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Healthy Grub for Man's Best Friend
Some small businesses gain instant fans, often because their products or services strike a nerve to customers or generate buzz. But getting those customers to become loyal fanatics can be a challenge.
Marco Giannini's natural dog treat company, Dogswell, had seen annual sales of items such as Happy Hips and Mellow Mut grow from zero to $17 million in five years. With that kind of loyalty, he wanted to take Dogswell into the much bigger market for natural pet food
Marco was fresh out of business school and had experience starting one company, a natural beverage company called Clear Day, had gone bust in 2003. Giannini had overspent on an unproven concept-forcing him to fold the business, give up his apartment, and sack out on his father's couch. That was where he decided to launch Dogswell later that year. The idea was to create healthy dog treats enhanced with supplements to help fight conditions such as arthritis and hip dysplasia-something Giannini's childhood dog, Emily, had suffered from.
Giannini attributes the success of Dogswell to the "no frills" attitude of the product packaging. "It's about simplicity. It's a simple product line with easy-to-read ingredients. We make everything easier for the customer, even the product names. The Breathies are for a dog's breath. The Hippies are for a dog's hips-it's very selfexplanatory and that's what people appreciate."
Dogswell had seen more than 100 percent growth each year since its launch in 2004. The company had 21 employees, 60 varieties of treats, and revenue of $17 million. So all was well, but Giannini felt he had outgrown the dog treats niche. "I wanted to become a household name, and I figured, food was the way to get us there," he says. Many of Dogswell's customers had the same idea: For years, they had sent the company's Los Angeles offices e-mails asking when Dogswell was going to introduce a line of dog food.
In the spring of 2008, Giannini decided the timing was right and he had enough cash on hand to take the plunge. He hired food scientists who worked on recipes for kibble, and after settling on one that seemed right, he contracted with a food manufacturer. He sent the kibble to a testing facility to stage a series of canine "focus groups." The result: Dogs preferred Dogswell kibble 15 to 1 over the leading natural-food brand. "That's what made us press the Go button," Giannini says. Meanwhile, his sales team hit the dog parks and retail stores to quiz people about packaging.
With product developed, Giannini had to figure out how to launch it. Obviously, he couldn't personally drive his product to customers, as he had in 2003. Dogswell was a national brand now, with successful accounts at retailers such as Whole Foods and Target. He would need national distribution and a full-blown marketing plan immediately.
Dogswell bought a warehouse on the East Coast and hired 15 employees, most of them in sales. Finally, in September, Dogswell shipped its first bags of Happy Hips kibble to about 1,000 stores nationwide. To entice customers, the company offered coupons for a free $10.99 bag of kibble with every purchase of a 15-ounce bag of treats, which retails for $16 to $20.
It didn't take long for the rollout strategy to begin straining at the seams. Salespeople complained that their take-home pay wasn't what they had been promised. Credit memos from stores looking for their rebates from those free $10.99 bags of food were starting to pile up.
"I felt like I was losing control of the company," Giannini says. "I felt like I was losing control of everything."
Upping the ante even more, Dogswell was scheduled to have its first board meeting with its brand-new private equity investors in March. The investors knew that the dog-food rollout had been troubled. Soon, they were going to want to know how Giannini intended to fix things. He had three months to come up with a plan.
Regrettably, Giannini wasn't around much to deal with these problems. He and Berenice Officer, Dogswell's chief financial officer, were busy making the rounds of private equity firms, in a drive to raise capital to finance the company's brand-building efforts. At least things had been going well on the funding front-especially with TSG Consumer Partners in San Francisco. Most private equity investors had grown cautious, but TSG was continuing to invest and liked Dogswell's track record of rapid growth. By late November, TSG appeared close to signing a deal.
The fact that Dogswell's numbers were slipping wasn't immediately apparent to either party. "They asked for updates, but it was hard to detect what was different," says Officer. Indeed, Dogswell closed a deal with TSG on December 31.
But when Giannini and Officer sat down a few days later with the fourth-quarter results, the damage was clear. They had less than three months to stop the food line from siphoning off the profits from the next quarter. And they had to figure out what they were going to tell their new investors at TSG.
Dogswell's marketing plans were ambitious, but were not working. What is their primary problem