The following is a re-post of my January 28, 2011 column for Crain’s Chicago Business’ Enterprise City blog.
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You have to see their product to get it. At first glance, it’s a cool-looking toy box. But then you remove the cover, unzip the corners (yes, unzip) and — voila!I — it’s a playmat.
Driven by the frustration of picking up their son’s Legos, Wayne Rothschild and his wife, Marilyn, conceived of the ZipBin product in 2002. Along with Kellogg B-school friend and business partner, Dee Farrell, Wayne launched the aptly named Neat-Oh! International in 2005 with more than $2 million in outside capital. With Wayne’s background in product development and manufacturing, and Dee’s expertise in strategic alignment at a fast-growing firm, they wanted Neat-Oh! to be known for innovation, quality, integrity and partnership.
Today, the company has 15 employees, double that of two years ago. Its growth has been spurred by “really good product, perseverance and tenacity, and four different revenue streams,” Wayne said.
That diversification, which includes partnerships with big toy companies like Mattel and Hasbro, resulted from Dee’s background in strategic alliances. In addition to OEM for such companies, Northfield-based Neat-Oh! sells branded ZipBins, is a licensor of its patented technology to other manufacturers, and is a licensee of brands like Hot Wheels and Barbie.
Not only do they sell to four customer segments with four different strategies, Neat-Oh! does business in 50 countries. To make that happen, Wayne and Dee are on the road 40% of the time visiting customers, exhibiting at toy shows and working with manufacturers overseas.
In surviving the recession, Wayne said, “we doubled-down to lower costs in our supply chain and with our overhead. Our gross margin increased over 50%,” which is indeed remarkable for a young manufacturing firm.
The company expects its double-digit revenue growth to continue over the long haul, and the founders know it won’t be easy. Neat-Oh! is trying to build a worldwide consumer brand with a limited marketing budget, become a core toy aisle item (which requires significant distribution) and develop new products while generating re-orders (the company’s most vital performance metric).
Such ambitions for a manufacturing firm require money. The Neat-Oh! team has already experienced the challenges of managing cash flows while growing faster than expected the last two years. Now they have to also wrestle with acquiring the resources to support ambitious growth.
Wayne admits that their “business is so complicated. Our board tells us every meeting; ‘Simplify your business, simplify your business.’ But we think we’re hedging our bets (by diversifying).” Indeed, each of the four streams has led the company’s revenues in each of the last four years.
Dee and Wayne have proven they’re innovative, have marketing and sales capabilities and can manage costs — a fairly impressive combination. And they’ve done it with a “complicated” business that requires the key executives to spread their time, presence and attention across four different lines of business and several continents.
Here’s my perspective on the challenges ahead for Neat-Oh!:
I wonder if Wayne and Dee are biting off more than they can chew. Should a company that designs and manufactures its own products, demands high precision in doing so, has a growing workforce and does business worldwide have more hands-on management? Should it simplify its business model? And how can they gain control of this speeding train so that it doesn’t fall off the tracks?
In speaking with Dee and Wayne, I sensed their acute awareness of these issues. They wouldn’t be where they are today if they weren’t smart and capable. And they’re certainly driven, describing their company’s culture as “intense and detail-oriented,” and forgoing promising careers in pursuit of the entrepreneurial dream.
But in my experience, fast-growing companies often require the founders to work a lot of magic. They must transition the company from being entrepreneurially managed to being professionally managed. They must move from simply hiring people to hiring and retaining people. And without question, they must have ample cash to make all of that happen, either organically or through outside funding.
So I wonder if Wayne and Dee should bring in seasoned professionals to help take the company to the proverbial “next level.” I’m curious if the company can grow at its desired rate by focusing on a niche in the market. I find myself asking what other companies in similar situations have done.
I’d love to hear what you think Wayne and Dee should do. Please share your suggestions, experiences, and thoughts below.