Spinbrush: John Osher. The Electric Toothbrush That Sold for $475M

29:33Just to put this in context, it makes sense because you had experience with a spinning lollipop. This is 1998. And from what I understand, I mean, like electric toothbrushes existed, Oral-B and they had Sonicares, whatever. They were around, but they were very expensive. How did you start to think about a toothbrush? I mean, because you knew you wanted to start a new business. Tell me what you did to get the idea for toothpaste. Did you like go to grocery stores? Did you look at what was on the aisles? What did you do to get an idea for what you wanted to make? Well, first of all, I always went to stores and looked in aisles all the time.

30:11It's just part of a product idea process. But the joke is that everyone says you sold all these lollipops and ruined all these kids' teeth, and then you felt guilty and invented a toothbrush. But that wasn't really the story. No, it wasn't. I'm not that altruistic, but the reality is that we ended up buying such large quantities of little motors, batteries, and gears, where we're buying into millions of batteries from EverReady alkaline batteries, where we're paying$0.12 a battery rather than$0.78 or$0.39 for high volume. And same with the motors that cost$0.90 and we're paying$0.08 or something because I was buying a million at a time.

30:55And because of that, I thought that it's possible that we could take what we've learned and we have factories that have been making these lollipops, that they would be great resources to make a battery-operated toothbrush if we could actually achieve it. And we wanted to sell it for$5 or less at Walmart. And you saw the opportunity there. Basically, there was the super high-end electric toothbrushes. This was a growing segment of the toothbrush market, and you saw an opportunity to make a really low-cost version for people who maybe wanted to try electric but didn't want to spend$80. Well, we really never considered or worried or competed with the high-end, which some of them were$50.

31:42We basically saw the manual market. That's where the numbers were. So you would – your competition was just the standard manual like Oral-B toothbrush that was selling for$3. And you figured, hey, if we can make an electric version, like a battery-powered version for$5 or$6, people would see that and say, wait a minute. I get more for just a couple bucks more. Yes, but the best thing about it was everything I've ever been involved with up to that point, from energy products, it was still limited to a certain size. The toys, even toys, you're dealing with boys that are three to eight. That's really a small market.

32:25But I love the idea that toothbrushes was everybody. Everybody in the world, man, woman, kid, age, it made no difference. There was never a bigger market to go after. All right. So now if these existing models are selling for$50 or$80, I know that wasn't your competition. You were trying to make a toothbrush for$5 or$6. It couldn't have the same features as the$80 brush, right? So what was the difference that you were creating that would make it possible to create these for$2 or$3 in China? First of all, they copy and work off themselves. So the most expensive electric two-thrust was 110, owned by Phillips.

33:10And, you know, they practically use a Volkswagen motor and thing, you know. And we had been used to motors that are much smaller. And if they would work, we didn't need to have what they had. They also had to have a quality for the price they were selling at. You couldn't have it just break because everyone would take them back. yeah we didn't need that we actually went out and said this lasts the last six months so you so by you by using a less powerful motor you you were able to you knew that you could probably make a cheaper or less expensive much less expensive version i didn't know i knew that we were gonna that it was if we could it would be so big i did not know if we could achieve it And after six months, I almost quit because we just couldn't get it the way I wanted it.

34:02What was the challenge? Because, I mean, what were some of the challenges? I've seen the design schemes and blueprints. What were the challenges you guys had in trying to create this thing? Well, it had to include batteries. I didn't want anyone to buy this and have to go buy batteries. Well, I had to give them good batteries because if I gave them cheap, non-alkaline batteries, they would die in a month. And if they're going to have to buy batteries every month it's not ultimately a good deal. So I had defined it that the batteries had to last three months. So we had to design a product and it had to actually work using two minutes of brushing I think twice a day.

34:42And we ran all kinds of tests not quite like P &G would but we ran all kinds of tests to make sure that we got the battery life we needed. Then even more important is we needed the torque. that when you brush your teeth, it's really working and it's working great. So I had to satisfy that. And it took us a year before we got a product that I thought was well beyond the threshold of a far better product than any manual brush. And at first, we actually came up with a rounded head and it worked very well. The problem was after two weeks, it was splayed and real ugly. And I said, you can't do that.

35:20It's ugly. You know, nobody wants this after two weeks. It's too ugly. And so we decided to make it oscillate rather than rotate. So the name spin brush actually came when it was still spinning. We never changed the name because it was a good name. But then I realized that I like to brush my teeth in the morning. I don't like to do what Oral-B does where you walk around your mouth differently and have to learn a new method. So I said, well, why don't we take the oscillating round part and put bristles below it and make it look like a regular brush so you can brush your teeth normally and get the oscillation at the same time.

35:56And that not only gave us a major advantage, but it opened the door for a great patent because we say, okay, we're going to make a toothbrush that moves. Part of it moves and part of it's fixed. Well, nobody ever thought of doing that because there's no reason to think that. In the few years that followed, we made even much better ones than that. But at the time, that's what we needed to get to a point that we were offering a product that was much better than they could get manually. One of the things that is interesting to me about this is as you're working on it, because you had come from the toy business and you had some experience with candy, you want to focus on the packaging of this, right?

36:37Because if it was packaged right, then it would pop out of the shelves. And one of the things that you, I guess, was critical, even before you had the first product done, was that it had a try me button. Like it was packaged in such a way where on the shelves you could push the button in the store and see the bristles oscillate. That was critical to what we're doing for a few reasons. One, we'd sold them just like we did spin pops in a 12 pack, them sticking in a case and that had a button that you could press and you could see that it worked. You sold a 12 pack to the retailer, not to the consumer.

37:20To the retailer, yes. But what was so important is that when you're selling a toothbrush, electric toothbrush for$4.95 or$4.89, whatever Walmart price was, it's almost not credible. So if a consumer looks at it, is it a toy? I don't believe this. So having the Try Me where you could press the button and it does feel like you're running a Volkswagen motor. I mean, it really looked great when you press the button on the shelf. So we took that from our toy experience and we made them in 12 packs that everything we did to start this business was to get them on end caps at a retailer. That means at the end of the aisle.

38:00If I had just stuck two of these on the long wall that had 80 manual brushes, we would have sold some, but it would have been much more difficult. But our products sold so well so quickly, we were able to get on the end of the aisle at Walmart where they put in 140 of them rather than six. but the try me was a very important thing that we learned that was never in the health and beauty department it was a new thing for that department but we learned it from the toy industry how how useful it is and people love to press buttons yeah so all right so you finally after a year of working on this you get and you patent this right you you you file for patent protection which makes sense because you know you're onto something.

38:44Two patents. Okay. And you get the prototypes in 1999. And I read that you attend a trade show. And because of your track record and your connections, I'm sure you already had some interest. And I think you initially had deals with Myers, which is mainly in the upper Michigan area, and Albertsons. you know with these sort of trial runs how how how are you able to measure how well they were doing well with meyers i happen to be from my other businesses friends with one of the owners of one of the meyers and um so he was he agreed because we were so new and nobody knew we were and it's hard to get appointments and and didn't know this but um he agreed to do a test 24-pack test for us in a bunch of stores.

39:39And we were five of us at the time working for the company. And we all, and they didn't have any Meijer stores in Cleveland. So we all left, went wonder, I went to Detroit. Somebody went to Toledo, Columbus, setting them up, putting them out as the test was supposed to be, and then going back each day. And that's when we found out that we'd put them out and we were selling seven a day per store, which was just in a different realm of any other toothbrush in the world. You knew they were selling the store how? Back then, we counted them. Each of us went to the areas, and we'd go to the stores and we'd count them.

40:17Then we became friends with each of the store managers, and he'd look it up on his computer to make sure that they were actually sold and not stolen. And once we knew that, that's when I called my factory and quadrupled the tooling, even though we still had trouble getting appointments anywhere. So you could see right away that the – I mean, Oral-B was still the big – the manual toothbrush was still the big seller. But you could see that these spin brush brushes, at least at these individual Meijer stores you were going to, were actually selling quite a few per day. Oral-B was selling – the best-selling toothbrush in the world at the time was their cross-section, which was$3.95, expensive toothbrush, manual.

41:00and they were selling 12 a week per store. 12 toothbrushes a week per store. And we were selling - Okay, it doesn't sound like that much. We were selling seven per day. And the buyers, everyone involved knew right away what this was. But we did have though, our first 100 ,000 pieces were defective that we shipped. Were defective? Defective. It was another great lesson. And so what, you did throw them away? So what happened was the first 100 ,000 pieces, we had the water, when you brush your teeth, the water would run right through the toothbrush and out the bottom, which we thought would be fine.

41:37But what happened was over a month, using it for about a month, electrolysis or whatever would cause it build up at the connections and it would stop working. It would break in a month. And we had 400 ,000 of them in our warehouse. And I had to make a decision, this is a consumable product and this is potentially so big and if I continue to sell this it will die and I went back to my partners in it my investors and I said I'm going to scrap these 400 ,000 we're all going to put in another half a million dollars or something and we're going to redesign it which we did working day and night with the factory online on the phone and in a week or two we redesigned it So the water, it was all handled different, became waterproof.

42:26But the decision to throw those out was a hard decision, especially for a new company. And if I didn't do it, it would have failed. Well, we come back in just a moment. John approaches one of the biggest companies in the world to orchestrate a buyout. And it starts with a major bluff. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

43:08Hey, welcome back to How I Built This. I'm Guy Raz. So it's the year 2000, and Spinbrush is rolling out in selected stores like Albertsons and Walmart. And already the numbers are looking really good, like almost surprisingly good. And in the first year, we did$44 million with a$21 million profit. $40 million in sales. It wasn't even a full year. It was probably closer to eight months. And as I said, we made a$21 million profit. But we did that on purpose. We really wanted to make the profit. That was so important because I wanted, from day one, we wanted to sell the company to Procter & Gamble.

43:51Procter & Gamble was your target from the beginning, you thought. But you had no idea that they were, whether or not they were working on their own electric toothbrush. We didn't, but I've known that they're a chemical company. They were not particularly a strong company in China. They were not particularly strong in mechanical. You know, they had Swiffer, but for the most part, they were a food and chemical company. They were the company that needed this product. They didn't have an electric toothbrush. Their toothbrush business was way down, and their stock was down. Their whole company was in a down mode.

44:27So they were our target when we started the company. This is an interesting time for Procter & Gamble because, as you say, Crest had lost market share and P &G stock price had fallen by 50%. There's something else. This is a totally different story, but what would turn it around, Spinbrush was part of it, but eventually we'll get there, but what were Crest Whitestrips, which they had invented internally, right? That turned into a massive multi-million, hundreds of dollars worth of business within a year or two. And that would also turn the company around. But it's interesting. They were – Procter & Gamble was not on the ropes, but they were definitely taking their lumps at this time.

45:12And you thought that they might be an acquirer of this product that you guys had put out. Well, I knew that they needed us. It didn't mean that I would meet somebody who recognized that. How did you approach them? I mean did you go to Procter & Gamble and say, hey, we're for sale? Never. because anytime you try to sell something, you get about one-tenth of what you get when they want to buy you. If you go to them and you say, hey, we want to sell, you're saying the price would have been lower. Way lower. In fact, they might not even have been interested. What I did instead, and this was all part of the plan, I went to their licensing department with this crazy idea, which I didn't think in a million years they'd agree to, to license the Crest name for our product.

45:58Well, even when I went there, they never heard of us. You wanted to slap Crest onto the spin brush. Yeah, we wanted to license their thing, which I didn't think you would do. Which you really didn't want to do. I didn't want to do, but I just wanted to show them who we were. And I wanted to use that as a door. So anyway, I passed out toothbrushes to everyone in the office, and they agreed to do a test. So you pitch them, basically, you show them the product, you pitch them the product without really pitching it. It's a ruse. Yeah, we wanted to sell the company to them, but I had to find a door and I wanted them to want to buy it instead of the other way.

46:34So they brought the brand people in from Preston and everybody and they agreed to test it. So we sent them a bunch of pieces and they tested it. A month goes by. Two months goes by. Three months, not a word. So, you know, that's usually not a good sign. Yeah. So I finally got to Hawaii and said, well, I might as well call them because I got nothing to lose at this time. And you guys were selling tons of toothbrushes. Yeah, we're doing great. We're doing great. You can do$44 million in that first year. And the next year we probably would have done$80 to$100 with a great profit. So I finally called the guy and I said, well, I never heard from you guys.

47:17He says, heard from us? I thought you guys were going to call us back. Don't worry. And it turned out, and we didn't know this until later, that it was the highest testing product they ever did in the history of Procter & Gamble with consumers. But I didn't know that until actually a few years later. So they came back and they said, you know, we decided we'll license you the name. I don't want their name. He said, we'll license you the Crest name. Oh, I said, that's so exciting. But I just want you to know that we can't pay more than 3%. You know, most companies like that with that brand want 12 or 15%.

47:53Yeah. I said, we have to keep, this has to stay at this price point at retail and we can't do that. And so he says, well, let me check. He calls me back a couple of days and says, yeah, that's okay. 3 % is okay. We'll do it. And then I said, well, I'm so honored. I don't know what to say. This is such a great thing. I have to bring this to my board. You know, in the back in those days, you always claim to have a board. Right. And I got to bring it to my board. And then I called him back a few days and I said, I hate to say this, but I said the board was so enamored with this that you made this offer.

48:27But they said if we do this licensing, the board, investors all did this to eventually sell. And they said that they would never be able to sell it to anybody but Procter & Damo & Creston, you would have all the leverage because we couldn't do anything else. So despite that this is such an opportunity we're going to have to pass. and he says, well, why don't we buy the company? And I said, shit, what an idea. God, yeah, that's something we'd think about. And then it went from there. And usually things don't work that well as this. This was one of these things where Murphy did not come into the business.

49:09Everything worked to clockwork, but I needed them to want to buy the company. And I say this because, as I say, when I do speak at different schools on entrepreneurship, it's such a difference when you're trying to sell something and when somebody wants to buy it. And anytime you can get in a situation where they want to buy it, you'll get way more money. So they start – you start to hold talks on an acquisition. And I think in January of 2001, they formally offered to buy it. And it was going to be$165 million up front and then earn out over three years. And you would get a percentage of that earn out and you would join Procter & Gamble.

49:50You would basically continue to run spin brush. Okay, so you guys agreed to this and now you're a Procter, which is amazing, right? One year in, you get$165 million plus in earn out. So you can make more. Tell me what, like now that it's a Procter & Gamble brand, I imagine they could supercharge this thing. They could get it. It can make it even bigger. But more likely what they would do, would have done was screw it up. That's more often than not what happens. But the president of the company, he met with me and he says, you know, we have bought three companies like yours in the last four years and we've ruined them all.

50:30And we want you guys, you have a three-year deal. We want you to run it and we'll give you the people and we'll give all this stuff and we'll even let you override some of our rules. and so we did that and we got on the phone we started doing the first thing that the lawyers want to do was have a stop selling the product and I said why and he said because we have a rule in our company that you have to have enough goods in all our warehouses before you can sell the product and you're selling as fast as you can make it and we need to build the warehouses up stop what you're doing and I went back to the president I told me he says no you've got the right to override it.

51:11You keep doing what you're doing. And they were hoping to open it up to two or three different countries that same year and expand the production. And we ran it, and we got our production up from 88 ,000 to 400-something thousand a day manufacturing. We were buying close to a million batteries from EverReady a day. We were second only to Walmart and battery purchases at the time. And we got it into something like 40 countries. I flew around. I did presentations in Japan. I mean, they were all good stories. and but after a year so they had told their board that they thought they could do as much as 110 or 120 million dollars with this product and i think after a year they were doing over 300 wow million with the product and but what they didn't pay attention to is when they made the earn out arrangement they did it based on it being a maximum of 120 million dollars they had no concept of it going to three or four hundred million dollars or five hundred.

52:23And the head of the department, I forget who he was, maybe it was the vice president of the company, I don't remember. He called me and says, we're going to have to stop advertising. We're going to have to pull the product for a while and give it, let it cool off. And I said, why? He says, the earn out is going to kill us. We just can't. Because of the earn out, they would have to pay you much more than they anticipated. They'd have to pay us probably five or six times, Adam. I mean, it would have been unmanageable. So I said, you know, you're right. I said, you guys didn't expect it to be this big.

52:54I did, but you didn't. Because I said, for you guys to stop this, it's insane. Because when they also came out with our product, they came out almost simultaneously with the white strips. Right. So the addition of the spin brush and the white strips. Just supercharged Procter & Gamble. Yeah. Crest toothpaste became number one again. Their stock went up. So I said, you know, somewhere between zero and infinite, there's a number that we can both live with. And we went back and forth, really, might say on the phone for a period of a week or two, I don't remember, and came up with a settlement number.

53:34It was supposed to be a three-year earnout, but they basically, I think you negotiated an agreement 21 months early, and they ended up paying$310 million. So the total amount of money they spent on the spin brush would be$475 million. This is amazing. I mean, you get this just a few years after you release this product, and they managed to also turn into the biggest selling toothbrush in the United States. I think even outsold... It was the biggest selling in the world for a period of time. Wow. For a window. So it was a wonderful Grand Slam experience that everything went right only once in a lifetime.

54:19But you know they ended up having to sell it three years later. Right. They sold it to Church and Wright or something. I think it was who owns it now. Church and Dwight, yeah. But they sold it. Do you know why they sold it? Well, what happened is three years into it, they were trying to buy Gillette. And Gillette owned Oral-B and Braun. and the deal was being held up because the oral B and the spin brush were a monopoly. It was well over 50 % of all the toothbrushes, and so they decided they have to sell the spin brush off, so they called me and asked if I was interested in buying it back, and I said, I would, but I'm not willing to pay much money.

55:03I'll give you$10 million for the whole thing, but I'll close next week. You know, everything else was, they were always waiting six months, you know, and then there would be due diligence. I said, I'll close next week. But they took, they went back to Church and Dwight, who they had been negotiating with, and they said, Osher's made a big offer and you guys, and they forced them into closing the deal, you know, for about 75 million plus inventory. You know, it was a... Wow. They had bought it for$475 million. They sold it for$75 million. Yeah. What happened? Were the sales just tanking or did they just need to get rid of it quickly?

55:43No, they had to get rid of it. And they had the crest name, so they had to make a deal somehow. And, well, Procter & Gamble did eventually acquire Gillette, which I made them - Right. So, yeah, once they got rid of the spin, they closed the deal,$55 billion deal. and they transitioned for three years with Church and Dwight to use the crest name and then it had to be just a spin brush. But Church and Dwight has done and did and has still done a terrible job. They didn't really do anything with it and everyone else is in it. So when you go to the store, there's 15 different variations of spin brush on the shelves now.

56:24Like knockoffs? Yeah, including their own. Oral-B has got tremendous... Yeah. They're probably the leader in it. And when did you decide to, I don't know, I mean, to kind of retire, so to speak? Well, in a way, I retired after each venture. Yeah. Because the venture was, the project was over. If I never, and I lived in a mode of looking for ideas. That was my, that's my mode. I'm not so much anymore as I'm older and retired. I still get ideas. But when I was in that mode, I would attract ideas, whether they came in my own head or people walked in the door with them or I get calls or the universities that I would speak at, people had ideas.

57:09So after I sell a company or a project, I was open to do something else. Financially, I didn't need to, but I love the creative challenge. To this day, I do. I don't want to do it at this age, but I get just as excited over a new idea. When you think about the journey you took, right, and, you know, you spent six years and this group was studying the philosophy of this Armenian monk. And, you know, and then you went and started the conservation products business and got into toys. And it led to the next thing and the next thing. And eventually, you know, some of these huge products. How much of where you got to and how much of this journey do you attribute to the work and the hard work you put in?

57:58And how much do you think had to do with luck and timing and good fortune? Well, first of all, luck enters into everybody's success. And I don't think I had a business that didn't have a crossroad point. It could have gone either way. And they all went my way. I live in a really much more of a state of gratitude than pride because so many things could have gone the other way. On the other hand, Gary Player says the reason he putts so well and that he's so lucky when he putts is that he practices six hours a day. And he says somehow he gets luckier that way. And I do think that, you know, the more businesses, the fact that I had a lot of businesses, a lot of experience, failures within the successes, that you do get luckier.

58:43Yeah. But there were many cases when I'd run into problems that were beyond my experience and intelligence, both, and don't know what to do. And as an entrepreneur, you're really on your own. You might find people who work for you who are very good. You can get their input, but you're really on your own. And I learned to basically sit. I always had a couch in my office, and I sit on the couch, and I would just ask the universe. And it's not about asking God, asking self and Buddhism, asking a higher part of my brain. I had no idea. I would just say, what do I do? And then I'd be quiet. And 100 % of the time, I always got the answer.

59:23100 % I got the answer and was right, to the point that I started calling it the magic. And when we'd have a serious problem, people would work for me and tell me to go in my office and ask the magic. and what's wonderful about it is that anybody can do the same. That's serial entrepreneur John Osher, creator of The Spinbrush. By the way, over the years, John has had a pretty interesting side hustle backing Broadway musicals. He's actually been listed as a producer on some pretty big hits, including at least two Tony winners for Best Musical, Jersey Boys and Hairspray. hey 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 this show and if you're interested in insights ideas and lessons from some of the world's greatest entrepreneurs sign up for my newsletter at gyros.com or on substack this episode was produced by katherine cypher with music composed by ramtine arablui it was edited by neva grant with research help from ramel wood Our engineers were Patrick Murray and Kweisi Lee.

1:00:29Our production staff also includes Casey Herman, Chris Messini, John Isabella, Sam Paulson, Alex Chung, Carrie Thompson, Nora Gill, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.