Pamlico in the News: Growth Amid the Tumult
How Office Practicum created value-based initiatives to better serve its health care customers in a year like no other
By Laura Schaefer, Middle Market Growth
As we reflect on the economic impact of the COVID-19 pandemic, restaurants and retailers are the first businesses that come to mind.
But they aren’t the only small businesses that experienced a huge degree of upheaval this year.
Doctors running small private practices around the country also reported decreases in revenues, according to the JAMA Network. And all the companies supporting these providers were impacted as well. But until we can all look back, from a distance, and take full stock of the pandemic’s fallout on our lives and businesses, we continue to navigate the during.
For the leaders of Office Practicum, a pediatric-specific electronic health records provider based outside of Philadelphia, a key initiative implemented mere months before the pandemic hit in March took on extra importance. Ellen Purdy, the company’s chief financial officer, had a conversation in late 2019 with fellow ACG peer group member Alix James, president and CEO of specialty electronics firm Nielsen Kellerman. James mentioned that her organization was using a new management system for goal-tracking and communication called The 3HAG Way, which stands for 3 Year Highly Achievable Goals. (It is a play on the concept of the Big Hairy Audacious Goal, conceptualized in the book Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras.)
This management methodology is designed to get a whole company aligned on what needs to happen every quarter from a priority and metrics standpoint to achieve three-year goals. Purdy brought the system, with its protocols for daily meetings, to Office Practicum’s CEO Kraig Brown, who remarked, “This is exactly what I’ve been looking for.”
The OP leadership team implemented the system in December 2019, with zero notion of the troubled waters that lay ahead.
“It is fortunate that we started this prior to March,” Purdy says. “It [3HAG] had already become a way of working for us that we had gotten used to, and it was very helpful with all the headwinds of 2020, including working remotely. It’s keeping us on track, keeping a pulse on the company.”
The 3HAG Way system is only one part of how Office Practicum showcased its resilience during this year. Its leaders also leaned on the guidance of its PE backer, Pamlico Capital, on regular communication with Pamlico’s other portfolio company leaders, and on their commitment to serve OP’s core customers at an ever-higher level with several new value-based initiatives.
To understand the full picture, we’ll begin by stepping back to March, when life and work changed for everyone.
“The very first thing that we had to do was follow the state and CDC guidelines, and move our roughly 170 office-based workers to 100% remote,” Purdy recalls of the week the pandemic unfolded in earnest in mid-March. “As a tech company, we fared well, getting our employees working from home without skipping a beat. We were already using good tools to run the company, including Slack and Salesforce.”
Office Practicum has a 25-year history of providing an electronic health record and practice management system, billing services and business analytic tools to help pediatric practices improve clinical and financial outcomes. The pediatric workflow—including everything that happens in a pediatrician’s office—is unique compared with other types of medical practices. The vaccine schedule for children and the American Academy of Pediatrics guidelines, for example, are built right into the Office Practicum software. Thus, the product is used by a large share of the pediatric market.
The company serves almost 5,000 independent pediatricians, and immediately began gearing up to handle the uncertainties wrought by the pandemic. Fortunately, Office Practicum’s transition to remote work was made easier than it might be have been by its adoption of the 3HAG Way.
“It involves a certain cadence of planning and meetings,” Purdy explains. “So, you have an annual planning meeting, and then you have quarterlies to review.” Perhaps most importantly, the system calls for daily meetings of a firm’s CEO and all their direct reports. “Our senior leadership team started meetings at 8:15 every single morning of the workweek back in January,” she says. “We made sure that we were aligned on our goals for the day and the week. More importantly, it’s a way to discuss barriers to priorities that we set and issues that we needed to discuss as a group to make sure that we’re working together cross-functionally.
“It works,” Purdy adds. “We all believe in it. It keeps us together, aligned and working in the same direction even though we still don’t see each other in person. It started with just the senior leadership team in January, but it’s now cascaded down to every single employee in the company. Many of our clients also follow a ‘daily huddle’ in their medical practices, highlighting the value of the approach.”
OPEN COMMUNICATION: ALL ABOUT THE PEOPLE
When the pandemic began, Office Practicum experienced the shock of it the same way many other middle-market companies did, recognizing that it was an unprecedented event in the recent history of our country. Its leaders immediately questioned how the markets at large would be affected, and how the pandemic would affect their business in particular.
“We turned to Pamlico and asked, ‘What are your portfolio companies, doing?’” Purdy says. “They shared that information openly with us and we had biweekly meetings with the CFOs across their entire portfolio so we could all share best practices.”
It was not just the Pamlico-based CFOs who began to meet, in fact, but the CEOs, the HR directors or VPs, and sales leaders coming together as well in these cross-functional sessions.
The meetings were helpful in multiple ways.
“It was just good to have peers. Even though we’re in different businesses and were affected by COVID differently, we could still share stories and support one another,” Purdy remembers. “What was interesting is, regardless of which function the meetings were for, be it finance, sales or HR, when we got back together within our own companies, we saw that everyone was talking about the same thing: people. As in, how are you managing your remote workforce? What policies have you put in place? Are you concerned about retention? How are you handling layoffs? How are you handling salary reductions? These people-oriented issues were by far the main thing we discussed, as opposed to operational issues like, ‘How are your sales going?’
“People are fundamentally the most important thing to get right. Therefore, managing that piece well was important to all of our success and that’s why it was the main topic of conversation.”
The question of how to handle people and upgrade talent in 2020 became an important focus for Office Practicum. With the guidance of Pamlico, Purdy and her team evaluated several potential revenue impacts, and based on those projections, shook things up on the personnel front for the better.
“One thing to celebrate [about 2020] is how we’ve upgraded our talent,” she says. “This year forced us to make some hard decisions about which positions were crucial to our success and which needed to be retired. We used the opportunity to accelerate some outsourcing of some of our less strategic processes and added some really strong director-level talent to our company over the past four months.”
REVENUE MODELS AND PE SUPPORT
In addition to setting up the cross-functional portfolio team meetings for its companies, Pamlico helped Office Practicum vet its financial modeling of different scenarios as well.
“They recognized that we knew our business better than they did,” Purdy explains, “so they relied on us to tell them the factors in our business model that COVID could affect … and helped us predict how those factors could impact our financials.
“As the pandemic continued to unfold, we had to quickly think about our liquidity. Even though we’re lucky in that we have a subscription-based model with highly recurring revenue, we knew there were still ways the pandemic could affect us.”
There were several factors to consider.
First, just because OP was billing its customers, the company knew they might not be able to pay. Pediatricians saw so many fewer patient visits, especially in the first few months of the pandemic. It’s gotten closer to normal, but it’s still not 100% because kids are not getting sick and they’re not getting injured from playing sports. Next, OP knew its ability to attract new subscribers could be affected. Finally, a portion of its revenue is from billing services, on which it collects a percentage of money they collect for their clients. This part of its cash flow was the most likely to see a decrease, and ultimately did—although it was less than expected.
Although Office Practicum is a private equity-backed firm, it was one of the few that qualified for a loan through the Paycheck Protection Program. Thus, for several weeks right in the middle of March and April, Purdy was consumed with the application process and all of the legal ramifications of the loan. Pamlico and its law firm helped guide her through that process, making sure the organization was being compliant and making wise financial decisions. Three weeks after OP received the loan proceeds, the company decided to repay the funds in full due to shifting guidance and its ability to use other sources of capital to maintain liquidity.
Purdy points to the helpful role OP’s PE backer played in helping her company plan, react and even grow during this challenging year.
“Pamlico has always been supportive, but certainly the level of dialogue and the frequency of conversation between us increased substantially during that time,” she said. “They helped us get clear on the factors that would affect us, doing sensitivity analysis and scenario analysis and then helping us to determine how much cost-cutting we needed to do to make sure we’d have good liquidity.
“They kept us focused on instant financial stability and where the projections would be. I appreciated their support, knowing they weren’t expecting us to get our predictions 100% correct. They knew that we just had to plan for different scenarios and we were going to do better on some and worse on others. The goal was to be flexible and make it work, which we were able to do.”
HELPING CUSTOMERS WIN
Office Practicum leaders understand the golden rule of all businesses, true regardless of the circumstances: If an organization can help its customers not only survive but thrive during challenging times, it will win.
“If we help our customers, they’re going to stay financially solvent, and be able to continue to pay us,” Purdy says. “And so that’s what we focused on in 2020, and what we will always focus on: What can we do to help our pediatricians thrive?”
OP introduced curbside check-in so its physicians would be more likely to have patients show up, as they wouldn’t worry about sitting in a waiting room. The parent got a text on their phone and the office would text back to check them in straight from their car. It was one of the company’s fastest-ever implementations of a new product feature, fully integrated with the existing software product.
Along the same lines, the OP software suite already had a telehealth application, but the company accelerated the use of that feature and created templates within its system to make it easier to diagnose and provide the symptoms for COVID specifically. Further, OP also offered its customers free training, financial plans, and checklists to track revenue. For example, it provides specific patient recall tools that help fill the schedule of the pediatrician so they achieve better use of their time and therefore more income. Finally, OP helped guide its pediatricians and other health care practice owners to additional funding sources, knowing it could help them through the process of securing grants or loans.
“We did lots of things to help shore up the financial health of our practices,” Purdy says, “and in so doing, help ourselves.”
LOOKING AHEAD TO 2021
To tell the story of 2020 in a way that resonates with other business leaders is to offer transparency: Office Practicum did not meet its one year Highly Achievable Goal this year.
But it did grow… and in a year like the one we just experienced, that’s certainly worth celebrating.
“Something we share with all the employees in the company,” Purdy concludes, “is that it’s remarkable we still have grown. One of our board members said how impressed he was with how many value-creating initiatives we got done this year, given the challenges we faced. We weren’t just reacting to circumstances or just preserving business, we got a lot of value creation accomplished.”
This tenacity is a credit to the firm’s leadership, to its supportive PE backers, and to the system that helped Office Practicum achieve many goals despite the headwinds of 2020.
If resilience is the capacity to recover quickly from difficulties, Office Practicum has it in spades—and is well-positioned to meet all of its goals in 2021.
Even the hairy ones.
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Pamlico Capital is a private equity firm founded in 1988 that invests in growing middle market companies in North America. Pamlico Capital seeks control-oriented growth equity investments of up to $200 million alongside founders and proven leaders in its target industries: communications, healthcare, services and software. The firm, based in Charlotte, NC, has assets under management of almost $3.5 billion. For additional information, please visit www.pamlicocapital.com.