Andrea Servadio has a knack for timing markets.
After nearly a decade of success as a New York investment banker, she walked away in the 2008 financial meltdown.
Resettled in Los Angeles, and noticing few of the luxury pet services pervasive on the East Coast, Servadio and partner Brandy Han launched Fitdog Sports Club, a premium dog care facility. In 2012, the business grew 25 percent, reeling in close to $1 million.
However, competition is snapping at their heels as Los Angeles catches up to the so-called "humanization" and "premiumization" trends of treating pets like family. "Since we opened, six new high-end facilities have opened in Los Angeles," says Servadio. Fitdog will only survive by growing.
Now, despite some painful lessons, Servadio is grooming her company to be top dog.
Going for a walk
Upon graduating from the University of Denver in 2000, Servadio moved to New York City -- "I always wanted to work with money" -- and quickly began climbing the ladder.
When the 2008 financial crisis hit, she was a vice president at Fortis, a Benelux-based banking firm, which was forced to break up and let go of most of its staff. "I kept trying to get laid off, but my boss kept asking me to stay," she says. "It was depressing. Banks didn't have any capital. There was no way to move on in the new environment."
She took her savings and headed west. "I always wanted to move to California, because of the weather. I figured I'd write screenplays or something -- anyway, relax and figure out what to do." It was May 2009. She was 31.
Finding cause for paws
After renting a Santa Monica apartment, Servadio and partner Han soon checked out daycare options for their beloved Jack Russell terrier, Brecken. Nothing seemed to match the services they'd used in Manhattan.
"They were not as nice and the staff didn't seem as educated about dogs," says Servadio. "They weren't clean. They didn't give dogs their own spaces for overnight stays. We tried three different places, and every time, Brecken came back tired or sick or with an eye infection."
The light bulb went on.
Over the next six months, Servadio and Han toured more than a dozen facilities. "We checked out services, looking for ideas," says Servadio. By January 2010, they had a business plan and -- after being turned down for a Small Business Administration loan (in that climate, "they just laughed at us," she says) -- secured two bank loans.
The biggest hurdle was renting space. "We've negotiated lots of contracts over our careers, but we needed someone who does local real estate," Servadio says. To save money, they hired on the cheap. But as Servadio learned, "lawyers who bill out at $600 an hour and those who bill out at $100 to $200 are not created equal."
After three lawyers and three months of negotiation, they still wound up with unfavorable terms on a seven-year lease. "We're living with it," says Servadio. "The scary part is, if things don't go well, we're on the hook."
The lesson learned here was that you get what you pay for: "Mistakes won't be replicated," Servadio says.
Unleashing Left Coast life
Opened in November 2010, the 5,000-square-foot Fitdog Sports Club offers upscale daycare, boarding and grooming services. Other facilities provide similar services, but Servadio also saw opportunity in harnessing the Los Angeles lifestyle. So the club provides fitness services for "members," including exercise and training programs, treadmill workouts, beach excursions and canyon hikes that shape up owners as well as dogs. Upmarket gear and toys are also available in the Fitdog shop.
True to its boutique promises, Fitdog caps membership at a 70-dog maximum, maintaining a low ratio of one handler to 17 dogs. Private sleeping and play areas separate larger and smaller dogs to ensure comfort and safety.
Profit margins run 20 percent to 30 percent, with annual revenues at $600,000 to $1 million, consistent with earnings at premium national franchiser Camp Bow Wow, says Servadio.
Staffing remains a challenge in a field with low pay and scant promotion. In 2011, half of Fitdog's 13 handlers quit without warning, soon joined by the rest. Servadio reconsidered treats and training. Now, hires have more responsibility, which makes them more invested. Monthly meetings allow staff to air grievances as well. Fitdog's workforce now is stabilized at 16 staff members, with Servadio planning to hire more in the future.
California's complex employment laws also are an issue. She taps business outsourcer ADP for payroll and pays an extra $70 or so a month for its hotline HR service to get answers to any questions.
Calculating future bark from bite
Often called "recession-proof," the pet industry has nearly doubled over the past decade, from $28 billion in 2001 to $53 billion in 2012, according to the American Pet Products Association. Pets now are owned in nearly two-thirds (62 percent) of U.S. households, while products like gluten-free food, Burberry apparel, Simmons Beautyrest beds and veterinary services for chemotherapy, MRIs and hip replacements attract the high end.
Nonetheless, change is on the horizon. "There's going to be a leveling off in pet ownership," says industry consultant Leslie May of Pawsible Marketing. "We're seeing a lot of acquisitions as businesses mature. That means the big guys will get bigger and the small guys will be pushed out."
Andrea Servadio intends to grow into a big dog. "Competition has become fierce," she acknowledges. In response, she and Han have decided their best strategy is to stay close to their core: "Dogs come first," says Servadio. "We have an intimate setting with personalized care, and our customers know it."
Now scouting for a second location, she expects to franchise. "That's always been part of our bigger plan," says Servadio, pointing to Fitdog's expanding sports and activities platform.
"The first facility is running smoothly, but we need to make sure we have a replicable model," she says. "The biggest thing for franchising is getting really good lawyers to make sure procedures work and fees and policies are vetted."
Given her track record, the smart dogs will be running with Andrea Servadio.
This story originally appeared on Business on Main