More pain, more gain: HOT 50 profile Kids & Company Ltd

Written by Susanne Ruder

For the average entrepreneur, red ink splashed across your company’s financials quarter after quarter would be cause for alarm. You’d treat every sale as make or break, and suffer sleepless nights devising ways to stop the bleeding.

But Victoria Sopik is not your average entrepreneur. The proof? Revenue at her corporate daycare service, Kids & Company Ltd., grew by 1,621% over the two years ending June 30, 2005, placing it second on the 2005 PROFIT HOT 50. Sopik, president and CEO of the Markham, Ont.-based company, managed this stunning growth while raising eight children of her own. More extraordinary, she’s not worried about her firm’s substantial losses since launching in 2002.

In fact, losing money is part of her business plan. Sopik hopes to parlay a deep short-term deficit into the critical mass needed to serve a blue-chip clientele and to build the go-to brand in an emerging industry before would-be competitors catch a whiff of the opportunity “to be the place where working parents think about child care in any city.”

If the strategy sounds risky, it is — but Sopik thinks her bases are covered. It helps to have a unique product; in her case, it’s regular and emergency child care that corporate clients offer as a benefit to their staff. It also helps to be in a niche in which size spells advantage. That’s why Kids & Co. is pouring funds into quickly building a national child-care network that will allow its 250 clients — RBC, CIBC and Shell Canada among them — to offer child-care services to their staff in multiple markets while dealing with only a single supplier. Currently, Kids & Co. operates 14 centres in the Toronto area, Ottawa, Calgary and Waterloo, Ont. The goal, says Sopik, is to operate 50 centres generating annual revenue of $50 million by 2011.

Sopik and her business partner, CFO Jennifer Nashmi, didn’t leap blindly into the business. A year of market research and the success of similar child-care networks in U.S. suggested their idea would fly in Canada. At the same time, the founders were confident that those U.S. players won’t look north anytime soon: there’s still far more room to grow stateside than in Canada. A foreign operator would also have to master regulatory compliance with what Sopik calls “a rule book 10 inches high” — one that she’s assimilated over more than 20 years in the child-care industry.

After striking out with the banks, Sopik and Nashmi found three private investors through word of mouth. In exchange for controlling interest, the founders got patient money with valuable business experience and a willingness to let management manage. Sopik says her key tasks include watching costs like a hawk and monitoring cash flow daily “to make sure we’re losing the amount of money we [planned to lose], and not a cent more.” That effort is aided by the predictability of the company’s revenue stream, which comprises monthly fees in a business where demand still outstrips supply.

The strategy appears to be working. All eight centres that have been open at least a year are turning a profit, corporate losses are shrinking steadily as a share of revenue and Kids & Co. continues to sign up businesses that crave more effective ways to retain staff. As a result, Kids & Co. is on track to be in the black “within the next year or so,” says Sopik. “The business works; it’s just a matter of being patient in order for it to happen.”

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