For three years running, the Toy Fair in New York City has awarded the title of "Toy of the Year" to the same winner: MGA Entertainment (MGAE). On the occasion of his third win, founder and CEO Isaac Larian had some blunt words for the toy industry as a whole. 

"Frankly, I think the toy business isn't in good condition right now, because very few companies--smaller companies, mid-size companies--are taking the risk to invent and come up with new innovations," Larian told Inc. Friday at the Toy Fair, a four-day event in New York City.

Chatsworth, California-based MGAE is one of the juggernauts in the industry. The privately-held company is home to brands including Little Tikes, Bratz, and this year's Toy of the Year winner, L.O.L. Surprise. Larian says the business pulled in more than $5 billion in annual global retail sales in 2019. By comparison, Hasbro and Mattel reported annual global sales of $4.72 billion and $4.5 billion, respectively. Larian attributes his company's long-term success to its ability to be inventive and take risks. 

In an industry tasked with serving the most fickle of customers--children--he says he's found staying power by investing in research and development and learning through trial and error. The way to the top? Listening to the kids. "It's not that difficult," he told Inc.

Larian, 65, isn't afraid to speak his mind on the record. When accepting last year's Toy of the Year award, the Wall Street Journal reported that he greeted the audience saying "Thank you everybody, even the people at Mattel," a nod to the years of lawsuits that started in the '00s between the two companies over who owned the rights to the Bratz brand of dolls.

 inline image

Before he built his toy empire, then-17-year old Larian came to the U.S. from Tehran with $753 borrowed from his uncle in 1971, the Journal reports. He studied engineering at California State University and then in 1979 began importing and selling electronics from overseas, founding a company called ABC Electronics. The company later changed its name to Micro Games of America in the '90s. More than a decade later, the business pivoted to dolls and the company name was shortened to what it is today. MGAE unveiled the Bratz brand in 2001, acquired the Little Tikes brand in 2006 from Newell Rubbermaid, and launched L.O.L. Surprise in 2016. 

Larian says too often toy companies operate with a crutch, relying on licensing alone to grow. He cites L.O.L. Surprise dolls as an example of how his company has expanded by creating new concepts that are difficult to copy. The dolls come in layers of packaging that kids unwrap, not knowing which one is inside. Larian came up with the idea in 2015, inspired by the many product-reveal videos on YouTube, he told the New York Times. The toy brand currently has 1.26 million subscribers on its own channel.

Not all of the company's inventions have become hits. Larian says about nine out of 10 products his company creates don't hit shelves, and even ones that do, like the Pop Pop Hair line, can still fail. The line of dolls with styleable hair and accessories launched last summer.

"The whole industry loved [Pop Pop Hair, but] the kids didn't think it was good. It didn't sell," he said. "The same team that did Pop Pop Hair that didn't do well, has come up with new innovations this year. They learned from their mistakes. Just learn and move on."

 inline image

Beyond developing new products, MGAE is doubling-down on sustainability. Larian announced at the Toy Fair that the entire L.O.L. Surprise line's packaging will be completely biodegradable beginning in 2021. In 2025, MGAE will only manufacture products that will "degrade when disposed of properly."

MGAE wasn't the only company emphasizing an eco-friendly angle at the show. Exhibitors included Shore Buddies, a company that makes stuffed animals from recycled plastic water bottles, and Green Toys, a company that makes toys completely out of recycled plastic. Recently, Mattel also announced a bio-based plastic line for its Mega Bloks.

In years past, the fair also has hosted a pavilion featuring toy companies based in China, one of the industry's main manufacturing hubs. Due to the coronavirus outbreak this year, the pavilion was canceled. Larian said MGAE's offices in China have experienced supply shortages with things like medicine and surgical masks. While it remains to be seen how exactly the industry will be affected by the virus, Larian recommends smaller companies put their focus on differentiating themselves with fewer, but more innovative, products. Now is also a good time to rethink where else you might manufacture products, such as in Vietnam. 

Even without a global health care epidemic, the industry isn't for the risk-averse, according to Larian. "I call the toy business legalized gambling," he said.