The best part about trying out new products is when you have a “wow moment.” For example, when you connect with long lost friends on Facebook for the first time. Or when photos of your relative’s newborn baby show up on Instagram. They make the service incredibly sticky, and more importantly, they make the service worth using.

With Ubooly, a Boulder-based company that is exiting the TechStars program today, that “wow moment” happens the moment you turn Ubooly on. Ubooly isn’t just another piece of software, but it is an iOS-enhanced plush toy that serves as a companion for kids.

The “wow moment” goes a little something like this. Turn the Ubooly application on, and put your iPhone inside of the plush toy. A face appears, and Ubooly wakes up with a yawn, and begins to speak. “I wasn’t sleeping,” Ubooly explains, “I was just resting my eyes.” Then, a brief pause. “Would you like to hear a joke?”

Then you’re hooked.

Which is saying something, because the toy is aimed towards six- to nine-year-olds, not (relatively-)cynical startup reporters. The fact that it can immediately bring a smile to the face of pretty much everyone is testament to the emotional connection that the toy provides.

Yesterday, I met up with Ubooly’s co-founder, Carly Gloge, in the TechStars office to talk about the company, the concept, and plans for the future. When I got there, an entire section of the office was dedicated to Ubooly. Boxes full of Uboolys, all being packed up and prepared for shipment to early Kickstarter backers. Tens of thousands of prepaid orders, all being packed up by the five person team, each one about to make a kid’s day.

Gloge and her husband, Isaac Squares, founded the company in 2011, following the end of Boulder’s previous TechStars class. The duo were fixated on the idea of reinventing the toy industry. According to Gloge, they would walk down toy aisles in stores and wonder why no toy manufacturers were taking advantage of the cheap and flexible hardware system that is iOS, and were instead relying on technology that was, in some cases, over a decade old.

From this obsession sprung the idea of a plush toy that contains a slot for an iPhone or iPod Touch. An iOS device is slipped inside of Ubooly, and all of the sudden, the inanimate plush toy is now a fully interactive companion for children. The idea seems simple enough, but like most startups that are doing something worthwhile, it’s an uphill climb.

Not only is this a physical goods market, which many startups shy away from, but it’s one dominated by giant companies like Hasbro and Fisher-Price. In addition, the market is already fixed with pre-existing supply chain models and distributors.

To solve this problem and to innovate off of existing models, Ubooly is looking to take methods commonly accepted in the startup world and apply them to the toy industry. For example, instead of a massive product launch, where Ubooly appears in thousands of retail locations around the country, the company is taking an iterative approach. “The goal isn’t to flood stores. It’s to talk to 20 or so smaller stores and get feedback,” says Gloge, “and then scale up.” It means smaller, localized launch, but also a reduced risk of holding inventory.

This approach mimics software startups, which launch a minimum viable product, get user feedback, and then build upon the product from there. For other toy companies, says Gloge, “the average product cycle is 12 to 18 months,” which means that even if the bigger toy companies started ripping off Ubooly tomorrow, by the time the product launched, the company would still be ahead of the competition.

This iterative cycle, while avoiding the pitfalls of the toy industry, coincidentally also provides Ubooly with one of its biggest features. As Gloge tells it, a best-selling toy is deemed successful if the child plays with it for two to three weeks. After that, the children tend to get bored, or move on to other toys. According to Gloge, though, this is a complete waste of money.

With Ubooly, though, parents won’t have to continually purchase new toys, because the company will be providing a steady stream of updates to the toys, which is also one of the key reasons that it’s based off of iOS.

Moving forward, these updates look compelling. The company plans to add tour guide functionality that ties in with the iPhone’s GPS capabilites, as well as a future bilingual version of the toy that will supposedly introduce children to other languages. It won’t so much be a Spanish Ubooly, says Gloge, but will instead be like having a friend that speaks Spanish and English.

Aside from the iterative cycle, the iPhone integration also provides a very large marketing opportunity. With Gloge and Squares’ backgrounds in the software development area, the two have made the iPhone app strong enough to stand on its own. The application has games, in-app purchases, and a number of other features that will attract kids to the platform. Then, the idea is to convert the unpaid users and to transition them to the plush toy, which moves users from the casual phase to the dedicated phase.

All of the advantages of Ubooly add up to one conclusion. That despite the fact that not many startups are taking on the toy industry, and that this small startup is going up against giants, the company seems to have all of its pieces lined up to become a big deal by the holiday season.

I’ve already bought one for my niece.