Small Giant Games raised $41 million in February, making it one of the rare mobile game studios to be able to raise a large round of money in a mature mobile gaming market.

And what’s remarkable about that is the company has only a single game, Empires & Puzzles, on the market. I talked with Timo Soininen, CEO of Small Giant Games, about this in a fireside chat at the recent Casual Connect Europe event in London.

Soininen, who formerly was the CEO of Sulake and built Habbo Hotel into an early online gaming success, said that the simple casual mechanic of a “match-3” puzzle was appealing to casual gamers, but the rest of the game’s depth also made those players want to come back for a deeper meta experience.

Soininen said the company plans to spend about $80 million on user acquisition this year, but it is also generating about $130 million for its revenue run rate (a year from now, revenue would equal approximately $130 million if current trends continue). And Small Giant Games is also working on its second team.

Here’s an edited transcript of our interview.

Timo Soininen (left) of Small Giant Games with Dean Takahashi of GamesBeat at Casual Connect Europe.

Above: Timo Soininen (left) of Small Giant Games with Dean Takahashi of GamesBeat at Casual Connect Europe.

Image Credit: VentureBeat

GamesBeat: Could you tell us more about your background?

Timo Soininen: I’m the CEO and a co-founder of Small Giant Games. I’m one of the dinosaurs of the games business. I’ve been doing this sort of thing for almost 20 years. I was CEO of Habbo Hotel. Some of you might remember that from the past. I did that for a long time. The core team at Small Giant is formed from some of the core members of Habbo. We founded the company four and a half, five years ago, but we really got going about four years ago.

We did casual games first, but that market — we literally failed. We were close to success, but we decided to kill those products pretty quickly and start looking for the big one. How could we really get that top-50 grossing game? What does it take? After a year and a half, we did it.

GamesBeat: How did you approach starting a new mobile game company in 2013? That was a time when everyone thought the market was way too crowded.

Soininen: That’s true. When we founded the company, the market was super full of games. It was getting difficult for small studios to break through. But we had a strong belief in our talent, in our core team, and we also felt — hence the name, Small Giant — that small, motivated core teams with the right tools could do gigantic things. That was our naïve belief, but we were quite serious about that. We managed to get some early funding to get us going, and then a couple years back, we changed course completely from casual games to mid-core, to go after the deeper monetization in those games.

The fact that we had such a long experience between us–we had done a lot of social games. We were one of the pioneers in free-to-play, back in the day. We knew how to build community. That helped us understand what is critical for the long-term success of a game, making a game that would last for years.

GamesBeat: In February you raised $41 million. A lot of game studios, they may raise $2 million or so. Why did you go for so much?

Soininen: Let me give you some background first. When we built Empires and Puzzles, we started development in 2016. We were literally just 12 people, including me, and I didn’t contribute that much to actual game development. We created a pretty big game in just 11 months with 12 people. I think that’s some kind of record. We’re currently big by our own standards, 35 people, based in Helsinki.

The reason why we were able to do such a big funding round is because we had such tremendous success. We launched the game last year, about 14 months ago. In the first 10 months we did $33 million in revenue. We turned profitable. We didn’t really need that much money in the first place. But then we accelerated to a $130 million run rate for this year, or maybe even beyond. It’s quite an amazing story. We now have 50 million downloads, 1.1 daily active users, very high engagement, retention, and monetization rates for the game. All the mathematics underneath are going super well.

Coming back to the financing round, we were in a very fortunate position. Our investors said, “We have offers on the table from potential buyers.” But we raised a very big secondary round. Everyone on the Small Giant team was allowed to sell a few shares at that point. In a way we’re de-risking our position, so now we can focus fully on building something even bigger going forward.

That was the primary reason, but secondarily, we’re in the business of performance marketing. We are a very data-oriented company. We understand forward lifetime value estimations and the payback times for those acquired users. That requires a lot of money. Last year we raised a $6 million round just to do the additional marketing. That’s worked well, but it’s good to have a war chest to be able to spend a bit more on user acquisition, and also launch new games.

GamesBeat: How much did you spend on that performance marketing?

Soininen: To give you a ballpark number, this year — considering we’re still a very small company, 30-plus guys, we’ve spent probably $8 million on marketing. It’s a lot of money for a small team.

Above: Small Giant Games

Image Credit: Small Giant

GamesBeat: So if someone wants to beat you, they have to come up with a good mobile game, and spend $8 million as well.

Soininen: Exactly. Plus they have to understand the analytics and the dark arts of performance marketing, which is a very important aspect of the whole equation.

GamesBeat: As far as the investment you made, what sets you apart? What part of the analytics is important?

Soininen: I’ve been doing a lot of different things. I’ve been an advisor to other game companies in the past as well. Most game companies are really good at three things. The first one is obviously game design, then game development and the technology related to that, and creative design, the art side of things. Most game companies are focused on that, and that’s it.

The problem is that in today’s world, if you don’t deeply understand analytics, you have no chance to survive in the long term. We decided to build our own analytics system from the ground up, because we felt that it was such an important part of our life. It’s the beating heart of what we need to understand.

GamesBeat: Many companies will argue that they don’t need to build that on their own. They can use other solutions that are out there.

Soininen: That’s a good point. Obviously you can get going with external tools. It’s more important to understand the numbers and how the model works. But the other part, which is related to understanding analytics and how you can use them, is that — how do you do performance marketing profitably? How do you put $1 in and get $1.20 or more back? It’s learning that whole conversion funnel optimization. How do you create conversion, do app store conversion, do icon optimization, and so on? It’s doing that in a very systematic, tested way. If you can’t do that today, chances are you’re not going to survive.

The other aspect of that, what I’ve seen at many game companies, is how you do business modeling. How do you actually create a business model and put the mathematics in place so you’re able to execute around that? And when it comes to the financing part, how do you get enough money to execute that business model? Then you have to add live operations, which is critical, especially in the mid-core games. You keep the game fresh — every day, every week. And last, but not least, community nurturing and customer support.

In a way I would say it’s all about mastering the full stack of the company, if you like. You have to tick all of those boxes, if you really want to get to the place where we are at the moment. It’s possible, but it’s pretty hard.

Above: Empires & Puzzles has match-3 gameplay.

Image Credit: Small Giant Games

GamesBeat: Tell us more about Empires and Puzzles.

Soininen: Empires and Puzzles is something we call — it’s essentially a very approachable mid-core RPG game. We have this insider notion that you have casual games, which are very easy to approach, and then deeper mid-core games, and these two things are starting to converge. You have hundreds of millions of very advanced casual players who’d like to go a bit deeper, and at the same time we have many very successful mid-core games that are incredibly difficult to play and understand for a new player coming in.

Above: Empires & Puzzles

Image Credit: Small Giant Games

We thought, “Wait a minute, can we bridge these two worlds?” We wanted to create a game that would be the first RPG both groups could play. That’s how the game came to be at least positioning-wise, but then our guys came up with a brilliant idea in our game jam sessions. For some reason, nobody had thought to combine the match-three mechanic with a twist like sending army troopers instead of popping jellies. We combined that with a base-building component, as well as the hero collection and training component, plus PvP, PvE, alliance wars, everything.

It’s a big blender. You keep adding ingredients and press the button, and out comes a good game. Of course, it’s a horrible risk that when you press that blender button, something really bad might come out. But our guys did a really good job at mastering the UI and doing the onboarding, as a result of rigorous testing.

GamesBeat: What have you noticed as far as where the early pickup was and how the audience for the game developed?

Soininen: The early days were really interesting. With our first game, we spent way too long thinking about it internally. We had a bar set this high in terms of graphics, which in the end doesn’t really matter at all. With Empires and Puzzles we went into our first live tests after two weeks of development. We had a really crappy version of the game. We borrowed some graphics from other games, put this version together, and went in front of some test players.

A lot of test players are paid to play for 15 minutes, and sometimes after 10 minutes they’ll ask you, “Do I really have to keep playing this piece of crap?” But with Empires and Puzzles, almost all of the players were ready to play not just 15 minutes, but 30 minutes or 40 minutes, even with a game that didn’t look that good. They were looking through all the components. “Oh, there’s base-building here too.” It proved that we had something interesting here.

Then we started really systematic testing. Every week we tested a build with consumers. We plugged in our analytics and started—we went live after three or four months of development and started getting real data. The unthinkable happened. Every time we saw a problem and fixed it, the numbers went up. By the time we were launching, we knew we had a really good game in terms of retention and monetization. But we didn’t know how to market. That was the most difficult part, to get the marketing part right — the right creatives, that kind of stuff.

GamesBeat: How did your experience with Habbo Hotel and your other earlier projects affect your strategy?

Soininen: There were two things. Obviously, back in the day, life was very different. It was before the app stores, before Google Play. Most of the things we learned were how not do it – how to scale up a company without creating too many layers and making ourselves slow.

At Small Giant we have this notion of ultra efficiency in everything we do. That’s one of the key learnings from the early days. We had hyper growth. It was more important to hire people than to really understand what we were doing. We were just making good games slow. The right decisions didn’t get made. We decided to avoid all of that. We wanted to keep the team size to the absolute minimum. Cost can be an issue, but it’s mostly that too much communication overhead kills companies. The more people you have, the more communication you need. If you have a focused team of five or six guys who know that they’re doing, they can iterate incredibly quickly. That’s what we did.