We all know Silicon Valley is synonymous with innovation in the American lexicon.
But, an association with toys is less obvious.
And yet, in the early 1980’s, as the region was becoming the epicenter of all things high tech, fate was busy aligning a small group of stars in its midst, to make toy history.
A young engineer, named David Small, was fresh from college, working at various computer companies and startups. He landed at video gaming pioneer, Atari. He led various engineering activities that gave him a front row seat for the company’s rise and subsequent fall, after the infamous Video Game Crash of 1983. He was one of the last employees left when the doors closed.
His next job took him to a company that was making early multi-user computer systems and growing at a steady pace. As Director of Engineering, this company and position allowed him to settle down and take care of his young family. Life was good!
Meanwhile, Paul Rago had earned his BA in Human Biology and Master’s degree in Educational Psychology at Stanford, and was well on his way through medical school. In a turn of events that would shock most people, he abruptly walked away from medicine. A creative calling in his heart that he could not ignore came over him. And he suddenly knew with certainty that he wouldn’t find his calling as a doctor.
The Bear at the Barbeque
In 1984, David and Paul’s paths would cross in a way that no one could have predicted.
Paul’s childhood friend, a former Atari executive, approached Paul with a talking plush bear concept under his arm called, “Teddy Ruxpin.” The idea had been shopped around the toy industry, but no one wanted it because it was too expensive and complex to produce.
Paul thought the Teddy was fantastic, so they hosted a dinner party for a small group of business friends and former Atari executives to discuss starting a new toy company around the bear. Nearly everyone at that first meeting was excited enough by the idea to decide - on the spot – they would form Worlds of Wonder (WoW) and launch Teddy Ruxpin.
Paul is incredibly creative and the group wanted the very best people. He was tapped to head product development and marketing, and the company quickly started to take shape.
Many of the initial WoW founders had worked with David at Atari. The very next day, those former colleagues showed up at his house with Teddy Ruxpin in a black trash bag. David was skeptical.
When they asked him to join the company to lead engineering, David vehemently said, “No way.“ He had just been promoted to Director of Engineering at a high-tech computer company and was not about to walk away from something more stable for a risky start-up.
Undeterred, they said to him “OK, but just keep Teddy overnight and think about it.” That evening, after seeing his children’s and neighborhood kids’ reaction to the toy, David quickly changed his mind.
“Those children were mesmerized,” he said, “I knew it was going to be a hit, and I decided to leave a very good position and take the gamble.”
Launching Worlds of Wonder
At the beginning of WoW, everyone used personal credit cards for expenses, on faith they would get funding, which they did.
David and his team re-engineered the original Ruxpin concept from $150 price point to $70 and secured the necessary tooling and multiple factories to launch production.
Paul and a few others from the executive team made 40 presentations in eight weeks, raising $15.5 million in financing.
They staffed up quickly, going from about six original employees up to 1,000 people within two years. This included offices in Honk Kong to oversee manufacturing.
Everyone treated their area of the business as if they owned it. They worked with a tireless, entrepreneurial sense of urgency to get a quality product to market as fast as possible. Everyone worked nights and weekends.
Amazingly, this band of workaholics started the company in April of 1985 and began shipping the bear to retail in August of 1985. Teddy Ruxpin was a runaway hit for Christmas 1985, with over $100 million of product in the market by the end of the calendar year, and $125 million by end of fiscal year and with 100% sell through.
At the end of the first year, WoW was heralded as the fastest growing company in the history of the world!
All engines go: Lazer Tag
Riding the Teddy Ruxpin wave into 1986, an impromptu brainstorming session took place around the childhood game of “tag” at a company BBQ. A timeless game with global appeal, they wanted to capture its magic in a new toy with a high tech vibe.
“Lazer Tag” was born.
But there were technology challenges. It leveraged infrared light, which was still emerging for consumer applications. Could it be played in sunlight? What about increasing its distance? After all, very early models of electronic tag games had a range of only about 30 feet. David’s engineering team was able to solve those hurdles, perfecting the idea. Another feverish burst of product and brand development ensued, and Lazer Tag reached store shelves in August, powered by a world class advertising campaign, and soared to #1 at Christmas in 1986.
Meteoric growth and devastating collapse
With the instant success of Teddy Ruxpin and Lazer Tag, WoW had momentum and respect in the industry as early roboticists.
They quickly obtained licensing rights for Disney, Muppets and Snoopy properties for animatronic characters. They animated everything and took concepts, which had previously only been seen on a large scale in theme parks, and engineered them down to toy size.
Two back-to-back #1 winners right out of the starting gate was unheard of in the toy industry. Nonetheless, in their second year, they grossed over $300 million in product sales between the two smash hits.
But a perfect storm was brewing.
Uncontrolled growth, overly ambitious sales projections, a rush of competition into the marketplace, and the stock market crash of 1987, spelled disaster for WoW.
As fast as it came onto the scene, the company careened spectacularly into bankruptcy, imploding from its dazzling high in a matter of less than a year.
David and Paul stayed with the company until the very end in order to help with the liquidation of the company assets. As they were devastatingly forced to personally lay off dear friends and close colleagues, product rights and properties were sold.
Worlds of Wonder vanished, almost as quickly as it had appeared.