Disclosure: The organizers of Slush paid my way to Helsinki. Our reporting remains objective. This is part two of our interview with Supercell. Part one ran Monday.
HELSINKI — Housed in an abandoned Nokia research building, Supercell’s headquarters is a lesson in itself. The Finnish company has become rich off its Clash of Clans and Hay Day mobile games. It sold 51 percent of its Helsinki-based company to Japan’s SoftBank and GungHo Entertainment for $1.53 billion. That makes Supercell worth about $3 billion, or more than Zynga, the social gaming giant with 2,200 employees.
The deal was one of the most interesting in gaming history. But all glory is fleeting, as World War II general George Patton once said. What guarantee does SoftBank have that Supercell’s next game will be a hit? We caught up with Ilkka Paananen, the chief executive of Supercell, with a media group attending the Slush conference in Helsinki.
Paananen says the company did that deal not as its end game but to secure stability for good and to set about its quest of “making history” in the entertainment business. Paananen hopes Supercell will make a lasting impact on the game business in the same way that companies such as Disney and Nintendo have done — and in an environment in which more than 1.2 billion people play games.
Here’s an edited transcript of our group interview with Paananen. The pictures are from a tour of Supercell’s headquarters, and we’ve included a photo gallery at the end.
Question: When we can expect the next game from Supercell?
Paananen: [Laughs] When it’s ready. At Supercell the teams have control. One of the things we believe is that it makes sense to test a game as early as possible. You might have read that we’re testing a certain game right now in the Canadian App Store, Boom Beach. Our model works, as I said, that it’s up to the teams, and then it’s up to the players. In the case of Boom Beach, if the players like it, we’ll launch it globally. If they don’t, we’ll kill it. It’s that simple. There are other teams working on other games, and the same rules apply. At some point those teams will launch something to beta. If it works, great. They’ll proceed to a global launch. If it doesn’t work they’ll kill it and move on to the next thing.
Question: Are you a serial entrepreneur? How many companies have you worked with?
Paananen: I guess I could call myself that. A few of my friends and I founded our first games company back in 2000. The company was called Sumea. Then we grew to about 40 people and sold to a company called Digital Chocolate in 2004. I worked almost six years as the president of Digital Chocolate, and left in early 2010. I took a few months off and then was lucky enough to be one of the founders of Supercell a bit later on.
Question: What were the most important things you learned, going from company to company and environment to environment?
Paananen: The number one thing was that it’s all about the talent. It’s all about the creative talent. Unless you have the best talent—That’s all that counts. If you have the best talent, sooner or later the best games will follow.
The other thing I learned is to try to minimize the bureaucracy in the process. A lot of companies have these game review meetings, where teams bring their games in front of a committee that gives them feedback. It takes a lot of time. In the nightmare scenario the team spends more time pitching for the committee and preparing for the pitch than they spend on the game. There’s none of that at Supercell. That’s why even I can’t go kill a game. One of my explicit goals is to make myself the least powerful CEO in the world. I see my role and the role of the management is as an enabler so the best people can focus on their work. We try to create the best possible environment for them.
Games is a people business and only a people business. That’s the number one learning I found. The number two learning was the value of small, of keeping things simple. We’re still a very small company compared to many of our competitors, and we want to keep it that way. Working at a smaller company is just a lot more fun. When working is more fun you make better games. It’s as simple as that. As a side benefit, when you’re small you don’t need the layers of management and bureaucracy and process that everybody hates.
Question: What’s your optimal team size? What sort of planning and management do you use around each of those teams and the games they’re working on?
Paananen: Clash of Clans was developed from the start by five people. We try to keep the new game teams as small as possible – anywhere from five to perhaps seven or eight people per team. The live game teams, because we’re serving millions of users every day, for practical purposes they need to be bigger. But even then the size stays between about 10 and 15.
Question: Is the Finnish economic environment friendly to startups?
Paananen: Yes, very. We have a great ecosystem for startups here these days. It’s easy to set up a company. We have a very competitive corporate tax rate. Starting from next year it’s going to be only 20 percent. It’s one of the lowest in Europe. It’s super competitive from that perspective. It’s easy to get people from abroad to move here. The bureaucracy is very low in that respect. And the environment is a very safe environment to live in. We have the best school system in the world. Finland has been on the top of those studies for the last couple of years. There are a lot of benefits on that side.
One huge benefit is the public funding that we get from the government. How we started Supercell is that we formed a group and invested a few hundred thousand euros from the six of us into the company. Then we got a loan from the government for 400,000 euros or so. Without that loan, Supercell probably wouldn’t exist. They give these types of loans to entrepreneurs. Even if you fail, you don’t need to file personal bankruptcy. It’s a great model. On top of those loans, later on you get subsidies. We’ve gotten a couple of million in subsidies along the way, which have been quite helpful. It’s also quite easy to raise money from abroad into Finland. Leading venture capitalists like Accel, Index, Atomico, and others have invested in Finland.
One of the personal reasons I have, outside of Supercell, I truly believe that one day the Helsinki area can become a gaming hub – the Silicon Valley of Europe, if you want to call it that. A lot of other areas are trying to do the same, like Berlin and London and others, but I do think we have a great environment. We have a shot at it, at least on the gaming side. There are a lot of great gaming companies here.
Question: You mentioned the subsidies that you got after the initial loan. Could you elaborate on how that works?
Paananen: Basically, the government, from its organizations, can give two types of funding. There are loans. They can fund us with up to 70 percent of the total cost of a project. Those loans, eventually you need to pay them back, but they have a very low interest rate – like one percent, and maybe you have to pay them back in five or seven years’ time.
Then you have these subsidies, which you don’t have to pay back. At best guess, they might subsidize 50 percent of whatever expenses you have. We also got that type of funding very early on.
Basically, if you think from an investor’s perspective, or a venture capitalist’s perspective, it’s a beautiful thing. Say that I’m a VC and I invest one million euros. In relation to that one million, I already know that the company will get an additional one million from the government. That’s non-diluting money, so it won’t dilute my ownership stake. The public funding makes Finland a really attractive investment landscape.
Q: I understand that this is very good for you, but I’m curious about what it means for the Finnish taxpayer. [Laughs]
Paananen: This year alone, Supercell—I think the founders and the company together are paying something like [€270 million] in taxes. They spent maybe five or six million on us early on. So I think it’s a good investment from the Finnish government’s perspective. Somebody calculated that Supercell alone returns every single penny that the government has ever invested in any startup combined. Just with the success of Supercell, we’re paying it all back and more.
This country needs to reinvent itself after the collapse of Nokia. We need new companies. It won’t be enough to just have Rovio and Supercell. We need more and more. Everybody here realizes that. It’s a long-term investment from the government’s point of view.
Question: What’s your view of the game industry as a whole? Are you hoping that it becomes much more like Supercell? Do you see the large publishers losing influence?
Paananen: I wish that, in the games industry overall, more power would shift to the creative people. When I grew up, I played games like the old LucasArts games, or SimCity, all these great games. They weren’t made by big teams. Teams were quite small then. They were limited by disc space and all that stuff, but still—Because you couldn’t really impress people with graphics, there was more focus on gameplay. They were just fun. There were all these legendary creative geniuses working on games at the time. I would love to see the industry going back to that golden age of games, where small teams full of creative energy and passion would have more control.
It feels like the marketing people took over. For some reason, games started to use movies as their role models. All of a sudden you had to make a massive investment in a game. It was all about the first week’s sales, exactly like in the movies. Companies tried to create huge buzz before a launch, exactly like in the movies. I’m not sure it’s the right model for games.
Question: What do you think is the key factor behind innovation, when you think about the development of new games?
Paananen: It comes down to two things. One, give all the power to your creative geniuses. Organize your company so that you put the creative people front and center. Give them all the freedom possible. And then give them the permission to fail. You have eliminate the fear of failure completely, because if you don’t, those guys won’t take risks. Without risks, there’s no innovation. Without innovation, there’s no hit games. You need to create a friendly, warm environment for those creative folks.
Question: Is there a rule or any criteria for deciding what’s a success and what’s a failure?
Paananen: Yes, there is. Sometimes people misunderstand our culture. Some people think that this is just a culture where teams can do whatever they want and results don’t matter. Nothing could be further from the truth. Before the teams start to work on something, we do spend quite a bit of time with them to pre-define the metric goals that they need to reach when they go to beta. We’re really strict about those goals. If they don’t reach those goals, we’ll kill the game. That’s it.
I won’t specify those goals, but they mostly have to do with retention and engagement in the game. How many people come back after 30 days? How many times do they play per day? And so on. We define those very carefully. That’s the agreement between the team and the company. So long as the team reaches those goals, we’ll proceed to launch. If they don’t, we’ll kill it.
Because of the small size of the teams, Supercell can be a relatively high-pressure environment to work on games. It’s not for everyone. You need to be proactive and very passionate about games and what you do. If you’re not, you won’t do well here. But for the right kind of people, it seems to be quite a nice place to work.
Question: Some say work-life balance matters less now that we just accept that we have one big life. But what do you do to manage people who have families or need to work flexibly? Do you not like to see people at their desks at 10 at night?
Paananen: We absolutely don’t like to see people at their desks that late. If you come here at 5:30 p.m., you’ll see that the office is pretty much empty. I’m not kidding. We’re extremely flexible when it comes to hours. Again, we trust our people. We don’t tell them how much to work. We don’t track their hours. We don’t track them at all. We just trust them.
We have only one simple rule – do what’s best for the team and for the game. For some people that’s working certain hours at the office and then working certain hours at home. That’s fine. The only thing we care about is results. We don’t care about how many hours you invest.
The games industry has been guilty of burning out people. It’s almost the norm, that you have these crunch periods. Some teams can crunch for an entire year. First of all, it’s fundamentally the wrong thing to do. It ruins people’s lives. But I also don’t think it makes any sense from a business perspective. Who can be productive working 18-hour days for a year? You won’t be productive and creative. It just doesn’t make sense for the company. We believe in working normal work days. But when we come to work, we work really hard and very passionately.
If you want to make the best games in the world, it does require extra effort and extra hours too. But you compensate for that. You take time off. We try to be sensible about that. If you burn out all your people in three years, you won’t be able to make history. As I say, it takes decades to do that.
Question: Do you share some things in common with GungHo?
Paananen: The biggest thing we share is how we think about games overall. Those guys are running the most profitable game on the planet in Puzzle & Dragons. And yet you hardly hear them talk about monetization at all. They think that games should be about fun, and if you make fun games, you’ll figure out how to monetize them as well. That’s a big part of their philosophy. They respect the creative people, as far as I can tell.
In my opinion, they’re some of the best guys in the industry. It’s funny. We don’t even share the same language with most of them, but whenever we go out with those guys, we have loads of fun. There are some really surprising similarities between Finnish and Japanese culture that turn up. We take our shoes off when we go into somebody’s home. [Laughs] Both peoples seem to know how to have a good party. It goes to all sorts of things.
I just have a massive amount of respect for those guys. That’s why we’re so happy that they decided to partner with us. It meant a lot to us. Even if it’s only 20 percent, in terms of absolute sums it’s a significant amount of money that they put in.
Question: Do you think that Nokia’s demise was inevitable? Was that just a cyclical thing, or do you think it made some missteps?
Paananen: Well, I’m not a Nokia analyst or anything, but clearly there were some missteps. Saying anything else would be lying. Of course they missed a few really important trends. These guys really came on and killed them. So yeah, I think clearly there were missteps. But that’s part of the business life. This will sound funny, but eventually I think it will be—Especially with the latest deal with Microsoft, I think it’s going to be a very good fulfillment. As I said, it forces this country to reinvent itself. We can close that book, I hope, and start to work on some new stuff.
Question: The model that you talk about comes from your experiences in gaming, but do you think that this is something companies should be applying more widely to other industries?
Paananen: Maybe, but I don’t know, because I don’t have any experience with anything other than games. It’s dangerous to give advice, especially if you’ve been successful. [Laughs] It’s funny how success changes the way people look at you. I was talking about these same things at GDC two years ago. There were maybe 30 people listening to that talk, and I knew maybe 25 of them by name. [Laughter] Nobody was really interested. Yet it’s still the same story and the same culture and the same values. The only difference is that now we’re successful and before we weren’t.
I truly believe that this is the thing that’s made us a success, but that doesn’t mean that we could make somebody else a success. Everybody needs to figure out what’s the best model for their business. But as a general rule of thumb, this type of model gives a lot more ownership to the people who do real work. That must be beneficial in general.