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Lane Nemeth Made a Discovery When She Toyed with Success—the Game's Up If You Leave Your Friends Behind

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In the case of Lane Nemeth, founder and president of Discovery Toys, George Bernard Shaw’s old saw is worth repeating: “There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.” A former day-care center director who once had to supplement her family’s income with food stamps, Nemeth, 80, launched her business from her Martinez, Calif. garage in 1976. Today an 11,000-strong sales force reps her line of educational toys in Tupperware-style home demonstrations across the U.S., Great Britain and Guam. Grossing $35 million last year, Discovery Toys has become one of the fastest-growing direct-sales companies in America.

Nemeth got what she wanted—and because she did, nearly blew it. Originally she had a mission. “I was going to make kids better with good toys. I was going to make society better. I set out to change the world.” Borrowing $50,000 from friends and family, Nemeth, who holds a master’s in education from Seton Hall University in New Jersey, began buying toys directly from manufacturers. She also set up her own sales network, composed mostly of young mothers who were motivated by her vision. The project nearly went belly-up three times when her funds ran out, but with a spiritual zeal that might make Mother Teresa envious, Nemeth pushed Discovery Toys to $10 million in sales by 1982.

Nemeth’s line of 100 or so toys appeals to parents who need help to sort the good puzzles, dolls or tea sets from the bad ones. She makes sure her stock is safe (her riding toys won’t flip over), inexpensive (most toys cost less than $10) and instructive (her rattles teach infants to play with both hands). If Nemeth tests a toy and doesn’t like it, she demands changes or asks her staff to design a better one.

Nemeth’s success enabled her to buy a blue Jaguar and a $700,000 home in Lafayette, Calif., where she still lives with her daughter, Tara, 10, and her husband of 17 years, Ed, 38, a commodities broker. But gross income netted a near-fatal dose of hubris. First it hurt the family. “Ed and I lost communication for close to two years,” says Nemeth, who spent most of her time on the road. The Nemeths resolved to save their marriage, but Lane’s troubles—this time corporate—continued.

In 1982 she began changing Discovery Toys “from a family into a corporation. We started making everything very complex and slick. I looked at the staff, most of whom had been with me from the start, and said, ‘I think I’ve outgrown them.’ ” Nemeth hired a new, more professional slate of executives, including a CEO who, she says, urged her to pay more attention to numbers than to people. She took the advice “and almost killed the company. I forgot what we were here for, and when you lose sight of that, you get into lots of trouble.”

It took Nemeth nearly two years to find out how much trouble. The sales force gradually became bitter, old colleagues started leaving, profits fell and Nemeth found herself too demoralized to care. “Then a friend said to me, ‘I haven’t heard you talk about your mission in a long time. What happened?’ I realized he was right. I’d lost my mission, and my people had too.”

In December 1983 the company failed for the first time to deliver $1 million in Christmas orders. So Nemeth cleaned house and recaptured the reins. In the style of her mentor, cosmetics queen Mary Kay, Nemeth reinstated direct contact with her sales reps, who win bonus prizes such as key chains or leased Chryslers when they sell a lot. What she’s learned is, “If you get too many layers between you and the field, your message doesn’t get through. Essentially the spirit of the company is me. The toys are me.”

With the toy biz thriving again, Nemeth has a new mission in mind. She wants to start a chain of dieters’ counseling centers. When one skeptical employee tells her that the idea would be easy to copy, Nemeth disagrees. “Discovery Toys should’ve been easy to copy too,” she says. “They can steal the idea, but they don’t have me.”