Triangle Inno

May 29, 2023

Toy after colorful toy whizzes by on a conveyor belt, carefully sorted, sprayed and sanitized by hand before being shipped to children all over the country.

No – it's not Santa's workshop. It's the workspace at the back of the new headquarters of Tiny Earth Toys, a toy subscription startup in Durham with a client list that's growing fast.

Up until this point, scaling has been the small company's biggest challenge – how to reprocess enough toys to make the model work, and to meet the demand of parents looking for a steady stream of sustainable toys for their kids. But with the new headquarters, Tiny Earth Toys could now have the space to take off the way the team has envisioned for the past three years.

CEO Rachael Classi took Triangle Inno on an exclusive tour of the new space – from the playroom to the workshop and warehouse space in the back, where hundreds of toys are refurbished each week.

The Tiny Earth Toys story started with boxes and boxes of wooden toys, stacked up in the master bedroom of Classi's house in Duke Park.

After two months – and some conspicuous pallet deliveries that raised neighbors' eyebrows – the team moved into an office at American Underground. The office was on the first floor and came with a tiny "closet in the basement" where the firm did its order fulfillment. By the time it grew out of American Underground, Tiny Earth Toys had four offices spread across three floors.

Its next stop was the Loading Dock in Raleigh, where it took advantage of amenities like pallet jacks. But it soon outgrew that space too.

So Classi and team started looking – and found the 10,000-square-foot warehouse space on Alston Avenue that used to house Barrel Culture Brewing & Blending.

The space had room for the infrastructure the firm hoped would finally help it scale its operation. Recently, Tiny Earth Toys added a conveyor belt – one of several optimization moves.

"It's easier to just ship new toys," said Catherine Bhattachar, recently promoted to Tiny Earth Toys COO. But at Tiny Earth Toys, toys are in constant rotation, being shipped out, being received – creating operational puzzles she has to solve.

Toys being returned to the facility aren't just sorted – they’re inspected for safety, from choking hazards to chipped corners. They’re sanitized on the conveyor belt. And they’re all repackaged.

The turnaround time – which has greatly improved with the new space – has been one of the firm's biggest barriers to growth.

Tiny Earth Toys works with educators to select its toys, testing them out (often with Classi's children). The toys are plastic-free – primarily wooden with water-based paints. But it's not just whether kids like a toy – it's also about how resilient the toys are, and that includes packaging as the box itself is often shipped to multiple families (the firm will soon pilot reusable packaging). Bhattachar said that, ideally, toys will last through at least six families. When they don't make the cut, they’re either sold to customers at discounted prices or donated to area nonprofits.

Classi and Bhattachar hope the new space will allow customers to test toys with their children in-person. They’ll be able to rent and purchase used toys on-site. And give better feedback – all of which will be tracked by Tiny Earth Toys. In addition to building a subscription service, the company is building a database – of broad preferences from a large sample size of children. In aggregate, the data could someday be monetized to help toy companies better tailor their products, Classi said.

For now, the focus is on flexibility – that means new subscription models and new technology.

Initially, toy subscriptions were by age – something Classi said in the early days she’d like to tweak. Starting this month, however, the company debuts its new toy-recommendation engine, which asks questions about milestones, abilities and interests – all to customize toy selections to individual children instead of age categories.

The firm, at 15 full-time employees, relies on SEO marketing and influencers for much of its advertising. It also has a newsletter with a focus on education. The company exploring the potential of connecting its educators with parents directly, for customizable coaching sessions on their child's learning goals.

It's also considering opportunities outside of Durham, including potentially partnering with a Montessori School in one of its largest markets, New York, and perhaps doing pop-up toy exchanges across the country. While there are no plans to go international – at least not yet – the team could consider licensing its technology to a European firm.

For now, it's heads-down, focusing on scaling, Classi said.

The company, fresh off of fundraising (it's raised $3.3 million over the last two years), is nearing profitability, Classi said. It recently adjusted its pricing to better optimize the numbers.

A lot is on the line. In its brief history, "there have been times when we have had had to throttle back our growth so we could catch up," she said.

But she has a lot of support, including her investors, people like Bull City Venture Partners’ co-founder Jason Caplain, who said the firm's focus on "stable, sustainable growth" is what makes him sign term sheets.

"We love their focus on the customer experience and think the move into their new warehouse will open up big opportunities for community engagement and growth," Caplain said.