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How This Toy Startup Spent $4 Million to Save Its Holiday Sales When Everything (Literally) Fell Apart

A shipping disaster right before the holiday sales season could have tanked Anki. Instead, it turned into a case study in problem-solving under pressure.

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BY Christine Lagorio-Chafkin - 30 Aug 2018

toy startup

PHOTO CREDIT: Getty Images

By halfway through 2015, Anki, a San Francisco-based robotic toy startup, knew it was at an inflection point. Its first toy, Drive, a $200 smartphone-controlled racecar set, had sold well over the previous couple holiday seasons. Now the company was about to debut its next-generation product, a multiplayer game for two smartphone-linked cars with a modular 10-piece racetrack.

It was called Overdrive, and it had been years in the making. Overdrive had gone through dozens of prototypes, environmental testing, quality control, drop testing, and more. The robotic cars even had been programmed to do automated self-assessments, and their software regularly updated itself. Anki was poised for a hugely profitable launch: By late summer the company's supply chain was chugging along flawlessly and its relationships with retailers were solid. Everything was in place to get more than 300,000 Overdrive sets onto store shelves for holiday shoppers.

But three weeks from the product's debut date in September, quality control began opening some of the ready-to-sell packages that had come into Chicago after sitting for five weeks on a ship from Hong Kong. Some of the pieces of racetrack--which were flexible, magnetic, and printed with seven layers of ink--were peeling apart. The discovery uncovered a problem that would threaten the entire company's existence, and jump-start a months-long effort to correct the damage that became a case study in agility and decision-making amid chaos.

Anki's staff first needed to identify the cause of the problem. In order to see the damaged units firsthand, they flew some of them back to their office in San Francisco's South of Market neighborhood. They also sent some undamaged units to a lab in San Diego, where aggressive environmental simulators could replicate what the tracks had gone through in shipping. Meanwhile, the company halted production in China in case the problem was more widespread.

It was barely a matter of days before they realized the enormity of what they were facing. As more of the units arrived in Europe and the U.S., it became clear that while not every single unit was affected, damage was not limited to one batch. The ink on one out of every few units, seemingly at random, was peeling off.

"We saw the company flash before our eyes," says Boris Sofman, Anki's co-founder and chief executive. "This was our entire shipment for the holidays. As a startup, you can't sustain a company with that."

Anki's Overdrive starter kit.

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It was a helpless feeling, says Sofman, who had founded Anki five years earlier with two other graduates of Carnegie Mellon's robotics department. The toys could not simply be sent back to Asia for repair because of the strict time window for a massive product launch like this. But the co-founders had raised more than $100 million in venture capital funding, had 75 employees, and weren't ready to give up.

Three weeks of chaos

Down in San Diego, the lab Sofman's team had contracted had been applying heat and humidity to the tracks. While the humidity seemed to cause the problem, heat alone actually seemed to help. Instead of peeling the ink off, it caused it to fuse back to the surface of the track.

The co-founders didn't waste a minute exploring that possible solution. They hauled track pieces to Sofman's home and put them in his oven. Then they ordered a conveyor pizza oven and had a TaskRabbit deliver it immediately in order to experiment further.

"Once we started to see a solution, our adrenaline just started pumping," Sofman says. He arranged to outfit a factory in Chicago, and another in the Netherlands, to make the repairs. He didn't know yet what the precise fix would be, or how the factories would function, but he knew there were more than 300,000 boxes that needed to be opened, fixed, and repackaged in a more protective shrink-wrap. And he knew that 20,000 units were due to stores in three weeks.

Within those three weeks, Anki hired dozens of temp workers and managers at the two factories, and set up 18 production lines with commercial-grade conveyor-belt ovens, as well as new shrink-wrapping conveyors. Ultimately, through the late summer and early fall of 2015 approximately 3.5 million pieces of Overdrive track were reworked in the two facilities.

"It was the craziest work schedule any of us had ever had," Sofman says. "The conveyors were running 24 hours a day for two months, and our operations staff were living in motels in Chicago."

The first shipment of 20,000 units got to stores nearly on time. By Thanksgiving, the massive two-continent, assembled-on-the-fly pop-up manufacturing operation had repaired and reshipped the track pieces for the entire 300,000-unit inventory. Retailers and consumers were none the wiser.

"In the end, it came out, and reviews were great," Sofman says. "No one knew a peep about this."

The company did slightly strain its relationships with retailers. It also spent nearly $4 million making the fixes. But the Overdrive toys ended up accounting for more than 85 percent of the company's nearly $40 million in 2015 revenue.

For years, thinking back to the damaged shipments made Sofman's stomach turn. Others at the company avoided the topic entirely. But, he says, recently his perspective on the massive chaos of 2015 has changed.

"It brought out the best in people, because we saw how everyone stepped up," he says. "It has become one of my proudest moments."

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