Ben Drury, Co-Founder and CEO at Yoto

0:00Welcome, Ben. Thank you so much for joining me on the Scaling Europe show. I'm a huge fan. I'm actually very annoyed because I actually meant to bring my own mini Yoto with me. My daughters absolutely love it, but I forgot to bring it. How old are your daughters? I've got a two-year-old and a one-year-old. So we've got about eight or nine of the cards, but the only one that we ever use is like the Nursery Rhymes one. It's like the wheels on the bus. And it's just like on at all times. But we love it. So before we kind of get into it all, can you just give a very high level introduction into who you are and what you're building?

0:36Ben Drury:Yes, I'm Ben, co-founder and CEO of Yoto. And we built, selfishly, we built Yoto for our own kids. My co-founder and I both happen to have kids around the same time. And we were working together previously at a company I founded called 7Digital, which is like a B2B digital music platform. and we really wanted to create this user experience for children to be able to access this incredible world of audio but without screens and without microphones and we basically just started prototyping stuff several years ago not even thinking it could be a business at the time just having fun, geeking out with soldering irons and then we realized we were onto something Our kids loved it, but maybe, you know, maybe we're guilty of confirmation bias at that point.

1:27Ben Drury:So we then tested with a bunch of other families and then we realized we were onto something. And we then went on Kickstarter and then the rest is history. And this is your third business. Is that right? Was it Dot Music was your first? Yeah, I mean, Dot Music actually was an internal venture, a big media company. But I was there from the very beginning and we ended up selling to Yahoo. So that was my kind of first dry run of entrepreneurialism, but within the comfort of a big company. And then I struck out on my own and started 7Digital back in 2004. So this is all three ventures businesses have been in the audio space, in the music space.

2:09Where does that come from? Is that a passion of yours? Is that something you always wanted to work on? Is that just sort of what you fell into?

2:16Ben Drury:Yeah, absolutely. So when I was a kid growing up in the middle of nowhere, I was playing in bands, had long hair, and I was passionate about music, was drawn to the big city lights of London, studied physics and philosophy at King's College London. But really, I was secretly wanting to be in the music industry. And then I got a job in the music industry. So, yeah, music and audio have always been a passion of mine. No, amazing. And there's lots to I want to get into. But firstly, I want to talk about the financial results. So this came out, I think, last week in the Financial Times. I posted about it on LinkedIn and there were dozens and dozens of amazingly complimentary and supportive kind of comments.

2:57I think people love either what you're building or your background. You seem to have built a real, almost like a cult product, it feels like. People really love it. But just to go into the financial results, you know, 95 million pounds of revenue growing, 86 % year over year, 8 million of losses, but as a result of like 7 million pounds, exceptional costs. I want to get on the first thing is costs and losses, I guess. You've always been quite close to profitability. How have you managed to kind of balance scaling a hardware product with having quite tight financial controls?

3:35Ben Drury:Yeah, we've always had this mantra of sustainable growth. we went through that you know that difficult period of 2021 or 2022 when the free money era dried up and interest rates went up and we had a tough fundraise then we were like we need to get to profitability so we've actually been EBITDA positive now for a couple of years we've been really strict we also know that hardware with a company that has a hardware component and we don't really call ourselves a hardware company but we clearly have hardware as you know So working capital is key. You don't want to have all your money locked up in physical products on a boat or in a warehouse.

4:15Ben Drury:So we've been really, really careful with that. And we have great partners in HSBC and JP Morgan who support us with that kind of side of things. But, yeah, we've taken the view that we want to be around for a long time. And we want to grow as fast as we can, of course. And I think we're showing pretty solid growth. But there is also a limit to how fast we can grow having physical products. We're not like an app which can suddenly explode and become massive overnight. We have physical products, so we have to make stuff. And so there is a kind of a nice Goldilocks zone of growth that we try to achieve.

4:54Yeah. And going back to some of that growth, I think you've grown 80 % year over year, over 80 % year over year for the last couple of years. And, you know, where does that growth come from? Is that primarily international expansion?

5:06Ben Drury:No, I mean, it's a combination of things. The US, we actually managed to launch in the US quite early. We launched, we really commercially launched Yoto in February 2020, just as COVID hit. And then we managed to launch in the US in June 2020. I still don't quite know how we did it, because at the time we had no one on the ground and we couldn't travel there. But we found some great partners to get our product out there. and the US has been a big, big story for us, but we've seen great growth in all the markets that we've been in. And I think encouragingly, you mentioned Yoto being a cult product, but we've had such strong word of mouth around Yoto.

5:39Ben Drury:About 60 % of our customers come through word of mouth. Don't get me wrong, we still spend quite a lot of marketing and we still spend a lot of money on PR and advertising, but if we didn't have such strong word of mouth, which obviously demonstrates incredible product market fit, then it probably wouldn't be so easy to to have that sustainable growth we'd have we'd have to spend a lot more and can we touch on uh that early u.s expansion so you know i read your you had a mini chapter in the index book when the index book is all about uh launching in the u.s um and as you said you launched very very early you kind of went there and it was i think it was quite light almost your footprint initially i think you hired one person quite early on what was the rationale about going to the US early and what approach did you take to try to make it a success?

6:29Ben Drury:We knew that for this business to really work, we had to launch in the US. And from our Kickstarter days, we had a very small Kickstarter campaign, but we could see there was strong demand from the US. And there really wasn't any local competition. There was no US, surprisingly, there were no US companies doing anything in this space. Whereas in Europe, we had a big German competitor and there was a French competitor. so we knew for this to really work we had to get to the u.s and we had to get to the u.s quickly and we knew it would work in the u.s we just knew um and we had a great content lineup early on we had roald dahl eddie blight and we knew these kind of classic english british english stories would work in the u.s there's already proven demand for that and we've followed that with harry potter etc but we have a lot of u.s content as well u.s content as well um and we also we We didn't believe the old school VC philosophy that you had to the founders had to move there.

7:26Ben Drury:I frankly didn't want to move to the US. I mean, I would have done it earlier in my life for having young kids. I wasn't I wasn't ready to move to the US. But we really believe we can make it work without having to do that. And how did you make that work? Was that that very early hire that you I think in the book you talked about that early hire being a sort of all rounder generalist expert operator? was that a very very key hire in enabling you to not have to move there yeah it was really important to to to to meet a great early hire sarah natchez who's still with us and very much running our u.s business she'd been a coo for another company in kids space for a number of years and she was just a perfect hire um that was the scariest hire because in the u.s the salaries are really high and we had to hire Sarah without actually physically meeting her.

8:22Ben Drury:But sometimes you just got to trust your gut and go with it. And it paid off. And you've seen amazing growth, your EBITDA positive. Are you forecasting that this level of growth is going to continue? Are you expecting to grow 80 % this year and next year? Or do you see a point where growth is naturally going to slow down as you start to mature? Well, I think our scale now, you know, 100 million turnover is harder to maintain that 80 % growth rate just in terms of the number of pounds and dollars you have to generate. So, I mean, eventually there will be a percentage slowdown. But in terms of actual growth, in terms of our financial growth, we expect to remain very strong growth this year and continuing.

9:11Ben Drury:We have some incredible product initiatives and some international expansion plans that will help us continue that growth rate. And we'll see our profitability increase as well. So rather than just being an EBITDA positive, we can be fully profitable on every single line or measure that you might want to consider. No, I love it. You mentioned international expansion. I think you've already expanded, of course, into North America, I think France and Australia. Where else are you looking? I mean, definitely gets harder for us because we've done a lot of the easy English speaking countries. Australia, we launched in last July and it's been absolutely phenomenal.

9:51Ben Drury:The response to our products there has been it's been incredible. There are a few other places that we're looking at. I can't reveal too many details on that for competitive reasons. But we've got some we've got some pretty cool plans there over the next few years. Amazing. And can we touch on your partnership with Eleven Labs? You talked about how you've kind of you're in the dominant English speaking markets. I saw that you've kind of announced this partnership with Eleven Labs to help you go multilingual. Can you touch on what that partnership looks like and what it's going to unlock for you as you scale across the world?

10:26Ben Drury:Yeah, first to say I'm a huge fan of Matty and the Eleven Labs team. I got to know Matty really early when they just were, you know, alpha stage. probably only what three years ago now but it's phenomenal to watch and it's great that they're just down in soho so i can zip down and and see those guys and we have good friends there and we've been using their technology for a while and for me it's um it's really how we can create new products and services for our customers so the one thing that we've announced i mean showing showcasing is multilingual content supporting minority languages yoto has been used in over 200 countries even though we're really only operational with five countries we're seeing usage in 200 countries and we want to support a lot of the say minority languages that we just simply wouldn't be able to do without ai so that's really exciting but also with um probably the one of the most exciting things we're working on now is like dynamic content so content that changes according to location or according to time we've showcased some apps where we have live weather the forecast for kids.

11:31Ben Drury:And there's even an app now that you can put in a card and it'll tell you that the plane that's flying over your house, it'll tell you all about that plane, where it's come from, where it's going, who the pilot is. And that's all using AI in 11 labs. These are things that just simply wouldn't be possible before. So that's what I'm very excited about. And is this part of your OpenAI and developer program? Very much so. So you can now become a developer. We're running a competition right now,$10 ,000. We're seeing a lot of people vibe coding apps for Yoto. And there's a hook into 11labs in the APIs as well.

12:05Ben Drury:So you can hook into 11labs to generate speech and sound effects and things like that. And yeah, we're really big believers in opening up our platform. And we're seeing people creating content on Yoto, educational content, stories, different languages, all kinds of weird and wacky stuff. And we love that. Amazing. That's super cool. You're sort of, you build, your end product is like a bit of hardware, as you mentioned, but you're also sort of fostering this amazing software community where people are really coming in and building their own things and unlocking this whole world of like audio. And I don't know, I think it's fascinating.

12:46Can we just touch on like raising this hardware company or having a hardware product, especially in those early days of 2020, 2021? What was it like trying to convincing investors, VCs, that this is going to be something worth investing in?

13:02Ben Drury:A lot of VCs hate hardware, which in a way, when you're pitching to VCs, it's quite a nice early filter, right? You obviously just say, let's end of conversation. They don't invest in hardware. Brilliant. It makes a founder's life actually easy. What you don't want is people stringing you along, which always happens. so it reduces your possible investor pool quite dramatically having hardware because a lot of VCs hate hardware although I think in an age of AI it's maybe coming back in fashion because it's more defensible than say generic SaaS business for example but yeah you have to find partners who are brave enough to to back a hardware company and really getting them to understand that YOTO isn't a hardware company actually so our pitch was we We have hardware, but it's an enabler and it's not where we make our money and it's not where the growth is going to come from.

13:55Ben Drury:Hardware is a means to an end. And there's some good analogies out there like Nintendo, a huge fan of Nintendo as a company. And are they a hardware company? I just think that's an open question. Yeah, no, it's a great point. Yeah, you sort of, yeah, I think that game analysis is actually really interesting. I guess you're kind of supplying. yeah the hardware is necessary but so many of the products are actually not physical right they're sort of the audio Nintendo's IP versus Mario Zelda and the fact that those IPs have gone through many generations of the hardware you know all the way back to the Game Boy and even earlier than that those those IPs that they those that they invested in have have stood the test of time and yeah big fans of Nintendo and other companies like that yeah and almost become timeless.

14:44I want to talk about fundraising in general. You also mentioned that you want to become profitable on all bases very soon. You've managed to become EBITDA profitable with very minimal net losses over the last few years. But you also raised a big round last year. I think it was$20 million, was it? $22 million?

15:01Ben Drury:Yeah, that was raised in 2023. So, we closed that in October 2023. So, nearly two years ago now, that was a$22 million raise led by the Chan Zuckerberg initiative out of the US and some follow on investors as well. And did you see that as the end of your fundraising journey? Are you looking to raise more down the line to kind of fuel international expansion? Or do you think now that you are maturing, approaching profitability, you won't need to tap into it anymore? It's fantastic to be in a position where we're kind of masters of our own destiny. It's a rare thing. Companies get kind of, even successful companies get in this cycle where they have to keep raising money and that's the norm, right?

15:42Ben Drury:But it's really nice to be in a position of having optionality. So, if we decided that we want to go faster or we see a particular opportunity with international expansion or a different product area, then it's great to have that optionality to raise money, but we don't need to raise money and that's the best position to be in. Yeah, absolutely. No, it's every entrepreneur's dream, I guess, with your growth metrics and your successful expansion, like you mentioned, it would be not too difficult to raise more money if you wanted to. Yeah, we're getting constant approaches. So, it's great that we've managed to get to a point where rather than me chasing investors, it's completely the opposite now.

16:24Ben Drury:So, that's a very nice position to be in, I have to say. That is the dream. I'm sure it's every entrepreneur and founder's dream. So, that's amazing to hear. I wanted to ask, you've built several businesses. You're now building Yota, which is going incredibly well. What advice would you give to young, aspiring European entrepreneurs who are either early on in their journey or are thinking about taking the leap? What kind of lesson would you give or a bit of advice would you give to kind of get them on their way? I mean, yeah, it's really hard to give fairly generic advice. But the US, for example, was absolutely crucial for us.

16:59Ben Drury:So, get to the US as early as you can. I think that's true. The US market is fantastic. The US consumers, or fantastic consumers get to the US as quickly as you can. Don't be afraid of it. I remember speaking to a lot of UK entrepreneurs who were like, oh, but the US is like a graveyard for UK companies. It's like, well, deal with it. You know, get out there, be a zombie. Get into the graveyard and find a way to make it work. Otherwise, yeah, I don't believe you can go, oh, yeah, we'll build it in the UK first. We'll build it up to a certain scale, and then we'll go to the US, try to get to the US almost on day one.

17:35Ben Drury:I think you have to do that. Don't be afraid of hardware, of course. I would have to say that. I do think in this world of AI, hardware is quite exciting. You can do stuff with AI on hardware, local LLMs running on hardware. I think we're going to see a lot of innovation in that space. And the UK is really good at hardware. We have some incredible engineering talent here. So don't be afraid of hardware. But yeah, I think that's enough. And, you know, I just wanted to touch on that hardware piece, actually, because I think you're on your third generation now of Yoto hardware, like Yoto devices.

18:12You know, going back to that sort of Nintendo parallel, you know, how do you see the hardware itself developing over time?

18:21Ben Drury:I think the hardware does develop on a slower cycle. Obviously, the software than software. We've always tried to make sure that Yoto is software based. So we do constant software updates. We're doing OTA over the air updates all the time to enhance the product, fix bugs, security issues, that kind of stuff. So we're very much software based there. But the hardware itself, the underlying roadmaps of the hardware we use do change like Bluetooth and Wi-Fi and the underlying chipsets that we use. So it is important to have a hardware cycle, but it doesn't have to be that fast. Nintendo is for the Switch with eight years between the Switch 1 and the Switch 2.

19:09Ben Drury:And the Switch 2 is great, but it's not a huge change, right? It's not a completely new product. It's kind of an incremental improvement on the Switch 1. So you don't need to do it too often. But I do think it's important to stay up to date with some underlying technological changes as well. but will you you know i guess is the core hardware going to stay the same in the sense that it will always be like an audio box you know you know in the sense that i guess nintendo went to from being like a console to a handheld console um do you see any radical changes like that or do you think the the basic premise will always be the same well we have products that we really think are working really well so we have the basically the two the auto player which is more suited for your in-home, fixed position, kids' bedroom, still a portable device, but it's great for in-home.

19:59Ben Drury:And then Yoto Mini, which is really great for being portable. They both can work in both scenarios, but that's what they're optimized for. And Yoto Mini is our most popular product. It is the lower price point. So those are two products. And I think if it ain't broke, don't fix it. We will continue to develop those things. There may be other things we can do in the future. and there's also some really cool stuff we can do with accessories as well so things that can be part of the ecosystem and one of the things i'm most proud of actually is that if you went on etsy and you did you search for yoto you get over 600 results of all kinds of weird and wonderful accessories mostly 3d people with 3d printers at home creating all kinds of accessories for yoto or personalized with your kid's name it's amazing what's being created there and we really Wow.

20:46Ben Drury:We're really leaning into that because we think that's fantastic. No, no, that's really cool. And yeah, we've got our, I think it comes in like that, almost like an orange mini suitcase. And ours is like, ours is plastered with stickers. So I can definitely see, I can definitely see the appeal of that. But look, Ben, I'm conscious. We're slightly over time. But look, I've loved chatting. And thank you so much for coming on. It's been great to talk about, you know, the product, the vision, the financial results. I'm a huge fan of both the product and of your work in general. So thank you so much for taking the time.

21:14Ben Drury:Thanks for hosting. Perfect. Well, look, if you ever want to come back on or share some news, just let me know. Great. Thank you. Have a great day. Thanks, Ben.