Beanie Babies

Supported by Greenhaven Road Capital, finding value off the beaten path.

It was the late 1990’s and the world had gone crazy. Like other instances of insanity, it didn’t seem like it at the time. But when a small stuffed-with-beans bear sold for thousands of dollars something was terribly wrong.

In The Great Beanie Baby Bubble Zac Bissonnette tells the story of the Beanie Baby rise and fall. Before we get into some lessons, let’s brush up on the history of it all.

Beanie Babies were created by Ty Warner after he quit/was fired from his job selling stuffed animals (plush) for another company. Warner had been an excellent salesman but thought he could do better. The cause for his dismissal was selling his own creations along with his employers. A no no.

Warner didn’t care. He thought, no he knew, he could do better. His first solo plush creation was a cat that sold well to – and this is not a joke – quilt collectors. This business was fine but grooming each longhaired cat took a lot of work and Warner searched for another option and he landed on the Beanie Baby.

Warner made repeated visits to Chinese manufacturers, talked to people at trade shows and in stores, and had a had a hyper focus on his product. Once it was finally good enough he sold them only to small store owners, believing that big box stores would put the Beanie Babies in bins and that would diminish their value. He also demanded full payment up front.

Parents bought them for their kids. Kids took them to school. The phenomenon spread through Chicago. Some parents became more active collectors. To keep track of the available Beanies some people took to sharing a checklist.

Warner continued to tinker, making changes in different lines. If something wasn’t to his liking he would order the next batch slightly different. This purposeful tinkering led to the accidental phenomenon of retirement. The early collectors started to search eBay for these “retired” Beanies and would call their friends around the country to look for them.

Warner’s production was limited. Later this was a marketing ploy but early on it was an issue of cash flow and how much credit his bank would loan for inventory. Scarcity led to increased prices and the internet led to the conveyance of this information. As some people started to make money, more people piled in. At the end of 1998, 7% of all eBay listings were for Beanie Babies. The mania continued. McDonald’s got involved. Warner wised up to the idea of scarcity and took to actively retire more Beanies and created limited runs.

The cycle continued; people saw other people make money off Beanie Babies, people joined those other people, more suppliers meant more supply and with an undifferentiated product they had to compete on price. Prices were pushed down. Warner at this time had ramped up supplies to the point that so many Beanies were being produced that everyone who wanted one could get one. By 2000 the craze was over.

What the hell happened?

Let’s start with Warner. Unlike startups that fail, Warner understood his customers. Part of what made him a great salesman was this deep understanding. He talked to customers, store owners, and even quizzed his girlfriend’s daughters about what they liked and didn’t. Warner got his XMBA from his time at Dankin, his first plush employer. Warner was a good surfer but he also caught a great wave.

The 1990’s was the era of getting online. Warner’s sales were helped by the proliferation of the checklists and secondary sales on eBay. He was also fortunate in that there wasn’t much competition. Bissonnette wrote, “ the idea of starting a plush company in the early 1980s was no one’s idea of smart. It was a stagnant industry, fifty years past its prime, with no growth in sight.” Much like the Instagram guys or Ken Grossman, the best time to start something is when no one else is starting the same thing. Warner had some nice tailwinds to push his company along.

Another advantage was wise financing. Warner never took on debt and required his retailers to pay-in-full upon delivery. He also stocked the Beanies in airports, thinking they would be a good last-minute gift and traveling from airport to school book bag would be good marketing. In the beginning, he convinced retailers this was a good idea, in part, because of the simple product lines. Beanies retailed for $5 or $10.

While Warner had great financial success there were some lessons on what not to do as well. For starters, Warner succeeded despite his ego. Bissonnette wrote:

“”I am the designer! I designed everything!” Controlling every aspect of the animals’ existence was a fixation, and it stood in stunning contrast to his nearly total disregard for the feelings of the people he was closest to. He carefully excised everyone else from the story of his rise: his father hadn’t gotten him his first job, he hadn’t used freelance designers to create his bears, and he’d started the company all by himself.”

Warner’s ego was helpful in that it helped him maintain a great focus. One former employee said:

“That’s the secret: focus. If this is what you want, then go for it. Nothing crosses that road, nothing gets in the way, nobody changes it. This man wakes up in the morning, and he’s thinking about the product. He goes to bed at night, and he’s thinking about the product: Should it be a blue ribbon or a red ribbon? I can’t tell you what we went through to get the eyes to be absolutely what he considered perfect. Every detail on every animal was gone over fifty times. It had to be as close to perfect as you could possibly get. Or do it again.”

Chamath Palihapitiya said about the dichotomy between too much ego and not enough: “Ego is a terrible way to make decisions, it’s really good things to have, to make ourselves feel valuable and be confident, but that shouldn’t drive our decision-making.”

Warner’s success came from an obsessive attention to detail. From the product to the people who bought it, Warner understood what was most important. Because of this, he designed the animals using quality materials in a manner that was different from other toys. As sales grew he lucked into marketing ideas and favorable competition. He was finally brought down not by a competitor but by his own ego, believing he could roll-up (or appear to) the Beanie Baby line and replace it with a new one.


Thanks for reading,


11 thoughts on “Beanie Babies”

  1. […] Ty Warner “seemed to have a genuine passion for the product. He was making a lot of money, but he was also using it as an extremely well-paid internship in the business of plush. Retailers Warner once sold to recall him quizzing them on which products were selling and which ones weren’t; Warner sought feedback on competitors’ products, too. What did they think of this idea? What about that? What if you combined this with that?” […]


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