Spin Master Goes Up Against Barbie

Can three guys who came out of nowhere to steal a big chunk of the lucrative—and elusive—market for boys' toys find success among the sugar-and-spice set? The founders of Toronto-based Spin Master are about to find out. Their new "Liv" line of dolls, launched in July, is aimed at girls aged 6 to 10.

If Liv's arduous journey from design lab to store shelves is any indication, the doll market is a lot tougher than Spin Master had realized. "The odds," says Needham & Co. analyst Sean McGowan, "are against any new product succeeding."

Walk into the bedroom of any boy under the age of 10, and you're likely to twist an ankle on a Spin Master product. Thanks to such hits as Bakugan Battle Brawlers (a line of magnetic action figures) and the Air Hogs line of model planes, privately held Spin Master's annual revenue has soared sevenfold over the past eight years, to more than $700 million, even as the overall toy industry has shrunk.

Barbie's Half-Century Reign Spin Master has succeeded in part because founders Ronnen Harary, Anton Rabie, and Ben Varadi, who met at the University of Western Ontario in the 1990s, think more like boys than like corporate executives. Their main goal: making toys that are cool. Spin Master says its Tech Deck finger-size skateboards are among the most confiscated items in elementary school classrooms. The Havoc Heli swoops around a room like a real helicopter.

But the doll market is famously difficult to crack. Barbie has fought off dozens of rivals during her five-decade reign as the industry's top doll. MGA Entertainment had a hit with the Bratz dolls, launched in 2001. In 2004, Mattel (MAT) sued: A jury last year ruled that Mattel, not MGA, owns the Bratz line because the dolls' designer was working for Mattel when he created them. MGA is appealing the verdict. Retailers quickly shunned the Bratz brand, and sales collapsed.

Spin Master was undeterred. In 2006 it paid an undisclosed sum to an outside designer for a doll prototype with an internal mechanism that allowed it to move its arms and legs freely. Focus groups of girls told the mostly male development team that they didn't much care for a fashion robot. "The girls' aisle is so different," laments Chief Creative Officer Varadi.

No Collagen Back at the drawing board, Spin Master completely re-imagined the prototype. It took out the motors and added wigs so kids can change the dolls' hairstyles easily. It also gave its characters—four friends from an imaginary high school—backstories and imperfections that make them seem more real than the aspirational Barbie astronauts, beauty queens, and Presidential candidates. And Spin Master created a Web site, Livworld.com, where the dolls' diaries are updated daily, allowing it to weave new products into the story lines.

The small details, says Varadi, were toughest. He says he worked for months making sure the lips were right, referring to pictures of his girlfriend for guidance. "I didn't want them to look collagen-injected," he says.

In July, Spin Master finally released Liv. So far the results have been positive: The $19 toys have become top sellers at Walmart.com (WMT) and are the No. 2 doll at Target (TGT) in terms of shelf space, according to Kloster Trading analyst Lutz Muller.

Still, if doll makers have learned anything over the years, it's that whims of little girls are unpredictable. "I can see why kids might like it," says Needham's McGowan of the Liv line. But "if it doesn't work, you may not ever know why."

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