Creative Mobile : A Real Estonian Success Story
Some 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 Mobile
Creative 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 [2011], 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 Did
We 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 Do
We 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 Ahead
Despite 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.
Bang on!
ReplyDeleteThe argument of Creative Media being "virtually ignored by the Estonian media" until they reported significant results rests on the idea of the media being an "all-seeing eye" that reports objectively on all issues and has the ability to foresee the future in their attempts to balance their coverage.
ReplyDeleteThe easy answer to the paranoid question is probably twofold: 1) they weren't reported on before because there was nothing to report on, 2) they did not engage with the media proactively themselves. There are a lot of companies in the world that don't get what you would call a "fair coverage", because the world is everything else but fair and the media, I'm sorry to report, is a priori biased.
It looks like a big article was written about them in August by Aripaev, so people would have definitely heard about them by then. Where were all the tweets of praise for them?
DeleteMeanwhile, Click & Grow runs a kickstarter campaign last week and it seems like that's getting written about every few hours.
It's no secret that many Estonians dislike their own Russian population.
DeleteYou generally don't praise the success stories of people you barely tolerate.
If you ask me, looking at how little we did to encourage media coverage, what we received is more than adequate. Unlike C&G, we didn't need investments, and therefore didn't work with the media. In fact, we're comfortable with keeping a low profile. I only wish we could tell more about the really interesting aspects of the mobile gaming business, what's coming next, and so on, but most journalists are more interested in irrelevant personal details and "ohmygosh look at the money they're making!".
DeleteAnd to be fair, we were named startup of the year a few months ago.
"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."
ReplyDeleteMaybe people are just underpaid? Being motivated with empty stomach is not easy, you know. What is the average wage in Estonia? 700-800 EUR? Minimum wage? 300 EUR? What is the salary in startup? 1200-1500 EUR? What is the cost of life? Almost the same as in western european countries. Maybe it is just easier to work for couple of years somehow until 5pm, build cv and leave to places with higher salaries and better weather conditions where you do not have to pay for heating... or what is your suggestion? To be a patriot working 12-15 hours per day in startup for "food from McDonalds" and hope that you will be lucky enough to build something you can sell to investors from abroad and get almost nothing, because startup owners will get all the money and buy new houses and polished cars?
At least at the incubators, all the employees there are probably the founders, so it's not a question of salaries.
DeleteIf they are all founders in startup then they probably have too much money to be motivated and stay after 5pm.
DeleteIf there are some founders then people who are not founders in startup have too little money to be motivated and stay after 5pm.
This is the viewpoint that leads to people leaving at 5pm and startups failing. Salaries are often 0 in a startup situation because people are trying to build a company not do a job. If your primary incentive is money being in a start up is not for you. It has nothing to do with being a patriot nor hourly wage, it's building a product you believe in.
DeleteHow the fact that people are leaving at 5pm correlate with startup failing? Do you have statistics on it (average time when people leave from the office versus probability that startup will fail)? Maybe they come at 5am and leave at 5pm plus write code at nights instead of sleeping?
DeleteYour point is understandable, but if people have 0 salaries then they probably have enough money for life and they just build startups for pleasure. If it is so then their pet startup failure risk is low. If they have enough money and no risk then what is their motivation? Just pleasure? Are you sure that is it enough? What about luck, chance, right time for startup, amount of happiness in the country, weather, amount of happy faces around?
You know, I'm afraid that it is totally wrong to measure the amount of time people overwork in the evening to judge the startup. There should me other factors.
What's this fixation about Estonians being underpaid?
DeleteIs there some inherent reason why Estonians should earn more than a Filipino?
Because in his country Filipino can live on 300 EUR without any problems, while in Estonia people usually pay around 300 EUR only for their appartment utilities. Live cost is high, prices are close to developed EU neighbours, but salaries are 4-5 times lower. Instead of working hard developing their own economy up to EU standards and then entering EU, forced by propaganda and fears they first entered EU naively assuming that it will make their economy stronger, protect from "angry Russia" and investors will be queuing next to their borders. As a result many key companies and banks were captured by more stronger neighbours and investors just needed low cost workforce. So what are next steps? I can tell you, it is easy solution. Estonians themselves will be blamed for their low salaries "cause they don't work enough". Politicans will never take responsibility for wrong decisions.
DeleteAnonymous - salaries in Estonia are not 4-5 times lower than in Finland or in Sweden. It's not uncommon that IT specialists (not managers) get 2000€/month as gross salary in Estonia. You will have hard time finding masses of specialists in similar positions in Finland or in Sweden with salaries over 6000€. Yes, that's a lot more that in Estonia, but after taxes the ratio is more like 1:2 or 1:2.5.
DeleteThe ratio has changed dramatically over the past years and - as competitiveness of Estonian companies goes up - it will continue changing. This kind of changes take time, everywhere. Even if you look at the most iconic success stories of growing economies, changes haven't happened overnight.
What's important is - nowadays IT people in Estonia have quite good standard of living. They don't get rich, but they shouldn't try to make their lives look miserable either.
In general, Estonians too often think "first you pay, then I work hard". That's not how it works. First there has to be money to pay - for that hard work is needed. If the company tries to exploit the employee by not paying fair salary, the employee is likely to leave for another company. The logic is: if the company is unfair, it's likely there is high turnover of people. The people that leave - obviously - join companies that are hiring. In the new company, they either remember a hard-working colleague who should be attracted to a better company - OR, they remember a lazy co-worker who was complaining about low salary. Too often Estonians belong to the latter category.
I doubt the average Estonian pays 300 euros in utilities. And if he does and can't afford it, get a roommate or move somewhere smaller.
DeleteEstonian men seem to think they "deserve" everything a Western European has, just because they're in the EU. Reality check: you don't.
The initial question was about Estonians being underpaid, not about "IT Estonians working in a few more or less successsful estonian IT companies" being underpaid. "Official" average salary in Estonia is around 800 EUR, which is 4-5 times lower than in Finland or in Sweden. Nobody is talking about IT specialists yet. IT specialists is not a dominant workforce, they are just small fraction. Yes, they earn more, but only compared to other underpaid specialities. But even IT specialists are underpaid. You said that you can get 2000 EUR net per month. What is the percentage of IT specialists earning more than 2000 EUR net? What is the average salary for IT specialists? I strongly believe that average is less than 2000 EUR. Let's assume that average is 1500-1600 EUR net per month. It is still a way less than you can earn in western EU countries with the same qualification, so we come to the same conclusion - investors like Estonia, because of its cheap, lawlessness and still more educated (compared to India or China) workforce. Soviet era politicians and their electorate just chosen the way, which just will not put the country even close to its neighbours, because you need to own to be successful, but not to work for someone.
DeleteAnonymous,
DeleteAs the blog is about ".ee bubble" and this post mentioned "ghost incubator offices [at 5pm]" - which prompted the discussion about salaries - I think it's fairly irrelevant how much hairdressers, teachers and members of parliament earn. Therefore, comparing averages of the whole populations doesn't make a lot of sense. And even if it did, your 1:4-5 figure is still wrong. The average gross salary in Sweden and in Finland is quite precisely 3000 EUR / month while in Estonia it's 900 EUR / month (according to Statistics Estonia). After taxes the difference is smaller.
BTW, I didn't write about 2000 EUR / month NET but GROSS.
You are putting a lot of blame on politicians - what should they do? Increase salaries through a law or what? Do you think that would help Estonia to become more competitive? Please elaborate.
The bottom line is - there are differences in salaries in different countries. The same goes for all professions. Still, it doesn't mean you are underpaid even if you would get better salary for the same job somewhere else. Otherwise 90+% of labor would be constantly underpaid.
"You are putting a lot of blame on politicians - what should they do? Increase salaries through a law or what? Do you think that would help Estonia to become more competitive? Please elaborate."
DeleteJay, I did not write about salary increase. I was writing about facts. That's a current situation in Estonia, whether you like it or not. I understand your optimistic point of view. But, look, this bubble is just a consequence of other factors, including overall economic situation (less smartasses, less motivation, less investors, less free money for startups (money are just pumped out by foreign banks as interests)). And one of the main reasons - wrong decisions made by inexperienced "rehabilitated" soviet politicians, who were promoted by the inexpericed business grown on dirty money from 90th and who were elected by their electorate, who were fooled by dreamlike promises about better life and some other dirty tricks. What politicians should do? Nothing. Because to do something they should have a wish and they should have choices from which to pick the best one, but there are no choices and what is worse is that nobody is taking any responsibilities and nobody is looking for these choices. Instead, ship is moving somewhere controlled by someone and people are just living fooled in social darwinism society with dramlike promises and wishes.
A startup is not a job. It's an adventure that's driven by compulsive passion. Keep your day job and startup work from 5pm to till 2am as needed with a group of similar individuals to try it out after work. If your startup is in an incubator, and its your only job, then u should be hammering through to get to min viable product,service, and try practicing selling to customers daily. If you think early startups = salary, then your are living inside the bubble.
ReplyDeleteIf startup is an adventure then people who want to participate should invest their own money and time (they are driven by compulsive passion, right) or find private investors, they should not use money from various EU funds, especially if these funds include money from taxpayers. Money from these funds should be used for low risk projects with high guaranteed ROI or for infrastructure development.
DeleteAnonymous,
DeleteEntrepreneurs rarely spit on money - the ones who do, they normally fail. If money is made available for start-ups with good enough terms, for sure the start-ups will take it. If they don't, maybe their competitors will. In my opinion taxpayers' money should not be used for this kind of projects, therefore the funds should be closed immediately. They just tweak competition and distract entrepreneurs.
Your idea of using taxpayers' money for "low risk projects with high guaranteed ROI" is a bit funny. If such projects exist (low risk AND high guaranteed ROI), they most certainly attract private money - and there's no need to use taxpayers' money.
Infrastructure development is fair use of taxpayers' money. The 100MEUR poured to Baltic innovation funds should certainly be used to improve the infrastructure - or, returned to taxpayers.
A startup is about starting up with what you have. Usually bootstrapped time, money, resources to bring a new type of value to your customer. If you can not figure out that value, then its likely too early to ask for money. Easy option is to startup with what you got, vs sitting down indefinitely waiting for an investment based on good ideas. The ability to execute with or without investment is what differentiates the winners from loosers. If a company can't be serious and execute without money, then adding money never helps them overcome the incompetence. Would you rather invest in a company thats made its first sale or one still in an indefinite search of providing customer value.
ReplyDeleteYes, I fully share this view - what comes to software start-ups. There are areas (like banking) where you can't start a company with pocket money, but fortunately software requires minimal initial investments. If the planned software can't be simplified to get it started small, the idea is most probably just too ambitious for a start-up.
DeleteToo many start-ups (not only Estonian, but also Estonian) have no history turning small investment into profit - and still they are seeking big investment and promising to turn it into profit. If somebody can't drive a car, would you give him a jet plane to train with?
Actually I saw also other successful companies, run by Russians, ignored by media. And also in general I have experience of Russians being more hardworking, flexible and inventive, while Estonians prefer workplace in banking & finance strictly until 4:30 PM and coffe machine nearby.
ReplyDeleteP.S. I am foreigner, not Russian, and not skewed in favour of them at any cost.
Said that, I believe your point is correct.