More than child's play - toys that build cultural esteem - Enterprise

Black Enterprise, Oct, 1994 by Christina F. Watts

Building self-esteem, instilling values in children and promoting social harmony are sentiments most people find inspiring. Jacob R. Miles III took that inspiration and packaged it in its most innocent form--toys.

After 20 years in the industry, Miles believed he had the experience and expertise to abandon the security of Tonka Toys USA. In 1993, he founded one of the nation's first black-owned full-line toy companies--Cultural Exchange Corp. It was when Hasbro bought out Tonka that the former senior operations director decided to take $400,000 in retirement and severance pay to start the Minneapolis-based firm. That year, Miles launched Cultural Toys--some 60 items (so far) that include plush dolls, preschool toys, games, children's books and animated videos.

Even though the eight-employee company posted sales of $650,000 last year, Miles was faced with an ongoing struggle--raising capital to finance the company's rapid growth. Many financial institutions don't understand the multicultural/African-American market. "So, they don't necessarily see the potential for profit that's there," says Miles, explaining his difficulty in securing traditional bank funds.

Miles toyed with the idea of taking the company public. But Cultural Exchange needed to raise $20 million before investment banks would underwrite an initial public offering. Miles opted to sell stock to a group of investors. He completed a private placement offer of 1.05 million shares ($2 each), raising $2.1 million, plus a $100,000 over-allotment (Miles still has 65% control). It was Cultural's solid track record and sound management team that convinced investors to put up the $2.3 million.

Disclosing the company's promotion plans was key in getting contracts with such major retailers as Toys "R" Us, Target, Dayton-Hudson and Wal-Mart. Expect TV commercials to air this fall and the debut of the company's first major toy line, Hollywood Hounds, in a national network Thanksgiving special. "If the word is out and consumers understand who's behind the toys, it will go a long way in positioning us for the competition," says Miles.

Cultural Toys are the by-products of a social as well as an economic agenda for Miles. The Dinkytown Daycare Kids, for instance, are designed to instill a passion for education and non-violence. "My parents told me I could be whatever I wanted to be," says Miles, now 40, "and that's the message we're relaying to African-American children, from infants through 8-year-olds."

Cultural Exchange Corp., 80 South Eighth St., Suite 1780, IDS Towers, Minneapolis, MN 55402; 612-339-1254.