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All Work, No Play Makes Fuhu One Very Successful, Very Intense Company

Tablet-maker Fuhu has grown at an astonishing rate, topping the Inc. 500 list two years' running. Now its very hands-on leaders are trying to learn how to let go.
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If there's one rule to succeeding at Fuhu, it's this: The collective is greater than the individual.

In practical terms, here's what this means if you want to work at the company, which makes tablets for children: Get ready for some self-sacrifice.

Think 9 a.m. to 10 p.m. workdays. Very little vacation. Missed birthday parties and weddings. The rewards for all this work are potentially immense, including--for a select few employees--a stake in Fuhu, which has reported an eye-popping 158,956.9 percent surge in sales over the past three years. That's good enough, by a wide margin, for the No. 1 ranking on this year's Inc. 500. But if you want your time at this particularly fast-growing, particularly intense startup to pay off, you have to demonstrate you can absorb the way its leaders think--from one of them in particular.

Fuhu has been shaped by four men, but if you spend a little time at its headquarters in El Segundo, California, it becomes clear that Robb Fujioka is the biggest influence on its culture. He's the one in charge of the products, including the signature red Nabi Android tablet, and the one who, with CEO and retail chief Jim Mitchell, oversees Fuhu's day-to-day operations. (Fujioka, who has the title of president, co-founded Fuhu in 2008 with brothers Steve and John Hui, veteran entrepreneurs of the computer hardware industry, who now focus on international growth and strategic hardware partnerships.)

This is Fujioka's seventh company, and at this point in his career, he's very clear on his management philosophy: It's "a democratic dictatorship," he says, chuckling.

You can hardly argue with the results. Fuhu says it sold nearly $196 million worth of tablets and accessories, a 66 percent revenue boost over the previous year, when its sales first landed it at the top of the Inc. 500. That Fuhu is back in the same slot again this year is a rare achievement. Only one other company has pulled off consecutive No. 1's in the 33-year history of the Inc. 500: energy management company Cogentrix, in 1989 and 1990.

Fuhu succeeded this time by rapidly increasing the number of products it sells, including accessories. Fujioka and Mitchell are masters of market segmentation and line extensions: You can buy a 5-inch Nabi Jr. for toddlers, a Nabi 2 for kids, and a Nabi XD for tweens--not to mention the special editions from Nickelodeon and Disney, the $70 headphones, or the $40 Nabi messenger bags. Last year, Fuhu tripled the number of stores selling its products; retail outlets now number nearly 15,000. The company also nearly doubled its ad budget in 2013.

"What Fuhu did was take a product that clearly had resonance in the marketplace, the tablet, and had an appeal to kids--they're eager to grab the iPad--and figure out a way to optimize the experience," says analyst Ross Rubin, of Reticle Research.

Now Fuhu is raising a fourth round of funding from investors including DreamWorks and Intel--and it's aiming to go public, according to sources familiar with its plans. Bo Brustkern, a private company valuation expert and founder of Denver-based Arcstone Partners, says fast-growing tech companies typically see valuations ranging from four to 10 times revenue, a calculation that could easily value Fuhu at more than $1 billion. (Mitchell and Fujioka declined to comment.)

Fuhu now seems well along an enviable path, which Mitchell describes as a "transition from a startup to a company." But all of this success has also created an increasingly urgent challenge, one familiar to fast-expanding businesses but particularly acute at Fuhu: How do you handle the side effects of growing up?

At Fuhu, the growing pains so far have mostly taken the form of employee burnout and concerns about micromanagement. "As long as you have the right attitude and a willingness to learn, you'll succeed here," says Chris Cheong, who has worked in the business development department for two years. "But Fuhu moves very fast, and a lot is expected of you. It's not easy for everyone to embrace."

It's a familiar refrain to Mitchell and Fujioka, who are well aware that they set an exhausting pace. Neither executive has taken a legitimate vacation in the past eight years, and claim that everything would come to a halt if either did.

An employee who recently left and who asked not to be named says that the pedal-to-the-metal work style of Fuhu's top executives is "why Fuhu is successful, but it's also why people are leaving." Though the company's employee turnover rate of 15 percent is a little below the tech hardware industry average, according to research firm Radford, it's on the executives' minds.

"It's a hard place to work," Fujioka says. "We've always kind of assumed that turnover would be a part of life."

He's trying to better understand some of the causes of that turnover. Fujioka says he reads every single review of Fuhu on Glassdoor, the website where employees post anonymous (and thus often critical) reviews of companies they've worked for. Common complaints about Fuhu include: "long hours," "inexperienced managers," and executives who "micromanage."

"What we probably need to get better at is making sure that turnover doesn't result in people being upset when they leave," Fujioka says. "And we haven't ever done a very good job of that."

Now Fujioka and Mitchell are trying to fix some of those problems. Recently, Fuhu has added some employee perks, including access to a fitness trainer and a psychologist, sweets on Fridays, and catered meals. It's also replacing some seat-of-the-pants structures with more formal processes: There's now an onboarding team for new hires and a formal exit-interview process. (Departing hires once were swept out the door as quickly as possible.) Fuhu is also experimenting with paying people to leave, a practice Zappos CEO Tony Hsieh pioneered to weed out new hires who aren't dedicated to the company.

Employee perks can help improve morale, but the bigger problem for a fast-growing company such as Fuhu may be getting the founders to stop micromanaging, says J. Keith Murnighan, a Northwestern University Kellogg School professor and a leadership expert.

Collective Inspiration

Fuhu's offices and leadership style reflect what its executives call an Asian culture--one in which workers sacrifice individual needs for the good of the company. Those sacrifices have paid off for Fuhu, which saw its growth boosted by sales of accessories, like silicone decorations (below), for its tablets.

Fuhu has historically shunned professional managers, meaning all decisions roll up to the two top executives. Fujioka explains that part of the reason for doing so is to avoid some of the entrenched silos he has seen stymie growth at other tech hardware companies. He and Mitchell are hardly the only startup executives to insist on staying intimately involved as their company expands. Even so, says Murnighan, the model is "not sustainable. The risks of letting go seem horrendous, but they're absolutely necessary for success."

Fuhu's method of letting go involves relying more heavily on a strict organizational structure, which it is expanding as Fujioka and Mitchell contemplate delegating more. Below the two executives are 27 employees who belong to "the partnership," a group that accounts for less than 10 percent of Fuhu's more than 300 full-time global employees (including 227 in the U.S.) but who collectively own about 18 percent of the company. The next tier is made up of junior, or potential, partners. And on the bottom is everyone else. Employees are chosen for the partnership by demonstrating a belief "that we're a collective family that has decided to sacrifice for the business," Fujioka says.

This system is what serves as management training at Fuhu; hence the focus on mentoring the most dedicated few. The partners all carry walkie-talkies so they can be reached at a moment's notice; attend dinners and decision-making sessions with Fujioka and Mitchell; and regularly have to prove their understanding of Fuhu by repitching the leaders on why different parts of the business are important.

Mitchell says Fuhu's mentoring process is "at the heart of why the company is the way it is," and calls it a more "genuine" system than the standard-issue corporate mentorship programs he became familiar with during his 19 years at Accenture.

"The mentoring thing is Robb--it's who he is," says Mitchell. "It's what makes him unique, and it makes people want to work here."

Cheong, 28 and a junior partner, says his access to Fujioka is a big advantage to working at Fuhu. A few months ago, the co-founder told Cheong to pack his bags and join him on a business trip to Asia--in two days. "I wasn't really able to plan very much, but it was an awesome opportunity," Cheong says. "Nothing really matters as much as learning from him directly."


Fuhu's executives like to call its culture "very Asian." That's partly a nod to the backgrounds of Fujioka, who is Japanese American, and the Hui brothers, who are Chinese. (And then there's the white, male CEO, though Fujioka jokes that his co-manager is the most Asian of the bunch; Mitchell was the one who insisted on incorporating feng shui elements into the company's offices.) Fuhu's success has also been built on tangible business ties to Asia, including its partnership with manufacturing giant Foxconn, which makes the Nabis and is an investor.

Fujioka also explains his leadership philosophy as one mostly derived from Asian culture, including the belief that the good of the company as a whole is more important than that of its individual parts (or people). It's a philosophy clearly reflected in those feng shuied offices, which are plastered with signs exhorting employees to work "For the Many, Not the Few."

But that slogan also serves as a challenge for Fujioka and Mitchell as their company continues to grow. Even if all of the partners successfully internalize the Fuhu way, at some point Fuhu's leaders will need to become more comfortable with management by the many instead of by the few. That might take some time. Fujioka says his entrepreneur friends criticize him for having his hands in too much of the business--but for all that he can acknowledge the potential pitfalls of micromanaging, he's not entirely convinced of the merits of letting go.

"On the one extreme, you can be called a micromanager. On the other extreme, you let the business get away from you," he says. "Ultimately, it's a weakness but also a competitive strength. We move product faster than anyone else in this space."

IMAGES: Spencer Lowell
From the September 2014 issue of Inc. magazine

LINDSAY BLAKELY | Staff Writer | Senior Editor, Inc.

Lindsay Blakely is a senior editor at Inc., based in Los Angeles.




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