BETWEEN recalls of finger-pinching strollers, toys decorated with lead paint and baby bottles that contain Bisphenol A, makers of child-centric products have earned their share of critical headlines of late.
Hoping to put an end to them, Congress in 2008 passed the Consumer Product Safety Improvement Act, which set out mandatory safety standards for products used by children age 12 and under; it also required toy manufacturers to test their products for safety. At the time, small toymakers and child-care product manufacturers alike cringed, predicting that the cost of testing and conforming to the regulations would be onerous.
But at least one firm has thrived in the new environment. Munchkin, a baby- and pet-care products maker in North Hills, Calif., says its products are being selected by retailers for lab testing five times more often than in 2008. Since the manufacturer is required to pay for that testing, Munchkin’s testing bill has more than doubled, says CEO Steven Dunn. In 2009, Munchkin spent $1.5 million on testing, up from $520,000 in 2008. However, by investing in product development, Dunn boosted sales by 24% in 2009 to $131 million and expects to reach $150 million in revenue by the end of 2010.
SmartMoney asked Dunn about the ups and downs of the 18-year-old consumer- and pet-products company. Here are his condensed answers.
In the world of baby products, especially, testing has to be intense. How do you ensure your products’ quality?
Name: Steven Dunn
Business: Munchkin, a baby- and pet-care products maker.
Industry: Consumer products
Location: North Hills, Calif.
Year founded: 1991
Number of employees: 163
Web address: www.munchkin.com
It starts with product development. Before you even create a product mockup, you have to know what the rules and regulations are for each category. We try to understand the world-wide standards, as well as those in the U.S. We then try to manufacture products according to the highest standards. The standards for baby gates, for instance, are higher in Europe; we would manufacture to the European standards. We also have people that monitor U.S. and European regulatory environments. Lately we’ve even had to monitor California’s standards. Every product we make is tested by an outside tester on an annual basis. Some products are also retested by certain key retailers. Then it is a matter of also staying on top of what materials you’re using. For instance, if products contained BPA, that’s something to eliminate right away.
Munchkin products are carried by Target, Kmart, Toys ‘R’ Us, Wal-Mart Stores, Petco, Petsmart and many others. What has been your strategy?
In the second year I started the business, an executive vice president from Toys ‘R’ Us said: “We don’t need any more brands.” That struck me, and it also challenged me to figure out why he needed us versus, say, Gerber, Playtex or Evenflo. That’s when I learned that providing innovative products would be key. And being a small company, we’re often able to be more innovative — or at least get an idea out sooner – than many of our larger competitors.
Currently, Munchkin products are made in China. Given the tumult over Chinese-made product recalls, have you considered manufacturing elsewhere?
When I was just launching Munchkin, I asked several manufacturers for a quote for these bottles I wanted to have made. I received two quotes from U.S. manufacturers for $28,000 and $24,000. Then I got a quote from a company in China. It was for $2,200, and they said they could have it to me in less than a third of the production time. We make so many new products each year that we couldn’t afford to pay much more for this. Alone, tooling — that is, the process of creating the molds and other tools necessary for producing products — typically costs us $5,000 or $10,000 per product. It’s doubtful we would find the same low prices anywhere else.
You were a venture capitalist before launching Munchkin. Why did you decide to launch a baby-products company?
When our first child was born, I started tinkering and dreaming up ways to improve things. When I would evaluate products, they seemed archaic to me. Plus, I got to the point when I was bored reading business plans.
Why did you move Munchkin into pet products?
About six or seven years ago, I told my wife I was running out of ideas. I said, we have to have another child. She said, “Fat chance, start a pet company and get a dog.” Today, we have two French bull dogs that I now take inspiration from. To help fill out the company’s baby-product ideas, I eventually brought someone in to head a product development team.
What is your best advice for future entrepreneurs?
Hire better people than you deserve or need right now. If you intend to grow into a big company, you’ll need to hire employees who are able to manage a larger company.
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