Innovative and unplugged: How Yoto is transforming screen-free audio for kids
Innovative and unplugged: How Yoto is transforming screen-free audio for kids
Founded in 2017, Yoto is on a mission to provide a screen-free audio experience that nurtures creativity and independence in children.
We caught up with Ben Drury, Co-Founder and CEO, and Ben Averis, CFO, to delve into the origins of Yoto, the hurdles they've overcome, and their remarkable journey from Kickstarter to global success.
With a strong vision and commitment to their mission, they’ve transformed a simple idea into a leading player in the children’s audio market. In this interview, they share insights into Yoto’s growth strategy, the challenges of scaling a hardware business, and their plans for the future.
What are the key barriers to growth as a scale-up?
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How did Yoto come into being?
The concept for Yoto was driven by mine and my co-founder Filip Denker’s experiences as new parents. We wanted to create something that would offer children a fun, screen-free way to engage with stories and audio content. So, we decided to take the plunge and build a prototype.
We launched our Kickstarter campaign in 2017 with just three people on our team and a nearly handmade prototype. It was a proper start-up vibe, staying in Airbnbs and building products into the night. The campaign’s success was a huge milestone for us and confirmed that there was a demand for what we were creating. We were incredibly fortunate to attract early investments from notable figures like Sir Paul McCartney and the Roald Dahl family, which was instrumental in turning our prototype into a market-ready product.
What were some of the challenges you faced in proving the marketability of the product?
Our major challenge was convincing investors of the viability of the hardware. Many venture capitalists shy away from hardware investments due to the high risks and complexities involved. This naturally limited our pool of potential investors. Some investors were also sceptical about the children's market, seeing it as potentially short-lived rather than a sustainable opportunity.
Securing investment required proving not only the product’s market fit but also our ability to handle the complexities of hardware production and distribution, which in turn brought its own set of obstacles. For instance, manufacturing in China required us to establish strong relationships with factories and navigate various regulations and certifications – areas in which we had little prior experience. Fortunately, we managed to recruit a talented team from Pure, a UK company with a background in hardware, which was crucial in helping us navigate these challenges.
Despite these hurdles, the feedback from our Kickstarter campaign, combined with early support from angel investors, helped validate our concept and attract further VC funding.
How did you balance the need for R&D funding with other business priorities like the costs of hiring, marketing and investing in office space?
It was definitely a challenge. Initially, we relied heavily on the small amount of equity funding we managed to raise. We were working on developing our prototype and conducting research and development while also managing the costs of hiring talented individuals and investing in marketing to build awareness. Costs like office space and other operational expenses were where we had to be frugal.
One of the strategies we employed was leveraging good credit terms from factories and pulling favours wherever possible. Our relationships with factories were crucial in managing our cash flow, as they allowed us to negotiate better terms and delay some payments. This helped us free up funds for essential areas like R&D and marketing.
We also had to be very cautious with our hiring. We focused on bringing in people who were not only skilled but also bought into our vision, understanding that we couldn’t offer the highest salaries at the time. We also offered all our employees shares in the company. This was definitely a bold move, ensuring we hired people who really believe in the product.
Paint a picture of your growth story to date.
So we officially launched the product in February 2020, right as the COVID-19 pandemic was taking hold. Despite the challenging timing, we managed to generate £3 million in revenue during our first year. This was a strong start, given the limited trading period and the broader uncertainties of the pandemic.
The following year marked a significant leap. In 2021, our revenue surged to £13 million, and continued on this upward trajectory, nearly doubling our revenue in 2022 and again in 2023. By last year, we had exceeded £50 million in revenue.
Our growth has been recognised in several prestigious lists, including appearing in the top 20 of Fast Company and the Times 100. This level of growth is rare for hardware businesses, where scaling involves substantial manufacturing and logistical challenges compared to digital or software-based companies. We’re blown away by the reception we’ve received.
Aside from having an awesome product, what do you think was the key driver of this incredible growth?
I think a pivotal moment for us was our entry into the US market. We launched in the US just a few months after our UK debut, despite the travel restrictions and logistical hurdles posed by the pandemic. It felt crazy at the time, because we didn’t have anyone on the ground in the US, but we did find a great fulfilment partner in California who could take our product off the boats from China and start fulfilling orders.
This early move into the US might have seemed counterintuitive, but we knew the market out there was enormous – not just in terms of population but also in terms of demographics. Families in the US tend to have more children, higher disposable incomes, and greater GDP per capita. It was definitely the right move for us.
What would you say has been your most significant barrier to growth?
Access to finance, without a doubt. Proving the strength of our business model to attract the right level of bank funding was a real struggle. Inventory has always been a major focus – without the ability to sell products, nothing else matters. While equity funding can be expensive and isn't ideal for financing working capital, it’s often the only option for start-ups with limited credit history. Raising equity is hard, and you risk giving away too much of your company. On the other hand, securing debt can be difficult because traditional banks rely on established criteria, like profitability, which is rare for fast-growing businesses.
We worked hard to build relationships with banks, educating them on our business and demonstrating its potential. Over the last 24 months, we've moved past these challenges, securing a strong relationship with HSBC, which has been crucial for our growth. We also avoided using hybrid financing options like convertible loan notes and venture debt. While venture debt can seem appealing, for us it lacked the clear benefits of traditional debt or equity. We were clear on our needs – working capital to build and sell products, especially with our business's seasonality. Ultimately, reaching profitability and scale was key, and now we've achieved that.
Where do you turn for advice when it comes to making difficult decisions?
It’s a combination of personal networks, investors, and our board. In the early days, having experienced investors like Paul Smith, the former CEO of Pure, was invaluable. Paul wasn’t just an investor, he was a mentor who provided us with crucial insights, especially in areas where Filip and I were less experienced, like hardware manufacturing and logistics. His support wasn’t just practical – it was also a source of moral encouragement when we faced tough times.
We also established a formal board relatively early in Yoto’s journey, which I believe was a smart move. Unlike some start-ups that avoid setting up a board until later, we recognised that the breadth of what we were trying to achieve – creating hardware, licensing content, building a brand, and managing complex supply chains – required a higher level of oversight and strategic input. Our board includes investor representatives, non-executives, and founders, and meets quarterly to discuss big decisions. This structure has been essential in keeping us focused and aligned, allowing us to manage the growth of our multifaceted business more effectively.
What’s next for Yoto?
Looking ahead, Yoto has ambitious plans that we’re incredibly excited about. Right now, we’re in the midst of a five-year strategic planning process, which is a big shift from the shorter-term planning we’ve done in the past. Our goal is to expand our reach and impact on a global scale. While we’ve established strong footholds in English-speaking markets and France, the next big step will be breaking into other significant European markets and eventually making our mark in Asia.
We’re also keen to deepen our influence in education. We’ve always had a mantra of putting "kids in control" and helping families, and we see enormous potential in creating products that not only entertain but also educate. Whether it’s through expanding our range of content or developing innovative products that support learning and development, we want Yoto to be at the forefront of empowering children globally.
Averis, what advice would you give to other business leaders who are in the process of scaling up?
My best piece of advice is to be mindful of the balance between rapid scaling and sustainable growth. While it’s tempting to go full throttle, especially when you’ve got investors eager to see quick returns, it’s crucial to ensure that your business model is robust enough to support that growth. For Yoto, this meant securing the right level of bank funding to manage our inventory and working capital needs, rather than relying too heavily on equity funding, which can dilute ownership and become expensive in the long run.
Ultimately, successful scaling requires both a bold vision and a solid foundation, so don’t rush the process – make sure you’ve got the right resources and strategies in place to sustain your growth over the long term.
What about you, Drury? Any words of wisdom?
Make cracking the US market a top priority. The US offers unparalleled opportunities for growth, not just because of its sheer size, but also because of the access to financing it can provide.
US investors generally have a different mindset – they’re often more ambitious and willing to invest large sums of capital. This can be a game-changer when you’re trying to scale rapidly. Our own experience with US investors during our Series B funding round was eye-opening. They brought a level of ambition, and resources, that significantly accelerated our growth.
That said, I would also caution that the US market is not without its challenges. Many European companies have found it to be a tough nut to crack, so make sure you enter with a well-thought-out strategy.
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