How I built a multimillion-dollar teddy bear business

In this blog, I’ll break down everything I went through to build my multi-million dollar teddy bear business from scratch.

I was bootstrapped, I didn’t have much cash to get it going, but I’ve grown it into a behemoth. And I want you to do the same.

What is the business?

Teddy Tastic is a make-a-bear children’s activity company. We sell bears that are empty, for kids to stuff and make them into their own bear. That gives them a sense of ownership.

We also sell loads of outfits and accessories, offering more activities for kids to enjoy. It’s not just a teddy bear business, it’s a bit of a niche.

Remember: there’s riches in niches.

Yours truly showing fellow business owners around the Teddy Tastic warehouse.

Facts and figures

• I started this business in 2016.

• At the beginning, it was losing money which made it very hard to get over the line.

• Now, we’ve made it profitable and are now expecting to generate around £5 million in revenue. We’re aiming for £10 million next year, through some big contracts and amazing clients.

• Today, we’ve got around 20 staff members.

Starting, funding and getting customers

Funding my business and getting customers go hand in hand.

If you’re a business owner who’s bootstrapped and you haven’t got rich family members or big private equity behind you, you’ve got to use cash flow to keep it going.

In this business, you send hundreds of thousands of dollars to China, Turkey and India to get your products in order to sell them. That’s how an import business traditionally works.

Once you’re established, it’s very easy to get banks to back you, and you can get trade credit lines. But that’s very difficult to do in the beginning - how do banks know you’ll find the customers?

Smart entrepreneurs should create a waiting list. Get orders before you order. That’s what I did.

I’m in the leisure and hospitality business, owning farm parks and indoor play centres. I wanted to do these activities in my own businesses, so that’s how this got going.

I had a Santa’s grotto for children, and I wanted the gift at the end of that to be a make-a-bear experience, instead of some plastic toy. That’s really what got the business going.

However, I didn’t have enough buying power on my own, as I had to buy 20,000 teddy bears. I only really needed 7,000 to get going.

So, I phoned some zoos and visitor attractions and said: “Hey, would you like to buy some teddy bears?”

They gave me a signal they wanted to buy - and some went as far as to place orders with deposits.

I took their orders and put a very small mark-up on it, which gave me the buying power I needed. We created a sort of cooperative.

In summary:

1. I received orders upfront. That gave me deposits and cash flow.

2. It was a low risk opportunity. I had my own businesses, massively de-risking the venture because I could sell the bears through them.

3. Combined cash flow with upfront orders. That allowed me to buy enough stuff to get the products I needed at the right price - and make a profit.

We’ve got a million of these furry little blighters.

Product sourcing

At this point, you’re probably thinking, “How does James find all these products?”

Well, I get on the bleedin’ plane, ladies and gents.

I’ve been to Turkey, India and China multiple times in the last few years. In fact, we’ve got our own warehouse in China and an exclusive factory in India.

None of my products are fashion lines - i.e. they are not only sold for a short-term season, like a Ralph Lauren outfit. I hate running businesses like that.

We repeat all the lines. We do all the work once so we can use that time and time again. That’s leverage: do the work once and get paid in perpetuity.

You have to get on the plane, visit other countries, and go to trade shows. As soon as you can, employ people in those countries to monitor your quality control.

We do all our own research and development, design all our own stuff, and do all the artwork in-house. That’s really important for us.

What you can’t so is build businesses like this off the back of Alibaba or by relying on Mr Google for your research. You’ve got to do the legwork.

A great book which will help you with this is Shoe Dog by Phil Knight, the creator of Nike. It goes into great detail about how to build a business like that. Like me, he got on the plane to Japan and Vietnam to source all the products he needed.

Put the legwork in and you should get massive returns on the time you’ve invested.

Costs v.s. investments

Frugality was at the heart of this business, especially in the early days. Any spare cash I had needed to go into stock.

If I didn’t have stock, I couldn’t get sales. But what do you need if you’ve got lots of stock? A big warehouse.

I didn’t want to pay warehouse costs. Right now, we’re spending about £150,000 a year on warehousing and we’re about to buy another massive one.

In the early days, I didn’t want business rates - the local council tax that businesses have to pay, which is usually around half the price of your rent - to be layered in.

I ensured I used existing team members from other parts of my business, so I didn’t have a massive payroll.

It’s only from year six onwards that I started layering the business with costs, because it was generating its own profit.

A lot of the costs I now put in are investments in the business’ future.

While you want frugality to be at the heart of what you do, you mustn’t neglect to invest in people, showrooms, or exhibitions to get more customers. When you do invest in R&D, it can really explode the growth of your business.

You must invest time and effort into getting your product out there, through marketing and creating customers.

For example, if Apple didn’t invest into research for the iPhone, do you think they’d be the company they are today?

There is a difference between investments and costs. I want to put my free cash into investing and growing the business, not putting loads of money into cashflow generation like warehouse costs.

For the first five years, I used space I already had. I even put stock under the stairs, in my agricultural barns, sheds - doing everything I could to avoid paying rent or overheads, to keep the business as tight as possible.

When you’re in business, you should think about the first 1,000 days and then 10 years.

Here’s a business phrase I live by: “Most people overestimate what can be achieved in a year. But they hugely underestimate what can be achieved in 10 years.”

Smart entrepreneurs think long-term. They say: “This is how the business will look in 10 years’ time.”

That’s the gift of entrepreneurs. They can think far ahead into the future, envisioning how their business will look.

But you’ve got to get through the first 1,000 days first.

My experience in business is that profit really comes in year 10.

It’s like raising a child - a ten-year-old can start thinking for themselves and being independent.

Exactly the same applies to businesses: things start happening once you reach double digits.

During the first 1,000 days of being in business, make sure you’re incredibly frugal. Keep costs as low as possible, and ensure you’re focused on cash flow and bringing in as many customers as possible.

Remember: put sales before operations.

Getting and keeping customers should be everything you do. Once you get past year 7 and up to year 10, then you can start making big investments to take your business to the next level.

We spend about £150,000 on warehousing for Teddy Tastic every year.

How I continue to grow the business

Teddy Tastic was doing very well. We expanded by 5 to 10% every year, through getting more customers, adding accessories and making more teddy bears.

That’s organic growth, which most entrepreneurs rely on to get their business growing.

But there’s a little hack I’ve found over the last 20 years that can take your business even further: buy other companies.

In my Teddy Tastic warehouse, I’ve got loads of other businesses that fold into an ecosystem.

I like to call it “folding into your existing empire”.

As an entrepreneur, you should put your eggs in multiple baskets.

So, I hunted for other brands and companies that could fold neatly alongside the people who were buying teddy bears from us.

We were selling to lots of indoor play centres which ran children’s parties. I thought, “Do they need party products or children’s arts and crafts?”

One of the companies I bought was Party Pieces, which sells piñatas and arts & crafts supplies.

I then bought a children’s sand-art-based company, which was a brilliant purchase as it gave us access to a huge database. That meant we could start selling all those customers teddy bears, while all our teddy bear customers started buying sand art and party ware.

You can see how this all folds into our existing empire. We leveraged our overheads, database, warehouse and our team.

Once you start doing that - bish, bash, bosh, you’ve got some more dosh.

My plans for the future

Let’s break down where the business is going right now. I want to get the business to £10 million revenue.

I always think once you get past that, you’ve surely built yourself a commercially profitable enterprise.

The aim of the game is to build a business to sell, even if you have no intention of selling it.

I don’t want to sell Teddy Tastic, I absolutely love it. But that is the mindset you should have.

You should be building businesses that look like investments someone else would want to buy. It’s just the best discipline you can have in business.

Getting to £10 million revenue with £1.5 million EBITDA (the profitability of a business) is just a smart place to be.

The downside of Teddy Tastic is you need to hold so much stock. You need to have warehousing.

As I write, we’re sitting on £2 million worth of stock.

If I get everything I want over the line in terms of contracts I’m bringing into the business, I’ll end up holding £5 million worth of stock by the end of next year. That’s just what I have to do, due to shipping delays and problems making products around the world.

You just end up sitting on stock so you can do the right thing by supplying your customer.

Once a business hits £10 million revenue, it becomes much easier to fund as long as it’s nice and profitable. That £1.5 million EBITDA will be the profit that allows a bank to help you fund all the stock, so you’re not using your own cash flow.

One of the other good things about this business is that it’s a rare and protected form of leverage.

If you can make your business leverage-protected and rare, its value grows so much more. We’re going to expand the business using personalisation and direct-to-consumer sales.

At the moment, we bring in millions of pounds. 80% of that goes to the wholesale and trade sectors.

But we want to build up a big B2C (business-to-consumer) income.

We recently bought a big website which supplies children’s baby clothes, so we can sell teddy bears with personalisation on. We really want to expand that, which is another reason why we bought Party Pieces, so we’ve got a marketplace to sell directly to the consumer,

What are the rare and protected forms of leverage which protect it from competition?

Holding lots of stock

If you want to be in this business, you’ve must be prepared to put millions into stock, time, and R&D to find all the products and services.

Marketing and being known in the industry

I knew how to go and get customers, plus I know about marketing. Once you know it and you get good at it, that gives you a rare and protected form of leverage.

For example, if a celebrity brought out a perfume brand and they put their name to it, they get customers much quicker.

I’m always looking for opportunities like that.

Contracts and tenders

As soon as you can, you should start knocking on the doors of the biggest boys you can possibly find. I went to big zoos, visitor attractions and holiday parks, and said: “We’d really like to supply you.

“We’re small, nimble and fast, but we’ve got great customer service and we can do some unique products for you.”

Lots of people are scared of that. They hope and pray that, one day, a big daddy will come along with an offer.

No. You go to them.

You do direct mail, pick up the phone, get in the car - and put in proactive effort.

I’ve done that in all my businesses. I’ve called local governments, CEOs, sent gifts in the posts, and done everything I can to get in front of the right decision maker.

What’s the difference between “good” and “great”? I honestly believe it’s just 10% more effort.

Lots of people send emails. Very rarely do people pick up the phone. Rarer still do people send a letter or knock on a door.

If you can do that, the results are explosive.

Conclusion

This is what I went through to build Teddy Tastic, despite being completely bootstrapped from the start...

Seven years later, it's become one of our most profitable companies, through diversification and innovation.

You can see that same success.

I want you to swipe these ideas and deploy them into your own business! I hope it helps.

WATCH the full video on how I built my multimillion-dollar teddy bear business from scratch below.