The $70 Million Dog Sitter

When I first heard about DogVacay, it struck me as one of those “Airbnb of X” or “Uber of X” derivatives that swept through startup-dom over the last few years. I liked the founders, and I got the problem. There are millions of dogs and most owners leave them at some point. Current solutions to finding care for them is expensive, risky, and unsatisfying. But I wondered if this was one of those pitches that begins with a “This is a fill-in-the-blank billion dollar market…” but it’s a market so fragmented, so hyper-local, so hard to scale that there is a reason it’s so large and no one owns a meaningful percent of it.

Add to that, most of the venture-funded pet-related companies I’ve been pitched over the years, have wound up being financial disappointments.

Well, I was wrong. DogVacay has helped take care of millions of doggy stays this year and is on north of a $70 million annual run-rate. It has has raised close to $50 million in venture capital– which is less impressive these days than the fact that its last round was closed more than two years ago.

That means that DogVacay is doing what a lot of companies in the on demand or “gig economy” space are not: Growing deliberately and focusing on unit economics. It’s more like Thumbtack than Uber: A company that doesn’t get a lot of press, is still challenged with supply and demand issues, but seems to be steadily building a real business solving a real problem.

The best part? It’s a rare case that started as a small business experiment on the part of Aaron Hirschhorn and his wife and actually turned into something scalable. But how big the company can continue to scale in a business that relies so heavily on trust remains to be seen. That $70 million run rate is just 1% of the dog boarding market.

On Christmas day, DogVacay will help take care of more dogs, than PetSmart, which is the largest national boarding chain. Sure, that’s a good sign this “vertical” is a massive one. But after five years, it’s also a sign that some massive industries have remained fragmented for a reason.

Just before one of his biggest days of the year, I caught up with Hirschhorn to talk about the last five years of scaling from one dog running around his backyard to placing millions of dogs a year into well-meaning sitters’ hands.

I began by asking Hirschhorn to share the company’s origin story.

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Aaron Hirschhorn: At the end of 2010, my wife and I traveled to see our family on the East Coast. We left our two dogs, Rocky and Rambo, further evidence of my Philadelphia roots, in a kennel by the airport in Los Angeles. We came back 10 days later to a bill that was $1400, and Rocky was hiding under my desk for almost three days.

It was sort of like…I didn’t understand why we were paying so much to have our dogs stay in a cage, and I have no idea what happened that she was traumatized. It highlighted for us that there was a problem.

The other suggestion is you ask your friends or family, and we’ve done that a lot too. I would drive 45 minutes with a bottle of wine and drop the two dogs off a friend’s house, and they’d come back dirty and misbehaved. And I was having to call in favors.

You are either spending actual capital or social capital to get someone to watch your dogs, and it’s tough. And frankly, there are a lot of situations where your friend isn’t really a qualified dog sitter. We experienced all those things.

Then we also took a look at the market opportunity, and it turns out it’s a surprisingly large, growing, and fragmented market.

In the US, the pet industry overall is close to $70 billion. and if you look at non-veterinary pet services– that includes boarding, training, walking, grooming– that’s $15 billion, and no one even has a couple points of market share.

There are more dogs than kids in the US. There are also all these trends: People are spending more money on their dogs, they get them earlier in life because people delay marriage, they get them later in life because they are living longer. And the industry is mostly ma and pop kennels and individual sitters. It is just ripe for some disruption and consolidation.

But I didn’t know how to start. So my wife and I started very modestly. We put up a listing on Yelp for our home in Santa Monica. It was called “Aaron’s Dog Boarding,” and I got a phone call about a month and a half after the ad was put up. This girl called, and she said “I’m so glad you answered the phone. My friends just cancelled on me. Do you have any spots left for tonight?”

This was my first ever call. I was like “oh yeah… one spot left…”

She says, “What do you charge?”

I said “$50?”

She said, “I’ll be there in 15 minutes.”

She drops off the dog, and the dog’s name is chelsea but I don’t remember her name. We had the best time. My wife said she’s never seen me so happy; I had so much fun playing with that dog and my two dogs. And she wrote a glowing five star review of how we sent her photos and videos, and the next thing we knew our phone was ringing three to ten times a day with dog boarding inquiries out of our house. We started doing it full time.

So through 2011, we watched 111 dogs made about $35k in cash. The deal was my wife would talk to the people; I would talk to the dogs and in parallel to watching all the dogs I starting working on the concept of DogVacay.

Sarah Lacy: So was it an intentional trial balloon? Did you want to build this into a scalable business?

AH: Not really, I mean, I worked a little bit in the venture world, so to me a “business” had to be big and scalable, and I didn’t quite see it at first. My wife is from a family of small business owners, her parents own a jewelry store, and she’s like “no, a business is something where you make a little bit of money.”

But at the time Airbnb was raising a series B, I started to see a couple companies in the space and realized there was a scalable model that could be funded. So a few months into it, I started to realize there was a real business here.

We had all this demand that we weren’t paying a penny on marketing for. We were charging what I thought was pretty high prices, and so I started working on that business in parallel.

We never believed this was a marketplace where you’d fill out a profile and become a dog sitter. You had to go through our vetting process, and we focus on quality from day one. We have the best insurance policy in the industry, and I was able to pull something together before launch that would protect our pet sitters and our dogs.

So having that experience was hugely influential on the service mentality we took to the broader company.

SL: I wrote when you launched that “Silicon Valley loves it dogs, but dog-related companies haven’t always loved Silicon Valley back.” There are two reasons I worried this wouldn’t work. The first is that plenty of now failed companies cited same market stats you have on pet care, and still haven’t yielded big businesses for whatever reason. The second is that it sounds like an “Airbnb but like this” or an “Uber but like that” business and a lot of those have struggled.

Why was I wrong?

AH: The first is you are starting with a large existing market with high unmet needs. It’s not like you are creating a market from scratch. There is a new model, so you are changing consumer behavior, but there is a lot of need. There are Google searches for the thing, for dog boarding.

There is educating the market on why this is a better service, but the need is there, and people hate the kennel and hate [leaving dogs with] friends and family in many cases. It’s already huge market.

Fragmentation is the other part of it. You aren’t going up against any large entrenched competitors. You are going up against individual kennels.

And the third piece is trust. Kennels are trying to do this now with webcams, but there is a very high trust bar that I think a company that is backed with insurance and 24/7 trust and safety team can give you. That adds more value in the pet space. It makes the platform itself more valuable.

You don’t care if your Postmates guy is insured right? Just give me my Chinese food.

SL: Tell me if I’m wrong, but it seems you guys are in that space where trust and experience matters but you aren’t all the way to the side of an UrbanSitter or a HopSkipDrive [an Uber for kids] where you are trusting a startup with your single most valuable thing in the world; where the downside if something goes wrong is so unthinkable.

Not to minimize how people feel about their dogs… but it’s a difference.

AH: I would disagree with that. I mean, yes the only thing more important than dogs is kids. So, yes, it’s not kids, but I think that trust level is pretty close. The other thing is with babysitting is you are still there in town. You are in Japan with DogVacay. You have to have the highest level of confidence.

So I think that’s a barrier. The business today is generally more demand constrained than supply constrained for that reason. It still is a bar to get over to trust a “stranger” with your dog.

SL: I don’t know. I am very into my cats, I would still way trust sending my cats somewhere than putting my kids in a HopSkipDrive for an hour… maybe that’s me. But back to the reasons my skepticism was wrong.

So I get the distinction that it’s an existing thing you don’t have to explain versus, say, a meal kit company like BlueApron. But what about the issues of vertical derivatives? Services that will come to your house, for, say, salon services… there just hasn’t been enough repeat business there. Even housecleaning is trying to expand into more handyman services because of that.

Why isn’t something like pet sitting better as a part of something broader like Thumbtack?

AH: I’m not sure I would agree verticals haven’t done well, there are the obvious stand outs like Uber and Airbnb and others…one is transportation… one is lodging. Those are verticals.

SL: Yeah but they are verticals where pretty much everyone can be in the addressable market. I guess the distinction is a business focusing on something everyone needs repeatedly versus something only a slice of people need. Everyone gets around cities. Most people travel at some point. And Uber and Airbnb are trying to expand into other adjacent logistics and travel services too.

AH: Ok, but two-thirds of US families have pets, so I don’t think it’s all that different. There are more cats than there are dogs. So if it’s a vertical, it’s a massive vertical. And there’s no major competitor. And the competitors that are there– the kennels– have terrible unit economics. They have high fixed costs, they have capacity utilization challenges. They are over-booked at the holidays and empty in September. And your dog is in a cage.

The other part is the specialization. Pet care is really complicated. You have to train people to take care of pets, to have dogs interact with each other. There is so much education, so much around quality, so much around trust. There are psychological factors that go into matching and meeting. It’s almost like dating in that sense. So you need to specialize really well to do it. You can’t be just another on demand service.

SL: When you were raising money did people get it immediately? What was some of the resistance you got?

AH: With investors, I got push back initially on market size which seemed odd to me. I got pushback on the generic difficulty of scaling, and in particular I got a lot of pushback on disintermediation. That is: Our dog sitters and customers know each other, they live in the same area, and they tend to work together again and again, so why not just go around the system?

On the customer side, everyone got the concept. The concept makes sense, “Oh what a great idea!” But saying it’s a great idea is different from you giving us your credit card and dropping off your dog at a stranger’s house. That continues to be where we need to go deeper and deeper on trust and quality. That’s our never ending mission.

SL: How have you tried solving that?

AH: Different approaches. In the beginning our vetting process was me interviewing a pet sitter in West LA. Obviously that doesn’t scale, so now there is a nine-page application with a lot of data. We have predictive analytics around how you answer certain questions, and how it relates to your ultimate performance. We have background checks. We have video training courses, and tests, and do references, and we’ve rolled out a mentor program in six cities where experienced sitters are doing home inspections and training the new sitters.

We end up accepting less than 20% of applicants. We have a lot of interest in supply because “Hey sign up for free and make money watching puppies!” is an easier sell than the other side.

In terms of the disintermediation, we’ve 100% proven that it’s not an issue. Most of our sitters are casual. They are stay at home parents. You’ve got freelancers. You’ve got retirees, that’s probably the fastest growing segment right now.

And they’re not doing it to make a hundred grand a year, they are doing it to make a couple grand a month and be out in the neighborhood.

They are not trying to fight for that marginal dollar; they are doing it because they want the insurance, they want leads, they want security, they want all their contacts in one spot. We send more business to the sitters who do more repeats, so it’s built into the platform as well.

That’s one of the more surprising things for investors who looked at us early.

SL: Tell me how big you are now? What can you share?

AH: We shared a few months ago in August that we have a $70 million run rate. So it’s a little higher than that now. We are growing 2.5x year-over-year.

We’ve said we’ve booked millions of nights this year, which is more than we have in the history of the company.

SL: What is your approach in terms of growth? You’ve raised money from excellent investors, but you haven’t raised huge mega-rounds, and you accept about 20% of the people who apply, so you certainly haven’t been a grow-at-all-cost kind of company.

AH: A few things. We believe long-term that quality is the differentiator. A growth at all cost mentality may work in the short term, but not the long term. Because it’s very easy for a brand reputation to be completely eroded with low quality care experiences. We’ve focused on unit economics… I mean, I have [Benchmark’s] Bill Gurley on my board so unit economics was a thing we focused on early on, and we’ve been disciplined around marketing.

It’s actually really complicated. It is a hyper-local marketplace, unlike many out there.

For example: Uber is obviously highly local marketplace, but all that matters is you are going to pick the closest driver.

With DogVacay, it is a hyper-local marketplace, but there are many attributes you are looking for in finding the right sitter or right match, not just someone close by. It’s someone who doesn’t have dogs or has dogs that get along with your dogs. It’s someone with a yard, if that’s what you want, or an apartment if it’s a smaller dog. It’s someone that looks like you trust them. It’s someone that when you meet them, connects with your dog in some way that you can observe. There’s a lot to it.

We’ve been spending our time working on that matching. Let’s get supply and demand working in all these cities we’re in– about 5,000 cities now. We just focus on getting that matching better, which implies a better conversion rate, which makes marketing more effective.

We still get over half our customers from free sources, from referral from word of mouth and that will always be the biggest driver of the business. That means the quality has to be good.

We will continue to spend. We are well funded and in our future we are open to additional financing.

SL: When was your last round?

AH: Two years ago. We raised $25 million.

SL: So you must have decent unit economics or you likely couldn’t go that long.

AH: We do, we take between 15%-20% from the sitters and 0%-7% from the guests.

SL: Has the name been limiting?

AH: I have CatVacay too, by the way!

SL: …Which I always say I’m gonna use, to your point of: People get it, but getting them to convert is the hard part. I have this pain point every time I travel, I know you, I know you are not psychopath, I don’t have trust issues with the business, and yet I still ask my neighbor to watch the cats and feel horrible about the imposition.

AH: Right. You describe it. That’s exactly right.

So, is the name limiting? It’s funny, when I went to pick the name, I had no money. I was $300,000 in debt when I started this company. We were watching dogs to make ends meet.  I could only chose a company name that cost $7.95 on GoDaddy.

I love the name. I think it’s fun. Is it limiting? Perhaps. We are still so early in the market.

We are expanding into adjacent businesses. We have a dog day care service that is a growing part of our business. We have walking that we are constantly making better
We think of ourselves as about wellness of the animal, so maybe it’s slightly limiting. I think people get over it. The brand stands for trust and a little bit of fun, and that’s the main thing.

SL: So what does a time of year like the holidays mean for you guys? Do you do a disproportionate amount of your annual business right now?

AH: Yeah, it’s crazy. So the busiest is the summer time. July 4 is the busiest weekend. From the  end of May through Mid-August is crazy, then a spike for Thanksgiving and a spike for Christmas. We’ll have out more dogs on Christmas than even the largest kennel chain in the world which is PetSmart. So there’s a lot of complexity there. I have a 24-hour trust and safety team who is responding to host calls like “The dog ate this off the table what do we do?” and facilitating a video conference with a vet or sending them to the vet.

SL: Do you get to relax over the holidays?

AH: I don’t get to relax ever.

SL: What do the next couple years look for you guys? Where do you want to be in another three years? What would be success look like for you?

AH: We are sitting on at a $70 million run rate, and we are now at 1% market share. That is miniscule. Minuscule! There is so much work to be done in continuing to get people comfortable with the concept. Once they use it, they are hooked and they talk about it.
It’s all about making the core product better. We believe there is a multi-hundred million dollar year business in a few years, easily. And then we are expanding into adjacent verticals and expanding into cats more.

And then there are other interesting things we can do. International is an interesting opportunity. Brazil is the second largest pet market in the world. There are interesting partnership angles we are looking at as well. But the short of it is, we just need to continue to expand our market and get better and better at doing that. There is no reason we can’t have 10%-15% market share instead of 1%.

SL: If someone is reading this who has a more traditional small business– something like yours started out being– how do they know if they are sitting on something that could scale?

AH: There has to be a large market. There has to be some unmet need. Ideally you have a product that exists. If it’s a brand new product where you are educating the market, those are always hard. But if you have a better quality product at a lower price, you’ve got something.

That’s what we have now. Our average price is 40% less than the kennel, and the quality is far superior.

You need a large market with an unmet need and need to be doing something better or different. I’m less of a fan of paying more for convenience. I think there are businesses to be made there, and wealthy people can always spend more to get things more conveniently, but to get something really big I think you have to have market dynamics and a product that fits an existing need.