How to profit from complaints

(Fortune Small Business) -- Obstinacy can push an entrepreneur to persevere when any sane person would quit. But obstinacy can also kill your business if it keeps you in denial.

Because I am obstinate, I pursued my dream of creating a premium pet-food company that sells what it claims to sell and not some unidentifiable substance in a dressed-up bag. Stella & Chewy's ingredients include organic fruits and vegetables and meats that are free of antibiotics and hormones.

Originally we packaged our foods in transparent bags. In fact, transparency became our guiding philosophy. Today we offer open plant tours, publish our meat sources and test every batch of food for salmonella and E. coli using codes that can match each bag to its lab result online.

To launch the company in 2003, I pounded the pavement, visiting every pet-food store in Manhattan -- where I lived then -- and some outside the city. By 2006 Stella & Chewy's was sold in 250 stores, mostly in New York City. In 2007 I moved the company to Muskego, Wis., where I opened a manufacturing plant. That year our revenues were almost $500,000.

But getting my product into stores was just the beginning: I then had to persuade pet owners to buy it. We were competing against much bigger pet-food companies whose monthly marketing budgets dwarfed our annual sales. So we invested in brochures and a Webs ite and even stood on sidewalks distributing samples. Eventually we developed a loyal following.

With more customers came more feedback -- much of which I dismissed. Your dog doesn't eat lamb? He's allergic to blueberries? You hate the name Stella & Chewy's? You're concerned about where the cows sleep? We responded diplomatically to these concerns. Still, my gut told me that I knew what was best for my company.

I was also fielding complaints about ice crystals on the food. Ice crystals form when the air temperature changes. Practically every frozen food item develops ice crystals by the time it hits the retail store because of slight temperature changes during transport. For this reason, most frozen foods are packaged in opaque bags or boxes. Studies have proved that ice crystals have little, if any, effect on either the quality or the taste of the food. Basically, there's nothing wrong with a little ice.

So I ignored the complaints. After all, I told myself, we were better than competitors that wouldn't even reveal their products. We weren't hiding anything.

In 2007, the popularity of frozen pet food soared after some of the bigger American pet-food manufacturers issued recalls. Some of their products had been contaminated by melamine, a chemical found in an ingredient many of those companies imported from China. Thousands of dogs and cats died from the tainted food, so consumers sought smaller pet-food vendors that they hoped would have better control over their ingredients. Suddenly we had more competition.

Our sales kept growing, but not as fast as those of our rivals. Retailers told me that consumers who were new to the frozen pet-food category -- crucial customers for sales growth -- were choosing products packaged in opaque bags. Hearing this over the phone from a store employee or from the occasional customer was one thing.

However, when I visited the stores and forced myself to consider my product objectively, I had to agree: The ice crystals undercut the look I wanted. The food didn't appear fresh; it looked as if a blizzard had hit the inside of the bag.

We switched to opaque bags and overhauled our in-plant freezers so that the food would freeze faster, resulting in smaller ice crystals. Customers responded: In 2009 Stella & Chewy's was sold in 2,500 stores across the country. Annual revenues should exceed $5 million this year.

Today we can afford to use consumer focus groups. It's tough to sit behind a one-way mirror and listen to people criticize the brand. "Is this a treat or a meal? Why no pictures of cats on the bag? Why does Stella [one of my dogs] look like a Cyclops on the logo?"

But now I take a deep breath and remember that the critics might just be right.