HOW TO GROW TOY COMPANIES
The number one topic we get approached by toy companies to help with is GROWTH.
How can we grow our business? Only the fortunate few see ongoing sales growth ahead. In a mature industry, many companies stagnate in sales terms, even though they are working harder and harder. There are of course a few companies where (possibly very sensibly) owners want stability more than growth, but overwhelmingly we encounter companies looking to grow one way or another. So here’s some quick points:
1. Sell more! Yes, it’s completely obvious, but actually asking the question ‘how can we sell more’ leads companies to review their presumptions, structure, focus, employee incentivisation etc. An effective growth plan needs a fundamental commitment to sell more, it won’t just happen. It might mean selling more to existing customers, opening up new channels in existing markets, distribution partnerships, export sales, overseas offices etc., but in the end it comes down to an organisational commitment (not wish, but commitment) to sell more. It will likely involve investment, and it will almost certainly involve increased overhead (which needs careful risk management), but your business won’t grow unless you confirm a growth plan.
2. Clear financial targets – a general plan to grow won’t inspire your teams in the same way as a solid clear sales figure will. Whether it’s $1m, $10m or $100m, pick a figure, work out a plan to get there & then make it a clear organisational goal. I once worked on a project where the company struggled to know where it was going on a product category, the plan was frankly a little vague and ‘floaty’. We confirmed a fixed $amount, and by way of almost bragging that we were going to hit that target incessantly we got there eventually. The target was completely arbitrarily selected for being a nice round number – $50m, a previously inconceivable amount. And so $50m became the battle cry (from $0m at the start), and we got there. There were many reasons for that success, but a major reason was the drive to hit that specific sales figure. (isn’t human psychology a remarkable thing!)
3. Diversify (low hanging fruit) – my company consults with toy companies in various different product categories, and so we see how similar most toy products/categories are. Yes, there are some differences, but they typically aren’t that great and the barriers to breaking out into other categories are not usually so great! Yet routinely when asked to help toy companies grow, my company has encountered companies struggling to expand product line for no particular reason beyond a kind of habit of working on a particular type of product. Off the top of my head, I can think of 6-8 companies we have Consulted with who need or want growth, but who have struggled to get their collective heads around this concept. The reality is this – if you are working on plastic toys of one kind, what stops you from expanding your offering to another kind of plastic toy? The customers will be largely the same (although the Buyer may change, but that’s hardly a major roadblock), the marketing channels will be the same, the manufacturing processes/QA will be the same or at least similar, so why wouldn’t you? The same applies to puzzle companies who don’t do many board games or fashion doll companies who don’t do action figures etc. Yes, there is a degree of positioning/being indentifiable as a player in a particular niche, but a). that positioning advantage is probably over rated in terms of importance/impact and b). once you are supplying retail they have an innate organisational impetus to take more product from you to reduce their number of suppliers as per standard purchasing efficiency models. Typically, companies have to get over their own mental baggage of past failed attempts to launch new products in new categories…erm, well most new toy launches do fail – let’s look at the stats: between 2/3rds and 3/4 of all toy skus on sale each year are new products! And, even more remarkably, the c. 1/3 of products which carry forward each year deliver c. 2/3rds of the sales! So in effect we are stuck in a kind of illogical new product development & launch cycle, it’s hit and miss, so don’t expect everything to work – in existing categories or new ones! Product launch failure is a natural part of a toy company growth cycle. So, are there any similar product categories you can expand into?
4. Acquisition – if you look at some of the biggest players in the industry, they are relentless acquirers of brands & companies. Some acquisitions deliver more long term benefit than others, but regardless, if you look at the brand portfolios of Hasbro, Mattel, Spin Master & others, acquiring other companies is a major part of their growth. This may seem unhelpful for smaller companies, who may perceive that they don’t have hundreds of millions sat in the bank waiting for a company to buy. However, this is potentially ‘small thinking’, because it’s about growth as a strategy, not about massive scale. Maybe there’s a ‘one man band’ who has established a niche position which would bolt on nicely to your company and who would take a few hundred thousand to sell up. Maybe there are financing options you haven’t considered. Don’t get me wrong, you should never acquire for the sake of it, and a bad acquisition can be very very risky, so it needs to be managed/ringfenced with prudence and caution, but nevertheless this is a proven growth strategy.
5. Build on a stable platform – regular readers of my articles may roll their eyes here, but yes, a strong stable proprietary brand portfolio gives you a strong growth platform. Stepping aside from the roller coaster/hamster wheel of selling licensed products, building your own brands is THE long term growth driver. Brands are great, because they can be extended, co-branded with licenses, licensed into other forms of merchandise, turned into standalone content iterations etc. Even more importantly – the number one point we make when Consulting with toy companies is that we shouldn’t only look at growth in terms of SALES, it’s critical that we also look at EQUITY value i.e. we may have added to our sales by introducing a new licensed product range, but is our company actually worth any more when we will just lose their rights in 3 years or so? The answer is most probably not! Brands are THE major driver of toy company equity value. Distribution can be bought, hired in or otherwise accessed. Great people are essential, but they don’t and never will ‘belong’ to the company. It all comes down to brands!
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy companies around the world, which helps companies with product reviews & awards, find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.