Is it possible to build a successful hardware toy startup?

I was recently asked this question as part of a panel discussion and safe to say, I was stumped. Not only did I not know for certain, but there were also multiple dimensions to consider. In answer to the questions, I ended up saying a very ambivalent, “I don’t know… you’ll have to ask me again in a few years!”

The reason for that response is that we are at a really interesting time in the industry. We are seeing fantastic, tech-driven toys coming to the market. But (and a big one at that), if the newest technologies are being adopted by toy makers, how can the inevitable challenges of integrating fresh tech be overcome to eradicate blockers to success?

The Past

Back in the day, it used to be that technology was only adopted in toys a few years after it had made its debut in consumer products and prices had come down. Take the digital camera as a case in point: when it first hit the market in the late ‘90s you would be expected to pay a small fortune for a couple of megapixels. Years later, that same spec could be found in a toy camera for just 30 bucks. 

The Now

Fast-forward, if you were to ask any of the old guard manufacturers now their thoughts on adoption of new technologies, most would still instantly see cost as a barrier to entry. This leaves it to the humble startup to lead the way. Many founders – former academics, technologists, enthusiastic graduates and the like (yourselves included!) – understand the tech at its core and are coming into the industry from different angles. Crowdfunding platforms such as Kickstarter and Indiegogo have made the route to market simpler than ever. It has never been easier to get your product out there. 

Managing Expectations

However, hardware does come at a price and requires substantial upfront capital. So, naturally, the majority of startups turn to external investment. This is where I believe there is a flaw. Many investors expect to see the classic ‘hockey stick’ growth associated with software startups. In reality, the only times you see this occur in toys is with seasonal trends. If I think back to my own schoolboy days of POGs or to, more recently, the craze of fidget spinners and slime, it becomes clear that all pocket money spends are seen in school playgrounds, not in pricey hardware. 

From my experience, selling hardware is never a case of simply turning on the taps and expecting customers to flood in. As toy expert, Steve Reece aptly puts:

 

“It usually takes three to five years to build a speciality toy brand from nothing and to have any kind of market presence without major marketing spend. For the very lucky few, it happens much quicker, but it can also take even longer. Success is often down to sheer persistence.” – Steve Reece

 

If this is to be believed, then there are two realities: that return on investment will take considerably longer than most anticipate, and that hardware toy manufacturing lends itself more to the use of traditional materials which benefit from lower setup costs and smaller MOQs. Such materials would allow you to recoup investment at a greater pace and continue the cycle of reinvesting in new product.

The future

We’ve touched upon the history of technology in the industry and some of the factors currently stubbing toy innovation. Looking forward, how then does one go about building a successful hardware toy business of the future?

Here are a few strategies which often work in tandem with one another that I have observed:

1. Investor loyalty.

The simplest strategy is to find investors who truly understand the rules of the game and who align with your vision. This demonstrates the willingness of your investors to see your product and company through.

2. Edu and consumer.

Known as ‘edutainment’, startups are gunning for the lucrative educational market – a wise move considering many are STEM-based. The challenge here is selling into the education sector, which steers towards being more centred around evolution than revolution.

3. Licensing!

Since the success of Sphero’s Star Wars BB-8, there has been a trend towards licensing technology within the industry. See Kano’s Harry Potter Coding Kit, Tech Will Save Us’ Avengers Kit and for further case studies. This can be a high-risk strategy considering the price of acquiring a license with little guarantee of how appealing it will be to a mass audience.

4. Reposition yourself.

To broaden your potential audience, repositioning yourself as an entertainment company, as robotics specialist Anki has recently done, may be the way to go.

Within the toy industry, we seem to be in a period of great innovation. The route to market is easier than ever and what I have learnt first-hand from my time at Primo Toys is that parents are willing to pay a premium for quality. If you can accept that you probably won’t sell hundreds of thousands in the first couple of years, but that there is a market opportunity to create quality, educational, future-facing toys, you can build a successful business around that reality.

If you would like to read more posts like this then please feel free register your interest in joining the Toy Pioneers Club.

Ben

Be part of the club.