The ups and downs of starting (and selling) my very own toy business
In early 2012, I decided to take the leap to design and make my own toy. I was living in Hong Kong at the time and working as a frustrated toy designer for Mothercare, sharing the opinion of many designers who thought they could do it themselves. So, along with a friend, I set off and developed PL-UG: a construction den/fort/cubby making kit of bits. I was naive in not knowing what it would take to go on and bring PL-UG to market and in the journey, quickly developed a newfound respect for all those corporate business functions I had initially dismissed (sorry!).
Here’s how we did it, and some (hard) lessons learnt along the way:
Design to the numbers
From my time at Mothercare, I could clearly see that the toys priced at around $25 were selling the best, with sales dwindling drastically as prices rose above $60 and entered the dreaded considered purchase zone. This played into our hands when we compared ourselves against our competition as we spotted an easy opportunity to create ‘affordable’ den kits priced under our competitors’ $60+ threshold.
“Establishing our production brackets helped focus the development work, as I now knew what price point to design to.”
With this in mind, we decided to launch with a range of sets retailing at $20, $30 and $60 to leverage that gap. Having started with the sales prices first, and with retailers and distributors expecting to make 50% and 30% margins respectively, we could calculate that each set needed to cost us in the ranges of $4, $6 and $13 to make. Establishing our production brackets helped focus the development work, as I now knew what price point to design to. This led to the development of smaller components and a product vision to create an open-ended connector system, which would allow for new components to be added later, future-proofing for range expansion. This may sound obvious, but time after time I see founders race ahead to design the ‘perfect’ product, only to be caught out later when they realise it costs too much for the market to handle.
Get it in the hands of the user as soon as possible
Having designed toys for several years prior, I was confident I knew what would appeal to children. Yet, it wasn’t until we got the prototypes into their hands that I became aware of a major fault. Key to the product was the connector system but, after testing, it became clear that little hands weren’t able to line up and join the components. Several iterations later we hit on a solution that became second nature. We patented this connector and built IP into the business, protecting us against imitators and fuelling potential business expansion. We were on the up! Surely nothing stood in the way of toy domination… 💪
Treat your supplier as you do a relationship
I had established a good network of Chinese factories whilst working in Hong Kong, so we decided to go with the one that I had the best rapport with. I knew their quality and way of working, even if they were not the cheapest! However, despite having the plastics sorted, one component I hadn’t sourced was the fabric sheet for the larger sets. With no contacts I set about sourcing a supplier from scratch myself. I attended a large sourcing fair near Hong Kong airport and came across a flag vendor. “Perfect!” I thought. Specs discussed and price quoted… sorted! A week later I received the sample, which was great so we paid the deposit. I then arranged a surprise visit to sign off production.
I hopped on a flight, arriving in Ningbo one morning, and discovered what can only be described as a mess. The sample I had signed off versus the sample presented for production were worlds apart. This led to a heated discussion over where the blame lay. We were unable to find a compromise as the only solution provided was to pay more for a ‘better’ quality material, which I felt was unfair. So I walked away. We lost our deposit and I learnt a valuable lesson: to only work with recommended suppliers.
“Dealing with manufacturers is a constant compromise, between cost, quality and time. The skill is to know which one to prioritise.”
In the end our plastic vendor managed to source the sheet. Of course, we were paying a premium, but it was a compromise I was willing to take for the sake of quality. I learnt then that dealing with manufacturers is a constant compromise, between cost, quality and time. The skill is to know which one to prioritise.
Choose your sales partners carefully
With a product and supply chain in place we needed to raise capital for tooling. Having developed a looks-like, works-like prototype, we reached out to several UK distributors. The purpose was to gauge interest and if possible get a commitment to order. We found one distributor in the UK. They loved the concept, going so far as to say it was “the best product they had seen all year.” High praise indeed. With a commitment to order we raised a small angel round allowing us to pay for the tooling and place our first order. With this paid for and delivered, all was great. We were cash positive with a low burn rate and the product had found itself on the shelves of retailers as big as John Lewis, Harrods, and Toys R Us. The feeling of seeing my product on the shop shelf was amazing. It felt like everything was finally coming together.
We soon started facing pressures to lower the retail price of PL-UG’s top set from $60 to $50 to drive sales. That’s a massive drop when you consider our margins were already squeezed. Plus, we were already paying a premium to our vendor at this stage. This led us to look for alternatives. I was introduced to Longshore, a specialist toy manufacturer who makes the Rubik’s Cube, and who I couldn’t recommend enough (happy to make an intro). We made the decision to switch and move tooling. Doing this from the UK was risky, but all went well (I have heard horror stories). It may not come as a surprise to hear, but what the Chinese do well is replicate. Aside from some missed glue points the transition was smooth. We had the production sample already signed off so they soon got to the standard we required.
With steady sales, a second order soon followed. But this was when it all went wrong. The UK distributor defaulted on their final instalment which proved to be a massive setback for the business. We lost months chasing the payment only to find out that they had gone into administration. To make matters worse, we had taken a verbal commitment for a third order (BIG mistake) that we had placed with our factory. We found ourselves with a huge hole to fill in our cash flow and tarnished retailer relationships. We had put plans in place to attend the Nuremberg toy fair. It became critical we made sales, which we did, and consolidated these to place a healthy new order that allowed us to clear our debts.
Falling back down to zero, we had lost almost a year of potential growth due to the situation. So we did what we could and reached out to toy companies to discuss potential acquisitions. By 2016 we could see light.
Through a last-minute trip to the 2017 New York Toy Fair, we were able to close out a licensing agreement with a Canadian toy company. This resulted in us handing over the brand and supply chain in return for a royalty. Now, what I learnt about royalties is that you need to shift a lot of product to see any substantial return. To put it into perspective, our year one cheque was a little over $1K each. This made me wonder if for ‘specialty’ toys this is ever the way to go. However, by the end of 2017 it transpired that the sales just weren’t there and PL-UG got dropped, so we were back to square one.
“What I learnt about royalties is that you need to shift a lot of product to see any substantial return. To put it into perspective, our year one cheque was a little over $1K each.”
Fortunately, there remained one region that was both receptive and loyal to the product: Benelux. So with a final throw of the dice we reached out to them and asked if they would consider buying PL-UG, and they did. It essentially worked out as an asset sale. With little to no sales to talk about at this point it was hard to put a real value on the business so, as of Oct 2018, we sold PL-UG.
So, what did I learn in those six years? That starting a business is hard. I mean… really hard. It not only falls on having a great idea, but also on your ability to execute and the graft you’re willing to put in to bring that idea to life. It is on reflection that I don’t think we put in enough. However I learnt more during those years than I ever would have in any 9 to 5, and I look forward to taking these learnings with me. Did the financial reward compensate the hours and years spent? Nope. But do I regret it? Hell no!
I plan to write in more depth on some of the topics I touched on so if you enjoyed hearing my story and want to know more, feel free register your interest in joining the Toy Pioneers Club.
Be part of the club.