Leapfrog's Great Leap Forward

Finding a way to top last year's performance won't be easy, but LeapFrog likes its chances. For starters, the company has positioned itself to capitalize on the desire of many parents to boost their kids' reading and math skills at an early age. Some experts argue that such eagerness is ludicrous. "There's no evidence to suggest that every child needs to learn how to read by the age of four," says Catherine Snow, a professor at Harvard's Graduate School of Education. Still, the country's current passion persists for toys that aim to enlighten. While no one at LeapFrog would claim to have anticipated the trend, that old maxim holds true: Good fortune comes to a prepared mind. LeapFrog has readied itself for rapid, unpredictable market changes by operating according to a set of principles that run very much against the industry's conventions.

Consider LeapFrog's heretical views on technology. The company competes in an industry where today's hit toy is more than likely fueled by a computer chip and software. Power Rangers on handhelds, electronic Mr. Potato Heads -- most of these wonders are big on the gee-whiz factor and not much else. LeapFrog has assembled a crack team of software developers and mechanical-engineering veterans, and in the LeapPad, they have developed an ultrasophisticated technology that is easy for kids to use and won't intimidate parents. Unlike the video games and other chip-driven toys that populate the industry, the LeapPad's technology is critical -- but largely invisible. And that's just the way LeapFrog wants it.

"In the long run, kids could care less about technology. Look at all of the flashy gadgets that end up at the bottom of a child's toy chest," says Mike Wood, LeapFrog's president and CEO. "That's a humbling lesson for us. We need technology to deliver a spectacular experience, but the experience itself comes out of the content. Ultimately, the technology is irrelevant."

To Do It Right, Do It Yourself

Apparently, LeapFrog never got the memo that 1999 is over. The company's headquarters, which occupies a sprawling renovated warehouse in an industrial no-man's-land north of Oakland, crackles with energy. Every square foot of the hangar-sized building is honeycombed with cubicles belonging to some 800 people. (The dearth of available space has forced more than a few LeapFroggers to encamp in the hallways.) LeapFrog's rapid growth has resulted in a hiring blitz that forced the company to move to ever-larger spaces three times in the past three-and-a-half years. The company plans to expand again within the next few months.

Except for an 80-person tech team based in Los Gatos and an international network of satellite sales-and-marketing offices, all of LeapFrog's staffers work under one roof. That's because LeapFrog does everything in-house, from designing product, to mapping out educational components, to developing ASIC chips, to coding software, to producing audio, to writing and illustrating content, to running focus groups, to testing product, to strategizing the marketing plans. Nothing is farmed out to subcontractors. At issue is quality control: LeapFrog believes that it can do a better job if it does the job itself.

There's also the matter of generating a bigger ROI. By the time the chip team is designing its seventh iteration of ASICs or the content team is writing its 200th book, it will have developed an expertise that inevitably bolsters the bottom line. "There's a lot of institutional wisdom that gets passed around when all of us are working in the same space," says Wood. "By collectively yoking people's passion and energy, we raise the art of the possible."

Wearing a denim shirt and a purple tie bedecked with leaping green frogs (of course), Wood has the sparkling blue eyes and impish smile of a man who has not lost touch with his inner kid. LeapFrog's origins date back to Wood's frustrations, some 12 years ago, with trying to help his then-3-year-old son understand that letters represent sounds and that, taken together, sounds become words. At the time, Wood was a lawyer with San Francisco firm Cooley Godward, where he once represented a "talking" greeting-card company. "I was fascinated by this audio chip embedded in their cards that played these little musical messages," he recalls. "And I thought, 'What if I put chips inside a set of squeezable letters, so that when kids touched a certain letter, they would hear its phonetic sound?' "

Wood enlisted Robert Calfee, an emeritus professor at the Stanford School of Education, to help him develop a phonics program for his invention: a tray-sized keyboard with oversized, colorful letters that sound out simple words. Acting on the advice of a toy-industry veteran, Wood convened a focus group of 20 mothers to review a prototype, "because the worst thing in the world is chasing an idea without knowing whether it will work." The verdict: Most of the women loved it, but just 2 out of the 20 said that they would pay more than $50 for it. That was a problem. "I was planning on retailing it for at least $100," Wood laughs. "Great idea, except that nobody's going to buy it."