The Fall of SmileDirectClub and the Shifting Tides of Dental Innovation

Once a burgeoning pioneer in telehealth orthodontics, SmileDirectClub announced its closure in December 2023. This news came as a shock to many, just three months after the company filed for Chapter 11 bankruptcy in Texas. The closure of SmileDirect is not an isolated incident but rather part of a larger trend affecting the startup world in 2023, a year that has seen many startups struggle and shut down amidst challenging market conditions.

The Beginning of the End

The origins of SmileDirect’s decline can be traced back to September 2023. Despite announcing an extensive recapitalization plan to foster long-term growth and declaring plans to maintain normal operations, the company faced significant hurdles. The founders’ commitment to invest at least $20 million, with the prospect of an additional $60 million, was part of a strategic move under Chapter 11 of the U.S. Bankruptcy Code. Intended to protect SmileDirect’s short- and long-term financial health, this move showed a deep commitment to its mission of “democratizing premium oral care.”

CEO David Katzman expressed confidence in the company’s future, highlighting the SmileMaker Platform and CarePlus growth initiatives as pivotal to success. SmileDirect, known for its innovative approach to orthodontics, leveraged advanced 3D printing technology to produce personalized clear aligners, claiming to revolutionize the way oral care is delivered. Its approach combined telehealth with cutting-edge technology to provide customers with affordable, accessible, and convenient dental treatments. Under Katzman’s leadership, the restructuring process was intended to be seamless, focusing on maintaining uninterrupted, high-quality oral care for its customers.

The Downward Spiral

Despite these optimistic projections, the reality was far gloomier. By October 2023, SmileDirect’s stock was delisted from the Nasdaq Exchange, a significant blow to its financial stability. The company’s liquidity issues were further heightened by a legal dispute with Invisalign maker Align Technology, resulting in a $63 million judgment against SmileDirect.

Rumors of internal turmoil, including an email leak about allegedly unfair salaries and frequent layoffs, added to the company’s woes. These unverified claims, coupled with the bankruptcy filing, marked a significant downturn for SmileDirect. Furthermore, the company faced legal challenges, notably in November 2022, when SmileDirect was ordered to pay AU$ 3.5 million ($2.3 million) in penalties by the Federal Court of Australia for misleading statements about healthcare reimbursements. SmileDirect had incorrectly represented that patients might receive reimbursements from private health funds for their teeth aligners and related treatment. This misinformation, which affected a significant portion of its Australian customer base, led to action by the Australian Competition and Consumer Commission, further damaging the company’s reputation and contributing to its financial and operational challenges.

The Final Chapter

In response to the bankruptcy, SmileDirect issued a statement on its website, announcing the immediate wind-down of its global operations.

The message reads: “The company posted this message on its website on Saturday: SmileDirectClub has made the incredibly difficult decision to wind down its global operations, effective immediately. For new customers interested in SmileDirectClub services, thank you for your interest, but aligner treatment is no longer available through our telehealth platform. For existing customers, we apologize for the inconvenience, but customer care support is no longer available. Thank you for your support and for letting us improve over 2 million smiles and lives.”

This abrupt closure left many customers, particularly those mid-treatment, in a state of uncertainty and disappointment. The company’s message was clear but discouraging: aligner treatment was unavailable through their platform, and customer care support had ceased. What’s more, any orders that have not yet shipped have been canceled, and any customers on the monthly installment SmilePay Plan plan are expected to continue the upkeep of their payments.

These decisions reflected the end of a series of unfortunate events and miscalculations. The ambitious collaboration with HP in 2019, making SmileDirect a significant player in the 3D printing space, today feels like a distant memory. The company’s dependence on HP’s Jet Fusion 3D printers for producing mouth molds and aligners could not shield it from the financial turmoil it faced.

The Legacy and Lessons

As the dust settles on SmileDirect’s closure, the fate of its nearly 100 HP 3D printers, the impact on customers mid-treatment, and the repercussions for its former employees remain critical concerns. The company’s trajectory serves as a reminder of the challenges faced by startups in competitive markets and the fine line between innovation and sustainability.

In the broader context, SmileDirect’s closure reflects an unfortunate trend in the startup ecosystem. 2023 has been a particularly harsh year for startups, with over $27 billion in venture funding unable to save the 3,200 startups that failed, according to a report by The New York Times and data from PitchBook. This situation has been described by Tom Loverro, a general partner at investment firm IVP, as a “mass extinction event” for startups. This rough climate shows the vulnerability of startups to rapid market changes and highlights the importance of financial strength in hard times.

Marking the end of a company once valued at $8.9 billion, SmileDirect’s closure not only represents the latest startup to fail but also highlights the leadership of competitor Invisalign. This shutdown even raises questions about the future dynamics within the direct-to-consumer aligner industry. In recent years, several competitors have surfaced, including Candid, Byte (which offers a tele-dentistry model similar to SmileDirectClub), and Aspen Dental. However, since SmileDirect’s remote orthodontics model offering clear aligners without needing to see a dentist in person is dying out, perhaps the other franchises will now come under more scrutiny.

The story of SmileDirect is not just one of failure but also one of lessons learned in the volatile world of startups. Its initial success, driven by a disruptive business model and technological innovation, showcased the potential of telehealth in orthodontics. However, its rapid downfall underlines the importance of financial stability, market adaptability, and the risks inherent in legal disputes and internal management issues. The lessons learned from SmileDirect’s rise and fall will likely influence future strategies and decisions in the telehealth orthodontics sector.