[EP 256] Niching, Diversification and Everything in between with Dr David Penn

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iTunes: https://podcasts.apple.com/au/podcast/the-deal-room/id1267098895

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Joanna:
This episode we speak with someone that is very much across business, innovation and his profession, dentistry, we are talking to Dr David Penn – a true Australian innovator.

David shares insights from his career which includes dentistry but also his history in building Southern Cross Dental Labs (which was valued at $95m at exit), playing a fundamental role with Invisalign in australia, establishing Penn College (in 2014) and his involvement and ownership in other non-dental businesses including Lowes Menswear.

David shares with us the absolute importance and advantage that focusing on a niche can create for a business (any business, not just dentists), but also the power of diversification within your niche. He shares real life examples of the way he’s approached innovation and entrepreneurship to invest in R&D and new ventures.

He has some absolutely fascinating views on why you shouldn’t necessarily aim for 100% and the way he approaches risk, research, metrics and timing when it comes to innovation.

This was an absolutely amazing conversation that I can’t wait to share with you all.
Tune in for another episode of The Deal Room Podcast with special guest, Dr David Penn.

Joanna:
David, I just want to say an absolutely massive thank you for coming on the podcast. Welcome.

David:
Thank you. Thank you. It’s great to be here.

Joanna:
Well, pleasure is all mine. I’m so excited about the discussion today. Now, one of the things that I really wanted to talk to you about is this concept of niching for success versus diversification, because some, you know, you’re obviously in a niche, you’re in dental, you’re a dentist involved in Invisalign. But you said to dentists, when we’re on a on the bike Grove exit Summit, a few weeks ago, one of the things that I picked up on that you said that I thought was really interesting. You said to dentists, that you need to differentiate unless you can, you’re going to have an average life. I thought that was a fabulous comment. But at the same time, I have noticed, David, this interesting thing, that you’re also quite diversified. So you’re involved with Lowe’s with Penn University, with robotics with vaccines. They, they that seems quite diversified from my perspective. So tell me, what what are your thoughts about this concept of niching for differentiation versus diversification?

David:
Yeah, well, it’s, it really is an interesting one. Because I think when you when the dentists graduate from university, they’re not really carried encouraged to sort of think outside the square. They’re given a cookie cutter solutions in almost every realm. And they’re discouraged to take risks. They don’t want to be making errors, they don’t want to be making mistakes. And so they become very risk averse, very conservative, very hard to change their thinking. And most of the time that when I, when I do go and do lectures, they just want this again, this cookie cutter recipe of just told me from A to Zed or one to 10, exactly how to do a process now, if I throw a red herring in there. And occasionally I do that deliberately in lectures to see if they’re listening. And I’ll say something absolutely ridiculous. I remember, there’s one funny one were a few years ago, I told them that we would were harvesting rocks from the moon, to actually put them and the actual graphite material we’re using in crowds. Now, this is preposterous, absolutely proposals yet, that we’re all mad at writing this stuff down. And even at the end, I was expecting some questions. But they didn’t they just hold on to the thing is that they blink it, they come out of it all. And most dental schools, like all dental schools around the world are like that.

David:
Now, the problem with that is then for dentists then to be hacking to sort of say, take on new processes, new services, new techniques, new materials, it’s very, very difficult for them a lot of them to say, Now, I learned this, and I’m going to continue with it. So to change, their thinking is different. So then all of a sudden, if you sort of say to them, oh, look, I want you to be involved with laser dentistry, I want you to be involved with TMD therapy, I want you to be involved in in treating xerostomia dry mouth, they panic because they sort of think Well, I haven’t been taught this. But for them to go and do enough education to become confident in that is very difficult. But if we can get them to transcend into one of these niches, where nobody else in that particular area has got that skill set. They’ve differentiated themselves into into a whole new cohort of patients. And all of a sudden their chances for the practice to grow, if they market themselves properly is great. So I think that for a dentist who’s working full time, and hasn’t got a lot of time, like I do, I think I think what you were sort of saying the fact that I am diversified amongst my niches is because as I’ve gotten older, and I’ve got do less clinical time, I’ve got more time to think about all the problems that I’ve seen in dentistry for the last 40 years. And once you’re aware of the problem, then you’ve got the ability or at least to be able to think about how can I solve that problem. But so I’ve got a lot of time on my hands mine is, is unusual. And then I and my perhaps my inquisitive mind, I like to sort of go and look at new things. And then when I see opportunity there, then I will dig down even sort of further. But I think for the general dentist is working four days a week or 30 to 40 hours per week, perhaps chairside. I think to go into these niches, these individual niches, one at a time is absolutely a wonderful way for them to differentiate themselves and build a profit center, a new profit center in their practice. And we did that with Invisalign. And I’ve seen it with a number of number of things in dentistry over the years.

Joanna:
Yeah, and of course, you’re talking about dentistry right now, but I think the message is so absolutely applicable to all businesses and that’s the point right you know, your Southern Cross dental wasn’t a dental practice it It was, it was a supply supplier to the dental industry.

David:
In general, the thing that’s interesting with the majority side is that we were pushing new techniques and new materials all the time. So we were lucky when we were working with an academic institution, Hong Kong University in particular, were there academics and PhD students were pushing the limits. And we were watching that. And every time we saw something, we thought, Well, hey, we can introduce this to the marketplace there. So yeah, that was, that was fantastic. But that in ice and other businesses, I’ve got a lot of friends, I do have mentoring with a lot of people in in different businesses, I see the same sort of thing is that there, there are a lot of them are unwilling to look at new technology, new techniques, new materials, when they do a lot of time, they don’t really know how to integrate it properly. And that takes time, they’re going to have a risk appetite.

David:
They’ve got to be careful not to make it too capital intensive. Because I often see people who throw a lot of money at things and thinking, well, the more money I tried it, the better it’s going to be. And we talk a lot about using sweat equity. And that’s what I really like I said, I’d say somebody if you could do it yourself, it might take a bit longer, but your risk profile is completely different. So I’d rather you do the research rather than going out sorting this or outsourcing that. Obviously, there’s some things you have to outsource. But I think it’s a fundamental problem with a lot of businesses is they don’t they don’t project towards the future. I think one of the greatest mottos is 3M the Minnesota mining and manufacturing company, monsters Corp, as I’m sure you’re well aware of. And then is that they said that in five years from now, that 40% of their sales want to be in products they haven’t thought of yet.

David:
Now, when you stop and think about that, imagine you as a lawyer thinking, Gee, what am I going to be doing and five years from now, where 40% of my revenue through my legal practice is going to be in one I’m going to go into strata law, I’m going to go into, you know, I don’t know what I’m going to do. But can you imagine that so that, to me is the true sort of face of innovation, where you’re backing yourself and you say I’m continually looking for opportunity. And you get the other ones which of course, which which, you know, reach a tipping point which become, you know, even things that are fundamental in certain marketplaces, they’re sandpaper, they’re sticky tape, they’re adhesives, you’ve got so many different parts of 3M, and they might try 10. Three might stick four might be a maybe three might go down the toilet, that doesn’t matter. But it’s those three, three stellar performers and then added to the, you know, to the armamentarium of the business. And I think that applies is applicable to in every single business and at Lowe’s. You know, we’re doing that all the time. We’re looking for niches all the time.

Joanna:
And so what’s an example of that David? What’s an example of it loads the sort of niche,

David:
the traditionally Lowe’s has been a menswear business. And then they were involved in schoolwear, and low supplies more than 1200 schools around Australia. But then they got into work wear and work wear for instance, high vis products. that’s a massive industry for the construction industry and for many other areas. And then you got Big men’s. Now Big men’s you sort of think well hang on, what’s that? Well, there’s a lot of guys in Australia, not just Australia, around the world who might be 4XL or 6XL, not everybody has got access to those clothes. So that’s another niche. And there’s there’s corporate waer we want to go and supply uniforms to a to a large corporation. Fantastic. So we’re looking for these types of niches now. Actually, we’re we’re looking at scrubs, for medical practices and for dental practices. So these are the types of things where we encourage the buyers to look for opportunity across the board.

Joanna:
And so are you saying there that that your your recommendation to those smaller practices to is to find their first niche, but as they grow it to constantly build on that diversification of multiple niches? So still niching, but just multiple niches?

David:
Exactly. When you’re talking about the 3M. If they’re adding one of these niches per year, then you’re going to find in five years from now they’re going to have five niches and if they only had room for 15 or 20 niches, then they’re 33 or 20 to 33% of their business is totally different than whether it was five years ago. Now to me, that is the way their business constantly evolving. You don’t always get it right. But you need to be looking at so you need to encourage people in the practice to take some degree of risk and And as I said, in our organization here at Southern Cross and Lowe’s, we say to people, if you’re not making a few mistakes, you’re not taking enough risk.

Joanna:
I love that. I think that’s so true, right?

David:
It is true, because you really got to think yourself, if you’re getting everyone, right, it means you’re not taking enough risk, and you’re not really stretching, they’re sort of the envelope sort of really far enough where you want to go. So, you know, I was talking last night to a group and I said one day, in probably the next 12 months, I’m going to do a presentation of all the monstrous disasters that we had, and all the things that we thought were going to be fantastic. That were just absolute, they’re just complete failures. And what the reason why isn’t that how we, you know, because it’s interesting, because those things I think you’re really fun to reflect upon and say, Well, what went wrong? Did we misread the market was the technology usurped easily was, what was the reason why it failed. And each time that we do fail, it sort of just adds a little notch sort of in my brain somewhere to sort of say, don’t forget to look at that particular one, because you’ve failed there before. And that’s happened to me on a myriad of occasions.

David:
You know, for every success we’ve had, we’ve, we’ve probably had, you know, almost one to one failure rate, or relative relative failure rate, when, when it’s something has failed to thrive. And I’ve seen this in dental practices. I’ve seen I’ve got I’ve seen it in legal practice, I’ve got a lot of friends who are lawyers, I mean, I’ve got seen them specialized to the nth degree and where they’re almost like, you know, this is great. You’re a specialist in this particular area of, I’ve got one in construction and finance law, a really good friend of mine, he wrote a book about it. But he wrote it from the developers perspective. And it’s like, so niche, it’s too niche. And it’s like I said, Well, think of all the hours you spent writing this great book, and I can understand it, but which is great. But the problem is how many actual people in construction would take the time? What’s the size of your target market? You haven’t actually reflected on that. So was there any commercial metrics, you know, which are applicable from day one? Great book, but over niche,

Joanna:
Let’s talk about that, then, David, I love that. I think so one of the things that you’ve talked about, obviously, you know, don’t be afraid to fail, but there has to be a point when you call it, you know, there has to be a point where you say, Okay, well, that’s an idea that didn’t work. That’s a niche that didn’t work. Let’s move on to the next one. So maybe, can we talk about what what are those factors to think about to make sure your niche testing is leading you in the right direction, rather than, you know, encouraging you to spend too much time focusing constantly on things maybe that aren’t working?

David:
That’s a really good point. And that’s a difficult one, because ego comes into it. And a lot of people I can sit and say are reluctant. And essentially, we’re we do a lot of work in research and development. And you can’t have an ego in R&D. Because today’s great product can be tomorrow’s garbage. And we’ve worked with that with plenty of people who can’t give that up. They’re, they’re emotionally invested, and they can’t pivot from one thing to another. So it’s a top not everybody suited for this, don’t get me wrong. I think though, if you do certain market research, and it’s full of as far as dentistry is concerned, I guess there’s three things you can do things which are on the fringe, where people are already sort of looking at this might look to other markets and might look to the US or to the European markets, who may be somewhat technologically more advanced in some areas, in some areas. And you can take heed of what’s gone on there. And you can try those things.

David:
I think clinical trials are always an interesting way to do things. And I think I think one of the most important thing is always assessing the target market. And I think a lot of people tend to kid themselves about you will, you know, I’ve just made a new pen and everybody in Australia is going to buy it. So guess what? I can make $1.50 from every pen. And I know there’s 27 million people in Australia and I do the numbers. And that’s what I’m gonna make now. That’s just ridiculous. That’s fantasy land. On the other hand, you get the the Doom day. So guess what, you know, my pen is it might be toxic. And you know, there might be things in there because there might be nano particles. If I hear that word one more time. I’m gonna scream. Nano-particles. I mean, it’s just ridiculous. But it’s it’s so you’ve got the two ends of the spectrum. You’ve got the one who’s doing looking at the target market and doing the matrix, which are ridiculous. were ridiculously optimistic. And then you got the ultimate pessimist and then you got somewhere in between. Who’s the real first. So, I mean, it’s very hard to, you know, to look at yourself in the mirror and say, What am I? I mean, if I asked you the question, what are you? Are you an optimist or a pessimist? Or a realist?

Joanna:
I’m definitely an optimist.

David:
That’s great. Because, in fact, my wife, talks about that a lot at Lowe’s, because she says often one of the best things that she does is she says, Yes, first, and then she’ll figure out a way to do it later, which I think is great. But I’ve got other people I work with, on the other hand, who immediate reaction is, oh, gee, no, I don’t think that’s going to work. It’s too dangerous. It’s too risky, all that sort of stuff. So I think it depends very much on the individual then, about when you’re going to pull the plug, and when you’re going to start to pivot away from something that’s not looking favorable. But I think if you do your due diligence, first off, then you get a couple of people who you trust around you to sort of say, like, well, we’re looking at a device at the moment, I’ve asked five people this week, how much they would pay for the device. And it’s a laser type of device, it’s a really interesting one. And I’ve had reactions between $510,000 For the same device.

David:
Now. So then it’s interesting, so that when you talk about making a call of whether to pull the plug on something, if somebody if I say it was gonna cost me $250, to produce that, and the person at 500, is, is closer to being correct, or you think the person had 10,000 is closer to being correct. You’re gonna make a call do averaging, do you get more market research, all of those type of things, more information that you can get, the better, as long as the information is coming from people who are credible. And I think you got to be careful, because, you know, sometimes you can get a pessimistic people around you. They can color your judgment, and they can turn you away from things. It’s like the the classic example of like, they say, you know, what, 97% of patients are going to be happy with this, this this proceed procedure. And I’ve seen this happen many times in the courses that I’ve taught, where people say, Oh, we can’t do that, because 3% of patients will be unhappy.

David:
And they’ll actually turn away from that, because they think it has to be 100%. Right. You know, I don’t know if you remember that. That famous quote from Stormin Norman Schwarzkopf, the American general. And this is really, this is an interesting one a takeaway. I was taught this a while ago, he said that, when you can, when you make a decision, you should collect 70% of the data that’s available. And this is what he was doing in war times. And he said that the other 30%, you go on gut instinct. The interesting part of you said is because the time that will take you to collect the other 30% of the data remaining data, the opportunity is gone.

David:
That’s quite an interesting one, because I’ve got many friends I’ve got one friend is a lawyer, actually. And she’s one of these people who will only make a decision when she’s got 100% of the data. Now you think about that, how many times you’ve made recommendations to your clients. And you thought, well, I could research that a little bit more. But I’ve got four ideas and other lavabo blah, blah, blah. Now this girl would go and get 20 different opinions on things. And she would make a call until she’s basically looked at it absolutely everything. Now the client on the other end is worried about being sued waiting for some advice from you. And this other girl’s taken a month because she’s done so much research, yet you’d got back to in two days.

David:
Now, what’s going to be more commercially successful? One time at a 50 You might be wrong. And the other one might be wrong, zero times out of 50. But from a commercial perspective, Joanna’s going to do way better than this other lady, because you’ve been commercially pragmatic. So I don’t think you can ever get it. 100% Correct. I think you’d be stupid to think that it’s, it’s a lay down mozzie there’s risk and everything. But again, the Schwarzkopf thing is really interesting that that 7030 Rule he calls it. It’s an Easter in wartime. And when we do a strike, you know, we know we know a lot about what’s happening, but we don’t know at all.

Joanna:
Well, look, David, I just want to say a huge thank you for being on the podcast today. Such fascinating discussions between this concept of niching motivation to the point where you may we differentiate, you know, you’re diversifying through multiple nations, but look at if our listeners want to connect with you, how can they go about doing that?

David:
Email me? That’s the best way. Even at my age, I know how to use email.

Joanna:
Do you really want us to put a link in our show notes, David? Hahaha

David:
I do a lot of mentoring and I really enjoy this. And I like working with, you know, motivated people. And if they got ideas and things and you know how to traverse that, from concept to commercialization is that I sort of do a lot of that sort of thing and I guide them through what I call the valley of death. When they’re getting close with, they don’t really know there’s all the regulatory stuff there’s so many things so yeah, I’m really happy to talk to two people and and as I’m getting older, I find that I’m enjoying this even more and more because I’ve been involved in so many different types of things. It’s fascinating, but as you sort of said the principles generally are quite the same across most and yeah and so I’m yeah really delighted if they want to sort of as an email me and say, I’ve got this crazy idea. What do you think? And I’ll give it to you straight between the eyes. It won’t be sugar coated.

Joanna:
David, I love it. I just want to say thank you a huge thank you for coming on to the podcast today.

David:
Pleasure.

Joanna:
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.

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