Supercell CEO Ilkka Paananen: "Europe doesn't need to become Silicon Valley"

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0:30in Helsinki, Shanghai, San Francisco, Seoul and London, where we're recording this episode today. More than 300 million people play its games every month, and last year it hit a record 3 billion euros in revenue. But it's still very much creating new games, sometimes slowly and always highly selectively, and I feel like its approach could offer some interesting lessons on product development for startups in all sectors, which I'm going to quiz Ilka on in the podcast today. Ilka also set up Ellusian, a family office which invests his money along with that of other successful founders and operators of companies like Zalando, Walt and Pigment into the next generation of European founders.

1:09Ilka, welcome to the show. Thanks for having me. Thank you for hosting us in your lovely London office where we are all wearing slippers or socks in the Finnish way. How much time do you tend to spend here? Well, you know, London is one of my favourite cities actually in the world so I wish I could spend even more time but you come like at least a few times a year and probably like more often now that we actually have an official in office here yeah and so gaming isn't something we talk about that much at Sifted but it's actually a pretty huge industry in Europe isn't it no it is a huge industry and it's actually one of these sort of industries where Europe actually is leading globally like especially if you look at mobile games you know they've had some like really amazing companies being created out of Europe so So I think we can be very proud as Europeans about the games industry we have.

1:56And I mentioned that you have quite an interesting approach to developing games at Supercell. Can you talk us through just how does it work? How does your team come up with new ideas? How do they develop them? What is that process like? Well, I think, you know, I start from the very foundation of the company. Supercell basically consists of these small and independent teams that we call cells. And the way to think about these cells is that they're their own independent startups within a greater company. And, you know, for us, like we, one of our core principles is that we never ever tell ourselves like what to do.

2:31So basically we sell can, you know, decide on their own what type of game they're going to create. So therefore, like, you know, we actually don't sort of green light game ideas at all. What we do green light is the teams. So we have the entire focus of the kind of leadership is on the teams. And we see that it's our mission is to create the best possible teams and then also create a culture where those teams can have the biggest possible impact. But it's a very, very team-centric approach. I imagine then hiring is super important for you. What are the kind of most important attributes to it? I think you call them super salient.

3:08Well, I think it has to start from the level of ambition. So that has to be super, super high. We are all about creating the best gaming experience for our players. and then you know i mean game an essential part of games is like risk taking and with that risk taking also comes failure by by definition so you sort of have to be this you know person who has a very high bar you know a very high level of ambition has big and bold dreams and and you can't be afraid of failing because you know failure is an everyday thing at supercell so so some people can be working on games for what years before they go live how do you manage that and make sure you know you get the right balance between people I guess not wasting time but also not just you know publishing like sending out a game just because people have been working on it so long that you kind of got to get it live at some point well first of all like you we sort of we put games live only when the team feels that they're ready and they are like great and then I think the other thing is that we actually don't think these failures as like you know failures as such or even like waste of time rather we think them as they're great opportunities for us to learn so it's almost like you know when you can do research you have a hypothesis and that hypothesis is either true or false but there's no like you know sort of sense of failure as such i mean whether it's true or false it actually doesn't matter in every case you've learned something new and then you can like go on and is there a kind of company is there like a repository of all this knowledge how do you kind of take those learnings of those failures and feed it back into the whole company to make everyone better well we have this sort of a sort of a tradition that it started as an as an almost like an internal joke like back then they kind of killed our first game and and what they basically do is that they sort of celebrate these failures like we've actually we throw these champagne parties around them so we try to make it you know as safe as possible to fail and and of course you know we are not here trying to pretend that failing is fun because it's not like imagine you know a game team has you know poured their heart and souls for a game you know for in many cases for years and then it turns out at the end that okay this game just you know doesn't attract like you know big enough audience and and all that despite the best effort So it's not fun, of course.

5:32But, you know, what we do feel is worth celebrating are those learnings that come sort of from that failure. And literally what we do is that, you know, when game gets killed, you know, we get the whole company together. And, you know, like the team gets up on the stage and they talk about the project, you know, what went right, what went wrong, what did we learn? And yes, we do celebrate those learnings, you know, hosting the champagne. Is SuperSau an in-the-office kind of company, or is it people work wherever they like? Well, it maybe a little bit depends on the office, especially like the office in Helsinki is very much, say, office-first culture.

6:08And then in these other offices, it a little bit depends. You know, we do believe that there's a lot of value in people spending time together physically in the same place. But at the same time, we want to, you know, again, like we are very team-centric culture. So we actually do give a lot of freedom for the teams to decide what works for them. And ultimately, what we care about is the quality of the games. And whatever kind of works for the team and whatever they think results in the best possible game, that's what they should do. And so you've mentioned how these teams work really pretty independently.

6:43What is your role as CEO, as a leader of this company then? What are the decisions that you need to make and where are you very comfortable to kind of let your teams decide things, plow their own path? Well, you know, as a leadership team, we see that it's our mission to make sure that Supercell has the very best teams in the world. And then the second thing is that these teams can operate in a great culture that's best for these teams. And again, as I said, like in a culture where these teams can have the biggest possible impact. And what does it mean? Well, it means that the culture is all about this high level of ambition.

7:20It's about risk taking, you know, and well understanding that when you take these big, bold risks, like oftentimes you fail. And, you know, those type of things. But it really is about those two things. So making sure that you have the best teams operating in the best culture. And then maybe more on the more tactical level, of course, you know, there are certain questions that or decisions that an individual team just can't make because it impacts like every other team at that supercell. So there are like certain like company level decisions, you know, related to like, say, you know, resourcing, prioritization, those type of things that then they end up on leadership teams.

7:56But even there, our philosophy is that it's not necessarily that the leadership team or myself that we make the final call. It's just our responsibility to make sure that the decision gets made. Makes sense. And you've been critical in the past of how some other games companies have given up on developing new games themselves and instead are choosing to acquire already successful games from other studios. Why do you think that's a problem? you know of course i can only speak for ourselves but at least to me like a key part of a games company and its culture and its dna is creation of of new games i mean you know it's just an essential part of that business and obviously like equally important it's to you know make your existing games better because obviously these days games are services you know that people play for years and years so of course you have to make those better for your players but at the same time you know have to i believe that it's hugely important to be able to also like constantly try to create new games like no matter how hard it is and it's super hard you know these days in in the current current market but you know we and for that reason you know we've decided to actually increase our investment to new games so if i look at the amount of new people we've hired who work on on new games it has like increased a lot in the last two three years you know we've like created new initiatives like spark which is our kind of new game team lab or we can incubate new game teams etc etc so there's a lot of initiatives going on at supercell about new games and i frankly like what i believe that this industry needs to to kick itself to a new sort of growth phase is actually like new innovation and you know that new innovation will just you know every company in our industry should focus on also on creating new because That's the only way we'll kind of grow the pie for everybody.

9:49How does the Spark program work? Can you tell us a bit more about that? Sure. So it's this relatively new initiative. So the core idea is that we are trying to be the best company in the world in the creation of new game teams. So this is not the kind of prototype lab for the games themselves. It really is a lab to create the best teams. So basically what happens is that, you know, you can apply it to the Spark program. whether you work for Supercell and if you don't. So it's open for both internal and external applicants. And then the people who get accepted, we sort of form teams of those people and we try different type of team compositions.

10:29We even have a kind of professional kind of a sport psychologist like helping us in that process. And these teams then like how we can assess them is that they, you know, do these quick sprints and develop the games that want to develop. But the point is, again, it's not to assess those games. themselves. It's about like assess the teams. And then at the end of that program, you know, some teams get greenlit and then they off they go. So then they can, you know, create, you know, whatever game they want. What are some of the interesting things you've learned from that about what makes teams gel and work together well and what makes teams not a good fit?

11:05Well, like I think one of these learnings, which might be even counterintuitive, is that, you know like the more diversity there is in a team like to certain extent it can be incredibly valuable and what i mean by that is that you know when there are people who don't think similarly you know they have like different points of view to something it's incredibly valuable because then usually you you end up in a better decisions because you just have more more sort of viewpoints and more data like you know before you make that that call but then equally important is that despite those differing views which sometimes can be argued quite like strongly within the team despite those differing views you know ultimately when the decision is made and you know they're gonna are set on a certain direction when everybody like commits to that direction and we have this saying that the i think amazon introduced it but you know we also like believe in it that it's gonna disagree but commit and that's that's that's the other part that it's so important.

12:06But that's maybe one learning. You mentioned it's maybe harder than ever to create new games. Why is that? Well, I think there's two reasons why. The first one is that most people have actually kind of found the game that they love to play. So I was just looking at this research a while ago, which said that something along the lines of that, if you look at all the playtime from last year, 60 % of that playtime was used on games that were developed six years ago or before that. And only I think 10 % of the playtime was used on the games that were developed like the previous year. And it's of course, I have mixed feelings about it because of course, on one hand, Supercell is very lucky because many of our games actually are part of that club.

12:54So these games that people continue to play for years and years. but at the same time of course it makes it harder to even for us to to introduce new games to the market and then the other thing is that and you know the competition for people's free time it's a lot tougher than it used to be say 10 years ago so you know there's obviously we are competing with all forms of social media you know video streaming audio streaming and those type of things so you know and but that's a good thing i mean i i actually welcome the challenge and it's It's sort of fascinating to work in an environment like this.

13:28Yeah, so your maybe best-known game is Clash of Clans. How important is that still to the company in terms of the revenue it generates? We've been lucky in a way that, you know, like over the last 15 years, we've developed these five blockbuster games and each of them have created more than a billion euros and way more than a billion euros during their lifetime. So, you know, and Clash of Clans, of course, is one of those games. So it's still hugely important to us. And, you know, we have a massive audience playing that game. And many of those people and players have played the game for years and years.

14:03And we actually think that, you know, the best days of Clash of Clans are still ahead. So, you know, the team has a super ambitious plan about the direction that they want to develop the game. How do you balance developing a game with keeping it, I guess, similar enough that the long time players don't get upset that it's, you know, changed? Well, that's a fantastic question. And that, of course, is what makes this tricky. So on one hand, you want to give the players more of what they already love. But at the same time, if and when our mission is to create these games that would be played for years and years and that would be remembered forever, for us to reach that dream, of course, there has to be also something new to the game.

14:46But I guess it's sort of a balance and you have to do both. And that is actually what makes running and developing and growing these live games so difficult, but also so exciting. This podcast is brought to you by HSBC Innovation Banking. As the bank for the innovation economy, HSBC Innovation Banking understands the unique challenges of the tech and life sciences startup journey, as well as what you need to meet those big milestones and get you to the next stage. with a relationship management team who know your sector at your side, international connections at your fingertips, and a wealth of tools at your disposal.

15:23HSBC Innovation Banking is here to help power your growth and connect you with what's next. To find out more, head to hsbcinnovationbanking.com. What impact is AI or generative AI having on gaming? I'm very optimistic about it, and I'm excited about the possibilities. And the way we think about AI is that, first of all, we absolutely believe that even in the future, humans will be the ones directing game development and directing the game direction and design and what's the vision for the game and all this kind of creativity. So I just want to make that clear. But then what AI can do, and particularly how AI can help smaller teams, and we have many small teams at Supercell, we believe that AI can give these people superpowers, meaning that they can actually do more and better for the players.

16:17So that's what we're sort of excited about. But the other thing that we are excited about is that, you know, we've been, you know, prototyping and thinking that what type of new gameplay might AI enable. And, you know, obviously don't really have answers yet, but at some point somebody's going to invent a game that wasn't possible to develop before the age of AI. Is that something teams are actively looking into at the moment? Oh, for sure. And again, like at Supercell, like how things work, you know, they don't work in a way that I would, for example, people keep this top-down order, like, okay, now everybody has to become, you know, AI expert and everybody has to use AI and you will be like evaluated against like whether you used AI or not.

16:58So that's not in our culture. You know, we are very, very team-centric culture. And again, like, you know, we want to like enable teams to do like what they want to do with AI. And, you know, and again, you know, it depends on a team. Like for certain teams, using AI on certain things makes sense and for others, maybe not. And again, it's just completely trust the teams to know what's the best thing to do for the team and what's the best thing to do for the game that they work on. What are some of the ways you think, like how might a Gen.AI game, what might that look like for anyone listening to this?

17:32Like help them, what could that be like? Well, I guess the obvious thing is that, you know, AI makes creation of content like a lot more efficient and faster. And ideally, we could also like create better content. So all the games companies who run games as live services, they're being constrained about the amount of content that they can create for their players. So in theory, that should constrain, over time, should go away. So there could be an endless amount of great content for the players. So that could be one direction. And you could imagine a game that, for example, if you have a narrative-based game, it's about story, almost like an endless story that in some ways is created by AI.

18:14But there's a lot of possibilities, I'm sure, that, you know, like, you know, give us five years and then we'll be looking back at that moment and, you know, somebody has invented something completely new that we couldn't even think about right now. Fascinating. You've also set up, I mean, we mentioned the Spark program, but you've also set up a kind of VC arm within Supercell to invest in other games studios and teams. Is that primarily to kind of keep tabs on amazing talent or is it to get new ideas? Might you acquire some of those companies? What's the kind of motivation behind it? It's actually all of those things.

18:46And I guess like the guiding principle for us is that we want to invest to teams that somehow inspire us. And oftentimes it means that they're doing like something completely different, like something that we wouldn't even think about doing. And ideally, they would also go about it in a very different way. And the whole point is that, you know, whether that investment is sort of successful from a financial perspective, that maybe isn't even the most important thing. The most important thing is that they get to work with some other amazing game creators and, of course, can be part of their journey and support them on the way.

19:22And, of course, then we also learn as a result. and supercells raised venture funding itself from some very well-known investors like excel index softbank which took a majority stake in the business in 2013 and then sold its shares to chinese tech company tencent in 2016 what impact did that have on how you run the company well you know we've we've been like super lucky from the from the start we've always had fantastic investors who like trusted you know us to like run the run the company like completely independently And, you know, like none of that has changed. So back in the day, then we sold 51 % of the company to SoftBank.

20:01You know, one of the key parts of the deal that we agreed with Masabi founder of SoftBank was that, you know, that we could keep our like operational independence. And then in 2016, when Tencent acquired SoftBank shares, you know, that arrangement continued as is. So we are still, even if Tencent owns the majority of the company, we're still operationally independent. So it actually hasn't had any impact on how we do things. And why did you decide to do that? Why did you decide to, you know, give away the majority shareholding to an investor? What did that enable you to do? Or why was that the right time for that to happen then?

20:38Well, I think we sort of got quite lucky, you know, back in the day with SoftBank. because we wanted to and we still want to create this company that would last for decades and decades and decades. And then I spoke to Massa, the founder of SoftBank, about that vision. And he obviously has also a very long-term view, and it sort of resonated with him. And we thought that, okay, this is a great sort of long-term partner for us. And that same thing has sort of continued with Tencent. Because I think especially when you're in the games business, You really have to have this long-term view. You have to be super patient about things.

21:17Because, you know, games industries, it's full of, like, ups and downs. And it's hard to predict the industry. So you have to be, like, very, very focused on long-term and just creating the best possible games. Do you know if he plays any Supercell games? Well, I know for sure that the current leadership team and our board at Tencent, they play a lot of games. And they play a lot of, like, Supercell games. Actually, it's a funny story, but back in the day when they did the deal with Tencent, you know, their president actually was one of the global top players of Clash Royale. Amazing. And why do you think it is that more VCs don't invest into games?

21:54Like, why is it a kind of, it feels to me like a slightly maybe periphery sector for a lot of VCs, like it's not a core one that lots of them think about? Well, it's probably not the easiest space to invest in. And I'm not saying that there would be other spaces that would be completely obvious or easy. I mean, investing is, of course, very hard. But games is particularly hard because it's so incredibly hard to predict. And maybe especially in the case of mobile games, you sort of have to make a bet on the team and then just hope that the team can produce a sort of a hit game. But you just don't know before it happens.

22:35And when it happens, these companies have a tendency to break out so fast that then they almost don't need any money. And Supercell is a great example. We erased our pre-seed and then seed and then Series A from Accel. But after that Series A, we actually didn't need any primary financing anymore because the company has been so profitable. how do you keep motivation up when it can feel like maybe a long time between you know one successful game launching and the next one coming out how do you keep the team going and you know people i can imagine people start feeling like are we ever going to come up with another successful game how do you just keep up momentum well i i think it's all about the amazing people that we have at supercell and you know these people who are so passionate about games and they want to do the best thing for our players.

23:27So it really is the players and the kind of community around us and the content creators and everybody who is part of that kind of gaming community. That's the kind of source of inspiration and motivation for us. Ten years ago, you also set up a family office, Ellusion, which invests more than just your money, invests other founders and operators. How did that come about? well the idea has developed over years but at some point i i you know i got to speaking with some of the other founders in in europe and basically we thought that the one thing that that europe is a little bit missing is that you know we all of us founders we sort of meet each hour in these conferences and stuff but but then we actually don't do like that many things together and one thing that we thought that we could do is that you know if we kind of join forces and we start to invest in the next wave of European entrepreneurs and and of course like all of us have grown our companies we've made a ton of mistakes which we've hopefully learned from and we felt that we could actually like help the kind of next wave to build like like way bigger and more valuable companies that we ever have so that and it's a very kind of European centric mission I would say.

24:39And how involved are you all sort of data what's the structure like who actually you know runs it who chooses to make the investments when do you get involved with you know helping companies say don't do this don't do this don't do this don't do this and you know when do other people do that well we have an amazing team at the family office so at delusion so i mean they run it like very independently and they make these investment decisions very independently but where we then can come in is is that you know we offer like you You know, obviously, you know, we are all busy people and we have our day jobs at running our companies.

25:16But also we are very passionate about entrepreneurship and we all like love the creation of something new. So it actually like it is like really like satisfying for us to be able to offer like some part of our time to these founders that we've invested into and, you know, to be able to help them in their journey. But definitely like the team at Illusion, they operate very independently and then we just make ourselves available and the founders need our help. How many other entrepreneurs are part of the family office? There are now, I think, a bit more than 10, actually, already. And are you open to kind of, can new people join, or is it sort of set now?

25:54No, no, we are. We definitely are open to new people to join. And really, like, the key, so we don't really need people's money. But the key criteria is that you have to be somebody who's passionate about European entrepreneurship, and you're passionate about helping our European founders to, you know, build their companies. Why do you care so much about Europe? Well, I'm a European. I think this is the best place in the world to live. You know, I care so much about European values. You know, we have a great diverse culture here. And maybe like a little bit sadly in today's world, I think Europe also stands for like, you know, democracy.

26:31it stands for trust, stability, which it's not a given in today's world anymore. And I think that European values are worth defending. And I believe it's so important that Europe also grows from an economic perspective, because that's the only way that they can actually keep Europe like what it is. Do you feel like most other founders you meet feel the same way? or is it quite mixed in terms of the European founders who really care about giving back to the ecosystem, building the continent, changing regulation or whatever it is that needs to be done? And there are a whole bunch that just don't really care.

27:13I think there's a huge amount of founders who care and they care very deeply. I'm actually very bullish on Europe and one of the biggest, if not the biggest reason is that if I look at the European founder network, it's stronger than it's ever been. And there's this belief that rising tide lifts all the boats, so to speak. So if somebody is successful out of Europe, it actually benefits everybody. And it's not that, say, the ecosystem in, say, London is competing with Paris or Stockholm or Helsinki. And all we need, we just need to be able to create new great companies from Europe. And there's a massive difference how much stronger the ecosystem is today if I compare it to what it felt like maybe a bit more than 10 years ago.

27:59So I remember when Supercell had its breakthrough in 2012, so 13 years ago. And all of a sudden this scale to eternal revenue of hundreds of millions and then very quickly billions. And I had never seen that type of scale before in my life. And I definitely didn't see it coming. and I was thinking about who could I call for advice in Europe. And there was very few people who had built something at that scale. And maybe when I was lucky enough to get connected with Niklas Tenstrom, who had built Skype and then later on founded Atomico, and then he invested to us and he became an important mentor for me because he had actually seen similar scale before.

28:44but there actually wasn't many people like him in in the whole of europe at that time and then if you fast forward it today you know it's completely different where it's like tens and tens of people like who've done like something and on that scale and even bigger and then of course there are like outliers like you know daniel who's built a spotify of like you know valued more than a hundred billion dollars so it's it's a completely different environment and and i think you know europe again as I said Europe has never been as strong as it's today and and a lot of that is about this stronger network of founders what else do you think Europe needs to kind of kick it up a notch to even the next level well on a very like practical level like I think we have to somehow turn the kind of diversity of Europe to be a kind of source of strength for us and this diversity it has like so many it brings like so many strengths but like the one thing that we should fix is that we somehow need this harmonized like single market and there's been like great initiatives my favorite one is is eu.inc and which seeks to harmonize sort of the incorporation of a company in europe and taxation and a couple of other like important things so that's that's maybe the single biggest thing that they need so we need regulation that makes it easier to build tech companies out of Europe, not harder.

30:08Does it frustrate you when you see all of the LinkedIn posts from investors or tweets from investors who I shan't name saying that, you know, Europe's doomed, the US is so much better, etc, etc, this thing we've all heard a million times? To be honest, it does frustrate me. And I think it's such a dangerous narrative because like, Like, you know, sometimes I see like founders and really talented, you know, individuals who like somehow it gets into their head and they all of a sudden they start to believe that narrative and they start to believe that it's not possible to build valuable companies out of Europe, which absolutely is not true.