MGA Entertainment: Isaac Larian

Isaac Larian moved from Iran to Los Angeles at age 17 with just a few hundred dollars, and went on to build one of the biggest toy companies in the world. Along the way, he took on Barbie with a wildly successful line of punky dolls called Bratz — a success that touched off an epic legal battle with Mattel. Today, at age 70, Isaac is still the CEO of MGA Entertainment, and says he still has the fighter’s instinct that he learned in the slums of Tehran. This episode was produced by Alex Cheng with music composed by Ramtin Arablouei. It was edited by Neva Grant with research assistance and fact-checking from Carla Esteves and Zazil Davis-Vazquez. Our engineers were Gilly Moon and Robert Rodriguez. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. 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?

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• 1:32Guy Raz?

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• 2:16Guy Raz?

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• 3:45Guy Raz?

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• 4:27Guy Raz?

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• 5:12Guy Raz?

  And before we start the show, I want to tell you about a super exciting thing we are launching on How I Built This. So if you own your own business or trying to get one off the ground, we might put you on the show. Yes, on the show! And when you come on, you won't just be joining me, but you'll be speaking with some of our favorite former guests, who also happen to be some of the greatest entrepreneurs on Earth. And together, we'll answer your most pressing questions about launching and growing your business. Imagine getting realtime branding advice from Sun Bums Tom Rinks, or marketing tips from Von Weaver of Uncle Nearest Whiskey. If you'd like to be considered, send us a one-minute message

• 5:56Guy Raz?

  that tells us about your business and the issues or questions that you'd like help with. And make sure to tell us how to reach you. Each week, we'll pick a few callers to join us on this show. You can send us a voice memo at [email protected], or you can call 1-800-433-1298 and leave a message there. That's 1-800-433-1298. And that's it. Hope to hear from you soon. And we are so excited to have you come on the show. And now, on to the show.

• 6:40Speaker 01

  I went to a guy named Ron Stover, who was a buyer at Walmart. Very tough to sell products to. I came with the next doll. He said, no. One day, he took me to Walmart and showed me this 98 feet of Barbie products. He says, Isaac, you see these? They own 90% market share. They sell, and I make my bonuses every year. I said, Ron, what if I came up with something better than Barbie, and you didn't buy it? You're going to feel left out. So I came back and told my design team, give me something that competes with Barbie.

• 7:28Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 7:39Guy Raz?

  I'm Guy Raz, and on the show today, how Isaac Larian took on Barbie with a new line of dolls called Bratz and built MGA Entertainment into one of the biggest toy companies in the world.

• 7:58Guy Raz?

  There's a reason why most of us love rags-to-riches stories. They speak to the idea of possibility, that even in the most miserable of circumstances, there might be a way out. It's why people like Oprah, or Jay-Z, or J.K. Rowling inspire us, because they all remember what it was like to worry about how they were going to make the rent. We've told a few of these kinds of stories. You might remember our episode with Howard Schultz, who grew up in a housing project in Brooklyn, or media mogul Haime Saban, who sold pencils on the streets to help out his family. Well, today, we bring you a story that begins in the slums of Tehran, the capital of Iran, in the 1950s.

• 8:42Guy Raz?

  This is where Isaac Larian was born and grew up. And at age 17, with just a few hundred dollars in his pocket, he arrived to Los Angeles with almost no English and only one contact. Isaac would go on to build the largest privately-owned toy company in the United States. It's called MGA Entertainment, and the company is probably best known for two products: LOL Surprise, which is one of the hottest toys in the world, and Bratz, the punky, streetwise dolls that, at one point, knocked Barbie off her market-dominating pedestal. MGA turned Isaac Larian into a billionaire, which, on the face of it, isn't that interesting

• 9:25Guy Raz?

  to me or to this show, but to go from zero to a billion? Well, that's a really hard thing to do. And so this story is, of course, about how he did it, and how a nearly-decade-long legal battle with Mattel almost killed him. But most importantly, Isaac Larian's journey is also about why ego is truly your biggest enemy when building a business, and why the word "no" is actually the beginning of a conversation rather than the end. Today, at age 70, Isaac still runs MGA Entertainment, but as a kid, he was an outsider, growing up as a minority, in his case, Jewish, in Iran in the 1950s.

• 10:09Speaker 01

  We lived in, actually in really the slums. No running water, no light. And we lived there with my aunt and my two, three other cousins all in a two-bedroom house.

• 10:25Guy Raz?

  And you had a very big family in Iran?

• 10:28Speaker 01

  Huge, yes. Everybody was working so hard. I was working since I was nine years old. And my mom started buying clothes out textile and making, she was a good.

• 10:43Guy Raz?

  Seamstress?

• 10:44Speaker 01

  Right, and made dresses for the neighbors. And she, my mother, supported us and the whole family. You know, my mom had me when she was 15 years old.

• 10:54Guy Raz?

  Wow. I, I read that when you were a little boy, you actually witnessed your dad, um, your dad actually getting beaten.

• 11:03Speaker 01

  Yeah. My father was a textile merchant and he was a good entrepreneur, but he loaned money left and right to these so-called friends and family. They didn't give him back the money and he went bankrupt. So one of the creditors, one day walked into our house with another big guy, I remember. I opened the door, they burst in and the guy demanded money. And of course, my father didn't have money to give him. So they started beating him with this big stick until he was bloodied and on the floor.

• 11:45Speaker 01

  I was crying, my mother was crying, my little sister was crying. And then they left. They said, pay me or we come back. And they left.

• 11:54Guy Raz?

  It was like, it was like a mafia shakedown.

• 11:56Speaker 01

  It was. And that was a defining moment in my life. I told myself, one day I'm gonna have so much money that nobody in my family is gonna suffer from poverty.

• 12:09Guy Raz?

  You were eight years old?

• 12:10Speaker 01

  Yes. I mean, certain things as a kid, when you put in your head, it doesn't go away.

• 12:16Guy Raz?

  Yeah.

• 12:16Speaker 01

  When we lived in the slums, there were a lot of uneducated people that basically they were kind of fundamentalist. And I remember being beaten up by the.

• 12:30Speaker 01

  Bullies in the neighborhood because I was Jewish. I was getting beaten up so bad. One day that when I came home, I think I was about seven years old from school, that I was all bloody and no, uh, and my mother told me that if you ever come home again bloody, then I'm gonna also hit you. Go fight back. By nine, 10, 11, I had made two dumplings from two bricks and a piece of wood. And I remembered that and I was exercising to get stronger. And you know, one day, uh, when the neighbors gathered around me with the biggest bully

• 13:14Speaker 01

  in the neighborhood, his name was Mortaza, he started beating me. And I started hitting him back so hard until he was on the ground. And since then, he became my friend. So they didn't bully me after that.

• 13:31Guy Raz?

  Huh. So I guess in 1971, when you were a teenager, like, well, like 17 years old, you decided you wanted to come to the United States and you ended up in Los Angeles. Cause I guess you had like a friend who had moved there and I think you were studying or planning to go to college and study engineering.

• 13:49Speaker 01

  Right.

• 13:50Guy Raz?

  But this, I mean, this was obviously a big step for you, right? I mean, you were pretty young at the time.

• 13:56Speaker 01

  Yeah. So to be honest with you, Guy, I was scared shitless when I got here. When I came here, my mom borrowed $753 from her brothers and also gave me a yellow blanket, which I still have. And actually it's hung at MGA's headquarters. And frankly, also coming out of Iran, this was my first time on a plane, actually. It was first time for me to get out of Tehran ever. So, I mean, I cried all the way from Tehran to America on the plane. And the students were very sorry for me and they kept giving me food.

• 14:35Guy Raz?

  Wow. By the way, did you speak much English?

• 14:38Speaker 01

  No, no, no.

• 14:40Guy Raz?

  How are you going to get through university?

• 14:43Speaker 01

  Yeah, when you're 17.

• 14:46Speaker 01

  And you have grown up with hardship through the slums. You have a feeling of invincibility and you have a feeling that, okay, I learned it. It's not difficult. Yeah, I was trying to teach myself English. I bought an English Persian dictionary and that's what I was reading every day. And getting L A Times, trying to read that and learn from it, trying to watch T V and learn from that. But I had no idea.

• 15:15Guy Raz?

  But you have to get a job. So what did you do?

• 15:18Speaker 01

  Yeah, so within a month, I was down to twenty five quarters in my pocket. And I had no idea what the hell am I gonna do? So I started walking, literally, on La Brea Boulevard. I walked for eleven miles one day, going to every gas station, seven eleven, you name it, asking for a job. And everybody said no to me until I got to a place called Spire's Coffee Shop. And I asked them for a job and they said, sorry, they have nothing open. And so there behind the counter was this guy with a white hat. He was a cook.

• 16:02Speaker 01

  You could see it when you were sitting in the coffee shop. And I left, I started walking back, really crying. And he he came and put his hand on my shoulder and he says, he told me in Farsi, Iranian, yes, see, are you Persian? And I said, yes. He says, are you hungry? I said, yes. He said, come back. He made me liver and onion, which I still taste and I still go once in a while there to have it. It tasted great.

• 16:37Guy Raz?

  Well, it just happened that he was Persian. He saw you there like.

• 16:41Speaker 01

  Yeah, so my wife says, you must have had angels on your shoulder along the way all your life. So. So he told me the only job that they have is graveyard shift, washing dishes. And it's from 11 to 7 in the morning and pays $1.65 an hour. And I multiplied $1.65 times the Persian real. I said, oh, my God, that's a lot of money. Yes, I took the job. I said, yes, I took the job right away.

• 17:15Guy Raz?

  All right. So you get you get this job at this restaurant called Spire's. And over time, I guess, I guess you worked at a bunch of different restaurants while going to college. You went to college and eventually graduated. You got a civil engineering degree from Cal State LA.

• 17:29Speaker 01

  Right.

• 17:30Guy Raz?

  And I guess your plan was to what to like, go back to Iran and go work there?

• 17:35Speaker 01

  Yes, it was. So when I graduated, I went back to Iran to see what's going on. But when I went to Iran, it was fascinating for me. All of a sudden, the streets looked a lot smaller than I remember them. And the revolution was happening. And I said, you know what? This is not for me. I'm going to go back.

• 18:01Guy Raz?

  So the revolution was underway, the Islamic revolution, which would obviously transform Iran.

• 18:08Guy Raz?

  You knew that this was not going to be the place for you to start a life.

• 18:12Speaker 01

  Right, no, I just said to myself, this is not for me. I'm not going to do this. I'm going to go back to America.

• 18:18Guy Raz?

  Did you try to encourage your mom and dad and the rest of your family to come too?

• 18:22Speaker 01

  Yeah, I did. And my dad was very stubborn. He says, no, this is where we belong and we're not coming. I brought my brother, younger brother, to America.

• 18:34Guy Raz?

  This is Farhad.

• 18:34Speaker 01

  Yeah, Farhad. And eventually, things got so bad that I was pushing for my parents to come. And they basically were smuggled across Afghanistan, across Pakistan, literally on horses and back of pickup trucks. And they applied for a refugee visa. And they finally got that and came to America.

• 19:02Guy Raz?

  Wow. And I guess in the meantime, you had already come back to Los Angeles. And this time you came back with your brother Farhad and And I guess you started a mail order business in LA called Surprise Gift Wagon. What did you sell?

• 19:17Speaker 01

  Brass giftware. These are like little figurines, unicorns, et cetera.

• 19:23Guy Raz?

  Right. And then eventually you moved into selling consumer electronics. What was the name of that company?

• 19:30Speaker 01

  We called the company ABC International. And the reason I chose ABC, because at that time there were Yellow Pages. And I wanted my, the company name to be-

• 19:41Guy Raz?

  Right at the top.

• 19:42Speaker 01

  Right, exactly. Exactly. But basically Sony Walkmans had come to America.

• 19:50Guy Raz?

  Yeah.

• 19:51Speaker 01

  And they were in big, big demand. And I had learned about importing with Surprise Gift Wagon. So I started looking for in Japan, in Singapore, in Hong Kong. Literally, I would get the Yellow Pages from those cities and go look for electronic retailers. And then I would buy from them because they were selling them cheaper in Japan than they were selling it in USA.

• 20:21Guy Raz?

  Yeah.

• 20:21Speaker 01

  And I would import those 10, 12 pieces at a time and selling them.

• 20:26Guy Raz?

  Wow. So and would you go to Tokyo and to Hong Kong?

• 20:30Speaker 01

  Yes, I finally, yes, did go first time to Tokyo. And I thought, wow, I'm in heaven, all those electronic stores. And literally, I had at that time saved about, I think, $18,000. And I would go to store to store and do you have Sony Walkman 3? Yes, how many do you have? Four, I buy all four of them.

• 20:53Guy Raz?

  Wow.

• 20:53Speaker 01

  Then I would take it to the hotel and come back again. And one day one store told me, you don't have to do that. You can just put it in a taxi, they'll take it to the hotel. And it will be there when you get there. I couldn't believe that was gonna happen. You do that in New York or LA, you probably won't see it.

• 21:12Guy Raz?

  They'd keep it. And did you just pack your suitcase with all this stuff and then come home?

• 21:17Speaker 01

  Yes.

• 21:18Guy Raz?

  And then you would take out ads and magazines for Sony Walkman? And then you would just, and it was like arbitrage. You could just buy them cheaper and sell them for double the price.

• 21:25Speaker 01

  Exactly.

• 21:26Guy Raz?

  Wow. You started this business with your brother Farhad, who I think goes by Fred now. And tell me about how that business went. I mean, you were basically, you just take out made a order and sell Walkman.

• 21:40Speaker 01

  Yes, but again, I wanted to go bigger. So there was a company called Olympic Sales, selling Sony Walkmans, Apple computers, et cetera. So one day I put 18 of my Sony Walkman trees in the trunk and went to the store, went upstairs and asked for the owner. This short French Moroccan guy walks out. He says, I'm Francis Ravel. I said, I have Sony Walkmans. And he says, are they stolen? I said, no. So how many do you have? I said 18. So I went to my car and brought them up in the lobby and showed it to him.

• 22:25Speaker 01

  He examined all of them. He still didn't believe that they were original. He says, okay, I'll buy them, but I give you a postdated cheque. It's only valid two weeks from now. Because he wanted to know by then he will find out.

• 22:39Guy Raz?

  If they're gonna fall apart, yeah.

• 22:41Speaker 01

  Yeah, exactly. And boom, the postdated cheque cashed. And I had made $40 a unit.

• 22:49Guy Raz?

  Wow.

• 22:49Speaker 01

  In profit. I said, oh my God, this is big.

• 22:53Guy Raz?

  How big was that cheque that he wrote you?

• 22:55Speaker 01

  I think that cheque was literally 18 times $130 each. So it was a big cheque.

• 23:04Guy Raz?

  So you went beyond Walkman, I'm assuming?

• 23:06Speaker 01

  Oh, yeah, yeah. I went to all kinds of consumer electronics. I was called the king of gray market. Because that's what was called parallel import. It's called gray market.

• 23:18Guy Raz?

  How did you get a better deal than, you know, Circuit City or some of these bigger companies?

• 23:24Speaker 01

  They were buying from the manufacturer representative in USA. First of all, there was a shortage, like they would buy it from Sony of America. There was a shortage. Secondly, Japanese companies sold the product in the USA at a much higher price than they did in Japan, Singapore, or Hong Kong. So I had two things to my advantage. I had the supply and I had a better price and they started buying from me.

• 23:54Guy Raz?

  And I'm just curious, when you buy them directly from Japan, do they have like Japanese characters on them or was it in English? It wasn't in English, right? I remember seeing those Walkman. I probably bought one of your Walkman because people are like, wait, I can't read this. What does this say on the thing, right? Because it was in Japanese.

• 24:11Speaker 01

  Yeah, it was in Japanese and I went and there were people who were complaining.

• 24:15Guy Raz?

  You were the guy who got me my Japanese Walkman.

• 24:18Speaker 01

  But you bought it cheaper.

• 24:20Guy Raz?

  I did. I got a good deal. But people would complain. They would say, I can't read this.

• 24:23Speaker 01

  Yeah, so I started translating the instruction to English, making photocopies and putting it in the units.

• 24:32Guy Raz?

  I mean, how big did you guys get? I mean, how big did ABC Electronics get? What were you doing a year in revenue?

• 24:37Speaker 01

  We were doing $70 million in a year.

• 24:40Guy Raz?

  Wait, 70 million at your height? But that was, I mean, that must have come a few years later.

• 24:46Speaker 01

  Yes, of course. Yeah, it came a few years later, but this was huge.

• 24:51Guy Raz?

  Wow. That's unbelievable. And this is, you, $70 million. So you were, at this point, I'm assuming you were selling to not just consumer electronics stores in LA, but all over the US.

• 25:04Speaker 01

  Yes, I was. I was selling it all over the US. I sold it to Crazy Eddie in New York. I sold it to everybody.

• 25:12Guy Raz?

  How does a guy from Iran named Isaac Larian with no connections, how is he able to find the best deals? I mean, I know this is going to sound, you know, a little bit of a cliche and forgive me, but you did come, you did grow up as a boy, going to the bazaars, negotiating for textiles, right? I mean, so I'm assuming you probably had that skill.

• 25:34Speaker 01

  Absolutely.

• 25:35Guy Raz?

  Right, that you could find a deal.

• 25:37Speaker 01

  Yeah, and the funny thing is my son Jason, when he was growing up, he was, I think, 22, 23, and we went to Bloomingdale's to buy suits. And I picked two and he picked one. And I told him, go ask the guy for a discount. He got red in the face and he says, "Dad, this is not the bazaars of Tehran. They won't give you a discount." I said, "Trust me, we are buying three, they will give us a discount." And he says, "No, you're embarrassing me." So I went to the salesman, I said, "We buy all these three, I want 15% discount." Yeah, he says, "No way, we cannot do that, this is Bloomingdale's." I said, "Okay," then we went buy it. And my son was so pissed off.

• 26:21Speaker 01

  We walked over to the elevator and guess what? The supervisor came and says, "Sir, okay, come back. We cannot give you 15%, but I can give you a 5% discount. Everything is negotiable." You know, I knew the salesman at Bloomingdale's make 15% or 20% commission. So, "Okay, give me 5% of it. You still make 10%, it's more than zero."

• 26:48Guy Raz?

  Amazing. I need to go shop, I need to go clothes shopping with you next time.

• 26:51Speaker 01

  Yeah.

• 26:52Guy Raz?

  You need to be my personal shopper. Okay, so this business is getting really big. And, and I guess there was something that happened, and I remember this because I was a boy. That you basically got the license to distribute these Nintendo game watches. And I remember there were like these rectangular little games and they had a crystal LED screen and you could play like Pong or you know, basic games with two buttons.

• 27:19Speaker 01

  Donkey Kong, Mario Brothers.

• 27:21Guy Raz?

  I had a bunch of them. They were like little squares. They were, you know, about as thick as like 10 credit cards stacked.

• 27:26Speaker 01

  Exactly.

• 27:27Guy Raz?

  This blew up. This was a huge, huge thing for you, right?

• 27:31Speaker 01

  Yeah, it was a huge thing because I was reading Wall Street Journal and Nintendo had become the king of consumer electronics and they done $5 billion in sales. It was crazy.

• 27:43Guy Raz?

  This was in like, what, 1986, 87?

• 27:46Speaker 01

  Yes, exactly. About that time. So I went to, I found out where their headquarters is, was in Kyoto. And I literally took the bullet train, went to their headquarters and asked to talk to the export manager. And if you have dealt and you've been in Japan, you don't just walk into some place and say, I want to see the export manager. So the receptionist picked up the phone, said something in, in Japanese on the other side and said to me, sorry, not available. I said, what's his name? And then she did the same thing and says, sorry, cannot give you the name.

• 28:29Speaker 01

  So I said, okay, I'll wait until he's available. So I sat there and there's this big tall guy, walks, talks to her, looks at me and leaves. And comes back from lunch and comes to where I'm sitting and he says, I am Mr. Todorri. What can I do for you? I said, I want to buy a Nintendo game and watch for America as a distributor and I'll pay cash and letter of credit. And he says, sorry, not interested. And I said, can I have your business card? Reluctantly, he gave me his business card. And I came to America and I opened the letter of credit for a million dollars.

• 29:13Speaker 01

  Full wire to Nintendo Attention Mr. Todorri.

• 29:19Speaker 01

  And then I called him three days later. I said, did you get the letter of credit? And he said, yes, but I told you we're not interested. I said, I just want to show you that I'm serious about buying and distributing Nintendo Game and Watch. So he says, okay, we can ship you in three months, but it's going to be all in Japanese packaging. And I said, that's fine. I'll take it. And so I made the name of the subsidiary of ABC International, Micro Games of America. And that's how it started.

• 29:50Guy Raz?

  So you were gonna, basically, these games came in, you were gonna take them out of the box and repackage them in an English language box?

• 29:58Speaker 01

  Yeah, I did, yes.

• 29:59Guy Raz?

  Wow. And this guy said no to you three times?

• 30:02Speaker 01

  Yes, he did.

• 30:03Guy Raz?

  But that turned into a massive...

• 30:06Speaker 01

  Yes.

• 30:06Guy Raz?

  That went bonker, like tens of millions of dollars in sales.

• 30:10Speaker 01

  Yeah, the first year, you know, when you're in consumer electronics, you're happy to make eight, 10%.

• 30:16Guy Raz?

  Yeah.

• 30:17Speaker 01

  In toys, I was making 32% profit. And the first year, I saw $23 million of Nintendo Game and Watch.

• 30:27Guy Raz?

  Wow.

• 30:27Speaker 01

  I thought I've died and gone to heaven.

• 30:31Guy Raz?

  I mean, just the audacity to sit there and to have the guy look at you and say, I'm not interested. I mean, a lot of people would feel humiliated and walk away from that and say, okay. But it doesn't sound like you suffer from any feelings of humiliation, like you don't care.

• 30:49Speaker 01

  No, I don't care.

• 30:50Guy Raz?

  I mean, for a lot of people, that would hurt their ego.

• 30:53Speaker 01

  No, I didn't care. I tell my people, the selling starts when the buyer says no.

• 31:01Guy Raz?

  When we come back in just a moment, how Isaac decides to pivot once again from electronic games to dolls and sets a goal that seems impossible to meet: build a doll that's better than Barbie. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

• 31:25Guy Raz?

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• 32:07Guy 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.

• 32:52Guy 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.

• 33:37Guy Raz?

  If your revenues are at least in the seven figures, get NetSuite's free business guide, Aligning for the Agentic Era: How AI is Changing Everyday Work, at netsuite.com/built. The guide is free to you at netsuite.com/built. netsuite.com/built. Stripe is built for whatever comes next, because the pace of change has never been faster than it is right now. New business models, new currencies, and new expectations for speed, reliability, and scale. Stripe builds financial infrastructure that helps businesses start, grow, and operate globally. From payments and billing to fraud protection and cross-border payouts,

• 34:21Guy Raz?

  Stripe is built to support the new pace of commerce. They're trusted by the companies building at the frontier, from 86% of the Forbes AI 50 to global leaders like Salesforce and OpenAI. In fact, more than 1.6% of global GDP flows 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.

• 34:57Speaker 02

  Hello, Guy. This is James Caton from Ave Maria, Florida. And my favorite episode is your interview with Kendra Scott. That is my 12-year-old daughter's favorite brand. And your episode allows me to have a conversation with her around grit and perseverance, and what it takes to be successful in that it isn't as easy as it seems at the end. There's a story behind every famous person, every famous brand, and every famous woman.

• 35:23Guy Raz?

  If you want to share your favorite episode of How I Built This, record a short voice memo on your phone telling us your name, where you're from, what your favorite episode is, and why, a lot like the voice memo you just heard. And email it to us at [email protected]. And we'll share your favorites right here in the ad breaks in future episodes. And thanks so much. We love you, guys. You're the best. And now, back to the show.

• 35:58Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 1987, and Isaac's toy company, Micro Games of America, has just had its first big success, importing and distributing the Nintendo Game and Watch. All right, so this is a huge, huge fad. I mean, I had them as a kid. I'm sure people listening remember Game and Watch. But I guess about, like with many things in children's toys, that was a fad that kind of passed, right? About two years in, sales started to fall.

• 36:33Speaker 01

  Right.

• 36:33Guy Raz?

  Just because what? Because kids at a certain point moved on?

• 36:37Speaker 01

  Yeah, they were, they were looking for something new. That's what something I learned from that. Literally, two years on, I was sitting at $10 million of inventory.

• 36:47Guy Raz?

  And it wasn't moving?

• 36:48Speaker 01

  No, and the interest rates were 19% at the time.

• 36:52Guy Raz?

  Wow.

• 36:53Speaker 01

  And I had a line of credit with Mitsui Manufacturers Bank. I didn't have money to pay them. So I liquidated that merchandise for $0.25 to $1.

• 37:05Guy Raz?

  Oof. So you saw that there was something in toys, but you also got burned by toys. Because I think when Game and Watch, kind of that fad surpassed, it was also the rise Nintendo had another product that they released called the Game Boy, and you did not have the license for that. Well, how come you didn't get the license to that? Because that would have made you tons of money.

• 37:28Speaker 01

  Yeah, so that's a very interesting. Nintendo watched the success that I had with Game and Watch. And I still to date say that Nintendo was inspired by the success of my Game and Watch to come up with Game Boy. And of course, they didn't want to give me Game Boy. I asked for it.

• 37:49Guy Raz?

  They wanted to control the distribution of it.

• 37:51Speaker 01

  Yeah.

• 37:52Guy Raz?

  So you did not get the Game Boy license.

• 37:56Speaker 01

  No.

• 37:57Guy Raz?

  In the meantime, I guess the consumer electronics business was keeping you afloat, right?

• 38:01Speaker 01

  Yes, but I also decided to go to licensed handheld games.

• 38:07Guy Raz?

  Handheld games like Nintendo, but for different franchises like Star Wars and Batman and things like that?

• 38:14Speaker 01

  Exactly. So I got the license for Star Wars. My son Jason at the time was fascinated with Power Rangers. So I went to Heim Saban and got the license for.

• 38:26Guy Raz?

  How you negotiated with that guy, I don't, two master negotiators.

• 38:30Speaker 01

  Yeah.

• 38:31Guy Raz?

  Sitting across from each other at the table. I mean, I don't even know how that conversation begins.

• 38:37Speaker 01

  Yeah, it was fascinating. I gotta tell you, and Heim, I don't know if he remembers this or not. So Power Rangers was so strong and we were selling so much. And I called him one day. I said, can I come and see you? His office was in Burbank. I have a big royalty check for you. So he said, yeah, sure. I went there. He made me angel hair pasta. It was delicious. I gave him a check for $720,000. And guess what? Week after, he sent the auditors to come. And auditors because he thought, and I still talk to him and laugh about it.

• 39:19Speaker 01

  Because he thought I was cheating him. It could have been more.

• 39:25Guy Raz?

  But in the end, you were cleared.

• 39:27Speaker 01

  Oh, yeah.

• 39:28Guy Raz?

  The auditor came and said, no, they gave you what you.

• 39:29Speaker 01

  Yeah, exactly. And we became friends.

• 39:32Guy Raz?

  You never let them hear the end of it. If Heim, you're listening, Isaac is not gonna let you hear the end of that.

• 39:36Speaker 01

  Yeah, yeah.

• 39:39Guy Raz?

  But, you know, fair enough. Fair enough. Listen, you gotta be on your toes, right?

• 39:42Speaker 01

  Right.

• 39:43Guy Raz?

  All right. So you're doing some licensing and I think a lot of what you were doing was electronics.

• 39:48Speaker 01

  Right.

• 39:49Guy Raz?

  Games.

• 39:50Speaker 01

  Right.

• 39:50Guy Raz?

  But I think around 96, this guy named Joe Truscus, I think is his name. He came to you with a doll that he had created and he had pitched to Mattel, but they didn't want it. And it was basically a doll that bounced and when you bounced it, it would sing, something like that?

• 40:07Speaker 01

  Right. Bouncy, bouncy baby me, I still remember that song. And he says, I want you to make this doll, it's gonna be big. I said, come on, Joe, you have gone to Mattel, you've gone to Tyco, you have gone to Toybiz, you've gone to everybody. Everybody said, no, why would, why would you come to me? I don't know how to make dolls. And he says, they're stupid, they don't understand it, but you're an entrepreneur. You understand that this is a good toy. And so I said, okay, all right, let me try it. So I took the sample to Hong Kong, sat with two factories who make dolls from Mattel.

• 40:47Guy Raz?

  Yeah.

• 40:47Speaker 01

  And I said, if you make these for five dollars, I'll buy 200,000 pieces.

• 40:53Guy Raz?

  But did you, just going back for a moment, this guy was rejected by every major toy company. Include, and companies that did dolls, you did not do dolls, you did electronic games. How come you thought, all right, let me do this. I mean, you knew nothing about this business.

• 41:09Speaker 01

  I like the toy, you know, and I have the personality when somebody says to me, no, you cannot do it. I'll take that as a challenge. And I made the sample, I went and sold it to Toys R Us, sold it to Target, sold it to Kmart.

• 41:26Guy Raz?

  They all liked it. You pitched it to them and you showed it to them and, and they said, all right, we'll take it.

• 41:31Speaker 01

  Right, exactly. And at that time, you had to make TV commercials and put it on Nickelodeon and Fox Kids to sell the product. And you needed to have at least four major retailers in order to be able to afford to go on TV. But then, then I went to a guy named Ron Stover, who was the buyer at Walmart. And he says, I won't buy it. I said, come on, Ron, why? He told me, Isaac, you are Micro Games of America. Nobody will buy a doll from a company called Micro Games of America. I said, Ron, I'm gonna change the company name right now, I'm gonna call it MGA.

• 42:16Speaker 01

  And he says, you're too fast for me. Okay. All right. I'll buy it.

• 42:20Guy Raz?

  And that just took off.

• 42:21Speaker 01

  Huge.

• 42:22Guy Raz?

  Wow. And at the time, in order to get into those stores, it was like a chicken and egg thing. You had to have TV ads on Nickelodeon, which probably just the marketing of that thing was what? Millions, millions of dollars, right?

• 42:35Speaker 01

  Right. So they would demand that you have an actual TV commercial.

• 42:40Guy Raz?

  Ready.

• 42:40Speaker 01

  When you went to pitch, ready.

• 42:42Guy Raz?

  You had to have a commercial ready when you pitched it. So you had like a VHS tape.

• 42:45Speaker 01

  Right.

• 42:46Guy Raz?

  That you put in and you had like a big TV and AV system in a boardroom and like this is the commercial.

• 42:51Speaker 01

  Yeah, exactly.

• 42:52Guy Raz?

  Wow. So you had to, you had to spend all that money just for the pitch?

• 42:55Speaker 01

  I had to spend $125,000 to make that TV commercial.

• 43:01Guy Raz?

  Wow. But by then, I mean, by that point, you were doing well, but MGA was still a, I guess, a relatively, would you call it a small business or at that point, would you call it?

• 43:09Speaker 01

  Yeah, we were a small business. We were doing less than a hundred million dollars at that time.

• 43:13Guy Raz?

  Okay. So very nice business, but tell me about what you took away from that experience with that singing, bouncy baby doll. Was your mind kind of blown or was there a moment where you thought, uh oh, this could be like the Nintendo Game and Watch, you know, we might be stuck with $10 million worth of inventory that nobody wants in a year?

• 43:30Speaker 01

  Yeah. So I was actually, I learned from my mistake, from my failure with Nintendo Game and Watch. And this time I did not buy inventory like crazy. I would sell to retailers on what you call FOBs, free on board. So they had to open a letter of credit and buy it. So they owned the risk, not me. And from one doll, we became, next year, we had Bad Time Bouncy Baby. We had Giddy Up Baby and we became one of the biggest doll makers.

• 44:03Guy Raz?

  So essentially what you're saying is unlike the Nintendo Game and Watch, which required you to buy the inventory, hold it and then sell it. You sold the dolls already before they were manufactured.

• 44:15Speaker 01

  Yes, most of it.

• 44:16Guy Raz?

  Wow. Okay. So you've got the doll, but you're also doing a lot of licensing, as you mentioned, right? Cause you've got the Power Rangers and I know you did licensing with Pac-Man and Space Invaders. And so I wonder, so when did you start to say to yourself, maybe I need to focus more on, on building IP? On our own property?

• 44:38Speaker 01

  Frankly, one of the things that was a turnaround for me was.

• 44:44Speaker 01

  When I got the license for Star Wars, nobody wanted Star Wars.

• 44:49Guy Raz?

  And the license for Star Wars was to make a handheld game?

• 44:52Speaker 01

  Right, handheld games and walkie talkies.

• 44:54Guy Raz?

  Crazy. This is in the late 90s. Nobody wanted the Star Wars license. It's one of the most valuable properties on earth today. It's crazy.

• 45:04Speaker 01

  Yeah, so I got the license. I got it pretty cheap and I got it exclusively.

• 45:09Guy Raz?

  Because at the time, it was owned by George Lucas.

• 45:11Speaker 01

  Right, exactly. And then Lucas said he's gonna make a new movie. And all of a sudden, the demand for Star Wars went up. But then I still have the exclusive license and it's two years left of the contract. And when I went back to Lucas to negotiate the contract, they said no.

• 45:40Speaker 01

  And they had given it to Tiger Electronics. And that really pissed me off, to be honest with you, because I had worked all these years when nobody wanted Star Wars. And we ended up in litigation with Lucasfilm, which I won. But that really put a bad taste in my mouth and I said, the hell with it. I don't want to work for these entertainment companies. I want to make my own IP.

• 46:07Guy Raz?

  Yeah. Meanwhile, I want to talk a little bit about something that was happening in the background. This was your relationship with your younger brother, Farhad Fred, who was also your business partner, because from what I've read and understand, there was tension between the two of you. You wanted the company to grow faster. He didn't. He wanted it to grow more slowly.

• 46:28Speaker 01

  Right.

• 46:29Guy Raz?

  And, you know, Isaac, everybody's got family and family is sensitive. And so we talked about this gingerly, but I guess it got to a point where the tension was, it just, it wasn't working and you offered to buy him out around 2000. And you guys valued MGA, your company, at $20 million.

• 46:48Speaker 01

  Right.

• 46:49Guy Raz?

  Basically, he had about 45% of the company. You gave him about $9 million to buy him out. And that was it. He was out of the company.

• 46:56Speaker 01

  Right.

• 46:57Guy Raz?

  Just putting aside the financial transaction, from a family perspective, what did that do to your relationship with your brother?

• 47:06Speaker 01

  You know, we had...

• 47:09Speaker 01

  Frankly, I love my whole family. I love my brother. And it bothered me that the business became like business situation like this happened. And I had offered him, because we were fighting every day, I had offered him either he buys me or I buy him. And I did buy him. And, you know, and I asked him to keep some of his shares in the company. And he said, no, thank you. Good luck. I'm gonna go on my own. But unfortunately, he sued me.

• 47:46Guy Raz?

  Yeah. He sued you a few years later because because of the success of Bratz, which he felt he felt that you had known about it when you bought him out and that he would have made more money. And like anything, it's complicated. But of course, money always can always tear apart friends and family.

• 48:04Speaker 01

  Right, absolutely. So to me, that was really like a stab in my heart. It was in our culture, it's unthinkable.

• 48:17Guy Raz?

  To sue your own relative.

• 48:18Speaker 01

  Yeah, exactly.

• 48:21Guy Raz?

  You won the case. The court found in your favor. But I imagine it was very tense. Did it? What did it do for the extended family? I mean,

• 48:30Speaker 01

  Yeah, it created a lot of rift and issues within the whole extended family. I mean, Fred being the younger one, my mother started saying that, oh, no, they give him money. You have made money. Give him some money. Give him the money. And my dad, may he rest in peace, told me, I know you didn't do anything wrong. It is not your fault. He made a mistake. But please forgive him. And later on, we reconciled, but

• 49:07Speaker 01

  I told him, it's like when you have an expensive piece of porcelain and it falls and it breaks, you can get crazy glue and put it together, but still you can feel the crack.

• 49:23Guy Raz?

  Yeah, and you're not the first or the last brothers

• 49:27Speaker 01

  Right.

• 49:27Guy Raz?

  to have a rift and it's hard when you're somewhat estranged from family.

• 49:30Speaker 01

  Right.

• 49:31Guy Raz?

  All right, meantime, so you you buy him out and sometime around, I guess, late 2000, you're approached by this guy named Carter Bryant, who was a, I guess at the time he was a freelance designer. And he comes to you with with some sketches for a new kind of doll.

• 49:51Speaker 01

  Yeah, so what, but you're going to go back a little bit. This guy Ron Stover, who was the buyer I told you about Walmart.

• 49:59Guy Raz?

  Yep.

• 50:00Speaker 01

  Very tough to sell products to. I can't be the next doll. He said, no, one day he took me to Walmart, right across the street from Walmart headquarters and showed me this 98 feet of Barbie products, all in coffin boxes. He says, Isaac, you see these, they do everything for me. They own 90% market share. They come and set up the planogram, they sell, and I make my bonuses every year. Why would I take a risk and take a portion of that and give it to you? I said, Ron, what if I came up with something that was better than Barbie and you didn't buy it? You're going to feel left out.

• 50:44Speaker 01

  He said, if and when you do that, I will buy it. So I said, OK, remember this. I came back and told my design team, give me something that competes with Barbie. And everything they showed me was a Barbie knockoff.

• 51:01Guy Raz?

  Yeah.

• 51:02Speaker 01

  So one day, and I used to take my kids to work and my daughter Jasmine, I think at the time was 10 or 11, and this guy comes in, his name is Carter Bryant. And he says, I have the next doll concept. He showed me these drawings and they look like aliens.

• 51:24Guy Raz?

  They were these like plump lipped dolls.

• 51:26Speaker 01

  Yeah, probably big face.

• 51:27Guy Raz?

  Big heads, yeah.

• 51:28Speaker 01

  Yeah, exactly. So I said, I'm not sure if this is gonna work. And I asked my daughter and she says, Dad, they're pretty cool, actually. So I asked this guy, okay, where did you, how did you come up with this? And he says, he works at Mattel. I said, okay, but where did you make this? If this belongs to Mattel, I don't want it. And he said, no, I did this in Missouri where I was not working for anybody. I said, okay, you quit tomorrow. You come here and work on this. You're gonna give it a chance. He said, I don't wanna be an employee. I said, okay, what do you want? He said, I wanna get the royalty.

• 52:11Speaker 01

  I said, okay, fine, we give you 3% royalty on the dolls, but you must quit Mattel and come here right away.

• 52:18Guy Raz?

  All right, so wait, just to pause for a minute, because I think this has been ruled on in court. You're saying that Carter Bryan came up with this idea for Bratz on his own during a break, a period of time when he wasn't working for Mattel.

• 52:30Speaker 01

  Right.

• 52:30Guy Raz?

  But then later, when he approached you at MGA, he was back to working for Mattel again.

• 52:37Speaker 01

  Right.

• 52:37Guy Raz?

  And did he ever pitch Bratz to Mattel?

• 52:40Speaker 01

  No, because I said to him, why didn't you show it to Mattel? I said, Mattel will never do a doll that competes with Barbie. Barbie was on the pet stool. So the biggest mistake he made, guy, was he decided to be a nice guy and give Mattel two weeks' notice to finish some of the things that he was working on.

• 53:01Guy Raz?

  Because that two-week period essentially later on would be the basis for a case that Mattel would file.

• 53:07Speaker 01

  Bring against you.

• 53:08Guy Raz?

  Bring against you, okay. We'll get there, but he brings you this. So on the strength of your daughter saying, hey, these are cool, because you thought they looked weird.

• 53:16Speaker 01

  Right.

• 53:17Guy Raz?

  But on the strength of your daughter, you said, okay, let's see if we can maybe do something here.

• 53:21Speaker 01

  Right.

• 53:22Guy Raz?

  By the way, were they called, did he call them Bratz, Carter? Or did he have a name for them or no?

• 53:25Speaker 01

  Yeah, he called them Bratz.

• 53:27Guy Raz?

  Bratz, Bratz with a Z.

• 53:29Speaker 01

  Yeah.

• 53:30Guy Raz?

  And these dolls were gonna be the anti-Barbie in a sense because they were gonna have big heads and different sort of street fashion and they actually looked more ethnically different.

• 53:41Speaker 01

  Yes.

• 53:41Guy Raz?

  They didn't look like a northern European.

• 53:43Speaker 01

  Right.

• 53:44Guy Raz?

  White. I mean, there were other, there were non-white Barbies, but basically the archetypal Barbie was.

• 53:48Speaker 01

  Right, exactly. So we decided to make what we call Bratz Pack. And I insisted we make all four, four dolls, and sell all four together.

• 53:59Guy Raz?

  In one package?

• 54:01Speaker 01

  Yeah. No, the retailers had to buy a pack of four, but as an individual, as an individual, you could buy one. You could buy Sasha, you could buy Jade.

• 54:10Guy Raz?

  Ah, I got you.

• 54:11Speaker 01

  Jasmine.

• 54:12Guy Raz?

  And what were they? Jasmine was, she was basically your daughter, so she was more sort of Persian looking?

• 54:17Speaker 01

  Yeah, but you know, what I didn't want to do is bring a stereotype. So like Sasha was supposed to be kind of African-American, but not African-American. Or Jasmine was supposed to have olive skin because she has olive skin, but not Persian. I mean, I remember I went to Brazil and I asked a whole bunch of kids about Jasmine and they said, oh, she's Brazilian.

• 54:43Guy Raz?

  She's Brazilian, ah.

• 54:44Speaker 01

  Yeah. So basically, we did that on purpose to make sure that it appeals across the world.

• 54:51Guy Raz?

  Hmm. And how long did, so he brings this to you in 2000?

• 54:55Speaker 01

  Yes.

• 54:56Guy Raz?

  How long did it take to get a physical prototype of a doll that you could show to Walmart?

• 55:01Speaker 01

  Yeah. So I said, we need to have samples with packaging, ready for Hong Kong Toy Show, which was on January 2nd.

• 55:10Guy Raz?

  Yep.

• 55:10Speaker 01

  And they said, there is no way, you're crazy.

• 55:13Guy Raz?

  Yeah.

• 55:14Speaker 01

  It's not gonna work. I had a head of sales and marketing who worked for me, who used to work at Mattel before, and he told me, anybody who has taken on Barbie has gone out of business and gone bankrupt. Hasbro tried. Don't do that. You're gonna go out of business. I said, no, we're gonna do this. He quit because he says he doesn't want to have a failure on his resume.

• 55:41Guy Raz?

  Wow.

• 55:41Speaker 01

  So I take these four samples to Hong Kong.

• 55:44Guy Raz?

  And this is a trade show at Hong Kong?

• 55:46Speaker 01

  Right, yes.

• 55:47Guy Raz?

  Okay, and this is an important trade show?

• 55:48Speaker 01

  Very important trade show.

• 55:49Guy Raz?

  Okay.

• 55:50Speaker 01

  So we show these to Target, they like it. The buyer says, yeah, it's different, we'll buy it. We showed these to Toys R Us. They said, yes, we will buy it. Bandai in Spain, they liked it and they said, yeah, we will buy it. Comes around the store, again, he says he won't buy it.

• 56:11Guy Raz?

  The Walmart buyer, Walmart buyer, okay.

• 56:13Speaker 01

  I said, why? And he says, they don't look attractive. So I was so pissed off at the time. I went all the way up to the CEO of Walmart. So he told them, okay, Ron, buy it. So he says, okay, I will buy it, but I only want Chloe. Only blonde dolls sell. And I said, Ron, you know, my daughter was born in America, but she has darker skin. She doesn't want a blonde doll. She wants a doll that more looks like her. If you wanna buy this, you have to buy all four or I won't sell it to you. And he ended up buying it, but one pack, only one. Can you imagine?

• 56:58Speaker 01

  You had to look for it in the sea of Barbie to find it.

• 57:02Guy Raz?

  It was just one sort of like one part of the shelf, a tiny part of the shelf.

• 57:06Speaker 01

  Yeah, just one box at the bottom left corner, the worst area of the shelf. So that's what happened. And we launched the doll first, believe it or not, in Spain. They were first in the market. And the product sold out instantly, instantly.

• 57:27Guy Raz?

  Wow.

• 57:28Speaker 01

  Toys R Us USA, Deborah Trelle was the buyer. She gave us an order for $6 million on FOB.

• 57:36Guy Raz?

  Yeah.

• 57:37Speaker 01

  And we started advertising.

• 57:41Guy Raz?

  On Nickelodeon and the usual channels?

• 57:43Speaker 01

  And Fox Kids.

• 57:44Guy Raz?

  Yep.

• 57:45Speaker 01

  And the doll didn't sell well.

• 57:48Guy Raz?

  The doll didn't sell in the US?

• 57:50Speaker 01

  At that time, no, it didn't sell well.

• 57:52Guy Raz?

  But it was selling in Spain.

• 57:54Speaker 01

  Yeah, it was selling in Spain, but it wasn't selling well here. And the reason was we were not putting enough advertising behind it.

• 58:03Guy Raz?

  But you were advertising on Nickelodeon and Fox Kids.

• 58:07Speaker 01

  Yeah, but not enough GRP to, you know, instead of spending a $2, $3 million, we were spending a million.

• 58:16Speaker 01

  And we were not getting enough eyeballs on it.

• 58:18Guy Raz?

  Because so there wasn't awareness of the dolls. They might have been on the shelves at Target and at Toys R Us.

• 58:23Speaker 01

  Right, yes, exactly.

• 58:24Guy Raz?

  But kids were just passing them by. They didn't know what they were.

• 58:27Speaker 01

  Yeah, exactly.

• 58:27Guy Raz?

  Okay.

• 58:28Speaker 01

  So comes October of 2001. Toys R Us cancels five and a half or six million dollars' worth of Bratz orders.

• 58:40Guy Raz?

  Wow.

• 58:41Speaker 01

  I thought now for sure we're gonna go out of business. So I went without my wife's approval, got a second mortgage in our, on our house, and put another one and a half million dollar TV advertising on this doll.

• 58:59Guy Raz?

  Wow.

• 59:00Speaker 01

  And the sales went through the roof.

• 59:04Guy Raz?

  What was the ad that you did?

• 59:05Speaker 01

  I wanted to have a live action animation combined and with the great music, because that was gonna cut through the clutter on Nickelodeon, it would be different. And now we pumped that TV commercial and it was so catchy. The sales went through the roof.

• 59:26Guy Raz?

  Wow.

• 59:27Speaker 01

  And Toys R Us came back to us, I think two days before Thanksgiving, said, we want to buy that order that we, we want to buy it back, that order that we canceled. And I said, those goods I don't have anymore, but I have goods in L.A. and they cost 25% more. And they bought it. They bought it and I paid off the mortgage.

• 59:47Guy Raz?

  That is unbelievable. So basically, the dolls were not selling.

• 59:50Speaker 01

  Right.

• 59:50Guy Raz?

  Toys R Us had canceled their order.

• 59:52Speaker 01

  Right.

• 59:53Guy Raz?

  Many people would have just kind of said, okay, this is not gonna work and let's figure out how to reconstitute the business. But you had probably invested. How much had you invested in Bratz at that point?

• 1:00:03Speaker 01

  Oh, my God. I had put everything we had behind it.

• 1:00:07Guy Raz?

  Like, how much, do you think? 10, 20, 30 million?

• 1:00:10Speaker 01

  More than $15 million. More than $15 million. So if that didn't work, I would not be in business right now talking to you. I would have gone bankrupt.

• 1:00:20Guy Raz?

  You bet the farm on this thing.

• 1:00:22Speaker 01

  I bet the farm and my house on it.

• 1:00:25Guy Raz?

  When we come back in just a moment, how Bratz and Barbie and their parent companies wind up in court in a bitter dispute that lasts for years. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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• 1:02:29Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2003 and Bratz dolls are a huge hit. MGA Entertainment sells a billion dollars' worth. And that cuts deeply into Barbie's dominance of the doll market. So the maker of Barbie, Mattel, starts to investigate.

• 1:02:49Guy Raz?

  They started to find out about the origins of this product because they had a feeling that maybe it was stolen from them. The IP was stolen from them.

• 1:02:57Speaker 01

  Yeah. When you look at the history of Mattel, they have basically used litigation as a business tool to put competitors out of business.

• 1:03:10Guy Raz?

  And this is, by the way, this is a playbook that many big companies use to try and quash upstarts. But your trajectory was so fast, it must have overwhelmed Mattel. I mean, you got to a billion dollars within a year and a half. And then by the end of 2005, two, two and a half billion dollars of Bratz had been sold. You really, it was like, and what was the appeal of these dolls? Why do you think that those dolls just landed with girls?

• 1:03:38Speaker 01

  They struck a chord with the girls because they were, first of all, didn't look blonde. They had what I call passion for fashion. Their fashions were new.

• 1:03:50Guy Raz?

  Baggy jeans, baggy cargo pants, sort of the crop tops and things like that.

• 1:03:55Speaker 01

  Right.

• 1:03:56Guy Raz?

  I mean, I guess because Barbie was, you know, sort of the, let's just say the country club doll. And Bratz was like, maybe it was perceived to be more, more rock and roll, maybe.

• 1:04:06Speaker 01

  Right, exactly. So when they found out it's not a fad, they tried to knock it off.

• 1:04:12Guy Raz?

  They basically tried to make a Bratz knockoff.

• 1:04:15Speaker 01

  Yes. And they called it My Seen Barbie.

• 1:04:18Guy Raz?

  My Seen Barbie.

• 1:04:20Speaker 01

  Yes.

• 1:04:21Guy Raz?

  Yes.

• 1:04:21Speaker 01

  It didn't work. Then they came up with a line called Flavors. Flavors was like urban looking doll with graffiti, packaging, et cetera. And I did an interview with the Wall Street Journal, you can pull it up. And they told me, what do you think about Flavors? And I told Wall Street Journal, They look like gangster Barbie. The only thing that's missing is the cocaine vial. And she wrote that in the article.

• 1:04:51Guy Raz?

  Why did you say that? Why did you? Did you not have somebody sitting next to you saying, Isaac, shut up. Keep your mouth shut.

• 1:05:00Speaker 01

  No, I didn't have.

• 1:05:01Guy Raz?

  Okay, all right. So you say that, and I'm assuming that pisses Mattel off.

• 1:05:05Speaker 01

  Well, I did more than that. Besides the cocaine vial, Bob Eckert, who was the CEO of Mattel, came from Kraft Foods. And I also started making and selling toys and selling cheese are two different things. And apparently, Bob Eckert said, sue that son of a bitch.

• 1:05:25Guy Raz?

  I'm not surprised. You pissed them off.

• 1:05:28Speaker 01

  I did.

• 1:05:28Guy Raz?

  Why did you poke that bear?

• 1:05:30Speaker 01

  I shouldn't have.

• 1:05:32Guy Raz?

  So they sued you for what?

• 1:05:34Speaker 01

  They didn't sue me first. They sued Carter Bryant first.

• 1:05:38Guy Raz?

  They sued Carter Bryant, your designer, basically saying, hey, that's our intellectual property.

• 1:05:43Speaker 01

  Right, exactly. And then they leaked that lawsuit to Wall Street Journal. And I am walking into this restaurant, Katana, on Sunset, a Japanese restaurant. My cellphone rings. It's the Wall Street Journal. Hi, Isaac. I want to talk to you about this lawsuit that Mattel just filed. I said, what lawsuit? So this lawsuit they filed against Carter Bryant, saying that he worked at Mattel for two weeks while he was working for you on Bratz. And I called Carter Bryant right there. I said, I was just told about this with Wall Street Journal. Did you work at Mattel two weeks,

• 1:06:27Speaker 01

  while at the same time working on Bratz doll? He said, yes. I got so angry. I said, why the hell did you do that? Because now gave him a cause to bring this lawsuit. Anyways, that's how the lawsuit started. And we countersued Mattel for copyright infringement with my Cindal.

• 1:06:49Guy Raz?

  I see, okay.

• 1:06:50Speaker 01

  And we countersued them for theft of trade secret. Because I thought there's a mole in my company, to be honest with you. I thought Mattel had a mole in my company.

• 1:07:02Guy Raz?

  Okay, here's what I understand. By 2006, Bratz had about 40% of the worldwide toy market in dolls, number two doll in the US market.

• 1:07:12Speaker 01

  Right.

• 1:07:13Guy Raz?

  Now you begin what will be a protracted battle. There have been articles, books, there have been documentaries about this war between Mattel and MGA.

• 1:07:22Speaker 01

  They teach that case in universities.

• 1:07:24Guy Raz?

  Right, they teach it. I've read some of these case studies and I've walked away from this just thinking, oh my god, all the money that lawyers made from this. Because really, that's who made the money.

• 1:07:33Speaker 01

  Oh my god, Coen Emanuel, the law firm that represented Mattel, made $450 million.

• 1:07:38Guy Raz?

  It's unbelievable, right? Okay, so this, now you begin what would be a protracted legal battle, but I think around, at a certain point, a court basically said you had to stop selling the Bratz dolls.

• 1:07:50Speaker 01

  2008.

• 1:07:51Guy Raz?

  2008, okay. They said you cannot sell Bratz dolls while this litigation is happening. So what did that mean? I mean, this is a billion dollar...

• 1:07:59Speaker 01

  Yeah, so they, Mattel asked for an injunction, worldwide injunction. You've got to pull all the Bratz toys and products.

• 1:08:09Guy Raz?

  You had to stop selling Bratz?

• 1:08:11Speaker 01

  So the injunction came literally on the week before Thanksgiving.

• 1:08:16Guy Raz?

  Which is like the time you've got to start selling for Christmas.

• 1:08:20Speaker 01

  Right. So we went to an appellate lawyer and the appellate lawyer says, we've got to file for an emergency appeal. So we filed our appeal and literally the day before, I had to sign the paperwork. To do the recall was a hearing on the Ninth Circuit.

• 1:08:42Guy Raz?

  Can I just mention one thing?

• 1:08:43Speaker 01

  Yeah.

• 1:08:44Guy Raz?

  Part of the ruling by the previous court was also that you had to pay Mattel $100 million in damages.

• 1:08:48Speaker 01

  Yeah, that's exactly.

• 1:08:50Guy Raz?

  And that Mattel would have the rights to the doll.

• 1:08:52Speaker 01

  Yeah, they belong, everything Bratz belongs to them. I mean, it was totally a dracunian.

• 1:08:57Guy Raz?

  I mean, you guys got absolutely hammered in that.

• 1:08:59Speaker 01

  Exactly. Everybody thought we were going to go bankrupt. I thought we were going to go bankrupt. To be honest with you, I became, for the first time in my life, suicidal.

• 1:09:07Guy Raz?

  Wait, wait, stop.

• 1:09:10Guy Raz?

  That's a serious thing that you just said. I mean, you felt that you were finished?

• 1:09:16Speaker 01

  Yes.

• 1:09:16Guy Raz?

  And that you didn't know if you were gonna be able to survive.

• 1:09:20Speaker 01

  Yeah, exactly. I really felt like that.

• 1:09:23Guy Raz?

  But you're, but Isaac, you're, you're a fighter. You're the guy that sat Nintendo and heard no. And you felt like this really, you were gonna be defeated.

• 1:09:32Speaker 01

  Yeah, it was, I mean, every ruling was coming against us.

• 1:09:36Guy Raz?

  Did you, Isaac, because I've talked about this on the show before, and I, certainly times in my life, I've, I've been depressed and have had depression and, and I've learned to manage it over, over the course of my life. You don't strike me, and maybe this isn't fair to say, as somebody who dealt with that, but did you? Or were you, are you prone to getting depressed?

• 1:09:57Speaker 01

  I am, yes. I have been diagnosed with depression because the way I grew up. I mean, I didn't have a childhood. I worked since I was eight or nine years old. So, and I went through a lot of hardship. And yes, I do have depression. And I've tried to manage this with a lot of things. I meditate. I still go to therapy all the time. Not ashamed about that.

• 1:10:24Guy Raz?

  Was it hard for you as a Middle Eastern man, coming from a macho culture, to acknowledge that?

• 1:10:30Speaker 01

  No, for me it wasn't. I mean, people who know me, they say, oh my God, Isaac, at the drop of anything, he starts crying. So I'm not afraid of being in touch with my own internal emotions. But that time with that injunction, I mean, they took me to ER at Cedar Sinai. It kept me overnight.

• 1:10:51Guy Raz?

  Because you thought you were having a heart attack?

• 1:10:53Speaker 01

  Yes.

• 1:10:54Guy Raz?

  How did you, I mean, this is a long period of time and a long period of time under stress. It was like two years while you were fighting this.

• 1:11:01Speaker 01

  10 years.

• 1:11:02Guy Raz?

  Well, 10 years, but the most, the injunction over the court order and...

• 1:11:06Speaker 01

  Yeah, that was the hardest part.

• 1:11:07Guy Raz?

  How did you manage through that?

• 1:11:10Speaker 01

  Personally, for me, because I don't like to quit. I hate quitting. I did not want my children to see that, oh, my God, our father is defeated. And in the Persian closely knit environment, I don't want people to see that I'm a failure. And there were days that I was so down, but then I would get energized and I said, I'm not doing anything wrong. So I would go back and fight harder.

• 1:11:43Guy Raz?

  So let me take you back to the timeline for a moment, Isaac. Back to, I think, 2009, when you're finally going to have your appeal hearing on your lawsuit with Mattel. What happened there?

• 1:11:53Speaker 01

  So, you know, when we went to that appeal hearing, literally, it was the day after was supposed to be the recall. And during the break, I told Josh Rosenkrantz, who was our appellate lawyer, I said, Josh, go ask the judges for a stay.

• 1:12:15Guy Raz?

  A stay that would enable you to sell the dolls again?

• 1:12:17Speaker 01

  A stay injunction, yes. By 4:00 PM, I was in the car, driving from Pasadena to my office. And Josh called me and says, Isaac, you don't believe it. Court of Appeal just issued a stay injunction. And it was, oh, my God. And boy, I, again, as usual, I burst into crying. I screamed. I called my wife, got my whole company people together. And I told them this. We opened the bottle of champagne. And I said, now, let's bring Bratz back and kick Mattel's ass.

• 1:12:54Guy Raz?

  That was not the end of it because you would go back to court. It's too long and complicated to get into all the details. But eventually, you won. Mattel was originally ordered to pay over $300 million in damages. And then it was a long time of fighting against each other. Hundreds of millions of dollars in legal fees, hundreds of millions of dollars in damages and in judgments. But I have to assume that you walked away from all those lawsuits down, like in the red. You didn't make any money from them. You actually lost a lot of money, even though there were judgments in your favor. In the end, you actually lost a lot of money.

• 1:13:30Speaker 01

  Yes. I mean, guy, for six months, I sat in court. I would not come to my office. I hired a guy named John Barber to run my company while I'm in court. You know, one of the things I remember vividly, when the jury verdict came, and of course, all the press was there in the courthouse. And my son Cameron, who at the time was 19 years old, the LA Times reporter started asking him, how does it make you feel now that your father has won this long battle? He said to the reporter, yes, my father won this case,

• 1:14:12Speaker 01

  but Mattel took away our father from us for the past 10 years.

• 1:14:17Guy Raz?

  Wow.

• 1:14:18Speaker 01

  I still have pain about that lawsuit. I still do.

• 1:14:22Guy Raz?

  You can tell. I mean, you can hear it.

• 1:14:24Speaker 01

  Right, right. But, I mean, it goes back to my childhood. And coming home, bloodied, and my mother saying that if you ever come back, bloodied, I'm gonna hit you. Go back and fight. Don't be bullied. I don't like to be bullied. And I think in general, and I tell my kids, if you are right and you believe in something that you're right, you fight to the end.

• 1:14:53Guy Raz?

  Yeah.

• 1:14:53Speaker 01

  And I will not change that.

• 1:14:55Guy Raz?

  You know, it's interesting because Mattel had a, obviously, a resurgence last year with Barbie and the Barbie movie. And the Barbie film was so successful. And I imagine it's had an impact on their sales. And clearly, they also have not forgotten, because I'm sure you are aware of it. But there is a scene in the Barbie movie when Barbie goes to high school and the the high school girls are kind of like berating her with this brutal honesty. And they are named after the original Bratz dolls. The girl, the mean girls are Yasmin, Sasha, Chloe, and Jade.

• 1:15:27Speaker 01

  Right, exactly.

• 1:15:28Guy Raz?

  And so they're taking a dig at you.

• 1:15:29Speaker 01

  Yeah, they were, they were. It was funny. You know what? It's a good thing they did that because Bratz is on the resurgence and growing again. So on my LinkedIn, I thanked them. I thanked them for this.

• 1:15:43Guy Raz?

  All right, so you now, now Bratz is back. But, you know, again, like, you know, these things could be cyclical. And so I have to imagine, because I know that you, in the meantime, were trying to expand. We didn't, we didn't really get into this, but you actually bought another company.

• 1:15:58Speaker 01

  Yeah, Pixel Zoo in Australia. And I bought, actually, I bought Zap, which is a German company. I bought Little Tykes.

• 1:16:06Guy Raz?

  Little Tykes, which makes like-

• 1:16:08Speaker 01

  Cozy Coop.

• 1:16:09Guy Raz?

  Right, and toys for little kids. And but this was, Bratz was still kind of the center of MGA. And I wonder, you had to be thinking, like, we can't, this can't be the center of our business forever, because it might not be a forever toy.

• 1:16:25Speaker 01

  Right, so we came with many, many new toys.

• 1:16:28Guy Raz?

  Yeah, I want to talk about one of them, because this is now a huge seller for you called LOL Surprise. This, this came out in 2016. And basically, it's like a doll that, that you unbox and layers. And anybody who's got kids knows that many kids for a long time have been obsessed with these unboxing videos of other kids just opening things. Tell me about the genesis of LOL Surprise. How did that come about?

• 1:16:52Speaker 01

  So, you know, my kids were saying to me, Dad, do you know what unboxing is? People buy Apple iPhones, go in front of the camera, unbox it, and they get 18 million views.

• 1:17:10Guy Raz?

  And some of them have YouTube channels like Ryan's World that turn into multimillion dollar businesses.

• 1:17:17Speaker 01

  Exactly, huge. So the next day, I couldn't wait. I came to my office and I went to my head of design. I said, I want to have the ultimate unboxing toy. We had something called Baby Bratz.

• 1:17:32Guy Raz?

  Yep.

• 1:17:32Speaker 01

  They were so cute. And I said, I want these to be at the center of the ball once people unwrap it.

• 1:17:39Guy Raz?

  So it's a ball and you would unwrap it and in different layers, there'd be a little surprise, like stickers or something, but in the middle would be this doll.

• 1:17:47Speaker 01

  Right, and it became the biggest toy ever that we have launched, much bigger than Bratz.

• 1:17:54Guy Raz?

  It's amazing because there's so many elements of this story that were like even the name, LOL Surprise, I guess, came from a consultant that you had who said, look, if you do searches in YouTube, you'll see a lot of LOLs or surprise. And so let's just combine them and call them that because it'll, it'll show up in search.

• 1:18:13Speaker 01

  Exactly.

• 1:18:14Guy Raz?

  I mean, it's, well, the reason why I point this out is because to build something out of nothing oftentimes can be a failure.

• 1:18:21Speaker 01

  Right.

• 1:18:22Guy Raz?

  And you've had, I mean, there, there have been plenty of, I'm sure.

• 1:18:25Speaker 01

  Oh, my God.

• 1:18:26Guy Raz?

  Dolls that you've had that just didn't go anywhere.

• 1:18:28Speaker 01

  Yeah, like we had a doll line called Novi Stars that everybody in the retail thought is gonna be huge.

• 1:18:35Guy Raz?

  Novi Stars?

• 1:18:36Speaker 01

  Right.

• 1:18:37Guy Raz?

  Okay.

• 1:18:38Speaker 01

  And it was based on aliens. And I thought it's gonna be a biggest seller. It was the biggest failure we ever had.

• 1:18:46Guy Raz?

  But, but why didn't they work? They are kind of weird and creepy, but why didn't they work?

• 1:18:50Speaker 01

  Because I thought as an adult, they looked good. Retailers thought it looked good, but then after they failed, we went to research and the kids said they don't like aliens.

• 1:19:03Guy Raz?

  Huh.

• 1:19:03Speaker 01

  Period. They get scared of aliens.

• 1:19:06Guy Raz?

  So, so what, you just don't know if something is gonna work, right?

• 1:19:10Speaker 01

  Yes.

• 1:19:10Guy Raz?

  You just don't really know.

• 1:19:11Speaker 01

  For every success, there is at least in the toy business, 15 to 100 failures. I call toy business legalized gambling.

• 1:19:22Guy Raz?

  Hmm, because you have to constantly come up with new innovations because kids are fickle, right? They're into something for a short period of time.

• 1:19:29Speaker 01

  Yeah, exactly. The key is to be able to listen to them and translate what they're saying.

• 1:19:36Guy Raz?

  Yeah. I'm curious today, I mean, it's been reported that the company, you know, at various times does over. Five, six billion dollars in revenue.

• 1:19:45Speaker 01

  Yeah, in retail sales, yes.

• 1:19:47Guy Raz?

  You're not an upstart. I mean, you are as big, if not bigger than Mattel.

• 1:19:51Speaker 01

  We're not as big as Mattel, but we are the number one privately held toy company in North America. So we're big, but I always think like an upstart, and so does my team.

• 1:20:05Guy Raz?

  So even though you're still, you're a competitor to Mattel and Hasbro, and you still see yourself as an outsider, as like the guy fighting these giants.

• 1:20:14Speaker 01

  Absolutely.

• 1:20:15Guy Raz?

  How long until you, I mean, here you are now, you've become a billionaire.

• 1:20:21Speaker 01

  Right.

• 1:20:21Guy Raz?

  In toys. I mean, when do you feel like you don't have to fight anymore?

• 1:20:28Speaker 01

  That's a very, very good question. You know, I told you I go to therapy. And one of the things that my psychologist keep telling me is, Isaac, okay, I know your childhood and you had these issues, tough, hard upbringing. But you're still fighting. You gotta change and relax. And unfortunately, I think some ingrained habits is hard to break. And as you get older, it becomes harder. I have tried to get better. I work less. I'm much calmer with my people, with my family, et cetera.

• 1:21:10Speaker 01

  But for good or bad, I still have that fighting instinct in me.

• 1:21:16Guy Raz?

  You have obviously, you know, made a lot of money and done very well. You've got a pri, it's privately owned.

• 1:21:22Speaker 01

  Right.

• 1:21:23Guy Raz?

  You're 70. You've got a long life to live. But I wonder what you think about the future of MGA. I mean, at what point do you sort of stop going into the office every day and running the operation?

• 1:21:36Speaker 01

  I gotta tell you, I still enjoy what I'm doing. I love it. I mean, I just came up with five new toy ideas. I got COVID, so I was home for five days. I came with five new toy ideas while at home.

• 1:21:54Guy Raz?

  I mean, when you think about the journey you took, you know, from where you came from, coming to the US, no connections, very little English, to, you know, building now the largest privately owned toy company in North America, one of the largest in the world privately owned, and becoming hugely financially successful. How much of that do you attribute to the hard work you put in? And how much do you think has to do with the luck, the fortune that you've met?

• 1:22:26Speaker 01

  I don't believe in luck. And I never put my hand in front of anybody for a dollar. So it is the hunger you need to, the pride of winning and succeeding. And I have lived the American dream. I could not have done what I've done in any other country. This country has a lot of issues. But if you work hard and you believe in who you are and you're not afraid of failing, you can become successful. There's no other country like it.

• 1:23:03Guy Raz?

  That's Isaac Larian, founder and CEO of MGA Entertainment. By the way, Isaac's planning to keep the business in the family. He's training his son Jason and his daughter Jasmine to take over MGA once he retires. Jasmine's already built a successful brand of her own. It's a fashion label called Cult Gaia. And random bit of trivia, the co-founder of Sweetgreen, Jonathan Niemann, is Isaac's nephew. And if you scroll back in our podcast queue to 2020, you can hear the story of how they built Sweetgreen.

• 1:23:37Guy Raz?

  Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's free. This episode was produced by Alex Cheng with music composed by Ramtin Arablouei. It was edited by Neva Grant with research assistance and fact checking from Carla Esteves and Cecile Davis-Vazquez. Our engineers were Gilly Moon and Robert Rodriguez. Our production staff also includes J.C. Howard, Casey Herman, Sam Paulson, Kerry Thompson, John Isabella, Chris Messine, Catherine Seifer, and Malia Agudelo. I'm Guy Raz, and you've been listening to How I Built This.