More on big manufacturers nurturing smaller ones

Last week I posted a blog entry entitled: “Does it pay for bigger toy manufacturers to nurture smaller ones? – Just ask Coca Cola.” I was asked by one commenter to elaborate on what this kind of nurturing would look like.

Just to recap: The piece talked about Coca Cola’s “Venturing and Emerging Brands” division which looks for small companies to invest in and potentially acquire at a future time. I suggested that our larger toy companies should consider the same approach.

Here is how I think it might work. Let’s say a small toy company is working with a cutting edge technology that might be the next big thing but it’s much too early to tell. By nurturing the new company with an option to purchase at a later date, the larger toy company would essentially be hedging its bets by having an option to get in if the new technology takes off. The smaller toy company gets the much needed capital and the larger toy company gets an option on the future. It’s a classic win-win situation.

As another example, a small toy company may be developing products for an emerging demographic group. The targeted consumer group may not be big enough yet to generate the kind of dollars the larger company needs to justify developing a product line for the group in question.    This way, when that group hits the population tipping point and represents a significant part of the marketplace, the larger company can opt in and become an instant player.

These kinds of mutually beneficial relationships could have an extremely positive impact on the companies involved and the industry at large. By providing seed money for hot new concepts, we would all benefit from a revitalized industry that makes financing available to those with the guts and brains but without the money.