IVP’s Hypergrowth Podcast: The Hypergrowth of Supercell with CEO Ilkka Paananen

Welcome to IVP’s Hypergrowth Podcast. In this series, IVP investors talk with CEOs of the fastest growing companies and discuss the ins and outs of company building in the hypergrowth environment.

In our first episode, IVP investor, Parsa Saljoughian, talks with Supercell Founder and CEO, Ilkka Paananen, about the company’s success, his role as CEO, the unique decentralized structure, and the strong international strategy.

Ilkka Paananen, Founder and CEO of mobile gaming company Supercell, got into gaming by accident. Foregoing a career in management consulting, the path taken by many of his classmates, Ilkka opted instead for a low-paying gig at a game development company. The team, made up entirely of game developers and creators, named Ilkka CEO so they could focus on building games. Within a few years, Ilkka successfully sold the company to video game publisher, Digital Chocolate, where he worked for six years. Shortly thereafter, Ilkka co-founded Helsinki-based gaming company Supercell, which today reaches 100 million people per day and is valued at over $10 billion.

The Supercell founding team had a breadth of game development experience across a variety of platforms and business models. Supercell is known for its hit titles Clash of Clans, which has grossed over $6 billion in six years, and Clash Royale, which has grossed over $2 billion. The company’s success partly stems from its decentralized organizational structure that gives game teams (“cells”) themselves the power, removing traditional bureaucracy that often hampers creativity.

In this conversation, Parsa and Ilkka discuss some of the key learnings from scaling Supercell through hyper-growth. The episode also includes Ilkka’s predictions for Supercell in 5-10 years and advice for game developers in today’s climate.

Get big by thinking small.

Less management involvement and fewer layers of process allows teams to operate with greater speed and efficiency.

“What if we turned the traditional organizational pyramid upside down?”

Ilkka and his founding team proactively implemented a policy of zero bureaucracy. Why? The group learned from its breadth of experience in gaming that when gaming companies hit a rapid growth phase, they often explode in size and implement heavy process and procedure, slowing the company down. Thus, it was critical to reinforce a culture that optimized for speed and where game teams maintained their independence. Ilkka and his team believe that decision-making power should be given to the game teams as they are closest to the product and the customer. Not only is it more motivating for creative people to work in this environment, but this structure also results in better decisions and quicker execution. Both Boom Beach and Clash Royale faced intense internal conflict but were launched because of conviction from the game leads. Both games ultimately became world-class titles.

Focus on the long-term.

Decisions that favor the short term sometimes work but long-term thinking always wins.

“You shouldn’t care about the short-term business decisions. You should care about what is right for the long term.”

Initially, Supercell launched on Facebook with a vision around building a cross-platform games company. However, it quickly became clear that the cross-platform strategy lacked focus and the company’s initial title on Facebook wouldn’t scale. After numerous team and board discussions, Supercell decided to pivot to mobile as it was the best decision for the long-term. This was a major upheaval for the company as it required them to throw everything they had built away. In hindsight, Supercell views this as the company’s most crucial business decision and it shows the power of having the courage to shut down mediocre products and streamlining focus.

Take risks and learn from failure.

Companies do not fail because they take risks. They fail because they stop taking risks.

“Failing isn’t fun… it just isn’t fun. You dedicate 6 to 12 months to a game and it turns out not to work. We don’t celebrate the failure, rather the learnings that come from those failures.”

Since founding, Supercell has killed dozens of titles. While killing titles is a “failure” for the company, Supercell’s success depends on its developers’ tolerance for risk and freedom to fail. Many companies may look at continued failure as a cause for concern, but Supercell views this as a positive. These moments are learning opportunities.

As the first mobile gaming company with two multi-billion-dollar franchises, Supercell has paved the way for many in the mobile gaming industry.

Read more from Parsa Saljoughian about this interview.

The full transcript is below.

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Narrator: Welcome to IVP’s Hyper-Growth Podcast. In this series, we talk with CEOs of the fastest-growing companies and discuss the ins-and-outs of company building in the hyper-growth environment. If you like what you hear, consider following us on SoundCloud or subscribing to our podcast on iTunes. Thanks, and enjoy the show.

Parsa: Hi everyone, I’m Parsa Saljoughian, an Investor at IVP and in this podcast, we’re lucky to have with us Founder and CEO of Supercell, Ilkka Paananen. Supercell is a mobile gaming company based in Helsinki, Finland and is known for its hit titles Clash of Clans and Clash Royale. According to data, Clash of Clans has grossed over six billion dollars in six years since launch and Clash Royale recently surpassed two billion dollars, making Supercell the first mobile publisher to operate two multi-billion-dollar franchises. Supercell also has two other titles, Boom Beach and Hay Day, and recently announced plans to launch its fifth title, Brawl Stars. The company was founded in 2011, has over 250 employees around the world, and is majority owned by Tencent and is now worth over 10 billion dollars. In this episode, I discuss with Ilkka the company’s founding story, the crucial early pivot Supercell to mobile, the company’s very unique decentralized structure and Ilkka’s role as CEO, and also the strong international strategy that has allowed Supercell to become a truly global games company reaching over 100 million people every day. So, with that thanks for joining us today Ilkka.

Ilkka: Thanks for having me.

Parsa: So to set the stage, it would be helpful to get a bit of your background. How did you first get into gaming initially and what was that founding story of Supercell?

Ilkka: Well we founded Supercell back in 2010 and there were six of us co-founders. Each of us had been in games for 10 years at that point like give or take. We had founded companies, sold companies, we had been in mobile games and some of us had been in AAA, PC and console games, and some had been in social games, games for Facebook and so forth. We had a breadth of experience from different types of platforms and business models. Supercell was founded based on everything we had learned from the previous companies. The one thing that united us was that we had all seen this phenomenon before where a games company gets successful and if it’s lucky enough to release a hit game, that kicks off this very quick and rapid growth phase, not only in terms of revenue but also in terms of headcount. Then what usually happens is as you grow, companies introduce new layers of management and process and they become quite process-driven. Our idea was that what if you found a totally different type of company, one where leadership wouldn’t really play much of a role in deciding what type of games to do and there would be very little process and very little layers of management. In most companies the vision is held by the leadership team but we started to ask ourselves what would happen if the vision was held by the game developers themselves. The game teams would be the ones running the show. We started to think what would happen if you would turn the traditional organizational pyramid upside down. Then that led to us thinking that this is such a new way of thinking that maybe we should actually think about these individual game teams, who would all control of their own destiny, maybe they could be their own independent companies within the greater company. And then somebody suggested that maybe instead of calling these game teams, “teams”, what if we called them “cells”. Then that led to the question of what we should call the entity, these collections of cells, and then somebody suggested “Supercell” and that’s how the company got started.

Parsa: Super interesting and I think there’s a lot to unpack there just around your culture and your role as CEO. But even before we get there I want to talk about the really early days of the company. You originally launched this business with a vision around building a cross-platform company redefining social games. You launched on Facebook but you are a very successful mobile gaming company. Every company that we meet with seems to go through this period of a moral existential crisis. Maybe it happened early on for Supercell after you launched this game on Facebook because you decided to kill the title and then make this major pivot to mobile. Before we get into the cultural aspects I’d love to take a step back and go back in time to understand some of the discussions you had internally around this decision to kill this title and make a major pivot to a new platform which at the time was fairly unproven for gaming. Facebook games with Zynga and other companies was a platform that was thriving, so help me understand the discussions you had early on and what gave you the conviction to make this major switch to new platform?

Ilkka: Well if I think about those times… initially, we actually saw quite promising metrics on our first game, Gunshine. As we started to scale the game, unfortunately, the metrics didn’t scale. One of our dreams in the very beginning was to create games that people would play for years and years, and games that would be remembered forever. From very early on we looked up to companies like Nintendo and at some point, it was very clear to us Gunshine was not going to be that game. The longevity and long-term retention wasn’t there when you looked at the metrics and so we decided to kill it. Our original idea as you mentioned was to create these cross-platform game services so you could access the game world from a variety of devices, from desktop, web, mobile, and tablet and so on. But then we started to think that this approach doesn’t have focus and we were worried that you couldn’t create the best possible experience on any one of these platforms. Maybe you could create games that were okay on each of those platforms but wouldn’t be great on any of them. And at the same time, we started to see the first signs of mobile and tablets especially. I remember that we decided to get some iPads to the office and we fell in love with the platform. But the more we played the games on the platform it felt to us that most of the games weren’t really designed to that platform very early on. They felt a little bit like ports from other platforms. Then the company decided to make this bet that we started to call iPads the ultimate gaming platform and then, later on, extended the definition to cover smartphones as well. But our initial focus was tablets and we even called our strategy “tablets first”. Very quickly we figured out it makes sense to call it “mobile first”. I would say that the reason we decided to abandon the cross-platform strategy was mostly related to being more focused. We, of course, had a small team. And then out of all the platforms that we had experience with, it just felt that tablets and then later, mobile would be a natural choice.

Parsa: It seems like the right decision in hindsight but I’m sure it was tough at the time. You probably had disagreements among the team but also the board. As I think about our audience here, a lot of strategic decisions get made early on. What was the reaction from the board, who ultimately made the decision, and how much power did you have with the team in making that conviction bet to move to a new platform?

Ilkka: Well, I don’t think there was any single person who made the decision. We discussed when we first started with the team in Helsinki. The more we talked about it, the more excited we got about it. And at the time I got some early feedback from our board members. And as a company, I feel like we’ve been so lucky that we’ve had really great board members and great investors. That’s true also about the early days. So back then the lead investor was Accel and it wasn’t that many months ago that they had invested in us in the Series A round. We went to the board and we were really honest about the situation. We told them what the situation was and what our proposal was. We wanted to get their feedback on it. I think they really loved the idea of getting more focused. Everybody shared the conviction that there was still so much opportunity on mobile.

Parsa: And so you made the shift to mobile. One of the core tenets of your company has always been this upside-down culture. You’ve had a belief that having small and independent teams is what leads to the highest quality work and that has stood even before you made this move to mobile. Could you talk a little bit about that?

Ilkka: I think the biggest difference between us and some of the more traditionally run companies is that in a traditional company, the vision and ultimately all of the decisions are made by the leadership, and ultimately by the CEO. And the assumption is that the leadership team and the leaders are the ones who know the best, they make the right calls, and they have the right vision. From the very early days of Supercell, we questioned these assumptions. We just don’t believe that anyone has a crystal ball in this world. It’s just impossible to know what the consumers want. We believe the best decisions are made by the game developers themselves because obviously those are the people who are closest to the product, which is games, and they’re also closest to the consumer which is the players of those games. We just believe that not only is it more motivating for the best creative people to work in this type of environment, where they are in total control of their own destiny and their games destiny, but it also results actually in a better decisions and much quicker execution.

Parsa: Sure. I think this is best brought to life with examples. Do you have any examples of games that you launched that maybe you didn’t believe in early on and the team did and you if you had that flip structure where you were in charge you may have missed an opportunity?

Ilkka: Oh sure there are many examples. It’s actually easy to just begin by stating that the two most recent games that we’ve released, Boom Beach, which was our game #3 and then Class Royale, which was our game #4, both of those two games faced very strong internal opposition. In fact, I think I remember a meeting about the Boom Beach game where I think we had all the leaders of the game teams plus myself in a room talking about the game. We had 10 people in the room and out of those 10 people, nine wanted to kill that game. The only guy who didn’t want to kill that game was the lead of Boom Beach because they still believed in the game. I remember we had this discussion at the time within that group that clearly we are at the crossroads. There are two different paths we can take. The first path is one that nine out of 10 of us think it’s a right one which is to kill this game and then do something else. And that might actually be the right business decision… but if we now do that decision, then at the same time we basically kill our culture of small and independent teams. We couldn’t possibly say that our teams are independent if we make this call. If you truly think long term, you shouldn’t care about the short term business decision, you should care about what is right for the long term and that is to sustain the culture that we so much believe in. We decided the team can do what they want. I like to quote Jeff Bezos that it is important to “disagree and commit” and I guess we did exactly that at that time. And you know the funny thing is that the exact same thing happened in the case of Clash Royale in the early days. There were very few people in the very early days of a game in the company who believed in that game. That seems to be true about a lot of the most radical innovations that happen in the market. What seems to be common about all of these very innovative products that later on become hits, is that most people don’t get them or early on, but only later on when they get to a more mature stage.

Parsa: I’m trying to think of the extremes here. Let’s say that you give a lot of power to the teams themselves and the game leads. Let’s say you spend a year working on a title and it’s not quite right, but you’ve spent a year of your time as a game lead on a title. It seems impossible to me to admit that it’s the right decision to kill a title after a year of development… blood, sweat and tears. So how do you actually get the teams to stay honest given you’ve given them so much control and so much power to ultimately make the right decision that’s best for the company?

Ilkka: Again it comes back to our culture. Our culture is a combination of independence and responsibility. Independence is the fun thing to talk about. Everybody wants to do their own thing. But responsibility is the other side of the same coin and that’s what keeps it in balance. How we define responsibility is that these teams aren’t responsible for me as CEO, but they are responsible for everybody at Supercell. And I think of this very strong sense of responsibility that keeps the team together. We want to hire people and put together teams that think Supercell first and what’s best for the company. We are so lucky to have all these amazing people who do exactly that.

Parsa: So, you’ve launched four titles in seven years. Do you ever worry that you have created too high of a bar where you might have a pretty decent title that you could launch, that could still be good for the company from a financial standpoint and you could be a game that’ll be around for many years? Do you ever worry that the bar you’ve created is too high internally? Is that something you get concerned about?

Ilkka: We actually talk about it quite a bit because one way that we could screw this up is that the bar is so high that it somehow paralyzes us, or it makes us afraid to release titles. One way to describe it would also be that makes us arrogant, too arrogant to release a title. The conclusion that you come to, is that in an ideal world, we should forget all of the previous titles we’ve done and all the previous success. Just work as we have always worked and try to not think about the results and totally let go of the outcome. Just trying to focus on your everyday work, try to build the best possible game you can. Then ship it and then you see what the results look like in the beta test markets. Yes, the bar is high because we want to keep the company small and we don’t want to become this company who releases tens of games. So from that point of view, I’m sure our bar will keep on being very high.

Parsa: And you said one thing there which was to remove yourself from the financial outcomes. You have investors and maybe they are long-term, but you still have investors and your responsibility to continue to launch titles that helps the company grow over time. Help me understand a little bit about the tension that you might have there and how you manage that. Is it picking investors who have a long- term view or investors that may not put pressure on you or is it something else?

Ilkka: No, I think it is exactly that. So, I think in every single case where we’ve raised money or have picked up a new partner, we’ve been very direct and honest what the company is about. Supercell is about our very unique culture and our very unique way of operating. We’ve been very clear all the time that if you don’t buy into this culture and the way we think about things then you shouldn’t be part of it. We’ve been very lucky to find investors who have believed in this, and they’ve also believed not only in the good times but also in the harder times.

Parsa: And you have mentioned in the past is that when you do kill titles, you do celebrate failure with champagne. Can you talk a little bit about that?

Ilkka: Well, this whole tradition started as an internal joke when we killed our first title in early 2012. It was our first mobile title that we ended up killing. By the way, when we kill titles, it is not me who makes that call. It’s always the team’s decision. We had this game team who had decided to kill their game. Back then we were a really small company, thirty-five people or so. And then we were having lunch and the lead of a team told me that they’re going to organize a quick postmortem session to share all the learnings about this killed title to everybody at the company. Of course, failing isn’t fun,  it…it just isn’t fun. You use maybe six to twelve months to a game and it’s your baby and you love it and you’re very proud of it. But then it turns out that doesn’t work out and not that many consumers love it and you have to kill it. We aren’t really celebrating the failure itself. What we want to celebrate are all of those learnings that come from those most failures.

Parsa: And you’ve noted this here and there. You’ve given up a lot of control to the rest of the team and you’ve actually quoted yourself as being the industry’s least powerful CEO, which is to me, really interesting positioning. Why do you say that? I know you’re giving power to the rest of the team, but have you found that to be helpful or has it hurt you in any way? What do you see as your role at the company in terms of your day to day and what you spend your time on?

Ilkka: I use that phrase to describe how I think ideally how Supercell should work. And I’m not sure if I, if I’m yet the industry’s least powerful CEO, but that certainly is the goal. What I mean by that is that I’m happiest when our game teams make most of the decisions. So, the more decisions the teams or the cells make, and the less I make, the better it is for the company. That means that the decisions are made closest to the game, closest to the consumer, and we also make these very fast decisions because the teams are making them on their own. So, I would be afraid that if it’s me who was making these calls, then all of a sudden the responsibility of those decisions shifts from the team to myself. And I don’t want that to happen. So, in an ideal world, teams would make all the decisions and that would then, in turn, make me the least powerful CEO. That’s why I use this phrase. And that’s, that certainly is a goal of mine.

Parsa: I want to just spend a bit of time talking about your international strategy. It seems like Supercell has always had a core competency around international. I don’t know if it’s a Helsinki or Finland thing, but I’m curious what lessons do you have for other founders that are thinking about launching internationally? What lessons you have around that being a strategy in the near-term versus the long- term?

Ilkka: Actually that type of thinking, it comes very naturally when you come from Helsinki and Finland. We are a very small country. There really isn’t such an option to focus on Finland or in the neighboring countries. These markets are simply too small so the only viable strategy actually is to go global from day one. That is something that is an advantage for companies that come from these smaller countries because naturally, you think global from day one. That has always been the case, and that’s probably the case in almost every single startup that comes from this place of the world. I actually understand that if you come from a big market like the US or China where your local market is so big that makes sense to first focus on that and then think about international later on.

Parsa: You were successful launching into a couple markets that are known as “The Great Graveyard for Western gaming companies” and IP in general, and that’s Japan and Korea, and you mentioned China. What are some lessons that you can share around your successful launch into those markets? It’s not easy to do but I think Supercell is regarded as the case study of how to do it very well.

Ilkka: I think that one of the best pieces of advice that we’ve ever gotten about expanding to those markets, is that while of course all of these markets are very, very different to what we are used to, and it is important to provide local service due to a lot of local consumers, you shouldn’t try to compete with the local companies by trying to be more local than they are. Somebody told me very early on to never change the soul of your product or your game. Your game is what it is. Be proud of it and instead of thinking about it as a disadvantage or weakness, think about it as a source of strength. That is what ultimately makes it different. I think our approach in these Eastern markets like China, Korea, Japan has been to stay true to what the game is about in its heart and soul, but then localize everything around it. Really take care of every single detail no matter how small. So we put a lot of effort in making sure the text is localized, the marketing feels local. While it is important to maintain the Supercell brand when we market our games, we want to provide the local consumers a local flavor of that brand. Obviously, we provide great customer service in their local language and do all of these things that are local. But maybe the thing that we had done differently that we are still very proud of where they come from, is that the game is different and we try to think about that as an advantage rather than a disadvantage.

Parsa: It’s so impressive to be able to do all this and still have a company that’s only two-hundred-fifty employees. There are a lot of other companies out there that have been in the gaming space that have blown up to a thousand, two thousand plus employees. But it’s incredibly impressive. So, if you were to start a gaming company today versus 2011 when you started it at the beginning of the shift to mobile… acquisition costs are much higher than they’ve ever been, distribution is much tougher. What advice would you have to new gaming developers that are starting a company? Or another way to ask it is if you were to build a Supercell from scratch today what would you do?

Ilkka: A few things. One, I would try to put together the best possible team as we did with Supercell. Two, I would try to build something that is very different, something that doesn’t exist in the market. So, do not to look in the current charts or in the rearview mirror. Don’t think about what has worked before, rather try to think ahead and just be bold and take risks and build something that no one has built before.

Parsa: What’s been the hardest thing about managing Supercell through hyper-growth? You went through a number of phases of hyper-growth, but what has been the hardest thing about just managing that growth?

Ilkka: I think the hardest thing about managing that growth has been keeping and staying true to your core values. For us, one of those most important values was to try to keep the company small as possible and to keep the culture of independence and responsibility. That’s a very different way of working. And then also trying to stay focused during that hyper-growth phase. In our case, it meant that we had to be 100% focused on games because we are a games company first and foremost and games is our DNA. So rather than getting too excited about all the other opportunities that all of a sudden came around, we had to be focused on trying to create the best possible game experience for our players.

Parsa: We hear a lot about Softbank in the news today. Softbank was one of your investors a number of years ago and now Tencent. Could you just talk about how it’s been to work with both of those firms and your relationship with them?

Ilkka: Well, it’s been great like in both cases. What’s common about both of these companies as partners is that they really trust the people that they invest into. In both of those cases, why we took them on board in the first place was that they really believed in our vision and more than anything they believed in the culture. They were open before the deal that the most important thing for us in the deal was to remain independent. That was very true with SoftBank and it has been very true with Tencent as well. They understand the value of our culture and how important it is for us to feel that we are completely independent. And at the same time, of course, what has been great about Tencent is that if we ever need advice or a second opinion or something or help on anything, they are always very eager to give it.

Parsa: Where do you see Supercell in in five to 10 years and what are your broader goals for the company?

Ilkka: If you think about why we founded Supercell in the first place, one way to describe that was that we wanted Supercell to be the best place for the best game teams and the best people to build the best games. I think about how we get to that goal and how we get even better teams inside of Supercell. How do we make the environment even better for them so that they can focus on creating the best possible games? And that is really what I’m personally focused on. And I believe that if we manage to do that as a company and obviously if we get lucky as we have been so far, we have a chance to get to our ultimate goal which is to create games that people would play for years and years and years. Essentially games that would be remembered forever and that would become part of the history of games and maybe even the history of pop culture in a broader sense. And of course, it’s still a very long way to get there, but that’s what I dream of. As I said, the company that I’ve always looked up to is Nintendo. I grew up playing their games. I remember when I was a very young kid I was playing Super Mario and last week I was playing Mario Kart with my kids, decades later. Wouldn’t it be cool if we from Supercell could release those types of games where somebody was playing a form of Clash of Clans for example, in ten years time.

Parsa: It’s been impressive the longevity of these titles and the brand that you built and the amazing company that you’ve put together. We wish you the best as you continue to grow this business. Thank you so much for joining us today. It was a pleasure to have you on the show and we’ll talk to you soon.

Ilkka: Thank you Parsa, I enjoyed it.

Narrator: Thank you for listening to IVP’s Hyper-Growth Podcast. You can learn more about us on IVP.com or join the conversation on Twitter by tweeting @IVP.