Spin Master/PAW Patrol: Ronnen Harary

Ronnen Harary built a 4 billion dollar toy company without relying on market research or focus groups. Instead, he believed wholeheartedly in intuition: the "ah-hah" moment that comes from thinking like a 7-year old. Over a 25-year period, he and his Spin Master partners launched innumerable hit toys and amusements, including Air Hogs, Bakugan, and the smash hit franchise PAW Patrol. Spin Master's journey began in the mid-1990s, when Ronnen and his friend Anton Rabie began selling the Earth Buddy, a chia-pet-like novelty gift made of pantyhose, sawdust, and grass seed. Today, it's a publicly traded company with a portfolio that includes TV shows, video games, and toys ranging from puzzles to plush. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:46Guy Raz?

  build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.

• 1:32Guy Raz?

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• 2:14Guy Raz?

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• 2:58Guy Raz?

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• 3:40Guy Raz?

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• 4:23Guy Raz?

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• 5:07Guy Raz?

  Visit mobili fuels.com for details. Hey, really quick before we start the show. A lot of you have lots of questions about How I Built This. Like, how do you pick guests? Or where do you record the show? Or how can I get in touch with Howard Schultz? Spoiler alert on that one, we can't help you. But we can try and answer any questions you might have about the show, our work, or even me. If you'd like to submit a question, please visit guyraz.com and fill out the form. And we'll answer some of your questions right here on the show in the coming weeks. Again, that's G U Y R A Z dot com.

• 5:45Guy Raz?

  You'd basically been profitable every single year, and you'd been growing every single year. And then, all of a sudden, you're not only unprofitable, you're losing a lot of money. Were you worried about whether you guys would make it?

• 5:56Speaker 01

  I actually, personally, myself, I rise in a crisis. That being said, I mean, the relationship's definitely frayed.

• 6:03Guy Raz?

  Either among the founders.

• 6:05Speaker 01

  Oh, yeah, yeah. Amongst the founders, came out, inefficiencies in the business, the way we're organized. This is why older people have gray hair. You know, when people say they have gray hair from something. Like, this was our seminal gray hair event.

• 6:18Guy Raz?

  Yeah, and you have some gray hair.

• 6:20Speaker 01

  I have a lot of gray hair.

• 6:26Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:40Guy Raz?

  I'm Guy Raz, and on the show today, how Ronnen Harari started out making novelty gifts from pantyhose and sawdust and spent 25 years building a toy company that launched the multi-billion dollar children's franchise, Pop Patrol.

• 6:58Guy Raz?

  Let me start out by saying I love this episode. And I love it not only because the toy category is a joyful one, but because this story hits just about every single lesson you could possibly think of when it comes to building a business. Product market fit and failure, intuition versus research, pattern spotting, solving a problem you have that others have, smart bets and spectacular crashes. I could go on and on, but I don't need to because you'll hear it for yourself. So let me just mention how hard it is to build an enduring generational brand. It's really hard, especially when it comes to toys.

• 7:42Guy Raz?

  There are just a handful, and you probably know them. Lego, Barbie, Hot Wheels, Monopoly, Mr. Potato Head, Etch A Sketch, Super Soakers, and not many others. Kids are among the most fickle customers on earth. A hot toy is likely to be hot for a very short period of time. Remember Pogs or Koosh Balls or the Steve Urkel doll? Enough said. But here's the great insight that Ronnen Harari and his co-founders at SpinMaster had back in the late 1990s when they were just starting out. The specific toys kids like may change, but their patterns of play don't. Since the beginning of recorded history,

• 8:27Guy Raz?

  kids around the world have played with balls, dolls, puzzles, and their imaginations. The key to figuring out what works is to find something that fits into those play patterns. Since founding their upstart company in the mid-1990s, Ronnen and his co-founders, Anton Robbie and Ben Verity, were relying on their own intuition to figure out what makes a toy great. So they tried stuff, stuff they thought they'd want to play with as kids. And it meant that it would take them many, many years of trial and error before they built a company that produced a truly intergenerational brand.

• 9:07Guy Raz?

  If you were a kid or have known a kid over the past 20 years, then you know some of the iconic toys that these guys put out into the world. Bakugan, Air Hogs, Flicks Tricks, and most iconic of all, Paw Patrol. It's not an understatement to call Paw Patrol one of the most successful kids' brands in the past 20 years. And the remarkable thing about Paw Patrol is that Spin Master built it very intentionally as a 360-degree brand from the beginning. First, as an animated cartoon, then as action figures, and now, as a brand that is on everything from pajamas to lunchboxes to stuffed animals.

• 9:51Guy Raz?

  Ronan Harari was born in South Africa, but his parents moved the family to Toronto when he was around five years old. His dad ran a carpet business in the city, and Ronan grew up working at the shop. He remembers being an average student, in part because of a learning disability.

• 10:09Speaker 01

  It's a learning disability called dysgraphia. So it's the inability for your hand to keep up with your writing. And then, my handwriting is not very legible, and then I gotta go back and I gotta correct what I wrote. And then, when you go back and you correct what you wrote, you know, you lose your stream of consciousness of what you're thinking. And then you gotta stop, and then it's like rebooting. You have to reboot a ton, a bunch of times. So for me to like, write an essay would take me twice as long.

• 10:35Guy Raz?

  Right.

• 10:35Speaker 01

  But the nice thing was, I actually, I call it learning gifts. And the reason why I call it a learning gift is because your brain is wired slightly differently. And as a result of that, you get some extra benefits. My attention to visual detail is very high. Like, when we were developing in toys or engineering, I could see like little changes when we were debugging the toys. And people would use rulers, and I could just see it with my eyes. So I think that's the wonderful thing about having a learning gift. It's just, the challenge is that the school systems are, is set up for the majority of people. It's not set up for individuals, and that's what makes it difficult.

• 11:11Guy Raz?

  You know, it's interesting, because you say you're an average student, but you went to the University of Western Ontario. And from what I-

• 11:16Guy Raz?

  I gather that's a pretty good university, right? It's not not super easy to get into. Am I right about that?

• 11:22Speaker 01

  I think it's it's in the middle. It's in the middle.

• 11:24Guy Raz?

  OK.

• 11:24Speaker 01

  No, it's definitely a good school. Listen, I don't get me wrong. I mean, I worked hard and my my grades were decent. But I I didn't get many A's. I can't remember any A's in my in my days. It was mostly Bs and some Cs.

• 11:35Guy Raz?

  Yeah.

• 11:35Speaker 01

  But I actually knew from a very young age that I wanted to go into business.

• 11:39Guy Raz?

  Why did why did you know that?

• 11:41Speaker 01

  Well, I was average at sports and academically I was average. So I figured that business was the right path for me. I saw it as something that had endless potential and not a lot of constraints.

• 11:55Guy Raz?

  And I guess while you were in college, you actually launched a business, right? It was it was with a friend of yours from childhood, a guy named Anton Robbie. And I think it was like a like a poster company. Is that like, tell me about it?

• 12:08Speaker 01

  Yeah, well, first, after our first year of university, Anton and I actually sold fertilizer door to door because both of us had to pay for part of our education.

• 12:18Guy Raz?

  Well, you you worked for like a fertilizer company?

• 12:20Speaker 01

  Exactly. We worked for a fertilizer company. And then we started this poster business. So the business was actually taking pictures of kids during Frosch Week and then creating a collage of all the pictures.

• 12:32Guy Raz?

  Frosch Week is the first week for freshmen, presumably, right?

• 12:35Speaker 01

  Exactly, exactly.

• 12:36Guy Raz?

  OK.

• 12:37Speaker 01

  So we would take pictures of the kids during Frosch Week.

• 12:39Guy Raz?

  OK.

• 12:39Speaker 01

  And then we cut all pictures out. We create a collage. And then around the perimeter of the collage, we would sell advertising. And then we printed up nine thousand posters and then gave it to the students for free.

• 12:49Guy Raz?

  Wow, that was a business.

• 12:51Speaker 01

  That was.

• 12:51Guy Raz?

  That was a business.

• 12:52Speaker 01

  That was a business, yeah. And then we ended up doing it in five universities across Ontario by the time we graduated. I think we we grossed about a hundred thousand dollars.

• 13:01Guy Raz?

  And then what happened when you graduated? You just?

• 13:03Speaker 01

  Yeah, what what actually happened was, so I graduated after three years. Anton was in a four year program. And then just before Anton graduated, my mom was reading the Yidiot Akronat, which is the largest Israeli newspaper. And in there, there was an article about all these six different Israelis that were manufacturing this this product called the grass head. A small little potato head made out of grass seeds, nylon, sawdust, and had a little happy face on it. And you'd put it in water and grow grass for hair. So similar to like a chia pet.

• 13:34Guy Raz?

  It's like, I guess, like a little ball. Imagine like a little like nylon, like pantyhose nylon ball stuffed with sawdust or whatever and seeds, grass seeds. And you would what, like drop water on it with a dropper and eventually you'd grow hair?

• 13:48Speaker 01

  No, you would, you would fully immerse it in water.

• 13:51Guy Raz?

  Oh, you'd immerse it?

• 13:51Speaker 01

  You'd immerse the whole thing and then just let it sit. And like, because the sawdust held the water, seeds were able to germinate.

• 13:57Guy Raz?

  Got it.

• 13:58Speaker 01

  So she read about it. She translated the article for me. And in the article, it said that there was all these six different people in Israel that were selling them and that literally every person in Israel bought one. And it was just like the biggest, the biggest craze in the country. And two weeks later, my late grandmother came to Canada for a visit. And she brought me and my sisters one as a gift. And so I looked at it and I was like, no one's manufacturing and selling them here in Canada. Why don't we, why don't we do it? And so I spoke to Anton and I was like, why don't we sell these, these earth buddies? We called it earth buddies. And he looked at me, he thought that I was literally crazy.

• 14:35Guy Raz?

  Yeah, I mean, it does sound crazy because why would you think that? I mean, the first thing is, why would your mom read that article and go, hey, I need to translate this article, like out of all the articles, like not the one on the peace process or I don't know, some like, I want to tell you guys about these grass head things. Something about that she thought was interesting. And I'm just trying to figure out why, like, how did you see that and say, hey, this could be something?

• 15:01Speaker 01

  To my mom's credit, she's very entrepreneurial and she's, she's very much a doer.

• 15:05Guy Raz?

  Yeah.

• 15:06Speaker 01

  She was like, well, something's happening. So I said to Anton, I was like, why don't we do it? And we literally went to Kmart and we bought pantyhose and we bought sawdust and grass seeds and everything. We started prototyping the products and we had a solarium in my house and we were growing everything in the solarium.

• 15:25Guy Raz?

  And they kind of look like, like nature's troll dolls a little bit.

• 15:29Speaker 01

  Yeah, it's a pretty good guy.

• 15:30Guy Raz?

  It's a fair description, right?

• 15:31Speaker 01

  Great description.

• 15:32Guy Raz?

  All right, so you convince Anton to join you on this journey to make the Earth Buddy. And presumably, you didn't need to license it, right? This was not like a patented technology. You were just making what was out there, am I right?

• 15:47Speaker 01

  Yeah, that's correct. You know, in the, in the article, it said the original inventor or the product came from somewhere in Turkey, and no one really knew who it was.

• 15:56Guy Raz?

  So you and Anton start to just stuff these little buddies, and this is 1994. And what was the plan? The plan was to make tons of them and then just sell them, I don't know, at a craft fair? Like, what would you, what was the next step?

• 16:13Speaker 01

  Yeah, basically, we said, let's make 5,000 pieces for Mother's Day and go from there. And that was the plan. And so we got my sister and my brother-in-law involved. My sister designed the packaging. My brother-in-law, ex-brother-in-law, who's an incredible engineer, he designed the contraptions so we can manufacture these things at some sort of scale.

• 16:35Guy Raz?

  What was a contraption, like a feed tube?

• 16:38Speaker 01

  Yeah, it was like a plumbing tube. You could take the nylons and wrap it around the tube. And then on the side, there was a feeder where you can dump the seeds and the sawdust. And there was a way for you to tie it off. It was, it was actually really clever. We found a small factory space, warehouse space.

• 16:54Guy Raz?

  And, and did you finance this with the money that you had from your poster company?

• 16:59Speaker 01

  Pretty much. We started with $10,000.

• 17:01Guy Raz?

  But, but before you started to, when you guys said, let's make 5,000 of these for Mother's Day, presumably, you're thinking, we're, we're going to sell these. So where were you going to sell them?

• 17:11Speaker 01

  Well, we, we sold them on the street. We set up tables at eight different corners all around Toronto. And we sold basically 800 out of the 5,000. And we came into the office Monday morning and we're like, okay, well, you got to figure out some other distribution. And then we found a gift distributor who took on the product and started selling it to the gift channels. And then, again, through my mom, she had a contact of a company that sold toys called Sampco Sales.

• 17:41Speaker 01

  And showed them the product and I said to them, would you guys be interested in distributing the product for us? And they said, sure, no problem. And two weeks later, they called us with an order for 26,000 pieces.

• 17:53Guy Raz?

  From where?

• 17:54Speaker 01

  From Walmart Canada.

• 17:55Guy Raz?

  Amazing.

• 17:56Speaker 01

  Yeah.

• 17:57Guy Raz?

  But now you guys are renting a warehouse space to make these. And I guess at this point, you bring in your third founder, this guy Ben Verratti.

• 18:09Speaker 01

  Yep.

• 18:10Guy Raz?

  And what did he know about like manufacturing? And, you know, was he an expert in like how to run a factory?

• 18:15Speaker 01

  He actually had no manufacturing experience. He came to our office and we literally made a deal within 45 minutes. And then he went down and started running the factory. You know, Ben was, he's a smart guy. He went to business school and he just figured it out. But Ben would tell you that he wouldn't have gotten through the manufacturing if it wasn't for this gentleman by the name of Bob Waklum. So Bob actually, when we started, the first place we actually went to look for people to work in the factory was we went to homeless shelter. It was just people that needed work. So that's where we went. But there was two individuals. There was Bob and this other gentleman Grenville who ran shipping.

• 18:55Guy Raz?

  Both of them were homeless. They were living in a homeless shelter.

• 18:58Speaker 01

  Correct. And so Bob walked into Ben's office one day and he said, you know, Ben, like I used to run a factory. Will you let me help you? And Ben said, yes. And literally within two days, he had all these like Gantt charts up and this, and he started like balancing out the lines between the workers and the raw materials and all this type of stuff.

• 19:18Guy Raz?

  So you get this order, this order for 26,000 earth buddies from Walmart Canada, which is pretty great. And how did they do?

• 19:26Speaker 01

  They did great. They started selling like crazy.

• 19:29Guy Raz?

  All right. So you would eventually get a massive order from Kmart, which would prove to be transformational. How did you even get on their radar?

• 19:39Speaker 01

  You know, the universe works in funny ways. Anton was backpacking in Europe a couple of summers before, and he met this guy who came from a very well-connected family. And when we wanted to break into the United States, Anton called him and he said, do you have any-

• 19:57Guy Raz?

  He gets in touch with this guy?

• 19:58Speaker 01

  He kept in touch with him. Well, that's one of the things Anton does extremely well. He keeps in touch with everybody. And so he called me, he said, do you have any relationships at Kmart? And they said they did. So I don't know why, but I was the one that actually took the meeting. And so I drove down, it was in Troy, Michigan. I pitched the buyer, do like a 30-minute pitch. I had a full box of Earth Buddies, looks fun. And after 30 minutes, the buyer said to me, he goes, "Thank you very much for coming, but I'm not the buyer." And I'm like, and I'm like, this can't be true.

• 20:29Guy Raz?

  Who are you? Why am I talking to you?

• 20:32Speaker 01

  Yeah, like, and then I'm like, okay, well, could you mind doing me a favor? Can you find out who the buyer is? Because I drove all the way from Toronto. So he comes back with this name written on a piece of paper and said Adrian Zacks. So I said, "Thank you very much." And I took my box of Earth Buddies and I started walking around the office of Kmart looking for this buyer. She was sitting at her desk when I found her. And she said, "Okay, I'll see you at 3:30." And then the guys that we came with, they're like, "Let's go for lunch, dah dah dah." And I said, "I'm not going to go anywhere." Because like, maybe she'll call me early or something like that.

• 21:07Guy Raz?

  Or maybe they won't let you back in the building.

• 21:09Speaker 01

  Or maybe they won't, like, I just, yeah, that's true. So I waited there till 3:30. And the craziest thing is, as I walked into her office, on the left-hand side of this counter, she had about eight other Earth Buddies there.

• 21:27Guy Raz?

  Eight other products that were pretty similar?

• 21:30Speaker 01

  Exactly the same, under different names.

• 21:32Guy Raz?

  Were they, these products from Israel?

• 21:34Speaker 01

  No, no, no, they were, they were other manufacturers.

• 21:36Guy Raz?

  So you're thinking, "I'm never going to make this, this is crazy."

• 21:40Speaker 01

  Nope. What went through my mind was, we were going to charge her $2.65 US. And I dropped the price to $1.65 in my mind, right then and there.

• 21:49Guy Raz?

  Because you knew that if you could get it, if you could offer the most competitive price, then she wouldn't go with the others.

• 21:55Speaker 01

  I knew we could still make money, especially because the Canadian dollar was low at the time. I didn't want price to be a factor. And I figured, she's got so many options here. So we better give her a compelling reason to go with us. And so I pitched her, I showed her exactly what we were doing. And she gave me this big book, which was the vendor agreement. She said, okay, well, I'll give you an order for 48,000 pieces. And if it goes well, I'll give you an order for half a million pieces.

• 22:22Guy Raz?

  Wow.

• 22:23Speaker 01

  Yeah.

• 22:23Guy Raz?

  All right, so she does 48,000 orders.

• 22:26Speaker 01

  Correct.

• 22:26Guy Raz?

  For a dollar 65 a piece, that's almost $80,000 order.

• 22:30Speaker 01

  Yep.

• 22:30Guy Raz?

  Which is pretty great. You go back to Toronto. Were you guys able to scale up to 48,000 pieces quickly in your little facility in Toronto?

• 22:41Speaker 01

  We had to move again to another facility. Every time we got more orders, we would move into a bigger factory and build more machines. And we just hired more workers and.

• 22:49Guy Raz?

  How did you finance that? Do you remember?

• 22:52Speaker 01

  Yeah, the product was selling very well. So we had money coming in from the other sales. And I mean, in our peak, we were producing 17,500 pieces a day.

• 23:02Guy Raz?

  And by the end of that year, I think EarthBuddy, your sales, from what I understand, hit $1.8 million. That's pretty great for a company that you started earlier that year. But at what point sort of did the three of you say, you know, we should focus on toys? Was it already in 1994 after EarthBuddy took off or not? Not quite yet?

• 23:25Speaker 01

  No, it was only in 95 when we started selling a product called Devil Sticks.

• 23:29Guy Raz?

  Okay.

• 23:30Speaker 01

  That product did really well. And so it was after that, after the Devil Sticks.

• 23:34Guy Raz?

  Okay, so Devil Sticks is your next product. Because, you know, as we know, the life cycle of novelty items is short, can be short, right? And you probably saw that at that point. You probably knew that you needed to go to the next thing.

• 23:46Speaker 01

  Yep.

• 23:46Guy Raz?

  Because EarthBuddy wasn't gonna, you couldn't build a sustainable company based on that product alone. I'm assuming.

• 23:51Speaker 01

  Yep, 100%. It was novelty, it was going to run its course and what else were we going to have?

• 23:56Guy Raz?

  So the next thing that you come across are these things you call Devil Sticks. And they're like these batons. You can, it's like a baton and you can juggle this other baton in between them and do tricks. And I remember this, this was like the mid 90s, I'm in college. And you had those kids who played hacky sack and devil sticks.

• 24:15Speaker 01

  That's right.

• 24:15Guy Raz?

  Am I right?

• 24:15Speaker 01

  Yeah.

• 24:16Guy Raz?

  That's the demo, right?

• 24:18Speaker 01

  Correct. Grateful Dead shows, exactly.

• 24:20Guy Raz?

  So this was a product that existed. Well, tell me the story. You kind of renamed them devil sticks? How did you come across them?

• 24:27Speaker 01

  You know, I actually, I played with them when I was in high school. For some reason in 94, we started noticing that a lot of kids in the schools were actually playing with the devil sticks. So maybe there's a little bit of a trend going on. We had our factory. So we said, well, why don't we figure out how to mass produce the devil sticks and we'll sell them. So it was just based on this trend that we saw. And so we designed this packaging and the same distributor that got us the sale at Walmart Canada, they introduced us to their partner in the United States called UniWorld. And so suddenly we found ourselves at Toy Fair in 1995.

• 25:05Guy Raz?

  And Toy Fair was in New York?

• 25:07Speaker 01

  In New York, yes.

• 25:07Guy Raz?

  And this is a convention where you'd go and you'd show your products. But so let me understand what the devil, the devil sticks are these batons, you know, that you juggle. And this, there was no patent on them. Anybody can make them. You basically created a brand called devil sticks. You gave it that name?

• 25:22Speaker 01

  No, devil sticks is the generic term. And so we called ours the Spin Master Devil Sticks. So that's, that's actually, that's the origin of the company name is from the devil sticks.

• 25:32Guy Raz?

  At that Toy Fair, did you, who was doing the demo? Were you doing the demo?

• 25:38Speaker 01

  I did the demo myself.

• 25:40Guy Raz?

  You did a demo. So you know how to juggle the devil sticks?

• 25:42Speaker 01

  Yeah, I told you. I played with them in high school. So I did the demo.

• 25:46Guy Raz?

  Okay. And as I understand it, pretty soon after that Toy Fair, you managed to get those devil sticks into like, to the biggest toy retailers in North America at the time. Toys R Us and KB Toys, which is huge.

• 25:59Speaker 01

  I mean, there was one thing that was working in our favor, which was there was something in the zeitgeist at the time that made devil sticks appealing to young kids. It was like seven year olds, eight year olds, nine year olds, 10 year olds. You know, it was like analogous to like the yo-yo. So we did the marketing, but I don't think, I think the marketing helped, but there was something in the zeitgeist that actually made the product pull.

• 26:22Guy Raz?

  There's a documentary that Spin Master made, I think on the anniversary of 20 years, and I watched it. And at that time, you said, we weren't sleeping a lot. We were definitely stepping on each other's toes. And there were a lot of disagreements and fighting, which I think is very normal when you've got three strong partners in a company. Were you stressed out about the disagreements between the three of you at the time?

• 26:44Speaker 01

  I don't know if it was stressed out, but I think that we would just fight.

• 26:48Guy Raz?

  And so About like, strategy, about product, about who to work with, about where to spend money, all those things?

• 26:56Speaker 01

  I think it was everything. But the one nice thing is that through the fighting, and it wasn't like, when I say fighting, it wasn't like, you're angry at the person. It was just advocating for your opinion. But, you know, we were young guys and very excited. Everybody really wanted to win, and everybody wanted the success. So maybe we were a little eager.

• 27:17Guy Raz?

  Was it, I mean, and this is a question that's come up in a lot of episodes of the show with with co-founders, which is, everybody has a different perspective. How did you resolve disputes?

• 27:30Speaker 01

  We've always shot for unanimous consent. And we would keep on debating till we actually got the consent. And then there was one other thing, which was, if we stepped over the line, everybody was able to say sorry, which I think is a huge, which is a huge thing. Sometimes if you weren't, if you didn't say sorry, you asked for the sorry, and you always got the sorry.

• 27:53Guy Raz?

  It's actually my favorite word in Canadian. Yeah, that's a great Canadian word. At that time, right? Okay, so you've got two hits now under your belt. You've got Earth Buddy, Devil Sticks. You know, you're probably doing $4 or $5 million in revenue by year two. How big were your ambitions? Were the three of you already in year two of your business saying, we're going to be a huge toy company? Was that the ambition? Or was it just like, let's just get this thing, sell this, and we'll figure out the next thing?

• 28:23Speaker 01

  It was, let's just keep on going. Let's find some other products to sell. We did make a couple of strategic, like, macro decisions, which were, we didn't want to, after Earth Buddies and Devil Sticks, which were both, you know, call it public domain products.

• 28:37Guy Raz?

  Yeah.

• 28:38Speaker 01

  We said, we want to design and develop our own products, and we want to sell them globally around the world. And we don't want to just be a Canadian distributor. And then we said, we're open to ideas wherever they come from and let's go search for for these ideas. So in 96, we started meeting with toy inventors. And so Ben was living with this girl by the name of Jen Irwin from the Irwin Toys family, which is a famous Canadian toy company.

• 29:03Guy Raz?

  And That's great. Wow. That was that was who you were living with.

• 29:07Speaker 01

  Yeah, very coincidental.

• 29:08Guy Raz?

  Yeah.

• 29:09Speaker 01

  So between her and also this company called Canada Games, which was run by the Albert family, they told us that there's a whole network of toy inventors globally around the world that come up with ideas, but they don't commercialize them. And so Ben started going around with our wares and meeting all these toy inventors and trying to solicit ideas from them.

• 29:29Guy Raz?

  And by the way, was that hard to do because you were so small at that time?

• 29:34Speaker 01

  Uh, you know, they weren't, put it this way, they were not showing us their best products. They were basically dusting off the stuff in the back of the closet.

• 29:42Guy Raz?

  That like Hasbro and Mattel wouldn't even wouldn't even look at.

• 29:46Speaker 01

  Correct.

• 29:46Guy Raz?

  Yeah.

• 29:46Speaker 01

  But they were showing us stuff and we were getting to look at stuff and we were developing relationships and contacts. And so in 96, we actually came across this invention, which was an airplane that you pumped up and would fly for about 45 seconds. And it came from these two British inventors, John Dixon and Peter Manning. They actually came to Toronto, came to visit us, and we flew this airplane. And it was probably one of the most magical experiences seeing this plane fly.

• 30:14Guy Raz?

  Describe what it was. It was like a airplane with what, styrofoam airplane that you pumped air into it?

• 30:21Speaker 01

  Yeah. So it's basically it's a plastic bottle, foam wings on top, foam fuselage. And they had developed this pneumatic engine that literally the air would actually drive the piston up and down, spin the propeller and fly the plane.

• 30:36Guy Raz?

  A hundred, a hundred yards, right?

• 30:39Speaker 01

  Yeah, it was a hundred. It would fly at forty-five, fifty seconds and fly in a circle.

• 30:42Guy Raz?

  Had they demoed this for other toy companies?

• 30:45Speaker 01

  Yes, we, we didn't realize, after we signed the product, we didn't realize that every toy company had turned it down.

• 30:51Guy Raz?

  Wow. So you see it and you're like, this is amazing.

• 30:55Speaker 01

  Yeah, it's incredible.

• 30:55Guy Raz?

  But every, but, but they had not had any success getting anybody to buy it?

• 30:59Speaker 01

  Correct. I think they were trying to sell it for five years.

• 31:02Guy Raz?

  All right. So you guys love it. And what'd you do? You, you basically bought the license from them?

• 31:07Speaker 01

  Yeah, the way it works in the toy industry is you license the product in perpetuity and you pay a five percent royalty on your sales.

• 31:14Guy Raz?

  Got it. So you get the idea, but really what you're then doing is building a brand around it. Cause I'm assuming it was a kind of crude, right? It wasn't like a fully developed toy. It was a, a plastic bottle and, and, and a body of, of an airplane with styrofoam, right? There was no branding or logos or shape to it.

• 31:34Speaker 01

  Yeah, exactly. The difficult thing with, with the Air Hogs, which is what we called it, was how do you mass produce it? We ended up finding this company called K Development and they did all the design work in terms of how the engine is going to actually function and work. And, and we actually didn't have a lot of money to pay them at the time. So we, they agreed to do a, a backend royalty deal. And, uh, literally we spent probably a year and a half, two years building the prototype, rebuilding the prototype, test it and see if it's flying and see if it was reliable and durable and all that type of stuff.

• 32:08Guy Raz?

  Okay.

• 32:09Speaker 01

  Got all the engineering done. Um, and then we went to China, found a factory which was called Kin Sing. And so we sent all the plans there and, uh, they started actually building out the product for us.

• 32:21Guy Raz?

  When you found that factory in China to make them, you were making a big commitment. You were putting a lot of eggs in, in this basket. Did you have orders already for the Air Hog?

• 32:31Speaker 01

  You know, we did everything in parallel. I would say this, when we signed the product, we basically put all the money we'd made to date into the design and development. The design and development was very, very expensive.

• 32:43Guy Raz?

  A million dollars more or less?

• 32:45Speaker 01

  All I remember was it was pretty much all the profits that we had.

• 32:48Guy Raz?

  Yeah, that you had.

• 32:49Speaker 01

  Yeah, everything was going into this product. Everything's done in parallel. So, you know, we had no orders at the beginning, but as we started designing and developing it, then you start the sales process and we were going to the toy fair and at the toy fair, we were starting to sell it. And so before we actually got into production, we did have orders.

• 33:06Guy Raz?

  So here's a question. This is a big commitment in money and it was a two-year process, right? From 1996, when you got this license, to when it actually debuted, I think, two years later. How did you know that it was going to work? I mean, did you do market research? Did you test it on kids? Did you, what kind of research did you do, if any?

• 33:31Speaker 01

  We did no research, nothing.

• 33:37Guy Raz?

  You did no market research? You went to no kids? You went to no schools? Nothing? You were just like, yeah, we love this, it's cool, let's do it.

• 33:43Speaker 01

  Yep.

• 33:44Guy Raz?

  So it could have been 100% wrong.

• 33:46Speaker 01

  Correct.

• 33:47Guy Raz?

  And that would have been a disaster. You just thought it was super cool, which it was.

• 33:51Speaker 01

  Yep, loved it. It was just so much fun to fly.

• 33:55Guy Raz?

  When we come back in just a moment, how the team at SpinMaster began to realize that succeeding in the toy business means never staying still. If you have one hit idea, you better start thinking about your next one and the one after that. Stay with us. I'm Guy Raz and you're listening to How I Built This from NPR.

• 34:20Guy Raz?

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• 35:02Guy Raz?

  The agents bring speed and scale and people bring taste, judgment and control. Learn how you can get more out of your site from a Framer specialist or get started building for free today at framer.com/built for 30% off a Framer Pro annual plan. That's framer.com/built. Rules and restrictions may apply. AI isn't just opening new business opportunities. It's changing the way businesses get work done. The questions they ask, the decisions they make, the routine tasks they can hand off. That's the idea behind NetSuite Next, the next generation of NetSuite with AI woven into the tools your business already relies on.

• 35:47Guy Raz?

  NetSuite Next surfaces insights exactly when you need them, puts agents to work on routine tasks and problems and lets you ask complex questions in plain language like talking to a knowledgeable colleague. But technology is only part of the story. AI is also reshaping how people and teams work together and that shift is already underway. That's why NetSuite wants to put a new expert-created business guide in your hands today. It's called Aligning for the Agentic Era: How AI is Changing Everyday Work. And right now, it's yours, absolutely free. Inside, you'll discover how AI could reshape work across your entire organization and how to position your business to prosper from it.

• 36:32Guy Raz?

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• 36:51Guy Raz?

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• 37:35Guy Raz?

  through Stripe, with Stripe's users processing a combined $1.9 trillion last year. So if you're already thinking about what's next for your business, see what's possible at stripe.com.

• 37:56Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1998, and SpinMaster starts selling the Airhog at toy stores. And unlike the Earth Buddies or the Devil Sticks, the Airhog is much more complex and requires a lot of engineering.

• 38:13Speaker 01

  We took so much care. And that's why it took so long. It was like, how to make the propeller safe, put a foam nosecoat on it, super light, the wings would pop off so they wouldn't break. And, you know, one of the biggest things was, usually it got stuck in a tree. So people-

• 38:30Guy Raz?

  Yeah, and that's it. You're done.

• 38:31Speaker 01

  Well, or you climb the tree, or buy another one.

• 38:33Guy Raz?

  You buy another one. So here's the thing. So you make this product, right? You get this Chinese company to make them. And do you remember what, how many did you initially intend to make? Like, a million, half a million?

• 38:45Speaker 01

  You know, I can just tell you that by the end of 1998, so we started marketing in that year, we had grossed $35 million in sales.

• 38:54Guy Raz?

  Wow.

• 38:55Speaker 01

  I think we had sold over a million, a million and a half pieces, something like that. And I think our wholesale was about $20 at the time.

• 39:03Guy Raz?

  And it cost you probably $10 to make them?

• 39:05Speaker 01

  Nope. It cost about $5.50.

• 39:08Guy Raz?

  How did, I mean, aside from the fact that it's super cool, I remember airhogs and they're still around, but how did you, how did you market it? Did it, did you have to do anything at all to market it? Or was it just a product that sold itself?

• 39:18Speaker 01

  No, we did a lot of, we did a TV commercial, we bought media against it. We found distributors around the world. We came up with these really creative point of sale displays where you could actually pump up the airhog and flick the propeller and hear the magical sound that came from the motor. And I think we had them at like Walmart and Kmart and at a lot of places. So that was definitely in the marketing budget.

• 39:42Guy Raz?

  All right. So this, this comes out, and by the way, is, had you guys raised any money for the company? Are you entirely self-financed?

• 39:49Speaker 01

  Entirely self-financed. Other than the bank would actually let us borrow against our inventory and receivables. So we were able to use those monies, which weren't our monies, but at least they were up against the, the orders that were going to come. And again, apply that to actually purchasing the goods and doing marketing and all that other type of stuff.

• 40:08Guy Raz?

  So this product blows up. So you're, you guys are growing really fast. But do you remember thinking to yourself, this is different. This is next level.

• 40:20Speaker 01

  Oh yeah. I mean, I mean, the engineering development, it was a priceless education. Designing and developing and marketing that product was priceless. It was so difficult. It was so, we taught ourselves everything. We hadn't done anything close to that. It's not really even a toy. It's a mechanical flying object. So we really stretched ourselves to actually get that to market. But the nice part was all the inventors that we were visiting, they were like, wow, these guys can actually design, develop and manufacture something. And so that really opened up the doors to future products for us.

• 40:55Guy Raz?

  Here's, here's what I wonder. I mean, the airhogs take off in 1998. At that point, can you just focus on that product and really build that out for the next few years? Or already do you have to start thinking about the next thing that's going to come out after that?

• 41:11Speaker 01

  You do both.

• 41:14Guy Raz?

  And is that because kids are fickle and they just the life cycle of a toy is short?

• 41:18Speaker 01

  The toy business is all about fresh and new. Even if you have a brand, within the brand, you still need to bring fresh and new. So we knew straight away after our first product, we were like, okay, what other innovation can we do in flying toys? So we came up with the B-Wing, which was like a stealth flying plane. And then we were thinking about other types of flying toys. So yes, you always have to be innovating within the brand. And then we also wanted to diversify as a company. So we were thinking about what other categories can we get ourselves into?

• 41:46Guy Raz?

  To me, it just seems like, my god, you guys were just playing with toys. Like, how joyful, like, how amazing, how fun. Like, but this was real, serious business. You guys were heads down, like, really focused? Or was it throwing nerf balls around the office? I don't know. What was it like?

• 42:06Speaker 01

  No, it wasn't that much fun and games. It was, it was serious. First of all, toy business is very competitive, hyper competitive business. And it's very fast paced. And, you know, the three of us wanted to win. So we were actually quite serious. I think we were probably too serious. We didn't have the foosball tables, we didn't have the pool tables. It was more about when we're in the office, let's do the work and then let's go enjoy our time afterwards. It's intense. The other thing about the toy industry is that you're dealing with kids and you're dealing with safety and, and you got to make sure that everything's, you got to manufacture something at a low cost that's safe, that has an innovation attached to it.

• 42:45Guy Raz?

  So 1998 really is a pivotal year for you guys because the air hogs just takes off.

• 42:51Speaker 01

  Yep.

• 42:52Guy Raz?

  You've successfully manufactured a product now overseas. And now you've got a strategy. You are going to really begin to assess a bunch of inventions. I read you grew to 28 employees. You were assessing about 1,000 inventions a year at that time. So were people just coming to Toronto and showing you stuff? Or was it all happening at toy fairs? Or were you actively tapping into this network of inventors or all three of those things?

• 43:20Speaker 01

  The majority was actually Ben Verity and Ben Dermer.

• 43:25Speaker 01

  On the road.

• 43:26Guy Raz?

  Ben Dermer was another person you hired at that time to help out.

• 43:29Speaker 01

  Yeah, he helped Ben with the inventor relationship. And so they would literally go from city to city to city and visit the inventors and go to their offices. And I'd say that was like 80% of the work was done that way, on location.

• 43:43Guy Raz?

  So you did zero research for the Air Hogs, but it really took off.

• 43:47Speaker 01

  Yep.

• 43:48Guy Raz?

  Did that make you, and I'm not trying to ask this in like a snarky way, but I just, I think that if I was in your shoes, I'd have been like, oh my God, look at my judgment, it's amazing. I can do no wrong. Like, I might have become a bit arrogant at the time, thinking, we know how to pick hits. Did you guys have any of that at all?

• 44:06Speaker 01

  No, because we had some other products that, alongside of the Air Hogs, that failed. We had a product called Don't Free Freddy, and it did not do well.

• 44:14Guy Raz?

  What was that?

• 44:15Speaker 01

  It was basically a little furry monster, and his hands were handcuffed together. And then you'd press a button and the handcuffs would pop open and his arms would flip up and he would roar at you. And we just thought it was funny.

• 44:30Speaker 01

  But the kids didn't think it was that funny.

• 44:31Guy Raz?

  And how did you, in those early days, how would you give something in the green light? Did you have to have total consensus?

• 44:37Speaker 01

  No. Sometimes there was certain products that I loved, and I would win Ben over, but he wouldn't come very easily. But the one thing that we did find over the years is that when we did have universal consensus, the likelihood of success was much higher.

• 44:52Guy Raz?

  All right. So you have Air Hogs and you're assessing like a thousand inventions a year at this time. And the next thing I think you come across is these little miniature BMX bikes, which are called Flicktricks. And I think the guy who pitched them to you was this inventor named Jeff Ray Kemper?

• 45:12Speaker 01

  Yeah. And then the one thing you have to understand about inventors, okay? And the reason why you want to go visit the inventors rather than them coming to you is like, they're really the kids in the equation, okay? And when they invent something, they want to show it. They get so excited about it. So on one of my trips to Chicago when we were developing the Air Hogs, Jeff actually showed me the little flick tricks. And straight away, I was like, this is so much fun.

• 45:38Guy Raz?

  Again, any market research, taking them to kids, just sitting behind two-way glass, watching them play it, anything like that?

• 45:45Speaker 01

  Nope, nope, nothing like that.

• 45:46Guy Raz?

  Nothing.

• 45:47Speaker 01

  Other than the fact that kids were really into BMX bikes at the time.

• 45:50Guy Raz?

  Yeah. Would you analyze like market data around that? Did you have statistics?

• 45:54Speaker 01

  Zero.

• 45:55Guy Raz?

  Nothing.

• 45:55Speaker 01

  Wouldn't even, wouldn't even know where to get them.

• 45:59Guy Raz?

  So you are literally just saying, yeah, I think this is cool. I'd play with this.

• 46:04Speaker 01

  It was so much fun. The key to being in the toy business is you've got to always think and feel like a seven-year-old.

• 46:08Guy Raz?

  Is this common, by the way, in the toy industry? Or am I just completely, because I'm, have I talked to too many McKinsey consultants?

• 46:14Speaker 01

  You cannot consult yourself in the toy industry. It is one of the most intuitive, creative industries out there. It's a feel industry, but it's also a history industry. Like, you need to know what happened in the past, what did well, what didn't do well. And then it's very iterative. Like, everybody's adding on an innovation from the past, and everybody's looking for like play patterns.

• 46:37Guy Raz?

  Yeah.

• 46:37Speaker 01

  So it's all about the play patterns and stuff like that. And so, you know, kids played with die-cast cars.

• 46:42Guy Raz?

  Sure, I did. I loved them.

• 46:43Speaker 01

  Kids still play and collect Hot Wheels today. And so the association was, well, this is kind of similar to Hot Wheels. It's die-cast. There's a collectible aspect to it. You know, we went out, we licensed all the BMX bike companies at the time, like Hoffman and Redline and all that type of stuff. So you can collect them, you can play with them. So there was an association and a confidence in the play pattern.

• 47:05Guy Raz?

  So this is so different from so many other industries. Essentially, what you're saying is, it's very hard to create a toy for kids in a boardroom with all the market research and looking at kids through two-way glass. Like, actually, that doesn't work that often?

• 47:19Speaker 01

  Not really. I mean, you, you can get some false positives, too. I mean, kids get excited about a lot of stuff.

• 47:25Guy Raz?

  Yeah.

• 47:25Speaker 01

  You can see if kids are really bored. You can probably see if they really don't like something, but then again, it's like, what's valuable is more like, is it too big for their hands? Is it too small for their hands? Can they hold it? That type of stuff, more functionality. But testing the magic, very difficult. The only way you're going to test is by putting it at retail.

• 47:44Guy Raz?

  But this play pattern idea is really interesting. I mean, you know, like, when I was a kid, I used to build Lincoln, these elaborate Lincoln log houses, or, you know, kids have played with Lego for a long time, had Meccano. I loved action figures. And so what you're saying is, elements of all those things, they've always existed through time immemorial. When humans were in Neolithic villages, they played with, they played in the same patterns, kids played in the same patterns, but just with the rocks or whatever.

• 48:12Speaker 01

  Yeah, I mean, it's interesting for you to go that far back in time, but I guess, I would say like in the last 100 years, like the play patterns started to solidify. Like, there's 11 categories in toys. So you got plush, which is stuffed animals, like, there's a way for kids to interact with plush. And then, like you say, action figures, how do you play? You know, action figures is all about, you know, fantasy and trying to become that character yourself.

• 48:37Guy Raz?

  Yeah.

• 48:38Speaker 01

  So the toy companies creatively were able to create around the way kids like to interact. And so now it's like, can you bring something new and different to the play pattern to spark joy in the kids, to get them excited? And that's what, that's what we look for all the time.

• 48:56Guy Raz?

  So, so I guess, like around 2001, you guys had what I think was your first, like, large-scale failure, which was a product called Key Charm Cuties. And I guess you were competing against like a Mattel product that, something that Mattel was putting out.

• 49:13Speaker 01

  Yeah, against Polly Pocket.

• 49:14Guy Raz?

  Right, right, right, Polly Pocket. So what was the thing you guys were making?

• 49:17Speaker 01

  It was these small fashion dolls and, and you can change their clothes in a unique way, and they came in these purses that you can carry them around with. And when it came to Key Charm Cuties, this really, we were up against Mattel and their marketing and their design. And our design couldn't compete. Like, our dolls didn't look as, as nice as theirs. Our packaging wasn't as good, our commercial wasn't as good. We didn't have the brand, we didn't have enough money to develop a brand. So we, that was our first lesson against the big guys.

• 49:50Guy Raz?

  Did you conclude that it wasn't worth it to go up against a Mattel or a Hasbro?

• 49:54Speaker 01

  No, because I mean, the Flicktricks were going right up against Mattel. It was going up against Hot Wheels. We had no problems competing with Hasbro and Mattel. We always respected them and learned from them. But we actually had no choice. If you wanted to be in the toy industry, those were the players that you were competing against.

• 50:10Guy Raz?

  All right. So from what I understand, you started to go to Japan in 2000.

• 50:17Speaker 01

  Yep.

• 50:17Guy Raz?

  And I lived in Japan when I was a little kid, from age four to six. My dad was there. And I still remember the toys were unbelievable, like years ahead. You started to go to Japan in 2000, presumably because Japan, I think, is still like, when it comes to toy innovation, probably the center of the world, right?

• 50:36Speaker 01

  It's one of the most creative places you can go. But it is probably, it's very seminal to the journey the company has taken. We actually went there with a mission in hand, which was to try to find products in Japan that we could bring to North America.

• 50:52Guy Raz?

  And what is it about, in your view, what is it about Japan? Why is Japan the Silicon Valley, let's say, of toys?

• 51:00Speaker 01

  I just think that their minds are very open and I think they just look at the world very differently and they look at things differently. And what would be strange to us is normal to them. You know, like when you think about like the Tamagotchi, like what a unique toy to come up with.

• 51:18Guy Raz?

  Yeah.

• 51:19Speaker 01

  Or you look at something like Ampoman. I don't know if you've ever seen the preschool show Ampoman. It's one of the strangest characters you've ever seen in your life, you know? So it's like-

• 51:28Guy Raz?

  Or like Japanese candy, which is amazing.

• 51:31Speaker 01

  Yeah. I haven't eaten a lot of candy, but I think they're just into doing things different. They're good with different.

• 51:37Guy Raz?

  One of the decisions you made in 2005, which I think is a pivotal decision, maybe I'm wrong, but I think it was, is you moved your Director of Global Licensing to Japan. And you really kind of wanted to figure out how to bring something from Japan. Because I think 2005 would eventually, a few years later, lead to the biggest toy of all time up to that point, which was Bakugan. Am I right that that story begins in 2005?

• 52:06Speaker 01

  Yeah, Bakugan, 2006.

• 52:10Guy Raz?

  And can you, can you explain what Bakugan was?

• 52:12Speaker 01

  It was like marbles meets Transformers.

• 52:15Guy Raz?

  Yeah.

• 52:15Speaker 01

  So there were these marbles and that you roll on the table and you're aiming towards the card.

• 52:19Guy Raz?

  The card, okay.

• 52:20Speaker 01

  And in, embedded in the card is a sheet of metal. But as soon as the ball hits the card, the magnet inside of the ball has a, activates a spring and then it pops open and transforms the, the character, the ball into a character.

• 52:36Guy Raz?

  This idea came from some, like a kid, a 23 year old named Aldrick or Aldrich Saucier, who submitted this idea to Spin Master. You had, did you have like a, an open submissions, like a way to submit ideas?

• 52:51Speaker 01

  He, no, it actually came, Aldrick invented the item. So his, his genius was the idea to put an action figure into a marble.

• 52:59Guy Raz?

  Yep.

• 53:00Speaker 01

  And we took it in, we, we did a whole bunch of development and then what happened was, we said, well, you know, in Japan, they're so good with these like micro mechanisms. Maybe we can partner with someone in Japan. So we did a trip over there and we took it to Sega Toys and we presented it to Mr. Kokobun, who doesn't speak a stitch of English.

• 53:21Guy Raz?

  He's the founder, the CEO of Sega at the time?

• 53:24Speaker 01

  He's the president of Sega Toys.

• 53:26Guy Raz?

  Sega like the video game company too?

• 53:28Speaker 01

  Yeah, exactly. But his history was, he was an incredible toy inventor and a real true blue toy guy. So he saw the magic and he saw the potential and he said, sure, we'll partner with you guys.

• 53:41Guy Raz?

  And you knew because of play patterns, you knew that kids like marbles, kids have liked marbles for, right, a long time and they like to roll things on the ground and they like Transformer things. And you knew all those elements suggested that this would take off.

• 53:57Speaker 01

  Yes. I mean, when we licensed a product, it had two elements. It had the marble and it had an action figure in a marble. So those were the two, two play patterns. With a really, really cool, magical sensation, like when it popped open, like you got excited. And then your ability to close it was automatic, like you just, just took your two fingers and it closed. So there was like, it was very fidgety in terms of opening and closing and opening and closing.

• 54:21Guy Raz?

  All right, so you're developing this toy, this new toy Bakugan. And I guess you decided to do something that you'd sort of learned about in Japan, which is when you launch it, you also launch a cartoon about the characters.

• 54:35Speaker 01

  Yeah.

• 54:36Guy Raz?

  And I don't, hopefully this doesn't sound crass, because it's not like, I mean, this is a business show, and I think that from a business perspective, this is absolutely a brilliant strategy. But, I mean, a cartoon is essentially a 22-minute advertisement for the product, right?

• 54:51Speaker 01

  I would say it's a way to actually accentuate the magic of the toy. And it enhances the toy. Because how are you going to know the characters of the Bakugan unless you can see them on the screen and hear them talk and see how they battle and how they work and all that type of stuff?

• 55:09Guy Raz?

  So what happened when Bakugan was released? Do kids, I mean, I remember through the 2010s, seeing that toy in the hands of every kid between the age of five and 10, 12.

• 55:22Speaker 01

  It became a billion-dollar franchise.

• 55:25Guy Raz?

  Billion-dollar franchise?

• 55:28Speaker 01

  Yes, it became a billion-dollar franchise. It aired in literally 150 countries around the world. We did four seasons, over 200 episodes. It just captured the hearts and minds of kids.

• 55:38Guy Raz?

  And I think around 2008, you transitioned from being a toy company to a 360 media company, which I think is fair to describe you that way today, right?

• 55:48Speaker 01

  Yeah, that was one of our, one of our goals, was to have an entertainment division. And Bakugan was the genesis for it. And then after Bakugan, we, we launched a show called Redicai, which was based on this really innovative card system that we created. Everybody was excited about it. All the retailers bought into it, and it was a huge disaster. Like, you could not give the product away. It probably took the retailers like two, three years to actually clear out the products.

• 56:19Guy Raz?

  What happened with the recession of 2008, '09, and beyond? I mean, does that affect toys? Are toys relatively, you know, inelastic?

• 56:30Speaker 01

  We actually had our best years in 2008, 2009 during the recession. So we didn't, we didn't really feel anything. Parents are not going to cut on, they're going to cut on their kids' last in terms of consumer expenses and stuff like that. It's quite recession-proof. The flip side of the toy industry, it's not a high-growth industry, but it's just very, it's just very stable.

• 56:48Guy Raz?

  All right, so. You've got the Bakugan. I think by 2010, it was driving almost half of your sales. It was over 45% of your income came from Bakugan, which is great, but also kind of scary, right? That one product is so dominant because if that revenue stream dries up, you're in trouble, which I think kind of started to happen around that time, right?

• 57:13Speaker 01

  That's exactly what happened. So basically in 2011, the sales started to go down. And so basically, our sales went from 2010, I think we peaked at about 950 million.

• 57:27Guy Raz?

  Yep.

• 57:28Speaker 01

  And then by 2013, the sales were down to 500 million.

• 57:34Guy Raz?

  Wow, that's a huge decrease.

• 57:36Speaker 01

  Yeah.

• 57:38Guy Raz?

  And that's because you put too many, you relied too heavily on Bakugan?

• 57:42Speaker 01

  It was a combination of that and all the products that we had coming up behind Bakugan. Those products didn't-

• 57:49Guy Raz?

  They just didn't work?

• 57:49Speaker 01

  They didn't connect with the consumer. Basically, the product line just wasn't robust that was following up Bakugan. We didn't think Bakugan would drop in sales as quickly as it did.

• 57:59Guy Raz?

  Why did it happen now, by the way? What do you think happened?

• 58:02Speaker 01

  You know, I think it's actually natural is that those types of toys have a certain life cycle to them. And they're usually, it's a three or four year life cycle, and then they actually go down. So by 2013, we actually retired Bakugan. So it went from like hundreds and hundreds of millions of dollars a year in sales to zero.

• 58:24Guy Raz?

  When we come back after the break, how SpinMaster is airlifted out of its slump by a 10-year-old boy named Ryder and six search and rescue dogs, otherwise known as Paw Patrol. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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• 1:00:22Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2012 and for the first time since the company's launch, SpinMaster is not turning a profit. In fact, it's losing millions of dollars. And Ronan understands that in order to keep going, the company needs to come up with another hit. But until that happens, he has to make some hard decisions.

• 1:00:48Speaker 01

  We had to do two things. We had to lean into developing and like really keying in on what are the right categories? What are the right products that we should be launching? I think we got to the point where we had a lot of hubris and we were like, whatever we're gonna put out there, it's gonna go and.

• 1:01:05Guy Raz?

  Cause you had so many hits.

• 1:01:07Speaker 01

  We had so many hits and we had so much success and everybody gets excited like, so we had to become much more judicious in the product selection. And then on the flip side, we had to restructure the company. At that point in time, I think we had about 900 employees. And we had to let go 350 people in a matter of 24 months.

• 1:01:25Guy Raz?

  A third.

• 1:01:26Speaker 01

  A third of the people.

• 1:01:27Guy Raz?

  Wow.

• 1:01:28Speaker 01

  And we would never done it before. It was an excruciating process and we did it four times, four restructurings. Just because, you know, no one really wants to believe that the sales are gonna go down. And so when we did the restructuring, everybody was like, you know, we don't need to let go of that many people, you know, the sales are gonna pick up, et cetera, et cetera. And it just never happened. So it was like, it kept on jerking the whole company, you know, like. Every single time you had to go out and make an announcement and make people feel comfortable and the company is okay. So when you do it four times, you know, you lose a lot of credibility and it's hard to keep the morale high.

• 1:02:00Guy Raz?

  I'm sure. I mean, four rounds of layoffs, people must have been really worried and nervous about their jobs and it has to affect the atmosphere.

• 1:02:10Speaker 01

  That was stressful. The other stuff wasn't stressful. This was stressful.

• 1:02:15Guy Raz?

  Yeah.

• 1:02:15Speaker 01

  But I will say that we really, it was the time where we actually dug in and. And we're like, we need to tighten our marketing, we need to reduce our SKU counts. We don't need to do as many things financially. We actually had no choice because in those two years, the company lost money. And substantial amounts of money. So there really wasn't any, any options but to right the ship.

• 1:02:40Guy Raz?

  And then in addition, you had to come up with a new magical product, the next Bakugan, the next Air Hogs. What did you do?

• 1:02:48Speaker 01

  We just got really focused. The one thing we didn't do is we didn't cut our R and D budget. We kept that and we kept on spending and we kept on investing. And we were like, let's keep on trying. Let's keep on trying with new television. Let's just keep on trying with new toys and we'll just be a smaller company. But let's just be a profitable company.

• 1:03:05Guy Raz?

  Renan, did you you'd basically been profitable every single year and you'd been growing every single year. And then all of a sudden, you're not only unprofitable, you're losing a lot of money. Were you worried about whether you guys would make it?

• 1:03:18Speaker 01

  No, I don't think I wasn't. I wasn't nervous. I actually personally myself, I rise in a crisis and I'm actually better in a crisis. That being said, I mean, the relationships definitely frayed. We have a saying, you know, I'm sure you know, it's like growth hides a multitude of sins.

• 1:03:34Guy Raz?

  Yes.

• 1:03:34Speaker 01

  And when you're not growing, all the sins come out. So everything came out. Our relationships got challenged and tested, you know.

• 1:03:42Guy Raz?

  Either among the founders.

• 1:03:44Speaker 01

  Oh, yeah, yeah. Amongst the founders came out inefficiencies in the business, the way we're organized. Everything came out, but I don't think that anybody was in a panic. It was more of like, this is not easy. And this is why older people have gray hair. You know, when people say they have gray hair from something like this was our seminal gray hair event.

• 1:04:06Guy Raz?

  Yeah, and you have some gray hair.

• 1:04:07Speaker 01

  I have a lot of gray hair.

• 1:04:09Guy Raz?

  All right, so you you restructure the company, but but you're also trying to find the next thing. And from what I understand, this this concept, I mean, you knew that the concept of an animated show and and products was successful. And and what like you put out like a request for proposal from from different creators you knew for for like a new kind of animated show. Tell me, tell me the genesis of Paw Patrol. What had it start?

• 1:04:39Speaker 01

  So I think one of the things that dawned on us is like, it's very hard to get success in the same genre more than once. So why don't we take focus on the preschool category? And we were like, well, why don't we do a show for preschoolers? And we said, what if we took the magical aspects of transformation the kids loved in Bakugan? And they love in Transformers? And why don't we bring it to a preschool audience?

• 1:05:06Guy Raz?

  And by the way, a preschool audience, because that is, you know, is it a good demo for? I don't know, for toys?

• 1:05:14Speaker 01

  It's an incredible demo for toys, very steady demo for toys. And no one had ever done anything with that play pattern for that demographic. So we put out this brief, can you come up with a conceit or a story around transformation for preschoolers? We sent it to five different creatives around the world. And we got back a whole bunch of interesting proposals. And the one that we liked best came from the creator of Bob the Builder, his name is Keith Chapman, an incredible human being, and he came up with this great idea.

• 1:05:46Guy Raz?

  What was the idea? What was his concept?

• 1:05:48Speaker 01

  So his idea was, it was called Robbie and the Rescue Pups. And it was this idea of these five dogs that each had their own personality. One was a fire dog, one was another construction dog, another one was a police dog. And they go out and they solve difficult situations that happen in the town.

• 1:06:10Guy Raz?

  So he sends you this concept? And it's not going to be called Robbie and the Rescue Dogs?

• 1:06:16Speaker 01

  Correct.

• 1:06:16Guy Raz?

  Because Robbie becomes Ryder later on, I think, right?

• 1:06:19Speaker 01

  Correct.

• 1:06:19Guy Raz?

  When you saw this concept, did you, did you all say, this is it? This is the one?

• 1:06:24Speaker 01

  Yeah, that's, that's where we landed on. We were like, saw it as having incredible story potential, incredible character potential. And then we said, well, how do we figure out the transformation? And we said, well, it'd be magical if we put backpacks on the pups and the backpacks transformed. And what if their dog houses transformed into vehicles? And that's how we married it up. So we had the transformation, plus great story, good character, all that stuff mixed together. And we were like, let's, let's move, let's try.

• 1:06:57Guy Raz?

  And I think, I think the show Paw Patrol debuted in, in 2013, is that right?

• 1:07:02Speaker 01

  2013.

• 1:07:02Guy Raz?

  And did take off right away?

• 1:07:04Speaker 01

  It took off pretty quickly. But I will say this much is that the show got developed and refined over time also.

• 1:07:13Guy Raz?

  And through that, that concept, right? I mean, you can do, I remember that, I mean, I know the action figures, like. It's everything. It's toys, it's stuffed animals, it's pajamas, it's lunchboxes. It's, I mean, I'm just scratching the surface, right? It's endless what you can do with a character that sticks.

• 1:07:31Speaker 01

  Yep, yep, you're exactly right. I mean, that's the magic is when you have a character that kids love and trust and can relate to, then they'll want to spend time with them in different form factors. So it definitely helped turn around the business.

• 1:07:44Guy Raz?

  It's hard to overstate how all those elements came together into this perfect match because I believe that Paw Patrol as a franchise is one of the biggest toy franchises since Mighty Morphin Power Rangers.

• 1:08:02Speaker 01

  Yes, it is a once in a lifetime, once in a generation franchise that has exceeded all expectations and it's something that we've worked towards. You know, originally we had Paw for five, then we had Paw for 10, you know, we're coming on the 10th anniversary and now we have a motto which is Paw Forever. Our job is to just keep it fresh, exciting, you know, we just came up with the movie, came out this past August, the first time we did a feature length film, animated film. And so that was a milestone for Paw Patrol. We're going to do another film in 2023. You know, we want Paw Patrol to be around for 100 years, you know, it's our Mickey Mouse.

• 1:08:44Guy Raz?

  What is it about a character that makes it enduring? I mean, why does Mickey Mouse endure and, but not, you know, I don't know, Garfield, who I watched when I was a kid, or the Smurfs even, I mean, yeah, but the Smurfs aren't as big as they, I don't think they're as big as they were when I was a kid.

• 1:09:01Speaker 01

  I think a lot of it has to do with keeping them relevant. You know, if you look at, let's say, like franchises like Spider-Man, they're always doing movies and they're taking risks with their movies. You look at Transformers, they did films and they were really innovative with their films.

• 1:09:15Guy Raz?

  They're so different from the cartoon that I watched as a kid.

• 1:09:18Speaker 01

  Yeah, so they're relevant and they're timely and I think that, you know, stuff, other franchises, they just didn't keep things fresh and kids, they can sense it. So it's, I think that we're following that model.

• 1:09:34Guy Raz?

  What do you think the value of that franchise is today if you could put a price on it?

• 1:09:38Speaker 01

  Priceless. It's a multi-billion dollar franchise.

• 1:09:43Guy Raz?

  Wow. You decided to go public in 2015, so 20 years after you launch. Imagine for a variety of reasons. One is to raise money, but two, you know, to reap some of the rewards of what you had built. Is that the decision behind why you went public?

• 1:10:00Speaker 01

  No, it really wasn't. The real decision why we went public was to actually set the company up for success in the future. We felt that for the company to outlive the founders, it's best for the company to be in a public construct rather than a private company. It was like, we knew we were getting a little bit older. Who knows what happens in the future? And as an entity, it's not reliant on re-shareholders at the end of the day.

• 1:10:29Guy Raz?

  You had this challenge with Bakugan where it was accounting for 44% of your revenue. And then when the sales went down, you took a hit. And presumably, you learned a lesson from that. But I have to assume that Paw Patrol is still the biggest driver of revenue for the company. Is that fair to say?

• 1:10:46Speaker 01

  You know what's significant? That being said, after what happened in the downturn years, we became very conscious on diversifying our revenue. And so we went out, we bought a company called Swimways, which specializes in the pool.

• 1:11:00Guy Raz?

  Swimtoys, or floaties.

• 1:11:02Speaker 01

  They're all floaties and it's counter-seasonal. It's great in spring and summer.

• 1:11:06Guy Raz?

  You've got Etch A Sketch.

• 1:11:08Speaker 01

  Etch A Sketch. We have a whole activity part of our business, which is Etch A Sketch. We also diversified into the games business. So that's very stable, reoccurring revenue. We bought a company called Cardinal in 2015. So we're the largest manufacturer of puzzles and chess sets and poker chips and all that type of stuff.

• 1:11:27Guy Raz?

  It is, and I don't mean as a pun, head spinning. Spin Masters head spinning to me. The industry is head spinning to me. I have vertigo just thinking about all of the things that you're part of. 20,000 products, a media arm, games, digital products. It seems like in this industry, you just can't, you have to continue to move. You cannot stop or else you die.

• 1:11:50Speaker 01

  I think that's entertainment. That's the essence of the entertainment business. I mean, the way you describe it, it sounds like exhausting.

• 1:11:58Guy Raz?

  Yeah, it does.

• 1:11:59Speaker 01

  But I think at the same time, you know, the flip side is that it's exciting. It's exciting to work on new and fresh and to design stuff and to create stuff. And I think the creation process is where the magic is. You know, sometimes I wish we were just like a one product company or one, you know, one idea. But I think it would actually be boring if we just, it was just one product and that was it.

• 1:12:21Guy Raz?

  Now that you decided to step down, I can't believe you.

• 1:12:25Speaker 01

  I like to, I like to use, I like to use the word step up, actually.

• 1:12:29Guy Raz?

  Step up, okay, yeah. I can't believe you were in the leadership position of the company for 25 years, a long time. You're still young. I mean, I think you're maybe close to 50 or just 50. That's great. You can still have a lot of time to enjoy your life. But I mean, man, I imagine that that was your thinking. You're like, I'm done. I did it. I can play a different role in the company.

• 1:12:53Speaker 01

  No, that actually wasn't, that wasn't 100% the thinking. It was the co-CEO model that Anton and I had and Ben. It traditionally is not a good model. So it's incredible that it lasted this long. And one of our biggest goals is for this business to live beyond the founders. And so this was part of the transition plan to enable that to happen. So we're very much connected to the business and engaged and want to guide and shepherd it into the future. We'll just guide and shepherd it differently.

• 1:13:28Guy Raz?

  Ronan, when you think about this trajectory, you know, you started this business with a pantyhose stuffed with sawdust and grass seed and turned it into a $4 billion company.

• 1:13:41Guy Raz?

  How much of that do you attribute to how hard the three of you worked and your intelligence and how much do you think has to do with getting lucky with toys and products and ideas?

• 1:13:50Speaker 01

  I think we're lucky that we found each other. I think we're lucky the people that decided to join our company, the people that we've been able to attract and partner with and people that wanted to take the journey with us, whether it was Bakugan or Paw Patrol and these partnerships. I think that's where the luck came in. And then, you know, we put in the time. You know, I have a saying, you know, you don't go, you don't get. And we went out a lot. You know, Anton, like, you know, he opened up all the offices in Europe. He, you know, he did all the sales with all the retailers, managed all those relationships. Ben was constantly going out, meeting with the inventors, going to their offices, doing inventor trips. We did all that stuff. And the last thing I'd say is that we never blamed anybody for failure because it's too complex in our business.

• 1:14:34Speaker 01

  There's too many stakeholders when you're doing creative things that you can blame one single person. So for sure, listen, the universe works in strange ways and a lot of it is out of our control, but we need to show up too at the same time. So it's a combination of both.

• 1:14:49Guy Raz?

  That's Ronnen Harari, co-founder of SpinMaster. By the way, Bakugan was discontinued in 2013, but after a major rebranding, it was brought back in 2019 with upgraded characters, a card game, and a new anime series. Oh, and one other thing, next time you watch Paw Patrol, pay close attention to one pup in particular, Rocky. He's a mixed breed mutt with white paws and white tufts of hair. Rocky is resourceful and handy and despises water, especially baths. And he happens to be modeled on Ronnen Harari.

• 1:15:34Guy Raz?

  Hey, thanks so much for listening to the show this week. Please do follow us on your podcast app so you always have the latest episode downloaded. If you want to contact us, our email address is [email protected]. And if you want to follow us on Twitter, our account is at How I Built This, and mine is at Guy Raz. Our Instagram is at How I Built This NPR, and mine is at Guy dot Raz. This episode was produced by Casey Herman with music composed by Ramtin Arablouei. It was edited by Neve Grant with research help from Claire Murashima. Our production staff also includes Farah Safari, Liz Metzger, J.C. Howard, Julia Carney, Carrie Thompson, Elaine Coats, and Harrison V.J. Choi. Our intern is Catherine Seifer. Jeff Rogers is our executive producer.

• 1:16:19Guy Raz?

  I'm Guy Raz, and you've been listening to How I Built This. This is NPR.