Timing is almost everything, but you still need to execute with confidence.
I’m a bit of a Luddite when it comes to computer games, although I do have an “app” on my phone that allows me to try and land a F-18 fighter-jet on an aircraft carrier when I am bored: sadly, I rarely manage to land gracefully. My distracting video game is an example of “freemium” software that is creating vast wealth for a few right now on mobile devices. Angry Birds, Flappy Bird, Talking Tom aside it is Clash of the Clans and Hay Day that seem to be exemplars of this business model at the moment with reported revenues last year of $2M a day generated from these two games alone, solely from users on Apple and Google devices; unconfirmed reports have claimed that this is now as high as $5.5m a day. Not bad for a company that got started less than four years ago.
I got to wondering what we could all learn from Supercell, the Finnish company behind all this, and this is what I have concluded:
The six founders of this business stuck with what they knew best and made the most of their combined market knowledge, skills, and expertise, developing compelling products for the target audience. Although the company itself is less than four years old, its founders have been around a while and understand the business and the entrepreneurial lifecycle.
Fortunately for them they found themselves in pole position to enter the rapidly growing mobile gaming space at exactly the right time. Also, the huge unfulfilled demand for this sort of product coincided with the “freemium” business model coming of age. The most successful new businesses are ones that find themselves (or throw themselves!) into a “fast flowing stream” at an early stage allowing them to maximise early-mover advantages: they exploit windows of opportunity in immature markets.
One of the major advantages of this market for a new entrant is just how easy it is to address. Distribution agreements with just two companies, Apple and Google, give it a huge market reach. This ease of market entry is of course a competitive disadvantage in a mature market but it was far from that when Supercell got started.
Not only is distribution easy and therefore relatively inexpensive, but Supercell had only 132 staff at the end of last year: the business has enormous potential for generating a very high return on capital, which is what investment is all about. This organic economic advantage was enhanced further by applying financial leverage, which it has done whilst at the same time smartly leveraging its investor’s expertise and market reach when it sold a big chunk of the business to GungHo Online Entertainment towards the end of 2013.
Supercell has generated $1Bn of sales in four years by “failing quickly” and then investing in products that have proven themselves. It could take a very product centric view as the freemium business model was already proven. With small, agile, development teams it was able to develop products quickly and then try them out before making a call on scaling them further.
When it found the right formula, with its two lead products, it got focused and wasn’t afraid to invest heavily in promotion: confidence, that may well have come from collaborating, with the right people, at the right time.
Whilst the Supercell team may have been lucky with timing, to be in at the start of the gaming mobility revolution, this just got them passed “Go”; the meteoric growth they have experienced would not have come without the speed, quality, and confidence of its execution, as well as leveraging other people’s money and expertise to scale the business quickly before too many others appeared on the scene.