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summer vacation this week. So we're bringing you

2:41

an episode from how I built this archive.

2:44

It's an incredible story of

2:46

how Ronan Harari built a

2:48

toy company called Spin Master.

2:50

And even if you're not familiar

2:52

with the name Spin Master, if you've

2:54

been around kids at all in

2:57

the last decade, you have definitely

2:59

heard about Spin Master's most successful

3:01

toy franchise called Paw Patrol. And

3:03

it's amazing how they created it.

3:05

This episode first aired back at

3:07

the end of 2021. And

3:10

I hope you enjoy it as much as I enjoy

3:12

doing the interview. You've

3:16

basically been profitable every single year,

3:18

and you've been growing every single year. And

3:20

then all of a sudden, you're not only unprofitable, you're

3:22

losing a lot of money. Were you

3:25

worried about whether you guys would make it? I

3:27

actually, personally myself, I rise in a

3:29

crisis. That being said, I

3:32

mean, the relationship's definitely frayed. Ethan

3:34

among the founders? Oh yeah, yeah. Amongst the founders

3:36

came out, inefficiencies in

3:38

business, the way we're organized. This is

3:40

why older people have gray hair. You

3:42

know, when people say they have gray

3:44

hair from something, like this was our

3:46

seminal gray hair event. Yeah, and

3:49

you have some gray hair. I have a lot of gray hair. Welcome

3:57

to How I Built This, a show

3:59

about innovators. entrepreneurs, idealists, and

4:01

the stories behind the movements

4:03

they built. I'm

4:10

Guy Roz, and on the show

4:12

today, Harounen Harari started out making

4:14

novelty gifts from pantyhose and sawdust,

4:17

and spent 25 years building

4:19

a toy company that launched

4:21

the multi-billion dollar children's franchise,

4:23

Paw Patrol. Let

4:29

me start out by saying I love this

4:31

episode, and I love it

4:33

not only because the toy category

4:35

is a joyful one, but because

4:37

this story hits just about every

4:39

single lesson you could possibly think

4:41

of when it comes to building

4:43

a business. Product market

4:45

fit and failure, intuition

4:48

versus research, pattern spotting, solving

4:51

a problem you have that

4:53

others have, smart bets,

4:56

and spectacular crashes. I could

4:58

go on and on, but I don't need

5:01

to because you'll hear it for yourself. So

5:03

let me just mention how hard it is

5:05

to build an enduring generational brand. It's

5:08

really hard, especially when

5:10

it comes to toys. There

5:12

are just a handful, and you

5:14

probably know them. Lego,

5:17

Barbie, Hot Wheels, Monopoly,

5:19

Mr. Potato Head, Etch-a-Sketch,

5:21

Super Soakers, and not

5:23

many others. Kids are

5:26

among the most fickle customers on

5:28

Earth. A hot toy is

5:30

likely to be hot for a very short

5:32

period of time. Remember pogs

5:34

or kushballs with the Steve Urkel

5:37

doll? Enough said. But

5:40

here's the great insight that Ronen Harari

5:42

and his co-founders at Spin Master had

5:44

back in the late 1990s when they

5:46

were just starting out. The

5:49

specific toys kids like may

5:51

change, but their patterns of

5:53

play don't. Since

5:55

the beginning of recorded history, kids around

5:57

the world have played with balls. dolls,

6:00

puzzles, and their imaginations.

6:03

The key to figuring out what works

6:06

is to find something that fits into

6:08

those play patterns. Since

6:10

founding their upstart company in the mid-1990s,

6:13

Renin and his co-founders Anton Rabi

6:15

and Ben Verity were relying on

6:17

their own intuition to figure out

6:19

what makes a toy great. So

6:22

they tried stuff, stuff they thought

6:24

they'd want to play with as kids. And

6:27

it meant that it would take them

6:30

many, many years of trial and error

6:32

before they built a company that

6:34

produced a truly intergenerational brand. If

6:37

you were a kid or have known a

6:40

kid over the past 20 years, then you

6:42

know some of the iconic toys that these

6:44

guys put out into the world. Bakugan,

6:47

Airhogs, Flixtrix, and most

6:49

iconic of all? Paw

6:52

Patrol. It's not an

6:54

understatement to call Paw Patrol one of

6:56

the most successful kids' brands in the

6:58

past 20 years. And

7:00

the remarkable thing about Paw Patrol is

7:03

that Spin Master built it very

7:05

intentionally as a 360-degree brand from

7:07

the beginning. First

7:10

as an animated cartoon, then as

7:13

action figures, and now as a

7:15

brand that is on everything from

7:18

pajamas to lunchboxes to stuffed animals.

7:21

Ronan Harari was born in South Africa,

7:23

but his parents moved the family to

7:25

Toronto when he was around five years

7:27

old. His dad ran a

7:29

carpet business in the city, and Ronan grew

7:31

up working at the shop. He

7:34

remembers being an average student, in

7:36

part because of a learning disability.

7:39

It's a learning disability called dysgraphia, so

7:42

it's the inability for your hand to

7:44

keep up with your writing. And

7:47

then my handwriting is not very legible, and then I've got

7:49

to go back and I've got to correct what I wrote,

7:51

and then when you go back and you correct what you

7:53

wrote, you know, you lose your stream of consciousness

7:55

of what you were thinking, and then you've got to stop

7:57

and then it's like rebooting. You have to reboot a ton.

8:00

a bunch of times. So

8:05

for me to write an essay, it would take me twice

8:07

as long. But

8:10

the nice thing was, I actually call it

8:12

learning gifts. And

8:15

the reason why I call it learning gift is because

8:17

your brain is wired slightly differently. And

8:20

as a result of that, you get some extra benefits. When

8:25

we were debugging the toys, people would

8:27

use rulers and I could just see it with my eyes. So I

8:30

think that's the wonderful thing about having

8:32

a learning gift. It's just the challenge is that

8:34

the school system is set up for the majority

8:36

of people. It's not set

8:38

up for individuals and that's what makes

8:40

it difficult. You know, it's interesting

8:42

because you say you're an average student, but you

8:44

went to the University of Western Ontario. And from

8:46

what I gathered, it's a pretty good university, right?

8:49

It's not super easy to get into. Am I

8:51

right about that? I think it's in the middle.

8:53

It's in the middle. No, it's

8:55

definitely a good school. Listen, don't get me wrong.

8:57

I worked hard and my grades were decent,

8:59

but I didn't get many A's. I can't

9:01

remember any A's in my days. It was

9:03

mostly B's and some C's. But

9:06

I actually knew from a very young age that I wanted

9:08

to go into business. Why did

9:10

you know that? Well, I was average

9:12

at sports and academically I

9:14

was average. So I figured that

9:16

business was the right path for me. I

9:19

saw it as something that had endless potential

9:22

and not a lot of constraints. And

9:25

I guess while you were in college,

9:28

you actually launched a business, right? It

9:30

was with a friend of yours from childhood, a

9:32

guy named Anton Robbie. And I

9:34

think it was like a poster company. Tell me about it.

9:38

Yeah, well, first after our first year of

9:40

university, Anton and I actually

9:42

sold fertilizer door to door. Because

9:45

both of us had to pay for part

9:47

of our education. You

9:49

worked for like a fertilizer company? Exactly. We worked

9:51

for a fertilizer company. And then

9:53

we started this poster business. So

9:55

the business was actually taking pictures of kids

9:58

during Frosh Week. then creating

10:00

a collage of all the

10:02

pictures. Frosh week is the first week

10:04

for freshmen, presumably, right? Exactly, exactly. Okay.

10:07

So we would take pictures of the kids during frosh week.

10:09

Okay. And then we'd cut all the

10:11

pictures out, we'd create a collage, and then around

10:13

the perimeter of the collage, we would sell advertising,

10:15

and then we printed up 9,000 posters, and

10:18

then gave it to the students for free. Wow, that

10:20

was a business. That was a business. That was a

10:22

business, yeah. And then we ended up doing it in five

10:25

universities across Ontario by the time

10:27

we graduated. I think we grossed about

10:29

$100,000. And then what

10:31

happened when you graduated? Yeah, what

10:34

actually happened was, so I

10:36

graduated after three years, Anton was in

10:38

a four-year program, and then

10:40

just before Anton graduated,

10:43

my mom was reading the Yiddiyat Akranat,

10:45

which is the largest Israeli newspaper, and

10:48

in there, there was an article about all

10:50

these six different Israelis that were manufacturing this

10:52

product called the grass head. It

10:55

was a small little potato head made out of

10:57

grass seeds, nylon sawdust, and it had a

10:59

little happy face on it, and you'd put it in water

11:01

and grow grass for hair. So

11:03

similar to a Chia Pet. It's, I

11:05

guess, like a little ball. Imagine a

11:08

little nylon, like pantyhose, nylon ball, stuffed

11:10

with sawdust or whatever, and seeds,

11:14

grass seeds, and you would drop water on it

11:16

with a dropper, and it would eventually grow hair.

11:18

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

11:20

you'd immerse it. You'd immerse the whole thing, and

11:22

then just let it sit. Because the

11:24

sawdust held the water, and

11:26

the seeds were able to germinate. So she

11:29

read about it. She translated the article for me, and

11:31

in the article, it said that there was all these

11:34

six different people in Israel that were selling them, and

11:36

that literally every person in Israel bought one, and

11:38

it was just like the biggest craze in the country.

11:41

And two weeks later, my late grandmother

11:44

came to Canada for a visit, and she brought

11:46

me and my sisters one as a gift. And

11:50

so I looked at it, and I was like, no

11:53

one's manufacturing and selling them here in Canada. Why don't

11:55

we do it? And so I

11:57

spoke to Anton, I was like, why don't we sell

12:00

these? these earth buddies, we called it earth buddies. And

12:03

he looked at me, he thought that I was literally crazy. Yeah,

12:06

I mean, it does sound crazy because why would

12:08

you think that... I mean, the

12:10

first thing is, why would your mom read that article and go,

12:12

hey, I need to translate this article like out

12:14

of all the articles, like not the one on

12:17

the peace process or I don't know, some like

12:19

you, I want to tell you guys about these

12:21

grass head things, something about

12:23

that she thought was interesting. And I'm just

12:25

trying to figure out why, like how did

12:27

you read that and say, hey,

12:30

this could be something. To my mom's credit,

12:32

she's very entrepreneurial and she's very much a

12:34

doer. Yeah. She's like,

12:36

well, something's happening. So I said to

12:38

Anton, I was like, why don't we do it? And we

12:40

literally went to Kmart and

12:43

we bought pantyhose and we bought sawdust

12:46

and grass seeds and

12:48

everything. We started prototyping the products and

12:51

we had a solarium in my house and we

12:53

were growing everything in the solarium. And

12:55

it kind of looked like nature's troll dolls

12:57

a little bit. Yeah, it's a pretty good

13:00

guy. It's a fair description, right? Yes, great

13:02

description. All right, so you convinced Anton to

13:04

join you on this journey

13:06

to make the Earth Buddy. And

13:09

presumably you didn't need to license it,

13:11

right? This was not like a patented

13:13

technology. You were just making

13:15

what was out there. Am I right?

13:17

Yeah, that's correct. In the article, it

13:19

said the original inventor or the product

13:21

came from somewhere in Turkey and no

13:23

one really knew who it was.

13:26

So you and Anton start to

13:29

just stuff these little

13:31

buddies and this is 1994. And what was

13:34

the plan? The plan was to make

13:37

tons of them and then just sell them, I

13:39

don't know, at a craft fair? Like what was the next

13:42

step? Yeah,

13:44

basically we said, let's make 5,000 pieces

13:46

for Mother's Day and go

13:48

from there. And that was the

13:50

plan. And so we got my sister and

13:53

my brother-in-law involved. My sister designed

13:55

the packaging. My brother-in-law,

13:57

ex-brother-in-law, who's an incredible engineer. He

14:00

designed the contraptions so we can manufacture

14:03

these things at some sort of scale. What

14:06

was a contraption, like a feed tube? Yeah,

14:08

it was like a plumbing tube. You could take the nylons

14:10

and wrap it around the tube. And then on the side,

14:13

there was a feeder where you can dump the seeds

14:15

and the sawdust and there was a way for you

14:17

to tie it off. It was actually really clever. We

14:21

found a small factory space,

14:23

warehouse space. And did you

14:25

finance this with the money that you had

14:27

from your poster company? Pretty much. We started

14:30

with $10,000. But

14:32

before you started to, when you guys said, let's make 5,000

14:35

of these for Mother's Day, presumably

14:37

you're thinking, we're gonna sell these.

14:39

So where were you gonna sell them? Well, we

14:41

sold them on the street. We

14:43

set up tables at eight different corners all around Toronto.

14:46

And we sold basically 800 out of the 5,000. And

14:51

we came into the office Monday morning and we're

14:53

like, okay, well, we gotta figure out some other

14:55

distribution. And then we

14:57

found a gift distributor who

15:00

took on the product and started selling it to the gift

15:02

channels. And then again,

15:04

through my mom, she had a contact

15:06

of a company that sold toys called

15:09

Samco Sales and

15:11

showed them the product. And I said to them, would

15:14

you guys be interested in distributing the product for us?

15:17

And they said, sure, no problem. And

15:20

two weeks later, they called us with an order for 26,000 pieces. From

15:23

where? From Walmart, Canada. Amazing.

15:26

But now you guys are

15:29

renting a warehouse space to

15:31

make these. And

15:33

I guess at this point,

15:35

you bring in your third founder,

15:38

this guy, Ben Verrati. Yep. And

15:41

what did he know about manufacturing? And was

15:43

he an expert in like a pattern-run factory?

15:46

He actually had no manufacturing experience. He

15:49

came to our office and we literally

15:51

made a deal within 45 minutes. And

15:54

then he went down and started running the factory. He's

15:57

a smart guy. He went to business school. He

16:00

just figured it out. But

16:02

Ben would tell you that he wouldn't

16:04

have gotten through the manufacturing if

16:06

it wasn't for this gentleman by the name of Bob Wakelam.

16:09

So Bob actually, when we started,

16:12

the first place we actually went to look

16:14

for people to work in the factory was

16:16

we went to a homeless shelter. It was

16:18

just people that needed work, so that's where

16:20

we went. But there was two individuals. There

16:22

was Bob and this other gentleman, Grenville, who

16:24

ran shipping. Both of them were homeless. They

16:27

were living in a homeless shelter. Correct. And

16:29

so Bob walked into Ben's office one

16:31

day and said, you know, Ben,

16:34

like, I used to run a factory. Will

16:36

you let me help you? And Ben said yes. And

16:39

literally within two days he had all these like

16:41

Gantt charts up and this. And he started like

16:43

balancing out the lines between the workers and the

16:45

raw materials and all this type of stuff. So

16:48

you get this order, this order

16:50

for 26000 Earth buddies from Walmart,

16:52

Canada, which is pretty great. And

16:54

how did they do? They did

16:56

great. They started selling like crazy.

16:59

All right. So you would eventually

17:01

get a massive order from Kmart,

17:04

which would prove to be transformational. How

17:07

did you even get on their radar? You know,

17:09

the universe works in funny ways. Anton

17:12

was backpacking in

17:14

Europe a couple of summers before.

17:17

And he met this guy who

17:19

came from a very well-connected

17:22

family. And when we wanted

17:24

to break into the United States, Anton called him

17:26

and he said, do you have any- He kept

17:28

in touch with this guy. He kept in touch

17:30

with him. Well, that's one of the things Anton

17:32

does extremely well. He keeps in touch with everybody.

17:35

And so he called me and said, do you have any relationships at

17:37

Kmart? And they said they did. So

17:39

I don't know why, but I was the one that

17:41

actually took the meeting. And so I drove down, I

17:43

was in Troy, Michigan. I pitched

17:45

the buyer, do like a 30 minute pitch. I had

17:48

a full box of Earth buddies, looks

17:50

fun. And after 30 minutes, the buyer

17:52

said to me, he goes, thank you

17:54

very much for coming, but I'm not the buyer. And

17:57

I'm like, this can't be true. Who

18:00

are you? Why am I talking to you? Yeah.

18:02

And then I'm like, okay, well, do you mind doing

18:04

me a favor? Can you find out who the buyer

18:07

is? Because I drove all the way from Toronto.

18:09

So he comes back with this name written on

18:12

a piece of paper and

18:14

said, Adrian Zaks. So I said,

18:16

thank you very much. And I took my

18:18

box of Earth Buddies and I started walking around

18:21

the office of Kmart looking for this

18:23

buyer. She was sitting at her

18:25

desk when I found her and she

18:27

said, okay, I'll see you at 3.30. And

18:30

then the guys that we came with, they're like, let's go

18:32

for lunch, da, da, da. And I said, I'm not going

18:34

to go anywhere. Because like, maybe she'll call me early or

18:36

something like that. Or maybe they

18:38

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

18:40

won't. Like I just, yeah, that's true. So

18:43

I waited there till 3.30. And

18:46

the craziest thing is as I walked

18:48

into her office on the

18:50

left-hand side of this counter, she

18:53

had about eight other Earth

18:56

Buddies there. Eight

18:58

other products that were pretty similar? Exactly

19:00

the same under different names. Were they

19:03

these products from Israel? No, no,

19:05

no, they were other manufacturers. So you're

19:07

thinking, I'm never going to make

19:09

this. This is crazy. No, what went through my mind

19:11

was we were going to charge her $2.65 US and

19:16

I dropped the price to $1.65 in my mind right

19:19

then and there. Because you knew that if you

19:21

could get it, if you could offer the most

19:23

competitive price, then she wouldn't go with the others.

19:26

I knew we could still make money, especially because

19:28

the Canadian dollar was low at the time.

19:31

I didn't want price to be a factor and I

19:33

figured she's got so many options here. So we

19:35

better give her a compelling reason to go with us. And

19:38

so I pitched her, I showed her exactly what we

19:40

were doing. And she gave

19:42

me this big book, which was the vendor

19:45

agreement. She said, okay, well, I'll give you

19:47

an order for 48,000 pieces. And

19:50

if it goes well, I'll give you an order for half

19:52

a million pieces. Wow. Yeah. All

19:54

right, so she does 48,000 orders for

19:56

$1.65 a piece. That's almost $80,000. which

20:00

is pretty great. You

20:02

go back to Toronto. Were

20:04

you guys able to scale up to 48,000 pieces quickly

20:07

in your little facility in

20:10

Toronto? We had to

20:12

move again to another facility. Every time we

20:14

got more orders, we would move into

20:16

a bigger factory and build more machines, and

20:18

we just hired more workers. How did you

20:20

finance that? Do you remember? Yeah,

20:23

the product was selling very well. We had money

20:25

coming in from the other sales. And

20:28

I mean, in our peak, we were producing 17,500

20:30

pieces a day. And

20:33

by the end of that year, I think

20:36

EarthBuddy, your sales, from what

20:38

I understand, hit $1.8 million.

20:40

That's pretty great for a company

20:43

that you started earlier that year. But

20:45

at what point sort of did the

20:47

three of you say, you know, we should focus on toys?

20:49

Was it already in 1994 after

20:52

EarthBuddy took off or not? Not quite

20:54

yet. No, it was only in

20:56

95 when we started selling a

20:58

product called DevilStix. That product did

21:00

really well. And so it was after that, after

21:03

the DevilStix. Okay, so DevilStix is

21:05

your next product because, you

21:07

know, as we know, the lifecycle of novelty

21:09

items can be short, right? And you probably

21:11

saw that at that point. You probably knew

21:13

that you needed to go to the next

21:16

thing because EarthBuddy wasn't gonna... You

21:18

couldn't build a sustainable company based on that

21:20

product alone, I'm assuming. Yep, 100%. It was

21:22

novelty that's gonna run

21:24

its course and what else are we gonna

21:27

have? So the next thing that you come

21:29

across are these things you call DevilStix and

21:31

they're like these batons. It's like a baton

21:33

and you can juggle this other baton in

21:35

between them and do tricks.

21:37

And I remember this. This was like

21:39

the mid-90s. I'm in college and

21:42

you had those kids who played Hacky Sack and DevilStix.

21:44

That's right. Am I right? That's the demo, right? Correct.

21:48

Grateful Dead shows, exactly. So this was

21:50

a product that existed. Tell

21:53

me the story. You kind of renamed them

21:55

DevilStix. How did you come across them? with

22:00

them when I was in high school. For some

22:02

reason in 94, we started noticing that a lot

22:04

of kids in the schools were actually

22:06

playing with the devil sticks. So

22:09

maybe there's a little bit of a trend going

22:11

on. We had our factory, so we said, well,

22:13

why don't we figure out how to mass produce

22:15

the devil sticks and we'll sell them. So

22:18

it was just based on this trend that we saw.

22:20

And so we designed this packaging

22:22

and the same distributor that got us the

22:25

sale at Walmart Canada, they introduced

22:27

us to their partner in

22:29

the United States called UniWorld. And

22:32

so suddenly we found ourselves a toy fair

22:34

in 1995. And toy fair was in New

22:36

York? In New York, yes. And this is a

22:38

convention where you'd go and you'd show your products.

22:40

But so let me understand what the devil sticks

22:42

are, these batons, you know, that you juggle. And

22:45

this there was no patent on them. Anybody

22:48

can make them. You basically created a brand

22:50

called Devil Sticks. You gave it that name?

22:52

No, devil sticks is the generic term. And

22:54

so we called ours the Spin Master Devil

22:57

Sticks. So that's the origin

22:59

of the company name is from the devil sticks.

23:02

At that toy fair, did

23:04

you, who was

23:07

doing the demo? Were you doing the demo? I

23:09

did the demo myself. You did a demo.

23:11

You said you know how to juggle the devil sticks. Yeah, I told

23:13

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

23:16

Okay, and as I understand it,

23:18

pretty soon after that toy fair, you

23:20

managed to get those devil sticks into

23:22

like, like two of the biggest toy

23:25

retailers in North America at the time. Toys

23:27

R Us and KB Toys, which is huge.

23:29

I mean, there was one thing that was

23:31

working in our favor, which was, there was

23:33

something in the zeitgeist at the time that

23:35

made devil sticks appealing to young kids.

23:37

It was like seven year olds, eight year olds, nine

23:39

year olds, 10 year olds. You know,

23:42

it was like analogous to like the yo-yo. So

23:44

we did the marketing, but I don't think I

23:46

think the marketing helped, but there was something in

23:48

the zeitgeist that actually made the product pull.

23:52

There's a documentary that spin master made,

23:54

I think on the anniversary of 20 years

23:56

and I watched it and at that time

23:58

you said, weren't sleeping a

24:00

lot. We were definitely stepping on

24:02

each other's toes. And there were a

24:04

lot of disagreements and fighting, which I think

24:06

is very normal when you've got three strong

24:09

partners in a company. Were

24:11

you stressed out about the disagreements between the three of

24:13

you at the time? I don't

24:15

know if it was stressed out, but I think that we

24:17

would just fight. And so... About

24:20

like strategy, about product, about who

24:22

to work with, about where to

24:24

spend money, all those things. I

24:26

think it was everything. But the one nice

24:28

thing is that through the fighting, and it

24:31

wasn't like when I say fighting, it wasn't like you're

24:33

angry at the person. It was just

24:36

advocating for your opinion. But

24:38

you know, we were young guys and

24:40

very excited. Everybody

24:42

really wanted to win and everybody wanted the

24:44

success. So maybe we were a little

24:47

eager. Was it, I mean,

24:50

and this is a question that's come up in a

24:52

lot of episodes of the show with co-founders, which is everybody

24:55

has a different perspective. How

24:57

did you resolve disputes?

25:01

We've always shot for unanimous

25:04

consent and we would keep

25:06

on debating until we actually got the consent. And

25:09

then there was one other thing, which was if we

25:11

stepped over the line, everybody was

25:14

able to say sorry, which I think is

25:16

a huge, which is a huge thing. Sometimes if you

25:18

weren't, if you didn't say sorry, you asked

25:21

for the sorry and you always got the sorry. It's

25:24

actually my favorite word in

25:26

Canadian. Yeah, that's a great

25:28

Canadian word. At

25:30

that time, right? Okay. So you've got two

25:32

hits now under your belt. You've got Earth

25:34

Buddy, Devil Sticks, you know,

25:36

you're probably doing four or five million dollars

25:38

in revenue by year two. How

25:41

big were your ambitions? Were the three of you already

25:43

in year two of your business saying,

25:46

we're going to be a huge toy company? Was

25:48

that the ambition or was it just like, let's

25:50

just get this thing, sell this and we'll

25:52

figure out the next thing? It was

25:54

let's just keep on going. Let's find some

25:56

other products to sell. We did make a

25:58

couple of strategic like. which

26:01

were, we didn't want to, after Earth Buddies and

26:03

Devil Sticks, which were both, you know, call

26:06

it public domain products. We said

26:08

we want to design and develop our own products and

26:10

we want to sell them globally around the world. And

26:13

we don't want to just be a Canadian

26:15

distributor. And then we said,

26:17

we're open to ideas wherever they come from and

26:19

let's go search for these ideas. So

26:23

in 96, we started meeting with toy

26:25

inventors. And so Ben was

26:27

living with this girl by the name of Jen Irwin

26:29

from the Irwin Toys Family, which

26:32

is a famous Canadian toy company. And

26:34

that's great. Wow. That was that was who

26:36

you were living with. Yeah, very coincidental. Yeah.

26:39

So between her and Austin's company called

26:41

Canada Games, which was run by the Albert

26:43

family, they told us that this whole network

26:46

of toy inventors globally around the

26:48

world that come up with ideas, but

26:50

they don't commercialize them. And

26:52

so Ben started going around with our wares and

26:55

meeting all these toy inventors and

26:57

trying to solicit ideas from them. And

26:59

by the way, was that hard to do because

27:02

you were so small at that

27:04

time? You know, they weren't,

27:06

put it to you this way, they were not showing us

27:08

their best products. They

27:10

were basically dusting off the stuff in the back

27:12

of the closet. That like Hasbro and Mattel wouldn't

27:14

even wouldn't even look at. Correct. But

27:17

they were showing us stuff and we

27:19

were getting to look at stuff and we were developing relationships

27:21

and contacts. And so in

27:23

96, we actually came across this

27:26

invention, which was an airplane that

27:28

you pumped up and would fly for about

27:30

45 seconds. And it

27:32

came from these two British inventors, John Dixon

27:34

and Peter Manning. They actually

27:37

came to Toronto, came to

27:39

visit us and we flew this airplane. And it

27:41

was probably one of the most magical experiences seeing

27:43

this was plane fly. Describe what it was. It

27:45

was like a airplane with

27:47

what, a styrofoam airplane that you pumped

27:49

air into it? Yeah, so it's basically

27:52

it's a plastic bottle, foam wings on

27:54

top, foam fuselage. And they

27:56

had developed this pneumatic engine

27:59

that... Literally, the air

28:01

would actually drive the piston up and down,

28:04

spin the propeller, and fly the plane.

28:07

A hundred yards, right? Yeah, it was a hundred. It would fly 45,

28:09

50 seconds and fly in a circle. Had

28:13

they demoed this for other toy companies? Yes.

28:16

We didn't realize, after we signed the product, we

28:19

didn't realize that every toy company had turned it

28:21

down. Wow. So you see it,

28:23

and you're like, this is amazing. Yeah, it's

28:25

incredible. They had not

28:27

had any success getting anybody to bite. Correct.

28:30

I think they were trying to sell it for five

28:32

years. All right, so you guys love it, and

28:35

what did you do? You basically bought the license from

28:37

them? Yeah, the way it works in the toy industry

28:39

is you license the product in perpetuity, and

28:42

you pay a 5% royalty on your sales.

28:44

Got it. So you get the

28:46

idea, but really what you're then doing is

28:48

building a brand around it, because I'm assuming

28:50

it was a kind of crude,

28:53

right? It wasn't like a fully developed

28:55

toy. It was a plastic bottle in

28:58

a body of an airplane with

29:01

styrofoam, right? There was no branding or logos or

29:03

shape to it. Yeah, exactly.

29:05

The difficult thing with the

29:07

AirHogs, which is what we called it, was

29:09

how do you mass produce it? We

29:12

ended up finding this company called K-Development,

29:14

and they did all the design

29:17

work in terms of how

29:19

the engine is going to actually function and work,

29:21

and we actually didn't have a lot of money

29:23

to pay them at the time, so they agreed

29:25

to do a back-end royalty deal. And

29:28

literally we spent probably a year

29:30

and a half, two years building the

29:32

prototype, rebuilding the prototype, test it and see if

29:34

it's flying and see if it was reliable and

29:36

durable and all that type of stuff. Got

29:39

all the engineering done, and

29:41

then we went to China, found a factory, which was

29:43

called Kin Sing, and so we

29:46

sent all the plans there, and they

29:48

started actually building out the product for

29:51

us. When you found that factory in

29:53

China to make them, you

29:55

were making a big commitment. You were putting a

29:57

lot of eggs in this basket. Did you have

29:59

orders? already for the air hug? You

30:02

know, we did everything in parallel. I

30:04

would say this, when we signed the product, we

30:06

basically put all the money we'd made to date

30:09

into the design and development. The

30:11

design and development was very, very expensive. A

30:13

million dollars, more or less? All I

30:16

remember was it was pretty much all the profits that

30:18

we had. Yeah, that you had. Yeah, everything was

30:20

going into this product. Everything's done in

30:22

parallel. So, you know, we had no orders at

30:25

the beginning, but as we started designing and developing it,

30:28

then you start the sales process. We were going to

30:30

the toy fair, and at the toy fair, we were

30:32

starting to sell it. So, before we actually got into

30:34

production, we did have orders. So,

30:37

here's a question. This is a

30:39

big commitment in money, and it was

30:41

a two-year process, right, from 1996, when

30:44

you got this license, to when it actually debuted,

30:47

I think two years later. How

30:49

did you know that it

30:52

was going to work? I mean,

30:54

did you do market research? Did

30:56

you test it on kids? What

30:59

kind of research did you do, if any? We

31:02

did no research. Nothing. You

31:07

did no market research. You went to no kids. You

31:10

went to no schools. Nothing. You were just

31:12

like, yeah, we love this. It's cool. Let's do it. So,

31:14

it could have been 100% wrong. Correct. And

31:17

that would have been a disaster. Correct. You

31:19

just thought it was super cool, which it was. Yep, loved

31:21

it. It was just so much fun

31:23

to fly. Why

31:25

don't we come back in just a moment, how

31:28

the team at Spin Master began to realize that

31:31

succeeding in the toy business means

31:33

never staying still. If you have

31:35

one hit idea, you'd better start

31:37

thinking about your next one and

31:39

the one after that. Stay with

31:41

us. I'm Guy Roz, and you're listening to How

31:43

I Built This. Picture

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That's netsuite.com slash

36:02

built. Hey,

36:09

welcome back to How I Built This. I'm Guy

36:11

Roz. So it's 1998 and

36:14

Spin Master starts selling the Air Hog at

36:17

toy stores. And unlike the

36:19

Earth Buddies or the Devil Sticks, the

36:21

Air Hog is much more complex and

36:23

requires a lot of engineering. We took

36:25

so much care and that's why it

36:27

took so long. It was like how

36:30

to make the propeller safe, put a

36:32

foam nose coat on it, super light.

36:34

The wings would pop off so they

36:36

wouldn't break. And you

36:39

know, one of the biggest things was usually got stuck

36:41

in a tree. So people. Yeah. And

36:43

that's it. You're done. Well, or you climb the tree

36:45

or buy another one. Or you buy another one. So

36:49

here's the thing. So you make this product, right?

36:51

You get this Chinese company to make them. And

36:53

do you remember what, how many did

36:55

you initially intend to make? Like a million, half

36:58

a million? You know, I could

37:00

just tell you that by the end of 1998, so we started marketing

37:03

in that year, we had grossed

37:05

$35 million in sales. Wow.

37:08

I think we had sold over a million and a

37:10

half piece or something like that. And

37:12

I think our wholesale was about $20 at the

37:15

time. And it

37:17

cost you probably $10 to make them. Nope. It

37:19

costs about 550. How

37:21

did, I mean, aside from the fact that it's super cool,

37:24

I remember Air Hogs and they're still around, but how did

37:26

you, how did you market it? Did it,

37:28

did you have to do anything at all to market it

37:30

or was it just a product that sold itself? No,

37:33

we did a lot of, we did the

37:35

TV commercial. We bought media against it. We

37:37

found distributors around the world. We

37:39

came up with these really creative point of sale

37:42

displays where you could actually

37:44

pump up the Air Hogs and flick the

37:46

propeller and hear the magical sound that came

37:48

from the motor. And I think

37:50

we had them at like Walmart and Kmart and at

37:53

a lot of places. So that was definitely in the

37:55

marketing budget. All right. So this, this comes out and

37:57

by the way, is, had you guys raised any money?

38:00

for the company or are you entirely self-financed?

38:02

Entirely self-financed. Other

38:04

than the bank would actually let

38:07

us borrow against our inventory

38:09

and receivables, so we were able

38:11

to use those monies, which weren't our monies, but

38:13

at least they were up against the

38:16

orders that were going to come and again,

38:18

apply that to actually purchasing the goods and

38:20

doing marketing and all that other type of

38:22

stuff. So this product blows up.

38:24

So you guys are growing really

38:27

fast. But do you remember

38:29

thinking to yourself, this

38:32

is different. This is next level. Oh yeah.

38:34

I mean, I mean the engineering development, it

38:36

was a priceless

38:38

education. Designing and developing

38:40

and marketing that product was

38:42

priceless. It was so difficult.

38:44

It was so, we taught ourselves everything. We

38:47

hadn't done anything close to that. It's

38:49

not really even a toy. It's a mechanical

38:52

flying object. So

38:54

we really stretched ourselves to actually get that

38:57

to market. But the nice part

38:59

was all the inventors that we were visiting,

39:01

they were like, wow, these guys can actually

39:03

design, develop and manufacture something. And so that

39:05

really opened up the doors to future products

39:07

for us. Here's what I wonder.

39:09

I mean, the Air Hogs take

39:11

off in 1998. At

39:14

that point, can you just

39:16

focus on that product and really build that

39:18

out for the next few years or already

39:20

do you have to start thinking about the

39:22

next thing that's going to come out after

39:24

that? You do both. And

39:27

is that because kids are fickle and they just, the

39:29

life cycle of a toy is short? The

39:32

toy business is all about fresh and new. Even if

39:34

you have a brand within the brand,

39:36

you still need to bring fresh and new. So

39:38

we knew straight away after

39:40

our first product, we were like, okay, what other innovation

39:42

can we do in flying toys? So we came up

39:45

with the V-wing, which was like a stealth flying plane.

39:47

And then we were thinking about other types of flying

39:50

toys. So yes, you

39:52

always have to be innovating within the brand. And

39:54

then we also wanted to diversify as

39:56

a company. So we were thinking about what other categories

39:58

can we get ourselves into? To me

40:00

it just seems like my god you

40:02

guys were just playing toys like how joyful

40:04

like how amazing how fun like

40:07

But this was real serious business you

40:10

guys were heads down

40:12

like really Focused or

40:14

was it throwing nerf balls around the office? I

40:17

don't know what what was it like? No,

40:19

it wasn't that much fun in games. It was

40:21

it was serious Okay,

40:23

first of all toy business is very

40:26

competitive hyper competitive business and it's a

40:28

very fast-paced and You

40:31

know the three of us wanted to win so we

40:33

were actually quite serious I think we were probably too serious.

40:35

We didn't have the foosball tables. We didn't know

40:37

the pool tables It

40:40

was more about when we're in the office Let's

40:42

do the work and then let's go

40:44

enjoy our time afterwards It's intense the

40:47

other thing about the toy industry is that you're dealing

40:49

with kids and you're dealing with safety and And and

40:51

you got to make sure that everything's you

40:53

got to manufacture something at a low

40:55

cost that's safe That has an innovation

40:57

attached to it So 1998 really

41:00

is a pivotal year for you guys because

41:02

that the air hogs just takes off you

41:04

you've successfully manufactured a product

41:06

now overseas and Now

41:09

you've got a strategy you are going

41:11

to really begin to assess a

41:13

bunch of inventions. I read You

41:16

grew to 28 employees you were

41:18

assessing about a thousand inventions a year at

41:20

that time so were people

41:22

just coming to Toronto and Showing

41:25

you stuff or were you was it all

41:27

happening at toy fairs or were you actively?

41:30

Tapping into this network of inventors are

41:32

all three of those things the majority

41:34

was actually Ben Verity

41:36

and Ben Dermer on

41:39

the road Ben Dermer was it was another person

41:41

you hired at that time to help out Yeah,

41:43

he helped right then with the inventor relationship And

41:45

so they would literally go from city

41:47

to city to city and visit the inventors and

41:50

go to their offices And I'd say

41:52

that was like 80% of the the

41:54

work was done that way on location So

41:56

you did zero research for the air hogs,

41:59

but it really took off. Yep.

42:01

Did that make you, and I'm not

42:03

trying to ask this in like a snarky way, but

42:06

I just, I think that if I was in your

42:08

shoes, I'd have been like, oh my God, look at

42:10

my judgments. Amazing. I can do no wrong. Like I

42:12

might have become a bit arrogant

42:14

at the time thinking we

42:16

know how to pick hits. Did you guys have

42:18

any of that at all? No, because

42:20

we had some other products that alongside of

42:22

AirHogs that failed. We had a product called

42:25

Don't Free Freddy and it did not do

42:27

well. What was that? It

42:29

was basically a little furry

42:31

monster and his hands were handcuffed

42:33

together and then you'd press a button and he,

42:35

the handcuffs would pop open and his arms would

42:38

flip up and he would roar at you. And

42:40

we just thought it was funny. But

42:43

the kids didn't think it was that funny. And how did you,

42:46

in those early days, how would you give something in the

42:48

green light? Did you have to have total consensus? No,

42:51

sometimes there's certain products that I

42:53

loved and I would win

42:55

Ben over, but he wouldn't come very easily.

42:58

But the one thing that we did find over

43:00

the years is that when we

43:02

did have universal consensus, the likelihood of

43:04

success was much higher. All right. So

43:06

you have AirHogs and you're assessing

43:09

like a thousand inventions a year at this

43:11

time. And the

43:14

next thing I think you come across

43:16

is these little like miniature BMX bikes,

43:19

which are called Flictrix. And I think the guy who

43:21

pitched them to you was this inventor named Jeff

43:24

Ray Kemper. Yeah. And then the

43:27

one thing you have to understand about inventors, and

43:29

the reason why you want to go visit the inventors rather than them

43:31

coming to you is like they're really the

43:33

kids in the equation. Okay. And when they invent

43:35

something, they want to be so excited about it.

43:38

So on one of my trips to

43:40

Chicago when we were developing the AirHogs,

43:43

Jeff actually showed me

43:45

the little Flictrix. And

43:48

straight away I was like, this is so much fun.

43:50

Again, any market research, taking them

43:53

to kids, sitting behind two way

43:55

glass, watching them play it, anything like that?

43:57

Nope. Nope. Nothing like that. Nothing. Other than the

43:59

fact. were really into BMX bikes at

44:01

the time. Yeah. Would you analyze

44:04

market data around that? Did you have

44:06

statistics? Zero. Nothing. Wouldn't even know where

44:08

to get them. So

44:11

you are literally just saying, yeah, I think this

44:13

is cool. I play with this. It was so

44:15

much fun. The key to being in the toy

44:17

business is you've got to always think and feel

44:19

like a seven-year-old. Is this common, by the way,

44:22

in the toy industry? Or am I just completely?

44:24

Because have I talked to too many McKinsey consultants?

44:26

You cannot consult yourself in the toy

44:28

industry. It is one of the most

44:30

intuitive creative industries out there. It's

44:33

a feel industry, but it's also a history

44:37

industry. You need to know what

44:39

happened in the past, what did well,

44:41

what didn't do well. And then it's very

44:43

iterative. Everybody's adding on an

44:45

innovation from the past, and everybody's looking for

44:48

play patterns. So it's all about the play

44:50

patterns and stuff like that. And so

44:52

kids played with die-cast cars. Sure, I did.

44:54

I loved them. Kids still play and collect

44:56

Hot Wheels today. And

44:58

so the association was, well, this is kind

45:00

of similar to Hot Wheels. It's die-cast. There's

45:02

a collectible aspect to it. We went out,

45:04

we licensed all the BMX bike

45:07

companies of time, like Hoffman and Redline and

45:09

all that type of stuff. So you

45:11

can collect them, you can play with them. So

45:13

there was an association and

45:15

a confidence in the play pattern. So this

45:17

is so different from some of the other

45:19

industries. Essentially, what you're saying is it's

45:22

very hard to create a toy for

45:24

kids in a boardroom with all the

45:26

market research and looking at kids with

45:28

2A glass. Actually, that doesn't work

45:31

that often? Not really. I mean,

45:33

you can get some false positives too. I mean, kids

45:35

get excited about a lot of stuff. You

45:37

can see if kids are really bored. You

45:40

can probably see if they really don't like something. But then

45:42

again, it's like what's valuable is more

45:44

like, is it too big for their hands? Is

45:46

it too small for their hands? Can they hold

45:48

it? That type of stuff. More functionality. But

45:52

testing the magic, very difficult. The

45:54

only way you're going to test is by putting it at

45:56

retail. But this play pattern idea is really interesting. I

45:58

mean, you know. Like when

46:00

I was a kid, I used to build Lincoln

46:03

these elaborate Lincoln log houses or you know Kids

46:05

have played with Lego for a long time had

46:07

Mecano. I Like loved

46:09

action figures. Mm-hmm. And so what

46:11

you're saying is elements of all those things They've

46:14

always existed through time and memorial when

46:16

humans were in neolithic villages They played

46:18

with they played in the same patterns

46:20

kids played in same patterns, but with

46:23

rocks or whatever Yeah, I mean

46:25

it's interesting for you to go that far back in time

46:27

But I guess I would say like in the last a

46:29

hundred years like the play patterns Started

46:32

to solidify like there's 11 categories

46:35

and toys So you got plush

46:37

which is stuffed animals like there's a way for

46:39

kids to interact with plush and then

46:41

like you say action figures How

46:44

do you play you know action figures is all about you know? Fantasy

46:46

and and trying to become that character

46:49

yourself. Yeah, so the toy

46:51

companies creatively were able to create

46:53

around The way

46:55

kids like to interact and

46:57

so now it's like can you

46:59

bring something new and different to the

47:01

play pattern? To spark joy and

47:04

the kids get them excited and that's

47:06

what that's what we look for all the time So

47:09

so I guess like around 2001

47:11

you guys had where I think was

47:13

your first like large-scale

47:15

failure Which was a product

47:18

called key charm cuties and I guess you

47:20

were Competing as a like a

47:22

Mattel product that something that the Mattel was

47:24

putting out. Yeah against Polly pocket, right? Right

47:26

Polly pocket. So what was the thing you

47:28

guys were making? it was a small fashion

47:30

dolls and and you can change their clothes

47:32

in a unique way and they came in

47:34

these purses that you can carry them around

47:36

with and When it came

47:38

to key charm cuties this

47:40

really we were up against Mattel

47:42

and their marketing and their design

47:44

and Our

47:47

design couldn't compete like our dolls

47:49

didn't look as nice as theirs Our

47:52

packaging wasn't as good our commercial wasn't

47:54

as good. We didn't have the brand We

47:57

didn't have enough money to develop a brand. So we that

47:59

was our first first lesson against the big

48:01

guys. Did you conclude that it wasn't worth

48:03

it to go up against a Mattel or

48:05

a Hasbro? No, because I mean,

48:07

the flick tricks were going right up against Mattel

48:09

was going up against Hot Wheels. We

48:12

have no problems competing with Hasbro, Mattel. We

48:14

always like respect to them and learn from

48:16

them. But we actually had no choice. If

48:18

you wanted to be in the toy industry, those were, those

48:20

were the players that you were competing against. All right. So

48:23

from what I understand, you started to

48:25

go to Japan in 2000. Yep.

48:29

Um, and I lived in Japan when I was

48:31

a little kid, from age four to six. My

48:33

dad was there and I still remember the

48:36

toys were unbelievable. Like years

48:38

ahead, you start to go

48:40

to Japan in 2000, presumably because

48:42

Japan, I think is still like when it

48:44

comes to toy innovation, probably the center of

48:47

the world, right? It's, it's one

48:49

of the most creative places you can go, but it

48:51

is probably, it's very

48:53

seminal to the

48:55

journey the company has taken. We actually

48:57

went there with a, with a mission in

48:59

hand, which was to try to find

49:02

products in Japan that we could bring to North America.

49:04

And what is it about, in your view, what, what

49:06

is it about Japan? Why is

49:09

Japan the sort of the, the Silicon

49:11

Valley, let's say of toys? I just think

49:13

that their minds are very

49:15

open and they, I think they just look

49:17

at the world very differently and they look

49:19

at things differently. And what would

49:22

be strange to us is

49:24

normal to them. Now, like when you

49:26

think about like the Tamagotchi, like what a unique

49:29

toy to come up with, or you look at something

49:31

like Ampeban, I don't know if you've ever seen the

49:33

preschool show Ampeban. It's

49:35

the, one of the strangest characters you've

49:38

ever seen in your life. You know, so

49:40

it's like, or like Japanese candy. It's just

49:42

amazing. Yeah. I haven't eaten a

49:44

lot of candy, but I think they like, they just, they're

49:46

just into doing different, they're good with

49:48

different. One of the decisions

49:50

you made in 2005, which I think is a

49:52

pivotal decision. Maybe I'm wrong, but I think it

49:54

was, is you moved your

49:57

director of global licensing to Japan

49:59

and you. really kind of wanted

50:01

to figure out

50:03

how to bring something from Japan.

50:05

Because I think 2005 would eventually,

50:08

a few years later, lead to

50:10

your biggest toy of all time up to

50:13

that point, which was Bakugan. Am

50:15

I right? That story begins in 2005? Yeah,

50:18

Bakugan 2006. And

50:22

can you explain what Bakugan was? It was

50:24

like marbles meets transformers. So

50:26

there were these marbles and you roll

50:28

them on the table and you're aiming

50:30

towards the card. The card, okay. And

50:33

embedded in the card is a sheet of metal, but

50:36

as soon as the ball hits the

50:38

card, the magnet inside of the ball

50:40

activates a spring and then it pops

50:42

open and transforms the character,

50:46

the ball into a character. This idea

50:48

came from some, like a kid, a 23-year-old

50:51

named Aldrich or Aldrich Saussier,

50:54

who submitted this idea to

50:57

Spin Master. Did you have like an

51:00

open submissions, like a

51:02

way to submit ideas? He, no, it

51:04

actually came, Aldrich invented the

51:06

item. So his genius was

51:08

the idea to put an action figure into a

51:10

marble. And

51:13

we took it in, we did a whole bunch

51:15

of development. And then what happened was we said,

51:17

well, in Japan, they're

51:20

so good with these like micro

51:22

mechanisms, maybe we can partner with

51:24

someone in Japan. So we did a trip over

51:26

there and we took it to Sega Toys and

51:29

we presented it to Mr. Kokoban, who doesn't

51:31

speak a stitch of English. He's

51:33

the founder or the CEO of Sega

51:36

at the time? He's the president of Sega Toys.

51:39

Sega like the video game company too.

51:41

Yeah, exactly. But his history was

51:43

he was an incredible toy inventor and

51:46

a real true blue toy guy. So

51:49

he saw the magic and he saw the potential and he said,

51:51

sure, we'll partner with you guys. And you

51:53

knew because of play patterns, you knew that kids

51:56

like marbles because of like marbles for a long

51:59

time. to roll things

52:01

on the ground and they like

52:03

transformer things and you knew all

52:05

those elements suggested that this would

52:07

take off. Yes. I

52:09

mean, when we licensed the product, it had two elements. It had the

52:12

marble and it had an action figure and a marble. So those were

52:14

the two play patterns with

52:16

a really, really cool magical

52:19

sensation. Like when it popped open, like you

52:21

got excited and then your ability

52:23

to close it was automatic. Like you just took

52:25

your two fingers and it closed. So

52:28

it was very fidgety in terms of opening

52:30

and closing and opening and closing. All

52:33

right. So you're developing this toy, this

52:35

new toy Bakugan. And I guess you

52:37

decided to do something that you'd sort

52:39

of learned about in Japan, which is

52:42

when you launch it, you also launch

52:44

a cartoon about the

52:47

characters. Yeah. And I

52:49

don't, hopefully this doesn't sound crass because

52:51

it's not like, I mean, this is

52:53

a business show and I think that

52:55

from a business perspective, this is absolutely

52:57

brilliant strategy. But I mean, a cartoon

52:59

is essentially a 22 minute advertisement for

53:01

the product, right? I would

53:03

say it's a way to actually accentuate

53:06

the magic of the toy and

53:09

it enhances the toy because how are you

53:11

going to know the characters of the Bakugan

53:13

unless you can see them on the

53:15

screen and hear them talk and see

53:17

how they battle and how they work

53:19

and all that type of stuff. So

53:22

what happened when Bakugan was released? Do

53:25

kids? I remember through the

53:27

2010s seeing that toy in the

53:30

hands of every kid between the age of

53:32

five and 10 or 12. It

53:34

became a billion dollar franchise. Billion

53:37

dollar franchise. Yes,

53:40

it became a billion dollar franchise. It aired in literally

53:42

150 countries around the world. We

53:45

did four seasons over 200 episodes. It

53:48

just captured the hearts and minds of kids. And

53:51

I think around 2008, you transitioned

53:53

from being a toy company to

53:55

a 360 media company, which

53:57

I think is fair to describe you that

53:59

that was... Yeah, that was one

54:02

of our goals was to have an

54:04

entertainment division and Bakugan

54:06

was Genesis for it. And

54:08

then after Bakugan we launched a

54:10

show called Redekai which was based

54:13

on this really innovative card

54:16

system that we created. Everybody was excited

54:18

about it. All the retailers bought into

54:20

it and it was a huge

54:22

disaster. Like you

54:24

could not give the product away. It

54:27

probably took the retailers like two, three years to actually

54:30

clear out the products. What

54:32

happened with the recession of 2008, 2009

54:35

and beyond? I mean, does

54:37

that affect toys

54:39

or toys relatively

54:41

inelastic? We actually had our best years in 2008,

54:43

2009 during the recession. So we didn't

54:47

really feel anything. Parents are not going to cut on

54:49

their kids last in terms of consumer

54:52

expenses and stuff like that. It's

54:54

quite recession proof. The flip side of

54:56

the toy industry is not a high growth industry, but

54:59

it's just very stable. All right,

55:01

so you've got the Bakugan.

55:03

I think by 2010 it was

55:05

driving almost half of your

55:08

sales. It was over 45% of

55:10

your income came from Bakugan, which is

55:13

great, but also kind of scary,

55:15

right? That one product is so

55:18

dominant because if that revenue

55:20

stream dries up, you're in trouble,

55:22

which I think kind of started to happen around

55:24

that time, right? That's exactly what happened. So basically

55:26

in 2011, the sales started to go down. So

55:28

basically, our

55:33

sales went from 2010, I think we peaked at about

55:35

950 million. And then by 2013, the

55:43

sales were down to 500 million.

55:46

Wow, that's a huge decrease.

55:49

Yeah. And that's because

55:51

you relied too heavily on

55:53

Bakugan? It was a combination

55:55

of that and all the products that we had

55:58

coming up behind Bakugan. Those

56:00

products didn't they just didn't work. They didn't connect

56:02

with the consumer. Basically the product line just wasn't

56:05

robust That was following up Bakugan. We

56:07

didn't think Bakugan would would drop in sales as quickly

56:09

as it did Why did it happen now, by the

56:12

way? What do you think happened? You know, I think

56:14

it's just I think it's actually natural is is that

56:17

those types of toys have a certain life

56:19

cycle to them And they're usually

56:21

it's a three or four year life cycle and

56:23

then they actually go down So

56:25

by 2013 we weren't we actually

56:27

retired Bakugan So it went

56:30

from like hundreds of hundreds of millions of dollars

56:32

a year in sales to zero

56:36

When we come back after the break How

56:38

Spin Master is airlifted out of

56:40

its slump by a 10 year

56:43

old boy named Ryder and

56:45

six search and rescue dogs Otherwise

56:48

known as Paw Patrol Stay

56:50

with us. I'm Guy Roz and you're listening to

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Mint Mobile for details. Hey,

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welcome back to How I Built This. I'm Guy

59:29

Roz. So it's 2012

59:32

and for the first time since the company's

59:34

launch, Spin Master is not

59:36

turning a profit. In fact, it's

59:39

losing millions of dollars. And

59:41

Ronan understands that in order to

59:44

keep going, the company needs to

59:46

come up with another hit. But

59:49

until that happens, he has to

59:51

make some hard decisions. We

59:53

had to do two things. We had to lean

59:56

into developing and really

59:58

keying in. on what

1:00:01

are the right categories, what are the right products that we

1:00:03

should be launching. I think we got

1:00:05

to the point where we had a lot of hubris and we were like,

1:00:07

whatever we're going to put out there, it's going to go. Because

1:00:10

you had so many hits. We

1:00:13

had so many hits and we had so much success and everybody

1:00:15

gets excited. So we

1:00:17

had to become much more judicious in the product selection and

1:00:20

then on the flip side, we had to restructure the company.

1:00:23

At that point in time, I think we had about 900 employees and we had

1:00:25

to let go 350 people in a matter of 24

1:00:27

months. A

1:00:31

third. A third of the people. Wow. And

1:00:34

we had never done it before. It was

1:00:36

an excruciating process and we did it four

1:00:38

times, four restructurings. Just because no one

1:00:40

really wants to believe that the sales are going to go down.

1:00:43

And so when we did the restructuring, everybody was

1:00:45

like, we don't need to let go of that

1:00:47

many people. The sales are going to pick up,

1:00:49

et cetera, et cetera. And it just never happened.

1:00:52

It kept on jerking the whole company. Every

1:00:55

single time you had to go out and make an

1:00:57

announcement and make people feel comfortable and the company is

1:00:59

okay. So when you do it

1:01:01

four times, you lose a lot of credibility and

1:01:03

it's hard to keep the morale high. I'm

1:01:06

sure. I mean, four rounds of

1:01:08

layoffs, people must have been really

1:01:10

worried and nervous about their jobs and it

1:01:13

has to affect the atmosphere. That

1:01:16

was stressful. The

1:01:18

other stuff wasn't stressful. This was stressful. Yeah. But

1:01:21

I will say that we really, it was

1:01:23

the time where we actually dug

1:01:25

in and we're like, we

1:01:28

need to tighten our marketing. We need to reduce

1:01:30

our SKU counts. We don't need

1:01:32

to do as many things financially. We actually

1:01:34

had no choice because in those two years,

1:01:36

the company lost money and

1:01:39

substantial amounts of money. So

1:01:41

there really wasn't any options

1:01:43

but to right the ship. And

1:01:46

then in addition, you had to come up with

1:01:48

a new magical product, the next Bakugan, the next

1:01:50

Air Hogs. What did you

1:01:52

do? We just got really focused. The

1:01:55

one thing we didn't do is we didn't cut

1:01:57

our R&D budget. We kept that and we kept

1:01:59

on spending. and we kept on investing. And

1:02:01

we were like, let's keep on trying. Let's keep on

1:02:03

trying with new television shows. Let's keep on trying with

1:02:05

new toys. And we'll just be a smaller

1:02:07

company, but let's just be a profitable company.

1:02:10

Ronan, you'd basically

1:02:12

been profitable every single year and you'd

1:02:14

been growing every single year. And

1:02:16

then all of a sudden, you're not only unprofitable, you're

1:02:19

losing a lot of money. Were you

1:02:21

worried about whether you guys would make it? No,

1:02:23

I don't think, I wasn't nervous. I

1:02:26

actually, personally myself, I rise in a

1:02:29

crisis. And I'm actually better in a

1:02:31

crisis. That being said, I mean, the

1:02:33

relationship's definitely frayed. We have a saying, you know,

1:02:35

I'm sure you know, it's like growth hides a

1:02:37

multitude of sins. Yes. And when

1:02:39

you're not growing, all the sins come out. So

1:02:41

everything came out. Our relationships

1:02:43

got challenged and

1:02:46

tested. He's been among

1:02:48

the founders. Oh, yeah, yeah, amongst the founders came

1:02:50

out, inefficiencies in the business,

1:02:52

the way we were organized. Everything

1:02:55

came out, but I don't think that anybody

1:02:57

was in a panic. It was

1:03:00

more of like, this is not easy. And

1:03:03

this is why older people have gray hair. You

1:03:05

know, when people say they have gray hair from

1:03:07

something, like this was our seminal gray hair event.

1:03:11

Yeah, and you have some gray hair. I have a lot of

1:03:13

gray hair. All right, so

1:03:16

you restructure the company, but you're also

1:03:18

trying to find the next thing. And

1:03:22

from what I understand, this concept,

1:03:24

you knew that the

1:03:26

concept of an animated show

1:03:28

and products was successful. And

1:03:30

what? You

1:03:32

put out a request for proposal from

1:03:35

different creators you knew for a

1:03:37

new kind of animated show. Tell

1:03:40

me the genesis of Paw Patrol.

1:03:42

How did it start? So

1:03:45

I think one of the things that dawned on us is it's

1:03:48

very hard to get success in

1:03:50

the same genre more

1:03:52

than once. So why

1:03:54

don't we take focus on the preschool

1:03:57

category? And we were like, well, why don't we

1:03:59

do a show for? preschoolers. And

1:04:01

we said, what if we took the magical

1:04:04

aspects of transformation the kids loved in

1:04:06

Bakugan and they love in Transformers and

1:04:09

why don't we bring it to a preschool

1:04:11

audience? And by the way, a preschool audience

1:04:13

because that is, you know,

1:04:15

is it a good demo for, I don't know,

1:04:18

for toys? It's an incredible demo

1:04:20

for toys, very steady demo for toys. And

1:04:24

no one had ever done anything with that

1:04:26

play pattern for that demographic. So

1:04:28

we put out this brief, can you come up

1:04:30

with a conceit or a story around

1:04:33

transformation for preschoolers? We

1:04:35

sent to the five different creatives around the world

1:04:37

and we got

1:04:39

back a whole bunch of interesting proposals and

1:04:42

the one that we liked best came from the creator

1:04:45

of Bob the Builder, his name is

1:04:47

Keith Chapman, an incredible human being and

1:04:50

he came up with this great idea. What was the

1:04:52

idea? What was his So his

1:04:54

idea was it was called Robby

1:04:57

and the Rescue Pups and

1:04:59

it was this idea of these five

1:05:01

dogs that each had

1:05:03

their own personality. One was a

1:05:05

fire dog, one was another construction dog, another one

1:05:07

was a police dog and

1:05:10

they go out and they solve difficult

1:05:12

situations that happened in the town. So

1:05:15

he sends you this concept and

1:05:18

it's not gonna be called Robby and the

1:05:20

rescue dogs? Correct. Because Robby becomes writer later

1:05:22

on I think, right? Correct. When you saw

1:05:25

this concept did you all

1:05:27

say this is it, this is the one? Yeah

1:05:29

that's what we landed on. We were like, saw

1:05:32

it as having incredible

1:05:34

story potential, incredible

1:05:37

character potential and

1:05:39

then we said well how do we figure out the transformation and

1:05:41

we said well it'd be magical

1:05:43

if we put backpacks on the pups and

1:05:46

the backpacks transformed and

1:05:49

what if their dog houses transformed

1:05:51

into vehicles and that's how

1:05:53

we marry it up. So we had the transformation

1:05:55

plus great story, good character,

1:05:58

all that stuff next together. And we were like,

1:06:00

let's move, let's try. And I think

1:06:03

the show, Paw Patrol debuted

1:06:05

in 2013, is that right? And

1:06:08

it took off right away? It took off pretty

1:06:10

quickly, but I will say this much,

1:06:12

is that the show got developed

1:06:15

and refined over time

1:06:17

also. And through that

1:06:19

concept, right? I mean, you can do, I remember

1:06:21

that, I mean, I know the action figures, it's

1:06:25

everything, it's toys, it's stuffed animals,

1:06:27

it's pajamas, it's lunch boxes, it's,

1:06:31

I mean, I'm just scratching the surface, right?

1:06:33

It's endless, what you can do with a

1:06:35

character that sticks. Yep, yep, you're exactly right.

1:06:37

I mean, that's the magic is when you

1:06:39

have a character that kids love

1:06:41

and trust and can relate to, then

1:06:44

they'll want to spend time with them in different

1:06:46

form factors. So it definitely

1:06:48

helped turn around the business. It's hard to overstate

1:06:52

how all those elements came

1:06:54

together into this perfect

1:06:56

match, because I believe that

1:06:58

PAW Patrol as a franchise is

1:07:02

one of the biggest toy

1:07:04

franchises since Mighty Morphin'

1:07:06

Power Rangers. Yes, it is

1:07:08

a once in

1:07:10

a lifetime, once in a generation franchise

1:07:14

that has exceeded all

1:07:17

expectations. And it's

1:07:20

something that we've worked towards. Originally

1:07:22

we had PAW for five, then we had PAW for

1:07:24

10, we're coming on the 10th anniversary. And

1:07:27

now we have a motto, which is PAW forever. Our job

1:07:29

is to just keep it fresh,

1:07:31

exciting. We just came up with the movie,

1:07:33

came out this past August, the

1:07:35

first time we did a feature length film,

1:07:38

animated film. And so that was

1:07:40

a milestone for PAW Patrol. We're gonna do another film in 2023. We

1:07:45

want PAW Patrol to be around for 100 years. It's

1:07:48

our Mickey Mouse. What is

1:07:50

it about a character that makes it enduring?

1:07:52

Why does Mickey Mouse endure?

1:07:56

But not, I don't know, Garfield,

1:07:59

who I watch. watched when I was a kid or the Smurfs even.

1:08:01

I mean, yeah, but the Smurfs aren't as big as they, I don't

1:08:03

think they're as big as they were when I was a kid. I

1:08:06

think a lot of it has to do with keeping

1:08:08

them relevant. You know, if you look at, let's say,

1:08:10

like franchises like Spider-Man, they're always

1:08:12

doing movies and they're taking risks with their

1:08:15

movies. You look at Transformers, they did films

1:08:17

and they were really innovative with their films.

1:08:20

They're so different from the cartoon that I watched

1:08:22

as a kid. Yeah, so

1:08:24

they're relevant and they're timely. And I

1:08:27

think that, you know, stuff, other franchises,

1:08:30

they just didn't keep things fresh.

1:08:33

And kids, they can sense it. So

1:08:35

it's, I think that we're following

1:08:38

that model. What do you think the

1:08:40

value of that franchise is today if you could put a

1:08:42

price on it? Priceless. It's

1:08:46

a multi-billion dollar franchise. Wow. You

1:08:51

decided to go public in 2015. So

1:08:54

20 years after you launch, imagine

1:08:56

for a variety of reasons. One is to raise

1:08:58

money, but two, you know, to reap some of

1:09:01

the rewards of what you had built. Is

1:09:03

that the decision behind why you went public? No,

1:09:06

it really wasn't. The real

1:09:08

decision why I went public was to actually set

1:09:11

the company up for success

1:09:13

in the future. We felt that

1:09:15

for the company to outlive the founders, it's

1:09:18

best for the company to be in a

1:09:21

public construct rather than a private company.

1:09:23

It was like, we knew we were getting a little bit older.

1:09:25

Who knows what's happening in the future. And

1:09:28

as an entity, it's not reliant

1:09:30

on three shareholders at the end of

1:09:32

the day. You had this

1:09:35

challenge with Bakugan where it was accounting for 44% of your

1:09:37

revenue. And then when

1:09:39

the sales went down, you took a hit. And

1:09:41

presumably you learned a lesson from that. But

1:09:44

I have to assume that the PAW Patrol

1:09:46

is still the biggest driver of revenue for

1:09:48

the company. Is that fair to say? You

1:09:51

know what's significant? That being said,

1:09:53

after what happened in the downturn years,

1:09:56

we became very conscious on

1:09:58

diversifying our revenue. And

1:10:01

so we went out and we bought

1:10:03

a company called Swimways, which specializes in

1:10:05

the pool. Swimtoys, or floaties. They're all

1:10:07

floaties and it's counter seasonal. It's great

1:10:09

in spring and summer. You've

1:10:11

got Etch-a-Sketch. Etch-a-Sketch. We have a whole

1:10:14

activity part of our business, which is

1:10:16

Etch-a-Sketch. We also diversified into the games

1:10:18

business. So that's very stable, reoccurring revenue.

1:10:20

We bought a company called Cardinal in

1:10:22

2015. So we're the largest manufacturer

1:10:25

of puzzles and chess sets and

1:10:30

poker chips and all that type of stuff. It

1:10:32

is, and I don't mean as upon head spinning.

1:10:35

Spinmaster's head spinning to me. The industry's head

1:10:37

spinning to me. I have Vertigo just thinking

1:10:39

about all of the things that you're part

1:10:41

of. 20,000 products,

1:10:43

a media arm, games,

1:10:46

digital products. It

1:10:48

seems like in this industry you just can't,

1:10:50

you have to continue to move. You cannot

1:10:53

stop or else you die. I

1:10:56

think that's entertainment. That's the essence of the

1:10:58

entertainment business. I mean, the way you describe

1:11:00

it, it sounds like exhausting. Yeah,

1:11:02

it does. But

1:11:04

I think at the same time, the flip side

1:11:07

is that it's exciting. It's exciting to

1:11:09

work on you and fresh and to

1:11:11

design stuff and to create stuff. I

1:11:13

think the creation process is where the

1:11:15

magic is. Sometimes I wish

1:11:17

we were just like a one product company

1:11:19

or one idea, but I

1:11:22

think it would actually be boring if it

1:11:24

was just one product and that

1:11:26

was it. Now that you decided

1:11:28

to step down, I can't believe you- I

1:11:30

like to use the word

1:11:33

step up, actually. Step up. Okay, yeah. I

1:11:35

can't believe you were in the leadership

1:11:37

position of the company for 25

1:11:39

years, a long time. You're

1:11:41

still young. I mean, I think you're maybe close to

1:11:43

50 or just 50. That's

1:11:45

great. You can still spend a lot of time

1:11:47

to enjoy your life, but I mean, man, I

1:11:50

imagine that that was your thinking. You're like,

1:11:52

I'm done. I did it. I can play

1:11:55

a different role in the company. No,

1:11:59

that actually wasn't- That wasn't 100% the thing.

1:12:02

It was the co-CEO model

1:12:04

that Anton and I had and

1:12:06

Ben. It traditionally is not a good

1:12:09

model. So it's incredible that it lasted this

1:12:11

long. And one

1:12:13

of our biggest goals is for this

1:12:15

business to live beyond the founders. And

1:12:18

so this was part of the transition

1:12:20

plan to enable that to happen.

1:12:23

So we're very much connected

1:12:25

to the business and engaged and

1:12:28

want to guide and shepherd it into the

1:12:30

future. We'll just guide and shepherd it differently.

1:12:33

Ronan, when you think about this

1:12:35

trajectory, you started this

1:12:37

business with a pantyhose stuffed with

1:12:39

sawdust and grass seed and

1:12:42

turned it into a $4 billion

1:12:44

company. How much

1:12:46

of that do you attribute to how hard the three

1:12:48

of you worked and your intelligence and how much do

1:12:51

you think has to do with

1:12:53

getting lucky with toys and products and ideas?

1:12:56

I think we're lucky that we found each other.

1:12:58

I think we're lucky the people that decided to

1:13:00

join our company, the people that we've

1:13:02

been able to attract and partner with and people that wanted

1:13:04

to take the journey with us,

1:13:06

whether it was Bakugan or Paw Patrol and these

1:13:08

partnerships, I think that's where the luck came in.

1:13:11

And then we put in the time. I

1:13:14

have a saying, you don't go, you don't get. And

1:13:17

we went out a lot. Anton, he

1:13:20

opened up all the offices in Europe. He

1:13:23

did all the sales with all the retailers,

1:13:25

manors all those relationships. Ben was

1:13:27

constantly going out, meeting with the inventors, going to

1:13:30

their offices, doing inventor trips. We

1:13:32

did all that stuff. And

1:13:34

the last thing I'd say is that we never

1:13:36

blamed anybody for failure because it's

1:13:38

too complex in our business. There's too many stakeholders

1:13:41

when you're doing creative things that

1:13:43

you can blame one single person. So

1:13:45

for sure, listen, the universe works in strange ways and

1:13:48

a lot of it is out of our control, but

1:13:51

we need to show up too at the same time.

1:13:53

So it's a combination of both. That's

1:13:56

Ronan Harari, co-founder of Spin

1:13:58

Master and... Since this episode first

1:14:00

aired back in 2021, Spin Master announced a $950

1:14:03

million deal to

1:14:07

buy another large toy company, Melissa

1:14:10

& Doug. The acquisition was

1:14:12

completed earlier this year and by the way,

1:14:14

Melissa & Doug have also been on How

1:14:16

I Built This. It was one of our

1:14:18

very first episodes way back in 2016 and

1:14:21

if you haven't heard it, scroll back and give it a

1:14:23

listen. And thanks so

1:14:25

much for listening to the show this week. Please

1:14:27

make sure to click the follow button on your

1:14:29

podcast app so you never miss a new episode

1:14:31

of the show and as always, it's free. And

1:14:34

don't forget to sign up for my

1:14:36

free newsletter at guyraus.com. This

1:14:38

episode was produced by Casey Herman with

1:14:41

music composed by Ramtin Arabluhi. It

1:14:43

was edited by Niva Grant with research help

1:14:45

from Claire Murashima. Our production

1:14:48

staff also includes Chris Messini,

1:14:50

JC Howard, Alex Chung, Katherine

1:14:52

Seifer, Sam Halson, Kerry Thompson,

1:14:54

John Isabella, Carla Estesves, and

1:14:56

Elaine Coates. I'm Guy Raus

1:14:58

and you've been listening to How I Built This. If

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