Munchkin Inc.


Year Founded:

1991

Core Business:

Designer, manufacturer and distributThe dot-com bubble was inflated by companies built to please consumers but lacking any real plan to turn a profit.

Revenue in 1998:

$11.3 million

Revenue in 2000:

$20.3 million

Revenue in 2001:

$30 million (projected)

Employees in 1998:

20

Employees in 2001:

37

Goal:

Continue creating new consumer products and to reach $100 million in revenue by 2005

Driving Force:

Inventing new products that make parenting safer, more fun and convenient

Munchkin Inc. had its beginnings in decorative baby bottles, but has taken on a larger role in the multi-billion dollar child products business

Into the mouths of babes

Steven Dunn, a die-hard fan of bottled Coke, was feeding his infant daughter when he noticed her interest in his Coke bottle. To satisfy her curiosity, he filled the bottle with formula and fitted it with a nipple.

The first design was a failure after tipping the bottle his daughter spilled the formula. A few innovations later Dunn, at the time a venture capitalist, decided to make a run at the baby bottle business.

“I didn’t go to Harvard Business School thinking I would become a baby bottle seller,” said Dunn, referring to Munchkin Inc.’s first product line: licensed baby bottles bearing the logos of several soft drink brands. “But some ideas keep popping up.

Ideas like the “Better Bottle Brush,” which makes easier the task of cleaning the bottom portion of a baby bottle; and “White Hot Duck,” a seemingly ordinary rubber ducky whose temperature-controlled bottom screams “Hot!” if the water is too hot for baby.

These and several dozen other baby market products make up a business Dunn projects will have $30 million in sales this year and a target of $100 million in the next five years.

Munchkin sells the bulk of its product to mass merchandisers. Wal Mart, K-Mart, Target and Toys ‘R Us are its biggest customers. “We love small independent stores, but they’re not our main focus,” said Dunn.

Shut out breaking in

Spurred by the revelation that came while his daughter slurped formula, Dunn did a little market research.

“There was only one company making decorated baby bottles at the time, a company called Cherubs,” said Dunn. “I contacted Cherubs with the thought of trying to acquire them and then using my concept. Before I could get started with the discussions, they canceled a couple meetings. On the next call they told me Playtex had just acquired them. I took that as a sign that I was on the right track.”

It turned out to be a blessing in disguise. Cherubs’ production moved East, and Dunn went around collecting the pieces. “I found all their sources locally and ended up putting together the same team that was making their bottles and had them start making mine,” he said.

Dunn was never able to secure the rights to produce a Coca-Cola bottle. But he did manage to license the Pepsi, Dr. Pepper and 7-Up brands. In 1993, its first full year of operations, Muchkin cleared $15 million in sales.

The rapid run up in sales was short-lived. Hit with the double whammy of a declining baby bottle market and $1 million in damage from the Northridge earthquake, Munchkin posted a hefty loss in 1994.

“We couldn’t survive on baby bottles alone, so we started to look at how to make better products. What we focused on was the top 30 to 40 selling infant items.”

And licensing wasn’t going to last as a means for developing products.

“Every license has a life curve, which creates an unstable atmosphere of earnings,” he said. On the other hand, “Product improvements don’t go out of style.”

Today, Dunn spends roughly half his time coming up with new products he is listed as an inventor on more than 20 patents the rest is dedicated to management activities.

Since shifting its marketing focus to patented product instead of licensed brands, Munchkin’s sales have continued to grow.

“They come out with cute innovations,” said Jessica Hartshorn, senior lifestyles editor at American Baby, a consumer magazine for new parents. “Usually, the stuff I see from them I haven’t seen elsewhere. They’re often worthy of writing about.”

Planning rapid growth

Dunn received his undergraduate degree in economics from U.C. Berkeley and, after a couple years in the work world, he moved on to Harvard Business school for an M.B.A. He spent time as an associate at Bear Stearns and Smith Barney Ventures before becoming a partner at Idanta Partners, a venture capital firm backed by the Bass brothers of Ft. Worth, Texas.

In his role at Munchkin, Dunn recognizes the value of talent. In 1999, he hired Procter & Gamble executive Andrew Keimach as executive vice president of sales. Cynthia Neiman, former vice president of marketing media for Mattel, joined late last year as executive vice president of marketing. And he’s lured management talent from P & G;, Mattel and LEGO.

He regularly puts pressure on management to come up with something new; any employee who develops an idea that eventually becomes a product is awarded a $10,000 check on the first day of shipping.

“Before, I really felt like a one man shop, with no one really to talk to,” said Dunn. “So what I’ve tried to do is surround myself with some really bright people who are capable of running a $100 million company.”