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TEN TIPS FOR TOY & GAME START UPS
Over the past nearly a decade and a half, I have advised c. 200 startups in the world of Toys and (non-digital) Games. It’s been joyful to celebrate the success of many of those companies. Obviously, some didn’t make it, because that’s how the world of startups goes: attrition and failure are all part of the journey for entrepreneurs in this space. I’ve been reviewing my notes, and there are some observations I can share below, as well as some recurring advice I have given over time which highlight some recurring patterns in successful startups. So here’s some tips for those who have newly or recently embarked on a Toy or Game startup company:
1. HURRY UP & WAIT: TIME vs PATIENCE
First things first, let’s get real about how long it takes to build a new Toy or Game company: We operate in a business with a primarily annual sales cycle. That means that one go round is a whole year of your life. Even if you are running the best start up in human history (which sorry to say is unlikely), it is going to take you YEARS to build your company to any level of success and years longer to get anywhere near maturity.
New market entrants often come into the Toy & Game business expecting to break all the rules, disrupt the market and so on because they read in entrepreneur books that’s what you need to do nowadays. The bottom line is this – you can break quite a few of the old rules today and be successful, you can even go (in effect) direct to consumer via Amazon and hit as much as a quarter or a third of the market, which you could not have done historically. But if your business plan fundamentally requires you to get listed in Walmart across the USA in Year one, and to start selling in to them whenever you are ready, versus when they proscribe you need to then think again. It just doesn’t work that way. In a couple of hundred companies we have advised, it has never once worked like that regardless of how disruptive the company, product or concept was.
I have seen really successful business people screw up their entry into the Toy biz by failing to plan for the reality of the sales cycle and the time needed to set up sales distribution.
Here’s the bottom line…don’t give up the day job unless you can afford to live on your savings for three years. Even when you are successful, and your business is growing your business will be to money what a famished teenager is to the cookie jar in your kitchen – greedy and never satiated! (More on cashflow shortly).
Be prepared for the fact that setting up sales & distribution in the world of Toys will take a lot longer than you want it to.
2. VALIDATE YOUR PRODUCT/S EARLY, CHEAPLY & QUICKLY
We all understand that you think that your product is amazing, and that’s important, because the process of trying to sell it can grind you into the floor even if you love the product (if you are lukewarm to the product expect all hope to be crushed quickly by a cruel world where there are thousands of products to choose from and where yours is much less interesting and seemingly unique for all the professional Buyers you will try to sell to than it is to you)!
The reality here is this, having been a deluded product inventor/developer myself a few times and having spoken to many hundreds of creators over the years, the successful ones a). Validate their products and the potential appeal of their products early & quickly with people who’s opinions matter and b). Move on from emotional commitment to their creations and onto hardnosed selling mode quickly after creating. c). Ditch those products which the market clearly doesn’t want for valid reasons.
Let’s be clear here, any one who has been around a long time in this business has seen someone flogging what seemed like a dead horse around year after a year, and then see them heroically make it after years of effort, focus and lost opportunity elsewhere, but that isn’t really the best way to do it. Even if you have something quite good, the market will often not automatically embrace it, it takes effort, grind and persistence, but the trick is to be persistent enough to get in front of enough of the right people to validate or not validate the product. Don’t be persistent in a bloody-minded way, when your persistence would be more effective on a different product. Across the last 15 years or so of advising startups, we have seen more than you would expect mortgage their homes and/or take on life altering levels of debt to chase a dream that is unlikely to be achieved.
PLEASE validate whatever it is you want to bring to market as soon as you can before incurring heavy expense.
Ways you can validate your products:
1. The target recipient – go and test the product with at least a dozen people who fairly represent a cross section of those consumers the product is aimed at. Your family are fine to start with, but seek out the most cynical hard to please people you know – you want people who will take great pride in being blunt, or even rude about the product, because if you can get past their scrutiny you might just be onto something.
2. The target purchaser – this can be different from the recipient, it might be a parent or grandparent, it may be a spouse, but talk to both receiver and purchaser to validate – if you have an amazing product the recipient wants, but it costs $5,000, then the recipient will love it, but the purchaser will ask you what you have been smoking to try to sell a product at that price!
3. Retailers – maybe you are lucky, and you are related to or know someone who knows a major Retail buyer who will give you the time of day, but as that is unlikely, I suggest you go and befriend an independent retailer or two in the space you are looking to enter. These people are clearly passionately committed to this business, and usually love the products. They know consumers and they understand how established Toy & Game companies think and operate. If you ever manage to get a meeting with a Mass market Buyer, and they are the first Retail Buyer of any kind you have spoken to, then you already screwed up. Find a way to get Retail validation or rejection of your products before you jump on board a train which might not stop for a decade, or which might crash horribly deeply wounding all on board (that’s not just hyperbole, I have done both successful and unsuccessful start ups myself and while the former made me euphoric, the latter caused deep emotional stress which took years to get over). Your local independent retailer will often be very approachable and give you more time than you merit in terms of what you can do for their business (just remember & celebrate them if you make it big).
3. ADAPT TO MARKET DEMANDS
You will have a perception of what the market wants, but if the market opportunity is clearly in a different direction, then most often following that different direction towards where the demand is at is likely to lead to success. Let’s say you developed a product which is highly sophisticated and aimed at high end department stores, but the market is clearly indicating the product fits better as a lower end product with lower end presentation and lower price point, follow the demand if you want to make Sales. Or you could dig your heels in I guess and pass up on opportunity because you know best. I’d rather have the Sales in the bank, but each to their own 😊.
4. LACK OF CASH IS A KILLER
This should be the least surprising tip listed here. Cashflow is king. We all know this, the challenge is the elongated cashflow cycle of the Toy & Game business can be hard for new companies to handle. If you start selling in September this year (2024), you might ship product a year later, and if you are lucky, get paid 30-60 days after the retailer receives the product. So you could be looking at an extended 14-month cashflow cycle. Don’t act like it’s a surprise when you have no money left in the summer – you have been warned, it’s a long cycle.
And what happens if things don’t go to plan? (Which they often won’t). Let’s say you launch some new products and one or two fail badly and just won’t sell off the shelf (over time everybody ends up experiencing this issue – in the interest of transparency, despite having sold the most successful Game of all time, I also conceived and sold the worst selling game of all time).
When you bring a real dog of a product to market, your Retailers will probably want clearance funding, and you’ll likely to have to closeout excess inventory at a loss. What does your cashflow look like now heading into the next selling cycle? I always advice my clients that the decision to launch a new product line is a decision to put at risk 2 selling cycles i.e. 2 years’ worth of cashflow.
Bearing that in mind, does that change the importance of Tip 2 – Validating your products? I think so, and certainly the most successful companies I know in this business spend nearly as much time and resources on validation as they do on creative development.
5. APPROPRIATE LEVEL OF PEOPLE FOR EACH STAGE OF YOUR COMPANY GROWTH STORY
When your business first starts, you will find that you (and whoever you start the business with) are doing most of the work across functions. Over time to succeed you will need more people to more effectively fulfil key functions. One of the hardest balancing acts is to recruit great staff, but to manage your over heads so that you have the right level of good people at the right time in your development. At some point you will need more discipline, more structure and more processes, but introduce all that too early and you can kill the entrepreneurial drive required to get the enterprise off the ground in the first place.
The audience reading this newsletter is Global, so employment laws and practises vary, so the following advice should be tempered with local laws and employment regulations and practises, but the smaller your headcount is, the more critical each person in the company is. If you find you have made a recruitment mistake early on, then the more hardnosed you can be about correcting your mistake the better the chances are that you will make it out of startup phase.
I have been the right person in a role and then grown the business to the point where I was no longer the right people, and I have hired people who also saw the role they started in outgrow their experience and level of performance. This is normal, and so you have to be good at managing this. It’s not easy to decide that someone who was an early hire is no longer the right fit for the job role that was created around them, but it happens, and the better you are at managing this scenario the more likely it is your company will go through the phases successfully.
If you and anyone else you founded the business with are not focused on or good at Sales, then I would seriously consider over recruiting and over paying for a Sales person who has a good track record, is hungry for Sales and bonuses, who has strong existing Buyer relationships as well as knowledge of how the Retail buying system works. If you wanted one tip from this newsletter which would represent metaphorically pressing the fast forward button it would be this one. Clearly you have to be able to pay your Sales person, but they will normally be the best investment you can make if you hire well, so if there is one role to over invest in near the start of your journey it is Sales – more on why that is in the next tip.
6. FOCUS ON WHAT WILL MAKE THE BIGGEST DIFFERENCE, NOT ON THINGS YOU LIKE TO DO OR WANT TO DO
Another major mistake startup founders often make is obsessing about non-critical details.
Over time, successful founders will recruit people to do the tasks and to run the functions which they are not good at running. This explains why often times where you have 2 or three founders you end up with a successful business, because responsibilities are usually carved out early on, and so the business begins with two or three people being pulled around within their own slice of the pie instead of being pulled everywhere across the pie, which is what happens often when you have a single founder.
But in terms of priority, there are only three things that matters when you start your business: 1. Sell 2. Sell 3. Sell
Arguably you need the product before you can sell, and that requires either great creative skills or sourcing/product selection skills, but the reality is that good sales people can (and prevailingly do) sell average products.
You have no business before you sell something.
Routinely I advise start up founders who are lost in the intricacies of packaging or manufacturing, and I have to advise them that agonising over a production process when you have no customers and no demand for your product is pointless.
EVENTUALLY you absolutely do need a safe, certified product to ship, but that’s so far down the road for a completely new start up that it is almost an irrelevance until you get some Sales traction.
The most successful companies focus on building momentum in the key areas and not the less critical factors.
If you just want to come up with cool ideas and execute their product development then you need to find other people or organisations to do your selling for you. Because the harsh reality is this – there are hundreds of full time Sales people with bags of experience and contacts in this industry who find it hard to persuade Retailers to buy and list their products, do you as a new market entrant really think you can compete with these experienced full time people in a few spare moments you allow yourself after agonising for days or weeks on product details which won’t matter if you can’t sell the product? Get real to get successful!
7. MANAGE INVENTORY COMMITMENTS WITH GREAT CARE
It’s much easier to buy inventory than it is to sell it!
Speaking as someone who has had a garage full of unsaleable inventory from my own ill-conceived ventures, and as someone who has visited numerous failing businesses which had excess inventory literally falling out of the windows of their warehouse, my advice is to order inventory with great care.
Eventually you will have systems and teams of people who argue and bicker about how much to order of which products and when, and that will help to make your inventory management process efficient. But to begin with, every purchase order you place is an existential risk to your company, so you should treat the enormity of that decision to the appropriate level of due diligence. Make it harder for yourself to order stock from your factories. Formalise a process. Involve other people. Perhaps even incentivise your Sales teams by the level of inventory on hand as much as by Sales achieved – that’s how the big Toy & Game companies do it. Find someone who acts as a brake on placing inventory orders, in established companies this is often someone from Finance, but before you have a business of a size which merits a Finance person let alone a Finance department, you need some brakes as well as some tailwinds when it comes to ordering inventory.
In our industry, inventory expense (manufacturing & shipping) cost as much as a third of revenues. So you don’t want to get this wrong. Excess inventory can literally kill your business.
8. CONGRATULATIONS YOU GOT A BIG BREAK WITH A BIG OPPORTUNITY, NOW PUT EGGS INTO OTHER BASKETS
We all know someone whose parents were never satisfied when they were children. They would do well at school, perform some chore or win a competition in one of their hobbies or past times, and there would always be one parent for whom it wasn’t enough, and who always expected more.
That’s how successful Toy & Game startups think and behave. The first major breakthrough for a new company is so exciting for everyone involved, it creates an electric atmosphere in the company, and it creates momentum when dealing with external partners who suddenly pick up the phone to you and might even start chasing you for preview appointments.
Success in this business though can be thoroughly transient – many a company has launched a new Toy to market and had a big hit for a year or two, only to see that successful product fade out of the market place as consumes and Retailers moved on to the next things from other companies. The more successful your products are, the more likely it is that ‘me-too’ products at low prices will start to flood the market. Success is only rarely permanent in this business! Products are only occasionally perennial.
So, as soon as you have a success, don’t leave all your eggs in that basket, spread the love and build up more eggs in more baskets for the security and stability of your company.
9. BEWARE OF EXTENDING CREDIT
Beware – not everybody pays their bills. Some fail to pay because they go out of business or are struggling. For example, when Toys R Us Inc. went bust, they owed $136 million to Mattel, $59m to Hasbro, $33m to Spin Master and $32m to Lego (according to reports in the L.A. Times).
The bottom line is that extending credit can be a massive risk for new companies. There are ways round this – you can sell FOB from the port near the factory so that you get paid earlier in the process and don’t take on inventory risk to the same degree, you can use factoring and other credit instruments. You could demand upfront payment of cash – while this latter measure is not normal when dealing with Retailers, it should be standard practise when dealing with closeout deals.
I have plenty of issues due to people not paying their debts on my CV/Resume, and every single incident caused severe problems of one kind or another, whether that was cashflow impact for the business, or a limitation to my ongoing career prospects.
So please – as a startup, be wary of blithely extending credit here, there and everywhere. You may need some expert advice on this area to get the best deals but also to make sure you get paid one way or another. There is nothing more exciting than getting big orders from new customers, but there is also nothing as devastating as not getting paid for those orders.
10. TRADE SHOWS ARE A CRITICAL ‘PILGRIMAGE’
People do business with people. That cliché just about sums up the value of Toy & Game trade shows. Admittedly you can sell via Amazon’s algorithm and perhaps never have to interact with a real person, but much of the market still operates exactly how it has always operated – via inter personal contact. Buyers need to get to know you, to take your measure and to work out if they can trust you and trust your company to be part of their supply chain.
The best way to meet Buyers when you are a start up is via Trade shows. There is no better way to schmooze, sell and to display your wares to those that are in the business of buying similar products.
Over 25 years, most of my most successful results have been heavily influenced by or somehow derived from industry Trade shows. The one thing that never gets cut in my schedule or in our company budget is Trade show attendance.
You do need to be efficient when you start up of course, some shows are more successful than others. If you are a typical Toy & Game business, I would suggest that you might benefit from exhibiting at your home country Trade show. After that if you still have budget, then the Spielwarenmesse in Nuremberg is typically the best to meet international distributors and Retailers from around the world. Beyond that, you need to decide based on the specific needs of your business.
By the way – the topic of which Trade show companies should attend is the question I get asked most often. So I recorded a podcast episode to answer this question as broadly as possible, to listen to that podcast episode, just click here: https://playingatbusiness.libsyn.com/ep-107-which-toy-game-trade-shows-should-you-attend
These tips admittedly come from a fairly jaded perspective after a quarter of a century in this industry now and nearly 1.5 decades of helping startups. You might be the company that breaks all rules and bucks all precedents, I hope you are, but I have seen a couple of hundred companies come into this market and we have advised them at various stages of their journey. There are very few who succeeded who did not either adopt these 10 tips early in their journey, or didn’t do so, made mistakes, and then course corrected accordingly.
I wish you well with your journey.
Seeing new companies we have helped turn into the established companies at trade shows, on toy shelves and across the world of Toys & Games gives me great professional pride and fulfilment. Sometimes one of our clients goes onto become a major player, you might just be the next :)
Bon chance and remember “audentes Fortuna Iuvat” - Fortune favours the BRAVE.
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