Ep 10: Why most allied health businesses fail (and how to avoid it)

Michael Dermansky

Hi everyone and welcome to the show that explores with allied health business owners and managers what’s important about being in the allied health business today. My name is Michael Dermansky, I’m senior physiotherapist MD Health and I’ve got a special guest today Shane Guna. He’s from the culture of one and also a former business owner as well. Welcome to the show.

Shane Guna

Thanks, Michael. Thanks so much for having me, mate.

Michael Dermansky

Great. Well, you’re, the reason I brought you in, cause you’ve been doing business coaching for in the physiotherapy industry for a little while. And I wanted to talk about your insights from, with other physio and allied health business owners, what you see are the important things are. So I guess tell us a little bit more about your history and how you ended up in the coaching space.

Shane Guna

Yeah, thank you. Yeah, my history in a nutshell, like I’m a physio grad from La Trobe Uni class of 2008 conventional path, I think. I’ve worked in public hospitals and I used to work for Epworth Rehab. That’s where I funnily enough met my partner in my first job. And then I traveled, then I did some private practice, then I traveled again. And it’s probably about five, six years into my career when I landed in Musk Sports proper. And I worked for a company called Pure Sports Medicine, which was an elite sports framed business in the UK. And that’s pretty much where I cut my teeth. That’s where I went from feeling like, do I really want to be a physio too? I’m a very confident. And like at that point, I felt like that was probably the peak of my knowledge as a, as a musk physio as well. And through that process, I did the grad certificate, travelled a lot through Europe. And then I found myself back in Melbourne in 2018. And that’s when I joined with Life Ready and started my practice at Life Ready Point Cook, which was a whirlwind because 15 months into running that business, we ran into COVID. And either side of COVID, I think I went from being a physio who runs a business to being a business owner into a fully fledged entrepreneur. That’s more how I identify myself now with the realities of dealing through that period. I think that was the massive, massive growth curve I went through after 260 days in lockdown and coming out the other side with a really strong team a really strong culture and a fantastic business. So much so that I felt like there was nothing left for me to do. And I ended up selling that business, trading water for a little bit, writing blogs. And then I found myself riding that momentum into business coaching. And I think this is a sector where the main reason I’ve got into it is because of the knowledge I’ve accumulated over that five year period, which I want to pass back down the chain to young business owners so that they’re better informed about how to go about running their businesses. We can share the journey of all of us as practice owners because I think there’s so much value in that forward, you know, knowledge from people that have gone down that path before rather than everyone trying to do the same thing and facing the same barriers and the same problems and getting stuck. So this is kind of how I’ve landed here and in that time I’ve had two kids as well.

Michael Dermansky

see that adds an extra, like a real life extra layer of complexity into real life as well. Well let’s ask for the first question I want to ask is in your experience in consulting the physio business owners in last few years, what’s probably the most important things you should think business owners should focus on that they’re not seeing?

Shane Guna

Yeah, it’s not a sexy answer, unfortunately. I really wish it was, but it’s finance. It is your finances. The question, the first question I always ask physio owners is what was last month’s revenue? And almost always people have to go and look it up. And this…boggles my mind. know I’m wide different. I know fundamentally I’m wide different. I ate and bred our finances, but I could still tell you almost off by heart, the first two years of monthly revenues for my business, because that was the single most important thing to be focused on. And I think our level of financial understanding is really limited by the fact that….and this is going to be potentially a bit controversial, sorry Michael, but accountants are fantastic at what they do and accountants are built to organize your taxes fundamentally. That’s what your business accountant fundamentally does. And you need to look at things like management accounting, which is something business coaches are far better at, which is actually taking that information and translating it into direct actions in your business. And that’s the skillset that is fundamentally missing from a lot of people because we’re not thinking finances, what’s happening in our business, what’s happening with our cashflow into direct actions.

Michael Dermansky

see. I mean, it’s interesting as well because when I do a business degree, two subjects I was very keen to do is what was accounting because I needed to know the basic rules of accounting. You need to be able to understand the language. You don’t have to love it, but you need to understand the language. You need to be not scared to look at the P and L on the balance sheet and a cashflow statement as well. Like it’s just, that’s the, that’s the conversation that everyone in finance accounting does. And the second one as well as they didn’t offer it the start and I was waiting for it to come about was management accounting or cost accounting, which is very, different to preparing taxes. So, I mean, you know, that’s the difference between where you’re outsourcing someone’s taxes versus the CFO. CFO is the internal guy that looks inside and says, this is your margin. This is how much it costs. How do we make sure that this is a healthy financially healthy business? That’s that that can actually thrive.

Shane Guna

Yeah.

Michael Dermansky

both give you what you need as a business owner and to being able to open the doors every day and be know that it’s okay to do so because you’ve got a healthy margin. It’s it’s the background noise that has to be there to make sure that you can actually do your job as a physio.

Shane Guna

Yeah. And that’s the thing. I fundamentally know nothing about accounting. don’t, I don’t want to know much more than what, what I do know, but what I am capable of is looking at a P and L and telling you pretty much straight away where the problem in the business is. It’s a very like, it feels like being a physio again, in some respects where you look at someone’s movement and you go, yes, I recognize that from where my business was. And that is a sign that this could be a problem. And then we go in and we test it.

Michael Dermansky

If you drill down a bit more about it, people don’t know their finances in particular, looking at P &L, which are the line items that you think they probably need the best, spend the most amount of attention on?

Shane Guna

Yeah, so this, this is worth five, six figures. Honestly, this, this is the single thing you need to be cognizant of. It’s your gross profit margin. It is what are you spending on your practitioners versus what are you getting back? Because that is the critical lever inside of physio business. And the reason, the reason I’m saying this with a bit of vigor is because the way most people’s PNLs are set up means you can’t see that. You can’t see it because all wages are blended in with your admin and your physios and whatnot and supers somewhere else and yeah, yeah.

Michael Dermansky

No, they’re very different. So your variable wages and your fixed wages are quite different. You know, and what, and, and, and if you don’t have a margin, you know that if you don’t have a decent gross margin in your business as well, there’s no way you’re going to over the line and make any money on it. It’s just, it’s, it’s just pushing harder and harder and feeling like getting nowhere.

Shane Guna

Yeah, and if you don’t know what it is, you are actually flying blind. You are guessing with every decision you make when you go, okay, let’s do some more marketing or let’s hire someone. If you don’t know what your gross profit margin is, it’s very hard to justify those decisions through a financial lens.

Michael Dermansky

Well, let’s talk about that too. So you said you do more marketing, you get more people in the door and you don’t know your gross margin or your gross margin is low. Why is that a problem? mean, mathematically it’s really simple, but tell people why is this a problem?

Shane Guna

It’s painful to understand because a lot of us want to serve our community and serve more people. But fundamentally growing a business without that margin just means you’re growing the service. You’re seeing more patients, but you’re not getting a financial return for it. And as you get bigger, the problem gets worse because you can start losing money even though your business is growing.

That’s where things get dangerous because when it’s just you and another therapist, your margin for error is very large. When you’ve got five or six therapists and you’re not making money, you’ve still got to come up with payroll. But you’ve got payroll for five or six therapists plus your admin team. It’s a much bigger target. You can’t just draw down on your savings one time because you made a mistake.

Michael Dermansky

Well, I mean, what I’m hearing as well is that if you don’t have, for example, you’re paying, I mean, commission based wages are classic ones as well. you do commission based wages of 40, 50, I will pay you more 50 % and so forth, which really means about 50.

We’re talking about 57, 58. So we need to super and leave an account. 50 % margin sitting about 57, 58%. And then your business is trying to run on 43%. And then every time you do spend say, you spend a dollar on marketing and you get another client in the door.

$0.58 of that is going to somebody else. You can’t use that for your business. And so the smaller the gross margin, the harder and harder it is to have enough margin there to actually run your business.

Shane Guna

Exactly. Yeah, because the other costs are fairly fixed. Like you’ve got rent, is for most people, they’re paying very high rents these days. That’s what’s actually squeezing a lot of businesses these days. And then you’ve got your administrative costs, which to be honest, you cut your admin and it starts slowly killing your business.

Michael Dermansky

Thank you.Yeah.

Shane Guna

Like there are ways to optimise it, but I’m a firm believer that in a health business, especially for the target demographic we service, which is often older people, you need someone in the room there to be servicing them, to be providing that customer experience. That’s what helps to grow your business over the longer term.

Michael Dermansky

So lesson number one, two, three and four, make sure you have a healthy, well you know your numbers and you know you have a healthy gross margin in your business as well. From a rough idea, there’s no perfection, but what is a good healthy gross margin in your point, from what you know.

Shane Guna

50%, all inclusive, that’s the problem, all inclusive 50 % because we have to pay superannuation, we have to pay all the entitlements and whatnot. So we’re looking at that figure. And where it’s challenging is, it’s the cycles.

Michael Dermansky

Okay.

Shane Guna

February might have four pay runs in it and it’s a 28 day month so it’s perfect if that plays out but other months it’s so much harder to just delineate those nuances because the figures don’t match up with payroll cycles and whatnot.

Michael Dermansky

Yeah. Yeah. Yeah. I mean, for us, we very deliberately, I’ve kept weekly cycles because that’s how that’s our revenue cycle, which matches our cost cycle, which matches what we can plan for. Because as you said, a month could have 31 days, it could have 28 days. It could end on a Saturday, start on a Saturday that it really affects your revenue cycles. Your weekly is really divided pretty evenly as well. Um,

Shane Guna

Exactly.

Michael Dermansky

Going back to early days as well, if you’re looking at starting a business as well, one, what skills do you recommend that people develop before they start a business? And why do they, I’m gonna go a bit wider than that too, why do you think people should start a physio business or any kind of business? And two, if they decided they couldn’t do that, what are the major skills you think they should learn before they start?

Shane Guna

Yeah, great question. I would come back a step and go, should you start a physio business? Should you? Because the question is, and it really depends where we’re talking about, is there actually demand for that service? Is that the reason you’re starting the business to begin with? Because especially around metropolitan Melbourne, for example I’ve got a physio I could go to over there. I’ve got one over there. I’ve got one over here and I’ve got one down there. They are all within one kilometre of me. It is a very saturated market. And if the only reason you’re starting a business is because I want to work for myself, that’s not a good enough reason to get out there and want to do it. Because when things get hard, it’s a problem. And I like to defer to the lean canvas, is something we can share this in the show notes for people, but there is one box and you’d know this from your MBA and whatnot, where we’re looking at the problem, the solution, the key metrics, the cost structure. Like, most of this stuff is same same for every physio and health business. Like we know who the target demographic is, it’s people with pain. We know what we’re trying to solve with it. The box that says unfair advantage.

Michael Dermansky

Yeah, absolutely.

Shane Guna

You need something in that box that is more powerful than just your clinical skills. What is your unfair advantage? Because, and this is very relevant to 2025, and this isn’t something I would have said 10 years ago, but right now without that unfair advantage, you are almost guaranteed to be just another physio business struggling in a market that is highly saturated without a key point of difference.

And that’s fine for growing your caseload. Most people can get by and they can grow their first caseload. It’s when you got to the second and the third, and how are you attracting physios or allied health to come and work for you against everybody else? This has been the fundamental problem of the last three years. Lots of businesses, but not enough staff, not enough reason for people to come and work for you. And it’s very hard to grow a business if you can’t attract staff.

Michael Dermansky

It’s interesting you say, mean, what you’re talking about, the classic scenario is the different cost versus your fresh strategy as well. mean, you know, this is Michael Porter’s work who wrote this stuff. You’re talking about business strategy in 1980. So what’s that 20, 40, 45 years ago, he wrote this stuff at Harvard university about, ⁓ it is based on economics. the, the, there’s two major strategies, cost or differentiation.

Shane Guna

Yeah, nice. Before I was born and I’ve never read it.

Michael Dermansky

and if you look at cost it’s actually still a differentiation strategy.

Shane Guna

Yeah, exactly. And that’s unfortunately what ends up happening is people’s differentiation strategy becomes, I’m going to be 10 bucks cheaper. And we then see the destruction of our own sector with this race to the bottom on price.

Michael Dermansky

I mean, it’s interesting. There’s a recent book written by Peter Thiel who started PayPal and he wrote zero to one and he says, no businesses can survive without differentiation. why, and, and, know, why was PayPal different as well? Because they made transfer of money easy. That was the biggest problem was hard. Why was wise? ⁓ I mean, you took a look at Amazon, the three major ones, largest range, fastest delivery, ⁓ lowest price. And that’s the fundamental why they continue to grow and they continue to just work on those three things. If it doesn’t tick those three boxes, they don’t work on it. I mean, if you look at Apple, is, how many, how many products Apple have?

Shane Guna

Yeah.

Michael Dermansky

I mean, the fun run, bit, you know, iPod, iPad, watch, I’ve got a small range of very, very differentiated product. People will love good, easy quality design. They’re not trying to be everything to all people are trying to be something particular for a particular market as well. And, ⁓ I mean, even you look at even bigger companies up to SpaceX. mean, they put stuff up in space. They didn’t put people up to space. They do it now, but now they put, they put stuff up to space. They could get contracts with government to make it a company that’s viable. They did one thing really really really really well and so differentiating strategy works and it works and it works and it works again and you can’t be the same to everybody it’s it’s dead in water.