Monday, December 4, 2006

HandsOnToys Inc. - Toy Company Case Study

“To launch a company requires full-time participation,” Mr. Farrar said, “Many, many companies with good ideas do not get off the ground because they cannot put a business plan together. They can’t do the planning and thinking and the organization that is necessary. It is not a part-time job.”

they decided to pursue the market in the toy industry described as the Specialty Toy Market. According to Mr. Farrar this segment accounts for 5% of the $20 billion dollar toy industry, and is very entrepreneurial lending itself to a slower pace of product development and marketing than the mass market.

February was when the plan was at a point of being ready to be shopped out to potential investors with which to accumulate funds. All solicitations were done on a private level, no VC’s were employed and the company is a privately held company. Estimates of $1 MM were made for the amount of money the company would need to develop and bring the product to market.

It was during this same time of prototype development and business plan writing that the company had employed a professional testing laboratory to test their product under ASTM regulations. This was done to ensure it was a safe product to market, and that it adhered to all established safety codes created by appropriate regulatory bodies. These test results were included in the business plan as a testament to the product safety and further reinforcement of the thoroughness of the founders business development activities.

They had maintained a business model for the company of being a nearly completely virtual organization. All the manufacturing was to take place outside the company by being contracted out. The same is true for the package printing and manufacturing, the assembly of the product into its deliverable form, and the shipping. An adult rehabilitation house is used to employ handicapped workers to assemble the product and to handle all the shipping. “We know what we know and we know what we don’t know. We have no problem paying for the right kind of service and we went out after the best talent we could afford,”

Their perseverance and enthusiasm for their new business allowed them to meet their aggressive schedule and conduct their initial product runs and shipments in August of 1994

Despite this being a risky position to be relying on only one product for the sales and growth of a company, the fact that HandsOnToys is a start-up company makes sense that they are portioning their limited resources to best exploit the one successful product concept they have. As time progresses and the company grows, they can learn from their experiences with the first product launch to more effectively repeat the process when they are ready to launch a new product.

By proving the product during the 1994 Christmas season, we can now go to the retailer and use the 1994 Christmas sale performance to show new retailers the proven track record of the product. If we missed Christmas we would have missed a year.”

“We were not in the distribution channels yet, so we had to first convince retailers to buy it. We hired a sales force and brought the product to the gift show and put it on display. That is where we got the bulk of the initial orders. The follow up orders largely consisted of re-orders from those initial customers.” For HandsOnToys their strategy was a successful one based on sales of 18,000 units for the Christmas season of 1994.

When asked about the reasons for the product’s success Mr. Farrar made it clear that the basic concept and nature of the product is what makes it so appealing, “It’s a helluva lot of fun!”

That is the very intriguing nature of the entrepreneurial company which is its ability to be flexible and very reactive to situations that larger companies would have a more difficult time reacting to.

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