Continuing Education

	Ways In Which Psychologists and Dentists Can Collaborate/Nadine A. Levinson
	The Technological Base to Clinical Practice: Management & Marketing/David B. Adams
	When Hiring Another Psychologist/Michael J. Cuttler
	Book Review/Sex, Drugs, Gambling, & Chocolate, by A. Thomas Horvath/Reviewed by Michael Brickey
	Book Review/Men, Women and Prostate Cancer, by Barbara Rubin Wainrib and Sandra Haber/Reviewed by Dorothy Cantor

		Michael J. Cuttler, Ph.D.			When Hiring Another Psychologist If you hire another psychologist in your practice, how do you know how much to pay him or her? I am going to come from “the other side of the mountain” on this question. My purpose is to offer a different “slant,” expose you to a different way of thinking (business strategy), use a couple of new words (actually old words used in a different way), etc. Just for fun. The first question is “What is your objective?” Why do you want to add to your practice? What do you want to accomplish? Here are a few of the classic reasons (perhaps yours is among them): We are getting more requests for direct service than we want to provide personally. We don’t want to “pass” on referrals/ service requests because, if we do, the business will go elsewhere. i.e., our share of the market will decrease as other providers (and/or organizations, institutions, programs, etc.) take on business from our referral sources. We want to keep our referrals “in the house,” we just don’t want to, or can’t, put in the necessary hours. We want to increase service delivery capacity (available service/hours) but maintain our current “practice identity.” We want to increase our practice by growing our “market share,” expanding the practice, increasing our referral base, increasing our range of services, etc. We want to increase our (individual) profit(s) by decreasing our overhead. We want to work out an “exit strategy,” whereby in time we will work less and less; finally transitioning 100% of direct service provision to others. Each of these objectives is different; and calls for a different way of thinking when structuring an employment agreement and/or compensation package for a new professional colleague. Market strategists call objective #1 (keep referrals/maintain identity) a “defensive strategy.” You have achieved a particular degree of market penetration (visibility, “slice of the pie,” whatever) that you want to maintain. When you “pass” on a referral you are “feeding” others; creating and/or nurturing competition and gradually eroding your position in the market. Your strategy is to defend against that by adding service delivery “capacity” and/or limiting the growth of your competition. Objective #2 (broaden the practice) is called an “enhancement strategy.” You want to grow your business by getting more referral sources for existing services (called “increased penetration of your market segment”) and/or offer a broader range of service to existing sources (called “increased breadth of market segment”). Actually, most enhancement objectives contain elements of both increased penetration and breadth. What changes is the relative balance. Enhancement strategy differs from the defensive strategy because it involves changing (enhancing) your practice identity; i.e., positioning the practice to get service referrals you have not received in the past. Once again, most strategic business plans include elements of both objectives, #1 (defensive) and #2 (enhancement) strategies. As a business owner(s), it’s up to you to decide the relative weight of these complementary, but different, objectives. Objective #3 is what I call a “limit strategy.” It is quite common to mental health providers as well as independent accountants and attorneys, my barber, etc. The goal here seems to be to encourage colleagues (occasionally as employees, usually as independent contractors or “hybrids”) to develop practices so that they can contribute to overhead and allow the “senior partners” to keep 100% of what they bill and, in so doing, increase individual profit as a function of seniority and uniquely generated revenue. Occasionally there is a little profit left over which is then divided among the “other partners.” Sometimes, practice equity is developed through joint ownership of fixed assets, etc. But the primary goal is individual rather than group profit accumulation. Limit strategies will also contain elements of strategy #1 (defensive) and #2 (enhancement). Nonetheless, it seems to me that practices that are heavily weighted towards “limit” strategies may accomplish #1 (defense) but experience turn over of “newbies” and junior partners at a rate that makes #2 (enhancement) much less likely. The reasons for this also seems pretty clear to me. It’s a little like a “pyramid.” Unless I am one of the original “limiters” (or close), the distance between my efforts and the available “limit leverage” is an exponential function. Once I have established my own practice, I get less and less referral benefit from my affiliation with “seniors.” Unless I’m close to the “top,” as my revenue grows, the relative percentage of my profit that is leveraged by shared overhead becomes less. I’m left with the “intangible” benefit(s) of group affiliation. This can be somewhat offset by participation in group profits but if your piece of the profit pie is a function of both seniority and revenue, you are caught in a catch 22 (RIP Joseph Heller). You’ve got to work harder and harder for a smaller piece of profit than you would get if you were higher on the pyramid. Consequently, turnover will occur before the threshold of creative synergy necessary for enhancement is reached. Objective #4, the “exit strategy” can be a branch/extension of the “limit strategy” (#3) or it can be a separate strategy driven by personal circumstance. Either way the idea is to decrease the direct service activity of incumbent owners/partners while maintaining cash flow and installing new “primary operators.” Exit strategies can be linked to enhancement or defensive strategies but should probably not be linked to limit strategies since the two work across purpose. It’s not a good idea to maximize individual profit at the expense of your exit vehicles. After all, they need to generate profit in order for you to receive your practice value upon exit. The next question that comes to mind is “what is the nature of you “business engine?” In case you don’t know, your “business engine” is the thing that makes the phone ring. If you have a steady referral flow, something is keeping it going. Maybe it’s a combination of “word of mouth” testimonials from former patients and/or referral sources, your local radio show or newspaper column, your civic affiliations, your writing, etc. Your “business engine” may also be hooked up to an institutional affiliation (e.g., a hospital, med school, university clinic, etc.). Understanding your “business engine” is an other important facet of strategic decision making. This knowledge will be very important when you start making decisions about supporting, compensating, and/or retaining a professional colleague. If you plan on “feeding” your new colleague for a period of time, it’s important to know where that “food” comes from, as well as the likelihood that the food chain will continue. What future events/contingencies may effect your business engine? What are your vulnerabilities (changes in benefits policies form major employers, changes in institutional relationships, contracts that may be competitive, etc.). If you think your business engine runs by itself and/or is not vulnerable, you are being (can’t say the word, you guys hate it, it starts with an N and means “blissfully and youthfully uninformed’). So before you (and your partners ) decide how to structure a relationship with your new (or anticipated) colleague, I suggest you think a little about the above questions. If your objective is primarily defensive and/or exit oriented, the first thing to do is to establish a value for your practice. Then I suggest you play around with some numbers and “reverse engineer” a deal that provides more or less constant referral flow (food) across time and charges overhead as a gradually reducing constant until such time as you start doing less direct service yourself. At that time you’ll start sending more “food” but reduce the overhead “load” so that at the time you stop practicing completely you have “earned” what you think your practice is worth. In my experience, accountants can do things like that for you as long as you give them some direction. Tell your accountant something like “my strategy is to maintain current practice value while transitioning to exit by hiring a new professional” and s/he can probably help. Give them less direction (“I’m thinking of hiring a new colleague how much should pay them and how should I structure the deal?”) and you may get much less useful help. Most accountants have linear cognitive styles–it’s up to you to point them in the right direction. If your strategy is enhancement and/or limit oriented, I suggest you come up with a deal that differentially compensates new referral sources and/or new services delivered to existing referral sources while keeping overhead at a fixed value. (I might even play around with letting 100% of new revenue accrue as long as I figured my overhead properly and established a value for the existing business which would be paid out of profit from the new lines). This provides incentive to grow top line at a greater rate since the relative percentage of overhead charge decreases by itself. It’s a little more complicated but the name of the game here is to keep your colleague employed long enough for your practice to enjoy the synergy. To summarize: Get a strategy, understand your “business engine,” and value your practice before you structure an employment/compensation package. Give concrete direction to professional advisors (accountants, lawyers, etc.) by couching your questions in direct, business terms, which reflect the strategic objectives of your practice. That’s the view from the other side of the mountain. I don’t know if any of this helps anyone at all but it was fun to write. Mike Cuttler, Ph.D., is a consulting psychologist with a sharp business acumen. His address is 604 Green Valley Rd., Greensboro, NC 27408, 336-852-6902, E-mail mcuttler@aol.com
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