Hi Guys, I emailed this to you, but wanted to post it on your blog as well.
Alright All. First, great job on getting the first draft up last night. You came through and Im impressed. I’ve gone the first draft canvas. My notes below are based on what I believe the teaching team might say or ask. I think the questions/comments Ive made are pretty challenging. I know it’s tough to get a “tone” from an email, so please know that I’m writing these things in a…”happy” tone. Probably easier if we could all chat about it on a call at some point. But I’d rather have you face tough questions with little old me, and Nick, than Steve, Ann, and class. And please, provide good answers and shoot holes in my comments anywhere you can.
-Where do most toy sales happen: mass market retailers vs amazon/ebay and niche/local toy stores? Im going to guess that most happen in big box, mass market channels. You will want to clarify this. If you’re top down market size analysis is that you can play in a $1 Billion segment of the toy space, or something like that, what does it mean if 90% of those sales happen in mass market channels like Toys R Us, Walmart, Target, etc.? Then you must shrink your market size to 10% of that number–and does that sync with the market size requirements that Steve laid out in the class? Also, remember that you want to sell to parents that meet the requirements of high level of involvement with their kids, college degrees in math, science, eng, and have daughters 6-9yrs old. How much further down does that shrink your target market?
-A difficulty you’ll find, that doesn’t come up in research so much, but comes out when people try to launch new toy products, is that distribution to local toy stores and independent niche stores is very resource intensive, but you don’t get exponential sales growth. I’ve seen this happen many many times with start-ups taking new consumer products to market. The local/niche retail environment is VERY fragmented, meaning that to sell through, say 1000 stores, you’ll need to deal with maybe 300 different buyers. This is because these stores are small little chains right? Maybe they are just 1 store for the entire company. So you’ll have to sell a buyer to get 1 store added to your distribution list, or 3 stores added to your distribution list, maybe 40 stores added to your distribution list. Dealing with so many buyers takes A LOT of time. What will happen is you’ll end up spending a ton of time serving all these buyers, and they may only buy 5 units at a time, every 4 months, etc. So now, you’re small little startup, with 1 or 2 people dedicated towards sales, is trying to sell and service 300 different buyers, so that they’ll buy a small number of units irregularly. It’s not very scalable.
Now compare this to dealing with Toys R Us and Target. Toys R Us has 600 stores and Target has about 1744 stores. This scenario means you have two companies and only 2 buyers (and their teams) to deal with, and you can scale up to ~2400 stores. Im not saying getting into and servicing these kinds of stores is easy. It’s very difficult. But from a scale perspective, it is far more leveragable than dealing with onsey-twosey small store chains. And the goal of the class is to be a scalable start-up.
But let’s say that you change your mind and you want to break into the big box retailers like Toys R Us, Target, and more. You can’t forget the other barriers to entry that you discovered during your research this weekend: brand and marketing (creating awareness of the product/brand). Traditional toy companies spend tons of money on advertising to do this. More money than you can ever hope to have as a start-up. So if you approach the Target retail buyer and say, “hey, I’ve got this amazing new science toy kit for girls”, they may say “it’s great, but how are you going to let tons of our shoppers know about it so that, as soon as we put it on our shelves, it starts flying off?” If you’re product was absolutely groundbreaking/spectacular–you might be able to get one of them to try it in a few stores, and it would have to sell a certain number of units in a certain time period, or they’ll tell you “no thanks”. But most likely, and I’ve had clients with great products have this happen, is they’ll say “unless you’re willing to devote some $$$ to advertising, or creating some awareness, to help customers learn about the product and come into the store to buy it, we don’t think we’ll sell enough, fast enough”.
Which brings me to my last question. Your product description:
“We will be selling a basic kit that involves batteries, motors, wires, a switch, and moving pieces (right now the initial idea is a Car, where a basic kit includes the flat cardboard chassis, axles, wheels, motors for the rear wheels, batteries, a switch, and wires), we then go on to define the Add-ons as things like the body (such as a Sedan, SUV, wagon, convertible) which the kid may paint herself with a racing stripe or two-tone, etc. Another add-on would be the lights (headlights, etc) of different colors”.
First, how does the above description of your product account for the observation made that girls may play with toys that are only intended for one participant at a time, because it’s not a social experience?
Second, I think you mentioned Klutz somewhere along the line. I looked at their solar car toy set (http://www.walmart.com/ip/Klutz-The-Solar-Car-Build-It-Yourself-Kit/17176194?ci_sku=17176194&ci_src=14110944&sourceid=1500000000000003260420). If Im a kid and Im looking at what you’re describing above, and this Klutz toy set here–is there really that big of a difference Im going to see? (except the klutz toy sells for $20) Will a buyer see a big difference? If not, how is your product really that different from what’s already on the market? Is selling add-ons via the internet the killer part of the offering that will help you crush the competition? Are you going to be able to take on Klutz, who has a bigger advertising budget, and compete with them?
To truly scale and take on established competition, your idea must be, at least somewhat, disruptive to how the other companies in the industry compete. BabbaCo is disruptive because they’re competing on different things than traditional toy companies. They’re developing email lists of kids/parents. They’re basing their business of a subscription model. They’re value prop is that you don’t have to “buy” toys that your kids will be bored of in 2 months, but you can rent them instead. Another value prop is they take the thinking part out of the buying process for the parent, because Babbaco sends you what they think is best, etc. They’re developing a monthly relationship with their customers that retail stores will never have.
Think about how all these difference would look on their business model canvas compared to a typical toy company, and how–if it works, the other toy companies may have a hard time catching up if BabbaCo really gets going.
One last thought on testing. You may have already considered this, but wanted to mention it.
-You’ll have to be careful about how you ask your questions and what you look for, when you test. You guys started out with a mission: to get girls more interested in engineering and science, by providing them fun toys that accomplish this–right? It’s a great mission. I doubt you’ll find many people (in the Bay Area at least) that will tell you think is a bad idea and that they’re aren’t willing to support it. Many people will say “yeah that’s great, I’d love to buy toys for my girls that help them do this”. But sometimes, actions are very different from how people want to portray themselves when no one is watching. It’s like the US manufacturing vs China manufacturing toy question–people get interviewed on TV and asked whether they would rather buy US made or China made toys. Most people generally say whatever is considered acceptable to the public at large. But many of them, alone in the toy shelves with no one watching, looking at the $15 US toy, and the $10 China toy, may actually buy the $10 China toy. And the kids? They won’t care at all. So be careful when you interview people and test, that you’re not asking people whether they support what you stand for, and that you are asking whether they would be interested in and buy your actual product.