Since launching on Kickstarter in March 2015, Sparx Hockey has come to dominate the world of ice skate sharpening. Russell Layton has placed his product in the hands of the majority of National Hockey League teams and has distributors in Europe, Russia and China. It is used by major retailers, who make up a portion of the estimated 20,000 products already in the hands of consumers worldwide. As of Dec. 5, Sparx Hockey was named the official skate sharpener of The American Collegiate Hockey Association.
In as little as three minutes, the self-contained machine takes skate steel to a professional grade sharpness. The sharpener uses grinding rings, which create different cut angles, to sharpen hockey and figure skates at the push of a button. The grinding rings themselves even come equipped with an internal micro-chip that lets the user know when they are worn out.
Layton grew up in New Jersey and claims his entrepreneurial spirit existed even as a child. He described his friends as a group of “hustlers,” each one having a paper route or finding some way to make money as a kid. As well, he recalled always tinkering as a kid. Pulling apart dirt bikes or anything he could get his hands on. “I didn’t really have much exposure to other parts of the world from where I grew up. So engineering and tinkering with stuff was the only thing I knew I could go study and be satisfied with,” Layton said.
Post graduation, Layton found himself designing consumer products, which eventually led to designing medical devices. Along the way, he also attained a graduate degree in mechanical engineering, and found himself exposed for the first time to the business side of his education. Layton spent a decade working on designing products before transitioning to a mergers and acquisitions role.
Here he found “all the pieces of the puzzle” coming together. He had learned how to create and design, yet now he understood the actual evaluation of a product for a market. However, he found something missing. “I felt like I was on a different path than even the one I was on as a kid,” Layton said. Somewhere during the course of growing up, he had lost that entrepreneurial spirit that existed in his childhood. He realized it was time to bring it back.
Born out of necessity, the skate sharpener was theorized by Layton back in 2012. Prior to the idea of creating a skate sharpener, he had come to a realization. He had been traveling upwards of dozens of times a year since his youth hockey days to a professional to have his skates sharpened. There had to be a better way.
Having witnessed the rise of on-demand products and services like Netflix (NFLX, Financial) throughout the 2000s, Layton conceptualized a mail-in service for skates. There would be multiple hubs around the country where customers could send their skates and then, a few days later, in their mailbox, freshly sharpened skates would be waiting. He added:
“While I was in grad school, I actually tried pushing that concept through an excel model and was very disappointed when the capital expenses, and the personnel, and the real estate, everything associated with solving this problem like Netflix had done with DVDs, just didn’t scale and it didn’t seem like a business I could launch.”
So Netflix clearly was not the right route. What consumer product could possibly apply to skate sharpening? Layton found his inspiration in the Keurig coffee machine. Instead of having to deal with different bags of coffee and different settings, simply insert your desired flavor, press a button and you have hot coffee in your cup. The idea clicked for Layton.
Now let’s back up a step or two. When ice skates are sharpened, the blades on the bottom are shaped in what is called a “hollow” or radius of a cut between the two blades. In short, how deep the cut between the two blades affects how the skate performs. The deeper the cut, the more the skates will bite into the ice, but the less they will glide. Every skater has their own preferred “hollow,” similar to having a preferred flavor of coffee.
Layton worked to design the product in his spare time. He continued to work his full-time job to continue to have access to an income, yet he was not making the progress that he had hoped for. He began to question whether or not what he was doing was really worth his time. Layton had to decide whether or not to truly take the plunge and invest in the business he wanted to create.
Investing $80,000 of his savings, Layton hired two engineers to work alongside himself. With the investment and his paycheck combined, the product started seeing improvements in leaps and bounds. They created a working prototype and began to seek out investments from outside parties. Come 2014, they had found what they needed.
Angel Investment secured them $800,000 in funding, which was greatly needed. However, the product was nowhere near ready for market. They had compounding issues that could not be solved with the platform they had created. According to Layton, it created unmanageable dust and was actually dangerous to the user:
“We had a board meeting actually, where the investors were underwhelmed, I would say is probably a good way to put it. And we realized at the end of that meeting that we needed to crumple up the piece of paper and throw it away and start over again. We just went the wrong way and we couldn’t right the ship from where we had gotten to. We had to come all the way back to fundamentals and just white board it out.”
These issues required a full redesign. The process took approximately nine months. Luckily, his engineering background alongside similar experience from his employees allowed for the redesign to be a complete success. They were able to learn from their mistakes and solve the issues they had found. In all reality, the product reached market as the third or fourth iteration according to Layton. A relatively small number of prototypes for a hardware product.
By the end of 2014, the product was ready for market as it would ever be. “I’m sure every entrepreneur will feel this, at every stage it's a facade. You know? So the facade that I had built with my initial investment was enough to convince the next layer of investing to come on,” Layton said. He decided that the most effective way to launch the product would be on Kickstarter. Through this method, they would be able to judge the interest of the product at different price points. They could then use this data to determine what price they should use for their official launch. A few years down the road, Layton would learn that a billion-dollar consumer goods company uses the same strategy to determine their pricing levels.
Luckily, on Kickstarter, the product was available in limited qualities. Every single product that sold was a loss of money for Layton. “We promised people six months delivery. Which was delusional at best,” Layton said, which furthered complicated their losses.
The launch on Kickstarter put a deadline on Layton that could not be argued with. With the pressure mounting, he would need to put the product in the hands of consumers, yet first he would need a contract manufacturer to actually produce the sharpener. While Sparx produces some of their accessories in the U.S., there is simply no supply chain for hardgoods manufacturing in place. Since the development of overseas manufacturing, the infrastructure in the U.S. has seen constant decline. If Layton were to produce the sharpener stateside, he would be importing almost every single piece.
As stateside manufacturing was out of the question, Layton turned to Malaysia to produce his skate sharpeners. He found a vertically-integrated contract manufacturer. They have the ability to produce everything from the injected molded plastic to microchips, all in-house. This saves money overall as multiple pieces do not have to be shipped to and from multiple locations. However, manufacturing of the sharpener would not come without significant cost. This creates quite a high barrier of entry to someone looking to manufacture a product. Also, once tooling is built, it cannot be fixed without rebuilding. Once the tooling was cut, it had to be perfect. Layton said:
“One of the differences between starting a software company and a hardware business, something where we have a product like that, is that was probably $800,000 worth of tooling. So big mold tooling where you shoot plastic into it and extrusion tooling where you push metal through it. With those expenses it's almost impossible to start a business without raising money.”
Layton found success with his tooling alongside the Kickstarter, yet he was still in the predicament of needing to deliver the sharpener to everyone who believed in his idea. Reality set in and Layton was forced to accept that his promised six-month window was simply not going to be possible. The first products were delivered in March 2016, one year after the product launched. To keep customers happy, Layton air freighted every single sharpener from the Kickstarter campaign, further compounding his losses.
The Kickstarter proved the early success of the sharpener at multiple tiers of pricing. Unforeseen by Layton, it also garnered the use of the sharpener by professionals in the industry. With decades of experience sharpening skates by hand on large machines, a process which required a great deal of finesse, they realized the benefits of the ease of use that Layton’s machine had created. It required no training and almost anyone was capable of sharpening skates.
Even after the pricing of the sharpener was adjusted for profitable returns, Layton and his company saw interest in the product continue to rise exponentially. They became inundated with in-bound inquiries about sales of the product. Initially overwhelmed, Layton and his team planned to ignore the inquiry and use it to possibly upsell the business down the road. The inquiries ceased to die down. Layton found the offers increasingly difficult to ignore and eventually looked to outside help.
“Surround yourself with really smart people with lots of connections, and if you can lots of money,” Layton said. He had developed a few relationships with others in the hockey industry. One advisor in particular would be the key connection to Layton developing overseas sales. The advisor had already developed a network of pre-qualified dealers. This meant that he could sell through them, trusting that he would be paid for the sharpeners he shipped.
In recent times, the company has seen an explosion of in-bound inquiry from Asia. With the upcoming winter Olympics, hockey has found a massive foothold where it was previously unexplored. The sport is growing in these countries constantly, and the need for sharp skates as well. Layton said the inquiries come in on a daily basis and the company does its best to keep up with them.
Alongside these emerging markets, Layton has seen constant sales and partnerships in well-established arenas. Thanks to the effectiveness of the sharpener, the majority of NHL teams have begun using his products as well as The American Collegiate Hockey Association. The company has even partnered with retail giant Dick’s Sporting Goods (DKS, Financial) to support their skate sharpening needs.
While the sharpener has been widely accepted throughout the industry, there is still some competition that exists in the market. Layton described one of their largest competitors as “the guy in the shop who says we’re no good.” They claim that to truly sharpener skates, the process needs to be done by hand using expertise. There are also a few other similar products on the market that have actually been around longer than the Sparx sharpener.
However, Layton says the high prices and poor design of these products have prevented them from encroaching on his sales. He believes his product is superior to anything else on the market and that it is going to keep getting better over time. It is his belief that his company has sold more skate sharpeners than anything else in the market combined and said his sales will prove it. Without a doubt, the sharpener has been a revolutionary success.
Alongside the widespread success of the company, Layton can attest to some of the perks he has found. First off, he headquartered the business in his hometown. His five-minute commute allows him to work constantly, yet also be present for his kids. He is well aware of the benefit of being able to come home from work and help his kids do math at the dinner table.
Second, as more of a cherry on top, Layton has found himself in the company of his childhood idols. Sparx was recently the official sharpener of the Wayne Gretzky Fantasy Camp. Layton recalled walking up and shaking his hand questioning how Gretzky was not familiar with him, as he had grown up with a life-size Gretzky cutout on his wall. “It was this bizarre feeling of like, you don’t know me? Like we go way back,” Layton said while laughing. He would go on to speak of sitting down and drinking beer with Gretzky, Bobby Orr and Brett Hull after having become a sponsor or involved with their charities.
Alongside these happy moments, Layton finds himself content in the fact he goes to work every day to better his passion. “For all the years that I was doing something else I was trying to figure out the thing that I wanted to do and now I am always thinking about the thing I want to add,” Layton said. On a day-to-day basis, he thinks of how to improve the product, the people he could add the team or a party he could throw at work. There are no distractions from his goals.
“It's always incrementing on what we have here instead of diluting what I’m building," Layton said. "Being distracted by what I would rather be doing. It's always what I would rather be doing. I’m in it so I would say that's super rewarding.”
Question and answer
GuruFocus: Where do you look for inspiration?
Layton: So it was really early in my thinking about becoming an entrepreneur that I read the founder of Patagonia, his book, "Let My People Go Surfing," Yvon Chouinard, and it was the culture that he had built and the ideals around the product and the double bottom line that really shined a light on what work could be and also how work wasn’t for me. And "Raising the Bar," the Clif Bar story. These were books where it was like, wow, those people sound so excited about what they are doing and so passionate about what they are building.
GuruFocus: What does the lifespan of the product look like in the market and will we see market saturation at any point?
Layton: So we’ve got a long way to go to saturate the market. We estimate that there is somewhere between 1.5 and 2 million placements of units that we can have worldwide and we’re roughly 20,000 right now. So there’s a long way to go on that road. The analogy I like to use with this product is probably similar to what we all lived through with flat screen televisions. Where we used to have the tube-based TVs. Then we went to rear-based projection and it was this gigantic box in the corner of the room, and then it became the flat screen TV where basically everyone has one now. I think that is what we are going to see in our market.
GuruFocus: Are there any future plans that you are excited for?
Layton: One of the things that we are launching right now, which we are seeing from lots of different companies in the industry, is the personalization of product. So our product works closely with skate steel, the steel that’s actually at the bottom of the skate. And so I guess I’ll release something that we haven’t really launched to the public, but it's coming out in the next few weeks. We will begin personalizing both the skate steel and the sharpener. On the steel side, you will be able to have player names, team names, logos and player number. On the sharpener side, especially for our NHL customers, they will be very personalized. So when the Boston Bruins get their machines, they will be fully decked out in Boston Bruins logos and fonts.
Layton’s advice for entrepreneurs
Don’t hold onto something you don’t value:
One of the big realizations that Layton had early on came to him from a mentor. His mentor told him that he was already successful in the field he was currently working in even though he did not like it. Even if his idea for the skate sharpener failed, he could get another job like he currently had. The only thing he would lose would be some time. As an entrepreneur, traditional job paths will always exist. If you are not happy working your current job, seek out something you are passionate about. Create your own path if necessary. Your passion is worth taking the leap into the unknown.
Hire people and get help:
Layton found that early on in the design process he had all of the pieces, but had not made the product a reality. He had theorized a product to revolutionize a way of doing things and was pouring all his energy into it. In all reality, one person simply is not enough. Once Layton hired on additional help, he saw the design process progress rapidly. Once you bring those people into the equation, you will find motivation at an all-time high. Simply put, hiring a team forces you to be active in the pursuit of your goal. You cannot simply ignore things for a day and get lazy. There are people depending on you that share your goal. These people will push you to make your dream a reality.
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