3) Economies of scale: “Ordering in bulk” usually results in an ability to get something for cheaper, but this doesn’t just apply to groceries! Medical supplies, equipment, laboratory service contracts, employee benefits, and more can be obtained by veterinary groups at rates lower than individually owned hospitals due to their ability to acquire these goods and services at scale and then distribute them to their practices.

4) Reduced risk of business failure: It is uncommon but not impossible for veterinary hospitals to fail as a business. The risk of failure is reduced dramatically by becoming part of a larger group, which can share knowledge and resources that can get a struggling practice back on track.

5) Potential for financial reinvestment in the workforce: Better profit margins mean more money available for reinvestment. There are many ways that businesses can reinvest profits to promote further growth. Investing in their workforce is one of the best ways to do so. Improving pay, benefits, workplace environment, and training can all contribute to better employee engagement, improved retention, and makes it easier to recruit new talent.

6) Opportunity for improved work-life balance: Most small businesses struggle to create boundaries, both for owners and employees. Fewer people, fewer resources, and lots of redundant tasks (see above) means that a healthy work-life balance is difficult to maintain in a small business environment. Consolidators are able to upsource many redundant tasks to the corporate level, which reduces the amount of work that needs to be done at the individual practice level.

The bad:

1) Distant ownership may overmanage/micromanage: Good leadership is measured in quality and quantity, and unfortunately many consolidators get it wrong on both of those points. Being an effective leader is difficult, more so for a newly acquired business that you’re still learning about. The easy way out is to use a “one size fits all” operational approach, which could erase the culture, feel, and personal touch that makes independently owned small businesses great.

2) Distant ownership may undermanage: Business ownership comes with a responsibility to make sure that the business and the team running it are performing well. Consolidators who view practices just as investments can be neglectful owners, more focused on their next acquisition than on running the practices that they’ve already acquired.

3) Can create a local leadership void: Independently owned veterinary hospitals have their own internal hierarchy and team leaders. Unless a corporate group has a plan in place for replacing any leaders who might exit in a transition there is potential for a leadership void at the practice. No matter how strong the corporate team’s leadership is, there is no substitute for “on the ground” leadership. The veterinary team spends far more time interacting with their local leaders than their corporate leaders, so getting local leadership right is critical.

The ugly:

1) Decline in quality of care: In the worst-case scenario, unethical or incompetent leadership at the corporate level can lead to a decline in the quality of medical care at the practice level. Understaffing, overbooking, and micromanaging can undermine the efforts of the medical team to provide high quality care.

2) Loss of local practice identity: Most companies spend a lot of time talking about “building culture”, but when it comes to consolidation that inevitably means trying to erase the existing culture of an acquired business and trying to replace it with the consolidator’s own culture. Taking a culture that is local, strong, and part of the identity of a small business and trying to replace it with a broad, ambiguous corporate culture can be disastrous to the chemistry of a tightknit team at a small business.

3) Increased non-veterinary ownership of the veterinary medical profession: The veterinary profession has long been independent, with veterinarians in ownership and leadership. Consolidation driven by investment from outside of the profession has led to a rise in non-veterinarians playing an increasing role in both the ownership and the leadership of the profession. This creates a potential for disconnect between the new non-veterinarian owners/leaders of the profession and the veterinarians on points of ethics, direction, and priorities.

How AVP partnerships achieve the best of both worlds:

Our partnerships are designed to recreate all of the traditional corporate economic upside while leaving owner veterinarians in control of quality of care, practice culture and identity, and material equity ownership in their practice so that they can share in the financial upside of future growth. We do not micromanage or dictate operational policies that will negatively impact quality of care. Instead, we empower our practice owner partners to run medicine and culture at their practices while eliminating back-office redundancy and upsourcing administrative and operational tasks that leech time and energy from small business owners. We are a vet-founded and vet-operated group so our values and priorities are aligned with the profession. In these ways we try to achieve the maximum benefit from both sides of the corporate vs independent ownership coin: better medicine, better practice financial performance, and better work-life balance.