Kid You Not: The Very Serious Business of Building The Fastest-Growing Company in America
Robb Fujioka is too busy, working too fast, to be watched. Underlings are lined up. One wants sign-off on a package design. Another needs guidance before a supplier negotiation. But a reporter (me) has asked to observe a meeting or something, his marketing person reminds him--to get the flavor of the company. So he has her use the walkie-talkie she and other managers carry to call 24 of them in for an impromptu meeting. Within minutes, they file in like obedient children. He gives me a look. There, happy?
This is the El Segundo, California, headquarters of Fuhu, maker of the Nabi. It's the first Android tablet for children, and it sold 1.2 million units last year, generating $118 million in revenue--explosive sales that led to 42,148 percent growth in three years. The Nabi is adorable. It's possible the men who run Fuhu were adorable once. Now they are very, very grown up: This is company No. 7 for Fujioka, Fuhu's president. Jim Mitchell, the CEO, is a 19-year veteran of the consulting giant Accenture. The two other co-founders, John Hui and Steve Hui, have worked in the computer hardware industry almost as long as there has been a computer hardware industry. (John Hui was co-founder of eMachines, bought by Gateway for a reported $290 million.) Their industry connections run deep: This scrappy little start-up happens to have weekly conference calls with the world's largest manufacturer, Foxconn, a behemoth with 1.4 million employees.
The Hui brothers and Fujioka co-founded Fuhu (it's a combination of the first two letters of their last names) in 2008 with $1.5 million in seed funding from the Huis' hardware friends. Their original idea was straightforward, if eventually unsuccessful: They would develop apps, features, and other software that hardware companies could bundle with their products to justify higher prices and escape commoditization. They recruited Mitchell to be Fuhu's CEO. The Huis took on advisory roles. John Hui had just one rule for Mitchell and Fujioka: Don't touch the hardware itself. Develop any software you want, but license the technology and leave the anorexic margins and all other headaches to the big guys.
Over the next two years, Fuhu would develop virtual trading cards called urFooz, a widget platform called Spinlets, a kid-friendly user interface called Fooz Kids, and software called urDrive that could run applications from a USB jump drive. Mitchell and Fujioka sold equity stakes to the hardware companies they worked with, including Acer, Kingston Technology, and Foxconn.
But Fujioka grew increasingly frustrated with the massive hardware companies. "Every time you had a simple idea, you had to go and convince all these guys to do it," he says. "You'd almost have to say, 'I'm going to turn your devices into gold' to get all these self-motivated fiefdoms involved." Worse, the big guys could be bullies. After Fujioka spent six months selling Acer on an app store, he says, the giant went ahead and made its own version, the Acer Alive app store, which launched in November 2010. (Acer did not comment on the claim.)
That year, however, Apple introduced the iPad, leading competitors to rush out mass-market tablets for Google's Android operating system. Fujioka and Mitchell believed they spotted an unaddressed market: women. Without telling the Huis, they decided to design a niche tablet themselves. They would touch the hardware.
In the spring of 2011, Fuhu produced a prototype of a sleek tablet geared toward women, called Pinq (pronounced pink). Retailers weren't interested, and it seemed as if the company might have a year with no new products. But that summer, Foxconn came to Fuhu with an opportunity. It was trying to get rid of these remaindered low-end tablets it couldn't sell. Did Fuhu have any ideas?
"It was a shit tablet," says Mitchell, but Fujioka had an idea. Fuhu had already developed Fooz Kids. "Robb thought, Why not put it on this tablet, redo 'em, and sell 'em for 99 bucks?" says Mitchell.
The device crashed too much to bring to market. Still, Fujioka believed they were onto something. "When it was working," he says, "we were like, 'Wow, that's really cool.' "
With time before Christmas shopping season ticking down, they loaded the software onto a generic Android tablet they bought from a manufacturer in Shenzhen. Then they added a bright-red silicone bumper case with a distinctive curvy shape. It evoked the shape of wings, and they called it the Nabi, the Korean word for butterfly.
That fall, Mitchell managed to negotiate an exclusive deal with Toys "R" Us for 10,000 units. He and Fujioka still hadn't told John Hui, the company's chairman, about their gambit. "We'd physically hide the prototypes when he came to town," says Fujioka.
Racing to get the tablets on Toys "R" Us shelves, Fuhu shipped them by jet from China. The Nabi was on sale a week before Christmas.
The entire order, all 10,000 units, sold out in two weeks. But then came the bad news. Instead of a big, fat follow-up order, Toys "R" Us said it wanted only 15,000 more Nabis.
"I looked at Jim and I said, 'You go back on the phone to them and you tell them, 'Are you guys crazy?' " says Fujioka. " 'At 15,000 units, you will bury us!' " A small order left Fuhu vulnerable. Until more parents bought Nabis, a copycat could swoop in and swipe the market. (In fact, Mitchell says, Toys "R" Us attempted to do just that, releasing its own Android kids' tablet, the Tabeo, the following September. Fuhu is now suing Toys "R" Us for stealing trade secrets. Toys "R" Us declined to comment for this story.)
Fuhu decided to circumvent the exclusivity agreement that January. It shut down production of the Nabi. To finance operations, the company took out $10 million in debt. Fuhu raced to design the Nabi 2 for the 2012 holiday season.
In a recent afternoon, in a showroom in Fuhu's 100-employee office in El Segundo, Mitchell triumphantly showed me the result. Three prominent display consoles replicate how the Nabi 2 retails today in Walmart, Target, and Best Buy stores. Fuhu sold more than a million units last year at a list price of $199. Next to the Nabi 2s on those displays are two other tablets: the 5-inch Nabi Jr. ($100) and the 10-inch Nabi XD ($249). But Mitchell really lights up when he picks up a Nabi 2 and flips it over.
On the back, little silicone squares spell "JIMS NABI" in alphabet-soup letters. Parents who want to spell their child's name on the back can buy a 26-letter pack of these little squares, called Kinabis, for $24.99. (Or, if the kid's name has one letter twice, make that $49.98. Sorry, Sara.) On the opposing wall hang more of these high-margin accessories: cases, backpacks, screen protectors, specialized stretchy car chargers that reach to the back seat, $99 noise-limiting headphones, and GoPro-like mountable cameras ($170), all designed by Fuhu especially for its new devices.
Because the company makes only $5 or $10 profit on the Nabi devices themselves, this is where the money is. Later, Mitchell shows me removable stickers, called Nabi Frames, that retail for $5.99. "These are awesome," he says, his eyes gleaming like Christmas morning. "It's like printing money, right?"
September will be a big month for Fuhu, if everything goes as planned. The company will release an audio dock attachment that converts the Nabi into a karaoke machine. There will be a special-edition Disney Nabi, preloaded with Disney videos, that will sell exclusively at Best Buy, and a special-edition Nickelodeon Nabi that will sell exclusively at Walmart. There will be a Dream Tablet, designed especially for DreamWorks. DreamWorks Animation, which committed $5 million to Fuhu's latest $65 million round of funding (putting the company's value at $280 million), now has an executive on Fuhu's board.
Mitchell and Fujioka believe this is just the beginning. Mitchell sees the Nabi as a distribution channel for children's content of all kinds. "At the end of the year, I'm going to have four million screens out there," says Mitchell. "That's like a whole TV network." Fuhu has a partnership with Japanese mobile provider KDDI to produce a Japanese version of Fooz Kids, and later this year Fuhu will launch in China--looking to use the Huis and their Foxconn connections to help the company sell not just to affluent Chinese consumers but to the whole education system. Fuhu is also taking another crack at Pinq, this time with a line of home audio products.
The sense of urgency is unrelenting. The day after Mitchell takes me around the showroom, I meet with a team of four exhausted-looking men from the Taiwanese audio manufacturer Primax. They show me prototypes for the speakers that will go with the Nabi karaoke machine. "What's the deadline?" I ask.
Fujioka happens to hear me as he walks by. "Yesterday!" he hisses at them, grinning, barely breaking stride. "Yesterday!" The four men seem to feel a shiver up their spines.
By early September, the sleepy men assure me, the speakers should be on jets, bound for big-box stores around the U.S.