Pod Insights How I Built This with Guy Raz Spin Master/PAW Patrol: Ronnen Harary (2021) About this episode 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.
This episode was produced by Casey Herman, with music by Ramtin Arablouei
Edited by Neva Grant, with research help from Claire Murashima.
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Transcript 13,412 words · 2 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Guy Raz? Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2 a.m. kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one hard question. How do we make sure AI goes well for people? So they asked over 100,000 people their hopes and their fears and are publishing what they find, even the uncomfortable parts. Me? I've got my own hard question about AI. Here it is. If everyone has access to something that can help them write the business plan,
0:46 Guy 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.
1:32 Guy Raz? Say you're 18 months in. Business is growing. You've got expenses coming from six directions. Gas for the van, office supplies, your phone bill, team lunches that are actually client meetings, and you're putting it all on whatever card you grabbed in year one. You're not thinking about it. Why would you? You've got bigger problems. But here's the thing. Path A, you keep going like that. End of the year, you're sorting through statements, trying to figure out what went where. You've left hundreds, maybe thousands, on the table in rewards you never earned, money that could have gone back into the business. Path B, you pause and get the US Bank Triple Cash Rewards Visa Business Card. Now, you're earning 3% cash back
2:16 Guy Raz? on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. If you travel often, you'll want to hear about this unprecedented offer. For the first time ever,
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4:29 Guy Raz? their customers will never see. Tiny details, invisible improvements, relentless iteration. And not because anyone's watching, but because it makes the product better. That's what the mobile brand does. It engineers fuel the same way great founders engineer their products. Mobile Supreme Plus Premium Gas helps keep engines three times cleaner, which can mean better performance and improved gas mileage. It's for people who care about what's under the hood, even if they never see it. Three times cleaner compared to mobile regular gas in port fuel-injected engines. Actual results may vary. Visit mobilefuels.com for details. Hey, everyone. I'm taking a much-needed summer vacation
5:14 Guy Raz? this week, so we're bringing you an episode from the How I Built This archive. It's an incredible story of how Ronan Harari built a toy company called Spin Master. And even if you're not familiar with the name Spin Master, if you've been around kids at all in the last decade, you have definitely heard about Spin Master's most successful toy franchise called Paw Patrol. And it's amazing how they created it. This episode first aired back at the end of 2021, and I hope you enjoy it as much as I enjoyed doing the interview.
5:49 Guy 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?
6:00 Speaker 01 I actually, personally, myself, I rise in a crisis. That being said, I mean, the relationship's definitely frayed.
6:07 Guy Raz? Either among the founders?
6:08 Speaker 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.
6:22 Guy Raz? Yeah, and you have some gray hair.
6:24 Speaker 01 I have a lot of gray hair.
6:30 Guy Raz? Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
6:43 Guy 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, Paw Patrol.
7:02 Guy 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.
7:45 Guy 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 Ronan 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.
8:28 Guy Raz? Since the beginning of recorded history, 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, Ronan 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.
9:10 Guy 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 SpinMaster 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.
9:54 Guy 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.
10:12 Speaker 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 got to go back and I got to correct what I wrote. And then when you go back and you correct what you wrote, you lose your stream of consciousness of what you're thinking, and then you got to stop. And then it's like rebooting. You have to reboot a bunch of times. So for me to like... Write an essay would take me twice as long.
10:38 Guy Raz? Right.
10:39 Speaker 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, my attention to visual detail is, 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, and that's what makes it difficult.
11:15 Guy 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 gather, that's a pretty good university, right? It's not, not super easy to get into. Am I right about that?
11:25 Speaker 01 I think it's, it's in the middle. It's in the middle.
11:27 Guy Raz? Okay.
11:28 Speaker 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 As. I can't remember any As in my, in my days. It was mostly Bs and some Cs.
11:38 Guy Raz? Yeah.
11:39 Speaker 01 But I actually knew from a very young age that I wanted to go into business.
11:43 Guy Raz? Why, why did you know that?
11:45 Speaker 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.
11:58 Guy Raz? And I guess while you were in college, you actually launched a business, right? It was, uh, 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.
12:11 Speaker 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.
12:22 Guy Raz? Well, you, you worked for like a fertilizer company?
12:24 Speaker 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 Frosh Week and then creating a collage of all the pictures.
12:36 Guy Raz? Frosh Week is the first week for freshmen presumably, right?
12:38 Speaker 01 Exactly, exactly.
12:39 Guy Raz? Okay.
12:40 Speaker 01 So we would take pictures of the kids during Frosh Week.
12:42 Guy Raz? Okay.
12:43 Speaker 01 And then we cut all pictures out, we'd create a collage, and then around the perimeter of the collage, we would sell advertising and then we printed up 9,000 posters and then gave it to the students for free.
12:53 Guy Raz? Wow, that was a business.
12:54 Speaker 01 That was a-
12:55 Guy Raz? That was a business.
12:55 Speaker 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 grossed about $100,000.
13:04 Guy Raz? And then what happened when you graduated? You just-
13:06 Speaker 01 Yeah, 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 product called the grass head. It was 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.
13:38 Guy 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 grow hair?
13:52 Speaker 01 No, you would- You would fully immerse it in water.
13:54 Guy Raz? Oh, you'd immerse it?
13:55 Speaker 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.
14:01 Guy Raz? Got it.
14:01 Speaker 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 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 and I was like, no one's manufacturing or selling them here in Canada. Why don't we, why don't we do it? And so I spoke to Anton, 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.
14:39 Guy 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 wanted 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?
15:04 Speaker 01 To my mom's credit, she's very entrepreneurial and she's, she's very much a doer.
15:09 Guy Raz? Yeah.
15:09 Speaker 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.
15:28 Guy Raz? And they kind of look like, like nature's troll dolls a little bit.
15:32 Speaker 01 Yeah, it's a pretty good guy.
15:33 Guy Raz? It's a fair, fair description, right?
15:35 Speaker 01 Great description.
15:36 Guy 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?
15:51 Speaker 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.
16:00 Guy 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?
16:17 Speaker 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.
16:39 Guy Raz? What was a contraption, like a feed tube?
16:41 Speaker 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 actually really clever. We found a small factory space, warehouse space.
16:57 Guy Raz? And did you finance this with the money that you had from your poster company?
17:03 Speaker 01 Pretty much. We started with $10,000.
17:05 Guy Raz? 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 going to sell these. So where were you going to sell them?
17:14 Speaker 01 Well, 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, we've 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 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.
17:56 Guy Raz? From where?
17:57 Speaker 01 From Walmart Canada.
17:59 Guy Raz? Amazing.
18:00 Speaker 01 Yeah.
18:00 Guy 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.
18:13 Speaker 01 Yep.
18:13 Guy Raz? And what did he know about like manufacturing? And, you know, was he an expert in like powder rock factory?
18:20 Speaker 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. There 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.
18:59 Guy Raz? Both of them were homeless. They were living in a homeless shelter.
19:02 Speaker 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.
19:21 Guy Raz? So you get this order, this order for 26,000 Earth Buddies from Walmart Canada, which is pretty great.
19:29 Guy Raz? And how did they do?
19:30 Speaker 01 They did great. They started selling like crazy.
19:33 Guy 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?
19:42 Speaker 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?
20:01 Guy Raz? He gets in touch with this guy?
20:02 Speaker 01 He kept in touch with them. Well, that's one of the things Anton does extremely well. He's, 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.
20:33 Guy Raz? Who are you? Why am I talking to you?
20:35 Speaker 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 gonna go anywhere." Because like, maybe she'll call me early or something like that.
21:11 Guy Raz? Or maybe they won't let you back in the building.
21:12 Speaker 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.
21:31 Guy Raz? Eight other products that were pretty similar?
21:33 Speaker 01 Exactly the same, under different names.
21:35 Guy Raz? Were they, these products from Israel?
21:37 Speaker 01 No, no, no, they were, they were other manufacturers.
21:40 Guy Raz? So you're thinking, "I'm never gonna make this. This is crazy."
21:43 Speaker 01 Nope. What went through my mind was, we were gonna charge her $2.65 US. And I dropped the price to 1.65 in my mind, right then and there.
21:53 Guy 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.
21:59 Speaker 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."
22:26 Guy Raz? Wow.
22:26 Speaker 01 Yeah.
22:27 Guy Raz? All right, so she does 48,000 orders
22:29 Speaker 01 Correct.
22:30 Guy Raz? For $1.65 a piece. That's almost $80,000 order, 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?
22:45 Speaker 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.
22:53 Guy Raz? How did you finance that? Do you remember?
22:56 Speaker 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.
23:06 Guy 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?
23:28 Speaker 01 No, it was only in 95 when we started selling a product called Devil Sticks.
23:33 Guy Raz? Okay.
23:33 Speaker 01 That product did really well. And so was after that, after the Devil Sticks.
23:37 Guy Raz? Okay, so Devil Sticks is your next product because, you know, as we know, the life cycle of novelty items is, can be short, right? And you probably saw that at that point. You probably knew that you needed to go to the next thing.
23:49 Speaker 01 Yep.
23:49 Guy Raz? Because EarthBuddy wasn't gonna, you couldn't build a sustainable company based on that product alone, I'm assuming.
23:55 Speaker 01 Yep, 100%. It was novelty, it was going to run its course and what else were we going to have?
24:00 Guy 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.
24:18 Speaker 01 That's right.
24:19 Guy Raz? Am I right?
24:19 Speaker 01 Yeah.
24:19 Guy Raz? That's the demo, right?
24:21 Speaker 01 Correct, Grateful Dead shows, exactly.
24:23 Guy 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?
24:31 Speaker 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.
25:08 Guy Raz? And Toy Fair was in New York?
25:10 Speaker 01 In New York, yes.
25:11 Guy Raz? And this is a convention where you'd go and you'd show your products. So let me understand, the Devil Sticks are these batons that you juggle. And there was no patent on them. Anybody can make them. You basically created a brand called Devil Sticks? You gave it that name?
25:26 Speaker 01 No, Devil Sticks is the generic term. And so we called ours the Spin Master Devil Sticks. So that's the origin of the company name is from the Devil Sticks.
25:35 Guy Raz? At that Toy Fair, did you, who was doing the demo? Were you doing the demo?
25:42 Speaker 01 I did the demo myself.
25:43 Guy Raz? You did the demo? So you know how to juggle the Devil Sticks?
25:46 Speaker 01 Yeah, I told you, I played with them in high school. So I did the demo.
25:49 Guy Raz? Okay. And as I understand it, pretty soon after that Toy Fair, you managed to get those Devil Sticks into like two of the biggest toy retailers in North America at the time. Toys R Us and KB Toys, which is huge.
26:03 Speaker 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. It was 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.
26:24 Guy 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?
26:48 Speaker 01 I don't know if it was stressed out, but I think that we would just fight. And so
26:53 Guy Raz? About like strategy, about product, about who to work with, about where to spend money, all those things?
27:00 Speaker 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.
27:16 Speaker 01 Everybody really wanted to win and everybody wanted the success. So maybe we were a little eager.
27:21 Guy 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?
27:34 Speaker 01 We've always shot for unanimous consent. And we would keep on debating until 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, it's 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.
27:57 Guy Raz? It's actually my favorite word in Canadian. Yeah, it'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 four 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?
28:27 Speaker 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.
28:41 Guy Raz? Yeah.
28:41 Speaker 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.
29:07 Guy Raz? And That's great. Wow. That was that was who you were living with.
29:10 Speaker 01 Yeah, very coincidental.
29:12 Guy Raz? Yeah.
29:12 Speaker 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.
29:32 Guy Raz? And by the way, was that hard to do because you were so small at that time?
29:38 Speaker 01 Uh, you know, they weren't, put it to you this way, they were not showing us their best products. They were basically dusting off the stuff in the back of the closet.
29:46 Guy Raz? That like Hasbro and Mattel wouldn't even wouldn't even look at.
29:49 Speaker 01 Correct.
29:49 Guy Raz? Yeah.
29:50 Speaker 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.
30:18 Guy Raz? Describe what it was. It was like a airplane with what, styrofoam airplane that you pumped air into it?
30:24 Speaker 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.
30:40 Guy Raz? A hundred, 100 yards, right?
30:42 Speaker 01 Yeah, it was 100. It would fly 45, 50 seconds and fly in a circle.
30:46 Guy Raz? Had they demoed this for other toy companies?
30:49 Speaker 01 Yes, we didn't realize, after we signed the product, we didn't realize that every toy company had turned it down.
30:54 Guy Raz? Wow. So you see it and you're like, this is amazing.
30:58 Speaker 01 Yeah, it's incredible.
30:59 Guy Raz? But they had not had any success getting anybody to bite.
31:03 Speaker 01 Correct. I think they were trying to sell it for five years.
31:06 Guy Raz? All right. So you guys love it. And what did you do? You basically bought the license from them?
31:11 Speaker 01 Yeah, the way it works in the toy industry is you license the product in perpetuity, and you pay a 5% royalty on your sales.
31:18 Guy Raz? Got it. So you get the idea, but really what you're then doing is building a brand around it. Because I'm assuming it was a kind of crude, right? It wasn't like a fully developed toy. It was a plastic bottle and a body of an airplane with styrofoam, right? There was no branding or logos or shape to it.
31:38 Speaker 01 Yeah, exactly. The difficult thing 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 we actually didn't have a lot of money to pay them at the time, so they agreed to do a backend royalty deal. And 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.
32:12 Guy Raz? Okay.
32:12 Speaker 01 Got all the engineering done. And then we went to China, found a factory, which was called Kin Sing. And so we sent all the plans there and they started actually building out the product for us.
32:25 Guy 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 this basket. Did you have orders already for the Air Hog?
32:35 Speaker 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.
32:47 Guy Raz? A million dollars, more or less?
32:49 Speaker 01 All I remember was it was pretty much all the profits that we had.
32:52 Guy Raz? Yeah, that you had.
32:53 Speaker 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.
33:10 Guy 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? We did no research, nothing.
33:41 Guy 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. Yep. So it could have been 100% wrong. Correct. And that would have been a disaster. Correct. You just thought it was super cool, which it was. Yep, loved it. It was just so much fun to fly.
33:59 Guy 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.
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37:05 Guy Raz? Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1998, and SpinMaster starts selling the Air Hog at toy stores. And unlike the Earth Buddies or the Devil Sticks, the Air Hog is much more complex and requires a lot of engineering.
37:22 Speaker 01 We took so much care. 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 got stuck in a tree. So people.
37:39 Guy Raz? Yeah, and that's it. You're done.
37:40 Speaker 01 Well, or you climb the tree or buy another one.
37:43 Guy Raz? You buy another one. So here's, here's the thing. So you, 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?
37:54 Speaker 01 You know, I could just tell you that by the end of 1998, so we started marketing in that year. We had grossed $35 million in sales.
38:03 Guy Raz? Wow.
38:04 Speaker 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.
38:12 Guy Raz? And it cost you probably $10 to make them?
38:14 Speaker 01 Nope. It costs about $5.50.
38:17 Guy Raz? How did, I mean, aside from the fact that it's super cool, I remember air hogs 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?
38:28 Speaker 01 No, we did a lot of, we, 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 air hog and flick the propeller and hear the, 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.
38:51 Guy 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?
38:58 Speaker 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.
39:18 Guy 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.
39:30 Speaker 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.
40:04 Guy Raz? Here's, here's what I wonder. I mean, the Air Hogs 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?
40:21 Speaker 01 You do both.
40:23 Guy Raz? And is that because kids are fickle and they just, the life cycle of a toy is short?
40:27 Speaker 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 V 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?
40:56 Guy 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?
41:15 Speaker 01 No, it wasn't that much fun and games. It was, it was serious. First of all, the 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 you've got to make sure that everything's, you've got to manufacture something at a low cost that's safe, that has an innovation attached to it.
41:55 Guy Raz? So 1998 really is a pivotal year for you guys because the Air Hogs just takes off. 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?
42:29 Speaker 01 The majority was actually Ben Verity and Ben Dermer on the road.
42:35 Guy Raz? Ben Dermer was another person you hired at that time to help out.
42:38 Speaker 01 Yeah, he helped Ben with the inventor relations stuff. 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.
42:52 Guy Raz? So you did zero research for the Air Hogs, but it really took off?
42:56 Speaker 01 Yep.
42:57 Guy Raz? Did that make you, and I'm not trying to ask this in like a snarky way, but I think that if I was in your shoes, I'd have been like, oh my God, look at my judgment'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?
43:16 Speaker 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.
43:23 Guy Raz? What was that?
43:24 Speaker 01 It was basically a little furry monster and his hands were handcuffed together. And then you 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.
43:39 Speaker 01 But the kids didn't think it was that funny.
43:40 Guy 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?
43:46 Speaker 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.
44:01 Guy 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?
44:21 Speaker 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 Flicktricks. And straight away, I was like, this is so much fun.
44:48 Guy Raz? Again, any market research, taking them to kids, sitting behind two-way glass, watching them play it, anything like that?
44:54 Speaker 01 Nope, nope, nothing like that.
44:56 Guy Raz? Nothing.
44:56 Speaker 01 Other than the fact that kids were really into BMX bikes at the time.
44:59 Guy Raz? Yeah. Would you analyze like market data around that? Did you have statistics?
45:03 Speaker 01 Zero.
45:04 Guy Raz? Nothing.
45:04 Speaker 01 Wouldn't even know where to get them.
45:08 Guy Raz? So you are literally just saying, yeah, I think this is cool. I'd play with this.
45:13 Speaker 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.
45:18 Guy Raz? Is this common, by the way, in the toy industry? Or am I just completely, because have I talked to too many McKinsey consultants?
45:24 Speaker 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.
45:46 Guy Raz? Yeah.
45:46 Speaker 01 So it's all about the play pattern and stuff like that. And so, you know, kids played with die cast cars.
45:51 Guy Raz? Sure, I did. I loved them.
45:52 Speaker 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.
46:14 Guy 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?
46:28 Speaker 01 Not really. I mean, you can get some false positives, too. I mean, kids get excited about a lot of stuff.
46:34 Guy Raz? Yeah.
46:34 Speaker 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.
46:53 Guy 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.
47:21 Speaker 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 and trying to become that character yourself.
47:46 Guy Raz? Yeah.
47:47 Speaker 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.
48:05 Guy 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 as like a Mattel product that something that Mattel was putting out.
48:22 Speaker 01 Yeah, against Polly Pocket.
48:23 Guy Raz? Right, right, right, Polly Pocket. So what was the thing you guys were making?
48:27 Speaker 01 It was a 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 that was our first lesson against the big guys.
48:59 Guy Raz? Did you conclude that it wasn't worth it to go up against a Mattel or a Hasbro?
49:03 Speaker 01 No, because I mean, the 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 like respected them and learned from them. But we actually had no choice. If you wanted to be in the toy industry, those were those were the players that you were competing against.
49:19 Guy Raz? All right, so from what I understand, you started to go to Japan in 2000.
49:26 Speaker 01 Yep.
49:26 Guy 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?
49:45 Speaker 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, with a mission in hand, which was to try to find products in Japan that we could bring to North America.
50:01 Guy Raz? And what is it about, in your view, what is it about Japan? Why is Japan the sort of the Silicon Valley, let's say, of toys?
50:09 Speaker 01 I just think that their minds are very open and they, 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. Now, like, when you think about, like, the Tamagotchi, like, what a unique toy to come up with.
50:28 Guy Raz? Yeah.
50:29 Speaker 01 Or you look at something like Ampoman. I don't know if you've ever seen the preschool show Ampoman.
50:31 Guy Raz? Mm-mm.
50:32 Speaker 01 It's the, one of the strangest characters you've ever seen in your life, you know? So it's like-
50:38 Guy Raz? Or like Japanese candy. It's just amazing.
50:40 Speaker 01 Yeah. I haven't eaten a lot of candy, but I think they like, they just, they're just into doing things different. They're good with different.
50:46 Guy 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 your biggest toy of all time up to that point, which, which was Bakugan. Am I right that that story begins in 2005?
51:15 Speaker 01 Yeah, Bakugan, 2006.
51:18 Guy Raz? And can you, can you explain what Bakugan was?
51:21 Speaker 01 It was like marbles meets Transformers.
51:24 Guy Raz? Yeah.
51:25 Speaker 01 So there were these marbles and that you roll on the table and you're aiming towards the card.
51:29 Guy Raz? The card, okay.
51:30 Speaker 01 And 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.
51:45 Guy Raz? This idea came from some, like, a kid, a 23-year-old named Aldrick or Aldrich Saucier, who submitted this idea to SpinMaster. Did you have like a- And open submissions, like a way to submit ideas?
52:00 Speaker 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.
52:08 Guy Raz? Yep.
52:09 Speaker 01 And we took it in, 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.
52:30 Guy Raz? He's the founder, the CEO of Sega at the time?
52:34 Speaker 01 He's the president of Sega Toys.
52:35 Guy Raz? Sega, like the video game company too?
52:37 Speaker 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.
52:50 Guy 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.
53:06 Speaker 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.
53:30 Guy 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, about the characters.
53:44 Speaker 01 Yeah.
53:45 Guy Raz? And I don't, hopefully this, 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 brilliant strategy, but. I mean, a cartoon is essentially a 22-minute advertisement for the product, right?
54:00 Speaker 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.
54:19 Guy 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.
54:31 Speaker 01 It became a billion-dollar franchise.
54:34 Guy Raz? Billion-dollar franchise?
54:37 Speaker 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.
54:48 Guy 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?
54:58 Speaker 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.
55:29 Guy Raz? What happened with the recession of 2008, nine, and beyond? I mean, does that affect toys or toys relatively, you know, inelastic?
55:39 Speaker 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 is not a high-growth industry, but it's just very, it's just very stable.
55:58 Guy Raz? All right, so.
56:00 Guy Raz? You 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?
56:23 Speaker 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.
56:36 Guy Raz? Yep.
56:37 Speaker 01 And then by 2013, the sales were down to 500 million.
56:43 Guy Raz? Wow, that's a huge decrease.
56:45 Speaker 01 Yeah.
56:47 Guy Raz? And that's because you put too many, you relied too heavily on Bakugan?
56:51 Speaker 01 It was a combination of that and all the products that we had coming up behind Bakugan. Those products didn't-
56:58 Guy Raz? They just didn't work?
56:59 Speaker 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.
57:08 Guy Raz? Why did it happen now, by the way? What do you think happened?
57:11 Speaker 01 You know, I think it's actually natural is that those types of toys have a certain lifecycle to them. And they're usually, it's a three or four year lifecycle, 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.
57:33 Guy 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.
58:05 Guy 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.
58:31 Speaker 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 going to put out there, it's going to go and...
58:48 Guy Raz? Because you had so many hits.
58:50 Speaker 01 We had so many hits and we had so much success and everybody gets excited. 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.
59:08 Guy Raz? A third of...
59:09 Speaker 01 A third of the people.
59:10 Guy Raz? Wow.
59:11 Speaker 01 And we had 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 going to 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 going to 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's 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.
59:43 Guy 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.
59:53 Speaker 01 That was stressful.
59:56 Speaker 01 The other stuff wasn't stressful, this was stressful.
59:58 Guy Raz? Yeah.
59:58 Speaker 01 But I will say that that we really, it was the time where we actually dug in and and were 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.
1:00:23 Guy 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?
1:00:31 Speaker 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 shows. Let's keep on trying with new toys and we'll just be a smaller company, but let's just be a profitable company.
1:00:48 Guy Raz? Ronan, 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?
1:01:01 Speaker 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 relationship's definitely frayed. We have a saying, you know, I'm sure you know, it's like growth hides a multitude of sins.
1:01:17 Guy Raz? Yes.
1:01:17 Speaker 01 And when you're not growing, all the sins come out. So everything came out. Our relationships got challenged and tested, you know.
1:01:25 Guy Raz? Even among the founders?
1:01:27 Speaker 01 Oh, yeah, yeah, amongst the founders came out inefficiencies in business, the way we were 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.
1:01:49 Guy Raz? Yeah, you have some gray hair.
1:01:50 Speaker 01 I have a lot of gray hair.
1:01:52 Guy Raz? All right, so you restructure the company, but you're also trying to find the next thing. And from what I understand, this concept, I mean, you knew that the concept of an animated show and products was successful. And what, like you put out like a request for proposal from different creators you knew for like a new kind of animated show? Tell me, tell me the genesis of Paw Patrol. What, how did it start?
1:02:22 Speaker 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 that kids loved in Bakugan and they love in Transformers? And why don't we bring it to a preschool audience?
1:02:49 Guy 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?
1:02:57 Speaker 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 to the 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.
1:03:29 Guy Raz? What was the idea? What was his concept?
1:03:31 Speaker 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.
1:03:53 Guy Raz? So he sends you this concept. And it's not going to be called Robbie and the Rescue Dogs?
1:03:59 Speaker 01 Correct.
1:03:59 Guy Raz? Because Robbie becomes Ryder later on, I think, right?
1:04:02 Speaker 01 Correct.
1:04:02 Guy Raz? When you saw this concept, did you, did you all say, this is it? This is the one?
1:04:07 Speaker 01 Yeah, that's what, 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.
1:04:40 Guy Raz? And I think, I think the show Paw Patrol debuted in, in 2013, is that right?
1:04:45 Speaker 01 2013.
1:04:45 Guy Raz? And did take off right away?
1:04:47 Speaker 01 It took off pretty quickly, but I will say this much is that the show got developed and refined over time also.
1:04:56 Guy 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, 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.
1:05:14 Speaker 01 Yep, yep, you're exactly right. I mean, there's, 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, in different form factors. So it definitely helped turn around the business.
1:05:27 Guy 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.
1:05:45 Speaker 01 Yes, it is, it is a once in a lifetime, once in a generation franchise that, that has exceeded all expectations. And it's something that, 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, 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, for a hundred years, you know, it's, it's our Mickey Mouse.
1:06:27 Guy 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.
1:06:44 Speaker 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.
1:06:58 Guy Raz? They're so different from the cartoon that I watched as a kid.
1:07:01 Speaker 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 a, I think that we're following that model.
1:07:17 Guy Raz? What do you think the value of that franchise is today? If you could put a price on it?
1:07:21 Speaker 01 Priceless. It's a multi-billion dollar franchise.
1:07:26 Guy 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?
1:07:43 Speaker 01 No, it really wasn't. The real decision why it 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.
1:08:12 Guy 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?
1:08:29 Speaker 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.
1:08:43 Guy Raz? Swim Toys, uh, or floaties.
1:08:45 Speaker 01 They're all floaties and it's counter-seasonal. It's great in spring and summer.
1:08:49 Guy Raz? You've got Etch A Sketch.
1:08:51 Speaker 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.
1:09:10 Guy 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.
1:09:33 Speaker 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.
1:09:40 Guy Raz? Yeah, it does.
1:09:41 Speaker 01 But, uh, 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, uh, 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, uh, I think it would actually be boring if we just, it was just one product and, and that was it.
1:10:04 Guy Raz? Now that you, um, decided to step down, I can't believe you.
1:10:08 Speaker 01 I like to, I like to use, I like to use the word step up, actually.
1:10:12 Guy Raz? Step up, okay, yeah. I can't believe you were in the leadership position with 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, 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?
1:10:36 Speaker 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.
1:11:11 Guy 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. 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?
1:11:34 Speaker 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.
1:12:17 Speaker 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.
1:12:34 Guy Raz? That's Ronan Harari, co-founder of SpinMaster. And since this episode first aired back in 2021, SpinMaster announced a $950 million deal to buy another large toy company, Melissa & Doug. The acquisition was completed earlier this year. And by the way, Melissa & Doug have also been on How I Built This. It was one of our very first episodes way back in 2016. And if you haven't heard it, scroll back and give it a listen. And 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. And don't forget to sign up for my free newsletter at guyraz.com. This episode was produced by Casey Herman,
1:13:18 Guy Raz? with music composed by Ramtin Arablouei. It was edited by Neva Grant, with research help from Claire Murashima. Our production staff also includes Chris Messini, J.C. Howard, Alex Chung, Catherine Seifer, Sam Paulson, Carrie Thompson, John Isabella, Carla Estevez, and Elaine Coats. I'm Guy Raz, and you've been listening to How I Built This.
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