Dan Lauer searched out inventors across the country to test his hunch about the toy industry: that consolidation had left behind a slew of potential hits.

It's 8:30 on a Sunday morning, and the Chicago Children's Museum on Navy Pier is already abuzz with activity -- even though it won't open to the public for 90 minutes. Up two flights of stairs, past a swinging rope bridge that hangs over a two-story chasm, and around the construction toy exhibit, you'll find a small poster announcing the Great American Toy Hunt, whose participants have convened in a nondescript conference room. Toy inventors with their valises, boxes, and portable luggage carts are already nervously milling about, waiting for their scheduled 15 minutes with two of the six judges from Haystack Toys Inc. No one's smiling. The stakes, after all, are humongous.

Folded inside someone's case could be the next Furby or Cabbage Patch Kid: the toy that comes out of nowhere to become a phenomenon, inciting otherwise well-mannered grown-ups to stampede through toy store aisles. The people who've shown up include eager amateurs, jaded inventors, well-meaning grandmothers, a fresh-faced M.B.A., two carpenters with their brood of playful kids, and a middle-aged father and his co-inventor, who happens to be his nine-year-old son.

Most will go home crushed, because the odds are heavily stacked against them. After visiting seven cities in October 1999, the Haystack judges will have seen 570 inventors and asked 103 to send their toys to its St. Louis headquarters for a final round of judging. Of those toys, Haystack will develop and market no more than 10 in time for the 2000 holiday shopping season.

"We have to be listening to these people because this is their time," says one of the judges. "But frankly, I know within a minute whether this toy is going to make the cut."

Started last May, Haystack has already raised $3 million. For a second round it has its eyes set on perhaps as much as $15 million to bring the toys to market through its Web site and through such retail channels as independent toy stores. The 1% of the inventions that make the final cut will be plucked from a field that seems to be dominated by half-baked concepts, curios, odd doohickeys, and mutant-bodied dolls.

"I don't remember anything like this being tried before," says Sam Cottone, who has been a toy designer for 45 years and runs his own shop in West Chicago. He has a boxful of inventions to show Haystack, even though he regularly meets with major companies and has a few toys on the market.

"I'm still looking for a hit," he says.

Big companies, Cottone knows, don't spend a lot of time ferreting out inventors. Instead they aim for what they think will be sure bets, such as extending existing billion-dollar brands like Mattel's Barbie or scoring licensing tie-ins from movies. In the $28 billion North American toy industry, number one Mattel (1998 sales: $4.8 billion) and runner-up Hasbro have repeatedly taken that approach. Hasbro, for instance, raked in an estimated $650 million on Star Wars merchandise last year, although the movie Star Wars: Episode I -- The Phantom Menace didn't perform up to expectations. Hasbro may reap about $300 million this year from trading cards featuring those ubiquitous Pokémon.

Rushing through a small toy store downstairs from the museum, Haystack cofounder Dan Lauer dismisses the merchandise -- Star Wars toys, novelty items -- as "things you look at" as opposed to "things you can play with," which he's after.

"What happens for the big companies is that once they develop strong brands, it makes a lot of sense for them to keep extending those brands or to borrow from the movies," says David Mauer, former president of Mattel USA, who is now president and CEO of Riddell Sports Inc., a sports equipment manufacturer. "It's just less risky." Not that toy companies are any different from, say, mega-sized book publishers or moviemakers or music producers in their approach. That may be why creators in those fields are embracing the Internet as an alternative distribution channel. "The current system of finding creative talent has become really ossified," says Sanjay Jain, a Haystack investor who is also chairman of WorkNet Communications, a high-speed, wireless telecommunications company in St. Louis. The culprit? Consolidation, which creates lumbering giants for whom hunting down innovation in its rawest form is inefficient and hence unprofitable. "The majors are doing what's right for them, but then that's leaving a void in the marketplace," says Mauer.

The Great American Toy Hunt may seem like a less than sophisticated attempt to fill that void -- not unlike mounting a roving Gong Show to try to find a successor to Frank Sinatra. Still, Lauer's approach makes sense in the toy industry, he argues, because of the proliferation of inventors. He figures that someone has to have created a toy "that's so involving and so ingenious that it becomes the most cherished toy in a kid's life."

Published on: Mar 1, 2000