Turning Around a Fraudulent Dental Practice: Lessons from Jason Jackson's Search Fund Journey

Discovering Search Funds and Acquiring a Dental Practice

Jason Jackson's journey into entrepreneurship through acquisition (ETA) began while he was pursuing his MBA and working full-time for an entrepreneur who bought and operated businesses. Though familiar with the concept, Jackson didn't have a name for it until he attended a guest lecture by Matt Eastep, a Harvard Business School graduate who had successfully executed a traditional search fund.

Inspired by Eastep's story, Jackson attended the first-ever Chicago Booth ETA conference in October 2014. He immediately recognized this as the opportunity he and his partner, Ali Day, had been seeking. They decided to pursue a traditional search fund, raising capital in 2015 and ultimately acquiring a dental practice management business in 2017.

Uncovering Fraud and Facing a Crisis

Just two weeks after the acquisition, Jackson made a shocking discovery. While speaking with a $17/hour employee, he learned more about the business than he had from over $400,000 worth of due diligence. The seller had been committing insurance fraud, a fact that had been hidden during the acquisition process.

The implications were severe:

• The business they thought was generating $7 million in revenue was actually only bringing in $4.5 million
• Instead of $1.5 million in EBITDA, the business was losing $500,000 annually
• The clinical leader they had planned to work with (the seller) could no longer be part of the business due to his fraudulent activities

This revelation was devastating for Jackson and his team. As a new parent with a young family, the stress was immense. Jackson recalls experiencing multiple panic attacks daily for the first 18 months after the discovery.

The Turnaround Strategy

Faced with this crisis, Jackson and his team focused on three key areas:

1. Cash management
2. Culture
3. Communication

Cash Management

The team implemented daily cash reporting, which not only provided visibility into their financial situation but also prompted important questions about revenue, expenses, and payment timing.

Culture

Recognizing the importance of ethics and integrity, especially in light of the previous fraud, Jackson and his team made these values central to their new culture. They demonstrated their commitment even when it meant losing money in the short term.

They also learned the importance of hiring for cultural fit. In the first 18 months, they replaced over half of their 90-person team to ensure alignment with their new values and performance expectations.

Communication

The team developed a color-coded system for evaluating employees and roles:

• Green: High performers
• Yellow: Needed improvement within 90 days
• Red: Immediate termination required
• Purple: Vacant positions
• Gray: Undetermined

This system helped them systematically improve their team and organizational structure.

Navigating Further Challenges

Just as the business was starting to turn around, the COVID-19 pandemic hit, forcing them to shut down their practices temporarily. This led to another significant dip in revenue and required a pivot in their business model.

Under the guidance of Jackson's partner, Ali Day, they shifted from high-volume, lower-cost procedures to lower-volume, higher-cost procedures. This pivot, along with investments in office improvements and key personnel, allowed them to grow revenue by 40% year-over-year.

The Decision to Exit

After weathering these challenges and successfully turning the business around, Jackson felt the need for a personal reset. The team approached their investors about potentially selling the business.

To their surprise and relief, the investors were incredibly supportive and proud of what they had accomplished. In December 2023, they successfully exited the business, which had grown from negative EBITDA to a $2.5 million EBITDA run rate at the time of sale.

Key Lessons and Takeaways

1. Due Diligence is Crucial: While their initial due diligence missed the fraud, Jackson emphasizes the importance of thorough vetting, especially in regulated industries like healthcare.

2. Investor Support Matters: The support and understanding of their investors, particularly David Dodson, were crucial in helping them navigate the crisis and ultimately succeed.

3. Culture is Foundation: Establishing and maintaining a strong culture based on ethics and integrity was essential for turning the business around.

4. Adaptability is Key: The ability to pivot their business model in response to challenges like COVID-19 was critical to their success.

5. Partnership Dynamics: Jackson stresses the importance of having the right partner and cautions against forcing partnerships solely for the sake of having one.

6. Seek Help and Leverage the Community: The search fund community's camaraderie and willingness to help were invaluable resources throughout their journey.

7. Consider Executive Coaching: For solo searchers, hiring an executive coach can provide needed support and perspective.

Jason Jackson's story is a testament to the challenges and potential rewards of entrepreneurship through acquisition. Despite facing fraud, a global pandemic, and numerous other obstacles, Jackson and his team were able to turn a failing business into a success story, providing valuable lessons for other entrepreneurs in the search fund space.

Article created from: https://www.youtube.com/watch?v=sDJ01TgPi88