Published: Forbes Hungary 2019 October (print)

Author: Krisztian Sandor, journalist at Forbes

 

A nurse, working abroad in Austria, and a guitar player-turned-dog trainer, achieved that only a few Hungarians could do since the collapse of the iron curtain: they developed and manufactured domestically their own product while building a consumer love-brand popular worldwide. The Julius-K9 dog harnesses are the second most copied Hungarian inventions just after the Rubik’s cube. Offering a unique philosophy and lifestyle for dog owners, Gyula Sebo and Aniko Bakos aren’t concerned about their competition, but rather focus on brand-building multinational giants such as Nike. Europe has been conquered, they say, and the breakthrough is already knocking on the door in the US.

 

 

“Hi, can I adjust it?” – not far from the quay of Buda, a man with vibrant, strict eyes looked through his glasses at a girl who was walking her dog. “Your harness is not mounted properly” – continued the stranger. He looked quite unusual in his camouflage cargo pants and worn T-shirt in that affluent downtown neighborhood. Yet the wide smile of his lady companion on his right and the pointer dog on his left dissipated all her distrust.

Before the clueless girl could have said a word, the odd man walked to the dog and adjusted something on the startled canine. “Wow, indeed, it’s way much better now!” – exclaimed, as her face lightened up with sincere gratitude. She didn’t suspect that her newly found streetwise hero was Gyula Sebo, the inventor, designer and worldwide distributor of the very harness her dog was wearing.

A few minutes after this incident, the four of us were heading to the photo shooting for Forbes front-page cover. As Aniko Bakos, the business partner of Sebo was trying to get the pointer named Lurko, through a circular corridor of the building with some snacks, I was wondering whether it had ever happened that the subjects of a Forbes cover photo shooting arrived with pet snacks in their pockets. God knows the answer – yet what I’m certain is that a fortuitous phone call 27 years ago made this whole story possible.

It happened by chance that Gyula Sebo – or as his German friends call him, Julius – became part of the dog trainer world in 1992 when he took his Dobermann to Imre Pallo to a dog obedience school in the outskirts of Budapest. At that time Imre Pallo was considered the omnipotent patriarch of the Hungarian Common Rottweiler Club. However, after the first training lesson, he never wanted to return. “I was told off so many times, because of what I did, how I held the leash and so on… after a while, I got offended and left the damn place. I didn’t want to be lectured by anyone like that.”

About a few weeks later, there was an unexpected phone call from Mr. Pallo inviting Gyula back to the dog school. He was adamant. “I immediately noticed his dog: its posture, its discipline, and behavior towards other dogs. A God-given gift. By the way, Gyula wasn’t that bad either. He was talented: good with animals, and with people, too” – remembers Imre Pallo, the ex-dog trainer, who is retired now.

Gyula knew that such praise from Mr. Pallo was uncommon thus it had to be appreciated and eventually agreed. Not only did he go back to the school with his dog, but he also remained an assistant and instructor beside Pallo for several years. They have been good friends until these days: they regularly visit each other’s place at family dinners.

In the 1990s dog training schools were scarce, especially the ones that could send trainers to a client’s house. This was the first decent job of Sebo beginning of his twenties. During the day, he learned to play the guitar, and also gave guitar lessons. Then late in the afternoon, he went to train guard dogs for catching unwanted invaders. “I had no car so I rode a scooter, wearing a heavy leather outfit with training rods sticking out behind my back” – he recalls. “I thundered throughout the city like a samurai. Needless to say, the police and me we had frequent encounters with each other.”

 

If it’s good for BMW, it will be good for Buddy

After a while, Gyula indeed established closer relations with the authorities. As Imre Pallo specialized in training tracking dogs, police and military officers were regular visitors at his school, accompanied by their quadruped partners. It was this time Gyula realized that not even police dogs had unified, professional equipment. At home, he experimented with fabricating all sorts of dog accessories, from leashes to muzzles in his living room. According to Imre Pallo, Gyula was not the typical entrepreneur type, but he enjoyed building and creating new things. Once he embarked on a project, he became immersed in it completely. He rather resembled an eccentric inventor than a businessman, as he walked back and forth with a guitar in his hands, plucking the strings while he was brainstorming new ideas.

It was part of Gyula’s absent-minded genius that he rather preferred creating new things and juggling with ambitious thoughts; until this day, he has been terrible with numbers, as well as dealing with administration and everyday matters. Fortunately, his then-wife Aniko Bakos was a quite precise person, so after finishing work in the hospital on weekdays, she could manage the accounting and invoicing tasks on weekends. In 1997, they set up the first incarnation of Julius-K9, called Julius Export 2000 Bt.

Sebo experimented with different designs and constructions, and then he tested them on dogs during training. First, he used leather for his experiments because he was familiar with it, but soon he realized that textile is a suitable material due to its flexibility, sturdiness, and moisture-resistance. With a little creativity, its procurement was also cheaper: Sebo contacted auto part supplier companies and purchased the materials that remained back from production.

 

“If it’s good for BMW, it must be good enough for dogs too” – was his motto.

Because of the product’s special usage and strain, he prioritized quality thus he ordered the straps from Germany. The basic principle was that they could manufacture anything, if there was a demand for it, and if law enforcement agencies require them to do so. (This could be the reason that he was among the first ones to produce bulletproof vests for dogs. “When it was done, the vest weighed almost five kilograms. When in the evening I put it on my German shepherd, poor guy tumbled to the ground like a heavy sack of potatoes.”)

The majority of their first customers were Austrian – and only a minority of Hungarian – police officers, soldiers and dog trainers; however, Gyula and his wife also managed to set foot at some vendors. Every time they left for work to Austria, they packed huge bags of their equipment into their faded red-colored Volkswagen Passat.

Although the K9 Power Harness was already finished in 1998 – which brought them fame and fortune later – its final breakthrough in the market didn’t come easily. The family enterprise was expanding gradually and cautiously: they recruited their new employees from among their circle of acquaintances or hired people based on referral. Also, they reinvested all the money they earned from their civil occupation into their

venture. “We used to ask our friends if they knew how long the tax authority would overlook the fact that we were selling at a loss” – as Aniko recalls. At that time she was envious of her colleagues at the hospital who would go out to concerts in Vienna.

At this infant stage of the pet market, their most popular product was the stringed ball for several years.

But then, something happened in 2003 at the Pet Expo in Dortmund. This was the first occasion that they could present themselves before a wider global audience, including everyday dog owners. They also realized here that if a product is good for a police dog, it must be also good for the average pet provided that they advertise the item by using the language of an everyday customer. For exapmle, with changeable stickers.

Harnesses used to mean special equipment for working dogs – and when a working man puts down his work uniform after work to go home, he would also take off the “Polizei” label from the harness and stick something else such as a clearly visible Julius-K9* brand name, or something more fun: “Sofawolf”, “Sexmachine” or “Steuerzahler” (“Tax-payer” in German) just to mention a few names. This smart marketing twist worked, and by the end of their first day at the exhibition they sold out, their stall was completely ransacked.

* (The name “Julius” is the German form of the Hungarian name “Gyula”, whereas K9 refers to the Latin name of dog “canine” as well as the address 9 Kele street, where Gyula received his first dog. Also, it’s the name of police dogs in the USA.)

Their first profitable year was 2003 and there was no stopping from that moment. They frequently visited European exhibitions, set up their brand representations abroad, and among dog owners, their reputation spread quickly word of mouth. After a while, Aniko left her job in the hospital, even though she enjoyed working there as a nurse.

Since they swiftly outgrew the garage of their family home, they had to set up an industrial plant in Szigetszentmiklos and re-organize the company structure. Furthermore, they re-named it to Julius-K9, and now this company owns their intellectual property, patents, and trademark. They also set up another company named K9 Sport Ltd in 2009, which deals with production and trade. Since then, their turnover has increased from 370 million to 5.3 billion forints, and in the past five years, they established two new plants in Tiszaderzs and Tiszafured to catch up with the growing number of orders.

 

Like a tech company

Their model of development corresponds to the best practices of technological companies, although this was not a deliberate choice. “As Peter Thiel wrote in one of his books: find a unique demand in a narrow market segment, where there is no competition, and monopolize it. Julius-K9 found this segment with the law enforcement dogs at the right time, just before the pet market boom” – explains Balazs Danoczy, founder of Petissimo, an e-commerce company selling pet food and accessories. The analogy with tech companies is also demonstrated by that initially Julius-K9 also worked for orders made by government security bodies. Later on, they capitalized on this knowledge and built their credibility that could easily reach consumers of the general public as well.

First, Danoczy was reluctant to adopt Julius-K9 power harnesses into Petissimo’s supply, but his colleague in charge of product development was a true dog fan and eventually convinced him. He didn’t have to regret his decision, as this new item quickly became one of the most profitable goods in their webshop. “It is an excellent product from the merchants’ point of view. It is light in weight and its logistics doesn’t require any special resources. It can be sold at a comparatively high price and there is a large marketing margin – which Julius-K9 has always fairly calculated with. Its unusual form makes it easily noticeable and commands the customers’ attention. If people buy this product, they will also place some other items in the cart.”

Boy Tadsen, the export manager of Trixie, one of the largest European distributors of dog accessories points out to Forbes, “their market share grew with great alacrity because wherever one of our stores started to offer Julius-K9, the customers came and specifically asked for their harnesses.” Trixie sells its products under its own brand name, more than six thousand different items altogether including harnesses, making them a major competitor of Julius-K9. Thus, it’s a considerable achievement that Trixie started to sell Julius-K9 products in their stores from 2010. “They are absolute market leaders in their product’s scope, their brand is definitely the most well-known name is the continent, especially in Central Europe. To keep it like this, they need constant development, and have to transfer their brand recognition to other product families” – explains Tadsen.

Sebo and Bakos approach the diversification similarly: Julius-K9 just started to sell branded dog food and other dietary supplements. In this market, they joined forces with Panzi-Pet, as they develop and organize production together. The positioning and pricing of their meal products also aim at a premium-superpremium level: a ten-kilogram bag of dog food costs around fifteen thousand forints. They also invest in their manufacturing equipment.  The rate of automatization increased to ten percent in their plants, but their far-reaching business plan includes a forty percent goal. One of their newest investments was a device that can digitalize the movement of dogs; with the help of its computer algorithm, they can test the strain on harnesses. “Our task is nothing less than that of a company which manufactures astronaut gear” – claims Gyula Sebo.

 

On separate ways

Even though six years ago Aniko and Gyula decided to file for divorce, this didn’t crack the soaring success of their company. “It was nothing like throwing plates at each other’s head. We did everything together for years and decades, but in the meantime, we simply distanced from each other” – admits Aniko. “To be honest, Gyula is not an easy person, he needs someone who supports him, listens to him, agrees with him, and provides a calm background for him to create. I believe now he has found the right partner. So have I.”

Their lives have never been centered around money, and their divorce process was probably one of the smoothest court trials ever. The judge couldn’t understand the situation: he asked several times if they were certain to truly agree on everything. When they confirmed that they were certain, he asked again if they really wanted to get a divorce. They replied ‘yes’ with a smile, then signed the documents. They have been close friends to this day, and they know that they can trust and depend on each other.

Both of them have a fifty-fifty percent ownership in the company, however, Bakos has withdrawn from the front line. Not because of the divorce, but her tiresome old-time accounting tasks now belong to a complete controlling department. She still takes an active part in everyday matters from the background, and according to her, she fills the Mother Hen role in the company. Furthermore, she leads a dog shelter in Tarnok sponsored by Julius-K9 and the association behind it. In questions regarding personnel and HR, her voice still counts the most, and their employees turn to her with their concerns. She can also spot if something is just not right in the organization. In disputable cases, she takes the role of the “good cop”, whereas Sebo appears as the “bad cop” with his blunt, at times provocatively sincere manner. But still, when they have to dismiss an employee, it is Bakos who sits down to talk to the person face-to-face. Gyula Sebo remained the top dog with his visionary leadership style. They were proud to share a story about that the other day one of their young mechanics came up with an idea during his off-work days, and discovered how they could manufacture one harness part in two minutes instead of two hours. “We need people like him. Otherwise, we wouldn’t be able to cope with such a hostile market environment”.

 

Fighting against counterfeits

Success, of course, has also brought the first fraudulent imitations of the Julius-K9 products. They are hit just like Nike is afflicted by upside-down “ticks” on phony trainers or Adidas by “Adibas” sweatshirts with four stripes. Norbert Pataki, a law firm specialized in trademark regulations estimates that there is approximately the same amount of counterfeits sold all around the world as the number of genuine products the company sells. One year, they found five factories in China where they manufactured poor quality products that shamelessly resembled the originals. There is one thing they can do against fraudulent full-scale manufacturing: they protect their own back, and “escape” forward. The global market cannot accept charming amateurism anyway.

Last year they spent 150 million forints on trademark registrations and legal charges, and annually they also request dozens of design protection on the unique forms of their harnesses and also protect their product names with trademarks. In addition, there is a legal monitoring department, which consists of nine employees, who are responsible for watching closely large e-commerce platforms and chain stores, searching for counterfeits. When they find something suspicious, they immediately report the case to the relevant authorities.

It is an endless struggle: last time, for instance, they had a dispute with Aldi in several countries – but they try to make the most of these cases, and turn challenging situations to their advantage. When they notice a fake copy of their product in any of the stores or supermarkets they haven’t reached yet, they immediately set afoot there too. A good example of this was an earlier issue with Amazon: today they have a team forged to manage their sales specifically over there.

The best way of escaping forward is agile branding. They are not focusing on their competitors, but watch carefully the largest brands of the world in order to learn their tricks. “We build on the same values we have had for decades, but the world only starts to understand it nowadays that dogs are more than our best friends. When you take your dog on a leash with a collar then you place it in a submissive position. However, when your dog wears our harness, then you are equal companions walking together.” Their vision is that dog harnesses will become like shoes for people, as we wear different ones for jogging, casually strolling in cities and for hiking in the mountains, always adjusted to the particular type of motion.

While they were forming their philosophy and looking for the best method to communicate, they started to become a multinational company. They may think “in Hungarian” in their headquarters in Szigetszentmiklos at Ipar street number 10, they still need to learn to speak a global language. They have been working on a unified communication style to touch the emotions in consumers all over the world, and it will be crowned by a slogan. It is strictly confidential now, but they hope it will become the “just do it” for dog owners.

 

Focusing on the overseas market

In the United States, they had a brand presence from the early stages of the upswing since 2007, but unlike in Europe, sales stagnated in the US. “It took us many years to realize that it is a completely different world and we do not speak that language. You even have to ask for an appointment differently, no wonder we didn’t get along” says Sebo. He decided to restart from his scratch presence. A local subsidiary was established in Tampa, Florida, and was first attracted to law enforcement agencies, developing a new type of harness, the Stealth harness, with K9 police units. Another target group is American dog trainers who are not just clients but also brand ambassadors.

“Now only 5 percent of our total revenue comes from overseas, but we’re getting more and more orders from South America, and we are negotiating with retail partners who can triple, quadruple our sales in the US” – explains Andrew Herein, head of the US branch. Why don’t they manufacture in China? “We don’t want to be a typical multinational company which fires people because they relocate the production to a cheaper place,” says Bakos. They distinguish themselves by quality from the competition, they do not want to enter into price and quantity competition, rather increased the prices when they needed to.

Now their production rate is in the range of 100,000 dog harnesses per month, but with a new plant under construction and investment in automation, they will be able to double that. Upscaling is crucial: if a Walmart-sized customer comes in, as there is an on-going negotiation with the retail giant’s Canadian filial, they must be able to ship hundreds of thousand products on time.

One of their long-time German customers joked about it must be bad for the business that the old Julius-K9 harness he had bought 10 years before was completely fine, why would he want to buy a new one. “Let’s look around how much garbage mankind produces. I’m not just thinking about plastic bottles, but television, washing machine, cellphones that were designed to work for a few years, then throw them away and buy a new one. Harnesses are designed to last a lifetime of a dog, even if it is used in extreme conditions. You can still buy a new one every few years if you insist, just don’t throw the old one away. Give it to an animal shelter where it will continue to serve for years to come.”