When You Can't Go Big, Go NicheWild Planet Toys CEO Danny Grossman has made a career of thoughtful, deliberate decision-making.

Not many CEOs can say that they served as a U.S. foreign service diplomat in Leningrad during the Cold War. And certainly, not many CEOs can say they were kicked out of the former Soviet Union for being accused of espionage. But Wild Planet Toys founder Danny Grossman isn't your everyday, run-of-the-mill CEO.

When Grossman founded the San Francisco-based Wild Planet Toys in 1993, he knew he had to distinguish his company from larger competitors. To do so, he started by identifying emerging niche industry segments. In the process, he discovered something unique about the toy industry.

"The toy industry is all about stories," Grossman said from his surprisingly minimalist office at Wild Planet's headquarters. "It's all about what stories the kids create with the product in their hands."

To that end, one of Wild Planet's early hit products just happened to be based on what he was once accused of: spying. The company's wildly successfulSpy Gearline encourages kids to create espionage stories with inventive products like Lazer Tripwire, Night Goggles and the Secret Agent Briefcase.

While the majority of ideas for new products in the toy industry are generated by outside inventors, Wild Planet develops most of its goods in-house. This approach gives it a distinct competitive edge over its rivals.

"The nature of the ideas that come in from the outside are mostly related to what others are doing," Grossman said. "When we find a niche, it's very unlikely to be a niche that's brought to us from the outside."

To stand out in the ultracompetitive $21 billion U.S. toy industry, Wild Planet zeroed in on market research that indicated that most toys employed a "close-ended" play pattern -- meaning there's just one way for a kid to play with a product. Grossman challenged his design team to create a line of "open-ended" products that go as far as a child's imagination will take him or her.

"We wanted designers to feel like their crazy ideas could find a way to market," Grossman said.

The results of these "crazy ideas" are innovative product lines that are now available in more than 50 countries. One favorite of kids and families isHyper Dash, a game that promotes active learning and exercise. This fall, Wild Planet debuts the app-enabled remote-controlled vehicleSpy Video TRAKR, which transmits color video and audio to the receiver.

As the economy has contracted, Wild Planet's niche-product-line approach has placed the company in good standing with retailers. "Innovation is critical to their success," Grossman said, referring to retailers. "They understand that we're going to bring the innovative stuff that's out there on the edge."

With fewer than 100 employees and revenues of roughly $40 million, Wild Planet is a small player in the toy industry. However, it uses its size, or lack thereof, to its advantage. For one, Grossman said he's able to take new products to market faster because of a lack of bureaucracy, which can translate to substantial cost savings.

"We have less at stake," Grossman said, comparing his company to toy industry stalwarts. "When there's less of a legacy, it's easier to try something different."

Since the start, Wild Planet also placed strong emphasis on consumer insight. To facilitate this, product designers take customer service calls in-house. "You can outsource [customer service] and get the responses back," said Grossman, "but you're never sure what was between the lines."

To maintain a company culture of innovation, Grossman and his team never forget who plays with the products they create.

"A company that is based on creative output has to have a very light, creative, free-flowing atmosphere," said Grossman. "To really appreciate what's fun, you have to get out of your head. What's fun is not in your head. It's in your heart. It's in your hands. Kids always remind me of that."