How LeapFrog’s CEO Built the Educational Toy Company; Mike Wood Left the Legal Profession to Focus on Plastic Toy Letters; Glitches Early On Delayed Production

Updated August 14, 2013, 8:59 p.m. ET

How LeapFrog’s CEO Built the Educational Toy Company

Mike Wood Left the Legal Profession to Focus on Plastic Toy Letters; Glitches Early On Delayed Production



Mike Wood, creator of educational toy company LeapFrog, at his office in San Rafael, Calif., on Tuesday.

Mike Wood had been practicing law for about 11 years when he encountered a challenge that would change his life: teaching his 3-year-old son to read. His son Mat had memorized the letters of the alphabet, but struggled to learn the sounds that the letters represented. Over the next five years, Mr. Wood researched marketing and phonics, a teaching method that focuses on the correlation between letter groupings and sounds, while holding down his partnership at a technology law firm. He decided to take sound chips—like the ones used in singing greeting cards—and put them in plastic toy letters. When a child pushed down on a letter, it would make the sound that the letter represented. Mr. Wood designed a prototype, left his job and set up focus groups with mothers. He then found a buyer at Toys “R” Us Inc. and a manufacturer in China. In 1995, he started LeapFrog Enterprises Inc., LF +0.57% an educational toy company. By 2002, LeapFrog had $520 million in annual revenue, and its best-selling product, a hand-held learning device called LeapPad, was in nine million homes. The Emeryville, Calif., company’s stock soared almost 99% after it went public that July, making it the top-performing IPO of the year.Mr. Wood stepped down from LeapFrog in 2004 when he grew tired of managing the company. In 2006, he founded Smarty Ants Inc. of San Rafael, Calif., which makes a cloud-based software program designed to teach kids how to read.

Mr. Wood, 60 years old, spoke in an interview about creating and marketing educational toys and dealing with problems overseas. Edited excerpts:

WSJ:Where did you get funds to start LeapFrog?

Mr. Wood: We went to family and friends and raised $800,000 and thought that was all we were going to need. Well, we ran into—let’s just call it a manufacturing glitch—in China that delayed our production for about a month, and we had to fly in a significant amount of our products. That set us back.

WSJ: What was the glitch?

Mr. Wood: When our first shipment arrived, my co-founder said he would test the toys. I told him we had a lot of things to do and the toys had been thoroughly tested when they left the factory. He tested them anyway and called me a few seconds later to say there was a problem. He held a toy up to the phone and it wouldn’t stop saying, “CUH CUH CUH CUH…” It was like an orchestra tuning.

WSJ: How did you fix the problem?

Mr. Wood: The way the product worked was that kids pushed down on toy letters and the letters pushed down on mylar sheets. When the sheets made contact with each other, they would make a sound. The toys were in shipping containers in China and the containers got hot. The heat forced the sheets to droop, making the toys repeat the sounds. I flew to China the next day and the factory manager said this happened because the holes in the mylar sheets were too big. We had smaller holes made, which fixed the drooping problem. But we lost a month of production so we had to fly the toys in to get them on store shelves by Christmas.

WSJ: Do you have any advice for startups in handling similar setbacks?

Mr. Wood: Part of the test of entrepreneurship is how you act when something goes wrong. You’ve got to anticipate problems and fix them. Every entrepreneur is going to run into these things and you can’t get angry or quit.

WSJ: How important is having a mentor?

Mr. Wood: In our third year, Michael Milken and Larry Ellison bought a majority interest in LeapFrog. They brought over Tom Kalinske, who had run Mattel and Sega, to be our chairman and he was a great mentor. Having a really great mentor who has skin in the game, wants to help you out and is motivated to help you out—that is great.

WSJ: Why did you take the company public in 2002?

Mr. Wood: It was transformative. We raised more money that allowed us to expand our product line, and it was also good for brand building. It created liquidity for lots of people who had worked hard and had a lot of options.

WSJ: Why did you retire from LeapFrog?

Mr. Wood: In 2003, we had 1,000 employees, $650 million in revenue, $60 million in earnings and I had a headache every day. There would be four or five problems on my desk every day that had no good answer—you had to pick the least worst answer.

WSJ: Not long after you retired from LeapFrog you went back into entrepreneurship. How come?

Mr. Wood: It’s not necessarily a good thing to retire when you’re young. I think our brains are like the muscles in our arms. If we use them, really use them, they stay strong. And it’s hard to do that in retirement.

WSJ: Is it easier starting a company after founding a successful business?

Mr. Wood: I don’t think it matters first time or second time—starting something from scratch is rewarding and exhilarating, but equal parts frustrating. It’s one thing to say you’re going to build an engaging product and another to create something that kids are going to want to play over and over and is going to teach them how to read.

WSJ: Is it at least easier to secure funding the second time around?

Mr. Wood: This time I was able to fund it myself and I think it’s a good idea to have independent people with money in the company. It’s easy as a founder to get so emotionally involved in things. When you fund yourself, you don’t have to prioritize. If it’s other people’s money you’re spending, you tell them what you’re doing, they cross examine and have ideas. The pressure is a good thing.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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