Profit Minded

Rainbow Loom Leads to Entrepreneurial Gold for Many

The success of Rainbow Loom inventor Cheong-Choon Ng is every entrepreneur’s fantasy. The Michigan-based mechanical engineer-turned toymaker, who has sold 3 million of his plastic handloom kits in under three years (with revenue of over $15 million), says, “Actually, it’s mind blowing. Every day I wake up and tell myself this is for real, it’s not a dream.”

An immigrant from Malaysia, Ng was working as a crash safety engineer for Nissan in Detroit when, inspired by his daughters’ friendship-bracelet-making hobby, he designed a small loom with hooks for weaving jewelry from colorful rubber bands. The girls and their friends liked it so much that he started a side business, Choon’s Designs, LLC, to manufacture more. He and his wife invested their entire $10,000 life savings in having a prototype and initial order made in China. (U.S. manufacturers he spoke to would have charged upwards of $20,000 just to create the mold, he says.)

Ng ran the entire operation out of his home until seven months ago, when he quit his job and moved assembly and packaging operations to a 7,500 square foot warehouse. Now he has nearly outgrown the facility, and has plans to expand the brand: He’ll introduce a travel-size Rainbow Loom in early 2014.

In an age when many parents wonder if too much time spent in front of screens is impairing kids’ ability to focus, the popularity of a manual toy that requires concentration and creativity has captured widespread attention. Since August, his story has been covered by the Today Show, Bloomberg, Forbes, The Wall Street Journal, and the New York Times, among others. The Chicago Tribune called it “the must-have craft,” and, because boys enjoy the Rainbow Loom as much as girls do, TIME.com hailed the invention as a possible sign that “there may be hope for gender equality yet.”

But when Fortune called Ng “the Rubber-Band Millionaire,” he objected. It’s easy to guess that his revenues on 3 million kits that retail at around $15 each and likely wholesale for close to half of that are upwards of $15 million. But he says, “It sounds strange, but we haven’t seen much money so far. It’s all rolled back into the company.” His only luxury purchase to date has been a BMW for his wife’s birthday, and when he does start seeing profits, he says, “we need to pay off our house.”

It would also be unfair to suggest that the Rainbow Loom was an overnight sensation. “We’ve gone through some bad days and difficult times,” Ng says. For instance, after spending 6 months perfecting his prototype and sinking his life savings into his first order, the shipment of 6 million rubber bands arrived covered in shop dust. Ng and his family hand-washed them in batches in the bathtub and dried them on homemade drip-racks before packaging. And when his manufacturer mis-sized the first 10,000 plastic hooks, he spent a year filing each one down to the correct dimensions. It took another 6 months to interest toy stores in buying the kit, he says. Meanwhile, the tradeoff for working so hard has been less time to spend with his daughters, reviewing their homework or enjoying crafts together. “I don’t have so much time now, and I want to be back doing those things," Ng says. “This company grew so fast, but I am hiring people to manage the work and hope that I can get somebody to substitute me.”

Ultimately, of course, his hard work and perseverance has paid off. Once Learning Express Toys and Michaels Stores started stocking it, the Rainbow Loom became the top-selling toy of the summer. It’s also expected to be a hot 2013 holiday gift.Conor Flanagan, 11, from left, Garrett Fill, 10, and Sydney Parquette, 9, work on their looms during a Rainbow …

A Rainbow Loom ecosystem

Nearly as fascinating as Ng’s success are the micro-businesses the toy has inspired among young entrepreneurs who are making and selling jewelry, ornaments, and action figures from rubber bands. Ng says he’s humbled to see an “ecosystem of businesses” cropping up around the Rainbow Loom.

An eight-year-old boy is “making a small mint” selling his creations in team colors at high school sports games, his father boasted in the comments section following one article about the kit. An online newspaper in North Carolina featured two nine-year-old boys who had earned more than $100 in a few months selling their Rainbow Loom necklaces and bracelets at soccer tournaments. And a young Rainbow Loom user named Tristin in Baltimore wrote in a review at the Michaels website that her bracelet business is “a mini factory.”

Adults are cashing in on the craze too. A search for “rainbow loom” in Etsy’s handmade jewelry section brings up more than 2,000 rubber-band accessories for sale including rings, charm bracelets, earrings, watch bands, keychains, “barefoot sandals,” and medical alert wristbands.

One enterprising crafter generates ad revenues by offering Rainbow Loom design tutorial videos on MadeByMommy.com and her YouTube channel. Her Halloween pumpkin-charm-weaving demonstration reeled in more than 380,000 viewers. And newer turkey, Pilgrim hat, candy cane, and Christmas tree charms are sure to be as popular. Other adults say they’re weaving bracelets for breast cancer fundraisers or to give to Gold Star families who’ve lost a loved one at war.

Within two weeks of announcing their debut, a company called Life Made Better sold more than 1,000 of its “My Loom Box,” a $20 carrying case for the Rainbow Loom, thousands of rubber bands, hooks and clips. CEO Anthony Busciglio says he expects to sell at least 100 boxes per day on Amazon during the holiday shopping season. Ng says someone else is marketing a bag for carrying the case.

While Ng says he is “honored and glad to see the Rainbow Loom creates jobs,” he is less delighted by the copycat products on the market.

Although Wal-Mart recently licensed Ng’s design to sell a U.S.-made Wonder Loom, it also sells an imported Bandaloom knockoff. And Ng filed a patent lawsuit against the maker of the FunLoom, sold at Toys “R” Us.

Even more troublesome are the counterfeit Rainbow Looms that are offered on Amazon, eBay, and in mall kiosk stores. In packaging identical to the authentic Rainbow Loom, Ng says it’s hard for the untrained eye to detect the difference. His product, which is sold only at Michaels, Learning Express, a few authorized independent toy stores, and at RainbowLoom.com, features smooth, not sharp, edges. Counterfeit looms, he says, may contain lead and have not been tested to meet ASTM and CPSIA toy safety standards. A detailed guide shows customers how to spot fakes, but Ng says because Amazon orders are shipped direct to consumers from the counterfeit manufacturer, U.S. Customs is unable to intervene.

Despite such frustrations, Ng maintains a remarkably gracious attitude. His success is “a dream come true,” he says. “I’m humbled by this experience and I try to cherish every moment of it. I don’t want to take things for granted at all. I will continue to work hard.”

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