Startup Pivots: Nintendo

Updated: May 1

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It's 1966 in the workshop of a hanafuda card company. A maintenance engineer is there, and his boss walks in. Now, this maintenance engineer, from time to time when he is not fixing the card-making machines, is in his shop is tinkering around with items there. So when his boss walks in and sees what he has been working on, indeed, the maintenance engineer thinks he's in trouble. Probably thinks he is about the be fired—quite the contrary. The boss sees a goldmine to not only generate revenue but change the direction of the company. How did a maintenance engineer, who was messing around in his free time in the shop and on the clock, help pivot a successful card company to one of the biggest video game companies in the world? They could easily be regarded as the GOAT of the industry. I'll explain in this newest addition of Startup Pivots.

We all know Nintendo for innovating and inspiring an era of mass-produced video games, such as Super Mario, Donkey Kong, this host's favorite game, The Legend Of Zelda. But way but for all of that, and I do mean way before all of that, it started in Fuedal Japan in 1889. During this time, playing cards from the west, which were wildly popular worldwide, could not be imported into Japan. They were typically used for gambling and which was a big no-no in Japan. In fact, it was such a big no-no that let's say you lost some money, and you could sue the winner….and yes, if you won the court battle, you could get your money back. That's kinda crazy, right, but the reason I wanted to share that with you is to the point that even though it was against the law, there was still an appetite for it. So clearly, this is fertile ground for an entrepreneur to come in and solve that problem.

Enter Fusajiro Yamauchi, and he founded the company Nintendo. And in excellent entrepreneurship fashion, if it doesn't exist, you create your own. And that exactly what he does and creates these Hanafuda cards. Startup Nation, these cards are so tiny. They are about two-thirds smaller than the size of cards we are accustomed to, but it doesn't matter. These cards take off. And makes Yamauchi's son a lot of money and very successful, even more so when gambling laws are relaxed. Now you may be wondering what Nintendo means in English. Nin Means luck, Ten means Heaven, and Do means hall or gathering place. So when you go gambling your hard-earned money with the hanafuda cards, you risk your money and leave it up to Heaven on whether you win or not.

Now Let's fast forward a bit to the 1950s. Here we see the third generation of the family, Hiroshi Yamauchi, and he takes over the family business at 22. Now, this dude is one tough cookie. Probably entirely harden by the event of WW II. Anyway, my guy is so cutthroat that one of his first acts of running Nintendo is to fire all of his family members so that there is no doubt about running the show. Anyways Hiroshi knows that the family has been doing really well with the playing cards, but he knows that he has to expand. Get into a new market, new products, or something. So he flies to the states to see the operation of the largest card-making company at the time, The United States Playing Card Company, and to his surprise, sees a very meager operation. At that moment, he realized that the playing card industry, while lucrative, still has a ceiling. So he thinks about what to do next. And then he acts. Yamauchi-son boards a flight and heads to California. When he gets there, he books a meeting with one of the greatest companies in the world that are doing reasonably well for itself. Who am I talking about, StartupNation? Think mouse ears.

That's right. Yamauchi-son gets a meeting with executives at Walt Disney and strikes a licensing deal. Nintendo goes on to make Disney-themed playing cards, board games, and even handheld devices...but I'm getting ahead of myself here. Nintendo starts to rake in the dough. Like it's sitting on a war chest of cash at this point due in large part to the Disney deal. It's doing so well that in 1962 Nintendo goes public.

Startup Nation, Let's pause here for a second...

You would think this is the part of the story where Nintendo really took off but not entirely. One of the books we tell you to read all the time is Daymond John's The Power Of Broke. Essentially it's about when you don't have any capital. You have to rely on your ideas and hustle to survive and grow your company. Another lesson here relates to a saying we have here in Memphis, "if you drink kool-aid, keep drinking kool-aid, don't start buying champagne now. Essentially that saying boils down to if it ain't broke, don't fix it. And this is the period of Nintendo's story that they will learn both of these lessons the hard way.

So flushed with cash, Nintendo started experimenting with other types of business models in Yamauchi's effort set the company up to be around for a long time. So he tried a few things….

There were the Nintendo Taxi cabs…..crash and burn.

There was Nintendo Rice….yeah that went south real quick.

There were Nintendo Vacuum Cleaners…...nope.

Then there was….and I'm not making this up...Nintendo Love hotels…. I'm not going to use any clever metaphor here... I'm just going to tell you that it didn't work.

There was hope with the Nintendo TV Network….lets just say that it got canceled quicker than that Caveman show on ABC….My bad too soon.

While they were trying these new ventures, they were still making the hanafuda cards, and the licensing deal with Disney was still going strong, but those experimental ventures were still a big negative for the company.

Enter Gunpei Yokoi.

Gunpei was a maintenance engineer that primarily worked on the machines that made the hanafuda cards when they broke down. However, when he had free time, he would tinker around with stuff in the workshop, including this extending arm that he could use to reach things that were far away. Remember Hiroshi Yamauchi, so he's walking around the shop and sees this extending arm and sees a toy. He tells Yokoi-son to mass-produce these immediately in time for the Christmas rush. The nice thing for Nintendo is that it already had the toy store pipeline in place, so sending this new product into that pipeline would be pretty straightforward. So Gunpei makes it more kid-friendly and calls it the Ultra arm... it's wildly successful, selling over one million units. And that StartupNation is the pivotal moment in Nintendo's story. This is the fulcrum point that leads to how we now Nintendo as the company it is today.

Gunpei soon gets a promotion and is head of product development and tased with making more toys to which he did. He created more great products from the ten billion Barrel puzzle, the Ultra Machine( baseball throwing machine), and the Love Tester, a toy to see if two people were romantically compatible. Hiroshi rebrands the company as the Nintendo Toy company doubling down on you know toys during this time.

Now unbeknownst to Yamauchi-son, Gunpei had an electrical engineering background and loved the idea of electronic toys. One of the toys Gunpei created was in collaboration with electronic company Sharp was a toy gun that had a sight that would project a light silhouette of ducks when you pointed it on the wall. You may have an idea of what this toy was called, but it was called duck hunt if you don't. Gunpei would create the Game & Watch, a consumer handheld video game device with an LCD screen. He got that idea while on the train to work and seeing a fellow passenger play with a calculator. Later he would create by far his crowning achievement as far I'm concerned, which is the Gameboy, but by this time, Nintendo is the absolute leader in the Video Game industry. They are riding high from the Famicom, which would come to be known as the Nintendo Entertainment System, and blockbuster games Donkey Kong, Super Mario Brothers, and The Legend Of Zelda created by this host's personal hero Shigeru Miyamoto. Now I know that I didn't talk about the Video game crash and all the other amazing stories about Nintendo. Still, if you are looking for that, I invite you to watch the documentary about Nintendo on the streaming service Crackle.

I got my first Nintendo in 1989. My grandmother bought it for me for making good grades as a kid, and I have been hooked ever since. My kids love the Nintendo franchise, and we have bonded many nights playing Mario Party or Wii Sports. Nintendo has grown to be a stalwart in the video game industry, maybe not quite the industry leader as it once was due to the rise of Sony's Playstation and Microsoft's Xbox. Still, with a market capitalization of 71.3 billion dollars, it doesn't appear that Nintendo will be leaving us anytime soon. And that StartupNation is due in large part to electrical engineering who was messing around on the clock.

That's going to do it for Startup Pivots. I guess the next time you see someone in your company may be not doing what there are supposed to do, ask a few questions before you discipline because you just never know if there are holding the key to your company's success.

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