The next- gen Lego | Outlook Business
Home  /  Enterprise  /  Big Idea  / The Next- Gen Lego | APR 12 , 2018

Vishal Koul

Big Idea

The Next- Gen Lego
Started by a bunch of IITians, Smartivity is making learning fun while creating a truly cutting edge Indian toy brand

Shilpa Elizabeth Abraham

Smart heads: [L-R] Apoorv Gupta, Rajat Jain, Tushar Amin, and Ashwini Kumar

When Tushar Amin shows you his colouring sheet it looks as inconspicuous as any other colouring sheet for kids – green grass, blue river, a brown dinosaur. Amin then takes his phone, moves his finger over it, hands it over to you and magic happens. The paper dino starts moving about on the sheet, looking exactly the way it was coloured. A few more clicks tell you what kind it belongs to, allows you to play games with it and brings you interesting trivia on it. That was just one among the many augmented reality (AR) based educational toys Smartivity offers, and there’s more in this Delhi-based start-up’s basket. 

Smartivity combines toys and new age technologies like augmented reality, virtual reality, robotics, and IoT (Internet of Toys as they call it) bridging the physical and digital world to make educational concepts a fun and creative experience for children. After having introduced Science, Technology, English and Maths (STEM) do-it-yourself (DIY) toys and AR based colouring sheets and jigsaw puzzles for children between three years to 14 years, it is all set to introduce its VR and robotics based products in a few months. The toys are made out of eco-friendly wood material called medium density fibrewood (MDF) and are creative in nature – which means that the child need not follow a set of rules to play the game, but can make up her own game. The three-year-old start-up, which follows a retail model, currently, has its toys across 850 stores in India, sells them on Amazon and has also ventured into overseas markets including some tough ones like USA and Europe. Things seem to be going great for Smartivity now; however it all started falling in place only after a pivot prior to which it was not Smartivity but Yoohoobox. 

Early days
Before formalising themselves as Smartivity in January 2015, the co-founders Tushar Amin, Rajat Jain, Ashwini Kumar and Apoorv Gupta had been experimenting with a subscription-based model that provided arts and crafts educational toys. Soon after, reality hit them. They didn’t have enough money to acquire customers digitally which left them with two options — spend all the money on customer acquisition and make average products; or make great products and opt for old school retail. But their troubles didn’t stop there. The products made of paper got crushed by the wear and tear during transit. The team thus took the retail route and also designed a box to hold the products and minimise damage. 

But the brown box looked too dull for the kids and retailers demanded a makeover with a colourful sleeve on it. The next problem was promotion since the products inside the box were quite new to the retailers. And on a 70:30 revenue split, two retailers agreed to allot shelf space for the products, remembers Amin. But the founders themselves had to stand there and promote them. Thus, every alternate day, Kumar, Jain and Gupta took turns and went to the shops where they pitched their toys to the parents. The IIT-tag helped them as the parents were ready to listen. However, many backed off saying that they weren’t ready to shell out 800 for products made out of nothing but paper. 

Meanwhile, Jain who had been taking care of the designs of the toys had hit a roadblock in terms of creativity as he wasn’t enjoying doing arts and crafts. Coming from a family which imported toys, Jain knew toys. And he wanted to add more to what existed, but whatever he wanted to do could not be done with paper. So now arts and crafts was out of the picture, instead DIY toys made of MDF — a material that is malleable, ductile and eco-friendly, took its place. All this took about six months and by January 2015, Yoohoobox became Smartivity.

Learning days
The team started with STEM educational toys which were DIY kits for two age groups —6-8 years and 8-14 years. While the kits for younger age group dealt with simple concepts like elasticity, the toys for the older group looked at more complex concepts like gravity. Even though the products are educational in nature, none of them teaches definition or equations.  

Peter Irwin, Vice president (sales), iToys USA

After launching eight products in the first year, the team noticed that they didn’t have anything for the 3-6 age group and felt the need to have something for the younger age bracket too. So, by January 2016, it launched AR based colouring sheets and Jigsaw puzzles. “We had the skill set to develop the technology, but more importantly the colouring and jigsaw puzzle category was one of the biggest categories in the toy industry,” says Amin. “For us it made sense to redefine the activities. Usually the parent buys a colouring sheet, the kid colours it and the engagement stops there. With Smartivity’s AR product, the child colours the sheet, it is scanned using a Smartivity app and then the characters come to life,” he adds. With the launch of their AR product, Smartivity founders claim that it is a first of its kind, anywhere in the world. While there has been Niantic Inc’s Pokemon Go that became a rage in 2016 or Disney tapping AR technology to launch merchandise before the release of The Last Jedi in August 2016 or Play Shifu’s flashcards, they lacked the learning element and more importantly the characters didn’t incorporate the child’s imagination. Whereas in Smartivity’s case the child’s imagination comes to life as it is. The start-up holds a patent for the technology as well as for its STEM designs.

During Diwali of 2016, Smartivity’s products were chosen by Axis Bank to gift to the winners of its competition for kids across the country. It further posed a big challenge for the team as they had limited strength of 17 with monthly shipping of 500 and were given only nine days to ship 10,000 units across the country. But the team decided to give it a shot. It meant sleepless nights for the entire team, but the required products did reach places as far as Ladakh, Kohima and Kanyakumari within the stipulated time. 

Colourful innovation
In 2017, the team came across a peculiar, but not surprising pattern. While products were being brightened up on one side, on the other side a pattern was evolving. “One thing that happned in the last two years was that, parents, due to the inherent and social bias we have, used to think that anything that had to do with science or construction had to go to their sons. It came across as quite a revelation to the team that 70% of their products were bought for sons. So they decided to fight it their own way. They made the toys more interesting, colourful and dynamic and added electric components like motor, music, lights etc. These improved products were introduced in the market in October 2017 with an upfront tag ‘for girls.’ The idea was to propagate the message that science and technical stuff is not just for boys, but for girls too. They sent out around 2,000 such units priced at 2,000 into the market. Understanding the risk of losing half the market, Smartivity’s estimated sales projection was around 200 units for the season, but to their surprise they sold out before Christmas. 

In 2017, the company started selling its products in the international market. Currently, it has a presence in US, Europe, Australia, Canada and South East Asia. Smartivity launches 12 products every year and withdraws a few. Currently, it has 21 products in the market ranging from 249 to 2,000, all of which have necessary certifications in place and meet international safety standards. It sells through large chains like Hamleys, Crossword and Landmark to whom they supply directly as well as through small toy stores. 

Peter Irwin, VP-sales of Smartivity’s global partner iToys USA feels that Smartivity products are right in line with where the market is heading. “The product development and ingenuity of every item is what really differentiates Smartivity from the other players in the market. Unlike other educational products, their items have fun and learning built into the construction aspect as well as life and play value once each set is completed,” he says.

Organic growth
Smartivity, which made a meagre 65,000 in FY15 has seen steady growth since then. In FY16, they recorded 1.2 crore revenue which became 4.5 crore in FY17. The current financial year has brought turnover of 10.5 crore of which, 1.5 crore is from foreign markets. The company which sells 18,000-22,000 units per month, has sold 226,174 units in 2017-18 and 436,576 units till date. While the average ticket size for STEM products is 700-800, for AR products it stands at 300. Apart from retail, Smartivity also has Kidzee as a B2B client for its AR products. Some of its best selling products include Fantastic Optics Kaleidoscope, Blast off Space Rocket, Mechanical Xylofun Music Machine, and Chain Reaction Colliding Dominoes. 

If you think that is not enough fun, Smartivity is soon introducing a robotics based code learning toy which uses a bot to teach a kid how to think like a programmer. Apart from this, Smartivity is launching a VR based product in July in association with leading textbook publisher S Chand who is also a key investor in the start-up. The content for the product has been made based on 8th to 10th standard science textbooks. But the major challenge for the team was to bring down the cost of the VR viewer for the project which varies between 2,000 – 200,000 in usual cases. A cheaper alternative was Google Cardboard — a virtual reality platform, which costs around 900.  But the Smartivity team wanted to bring down the price further considering the rural market. So they took specifications from Google Cardboard’s design and made a viewer for one-third its price. “Say, a kid wants to understand the structure of an animal cell, one way is to view it through the microscope but Smartivity’s VR product allows one to get in to the cell and view it by sliding the app on the phone into the viewer,”Amin explains. The products would be bundled and supplied along with S Chand text books during this academic year.

Samir Khurana Head, M&A, S Chand

Samir Khurana, head of M&A at S Chand, remembers how they saw a potential investee in Smartivity when the start-up approached the textbook publishers for collaboration three years ago. “STEM learning as a concept was emerging globally and its benefits at a very early age for children are well researched and documented. We were keen to have a presence in this segment, so we were excited when Smartivity came to us for a collaboration,” says Khurana. “But we saw more in them in terms of a great team, products, design and technical capabilities. That’s why we thought we should not only collaborate for sales and distribution, but also invest in them,” he adds. The objective was to support the Smartivity team continue without interference, but at the same time give them the benefits of S Chand’s brand and distribution strengths. 

Holy grail
Initially the product was being compared with apps or e-commerce platforms, which made it difficult to raise funding. However after the initial seed funding from S Chand, in May 2016, the firm raised another pre-series A funding of $1.2 million led by S Chand group, AdvantEdge, Tandem Capital and individual investors. The team foresees a runway of six months for the cash they have in hand currently. They are in the middle of raising another round but are unwilling to disclose the figure for the time being.

Kunal Khattar, Partner, AdvantEdge CapitalKunal Khattar, partner at AdvantEdge Capital, initially found the concept of bridging online and offline interesting, but he wasn’t very sure about its addressable market in India. “The product definitely caters to kids everywhere, but ultimately parents are the decision makers. Even though the price point is very attractive, we were not sure how big an opportunity it could be in India, because to understand the importance of these products the parents need to be educated and slightly more evolved,” he says. What he was confident was about Smartivity’s tremendous scope in overseas markets. But this was 2.5 years ago. Khattar today is quite bullish about its scope in foreign as well as the home market. 

Working at a product margin of 30-35%, the team is profitable on a product level already and expects to breakeven overall by the end of this financial year. “The industry standard is 50-60%, but we are focusing on reducing costs while keeping quality standards high and to take product level margins to 40-45% by growing sales over the coming two years,” says Amin. 

The going has been great for Smartivity so far, but the next challenge is to handle the competition from legacy brands like Lego as well as new-age players like Flintobox. Smartivity founders point out that since Flintobox deals with arts and crafts products and follows a subscription model, it doesn’t fall in to the space Smartivity belongs to. Lego, however, is the Apple of the toy world, Amin acknowledges. “In the construction toys segment we do compete with them, but we are more dynamic in nature. We consider them to be our benchmark and compete with them for wallet share.” After a brief pause he continues, “When we were growing up we saw Lego and today we buy it for our kids blindly. We want the same for Smartivity — to build a toy brand which parents will buy blindly without looking for anything else.”

Here's your chance to read the latest issue of Outlook Business for free! Download the Outlook ​Magazines app now. Available on Play Store and App Store
On Stands Now