A tale of two companies
Staff -- Playthings, 10/1/2002
The scene: The market is re-adjusting for overvalued tech stocks. Then comes the fallout from myriad accounting scandals causing the Dow to plunge in July. What's a company to do? PLAYTHINGS Senior Editor Dave Gerardi talks with two company heads who are doing more than weathering the storm. LeapFrog Chairman Tom Kalinske and WizKids CEO Jordan Weisman are thriving. From approximately $3 million in 1996, LeapFrog sales surpassed $313 million last year and employs over 600 people. LeapFrog's IPO? July 24. WizKids, founded in March 2000, pulled in $40 million in retail sales for 2001 and employs 70.
Why was July a good time for the IPO rather than waiting for the economy to pick up?
TK: We started the IPO process in the early spring. While the economy wasn't roaring, it wasn't as down as it was this summer. In July, other scheduled IPOs were canceling, but we said, "We're a very strong company with a strong story to tell."
Jordan, talk about the risk involved in starting a company at this time.
JW: When we started up, we didn't know how bad things were going to get in terms of the economy. The boom was over, but we didn't know how far down things were going to go. I started (hobby games maker) FASA at a time when interest rates were at 22 percent during the early '80s. I felt that our brand of entertainment—low cost for hours of enjoyment—can actually do very well during bad economic times, much as movies do. It's a good value and a necessary escapist outlet.
What is LeapFrog doing that other companies aren't?
TK: A lot of things are working in our favor. There's been a fundamental change in America where parents are much more aware that, in many cases, the school system isn't doing all that they want it to in educating their children. We don't start by saying, "Gee, let's make a doll that'll be fun and, by the way, maybe it'll teach the "ABC" song." We talk to educators. If we want to build a product range for 3- and 4-year-olds, we say, "What is it that 3- and 4-year-olds need to learn?" We make sure the curriculum is correct first, and we add the fun factor later.
Often, people say toys are recession proof. To some degree that's true, but it's more true when it comes to education. People might not buy a new car or take a vacation, but will continue to spend money to make sure their kids get the best education possible.
Did WizKids find a little area that no one was in at the moment?
JW: It's always good to be a first mover. This (pre-painted, collectible tabletop warriors) was a brand new category. Nobody had conceived of this market opportunity before. That's obviously a huge advantage. We represented a paradigm shift in how people can play these games. Anytime you can change the interaction paradigm, that's another opportunity. We believe in community development. In August (2000), we had a set of volunteers building a viral network across the country. Cost of the product was a big factor, in light of the economic environment. Each booster pack is very inexpensive.
What does a company have to focus on in a down economy?
TK: Hours of play value per dollars spent on a product. Are kids going to play with it for 15 minutes and never touch it again? Or does it have enduring play? What is the cost of play per hour? Is it a few cents per hour, or many dollars per hour? It's one of the reasons why the video game business has done so well. A video game is expensive, but if you look at the number of hours a person uses it, it comes down to pennies per hour.
Former Sega CEO Tom Kalinske is LeapFrog's chairman of the board. Jordan Weisman, who co-founded FASA in the early '80s, is the founder and CEO of WizKids.
