Innovation and Entrepreneurship

Case Study: Educational Toys from Mexico

It was a rainy summer afternoon in July 2009. Marcela Huet, Ibó Angulo, Hilda Diaz and Laura Cortés were having lattés at Café Punta del Cielo in Mexico City. The four of them had been working together for several years as partners in their toy business, Jugaré, but they had different ideas as to what strategies were needed to help their business grow. They would have to make some important decisions in the coming months.

The Birth of an Idea

In February 2004, this same group of women was celebrating Huet's baby shower. Huet had just resigned from her full-time marketing job. Now she wanted to start a new venture with her closest friends, Angulo, Diaz and Cortés. The four women -- all in their late twenties and the mothers of infants and toddlers -- began meeting regularly to discuss what type of business they could launch. They realized that the available toys on the market did not encourage children's creativity, and that no other firms were designing toys that inspired imaginative play. Angulo's mother had a store location in the La Condesa neighborhood that had been vacant for some time. Situated near downtown Mexico City, La Condesa is one of the most fashionable neighborhoods in the city, full of high-end shops, bars and restaurants. The store's location there would be a good fit for the business.

Angulo and Diaz, both designers, developed several ideas for the first kits. Cortés, a business administrator, initiated a production plan to manufacture the toys. Huet, a marketing specialist, was in charge of remodeling the store. The adventure began with an initial investment of US$20,000 ($5,000 from each entrepreneur). The living rooms of their respective homes became the workshops where a dozen of each of the 12 different kits were manufactured. By December 8, 2005, Jugaré's first store opened its doors as a new "Place to Grow Playing."

The entrepreneurs expected to bring in US$1,200 in the first month. But in the first week of operation, they made US$800 and had almost no products left. The owners were already experiencing the costs of not being able to meet market demands. Realizing they needed to make more toys, faster, they moved production to a room located next to the store and assembled the kits themselves, as fast as possible. Exhausted by January, they decided to hire a saleswoman to be in charge of the store, and two other women as production assistants.

Overwhelming market acceptance gave them the confidence to start expanding their catalogue of toy kits. In the first 18 months of operation, they were able to offer 80 different products. Jugaré's kits are designed for upper class children between 3 and 12 years old whose mothers are concerned about the overuse of electronic games and are looking for alternative means for playing and learning. Moreover, because the owner's own toys were not suitable for children under three, they introduced new ones -- for all ages -- from other brands. Now, approximately 80% of the items offered in their stores are Jugaré products and the remaining are other brand products.

The idea that was born at Huet's baby shower turned out to be so successful that investors were now interested in franchising the business model. The four entrepreneurs knew that Jugaré needed to expand, but they wanted to keep control of the Jugaré brand as well as the production of toys. At the same time, they lacked the money to open a new store on their own. They decided to create three different legal entities; one for the workshop, one for the La Condesa store and the registered brand of Jugaré, and a third entity that allowed for the opening of new stores with new capital investors.

The Strategy for Growth

The entrepreneurs are now deciding the best growth strategy for the future of the company. One option is franchising. On the plus side, it could allow a fast expansion all over the country, without any additional equity; in addition, any risk associated with the growth would be shared with the franchisees. On the negative side, the owners have not yet put together all the documentation needed to franchise, such as business plans, training and operation manuals, and management procedures that will help maintain the current stores' high quality. 

Another option is to start selling the merchandise at different retailers -- for example, commercializing the products at specialized stores like Casa Palacio, MUAC, Gandhi bookstores and Museo del Niño. The owners also discussed selling the products directly to wholesale vendors like Walmart and Comercial Mexicana. Huet argues that this would be a good strategy because many products could be sold in a short period of time, the market share would rise rapidly and a larger proportion of customers would be made aware of the Jugaré brand. However, according to Cortés, the main disadvantage is that, at the moment, the workshop does not have the capacity to satisfy demand from these stores. She is concerned, as well, about the production and distribution costs associated with a significant expansion.

The entrepreneurs are also looking at forming strategic alliances with outside clients, such as Piccolo Mondo, Gymboree, private or public elementary schools and children's entertainment companies.

That rainy afternoon at Café Punta del Cielo, the four friends finished their lattés and went to pick up their daughters at ballet school. The questions they continue to ask themselves are: What is the best strategy to grow Jugaré? How are we going to get the necessary capital to finance that growth? How are we going to turn our enthusiasm into profitability? How are we going to balance all of this growth with our family life? These questions are critical ones for entrepreneurs entering the growth phase.