Leapfrog's Great Leap Forward

Such facts weren't lost on Wood, who understood that in financing, what matters most is where the money flows from. The relationships and expertise that came with the money would help him build his enterprise. The money itself was almost secondary: Knowledge Universe's investment was a much-needed infusion of capital and -- even more important -- credibility. Wood's upstart operation was now in a position to take that great leap forward.

From Breakthrough Product to Breakthrough Strategy

Not long after sealing the deal with Knowledge Universe, Wood met up with Marggraff. An electrical engineer and computer scientist, Marggraff had also taken on the life of an entrepreneur. In 1995, after his company was acquired by Cisco Systems, he launched Explore Technologies, which produced an interactive globe for retailers such as the Sharper Image and Neiman Marcus. The Odyssey Globe (now marketed by LeapFrog) is equipped with a pen-sized stylus. When the stylus touches a point on the surface, a speaker chirps the name of the country. Its technology, NearTouch, is simple but ultraelegant: Inside the globe, a tiny circuit emits a radio-frequency signal, which radiates out through a layer of conductive paint on the globe's interior. Acting as a kind of antenna, the stylus picks up the signal, and software pinpoints the pointer's location on the globe.

When most technologists come up with a breakthrough innovation, their instinct is to make it even more sophisticated. Marggraff and his team were no exception. When Wood first met them, they were attempting to create a 3-D, interactive model of the human body -- a spectacular engineering challenge, given the body's irregular surface. Wood was impressed with the NearTouch system, but his inclination was to dumb it down. "In a sense, I wanted to take the air out of that globe -- to flatten this three-dimensional technology and make it two-dimensional," he says. "The goal was to see if they could take the globe's touch-sensitive surface and apply it to paper."

Shortly thereafter, Marggraff and his team came up with a rough Plexiglas prototype of the LeapPad, which Marggraff demonstrated at an off-site meeting for LeapFrog's leadership team. He placed a piece of paper on the pad, touched it with the globe's electronic pointer, and the pad's GPS-like system pinged the pointer's location. As Marggraff dragged the pointer over the paper's letters, software "read" the text through a speaker. The demo was a revelation to Wood and his colleagues: "That crude little prototype made static text come to life. We thought that if we built it right, it could change the way kids learn to read."

From the beginning, Marggraff had envisioned the LeapPad as a kind of computerlike platform that could accommodate an infinite number of different books, from math, geography, and vocabulary texts to Winnie the Pooh stories and Superman comics. And that was the strategic breakthrough: Marggraff's insight got LeapFrog out of the murderous cycle of having to come up with an entirely different hit toy for every holiday season. For LeapFrog, the big challenge is to keep selling LeapPads -- and to keep kids coming back for more books, which retail for $14.99. So far, LeapFrog is succeeding. Last year, the company sold four books for every LeapPad, almost doubling its 2001 ratio. In fact, sales of LeapPad books surpassed the LeapPad itself, becoming the toy industry's best-selling product. Now LeapFrog is working furiously to replicate its platform model. To date, it has launched nine separate learning systems for every age category, from toddlers to teens.

LeapFrog's leadership team feels that the key to continued success is to maintain the focus and discipline that have served it so well. So far, the company has proven that the right way to launch technology-based products today is to rein in the technology. "We create products that solve problems. Everything is subordinate to the goal of engaging kids with an effective learning experience," says Marggraff. "We could add screens and flashing lights to our stuff, but we won't do anything that could get in the way of what we're trying to accomplish in this medium. If it looks and smells like technology, we haven't done a good enough job of integrating it into the product."

Bill Breen (bbreen@fastcompany.com) is a Fast Company senior editor. Learn more about LeapFrog Enterprises on the Web (www.leapfrog.com).