When Thomas Murdough Jr. was a young salesman with Wilson Sporting Goods, he had the glamorous job of contracting out time on his company’s rotational molding machines, cumbersome and labor-intensive equipment used almost exclusively by job-shop operators to produce hollow plastic products — in Wilson’s case, hobby horses.
Never one to accept the status quo, Murdough believed he could get a variety of products made on the machines and set out to prove it. The result: a contract to manufacture 100,000 bedpans.
The experience helped Murdough become an expert in the process. Before long, he set up his own rotomolding operation — from a barn in Aurora.
From that inauspicious beginning, Murdough has built two leading manufacturing companies: Little Tikes, which he sold to Rubbermaid for $50 million in 1984, and The Step2 Co., which he founded in 1989 after leaving Little Tikes.
Both companies — now fierce competitors — use rotomolding to shape extremely sturdy, brightly colored toys for kids, most notably playhouses, sandboxes and kiddie cars.
Step2 posted $100 million in sales last year and had 1,000 employees. Little Tikes, founded in 1970, had $500 million in annual sales and about 3,500 employees worldwide. But Murdough is doing everything in his power to close the gap.
Most recently, the company unveiled a plan to open A Step Beyond retail stores to sell Step2 products. The first store opened in March in Mayfield Heights. The plan calls for opening 30 to 40 stores within the next five years.
As if he hasn’t had enough on his plate, in recent years, Murdough led one of several investor groups that sought to acquire the new Cleveland Browns franchise. While his group was considered a serious contender, it dropped out of the bidding once the price escalated well beyond his personal limit of $350 million.
SBN magazine has talked with Murdough many times in the last five years. Here he adds his thoughts on innovation to his earlier comments on staying competitive.
How would you rank Step2 as an innovator against the competition in your industry?
As one of the best, by staying in touch with the customer and market and matching our processing expertise to market opportunities. Step2 is product-process driven.
What systems have you put in place at Step2 to foster creativity and innovation in the workplace?
Our design staff is isolated to their own building next to our main office building. They have their own dress code and a very relaxed, creative atmosphere — very unstructured. The product development team reports directly to the CEO.
How do you know that you are staying on the cutting edge of your industry?
We know by the incoming orders, consumer feedback and by the imitations, or knock-offs, of our products.
How do you determine market trends?
We do it by listening, by actively seeking out consumer preferences. Our questionnaires, which go on every new product, tell us a lot about what the consumer is thinking. … These are open-ended questionnaires. They’re not computer [tabulated], which means people actually say what they mean. We get 8,000 to 10,000 of these in a given year. We learn a lot from these.
We also … log 800 to 1,000 calls a day on our 800 number, and at any given time, in an eight-hour period, we can do a survey of people who call that day and get a quick response. They are bona fide consumers of our products. If we have something specific we want to look at, we can just ask everyone that day and do great research fast.
You mentioned the written surveys you get in. How many of those do you actually look through?
I look through almost all of them. And besides me, usually three or four other people, people in marketing and manufacturing, also go through them.
Is that where you started getting the idea a few years ago to move toward some smaller products?
Most of our top retail customers supply us with shelf-life information. We get reports … that give data on every product we sell to them. Those tell us exactly how many they sold, sales by region, sales for that week, how many they sold that week vs. the same week last year, and at what price.
So there’s a wealth of information in reports like this. Staying close to your customers is the key.
You’ve said you get ideas from consumers, from employees, from your R&D staff, from your retailers. How much of a decision to go with a particular product is just gut instinct?
It’s a pretty significant percentage. A lot of it has to do with our approach to manufacturing. I don’t want to elaborate too much on this, but many of our competitors use a process that requires them to spend a tremendous amount of capital dollars in developing a product.
Our process, for all of its deficiencies, and there are many — our process is very labor intensive. It’s unable to hold high tolerances … can get into a new product considerably faster and for considerably less money than our competition. That’s because we’re buying cast aluminum molds. That allows us to get finished product into the marketplace, into our test stores (as fast as eight weeks from conceptualization) … and find out early on what the reception is to that product.
So, we’ll probably take a greater degree of risk with certain of our products than much of our competition. When we see we’ve had a winner, then we add additional molds, maybe as many as 20, if the volume so dictates.
What’s a product that was a sleeper success?
The most recent one, I don’t want to tell you. It’s going to be big, and our competitors don’t know it yet. But a recent sleeper was our building-block table. … To be quite honest, I wasn’t even sure we should make the product, because there are so many Lego play tables out there.
What’s unique about our product is the storage underneath this nice sturdy table. It retails for $20, and when we introduced it two years ago, it just flew out of here.
Do most of those products end up having a long cycle?
The ones I’m talking about, yes, and that has a lot to do with our approach to marketing. …We spend a very low percentage of our sales dollar on advertising. A lot of people are critical, thinking we’d move things a lot faster if we spent more on advertising. … [But] you can’t have a $20 price point if you’ve got a big advertising load. We think that a $20 price point and our customers’ margins are more important than the short term burst you get from the advertising.
It’s not that we don’t do advertising. We did close to $1 million in advertising in 1997. And that’s just print media.
How much attention do you pay to what your competition is doing?
A lot. We constantly worry about our competition. I want to know — it’s a natural instinct, I guess. It is a very, very competitive industry. All of the industries we’re in, like with the home and garden products, are very competitive in this day and time.
It’s quite unlike the first go-around with Little Tikes. It was a competitive industry then, but we stood alone with rotational-molded plastic products and virtually did not have a direct competitor. Now we have Fisher Price and Little Tikes and of course all toy manufacturers are competing for the buyer’s dollar …
So I want to be aware of what my competitors are doing. We take great pride in being unique and innovative and being a leader in this industry. Our objective is none other than to be No. 1 in the industries we’re in.
How much do you look at what others are doing, either to validate your own efforts or to snicker at what they’re trying to push?
We get knocked off a lot, we get copied, and we want to know about things like that. We want to know what they’ve done, what their price is. Unfortunately, in this day and time, integrity has to a large degree gone out the window. That’s sad.
We can’t protect ourselves with patents. The only way we can protect ourselves is by being the low-cost producer, by getting out in the market first, and then counting on the buyers [retailers] to respect all of those issues we’ve provided to them. …
If consumers can get a buck off a product from somebody else, they’ll overlook your brand.
