[EP 273] Innovating Success: Dr. David Penn’s Journey from Dentistry to Business Mastery

Transcript below!

Download the PDF transcript of this episode

Note: This has been automatically transcribed so will be full of errors! We are not providing it to you as a word-perfect version of the podcast but just as an easy way to provide you with a different way to be able to scan for information that might be relevant to you.

Intro [00:00:00]:

Ladies and gentlemen, good evening. Are you ready? Okay, here we go. You’re listening to the Deal Room podcast. Join us as we bring you the inside scoop on business, sales and acquisitions, get across trends in the area and hear the industry’s best recount their real life tips, traps and experiences. Now here’s your host, Joanna Oakey.

Joanna Oakey [00:00:24]:

Hi, it’s Joanna Oakey here. And welcome back to the Deal Room podcast, a podcast proudly brought to you by our commercial legal practice, Aspect Legal. Now, before we dive into the year with brand new episodes, I’d like to wish you a very happy new year from everyone at the Deal Room podcast. We are so thrilled that you’re tuning in because we’ve got some spectacular guests and such interesting conversations lined up for you for this year. But first up, here is our episode for today. Get ready to be swept away by the insightful second half of our innovation fuelled interview with Dr. David Penn. Now, we know innovation is at the beating heart of every successful business.

Joanna Oakey [00:01:12]:

And in the world of business broking and almost every industry we know it shapes the lives of entrepreneurs and business owners everywhere. In this episode, we speak to someone that is very much across business, innovation and his own profession, dentistry. Dr. David Penn, a true australian innovator. In this discussion, he shares insights from his career in dentistry, but also extended industries building Southern Cross Dental Labs, which was valued at $95 million at exit. He also sales insights from his role playing a fundamental role with invisalign in Australia, establishing a dedicated industry leading education institute for Dentistry, the Penn College in 2014, and also his involvement and ownership in other nondental businesses, including Lowe’s menswear. Now, this was a fantastic conversation and one well that virtually everyone can learn from. So get ready to tune in for another episode of the Deal Room podcast with very special guest, Dr.

Joanna Oakey [00:02:30]:

David Penn. David, just a huge welcome to the podcast today. It’s just so good to have you on the show.

David Penn [00:02:38]:

Thank you, Joanna. Happy to be here. Really happy to see your crazy listeners. I’m sure they come back each week expecting something wonderful, so I hope I can deliver something meaningful for you.

Joanna Oakey [00:02:48]:

Oh, you always do, David. I love our discussions. And today, you know, one of the things that I feel I hear so much in the topics that you talk about is innovation. And it’s a topic that is very close to my heart. We have this innovation series, which is what we this episode right now in our innovation series. So I want to talk about the opportunity of innovation, why businesses need to be innovative, how business are innovative, like really break it down. So maybe just starting very quickly with your background on what innovation means to you and what it’s given you, what innovation has done for you in business.

David Penn [00:03:37]:

Well, I think intrinsically, even when I was a kid, it didn’t matter really what toy that I had or what game that I had. There was just something about if somebody gave me something, the first instinct I had was, can I improve it? And it used to drive my mother crazy because she’ll buy me things and then she’d come back in an hour later and there’ll be pieces all over the floor and somehow I’d put it back together in some sort of different iteration. Now, I don’t know why that was like that, but I just think inherently that was sort of something with me, which was always, I thought, well, this is good, but I wonder if, and I wonder if now, I guess when I got into dental practice and I was quite young at 22, I think the thing that sort of scared me, at least from my perspective, was the fact that dentistry was so repetitive. Now, I see this in a lot of businesses where it’s same thing day in, day out. We own a coffee shop and I watch the girls, and they’re wonderful staff, really wonderful people, but they go about the same process every single day. And I think to myself, well, from a personal point of view, is that challenging? Do I want to grow? Joanna, I think that before we even sort of go into this too far, there’s a lot of people who are not interested in innovation. And this took me a long time to come to grips with that. Somebody wasn’t interested in either improving themselves or looking at something which was better.

David Penn [00:05:13]:

People were just happy to go to work, do what they were supposed to do, go home at 05:00 and then that was their life. And that’s fine. I’m not being critical, but there are some people who just inherently just not interested in innovation. On the other hand there, though, to sort of think to myself, gee, I wonder if I could strive for a little bit more, and I wonder if then if that’s going to bring me greater rewards in my life. And not only financial rewards, but intellectual rewards, where you sort of feel, gee, I’ve actually accomplished something, I’ve taken something from a to b, I’ve invented something, I’ve improved something, and to boot, I’ve actually had sort of financial sort of gain from that as well, and I’ve improved my quality of life. So to me, I sort of think you have to look at it from both sides. I don’t think you should be an innovator just because you’re trying to make more money. But I sort of think if there’s a feel good part of the process as well, I think that’s really wonderful as well.

David Penn [00:06:16]:

I look at people who are involved in philanthropy, and I think to myself, great, because they’re doing it for altruistic reasons. They’re innovating in a certain sense, and they’re allowed bringing innovation to hospitals, to all sorts of people in need. And I personally think that’s wonderful. So I think there’s a myriad of reasons why people want to become innovative. The question if you got the personality, if you got the resources, if you got the intellectual capabilities, there’s a lot of parameters here which I sort of think that you have to fulfill. But when I say intellectual capacity, I’m not saying you have to be a Rhodes scholar or go to Harvard, because I think of people who’ve looked at the most simplistic, what we might deem to be a simplistic process, yet they’ve proved it sort of significantly. I think one of the great example was in the trucking industry and the bus industry, when all of a sudden they realized that if they were, instead of having squares and rectangles all over the place with it, all of a sudden they put a spoiler on the front, and all of a sudden, the airflow was different, the changed the resistance factors as far as the truck’s performance was concerned, and all of a sudden, the energy saving and the petrol saving, because these cars were more ergonomic. Now, that was just one little simple foil, and you look at and think, wow.

David Penn [00:07:41]:

So all I’m sort of saying is that you don’t have to be a road scholar to do all this great.

Joanna Oakey [00:07:47]:

Example that you use. But let’s even point at some of your own examples here, because, of course, you talk about starting in a dental practice, but then you moved to create southern cross dental. Tell us about that. So what was that all about?

David Penn [00:08:05]:

And it came back from pure boredom, is because after three years of being, I was 25 and I was bored, and I was basically working Monday to Saturday afternoon, and it was repeat, repeat, repeat, repeat, repeat. I was going absolutely crazy. I said to my wife, I said to my mother, I can’t do this forever. I’ve got to go and try something. So unashamedly, it was because there was just no challenge for me whatsoever. So that was the first sort of thing. But then, as far as innovation is concerned, there was an enormous opportunity, because it was credited that there was a certain type of dentistry and laboratory procedure which was putting crowns on people’s teeth. This is going back a long, long time ago, which in Australia, the ability to be able to use a deal laboratory was.

David Penn [00:08:54]:

It wasn’t saying it was difficult, but it was extremely expensive. And for the payment that we were getting for the patient, and the fee would be having paid to this dental laboratory, it was just asinine. The proportion was ridiculous. It was. Almost half of the clinical fee was going to pay the laboratory guy for the prosthesis. So I thought, there’s got to be an opportunity here somewhere where we can make this easier and more affordable for the patient, more affordable for the dentist, and indeed more profitable. So what had actually happened is the local marketplace had opened up an opportunity for me, if I could arrange it to build a manufacturing plant that could all of a sudden make quality prosthesis at a fraction of the price. Now, to give you an idea of just how ridiculous it was, this particular laboratory in Sydney was charging $250.

David Penn [00:09:52]:

This is back in 1980, for a crown. Don’t get me wrong, it was beautiful. It was really well made, but it was $250. We’re charging the patient 600. Now, I had this idea. I thought to myself, and I saw my father in law, who was running Lowe’s, was getting some clothes manufactured in Hong Kong at that stage. So it wasn’t China, it was Hong Kong. And I said to him, I said, gee, I wonder if the dental laboratories in Hong Kong, if the same price differential, as far as manufacturing is concerned, existed in that business.

David Penn [00:10:24]:

And he didn’t have a clue. And he said to me, he said, well, you didn’t really help me. He said, well, why don’t you go and have a look? So as a young guy, I flew to Hong Kong. I had not much to my name, and I knew nobody. And I wandered in, and I started looking at these laboratories. Now, the most interesting thing, John, the first thing that I found was the first laboratory looked at me like, who is this young kid from Australia? I was 25, and I looked like I was 15. And it was hot. It was summertime.

David Penn [00:10:53]:

I was covered in sweat. It was just ridiculous. And I’m going around to these dirty dental laboratories in Hong Kong anyway. So I found some guys who were willing to sort of consider this idea of a mail order laboratory, and they came back to me, and they said, we got the prices here for you, and the cost of the crown is $9. Remember, I’m paying $250 in Australia, and this guy was saying to me, gee. And he was almost apologetic, and he was probably making a bigger margin than usual. He said, it’s $9. I’m thinking to myself, this is ridiculous.

David Penn [00:11:28]:

I’m thinking, there’s 600 for the patient, 250 at the local lab, and I’m getting it for $9. Now, I wasn’t comparing apples with apples, no doubt about that. So what I did was I thought, well, I tried it out, and it turned out to be rubbish. It was absolutely garbage. Now then I went to a couple of other laboratories, and then I found one for $14, which was really upmarket for Hong Kong. It was really crazy. But guess what? The quality now was starting to look pretty good. Now.

David Penn [00:12:00]:

Then I realized that Hong Kong University, which was one of the finest dental schools in the world, they started to turn out technicians in Hong Kong who could produce high quality stuff for not a lot of money. So all of a sudden, I had the opportunity in my hand. I had a product, and then I had to go about the enormous project of a. Getting it backwards and forwards from Sydney to Hong Kong, from Hong Kong back to Sydney, back to the dentist, within the same time frame, that the local laboratory could do and control that process and get the logistics, et cetera, et cetera. So it was enormous task, but over a period of time. And then I could convince the local marketplace that my $14 crowns were actually as good as the $250. And, of course, back then, it was. What was made in China was deemed to be absolute garbage.

David Penn [00:12:56]:

And we had a lot of problems. So one of the biggest problems I had, Joanna, which is quite interesting, was that I had to set myself a price to sell to the local marketplace. Now, if I ask you, Jo, what price would you have set, given it’s cost you $14, another three or $4 in freight, but you can get it done within the same time frame to appear to be competitive. What price would you have thought would have been reasonable to offer it to the australian market, you suggest?

Joanna Oakey [00:13:26]:

Well, I don’t know that I’ve got the right answer here, David. I’ll be very interested to hear your response, but I’d probably go in just under where the market is at the moment in Australia. Or that you found at the time. What did you do?

David Penn [00:13:38]:

Would you think that would be a big enough incentive? Given that, how can I say, the perception of a chinese product was poor? So this is. And interesting, come back to Porter’s model again. Are you competing on price, or you are competing on a differential as far as the quality of the product? Is concerned because you can’t do both. And Porter talks a lot about this as this rubber band in the middle where people try and do both, it’s very difficult.

Joanna Oakey [00:14:07]:

And when you say Porter, David, maybe if you can just explain to our audience what this model is.

David Penn [00:14:15]:

Michael Porter at Harvard talks about the differentiation, where to pitch your products as far as differentiator is concerned. And the. You should be talking about efficacy or the quality, or you’re competing basically on price, but don’t get the two confused. And there’s a lot of studies, if anybody, the people are listening, you should go and research that because it’s fascinating. It tells you a lot, because a lot of people try and do both. They try and be the cheapest in the market and then they claim to be the best. Well, that doesn’t make any sense. Then there’s plenty of other people who have got.

David Penn [00:14:53]:

As your first reaction was here, which was interesting, is that you said, pitch it just underneath what the locals are doing. But the big problem that we had was that we had to convince, whether real or otherwise, we had to convince the marketplace that it was the same quality. Now, conservative dentists being told not to take risks. So if I would have said $240, they would have laughed me out of town. It took me 15 years to convince the marketplace about the quality to get them to. In the end, the universities were using this stuff, all sorts of. Everybody was using this, which was great, but it took me a long time and loads of education. But Joanna, I made exactly the opposite mistake.

David Penn [00:15:39]:

I offered the crowns at $36.

Joanna Oakey [00:15:43]:

Wow.

David Penn [00:15:44]:

Now, the interesting thing was, though, at $36, what I didn’t realize is nobody took it seriously. They thought, surely at $250 is where the marketplace is, and this guy is offering it for $36. Perception is it must be rubbish. So my huge error was, I was thinking, gee, I’m going to do okay out of this. But I was way too low. So what I did was then I thought, it took me about five years to realize somebody said to me, you should double your prices. I said, oh, really? Again, I was only a young kid, and it was the best piece of advice I was ever given, because all of a sudden I put my prices up to 72. And guess what? The demand went up like that.

David Penn [00:16:28]:

So that was really interesting. And then over time, I put my prices up more and more. So in the end, I was sort of halfway between what it was costing me and what the locals were, and the locals couldn’t compete with me. But I backed it up with education as well, so we had education, and one of the thing that I did was I used the concept of a lost leader. And I think lost leaders, I think in every, whether in a legal practice, a free will, I don’t know, there’s a free divorce. That would be a good one. It’s like family law. We do it better if you got a wife to get rid of, you know, we’ll do it free of charge.

David Penn [00:17:13]:

But it’s, it’s, if you sort of think about it, we use lost leaders a lot. And, I mean, the concept of a lost leader to, to open up an innovation process is actually very powerful because you have to get the marketplace to embrace it. And the best way to do it, you can put it on social media, you can do all sorts, but there’s nothing like getting the product into the end user’s hands. And if you can do that and you’re prepared to give away these know, it’s like the old story about the history of lost leaders. I don’t know if you’ve ever know anything about that, but there was a guy called King Gillette. Now, you know the name Gillette, but his name was King Gillette. So in about 1850, he invented the razor blade, which was great. So that was really.

David Penn [00:18:01]:

So one of those big knives that they used to. He had the razor Blades. Now, the fascinating part about King Gillette, and he was one of the first ones to do this, he decided he’d give away the handles for free. Now, the interesting part was then that if somebody had the handle, what did you need? You need to keep on buying replacement blades now. Then you’d go to the pharmacy. The didn’t have pharmacies, but the apothecary or alchemists or whatever you want to call them back in those days, you’d be able to access this stuff, and you say, well, I’m going to go and buy the blades. And you walk in. The blades would cost you a fortune.

David Penn [00:18:38]:

So they’ve got you because you’ve tried the product, you know, it works well. You’ve got your handle, but you need the other accessory. So this was the start of how lost leaders work. It’s brilliant. I mean, Hewlett Packard used it very brilliantly with, I was going to say.

Joanna Oakey [00:18:53]:

The printer and printer ink model.

David Penn [00:18:55]:

Of course you’re brilliant. They’d give the printer away, but then you’d go and buy the refill. It’s like, oh, my God. It’s like the refill is almost as much as the cost of the printer in innovation, I sort of think that if anybody is thinking about trying to introduce a new product, doesn’t matter what it is or an innovative process. You’ve got to get, as I said, the end user access to this innovation easily and remove the barriers. And we have a term in our business that’s called put it in their mouth philosophy, which basically means you don’t ask them to buy it. You just basically open your mouth and we’ll put the apple in your mouth and you can take a bite. We’re trying to make it as easy to remove those barriers to entry.

David Penn [00:19:42]:

So I think that’s one of the keys of innovation. So you can be as innovative as you like. But if nobody’s going to try it, it will take many years. And because of the Internet and the fact that everybody is connected, the window of opportunity these days is a lot smaller than it used to be. So if you’re going to innovate these days, you have to be very careful because you put it on the web and the what happens is everybody else around the world becomes your competitor the next day.

Joanna Oakey [00:20:12]:

Well, that’s it for this episode of the Deal Room podcast. We hope you’re now primed for your next deal with these pointers and have enjoyed these fascinating insights. Now, if you’d like more information about this topic, then head over to our [email protected], where you’ll be able to download a transcript of this episode, as well as access any contact details and any other additional information we referred to in today’s podcast. Now, if you’d like to get in contact with our guests today and the services they offer, you can go ahead and check out our show notes for a link right through to them and their details. You can also book in directly with our legal eagles at Aspect legal. If you’d like to soundboard your next steps, discuss a legal question, or find out more how we can assist, whether that’s with buying or selling a business, or perhaps somewhere in between. Now don’t forget to subscribe to the Deal Room podcast on your favorite podcast player to get notifications whenever a new episode is out. We’d also love to hear your feedback, so please leave us a review and rating.

Joanna Oakey [00:21:20]:

If you’re already one of our subscribers, or even if you’re listening to this podcast for the very first time, every review helps our team produce valuable content for you. Well, thanks again for listening in. You’ve been listening to Joanna Okie and the Deal Room podcast, a podcast proudly brought to you by our commercial legal practice aspect legal see you next time. Are you looking for a top quality legal team to assist you in your organization? Aspect Legal is an innovative commercial legal practice that specializes in providing fast and professional services for their clients. If you’d like to chat about how we might be able to assist you, simply head over to our [email protected], Au, to book in a time for a free discussion with one of our lawyers.

Outro [00:22:16]:

Ladies and gentlemen, that will conclude this evening’s entertainment. Thanks for listening to the Deal Room podcast. To find out more about this episode and other episodes in the series, check out the show notes or head over to our website thedealroompodcast.com.au.