Toygaroo made Shark Tank news last month when it was learned the parent company, Hutch Toygaroo, LLC filed for bankruptcy. In perhaps the most public Shark Tank failure to date, Toygaroo filed Chapter 7 on April 6, 2012- barely a year after being funded by Mark Cuban.
Nikki Pope was the face of Toygaroo in the Shark Tank, but she was a minority owner. The other principles, Hratch Hutch Postik and Rony Mirzaians did not appear on the show. Nikki evangelized Toygaroo, billed as the Netflix of Toys, all over TV with appearances on countless local TV stations and network shows. Everyone seemed to like the idea, and for a while, things seemed to be going well.
Last fall, the first specters of problems began appearing: negative comments began showing up on various review sites, the company Facebook and Twitter pages disappeared, and Toygaroo posted on their website that they would not be accepting new customers due to “tremendous growth.” Then, the hammer fell on April 2, 2012 with the bankruptcy filing. Phil Smy, former Chief Technology officer for Toygaroo, put up a cryptic post on his blog back in October that foreshadowed the events of this spring. When I asked him about it prior to the Chapter 7 filing, he told me he'd have more to say “in a few weeks.”
Since then, I have been corresponding with Phil, and he recently took the time to answer a few questions about the bankruptcy.
Mr. Smy came on board with Toygaroo in the summer of 2010. “Toygaroo approached me looking for software to run their business. At the time I was running Filmamora (a kind of Netflix) in Spain. I licensed the software to them and at the same time came on board as CTO. My involvement pre-dates SharkTank (and Cuban). ‘Ms. Pope' has always had a minor share. So, I was hired by the other key shareholders. I was in Toygaroo from inception (pre incorporation documents) to the present time. I was CTO in name, but in reality I was responsible for all the technology, from custom development of the software to organizing hosting.”
I asked Phil when he thought the business was in trouble. “I would argue that the business was never really ‘in trouble.' There were issues with the business model that became apparent after running for a few months. Those issues should have been addressed.” He hasn't elaborated on what those issues were, but I will try to get clarification.
I asked if this was a “legitimate” bankruptcy or a “money grab” by the share holders. “Trying to recover from laughing… There was no money to grab.”
Was it a workable business model that was mismanaged or was the business plan logistically difficult to execute at the price points they were at? “Tweaks to the model were needed. Price points are kind of irrelevant as they always change in any business (look at the fluctuations over time of Netflix).”
The Chapter 7 filing listed Fedex and Uline, a packaging company, as creditors. I wondered if Toygaroo wasn't paying its bills. “As far as I know Toygaroo always paid its bills up until the last month of operations. What is not listed on those bankruptcy notices is how much was owed. The amounts were small. The business was growing. To be honest, that was the problem. Explosive growth is a difficult thing to handle for small businesses. I thought – and still think – it is a great idea. The business model needs some changing from what we were doing. I would have grown more organically (i.e slower) and also found investors who were willing to go the distance.”
Investors weren't willing to go the distance? Did you mean Mark Cuban? “I don't think that the ‘big name' investors we got really came through with what I had hoped.”
Did he have something to do with the bankruptcy? “Well, of course he had something to do with it, but, if you mean did he cause it, then no. Cuban's personal role was extremely limited. We did have frequent contact with ‘his people' but as I was not involved in that side I can't say exactly what they did for us. It wasn't obvious to me that we got a lot of help, though I am sure they would argue otherwise.”
My dad always said there were two things financially that can wreck a new business, not enough start-up money and too much start-up money. Small businesses that can be started on a shoestring and generate enough cash to keep going are often better off than businesses that get gobs of VC money and spend it imprudently on things that don't build a business. Conversely, a business that explodes out of the box needs cash to effectively manage that growth until processes can be put in place and the business matures into being able to manage the growth. Reading between the lines, I would say Toygaroo fell into the latter category. They simply could not feed the growth monster.
What is next for Phil Smy? “I have several clients around the world… Toygaroo was one. I don't live in the US, so I don't think I will pop up on the radar over there for a while! My businesses continue to be in Europe and Japan.”
Wherever he lands, we wish him well. We also hope Nikki Pope continues to dream, innovate, and take action on her ideas. Toygaroo was a good idea that, for whatever reason, was poorly executed. We'll probably never know the whole story, but just because one business fails, it doesn't mean the entrepreneur or the concept are flawed. Sometimes, things just don't work out. That's why Mr. Smy says on his blog, “Choose your partners carefully.”
There are other toy rental companies out there, so the concept appears workable and it appears there is a demand. If you are a Toygaroo customer looking for similar services, try these sites: Baby Plays or Toyconomy.