Scaling a DTC toy business with Sandra Oh Lin from KiwiCo

Introduction (0s)

• This episode is presented by Brex, a financial stack for founders, and can be learned more about at brex.com (1s)
• Creating creative and educational playtime opportunities for kids can be a full-time job, but Hands-On projects are beneficial for children's development (11s)
• Most parents find it unrealistic to come up with these kinds of games themselves, but KiwiCo has found a solution (18s)
• KiwiCo creates toy kits for imaginative play and learning, and its story will be shared in this episode (32s)
• The hosts of the podcast are Becca Sac and Dominic-Madori Davis, who will be discussing how to build a children's toy company with Sandra Oh Lin from KiwiCo (36s)
• Before the conversation with Sandra, the hosts will play a game of two truths and a lie, where they will share three statements about KiwiCo, and listeners will have to guess which one is false (45s)
• Listeners are reminded to rate and review the show, which can be done easily wherever they are listening to the episode (1m8s)

The Story Behind KiwiCo: From Idea to Business (1m24s)

• KiwiCo designs and delivers hands-on projects for kids, including engineering projects, games, art activities, and more, with the goal of encouraging kids to exercise their creativity and critical thinking skills, and see themselves as people who can envision and make things a reality (1m45s).
• The company has been around for over 10 years, has delivered over 50 million crates, and has grown significantly since its start, with the core intent of empowering kids to become innovators remaining the same throughout the years (2m12s).
• Sandra Oh Lin, the founder of KiwiCo, has a background in product development, having worked as a chemical engineer at Proctor & Gamble, and later as a product manager at PayPal and eBay (2m44s).
• Sandra's inspiration for starting KiwiCo came from wanting her own kids to have hands-on experiences, similar to what she had as a child, and from recognizing the importance of creativity and critical thinking skills in kids' development (3m24s).
• The idea for KiwiCo started with Sandra pulling together hands-on projects for her kids and their friends, and eventually, one of the moms suggested that she start a business around it (3m47s).
• Initially, Sandra was unsure if there was a market for KiwiCo's products, but after exploring the idea, the company has been fortunate to have shipped out millions of crates and has become a successful direct-to-consumer e-commerce company (4m8s).
• KiwiCo's products aim to provide a convenient, delightful, and enriching experience for kids and parents, offering a way for parents to provide their kids with hands-on learning experiences despite their busy schedules (4m32s).

Turning an Idea into a Marketable Product (4m53s)

• The initial idea for KiwiCo was met with uncertainty about its potential as a business, but this changed after gathering feedback from people through various means (4m53s).
• Concept testing was done through focus groups in a living room setting, ensuring participants were not close friends but rather friends of friends, to gather feedback from kids of all ages (5m22s).
• Surveys were sent out nationally through Survey Monkey to gather feedback from different locations, including Tennessee and Ohio, to avoid biased feedback from the Bay Area (5m38s).
• Testing of the product itself was conducted with both parents and kids, reaching out to Mom's groups in the area and using a garage as a testing space filled with kids (6m0s).
• The testing process provided valuable insights into what is accessible and fun for kids, and how to create moments of discovery and learning (6m17s).
• A scrappy and resourceful approach was necessary for product development and market research due to limited budget, unlike the experience of working at companies like eBay or P&G (5m11s).

Testing and Feedback Beyond the Bay Area (6m32s)

• The company KiwiCo aimed to create a product that would resonate with a wide audience, beyond just the Bay Area, where the company is based, and intentionally sought feedback from people outside of this region to achieve this goal (6m48s).
• The decision to gather feedback from a broader audience was influenced by the founder's personal experience growing up in Ohio and living on the East Coast, which gave her a different perspective on the needs and preferences of people in various parts of the country (7m36s).
• Gathering feedback from a diverse group of people helped the company to identify its target market, which was not limited to a specific demographic, but rather a psychographic cut of busy, well-intentioned parents who value convenience and quality (8m52s).
• Initially, the company's customer base skewed towards coastal, higher-income, and more educated individuals, but it has since expanded to serve a broader range of customers, including schools and groups from diverse backgrounds (9m27s).
• KiwiCo's education business now serves over 10,000 institutions, including Title One schools, which are lower-income schools with underrepresentation in STEM education, and the company is excited about the opportunity to make a positive impact in these communities (9m43s).
• The company's approach to gathering feedback and understanding its target market has been intentional and has helped it to create a product that resonates with a wide audience and achieves its goal of touching a lot of kids and families (7m24s).

Early Marketing Strategies and Organic Growth (10m0s)

• KiwiCo initially relied on organic word of mouth and referrals to market their product, as parents tend to share their experiences with others, making each parent a micro-influencer in their own right (10m12s).
• The company collected email addresses before launching by attending events like Maker Faire and the Palo Alto Art and Wine Festival, which helped build an email base that now numbers in the millions (10m58s).
• KiwiCo tried various marketing channels, including SEM and Google ads, but they didn't work well initially due to the unique nature of their subscription-based service (11m14s).
• However, the company found that revisiting marketing channels they had previously tried could lead to unlocking new efficiencies as the market evolved (11m56s).
• KiwiCo's decision to adopt a subscription model was driven by understanding their target market's desire for convenient and delightful moments of discovery for their kids (13m1s).
• The subscription model worked well for both the consumer and the business, providing recurring revenue and a convenient way to deliver creative materials and inspiration (13m19s).
• KiwiCo remained a direct-to-consumer business until recently, when they expanded into the wholesale channel, entering retail stores just a few months ago (13m30s).
• KiwiCo is expanding its business to retail channels, including Target stores and Barnes & Noble, to serve customers where they are and meet different use cases that cannot be met through their online channel alone (13m34s).
• The company's online channel has worked well for scaling the business, but retail channels will be important for meeting various customer needs, such as last-minute purchases for birthday parties (13m58s).
• KiwiCo waited a while before making the jump to retail, unlike some other DTC businesses that expanded to retail within a short period of time after founding (14m41s).
• The decision to wait was a strategic one, involving tradeoffs and investments in other initiatives, such as direct-to-consumer related projects, launching new lines, innovating on the subscription business, and building an individual product e-commerce business (15m1s).
• KiwiCo prioritized these initiatives over wholesale and retail expansion, but eventually decided to invest in retail channels (15m41s).
• The company's strategy is about making decisions and investments based on the opportunities and initiatives that are most important for the business (14m53s).

Expanding into Retail and New Channels (15m50s)

• Wholesale can be a viable strategy for businesses earlier on, and it was a deliberate decision made after assessing the situation for KiwiCo (15m50s).

The Product Development Process at KiwiCo (16m6s)

• Creating a product like a STEM toy involves a talented team with a product development process that includes industrial designers, mechanical engineers, and experts who have founded companies like bicycle manufacturers, with the goal of understanding what to create and ensuring it resonates with kids and parents (16m6s).
• The physical product team concepts and prototypes ideas, testing them with kids multiple times throughout the process to gather feedback and ensure the product is both fun and enriching (16m50s).
• The product development process involves three constraints: price or cost, timeline, and quality, which must be balanced and weighed against each other, and sometimes requires making difficult decisions like pushing back a launch date or increasing the price (17m50s).
• KiwiCo's product development process is unique in that the price, timelines, and quality bar are set, with a focus on delivering a high-quality product to customers every month, and using customer data to inform the design and delivery of future products (18m31s).
• The company uses customer data, including create scores that associate with satisfaction, to create an economic profile of each experience and inform the design and delivery of future products (18m52s).
• Product designers at KiwiCo have a background in educational STEM, which helps them create products that are both fun and enriching for kids (19m22s).
• KiwiCo has a product design team with dedicated members for insights, and some team members have an education background, which helps in developing educational products (19m39s).
• The company has gained experience over 10 years in creating products that ensure kids have a good time building and playing while learning (19m53s).
• KiwiCo aims to embed STEM concepts in a way that kids can see what's happening, making learning fun and accessible (20m10s).
• An example of this approach is a new product line where kids make their own bow and arrow set, learning about potential energy and kinetic energy through play (20m20s).
• The company provides collateral and videos that explain the science concepts learned through play, making it a fun and accessible way for kids to learn (20m34s).
• KiwiCo also incorporates math concepts into their products, such as targets with numbers, allowing kids to learn through imaginative play (20m56s).
• The company's brand tenets include making learning fun and genuinely accessible for kids, avoiding a heavy-handed approach to education (21m11s).
• KiwiCo's approach to learning is centered around the idea of kids learning by doing, with the company providing gentle guidance and explanations rather than forcing complex concepts on them (21m17s).

Fundraising and Navigating the Venture Capital Path (21m27s)

• Pitching KiwiCo to investors was a process, and some people understood the company's ethos and intent, while others required more explanation, particularly since the business model was not a typical pattern seen by investors at the time (21m29s).
• Early investors were looking for proof points, but also considered the team and market potential, and in this case, the founder's experience as a mom and her connections from previous startups, such as PayPal and eBay, played a significant role in establishing credibility (22m9s).
• The founder had to lead with her resume and experience when pitching, as investors were investing in the team, and then highlight her relevant experience as a mom, which made her uniquely qualified to build the business (23m5s).
• The company raised $10 million in seed and series A funding, with the last round being at the end of 2014 and beginning of 2015, and the capital was necessary to kickstart the business, particularly due to its e-commerce and physical product components (21m52s).
• However, once the business gained momentum, it became profitable and cash flow positive, allowing it to fund its own growth, and it has maintained seven years of operating profit, giving it the flexibility to decide when to raise money again (25m1s).
• The founder's background in the startup space and as an operator did not necessarily prepare her to launch a company in the toy industry, but her experience as a mom and desire for products like KiwiCo's for her own children drove her to start the business (25m39s).

Balancing Entrepreneurship with Family Life (25m51s)

• Launching a company was not a lifelong goal, but rather a response to a personal need, and in retrospect, it makes sense that KiwiCo is the company that was started, given the combination of experiences and skills gained from previous roles and upbringing (25m52s).
• Growing up, making things as a kid, having project-based experiences in school, being an engineer, working in consumer products, and having parents who were entrepreneurs all contributed to the foundation of KiwiCo (26m46s).
• The experience of running a company is hard, taking up a lot of time and energy, and sometimes requiring trade-offs, but it is also highly rewarding, especially when family members can be involved (28m24s).
• Having a supportive husband has been crucial, and the company has become a unique opportunity for the kids to be involved, serving as chief product testers and appreciating the entrepreneurial journey (28m56s).
• The kids can see their mom in both "mom mode" and "entrepreneur CEO mode," allowing them to appreciate different facets of their mother's personality (29m40s).
• As a leader and CEO, the company has about 150 employees, and the leadership style is described as leading by example, being willing to get hands dirty, having high expectations, and supporting the team from the bottom up (30m5s).
• The goal is to set big visions and attempt to reach them, while also being supportive and leading by example (30m33s).

Early Challenges and Lessons Learned (31m1s)

• Early on in the company's history, they encountered challenges with shipping physical products, as they had no prior experience with inventory management, having come from an e-commerce background with eBay and PayPal, and it took a team of six people all day to pack and ship 18 crates, which was a worrisome experience at the time (31m9s).
• The company had to learn about space planning when they received their first shipment of physical crates on pallets, as this was a new concept for them (32m18s).
• They discovered that sending puffy paint to kids in December could cause it to freeze in the nozzle, leading to minor explosions, and they had to rectify this issue (32m31s).
• The company learned that they need to test products thoroughly, including individual materials, to ensure they are kid and age-appropriate, and they conduct internal testing throughout the development process (33m37s).
• They found out that certain materials, such as puffy paint, could be problematic through internal testing, where they noticed that it was hard to push out and would create a mess when squeezed (34m2s).
• The company's focus groups revealed that parents do not want messy experiences delivered to their doorstep, and this feedback helped shape their product development and testing processes (34m27s).

What’s Next for KiwiCo (35m8s)

• KiwiCo is launching a new product called KiwiCo Clubs, which is based on the experience gained from shipping experiences to kids and learning about what kids and families are looking for, such as fun, discoveries, and building creative confidence and problem-solving skills (35m25s).
• The company has reimagined its core products and is excited about the launch, which will enable it to continue extending its leadership in providing STEM experiences for kids (36m18s).
• KiwiCo has also kicked off its publishing business, publishing books that have been sent to over five million kids, and has a schools and groups business, as well as a whale business that it is looking to extend (36m34s).
• The company aims to meet customers where they are, exploring different opportunities and channels to reach them (36m47s).
• In the early days, KiwiCo tested its products with both kids and parents, not just in the Bay Area, to ensure that the product would be well-received by a diverse range of customers (37m12s).
• The founder, Sandra Oh Lin, was intentional about testing the product and gathering feedback, seeking reassurance that the product would be successful beyond her immediate circle of friends and acquaintances (37m33s).
• The company's approach to product development and testing has been smart and thoughtful, considering the psychology of toys and the differences in how kids play and learn in different regions (38m10s).
• KiwiCo's focus on educational toys and products that can teach kids new skills and concepts is an interesting and valuable approach to the toy industry (38m30s).
• The toy industry is driven by pop culture, with new toys often being released in response to popular movies or trends, but it's unclear how often new toys are actually introduced to the market (38m44s).
• Subscription toy companies have been able to grow quickly, indicating a need for this type of business model (39m0s).
• KiwiCo focuses on STEM toys, but also incorporates imagination and creativity, making it appealing to a wide range of children (39m33s).
• The company's approach marries educational value with fun, artistic projects, making it more inclusive for kids with different interests (39m56s).
• KiwiCo's founder fundraised just enough money and was able to avoid taking additional venture capital, allowing the company to maintain control and grow at its own pace (40m11s).
• This approach is rare, as many founders feel pressure to constantly raise money and focus on valuation and growth (40m22s).
• Not taking additional venture capital allowed KiwiCo to avoid outside influences and expand at its own pace, focusing on slow and steady growth (40m50s).
• The company's product spread primarily through word of mouth, with parents recommending it to each other through online communities and social media (41m20s).
• Venture capital is not always necessary for a company's growth, and some businesses can be built to be sustainable without relying heavily on funding (41m31s).
• KiwiCo's evolution as a company is a natural progression, with expansions into stores, schools, and a publishing arm making sense for a business that produces physical items for kids (41m56s).
• Unlike software companies, KiwiCo's growth and scaling are different due to the physical nature of their products, requiring more effort to expand and adapt (42m17s).
• Companies like KiwiCo and Tennybot show that not every business needs to be focused on AI or software, and disrupting other markets, such as toys or food, is also possible (42m50s).
• Founders can create successful businesses by identifying problems and creating solutions that people want to purchase, rather than following trends (43m15s).
• Sometimes, the ideas for successful businesses are not complicated, and entrepreneurs should be open to exploring different markets and opportunities (43m32s).
• The podcast "Found" is hosted by Becca Szkutak and Dominic-Madori Davis, and is produced by Maggie Stamitz, with editing by Kell Ourand and illustration by Bryce Durbin (43m40s).