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CREATION THEORY It's 8:30 on a Sunday morning, and the Chicago Children's Museum on Navy Pier is already abuzz with activity -- even though it won't open to the public for 90 minutes. Up two flights of stairs, past a swinging rope bridge that hangs over a two-story chasm, and around the construction toy exhibit, you'll find a small poster announcing the Great American Toy Hunt, whose participants have convened in a nondescript conference room. Toy inventors with their valises, boxes, and portable luggage carts are already nervously milling about, waiting for their scheduled 15 minutes with two of the six judges from Haystack Toys Inc. No one's smiling. The stakes, after all, are humongous. Folded inside someone's case could be the next Furby or Cabbage Patch Kid: the toy that comes out of nowhere to become a phenomenon, inciting otherwise well-mannered grown-ups to stampede through toy store aisles. The people who've shown up include eager amateurs, jaded inventors, well-meaning grandmothers, a fresh-faced M.B.A., two carpenters with their brood of playful kids, and a middle-aged father and his co-inventor, who happens to be his nine-year-old son. Most will go home crushed, because the odds are heavily stacked against them. After visiting seven cities in October 1999, the Haystack judges will have seen 570 inventors and asked 103 to send their toys to its St. Louis headquarters for a final round of judging. Of those toys, Haystack will develop and market no more than 10 in time for the 2000 holiday shopping season. Started last May, Haystack has already raised $3 million. For a second round it has its eyes set on perhaps as much as $15 million to bring the toys to market through its Web site and through such retail channels as independent toy stores. The 1% of the inventions that make the final cut will be plucked from a field that seems to be dominated by half-baked concepts, curios, odd doohickeys, and mutant-bodied dolls. "I don't remember anything like this being tried before," says Sam Cottone, who has been a toy designer for 45 years and runs his own shop in West Chicago. He has a boxful of inventions to show Haystack, even though he regularly meets with major companies and has a few toys on the market. "I'm still looking for a hit," he says. Big companies, Cottone knows, don't spend a lot of time ferreting out inventors. Instead they aim for what they think will be sure bets, such as extending existing billion-dollar brands like Mattel's Barbie or scoring licensing tie-ins from movies. In the $28 billion North American toy industry, number one Mattel (1998 sales: $4.8 billion) and runner-up Hasbro have repeatedly taken that approach. Hasbro, for instance, raked in an estimated $650 million on Star Wars merchandise last year, although the movie Star Wars: Episode I -- The Phantom Menace didn't perform up to expectations. Hasbro may reap about $300 million this year from trading cards featuring those ubiquitous Pokémon. Rushing through a small toy store downstairs from the museum, Haystack cofounder Dan Lauer dismisses the merchandise -- Star Wars toys, novelty items -- as "things you look at" as opposed to "things you can play with," which he's after. "What happens for the big companies is that once they develop strong brands, it makes a lot of sense for them to keep extending those brands or to borrow from the movies," says David Mauer, former president of Mattel USA, who is now president and CEO of Riddell Sports Inc., a sports equipment manufacturer. "It's just less risky." Not that toy companies are any different from, say, mega-sized book publishers or moviemakers or music producers in their approach. That may be why creators in those fields are embracing the Internet as an alternative distribution channel. "The current system of finding creative talent has become really ossified," says Sanjay Jain, a Haystack investor who is also chairman of WorkNet Communications, a high-speed, wireless telecommunications company in St. Louis. The culprit? Consolidation, which creates lumbering giants for whom hunting down innovation in its rawest form is inefficient and hence unprofitable. "The majors are doing what's right for them, but then that's leaving a void in the marketplace," says Mauer. The Great American Toy Hunt may seem like a less than sophisticated attempt to fill that void -- not unlike mounting a roving Gong Show to try to find a successor to Frank Sinatra. Still, Lauer's approach makes sense in the toy industry, he argues, because of the proliferation of inventors. He figures that someone has to have created a toy "that's so involving and so ingenious that it becomes the most cherished toy in a kid's life." Finding such a toy is, of course, crucial to Haystack's success. But Lauer's original method for searching out and sifting through products that the major players routinely neglect has implications for any industry in which "if you're not chosen by the big guys, you're not going to make it," as Jain puts it. Indeed, it's hard to imagine an industry in which Lauer's assumption -- that there's a reservoir of inventive genius waiting to be tapped -- wouldn't feel true. But is it true? The Great American Toy Hunt has become Lauer's vehicle for finding out which people are out there and what kinds of contraptions they have. In short, he wants a definitive answer to a single, nagging question: What is it that the industry giants are really overlooking? The discovery process can be grueling. A pair of judges wades through as many as 30 inventions a day to find a prospect. "We have to be really on, listening to these people, because this is their time," says Tom Neiheisel, a toy consultant based in suburban Cincinnati who specializes in market research. "But frankly, I know within a minute of entering a room whether this toy is going to make the cut." As brutal as that may sound, it's more of a hearing than Lauer himself got a decade ago, when he was trying to break into the toy industry. A bank vice president at the time, Lauer remembered the fun his sisters had had playing with water balloons dressed up as dolls. So he fashioned a doll that felt like a baby when it was filled with warm water. He sent about 700 submission letters to toy companies but received nary one positive response. Desperate to bring Waterbabies to market, he raised about $370,000 from angel investors. In 1990 he persuaded the six biggest St. Louis retailers to test-market the toy over the Christmas selling season. The results were good enough that by early 1991, Playmates Toys Inc. had licensed Waterbabies from Lauer. Within eight months, the company had shipped 2.2 million units and had netted $27 million in sales. Last year, with sales reaching 10 million units, the product became one of the top two special-feature dolls of the decade, just behind those pucker-prowed Cabbage Patch Kids. Not surprisingly, Lauer soon began representing other inventors who had delusions of breaking into the big leagues. When meeting with toy companies, he consistently found that "they were turning down toys for all the wrong reasons." In 1998, Lauer thought up the concept for Haystack with industry veteran Jeff Loeb. In May 1999 the company was incorporated. Its mission: to give worthwhile inventors of great toys a shot at reaching the market by means of specialty retailers and a Web site, www.haystacktoys.com. For additional judges, Lauer and Loeb recruited three toy industry veterans. (The sixth judge was Haystack's newly hired communications director.) Many products that the judges scrutinize don't pass muster because they resemble others already out there -- or there and gone. A product needs to stand on its own, for starters. "What I look for is the double 'wow,'" explains consultant Dave Okada, a former senior vice president of product design at Mattel. "A 'wow' when you first see the toy, and then another 'wow' when you play with it." In one judging session in New York City, Okada meets Milton Dinhofer, an elderly inventor who says he first got the idea for a small glider and launcher at the age of six. "It's a compulsion of mine," Dinhofer says. "A compulsion to be reborn," Okada adds. When Dinhofer shows how the toy works, Okada jumps in, announcing, "I wanna try!" He takes the launcher and shoots the glider aloft. "This shape works," he says, and then thinks for a moment. "Can other shapes work too? Like a Stealth? How about a human form? A bird? A flying squirrel?" Okada asks. Eager to stoke Okada's excitement, Dinhofer says they can. By the end of the session, Okada asks Dinhofer to send in the toy for the series of final judging rounds, in St. Louis. More common, however, are sessions in which the judges act far more reserved. Wendy Tannen, a mother of two from New Jersey, brings a doll called "Guess What Gus" into a judging session in Manhattan. She's enlisted the doll to help her young children learn the colors, numbers, and shapes that she holds behind Gus's smock. The children guess what's hidden. "I get it, it's like peekaboo," Okada says. Jill MacIntyre, a judge who spent much of her career at Mattel and Kenner, launches into her own assessment. "The problem is that Gus necessitates the engagement of the parent," she says. "It doesn't prompt the child to respond without the adult." It hardly takes Gus-like guesswork for Tannen to sense the judges' opinion. "You need Gus to be more fun," Okada instructs. Sessions held one day in Chicago stretch into one another like a never-ending amateur hour relieved only by the rare excitement of a novelty act. A couple of carpenters bring a beanbag-pitching game, which Lauer quickly dismisses as unoriginal. A woman shows up with patented metallic doll hair, a potentially interesting add-on product. Okada steers her toward Mattel. A young M.B.A. student unfurls a small furry pet attached to a retractable string on her parka. Neiheisel feels the gimmicky device would work better with a Disney character. A grandmother displays a beautiful book and doll that she made for her grandchild. She had interested a publisher, she says, but balked when the company tried to buy the entire rights. Okada tells her Haystack does not want to be a publishing company. A man and his son show off a toy intended for use at the beach. It intrigues Lauer but would face tough competition in the overbuilt market for construction toys. By late afternoon the tedium is palpable. Neiheisel reminds the other judges that he got up at 4:30 a.m. in order to fly from Cincinnati to arrive in time for the Chicago round. He yawns, Okada grabs a cookie, and both enter a closed-off room where yet another contestant is waiting. Meanwhile, in the holding area outside, a nervous inventor rails against the industry. "I came within a hair of selling a doll to Hasbro," he confides. "You need connections in the toy industry. It's like the Mafia. It's a nightmare." He declines to give his name. Most of Gabriel Ruegg's judging session took place inside a series of large nylon tunnels and shapes that were fastened together with Velcro and inflated with a fan. "I just set it up, and soon the judges were climbing inside of it, talking to each other," says Ruegg, 23. "I eventually joined them." Ruegg had worked on the toy -- which Lauer describes as a "private play world for kids" -- intermittently for about two years. Actually, he got the original idea when he was seven years old, when he cut open the ends of plastic bags and taped them together. He returned to his idea as a sophomore at Hampshire College, in Amherst, Mass., and took the invention to a toys-and-games class. Encouraged by his professor, Ruegg applied for a grant from the Lemelson Foundation, which endows a program for inventors at the liberal arts college. "I used to set it up at the children's center at Hampshire, and the kids loved it," says the aspiring industrial designer, who is currently unemployed. The Lemelson Foundation eventually helped him get a provisional patent and inspired him to develop the product, suggesting he start a company. But after graduating from college, in 1998, Ruegg "just didn't want to spend my time on this," he says. He opted instead to devote the year to snowboarding. Until, that is, his mother read about the Haystack contest in a newspaper, propelling Ruegg to surf to the company's Web site. Haystack's rules stipulated that inventors have a prototype or at least a set of drawings of their toy, and the company ruled out puzzles and games, preferring to focus on actual toys. Like 1,249 others, Ruegg applied. He was accepted and drove from Denver to the first judging session in St. Louis. Once the judges finished crawling through the tunnels, they asked Ruegg to send in the toy for the series of final judging rounds. Shortly before last Thanksgiving, he got word that his toy would be among the 10 or so that Haystack would develop. The company will give Ruegg $5,000 up front and a 5% royalty on sales. Haystack also promised to spend at least $50,000 developing the toy, which Neiheisel praises as "one of the most original things we saw." Two years ago, while doing consulting for a large company involved in treating coronary artery disease, Clayton M. Christensen reached a heart-stopping conclusion: during the previous two decades, none of the industry's major breakthroughs had come from a leading company. "If you sum up the innovative power of the thousands of cardiologists who every day are sensing the opportunity for something a little bit better, it overwhelms the innovative power of even the industry's largest players," says Christensen, a professor at Harvard Business School. In his 1997 book, The Innovator's Dilemma (Harvard Business School Press), Christensen showed time and time again that small and agile innovators with "disruptive technologies" trounced stodgy big players. Although he focused on the disk drive industry, he gave other examples: minicomputers, variety stores, and accounting software. Nobody yet knows whether the Great American Toy Hunt has unearthed anything that will cause even the slightest disruption in the toy industry. But just by having carried out his novel search, Lauer has pointed a spotlight on a neglected pool of creative talent, bestowing on it the kind of attention that isn't likely to disappear. More than what he saw, it's what Lauer did that seems to have become the hunt's main attraction. As the popularity of a certain prime-time game show attests, Americans love the notion of plucking hard-working joes from obscurity and rewarding them with fame. Even Lauer himself has had to resist letting the project's overwhelming appeal trample his original goal of finding and making better toys. Although he was approached about appearing on The Rosie O'Donnell Show as early as last November, Lauer wanted to wait until he actually had the products in hand, enabling him to capitalize on the publicity. But once those products are ready for prime time, Lauer is sure they'll assume a starring role. "We saw things that the majors never see," he says. That, too, could change. According to Lauer, Alan Hassenfeld, chairman and CEO of $3.3 billion Hasbro, was intrigued enough by Haystack's Great American Toy Hunt to meet with Lauer several times to discuss a strategic relationship. (A spokesman for Hasbro did not return our repeated calls.) So enticing does Haystack's end run around the gatekeepers seem that even the gatekeepers want a piece of the action. Lauer's now thinking of a tangential business for Haystack: acting as an agent for the promising products that don't fit the start-up's game plan. Then again, he's not sure. After all, the company was conceived as an alternative to the big companies, not as their talent scout. Inventors, though, don't have time for such distinctions. "Basically, I want to do whatever I can to get this on the market," says Eileen Gaffney, creator of Tyrannosaurus Chess, a dinosaur chess game that morphs into a toy. Gaffney, an administrative assistant for a real estate developer, tells Lauer in a session in New York that she has worked on the toy for five years. Lauer deems it marketable -- but positioned in too tough a market segment for a start-up like Haystack to tackle. Still, he tells her, the game would fit perfectly into a company's existing line of chess products. So he suggests she pursue that route or contact Haystack later to see if it might act as her agent. Or maybe, he muses, she should start her own company. In fact, he isn't sure how she should go forward. But then, he doesn't have to be sure. Clearly, that is what he treasures about the Great American Toy Hunt. While he stands beside an unknown inventor from College Park, Md., he has the luxury of toying with a variety of scenarios for turning a promising discovery into a valuable asset. After all, nobody else even knows about it. "Very quickly we will have the best thinking coming to us -- if we can deliver on our promise," Lauer predicts. If that happens, he adds, "what we own, which may be proprietary, is this process." - - - - - - - - - - - - - - The Best of Inventions Here are several of the toys (with working names) that Lauer was excited about and that might be made by Haystack Toys this year. Flutter Wings Project X Cuddle Fish Sea Pets |