Spin Master/PAW Patrol: Ronnen Harary (2021)

24:23Was it, I mean, and this is a question that's come up in a lot of episodes of the show with co-founders, which is everybody has a different perspective. How did you resolve disputes? we've always shot for unanimous consent and we would keep on debating until we actually got the consent and then there was one other thing which was if we stepped over the line everybody was able to say sorry which i think is a huge which is a huge thing sometimes if you weren't if you didn't say sorry you asked for the sorry and you always got the sorry it's actually my favorite word in Canadian. Yeah, that's a great Canadian word.

25:04At that time, right? Okay, so you've got two hits now under your belt. You've got EarthBuddy, DevilStix. You're probably doing four or$5 million in revenue by year two. How big were your ambitions? Were the three of you already in year two of your business saying, we're going to be a huge toy company? Was that the ambition or was it just like, let's just get this thing, sell this, and we'll figure out the next thing? It was, let's just keep on going. Let's find some other products to sell. We did make a couple of strategic macro decisions, which were, we didn't want to, after EarthBuddies and DevilSticks, which were both, call it public domain products, we said we want to design and develop our own products and we want to sell them globally around the world and we don't want to just be a Canadian distributor.

25:50And then we said, we're open to ideas wherever they come from and And let's go search for these ideas. So in 96, we started meeting with toy inventors. And so Ben was living with this girl by the name of Jen Irwin from the Irwin Toys family, which is a famous Canadian toy company. That's great. Wow. That was who he was living with. Yeah. Very coincidental. Yeah. So between her and Austin's company called Canada Games, which was run by the Albert family, they told us that there's a whole network of toy inventors globally around the world that come up with ideas, but they don't commercialize them.

26:27And so Ben started going around with our wares and meeting all these toy inventors and trying to solicit ideas from them. And by the way, was that hard to do because you were so small at that time? You know, they weren't, put it to you this way, they were not showing us their best products. They were basically dusting off the stuff in the back of the closet. That like Hasbro and Mattel wouldn't even look at. Correct. Yeah. But they were showing us stuff and we were getting to look at stuff and we were developing relationships and contacts. And so in 96, we actually came across this invention, which was an airplane that you pumped up and would fly for about 45 seconds.

27:06and it came from these two British inventors, John Dixon and Peter Manning. They actually came to Toronto, came to visit us, and we flew this airplane and it was probably one of the most magical experiences seeing this plane fly. Describe what it was. It was like an airplane with what, styrofoam airplane that you pumped air into it? Yeah, so it's basically, it's a plastic bottle, foam wings on top, foam fuselage, and they had developed this pneumatic engine that literally the air would actually drive the piston up and down, spin the propeller and fly the plane. A hundred yards, right? Yeah, it was a hundred.

27:44It would fly 45, 50 seconds and fly in a circle. Had they demoed this for other toy companies? Yes. We didn't realize after we signed the product, we didn't realize that every toy company had turned it down. Wow. So you see it and you're like, this is amazing. Yeah, it's incredible. But they had not had any success getting anybody to bite. Correct. I think they were trying to sell it for five years. All right. So you guys love it. And what did you do? You basically bought the license from them? Yeah. The way it works in the toy industry is you license the product in perpetuity and you pay a 5 % royalty on your sales.

28:19Got it. So you get the idea. But really what you're then doing is building a brand around it. Because I'm assuming it was a kind of crude, right? It wasn't like a fully developed toy. It was a plastic bottle and a body of an airplane with styrofoam, right? There was no branding or logos or shape to it. Yeah, exactly. The difficult thing with the Air Hogs, which is what we called it, was how do you mass produce it? We ended up finding this company called K-Development, and they did all the design work in terms of how the engine is going to actually function and work. And we actually didn't have a lot of money to pay them at the time.

28:58So they agreed to do a back-end royalty deal. And literally, we spent probably a year and a half, two years building the prototype, rebuilding the prototype, test it, and see if it was flying and see if it was reliable and durable and all that type stuff. Okay. Got all the engineering done. And then we went to China, found a factory, which was called Kinsing. And so we sent all the plans there, and they started actually building out the product for us. When you found that factory in China to make them, you were making a big commitment. You were putting a lot of eggs in this basket. Did you have orders already for the Air Hog?

29:36You know, we did everything in parallel. I would say this. When we signed the product, we basically put all the money we'd made to date into the design and development. The design and development was very, very expensive. A million dollars, more or less? All I remember was it was pretty much all the profits that we had. Yeah, that you had. Yeah. Everything was going into this product. Everything's done in parallel. So, you know, we had no orders at the beginning, but as we started designing and developing it, then you start the sales process. And we were going to the toy fair and at the toy fair, we were starting to sell it.

30:07And so before we actually got into production, we did have orders. So here's a question. This is a big commitment in money. And it was a two-year process, right, from 1996 when you got this license to when it actually debuted, I think, two years later. How did you know that it was going to work? I mean, did you do market research? Did you test it on kids? What kind of research did you do, if any? We did no research. Nothing.

30:42You did no market research. You went to no kids. You went to no schools. Nothing. You were just like, yeah, we love this. It's cool. Let's do it. Yep. So it could have been 100 % wrong. Correct. And that would have been a disaster. Correct. You just thought it was super cool, which it was. Yep. Loved it. It was just so much fun to fly. Why don't we come back in just a moment how the team at Spin Master began to realize that succeeding in the toy business means never staying still. If you have one hit idea, you'd better start thinking about your next one and the one after that. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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34:24Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1998, and Spin Master starts selling the Air Hog at toy stores. And unlike the Earth Buddies or the Devil Sticks, the Air Hog is much more complex and requires a lot of engineering. We took so much care, and that's why it took so long. It was like how to make the propeller safe, put a foam nose coat on it, super light. The wings would pop off so they wouldn't break. And, you know, one of the biggest things was usually it got stuck in a tree. So people. Yeah, and that's it. You're done. Well, or you climb the tree or buy another one. You buy another one.

35:04So here's the thing. So you make this product, right? You get this Chinese company to make them. And do you remember how many did you initially intend to make? Like a million, half a million? You know, I can just tell you that by the end of 1998, so we started marketing in that year. we had grossed$35 million in sales. Wow. I think we had sold over a million and a half pieces, something like that. And I think our wholesale was about$20 at the time. And it cost you probably$10 to make them? Nope. It costs about$5.50. How did, I mean, aside from the fact that it's super cool, I remember Air Hogs and they're still around, but how did you market it?

35:43Did you have to do anything at all to market it or was it just a product that sold itself? No, we did a lot of, We did a TV commercial. We bought media against it. We found distributors around the world. We came up with these really creative point of sale displays where you could actually pump up the air hog and flick the propeller and hear the magical sound that came from the motor. And I think we had them at like Walmart and Kmart at a lot of places. So that was definitely in the marketing budget. All right. So this comes out. And by the way, had you guys raised any money for the company? Are you entirely self-financed?

36:17entirely self-financed other than the bank would actually let us borrow against our inventory and receivables so we were able to use those monies which weren't our monies but at least they were up against the the orders that were going to come and again apply that to actually purchasing the goods and doing marketing and all that other type of stuff so this product blows up so you're you guys are growing really fast. Do you remember thinking to yourself, this is different? This is next level? Oh, yeah. I mean, the engineering development, it was a priceless education. Designing and developing and marketing that product was priceless.

36:58It was so difficult. We taught ourselves everything. We hadn't done anything close to that. It's not really even a toy. It's a mechanical flying object. So we really stretched ourselves to actually get that to market. But the nice part was all the inventors that we were visiting, they were like, wow, these guys can actually design, develop, and manufacture something. And so that really opened up the doors to future products for us. Here's what I wonder. I mean, the Air Hogs take off in 1998. At that point, can you just focus on that product and really build that out for the next few years or already do you have to start thinking about the next thing that's going to come out after that?

37:40You do both. And is that because kids are fickle and they just the life cycle of a toy is short? The toy business is all about fresh and new. Even if you have a brand within the brand, you still need to bring fresh and new. So we knew straight away after our first product, we were like, OK, what other innovation can we do in flying toys? So we came up with the V-Wing, which was like a stealth flying plane. And then we were thinking about other types of flying toys. So, yes, you always have to be innovating within the brand. And then we also wanted to diversify as a company. So we were thinking about what other categories can we get ourselves into.

38:15To me, it just seems like, my God, you guys were just playing with toys. Like, how joyful, like, how amazing, how fun. Like, but this was real serious business. You guys were heads down, like, really focused. Or was it throwing Nerf balls around the office? I don't know, what was it like? No, it wasn't that much fun in games. It was serious. First of all, the toy business is very competitive, hyper-competitive business, and it's very fast-paced. And, you know, the three of us wanted to win. So we were actually quite serious. I think we were probably too serious. We didn't have the foosball tables.

38:52We didn't have the pool tables. It was more about when we're in the office, let's do the work, and then let's go enjoy our time afterwards. It's intense. The other thing about the toy industry is that you're dealing with kids and you're dealing with safety and you've got to make sure that everything's – you've got to manufacture something at a low cost that's safe, that has an innovation attached to it. So 1998 really is a pivotal year for you guys because the air hogs just takes off. You've successfully manufactured a product now overseas. And now you've got a strategy. You are going to really begin to assess a bunch of inventions.

39:29I read you grew to 28 employees. You were assessing about 1 ,000 inventions a year at that time. So were people just coming to Toronto and showing you stuff or was it all happening at toy fairs or were you actively tapping into this network of inventors or all three of those things? The majority was actually Ben Verity and Ben Dermer on the road. Ben Dermer was another person you hired at that time to help out. Yeah, he helped Ben with the inventor relationship. And so they would literally go from city to city to city and visit the inventors and go to their offices. And I'd say that was like 80 % of the work was done that way on location.

40:12So you did zero research for the Air Hogs, but it really took off. Yep. Did that make you, and I'm not trying to ask this in like a snarky way, but I just, I think that if I was in your shoes, I'd have been like, oh my God, look at my judgments. Amazing. I can do no wrong. Like I might have become a bit arrogant at the time thinking we know how to pick hits. Did you guys have any of that at all? No, because we had some other products that alongside of Air Hogs that failed. We had a product called Don't Free Freddy. And it did not do well. What was that? It was basically a little furry monster and his hands were handcuffed together.

40:49And then you press a button and the handcuffs would pop open and his arms would flip up and he would roar at you. And we just thought it was funny. Yeah. But the kids didn't think it was that funny. And how did you, in those early days, how would you give something in the green light? Did you have to have total consensus? No. Sometimes there's certain products that I loved and I would win Ben over, but he wouldn't come very easily. But the one thing that we did find over the years is that when we did have universal consensus, the likelihood of success was much higher. All right. So you have Air Hogs and you're like assessing like a thousand inventions a year at this time.

41:27And the next thing I think you come across is these little like miniature BMX bikes, which are called Flick Tricks. And I think the guy who pitched them to you was this inventor named Jeffrey Kemper. Yeah. And then the one thing you have to understand about inventors, okay, and the reason why you want to go visit the inventors rather than them coming to you is like, they're really the kids in the equation, okay? And when they invent something, they want to show it. They get so excited about it. So on one of my trips to Chicago, when we were developing the Air Hogs, Jeff actually showed me the little flick tricks.

42:04And straight away, I was like, this is so much fun. Again, any market research, taking them to kids, sitting behind a two-way glass, watching them play it, anything like that? Nope. Nope, nothing like that. Nothing. Other than the fact that kids were really into BMX bikes at the time. Yeah. Would you analyze, like, market data around that? Did you have statistics? Zero. Nothing. Wouldn't even know where to get them. So you are literally just saying, yeah, I think this is cool. I'd play with this. It was so much fun. The key to being in the toy business is you've got to always think and feel like a seven-year-old.

42:37Is this common, by the way, in the toy industry? Or am I just complete? Because have I talked to too many McKinsey consultants? You cannot consult yourself in the toy industry. It is one of the most intuitive, creative industries out there. It's a feel industry, but it's also a history industry. You need to know what happened in the past, what did well, what didn't do well. And then it's very iterative. Everybody's adding on an innovation from the past, and everybody's looking for play patterns. Yeah. So it's all about the play pattern and stuff like that. And so, you know, kids played with die-cast cars.

43:10Sure, I did. I loved them. Kids still play and collect Hot Wheels today. And so the association was, well, this is kind of similar to Hot Wheels. It's die-cast. There's a collectible aspect to it. You know, we went out, we licensed all the BMX bike companies at the time, like Hoffman and Redline and all that type of stuff. So you can collect them, you can play with them. So there was an association and a confidence in the play pattern. So this is so different from so many other industries. Essentially, what you're saying is it's very hard to create a toy for kids in a boardroom with all the market research and looking at kids through two-way glass.

43:45Like actually, that doesn't work that often? Not really. I mean, you can get some false positives too. I mean, kids get excited about a lot of stuff. You can see if kids are really bored. You can probably see if they really don't like something. But then again, it's like, what's valuable is more like, is it too big for their hands? Is it too small for their hands? Can they hold it? That type of stuff. More functionality, but testing the magic, very difficult. The only way you're going to test it is by putting it at retail. But this play pattern idea is really interesting. I mean, you know, like when I was a kid, I used to build these elaborate Lincoln log houses or kids have played with Lego for a long time, had Meccano.

44:25I loved action figures. And so what you're saying is elements of all those things, they've always existed through time immemorial. When humans were in Neolithic villages, they played in the same patterns. Kids played in the same patterns, but just with rocks or whatever. Yeah. I mean, it's interesting for you to go that far back in time, but I guess I would say like in the last 100 years, like the play patterns started to solidify. Like there's 11 categories in toys. So you got plush, which is stuffed animals. Like there's a way for kids to interact with plush. And then like you say, action figures, how do you play?

45:01You know, action figures is all about, you know, fantasy and trying to become that character yourself. So the toy companies creatively were able to create around the way kids like to interact. And so now it's like, can you bring something new and different to the play pattern to spark joy in the kids to get them excited? And that's what we look for all the time. So I guess like around 2001, you guys had what I think was your first like large-scale failure, which was a product called KeyCharm Cuties. And I guess you were competing against like a Mattel product, something that the Mattel was putting out.

45:41Yeah, against Polly Pocket. Right, right, right. Polly Pocket. So what was the thing you guys were making? It was these small fashion dolls and you can change their clothes in a unique way. And they came in these purses that you can carry them around with. And when it came to Keycharm Cuties, this really, we were up against Mattel and their marketing and their design. And our design couldn't compete. Like our dolls didn't look as nice as theirs. Our packaging wasn't as good. Our commercial wasn't as good. We didn't have the brand. We didn't have enough money to develop a brand. So that was our first lesson against the big guys.

46:18Did you conclude that it wasn't worth it to go up against a Mattel or a Hasbro? No, because, I mean, the Flicktricks were going right up against Mattel. It was going up against Hot Wheels. We had no problems competing with Hasbro and Mattel. We always respected them and learned from them. But we actually had no choice. If you wanted to be in the toy industry, those were the players that you were competing against. All right. So from what I understand, you started to go to Japan in 2000. And I lived in Japan when I was a little kid from age four to six. My dad was there. And I still remember the toys were unbelievable, like years ahead.

46:55You started to go to Japan in 2000, presumably because Japan, I think, is still like when it comes to toy innovation, probably the center of the world, right? It's one of the most creative places you can go. But it is probably, it's very seminal to the journey the company has taken. We actually went there with a mission in hand, which was to try to find products in Japan that we could bring to North America. And what is it about, in your view, what is it about Japan? Why is Japan sort of the Silicon Valley, let's say, of toys? I just think that their minds are very open and I think they just look at the world very differently and they look at things differently.

47:37And what would be strange to us is normal to them. Now, like when you think about like the Tamagotchi, like what a unique toy to come up with. Yeah. Or you look at something like Ampaman. I don't know if you've ever seen the preschool show Ampaman. It's one of the strangest characters you've ever seen in your life. You know, so it's like. Or like Japanese candy. It's just amazing. Yeah. I haven't eaten a lot of candy. But I think they like, they just, they're just into doing different. They're good with different. One of the decisions you made in 2005, which I think is a pivotal decision, maybe I'm wrong, but I think it was, is you moved your director of global licensing to Japan.

48:15And you really kind of wanted to figure out how to bring something from Japan. Because I think 2005 would eventually, a few years later, lead to your biggest toy of all time up to that point, which was Bakugan. Am I right that that story begins in 2005? Yeah, Bakugan 2006. And can you explain what Bakugan was? It was like marbles meets transformers. Yeah. So there were these marbles in that you roll on the table and you're aiming towards the card. The card, okay. And embedded in the card is a sheet of metal, but as soon as the ball hits the card, the magnet inside of the ball activates a spring and then it pops open and transforms the character, the ball into a character.

49:04This idea came from a kid, a 23-year-old named Aldrich Saucier, who submitted this idea to Spin Master. Did you have an open submissions, like a way to submit ideas? No, it actually came, Aldrich invented the item. So his genius was the idea to put an action figure into a marble. and we took it in we did a whole bunch of development and then what happened was we said well you know in japan they're so good with these like micro mechanisms maybe we can partner with someone in japan so we did a trip over there and we took it to sega toys and we presented it to mr coco bun who doesn't speak a stitch of english he's the founder the ceo of sega at the time he's the president of Sega Toys.

49:55Sega, like the video game company too. Yeah, exactly. But his history was, he was an incredible toy inventor and a real true blue toy guy. So he saw the magic and he saw the potential and he said, sure, we'll partner with you guys. And you knew because of play patterns, you knew that kids like marbles because of like marbles for a long time. And they like to roll things on the ground and they like transformer things. And you knew all those elements suggested that this would take off. Yes. I mean, when we licensed a product, it had two elements. It had the marble and it had an action figure and a marble.

50:30So those were the two play patterns with the really, really cool, magical sensation. Like when it popped open, like you got excited. And then your ability to close it was automatic. Like you just took your two fingers and it closed. So there was like, it was very fidgety in terms of opening and closing and opening and closing. All right. So you're developing this toy, this new toy, Bakugan. And I guess you decided to do something that you sort of learned about in Japan, which is when you launch it, you also launch a cartoon about the characters. Yeah. And I don't – hopefully this doesn't sound crass because it's not – I mean this is a business show.

51:10I think that from a business perspective, this is absolutely a brilliant strategy. But I mean a cartoon is essentially a 22-minute advertisement for the product, right? I would say it's a way to actually accentuate the magic of the toy, and it enhances the toy. Because how are you going to know the characters of the Bakugan unless you can see them on the screen and hear them talk and see how they battle and how they work and all that type of stuff? So what happened when Bakugan was released? to kids. I mean, I remember through the 2010s seeing that toy in the hands of every kid between the age of five and 10, 12.

51:51It became a billion dollar franchise. Billion dollar franchise. Yes, it became a billion dollar franchise. It aired in literally 150 countries around the world. We did four seasons, over 200 episodes. It just captured the hearts and minds of kids. And I think around 2008, you transitioned from being a toy company to a 360 media company, which I think is fair to describe you that way today, right? Yeah, that was one of our goals was to have an entertainment division. And Bakugan was a genesis for it. And then after Bakugan, we launched a show called Redikai, which was based on this really innovative card system that we created.

52:34Everybody was excited about it. All the retailers bought into it. And it was a huge disaster. Like you could not give the product away. It probably took the retailers like two, three years to actually clear out the products. What happened with the recession of 2008, 2009 and beyond? I mean, does that affect toys or are toys relatively, you know, inelastic? We actually had our best years in 2008, 2009 during the recession. So we didn't really feel anything. Parents are not going to cut on, they're going to cut on their kids last in terms of consumer expenses and stuff like that. It's quite recession proof.

53:12The flip side of the toy industry is not a high growth industry, but it's just very stable. All right. So you've got the Bakugan. I think by 2010, it was driving almost half of your sales. It was over 45 % of your income came from Bakugan, which is great, but also kind of scary, right? That one product is so dominant because if that revenue stream dries up, you're in trouble, which I think kind of started to happen around that time, right? That's exactly what happened. So basically in 2011, the sales started to go down. And so basically our sales went from 2010, I think we peaked at about$950 million.

53:56Yep. And then by 2013, the sales were down to$500 million. Wow, that's a huge decrease. Yeah, yeah. And that's because you put too many, you relied too heavily on Bakugan? It was a combination of that and all the products that we had coming up behind Bakugan. Those products didn't... They just didn't work? They didn't connect with the consumer. Basically, the product line just wasn't robust. That was following up Bakugan. We didn't think Bakugan would drop in sales as quickly as it did. Why did it happen now, by the way? What do you think happened? You know, I think it's actually natural is that those types of toys have a certain life cycle to them.

54:37And they're usually, it's a three or four year life cycle, and then they actually go down. So by 2013, we actually retired Bakugan. So it went from like hundreds and hundreds of millions of dollars a year in sales to zero. When we come back after the break, how Spin Master is airlifted out of its slump by a 10-year-old boy named Ryder and six search and rescue dogs, otherwise known as Paw Patrol. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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57:50Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2012, and for the first time since the company's launch, Spinmaster is not turning a profit. In fact, it's losing millions of dollars. And Ronan understands that in order to keep going, the company needs to come up with another hit. But until that happens, he has to make some hard decisions. We had to do two things. We had to lean into developing and really keying in on what are the right categories, what are the right products that we should be launching. I think we got to the point where we had a lot of hubris and we were like, whatever we're going to put out there, it's going to go.

58:34Because you had so many hits. We had so many hits and we had so much success and everybody gets excited. So we had to become much more judicious in the product selection. And then on the flip side, we had to restructure the company. At that point in time, I think we had about 900 employees, and we had to let go 350 people in a matter of 24 months. A third. A third of the people. Wow. And we had never done it before. It was an excruciating process, and we did it four times, four restructurings, just because no one really wants to believe that the sales are going to go down. And so when we did the restructuring, everybody was like, we don't need to let go of that many people.

59:11The sales are going to pick up, et cetera, et cetera, and it just never happened. And so it was like, it kept on jerking the whole company, you know, like every single time you had to go out and make an announcement and make people feel comfortable and the company's okay. So when you do it four times, you know, you lose a lot of credibility and it's hard to keep the morale high. I'm sure. I mean, four rounds of layoffs, people must have been really worried and nervous about their jobs and it has to affect the atmosphere. That was stressful. The other stuff wasn't stressful. This was stressful.

59:43Yeah. But I will say that we really, it was the time where we actually dug in and were like, we need to tighten our marketing. We need to reduce our skew counts. We don't need to do as many things financially. We actually had no choice because in those two years, the company lost money and substantial amounts of money. So there really wasn't any options but to right the ship. And then in addition, you had to come up with a new magical product, the next Bakugan, the next Air Hogs. What did you do? We just got really focused. The one thing we didn't do is we didn't cut our R &D budget. We kept that and we kept on spending and we kept on investing.

1:00:24And we were like, let's keep on trying. Let's keep on trying with new television shows. Let's keep on trying with new toys. And we'll just be a smaller company, but let's just be a profitable company. Ronan, you'd basically been profitable every single year and you'd been growing every single year. And then all of a sudden, you're not only unprofitable, you're losing a lot of money. Were you worried about whether you guys would make it? No, I don't think. I wasn't nervous. I actually, personally myself, I rise in a crisis and I'm actually better in a crisis. That being said, I mean, the relationship's definitely frayed.

1:00:58We have a saying, you know, I'm sure you know, it's like growth hides a multitude of sins. and when you're not growing, all the sins come out. So everything came out. Our relationships got challenged and tested. Even among the founders? Oh yeah, yeah. Amongst the founders came out, inefficiencies in the business, the way we're organized. Everything came out, but I don't think that anybody was in a panic. It was more of like, this is not easy and this is why older people have gray hair. You know, when people say they have gray hair from something, Like this was our seminal gray hair event. Yeah, and you have some gray hair.

1:01:35I have a lot of gray hair. All right, so you restructure the company, but you're also trying to find the next thing. And from what I understand, this concept, I mean, you knew that the concept of an animated show and products was successful. And what, like you put out like a request for proposal from different creators you knew for like a new kind of animated show? Tell me the genesis of Paw Patrol. How did it start? So I think one of the things that dawned on us is like it's very hard to get success in the same genre more than once. So why don't we take focus on the preschool category? and we were like, well, why don't we do a show for preschoolers?

1:02:24And we said, what if we took the magical aspects of transformation that kids loved in Bakugan and they love in Transformers and why don't we bring it to a preschool audience? And by the way, a preschool audience, because that is, you know, is it a good demo for, I don't know, for toys? It's an incredible demo for toys, very steady demo for toys. And no one had ever done anything with that play pattern for that demographic. So we put out this brief, can you come up with a conceit or a story around transformation for preschoolers? We sent it to five different creatives around the world, and we got back a whole bunch of interesting proposals.

1:03:05And the one that we liked best came from the creator of Bob the Builder. His name is Keith Chapman, an incredible human being. And he came up with this great idea. What was his idea? What was his concept? So his idea was it was called Robbie and the Rescue Pups. And it was this idea of these five dogs that each had their own personality. One was a fire dog. One was another construction dog. Another one was a police dog. And they go out and they solve difficult situations that happen in the town. So he sends you this concept and it's not going to be called Robbie and the rescue dogs. Correct. Because Robbie becomes writer later on, I think, right?

1:03:47Correct. When you saw this concept, did you all say, this is it? This is the one? Yeah, that's what we landed on. We saw it as having incredible story potential, incredible character potential. And then we said, well, how do we figure out the transformation? and we said, well, it'd be magical if we put backpacks on the pups and the backpacks transformed. And what if their dog houses transformed into vehicles? And that's how we married it up. So we had the transformation plus great story, good character, all that stuff mixed together. And we were like, let's move, let's try. And I think the show Paw Patrol debuted in 2013, is that right?

1:04:302013. And did it take off right away? It took off pretty quickly, but I will say this much is that the show got developed and refined over time also. And through that concept, right? I mean, you can do – I remember the action figures. It's everything. It's toys. It's stuffed animals. It's pajamas. It's lunchboxes. It's – I mean, I'm just scratching the surface, right? It's endless what you can do with a character that sticks. Yep. Yep, you're exactly right. Right. I mean, that's the magic is when you have a character that kids love and trust and can relate to, then they'll want to spend time with them in different form factors.

1:05:10So it definitely helped turn around the business. It's hard to overstate how all those elements came together into this perfect match because I believe that Paw Patrol as a franchise is one of the biggest toy franchises since Mighty Morphin Power Rangers. Yes, it is a once-in-a-lifetime, once-in-a-generation franchise that has exceeded all expectations. And it's something that we've worked towards. You know, originally we had PAW for 5, then we had PAW for 10. You know, we're coming on the 10th anniversary. And now we have a motto, which is PAW forever. Our job is to just keep it fresh, exciting.

1:05:55You know, we just came up with the movie, came out this past August. the first time we did a feature-length film, animated film. And so that was a milestone for Paw Patrol. We're going to do another film in 2023. You know, we want Paw Patrol to be around for 100 years. You know, it's our Mickey Mouse. What is it about a character that makes it enduring? I mean, why does Mickey Mouse endure, but not, you know, I don't know, Garfield, who I watched when I was a kid, or the Smurfs even. I mean, yeah, but the Smurfs aren't as big as they— I don't think they're as big as they were when I was a kid.

1:06:29I think a lot of it has to do with keeping them relevant. You know, if you look at, let's say, like franchises like Spider-Man, they're always doing movies and they're taking risks with their movies. You look at Transformers, they did films and they were really innovative with their films. They're so different from the cartoon that I watched as a kid. Yeah, so they're relevant and they're timely. And I think that, you know, stuff, other franchises, they just didn't keep things fresh. and kids, they can sense it. So I think that we're following that model. What do you think the value of that franchise is today if you could put a price on it?

1:07:07Priceless. It's a multi-billion dollar franchise. Wow. You decided to go public in 2015. So 20 years after you launch, imagine for a variety of reasons. One is to raise money, but two, to reap some of the rewards of what you had built. Is that the decision behind why you went public? No, it really wasn't. The real decision why it went public was to actually set the company up for success in the future. We felt that for the company to outlive the founders, it's best for the company to be in a public construct rather than a private company. It was like we knew we were getting a little bit older.

1:07:49Who knows what happens in the future? and as an entity, it's not reliant on three share holders at the end of the day. You had this challenge with Bakugan where it was accounting for 44 % of your revenue. And then when the sales went down, you took a hit. And presumably you learned a lesson from that. But I have to assume that the Paw Patrol is still the biggest driver of revenue for the company. Is that fair to say? You know, it's significant. That being said, after what happened in the downturn years, we became very conscious on diversifying our revenue. And so we went out and we bought a company called Swimways, which specializes in the pool.

1:08:29Swim toys, floaties. They're all floaties and it's counter seasonal. It's great in spring and summer. You've got Etch-a-Sketch. Etch-a-Sketch. We have a whole activity part of our business, which is Etch-a-Sketch. We also diversified into the games business. So that's very stable, reoccurring revenue. We bought a company called Cardinal in 2015. So we're the largest manufacturer of puzzles and chess sets and poker chips and all that type of stuff. It is, and I don't mean as a pun, head spinning. Spin Master's head spinning to me. The industry's head spinning to me. I have vertigo just thinking about all of the things that you're part of.

1:09:0520 ,000 products, a media arm, games, digital products. It seems like in this industry, you just can't, you have to continue to move. you cannot stop or else you die. I think that's entertainment. That's the essence of the entertainment business. I mean, the way you describe it, it sounds like exhausting. Yeah, it does. But I think at the same time, you know, the flip side is that it's exciting. It's exciting to work on new and fresh and to design stuff and to create stuff. And I think the creation process is where the magic is. You know, sometimes I wish we were just like a one product company or one idea.

1:09:44but I think it would actually be boring if we just, it was just one product and that was it. Now that you decided to step down, I can't believe you. I like to use the word step up, actually. Step up. Okay. Yeah. I can't believe you were in the leadership position with the company for 25 years, a long time. You're still young. I mean, I think you're maybe close to 50 or just 50. That's great. You can still have a lot of time to enjoy your life. But I mean, man, I imagine that that was your thinking. You were like, I'm done. I did it. I can play a different role in the company. No, that actually wasn't 100 % the thinking.

1:10:25It was the co-CEO model that Anton and I had and Ben. It traditionally is not a good model. So it's incredible that it lasted this long. And one of our biggest goals is for this business to live beyond the founders. And so this was part of the transition plan to enable that to happen. So we're very much connected to the business and engaged and want to guide and shepherd it into the future. We'll just guide and shepherd it differently. Ronan, when you think about this trajectory, you started this business with a pantyhose stuffed with sawdust and grass seed and turned it into a$4 billion company.

1:11:09How much of that do you attribute to how hard the three of you worked and your intelligence and how much do you think has to do with getting lucky with toys and products and ideas? I think we're lucky that we found each other. I think we're lucky the people that decided to join our company, the people that we've been able to attract and partner with and people that wanted to take the journey with us, whether it was Bakugan or Paw Patrol and these partnerships. I think that's where the luck came in. And then we put in the time. I have a saying, you don't go, you don't get. And we went out a lot.

1:11:42Anton, he opened up all the offices in Europe. He did all the sales with all the retailers, managed all those relationships. Ben was constantly going out, meeting with the inventors, going to their offices, doing inventor trips. We did all that stuff. And the last thing I'd say is that we never blamed anybody for failure because it's too complex in our business. There's too many stakeholders when you're doing creative things that you can blame one single person. So for sure, listen, the universe works in strange ways and a lot of it is out of our control, but we need to show up too. at the same time.

1:12:16So it's a combination of both. That's Ronan Harari, co-founder of Spin Master. And since this episode first aired back in 2021, Spin Master announced a$950 million deal to buy another large toy company, Melissa and Doug. The acquisition was completed earlier this year. And by the way, Melissa and Doug have also been on How I Built This. It was one of our very first episodes way back in 2016. And if you haven't heard it, scroll back and give it a listen. And thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show.

1:12:55And as always, it's free. And don't forget to sign up for my free newsletter at GuyRoz.com. This episode was produced by Casey Herman with music composed by Ramtin Ereblui. It was edited by Neva Grant with research help from Clara Murashima. Our production staff also includes Chris Messini, JC Howard, Alex Chung, Catherine Seifer, Sam Paulson, Kerry Thompson, John Isabella, Carla Estevez, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

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