Supercell is Accel's fastest growing company ever. (And it has a ball pit)
Ilkka Paananen is slumped in a high-backed office chair, wearing a blazer, blue jeans, and a black T-shirt that bears the name of his two-year-old gaming company, one of the most buzzed-about in the world right now, spelled out over three lines:
SUP ERC ELL
The 34-year-old CEO moved his 70-person team into this office just a few weeks ago, and tomorrow it will have its official opening party, attended by journalists, investors, and other prominent industry figures in Helsinki for the Slush startups conference. The new office is spread over one floor of a shiny office tower that until recently housed Nokia research teams. Nokia has since left the building, which feels sterile and empty, with a vast lobby space populated by a sole security guard who looks like a leftover from another time.
Except, that is, on Supercell’s floor. Here there is optimism. The company’s name is spelled out in colorful 3D letters standing on thin rods just inside the main entrance. As is customary in Finnish homes and businesses, guests are asked to leave their shoes at the door. Immediately, then, visitors are transported into a soft-padded sense of playfulness, which Supercell, with its colorful decals and relaxed vibe, only emphasizes. One of the conference rooms, the size of four telephone booths, has been converted into a ball pit, full of pink and blue soft-plastic spheres.
Today, sitting at a conference room table cluttered with sandwiches and soft drinks, Paananen looks relaxed. His boyish features make him look even younger than his 34 years, even though he has two kids: a 4-year-old girl and a 1-year-old boy. If he is under any stress as a young parent or as the boss of one of the world’s hottest gaming companies, it’s not showing in any way.
And make no mistake: Supercell is giving new meaning to the word “hot.” Its latest numbers, which we have reported but the company has declined to confirm, have Supercell pulling in $750,000 a day, thanks to in-game purchases in its two free-to-play iPhone and iPad games, “Hay Day” and “Clash of Clans.” The games have been sitting at the top of the App Store’s top-grossing games charts for weeks. Word is Supercell has been offered a substantial new round to cash out the founders at a valuation of at least $600 million. Reportedly, EA and Zynga have been sniffing out the possibility of an acquisition, but with numbers like these Supercell has no reason to show any interest, especially because its costs are said to be as little as $60,000 a day.
At one point during the interview, Kevin Comolli from Accel Partners, who put $12 million into Supercell back in May 2011, enters the room and says that Supercell is, revenue-wise, the fastest-growing company the firm has ever invested in. A reminder: Accel has invested in Spotify, Baidu, Groupon, Atlassian, and a little company called Facebook.
As soon as I arrived in Helsinki, I was told that the numbers we reported on Supercell were actually out of date – they’re much higher now, according to people familiar with the company. Even if they weren’t, they’re still head-spinningly impressive. At this rate, Supercell is set to make more than $250 million a year.
A note of caution: This industry is notoriously fad driven. Plenty of other gaming companies have expressed jaw-dropping revenues before falling off a cliff. And Accel's previous fastest growing company ever was Groupon. Fast doesn't necessarily mean sustainable. But regardless, what Supercell has done is impressive. And if you believe Paananen, it’s just getting started.
For the first time in his 12-year career, Paananen is seeing even his family play the games he has helped to create. He learns the most about the hardcore users of “Hay Day," for instance, by watching his wife play the game. She’s never been a gamer of any sort, he says, except for maybe playing “Singstar” on occasion. “I think she’s Level 46, or something crazy,” he says. He swears he doesn’t pass her any cheats. “I definitely make sure I don’t give her any free diamonds,” he says with a laugh, referring to the ultra valuable currency that helps “Hay Day” players build their virtual farms faster and better. His 4-year-old daughter plays too.
“I’ve been in the game industry for the last 12 years,” says Paananen, who speaks in fast run-on sentences with the low-key lilt of the Finnish accent, “and this is the first time I’ve seen people, even my mom, who’s more than 60 years old, and my godmother, and these types of people, play our games. It’s really unbelievable how broad the appeal for these games are. It’s so much about the platform. It really is redefining the whole gaming industry.”
Supercell has become noted in gaming circles for its “tablet first” mantra, an approach that distinguishes it from competitors Zynga, EA, Kixeye, and even Finnish compatriots Rovio, the maker of “Angry Birds.” But it wasn't always that way. In fact, the company got off to a false start with a less-than-stellar title called “Gunshine,” a Flash-based game that can be played on Facebook and in a Web browser. Although it has more than 350,000 fans on Facebook, Supercell pretty much considers the game a failure. “This whole idea about cross-platform... I’m not so sure it actually works if you want to create the best possible experience for the tablet and mobile platforms,” says Paananen.
Just over a year ago, Supercell decided to sharpen the company’s focus to tablet-only, based on a belief that it was going to become the ultimate gaming platform. “It feels inevitable," he says. He believes if you want to lead on tablets, you have to focus on tablets.
The rise of the tablet is just the latest of a series of seismic transitions that are changing the face of gaming. When Paananen and his five co-founders started Supercell in 2010, they wanted to capitalize on three market disruptions: The shift from consoles and PCs to mobile, Facebook, and online games; the shift from paid games to free-to-play; and the shift from products to live services – games that live on and evolve beyond their release date.
He and his team had backgrounds in mobile, social, and AAA console gaming. Some were colleagues from Digital Chocolate, a casual games giant for which Paananen served as president for four years and Europe managing director for two. Prior to that, he was running his own mobile gaming company, Sumea, known for titles such as “Racing Fever,” “Tower Bloxx,” and “Crazy Penguin Catapult.” Digital Chocolate acquired Sumea in 2004.
The idea for Supercell was to put together the best-possible team of developers. Paananen vets every new hire and is in no rush to expand the headcount. To him, small is beautiful. “It doesn’t make any sense to me that some companies are bragging about how big they are in terms of employee count,” he says. “Our strategy is completely the opposite. We actually want to stay as small as we can.”
There is zero bureaucracy, he claims, and no-one has their own office. The bosses are transparent with all the company data, so Paananen never has to worry about what he should and should not share with his troops.
A barbarian character from "Clash of Clans"
The company works in cells of about five people each, which makes each staffer feel like he or she is having a meaningful impact on the products. “Clash of Clans,” a village-building game featuring Viking-ish characters that are wont to go on empire-building pillages, was built by one such cell of just five people – at least until it came out of beta. Then more people joined to help the game scale and serve millions of players on a minute-by-minute basis.
This cell structure also equips the company well to accommodate failure. Paananen is proud that Supercell has killed three games this year at various stages of development. When it decides to kill a product, the whole company gathers to do a post-mortem to determine what went wrong, and then the cell members involved with the failed game are each given a bottle of champagne.
“When failure is completely accepted -- in fact it’s celebrated -- then it encourages people to take risks,” says Paananen. “When you take risks, there’s more innovation. And with innovation there’s better games, and eventually there are going to be hit games.”
Of course, therein lies a risk for Supercell. Gaming is an infamously hit-driven business. Rovio built more than 50 titles and was on the verge of shutting down before it found success with “Angry Birds.” OMGPOP was almost completely broke before “Draw Something” went viral and Zynga bought the company for $200 million. There’s every chance that “Hay Day” and “Clash of Clans,” which, after all, were only launched in June and August respectively, will fast be supplanted by some other flavor of the month. Just ask Zynga how much staying power “Draw Something” had.
But Paananen, who has had enough time in the gaming industry to know what genuine success looks like, is confident that Supercell knows its users better than others. Supercell studies its analytics carefully and feels it has valuable experience in a space that combines the very defined fields of social, tablet, and free-to-play. He adds that Supercell is in a “very financially stable” position that allows the company to think long term. He also believes that “Hay Day” and “Clash of Clans” are only going to be even more popular in two years’ time. “For us, when we launch a game, it’s not the end. It’s the beginning.”
There is evidence in Supercell’s surrounding environment to suggest we should give the company the benefit of the doubt. Finnish game companies are on an absolute tear. In the last week, games from Supercell (“Clash of Clans”), Rovio (“Angry Birds Star Wars”), and Fingersoft (“Hill Climb Racing”) have occupied the No. 1 slots in top-grossing, paid games, and free games in the App Store. Fingersoft is a little-known startup based in the northern city of Oulu. Helsinki is also home to Grey Area, makers of popular location-based iPhone game Shadow Cities. “You can’t really say it’s an accident anymore,” Paananen says about Finland’s unlikely gaming success. The country, remember, has a population of just 5 million people. “I guarantee you there’s going to be more.”
So where does that gaming success come from? Paananen reckons it’s because Finns are very creative people. If you think back to the old days, before the Internet, before even electricity, Finns had to survive long, cold, and dark winters with little outside entertainment. To combat boredom they developed a storytelling culture. People kept themselves amused by gathering around the fireplace to share tales.
Finland is also home to a lot of hardcore tech talent, much of which was until recently tied up in Nokia. Many of the country’s software engineers cut their teeth in the country’s lively demoscene, which emerged in the 1980s and rose to prominence in the 1990s, in which people would show off their programming skills on the likes of the Commodore 64, the Atari 800, or the Amstrad CPC. Finns also took a liking to 3D graphics, a point emphasized by the 2006 sale of Helsinki company Hybrid Graphics to NVIDIA.
Game changer: Rovio's Angry Birds
The convergence of the creative culture with engineering expertise, an aptitude for 3D graphics, and deep mobile talent, provided the perfect conditions for mobile gaming companies to emerge. When you consider the aggregated effect of those converging clusters, Finland’s success in gaming seems less of a surprise and more of an inevitability.
But it took the global phenomenon of “Angry Birds” to push the country to the next level. Even two years ago, Finnish companies tended to set their goals too low, Paananen says. Since “Angry Birds” came along, however, now they aim for the absolute top. “It changed everybody’s thinking on what’s possible,” he says.
Paananen stops short at getting specific about what his idea of big is. When pushed for comment on how much money the company is making, he smiles sheepishly, his face turns red, and he says the company’s not talking about that right now. Supercell’s goal is not about making money, he says, but to make highly engaging games. If they get that right, the money follows. And so far, they have – players check into “Hay Day” and “Clash of Clans” on average 12 times a day, he says. Farming game “Hay Day” is now seeing 40 million trades of virtual produce every day.
Paananen himself still plays games, at work and in his spare time, which is more ample than you might think. Even though he’s the CEO of a startup, he’s also a married father of two, and he doesn’t want the gaming industry to consume his life, as he has seen it do to many others. “I leave the office every day at 5pm, and I’m incredibly proud that I do,” he says. He does work from home sometimes, though.
The same goes for his staff. On any day of the week, he says, you can go to the Supercell office at 5.30pm and find it mostly empty. Some people occasionally work overtime or on weekends, but that’s not the norm, and most takes the full complement of their mandatory five-week holidays. (Skeptical, I checked Paananen’s claims out on the sly with two unsuspecting Supercell staffers, who confirmed them to be true. I also saw this early home-time in effect at another startup, Kiosked, where, on a Tuesday, the co-founder and I were the last people left in the 30-person office at 5.45pm.)
“There’s other things than work and money in our lives,” Paananen says of Finns. “Our society just works in that way.”
The world’s top-grossing iOS games; $750,000 a day in revenue; plenty of cash in the bank; and office days that end at 5pm.
No wonder Paananen looks relaxed.