Dr Roger Levin: SmileDirectClub’s Bankruptcy and the Lessons for Orthodontists

Alison Werner 0:10
Hello and welcome to the orthodontic products podcast. I’m your host Alison Werner. On today’s episode, we have Dr. Roger Levin of the Levin group back with us this time to talk about the recent smiledirectclub bankruptcy filing and what it means for orthodontic practices. Here’s our conversation. Dr. Levin, thank you so much for joining me.

Dr Roger Levin 0:29
Oh, it’s a pleasure, Alison. I love I love your podcasts and the work that you do. And thank you.

Alison Werner 0:34
Great. Well, today we’re going to talk about the smiledirectclub, bankruptcy filing or actually, we’re going to talk about what it means for the orthodontic practice. So I was interested in getting your take on what this means for the orthodontic industry in general.

Dr Roger Levin 0:50
Sure. Well, let me let me start one step earlier. There was a Harvard Business School professor, very famous named Clayton Christensen, brilliant guy, who wrote a book called The Innovators Dilemma. And most business people have a good sense of who he is because what he talked about was how companies that are very, very small, they might look different, you might think they’re very low quality. They don’t have a lot of money, or they do have a lot of money, how they emerge, and they’re called disruptors. And smile direct club when it emerged somewhere around 2014 was a disrupter for the orthodontic specialty because patients didn’t have to come in. That was the promotion at that time they were going to be DTC. It’s called direct to consumer. But what Clayton Christensen showed was that some of these companies, and you ignore them, and you laugh at them, and you don’t think they’re a threat, and you think their quality is bad, and no one will work with them. But they, they keep learning and they keep growing, and they keep improving until one day they take you over. So in 2014, and in the early stages of smile direct club, and I’m not addressing the quality issue. And let me let me stop for a moment given disclaimer. Every orthodontist listen to this, the first thought will be well, their quality was poor, therefore, they wouldn’t make it. But the fact is, whether they’re let’s say for a minute, their quality was not as good as an orthodontic practice, let’s let’s just say hypothetically, that was the case, it didn’t mean that there wasn’t a segment of American and worldwide consumers, that would still go for the direct to consumer lower fee option for orthodontics. It also didn’t mean that they wouldn’t improve and get better and get better results. But what so we didn’t know in the early stages, how far would a smile direct club and other companies that were DTC direct to consumer go. And quite frankly, I was concerned because they got up to a very large number of cases each year prior to the pandemic. Now, historically, some of the problems were quality problems, there were a lot of complaints on social media. They were a litigious company. So they threatened anyone they had to give a refund to, and they had to sign waivers, which came up in a court case in the last year where those waivers could not you know, the confidentialities and all could not be enforced. But ultimately, the pandemic hit that had an effect on them. And they just weren’t able to grow the numbers. So I can’t talk about internal management. I don’t know issues like that there many different reasons companies get in trouble. But what what I saw in the pandemic and slightly before, was they began to shift their business model. And when companies do that, it’s for one or two reasons, either they’ve got a great idea, and they’re gonna get even bigger and better, or they’re having problems and they’re looking for ways to sell more of their product in different ways. So as you recall, they launched an oral homecare product line, which I don’t know much about it, but I always thought, Well, you got crest oral-b out there, you got Colgate out there, you’re going head to head with two of the best consumer product companies in the world. What makes your oral homecare products different, and I never really felt that they took off in any meaningful way. And then they started going to GP practices, and I believe they had 600 700 or 800 practices sign on where the GPs would be the practice that recommended small direct club aligners, and the GPs would get a royalty or cut of the product sale. And I did feel at the time right or wrong, that that was a bit of grasping for salvation that we’re having problems, were looking for a desperate way to sell more get cash in find a foothold. But I never believed that they would get enough GP practices to sign on because it’s not the way GPs behave, they typically don’t do royalty programs. They don’t do commissions. They don’t do split, you know, price splitting, all of which was legal in this case, GPs typically provide a service, the patient pays the GP practice, and there’s overhead and there’s profit. So the last few years, it has not, it’s not a shock to me that they have finally entered, you know, a version of bankruptcy. Not that I predicted it. I didn’t know, I knew they’re running out of cash, because I read the analysts reports. And earlier this year, it said they had about six months of cash left. Now, they might have gotten an Elon Musk to give them billions of dollars or something to keep them afloat. But in this case, clearly that that didn’t happen. So they’re, I would say they’re down, they’re not out. But my guess is they’re not going to be that particular company will not be a major factor in the orthodontic or dental space in the future. That’s my current prediction based on what I’ve seen.

Alison Werner 6:05
Okay, great. So then I guess the question now is, what are the lessons we can take away from this rise and decline of smile,direct club, but, you know, the rise and wherever the other direct to consumer companies are right now?

Dr Roger Levin 6:22
Yeah, that’s a really good question. And over the years, I’ve thought, academically a lot about how do you learn a lesson from a bad situation? And I think the answer, that’s really good, not the only answer is you find a comparison. Jim Collins, who’s the author of Good to Great and Great by Choice, and probably the best business mind alive today, did all of his research based on comparison companies. Southwest Airlines, there was another airline exactly the same as they were, I think, was something called something Pacific airlines, they were ahead of Southwest, they could have been southwest. But southwest, obviously, took off in a big way. And the other airlines gone. Nokia, the phone company, had every technology that Apple had, they had everything Steve Jobs had with touchscreen, etc. They, but they were so successful and so profitable at the time, they didn’t think it was very important. So Nokia could have been apple today, which is a multi trillion dollar company at this point. So my comparison for smile direct is align technologies. And again, I I don’t have I try not to have bias. I’m looking at this academically. But when smile direct started, which is our subject so far in this podcast, orthodontists did not like them. Well, of course, you wouldn’t like them, they represent a different model. Very often in dentistry, when there’s a different model, we scream low quality examples would be the single tooth root canal appointment, not single tooth, I’m sorry, the single root canal appointment, you know, there was a time until the mid 80s and late 80s, where endodontics was always two appointments, never one appointment, and the endodontic specialty screamed that you can’t do this in one appointment and of course we are. there was a time where after you had surgery, to prepare an area of the mouth for an implant, you then waited six to 12 months to place the implant. And now we have immediate loading you can place the implant you know immediately. So my comparison here would be smile direct club and align Invisalign and smile direct came out. We didn’t like them. Well, when Align came out back in the early 2000s, orthodontists didn’t actually like them either. But align was smart. They had what I call an embarrassment strategy, which is they advertise directly the public. And if you wanted to be referred to a practice that offered aligners you had to then be part of the Align was the only company you had to be involved. And gradually we found out Oh, okay, the quality is pretty good. Because remember, originally, it was only adults, and then it was teenagers. And then they they kept improving and they kept bringing down the age that aligners would be acceptable for an orthodontist went from I don’t like align. They didn’t like align any better when they started. They didn’t believe align’s quality was any where near what they wanted to provide is exact same comparison to smile direct club, but align was smart. They didn’t say give aligners to everybody. They said let’s start with the adults. We have data we have research. We have a really good model and it’s a learning model. Align’s model has had artificial intelligence in a sense from the beginning. They’ve now done well over 20 million cases and the that data keeps improving. So the quality got better, the treatment got better. The age groups got lower, where smile direct just came out. And unfortunately, there were some real. You know, the fact that orthodontists didn’t like the quality originally, is no surprise to me. But then some of the quality questions seem to be pervasive over time, and lawsuits and patient lawsuits. So the lesson is that if a company wants to be a disrupter and has the ability to become a quality product, because in dentistry, we’re not selling widgets, we need quality results you there’s nothing wrong. Like for example, I’m wearing an Apple watch I got this is my brand new watch band. I didn’t buy it from Apple, I bought it for $9 on Amazon, it looks just like Apple and for $9 If it only lasts six to 12 months, I’m perfectly happy. I don’t need a high quality watch band. But in orthodontics, we always need high quality we are doctors we have an a mission of providing excellent care. So the product has to either be excellent or service or the ability to become excellent rather quickly. Align did, smile direct club did not or if or in a worst case scenario, if I’m completely wrong, they weren’t able to convince general dentists and the orthodontic specialty that the quality was there, which was part of the reason not the entire reason for their current bankruptcy situation.

Alison Werner 11:30
Okay, so what should orthodontic practices take away from their pathway like what they did accomplish and how they did maybe change consumer behavior or raise the issue of maybe this is what consumers want? How do orthodontists address that?

Dr Roger Levin 11:49
Well, the first thing I’ve advised dentists and orthodontists and all specialists for years is don’t let your bias influence good decision making. You know, align came out there was a huge bias. But orthodontists signed up with them because they did want to get the referrals from the advertising campaign that I described. Smile direct, went right in the face of the dentists and orthodontists and said we’re going around you. We’re basically going direct to consumer. So the first question, the first reaction of many people is, well, if it’s not what I’m doing, it’s bad quality. Just like listen, I got a million examples. There was a time where every orthodontic patient was seen every four weeks. So you and I were talking before the podcast about your friend or relative who’s going two people you mentioned, going through orthodontics about once a friend Yeah, right. And I guarantee you neither of them are going in every four weeks, it’s probably six weeks. And in our in our national orthodontic survey that we did with you that we’re doing annually with you now we found that the average time in between visits was about 7.2, 7.4 weeks. I know people that see bracket and wire patients every 16 weeks, and aligner patients every 22 weeks now some people hearing that don’t shoot the messenger, some people hearing that are gonna say, well, that’s bad quality. But it is it is these are excellent orthodontists they have excellent practices. I’m not an orthodontist, so I never judged quality. But I will say that No, I’m not sure it is not excellent quality. And some practices just haven’t gotten there yet or don’t believe in it. So the first thing is to overcome your own bias and ask good questions, which is, objectively what is the quality result that we will see from this service? Where is the research on this service? I’ve seen research studies in dentistry on nine, nine patients in China, well, that does not impress me as a great research study. On the other hand, you don’t need if we talk about vaccines, you know, with a pandemic, we didn’t have 20 years of we didn’t have 20 years to do research, before we came out with a vaccine for those that like vaccines. So put your bias aside, ask good questions. And then don’t be threatened. But be smart, because there will be I believe, direct to consumer will come back in some way. Now. I don’t want anyone. This is a fantastic conversation, but at the same time, I know there’s a lot of bias. So anything I say that somebody goes what, I’d rather that didn’t happen all of a sudden, this is a horrible, horrible thing to say. But I think direct to consumer and it might not be 100% direct to consumer, but I think it’s going to be back in some way. And I’ll tell you why. Not because of what we know today. So this is pure prediction. But because of artificial intelligence. This AI that we’re hearing about in the news is very real. We have the we had the writers in Hollywood go on strike because they don’t want AI to affect them in the future. It doesn’t matter what they want, it doesn’t matter what the settlement is, it’s going to affect them in the future, it’s going to affect all of us and in many good ways. But with AI, we’re going to get better and better and better at the ability to have fewer patient visits, to know exactly what’s working, and what’s not. The technology, whether it’s using your Apple phone or whatever is going to get better. But eventually, you’re gonna get reports on patients remotely. And remote monitoring is a huge study and fascination of mine right now to increase orthodontic practice production. Because you’re opening up a lot of chair time and delegation opportunity. AI is going to allow what can’t be done or shouldn’t be done today, to be done tomorrow with excellent quality. I don’t know exactly how it plays out. But I think we will see a lot more remote monitoring fewer patient visits more chair time, and new innovative products and services that we haven’t thought of yet.

Alison Werner 16:09
I’m curious if we could talk about you know, these direct smile direct club and the direct and consumer companies. They’re clearly seeing a certain type of consumer that is looking for this kind of services, they’ve clearly identified a demographic or you know, a need or want from that population. What should orthodontists be looking at, in terms of meeting that type of consumer as they go forward?

Dr Roger Levin 16:36
Yep. Well, here’s an interesting thought. Again, this is a conversation without black and white answers, but around 50 to 60% of Americans, for example, do not go to the dentist annually, and it’s much much bigger worldwide. Now one of the thoughts I’ve had I’ve never heard anyone else talk about this, but one of the thoughts I’ve had, I wish somebody else would I’d feel better is there a lot of people don’t go to the dentist but they wear makeup. They wear nice glasses. They wear jewelry. Men and women get their hair cut to look the best they possibly can. And I always wondered why orthodontics which I believe is about one thing creating beautiful smiles. I don’t believe mothers come into practices and want to talk about rotation and periodontal ligaments and axial forces and bone. And I understand all that I understand why all of those are important. As as you know, I’m a general dentist, I was full time for 10 years never did an orthodontic case in my life. But I do understand the physiological health factors of ortho but I firmly believe and teach that the treatment coordinators selling one thing a beautiful smile. And if they buy the beautiful smile, then they get all those other benefits from an orthodontist for health. But at the same time, why aren’t there more orthodontic patients that don’t go to the dentist half the country or are a little less perhaps that say you know what ortho is about cosmetics. It’s about beautiful smiles. I’m going to go get ortho, even though I don’t get hygiene appointments and I may have missing teeth or something else. Part of the answer is the expense. The expense of an orthodontic case is at a level that a lot of people aren’t going to just jump in and go have orthodontic treatment. That is until aligners came along. Now aligners at first actually the fees for aligners were higher than bracket and wire because there’s a higher lab fee on those aligners. lab fees still pretty high. There are different models coming out where maybe you need fewer trays and other companies have besides align who is by far the leader in the field. Other companies you know have different models. But you also are starting to see DSOs coming out with orthodontic aligners under $2,000 That’s a threat to the orthodontist. I’ve got a list of the top 10 threats to orthodontist that’s a threat. And these are not small companies, Aspen dental has their own branded aligners, and the last time I checked, there was $1,999 and you let you leave that day with your first set of trays so you don’t go home and change your mind. You don’t go home and call up and say you know, I talked to my neighbor, I’m gonna go get another opinion from her orthodontist and then I’ll let you know. So I think we’re gonna see more disruption and fracturing throughout the different ways the service delivery models how the public can access, orthodontics. Some people will always want an orthodontist. I think orthodontists need to do a much better job of explaining that they are specialists they have more training. It’s not part of patient phone calls. It’s not part of the TC process. So along those lines, We’re gonna see people evaluating where to have orthodontics differently. And it’s not going to be the same supply and demand that it was for the last 40 or 50 years.

Alison Werner 20:13
Okay, so I guess, as we wrap this up, what’s the one takeaway you want orthodontists to keep in mind as they just think about the future of where their relationship with their patient and their relationship to the to the industry I guess?

Dr Roger Levin 20:28
Yeah. Well, the macro answer first is and you’ll wonder why I’m going here. The American Association of Orthodontists is an excellent organization. They are focused, they have great public relations, they have good publicity, they represent their members well, and every orthodontist I know is proud to be a member of the AAO. That’s the macro. The AAO, however, is only so big, they can’t do $40 million a year, advertising campaigns to the public. Now align is helping with their ads meet with the NFL, I think that’s fantastic, because Invisalign is the only dental product that you can’t buy direct, that is known to the public. Think about that, okay, you have Nobel implants, but people don’t say I want a Nobel BioCare implant. They don’t say I want this type of porcelain, they don’t say I want you to use Glidewell dental laboratories, all great organizations and companies. But Invisalign is is is Kleenex. But I’ve always believed that this all has to be solved at the individual practice level. So I would offer the following advice. Number one, every practice needs a brand. What is your brand is your brand, we create beautiful smiles. Is your brand we’ve been here for 40 years. Is your brand we’ve got the best location. Is your brand we’ve got lower fees. I think, Allison, not that you asked me but I’m also going to predict no one’s going to like hearing this either. Again, don’t shoot the messenger, we’re gonna see orthodontic practices with different sets of fees for different patients, depending on case complexity. And I say that because there’s going to be more fee competition in the future. Number two, every parent or patient needs to understand what an orthodontist is. They have a sense, they know they only do braces, but they have no idea how many extra years they go to what a residency is, why they’re the best qualified if there are any issues along the way that I sat through a lecture I go to clinical lectures and ortho and you know, what can happen to bone? Well, you can’t see that bone. When you finish a case. And then all of a sudden, 25 years later, well, we’ll worry about 25 years and 25 years. But you can we can worry about it. Now if we explain to you how we’re going to protect you for the rest of your life. Number three, remote monitoring is going to take off that is Roger Levin’s prediction. I’ve been wrong in my life. But I I think I’m right on this one, we’ll see I’m doing a very deep study of how remote monitoring can literally double practice production in orthodontics. But you’re going to have to create more value because if the patient isn’t coming in, how do you contact them, communicate them, reinforce them, motivate them, all of which can be done? We’re working on that because I know this is coming. So in our own consulting programs, we’re starting to build this in because it’s going to come fast, I believe. So again, and even if you don’t go to remote monitoring, your intervals will get longer. So how are you going to maintain powerful relationships and keep referrals coming in from highly satisfied patients? And finally, I’ll add a category orthodontists don’t think about that I just call a follow up very simple. But does anybody call the patient who finished their aligners or finished their bracket and wire two weeks after just to see how they’re doing? Does anybody send an email at the end of one year to say it’s been a year since you’ve completed your treatment? We hope you’re doing well. We really enjoyed having you as a patient. And if you have any questions, please contact us. You know, we shouldn’t say Oh, well, they’re done. We’re finished and of relationship. We need to do a lot more to reinforce the orthodontic patient relationship in the future that will help justify fees that will explain why orthodontists are better to work with individual practices will do great, but not all of them. It’s not an automatic guarantee anymore, that if you become an orthodontist, you will have a great practice, you’re going to have to work at it and be strategic in the right ways with the right systems. And And one final note, if your referrals and production grow every year, you will always be fine. Even if you get there slowly, you will always be fine. And that should be the benchmark. It’s okay to say I want to grow 30% Next year, that’s a great goal. But it’s also okay to say I just want to grow next year, and year five and year 10 And You’re 15 If you do the math, you’re going to have somewhere between a good and great practice if you just grow every single year.

Alison Werner 25:09
I think that’s the perfect thing to end on Dr. Levin, thank you so much. Really appreciate this.

Dr Roger Levin 25:13
Oh, thank you, Allison. Always a pleasure and I hope we’re helping your listeners.

Alison Werner 25:18
As always, thank you for joining us. Be sure to subscribe to the orthodontic products podcast to keep up with the latest episodes. And be sure to check out orthodontic products online.com to keep up with the latest industry news.

Unknown Speaker 25:27
Until next time, take care