Going from public domain toys to Spin Master Originals was a must. How did Harari, Rabi and Verity do it? It wasn’t with the devil sticks.

Dave Young:

Welcome to the Empire Builders podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Simple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. Here’s one of those.

[Seaside Plumbing Ad]

Dave Young:

Welcome back to the Empire Builders podcast recording live this morning from the North Patio at the Wizard Academy classroom tower.

Stephen Semple:

I always get turned around. So this is north, is it?

Dave Young:

That’s north.

Stephen Semple:

Okay. All right. I always get turned around here.

Dave Young:

The causeway, the ditch thing that runs-

Stephen Semple:

Oh, right. Of course. That’s east-west, of course.

Dave Young:

No, that’s north-south.

Stephen Semple:

Oh, right.

Dave Young:

North-South.

Stephen Semple:

Right.

Dave Young:

If you stand in the middle of it and look up, you can see the North Star over the, and so we’re on the other side.

Stephen Semple:

Right. Of course we are. Okay.

Dave Young:

Yeah.

Stephen Semple:

I always get turned around.

Dave Young:

Yeah, that’s okay.

Stephen Semple:

Okay.

Dave Young:

It has taken me a while. Anyway, we’re recording a podcast.

Stephen Semple:

Yes. We talk.

Dave Young:

And we’re sitting outdoors. And just as I was hitting the record button, you said Spin Master.

Stephen Semple:

Spin Master.

Dave Young:

This is an exercise bike.

Stephen Semple:

Toy company.

Dave Young:

Toy company. What am I thinking, spin cycle? First of all, I don’t play with toys and I don’t ride exercise bikes, so I’m at a loss.

Stephen Semple:

They’re best known for Paw Patrol. And you wouldn’t know about that either ’cause you don’t have any little kids in your life.

Dave Young:

No, my little-

Stephen Semple:

Anybody who’s got little kids in their life know Paw Patrol.

Dave Young:

All right. Well, I am all ears.

Stephen Semple:

Give you an idea how big the Paw Patrol franchise is, 14 billion.

Dave Young:

Wait. 14 billion?

Stephen Semple:

Billion in sales when you add all their stuff up.

Dave Young:

Wow. Okay.

Stephen Semple:

Yeah.

Dave Young:

And these are toys?

Stephen Semple:

Yes.

Dave Young:

Okay.

Stephen Semple:

They are toys and they are a Canadian company, and my niece used to work for them.

Dave Young:

Really?

Stephen Semple:

Yes.

Dave Young:

Okay.

Stephen Semple:

This was actually a little extra fun to do.

Dave Young:

Some insider info.

Stephen Semple:

Yeah. Well, not really, but yeah, they’re a Canadian company in quite a little success store.

Dave Young:

Little, yeah.

Stephen Semple:

Then we’ll talk about later, they also went on to have bought some other brands such as Rubik’s Cube. They now own Rubik’s Cube.

Dave Young:

All right.

Stephen Semple:

Yeah. It was founded by Ronan Harari, Antoine Rabi and Ben Verity. They started the business in the late 1990s. And around that time, patterns of play does not change.

Dave Young:

Okay.

Stephen Semple:

Toys may change, way kids play with things, the way even adults play with things don’t change. And so the key is to find things that fit into those play patterns. That idea has basically led this company to be one of the greatest success stories in the toy space in the last 20 years. Yeah. And this whole idea, the key to find things that fit in those play patterns basically led to the creation of Paw Patrol, which is their biggest success is it was built very intentionally.

Dave Young:

[inaudible 00:04:01].

Stephen Semple:

It was very thoughtful, very intentional in terms of what they did. As you listen to this story, it all led to the knowledge that built Paw Patrol. In the late 1990s, toys really started to change, but the pattern of play did not. The key to their success on Paw patrol was recognizing these play patterns, which is what made them, quite frankly, the most successful toy brand in the last 20 years. And it was built very intentionally.

Dave Young:

Play patterns didn’t change. Kids are playing the same as we-

Stephen Semple:

Yes, as they always have. The toys have changed, but the patterns of play have not.

Dave Young:

Really, we never really needed to depart from just sticks or…

Stephen Semple:

Well keep that in mind when we’re going through this. There’s an interesting stick story.

Dave Young:

Okay.

Stephen Semple:

One of the founders, Ronan Harari. He moved to Toronto when he was five from South Africa, and his dad ran a carpet business. And he was an average student, but he had a learning disability, dysgraphia. And dysgraphia is where the hands cannot keep up with how the brain is thinking.

Dave Young:

Okay.

Stephen Semple:

And basically, it’s almost like he describes, there’s this constant rebooting that’s going on in the brain. It’s wired slightly differently, but for him, visual detail is very hot in terms of his attention to those details. He went to the University of Western Ontario, and he knew from a young age he wanted to own his own business ’cause of that endless potential. He of course took business in college, and while in college, he started this little poster business where what they would do is take pictures of frosh wheat, print these collages and sell advertising. Went to five different universities, basically made a hundred thousand dollars doing it. Did really well.

Dave Young:

Yeah.

Stephen Semple:

Then he saw this item that his mother brought from Israel, and it was a knockoff of the Chia Pet. Remember the Chia Pets?

Dave Young:

Sure, yeah, yeah.

Stephen Semple:

Yeah. Except this one was more like a ball of sawdust that you immersed in water and the seeds would grow. And his mother had read that in Israel that this was a big craze in the country. He decided I got to make a version in Canada and call it Earth Buddies.

Dave Young:

Okay.

Stephen Semple:

He goes to Kmart, buy some seed, pantyhose, gets some sawdust. It’s 1994, and then make 5,000 of these for Mother’s Day. That was the plan.

Dave Young:

Okay.

Stephen Semple:

And his sister-in-law made-

Dave Young:

Wait, so pantyhose with sawdust and seeds.

Stephen Semple:

And seeds. Yes, yes.

Dave Young:

Okay.

Stephen Semple:

And he also, they made this contraption that would allow them to make it at scale. They found this small factory space that they could use the three of them, and they set up on the street and they sold it on the street. And they basically sold 800 of 5,000 that they made.

Dave Young:

Oh, man. Okay.

Stephen Semple:

But they then also through their mom found a gift distributor. The company sold toys, Samco Sales, and in a couple of weeks they had an order for 26,000 pieces at Walmart Canada.

Dave Young:

All right.

Stephen Semple:

They’re off to the races. And they had this fun idea where they would go to homeless shelters to find people to work in the warehouse, ’cause it was like this really simple job. Then they got this massive order from Kmart, and it’s really funny how they got this Kmart order. It’s a real story of luck and persistence. Antoine, when he was backpacking, a year before this in Europe, met this guy who was really connected. And Antoine called this guy when they had this product going on, especially when they sold it into Walmart. And he said, “Do you know anybody at Kmart?” At the time, Kmart was big.

Dave Young:

Yeah.

Stephen Semple:

I know Kmart’s a big [inaudible 00:07:29]. And he said, “Sure, I can introduce you to a guy.” He introduces the guy and they travel down to meet him. Turns out that the contacts not a buyer, just a guy who works at Kmart.

Dave Young:

Just a guy, just runs the blue light special light, that’s it.

Stephen Semple:

But instead of leaving, they wander around the building and they find the buyer. And then they say to the buyer, “Hey, could we meet with you?” The buyer says, “Sure, you can meet with me at 3:30.” And they’re like, okay. They still choose not to leave the building ’cause they may never get in again.

Dave Young:

Yeah. You got to just wander around a bit.

Stephen Semple:

Now, what they also noticed was she had eight other versions of Earth Buddies sitting on the desk at different names.

Dave Young:

Oh, the buyer did?

Stephen Semple:

Yes.

Dave Young:

Lots of other people selling the same thing. Yeah.

Stephen Semple:

Immediately Antoine was like, yeah, I’m going to need to drop the price to beat out the others ’cause he suddenly realizes she has lots of different options. They decide to start with an order of 48,000 pieces, and pretty soon they’re doing 500,000 pieces through Kmart. They had to move to a bigger facility. At the peak, they’re doing 17 and a half thousand orders a day.

Dave Young:

Holy moly.

Stephen Semple:

Yeah.

Dave Young:

Sawdust, pantyhose, seeds.

Stephen Semple:

Yes.

Dave Young:

Okay.

Stephen Semple:

That’s it. So they make $1.8 million in year one.

Dave Young:

Packaging probably costs more than the ingredients.

Stephen Semple:

It’s 1995, and they decide, you know what? We’re going to focus on toys. We’ve had this great success with toys. And they saw these things called devil sticks, which is basically where you’ve got a stick, you’ve got two other sticks.

Dave Young:

Oh, sure. You’re keeping the third stick in the air. Yeah.

Stephen Semple:

Whole thing about playing with sticks, Dave.

Dave Young:

Yeah, yeah, yeah. You’re not juggling till that third stick’s in the air.

Stephen Semple:

Yeah. Saw them being played with, so they decide to package up these devil sticks. And they go to a big toy fair in New York, and he’s doing the demo himself ’cause he played with them in high school and Toys R Us picks them up, and it was just great timing. And again, it was another public domain product.

Dave Young:

Mm-hmm.

Stephen Semple:

They wanted to start doing things that were not public domain. And it turns out that Ben and his girlfriend’s are member of the Irwin family, Irwin Toys.

Dave Young:

Okay.

Stephen Semple:

And what they found out was that there’s this whole network of toy inventors out there. We’ve talked about some of these in our podcast.

Dave Young:

The Secret Toy Inventor Guild.

Stephen Semple:

Right? No, but remember how many of the toy inventors that we talked about in past podcasts?

Dave Young:

Sure.

Stephen Semple:

Right? That don’t work for Mattel. They take ideas to Mattel, and he was like, what? There’s these toy inventors out there? Yes. They start traveling around meeting these toy inventors. Now, of course, the first thing if you’re going to meet a toy inventor, they’re going to bring out is a dusty old idea that they were never able to sell anyway.

Dave Young:

Uh-huh.

Stephen Semple:

But they come across one that they think is a really great idea.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Empire Builders Ad]

Dave Young:

Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.

Stephen Semple:

Now, of course, the first thing if you’re going to meet a toy inventor, they’re going to bring out is a dusty old idea that they were never able to sell to anybody, but they come across one that they think is a really great idea, and it’s this airplane that you pump up, pump it up with air, and it flies for about 45 seconds and has these pistons and everything that go, then it makes this really cool sound. And they went, this is great. They basically licensed that and they call it Air Hogs.

Dave Young:

Air Hogs, okay.

Stephen Semple:

And they also did discover that basically every toy company on the planet had turned it down, and it took them two years to create a prototype ’cause it actually was hard to make.

Dave Young:

Now-

Stephen Semple:

They go to China, they find a factory, and in the first year they do great. 1998, they launched Air Hogs, 35 million in sales.

Dave Young:

All right.

Stephen Semple:

And one of the keys is that they managed to convince people to do, because the sound was a big deal, was have it somewhere where it was set up that kids could pump it up and hear the noise that it made.

Dave Young:

Oh, sure.

Stephen Semple:

It was this really creative display that really helped people hear the sound of the motor. And look, this now kicked open the door for lots of other future products ’cause now they’ve had this success with one. Toy inventors are really interested in talking to them, and they figured they could do more with flying toys. And they literally, they’re getting now pitched a thousand products a year.

Dave Young:

From the toy makers-

Stephen Semple:

From the toy creators.

Dave Young:

How cool.

Stephen Semple:

Yeah. And look, they also had a bunch of products to fail. They did this small little BMX bike thing that didn’t work. But what they realized is toy business is very iterative. In other words, it’s like you create a toy and then you create a variation of the toy. The play patterns don’t change.

Dave Young:

Sure.

Stephen Semple:

And there’s 11 categories in toys, and they all have a way that they’re played with. 2001, they create this thing called Key Charm Cuties. That totally bombs. And the problem is it’s up against Polly Pocket, up against Mattel. And it was not as good, not designed as well, didn’t have the Polly Pocket story. And they started going to Japan to look for ideas ’cause here’s the other thing they noticed, boys in Japan are years ahead. Japan’s really good at things that are strange, that may not be normal to us. They’re very good with different, and so what they decide is they literally move somebody in 2005 to Japan to basically create licensing. They want to come up with something from Japan. And they come up with this cool game. Now it turns out game was created in North America, but they need to go to Japan to figure out how to make it, Bakugan.

Dave Young:

Bakugan.

Stephen Semple:

And basically it’s marbles meet transformers. Essentially there’s this metal card, and if your marble hits the card, the marble pops open and the little figure appears.

Dave Young:

Wow. Okay.

Stephen Semple:

It’s like Pokemon, right?

Dave Young:

All right.

Stephen Semple:

Basically it’s an action figure inside of a marble. It was invented here, but they had to go to Japan to figure out how to make it because Japan’s really good at the micro toys. And they sit down with the president of Sega who speaks no English, and they end up partnering with them. But what they figure out is, here’s one of the things that they learn from looking at us. They need to launch a cartoon with the game. And it became a billion dollar franchise. It blew up. In 2008, essentially they changed their company into a media company because you do the cartoon along with it.

Dave Young:

Yeah.

Stephen Semple:

But here’s the problem. 2010, Bakugan is half of their sales. They hit 950 million in 2010 as a business, 2013 they’re $500 million.

Dave Young:

Oh.

Stephen Semple:

Yes. And the product lines that followed did not connect. They’re losing money. They need to come up with another hit. Now, ’cause here’s the interesting thing when you’re in a business and we see this, no one builds a business plan with the expectation that sales are going to go down.

Dave Young:

Mm-hmm.

Stephen Semple:

Sales are always going one direction, and that is not, right?

Dave Young:

Mm-hmm.

Stephen Semple:

That’s always the case. But they realize looking at toys out there, the most successful toys have a cartoon with them, have a story to go with.

Dave Young:

Okay, yeah.

Stephen Semple:

They start before making the toy, they start sending out the businesses an RFP for a cartoon, story first.

Dave Young:

Story first.

Stephen Semple:

And the guy who created Bob the Builder, Chief Chapman, responds with this idea that has these dogs that are these rescue dogs that go do these adventures.

Dave Young:

Okay.

Stephen Semple:

And they look at it and go, okay, that’s a great story. Kids would connect with that. But how do we make it a toy? Well, transformation is a big thing. Let’s add backpacks that transform and a dog house that transforms. Now we got a toy.

Dave Young:

All right.

Stephen Semple:

They launched this in 2013, takes off quickly, 2015, Spin Master goes public. They doing two billion in sales. They decide with this also go out and buy existing brands. They buy Etch-a-Sketch, they buy Cardinal Games, which has got things like Rubik’s Cube, they bought Swim Ways, which company that does swim toys.

Dave Young:

Wow.

Stephen Semple:

They now have 20,000 different products and do all this media.

Dave Young:

Acme conglomerated industrial galactic toy company.

Stephen Semple:

Yeah. Out of Cannon.

Dave Young:

All right.

Stephen Semple:

We’re taking over the world, man.

Dave Young:

Yeah, you are.

Stephen Semple:

But here’s the thing that I thought was really interesting. Their biggest success came from looking at it and going, wow, the toys out there that have done really well have this story to it.

Dave Young:

Yeah.

Stephen Semple:

Transformers, Teenage Mutant Ninja Turtles, right?

Dave Young:

Well, Lego didn’t take off until they started having stories with them and building iconic things that had story tied to them.

Stephen Semple:

But think about this, they said, okay, we’re going to create a really great story. Let’s send out an RFP, create a cartoon, and we’re going to send out to these top storytellers, and then we’re going to look at it and go, which ones can we turn into a toy?

Dave Young:

Yeah. Yeah.

Stephen Semple:

I just looked at it and said, this is how systematic and thoughtful and strategic they were on launching Paw Patrol, which is now a $14 billion franchise.

Dave Young:

Sure. That’s a great story. I’ve got a question for you that might be a little side trail off into the weeds. You mentioned there’s 11 ways to play.

Stephen Semple:

Yes. We’re not going to go through all 11.

Dave Young:

No, but cite a source for me. Tell me what book to read about these 11 source. Because I like seeing things like this and saying, okay, well if I read about that, maybe there’s 11 ways to interact with customers for even a service business that is related to these 11 ways people play.

Stephen Semple:

It’s interesting, I just heard him talk about it in an interview, just heard the folks from Spin Master talk about it and they walked through what the 11 were, how it shapes things and whatnot.

Dave Young:

Well, maybe this is a future episode we’re talking about.

Stephen Semple:

Maybe because you know what, that would be interesting is just to go down and explore that. And what I’ll do is I’ll reach out to Robin, my niece and say, hey, this 11 play pattern thing, because no doubt part of the spin master culture. I’m going to explore that.

Dave Young:

Awesome. This Spin Master, what an amazing company.

Stephen Semple:

Yeah.

Dave Young:

Canadians, aye?

Stephen Semple:

Canadians, aye? Yeah.

Dave Young:

Yeah.

Stephen Semple:

But it’s just interesting. It’s story, cartoon, transformation, and that is the direction that they went thoughtfully ahead of time saying, this is what we’ve got to do.

Dave Young:

I think what’s really cool is that there are some things that just have some basic patterns that are maybe skewed in a slightly different direction depending on the industry. Our partner, Roy Williams, the guy that published his books, is a guy named Ray Bard. And his philosophy of business books has always been, every successful business book has four characteristics, right? It’s nuts and bolts, a big idea, entertainment, lots of it, and hope, right? If you could deliver those four things in a book, then you’re going to more than likely have a successful book. In toys, there’s this same pattern somewhere, right?

Stephen Semple:

Yeah.

Dave Young:

It’s buried in there. And if you can find it, you’re going to do all right.

Stephen Semple:

Yeah. Yeah.

Dave Young:

Very cool.

Stephen Semple:

It’s cool. Awesome.

Dave Young:

Awesome. Well, thank you for sharing that story. I look forward to our next episode, wherever we record it.

Stephen Semple:

This has been fun.

Dave Young:

It’s been fun sitting outside recording, even with the leaf blowers and the helicopters.

Stephen Semple:

Yeah.

Dave Young:

Same thing. Helicopter, leaf blower.

Stephen Semple:

Yeah, pretty much.

Dave Young:

Yeah.

Stephen Semple:

But it’s been nice weather too. It’s beautiful.

Dave Young:

Yeah, it’s beautiful.

Stephen Semple:

All right.

Dave Young:

Thank you, Stephen.

Stephen Semple:

Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five-star rating and review at Apple Podcast. And if you’d like to schedule your own ninety-minute empire building session, you can do it at empirebuildingprogram.com.