Creative Mobile : A Real Estonian Success StorySome of our readers have said we are too negative, and we only focus on failures. Our response to that is if you want to read only positive articles, you can go to just about every other media outlet covering the Estonian startup scene. They seem to blindly herald any minor positive news from an Estonian company as a true triumph, and discreetly ignore any failures.
It is a fair criticism, though, to say that we've never really explained what companies we think are good, and why. We have been following Creative Mobile for a while, and we think they are a great example of a true Estonian success story.
The Story of Creative MobileCreative Mobile is a mobile game development company that was started in 2010 by Vladimir Funtikov, Sergei Panfilov and Serhiy Slyeptsov. Funtikov, the CEO, was 23 years old at the time of the company's founding, and is a college dropout from Tallinn Technical University, where he studied after moving to Tallinn from Narva.
Their success is clear. Their apps have received over 100 million downloads, and in the first half of 2012, the company had revenues of 4.2 million euros, and a profit of 3.4 million euros during that same period. That's an impressive profit margin, to say the least.
The company is based in Tallinn, and has grown from 5 employees to over 70 employees. So far, they plan to remain in Estonia and not move abroad like many other Estonian startups.
About their success, in January 2012, Funtikov said:
“Our financial situation is very, very healthy, largely thanks to Drag Racing being among the top 5-10 highest grossing games on Android throughout the second half of the year , and successful launch on iOS. Not only do we remain 100% self-funded, but we're also investing and actively looking for companies we can work with as investors and publishers.”
What They DidWe really like this company. They achieved success through hard work, and producing a quality product that consumers are willing to pay for. From the research we've done, it appears the company has a true startup culture in terms of eschewing hierarchies and rigid management policies.
They also understood the importance of metrics, and using that to guide product development and market strategy.
Finally, and we think this is really important: they worked a lot. Their people weren't working 8-hour days and clocking out at 5pm on the dot. To some, working hard seems like a no-brainer, but walk into the offices of some of the incubators in Tallinn, and it's sad to see it's a ghost town at 5pm.
What They Didn't DoWe also like what they didn't do. As far as we can tell, they did not take any money from EAS. It's actually a complicated process to get money from EAS, involving writing lengthy proposals and filling out numerous forms. The proposal process is so complicated in some cases that EAS has a list of companies that will help you write the proposal, and EAS will even pay for it!
That's a story for another day, but the point here is that instead of spending lots of time dealing with EAS, they just focused on what matters -- producing their product.
We also noticed they were not regulars at the various startup networking events that occur in Tallinn every few days. When we advise startup companies, we encourage them to cut back on attending these events. There's nothing wrong these events necessarily, but it's usually the same people there every time, and that takes away from valuable time when they could be working on their product.
Shunned by Estonian Startup Scene?What really fascinates us is how this company was virtually ignored by the Estonian media and startup cheerleaders, until they had achieved really great success. Almost all coverage about the company started in late 2012. We could find only two articles from before that, both written in January 2012, one in Eesti Ekspress (the article title starts with "Local Russian firm") and the other in the Arctic Startup blog. Meanwhile, the company was profiled by a foreign blog already in April 2011 back when it was only 5 people.
Äripäev, Estonia's main business daily, did not even mention the company until July 2012, and wrote a feature about them only in August 2012.
Looking at the Twitter feed of Estonia's president, we see similar treatment. We found only one tweet from him since his account was created mentioning Creative Mobile:
Meanwhile, we found 8 tweets from him mentioning TransferWise, which is a UK-based company founded by Estonians:
Why was this company largely ignored by the Estonian media and thought leaders? Our theory is that they didn't fit the usual mold for a typical Estonian startup. They didn't go to the startup events, they didn't take EAS money, they didn't join an incubator, and they are Russian-speaking Estonians. The conspiracy theorists among us would say the last item is the main reason they were ignored, but the optimists among us hope that's not really the case.
Regardless, we can't quite fathom why a company that is clearly a great success isn't getting the recognition they have earned.
Challenges AheadDespite this success, like any company, Creative Mobile faces challenges in the future.
The game industry is highly competitive, but it also has some unique attributes that makes it even more difficult to be successful. Unlike many industries where there may be a long tail for market share, with games usually you have to be a top hit, or you fail miserably. There's no middle ground.
There are a few reasons for this. One reason is user app download behavior. If your game is not in the top list on the app store (it's "below the fold" in newspaper terms), then the download rate drops dramatically. Another reason is that many games suffer from (or utilize) the network effect, so a game is only fun if everyone else is playing it also (social network and dating sites have the same issue). Finally, game players are just plain fickle, and what was fun last year may no longer be fun for them this year.
The data bears this out. Here is data showing Creative Mobile's gross revenue rank over time for the Nitro Nation Drag Racing iPhone app in the US market (they have stated the US is their largest market):
Note that the vast majority of their users are using the Android, not iOS version of their app, but we suspect the trend is similar, and it's common. User interest (and spending) in most games declines over time. Remember Words with Friends (or Tetris, for the older crowd)? People just got bored of them.
Their newest game (Drag Racing), released just a few months ago, shows a similar trend:
Looking at data on the top game publishers, by both downloads and revenue, Creative Mobile does not appear on the list.
It's just a highly competitive industry (and it's also why we think all the Gamefounders startups will fail -- more on that another time). So how can this problem be addressed?
One option is to release more apps, so there are more opportunities to acquire customers, and even better if the app focuses on a slightly different market (like a card game instead of a driving game).
Another option is to reduce up-front risk by being paid to develop an app, or publishing and marketing an app someone else wrote.
What did Creative Mobile do? They did both. No wonder we like them!
They released a card game and an arcade game, and then they released a game produced by another game developer (A-Steroids).
That, dear readers, is how to run a successful Estonian startup.