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Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy where I interview entrepreneurs about how they built their businesses. I’m constantly trying to improve, you guys know I hire researchers and then producers and now we’re sending out mics to every guest which I’m so proud of because Jessica, you don’t know, from there she’s holding it up. For a long time my audio was bad.
Jessica: It’s a really cool looking mic too by the way. I hope I got to keep it.
Andrew: You do, you absolutely. We have guest call us up saying, “How do we send it back to you? What’s your address?” No, it’s our gift to you. It does cost us a lot of money but it’s so worth it because it saves our audiences [here 00:00:36]. So Jessica, who just saw on the screen or heard if you’re listening to the podcast, she is Jessica Rovello. She is an entrepreneur who said, “You know what, I have an idea for a game business. I’m going to create it.” And she and her now husband did and it didn’t work out, which frankly if you’re listening to me and you’re an entrepreneur, you know things often don’t work out at first.
What I think is interesting about her is she pivoted towards from business to consumer where she was creating these games for end-users to then going after businesses as her clients and creating products for them to give to their audiences. So basically, now, if you’re on USA Today playing games, it’s her games that you’re playing. She sells them to USA Today. USA Today then uses it to keep people engage with their site longer and longer which is helpful because frankly how many times do you see a great news article. You read it and then you move on past it to something else.
What she’s doing is keeping users on these sites longer. She’s the cofounder of Arkadium. They provide interactive content. Yeah, they’ve gone beyond games. We’ll talk about that. Interactive content to the world’s best known brands and publishers, and this interview is sponsored by two companies. The first will host your website right, it’s called HostGator and the second will help you avoid some of the problems that Jessica had with developers by hiring phenomenal developers, it’s called Toptal.
Hey, Jessica.
Jessica: Hi.
Andrew: Revenue, we’re basically at the end of 2018. Where are you with revenue?
Jessica: So you’re starting off strong, huh?
Andrew: Yeah.
Jessica: All right. So we’re going to be somewhere between, I’ll give you a ballpark because we don’t generally dispose exact numbers but we’ll be somewhere between 15 and 20 and I’ll let you use your imagination.
Andrew: Wow. And how much funding did you take in?
Jessica: Great question. So for the first 13 years that we’re in business we’ve been in business for close to 20 years now. For the first 13 years that we were in business we took about a $2,500 check from Kenny’s mom. I think three grand from my mom. So we really bootstrapped for the first basically decade and a half. We then took a series A investment from a venture capital firm to the tune of about $5 million and our most recent news is that about two months ago we actually bought out our venture capital investors, so now we’re back to being, we’ve always been majority owned by the founders but we’re back to being, you know, primarily owned by the founders, yeah.
Andrew: Why did you raise that see round? It was from Edison Partners, right?
Jessica: Yup.
Andrew: Why did you raise it and then why do you take it back?
Jessica: Yeah. So we raised our series A because I think a couple of reasons, honestly. Number one, when we started the business in 2001 I always say it was like the best time to start a business and the worst time to start a business. And we were like, “Hey, world, we’re going to start a dotcom in 2001.” And everyone was like, “No.” So I don’t think we could have raised money even if we had tried and so we didn’t try. We had and still have an amazing mentor, his name is Strauss Zelnick. He’s now the chairman of CBS Interactive and runs Take-Two, one of the largest gaming companies in the world. And he told us early on like if you want to keep controlled of this business, if you want to run it your way, if you want to make it into something that has longevity, that’s going to be around for a long time, that you continue to be passionate about, hold off on taking money for as long as you possibly can.
And so we really listen to his advice and for a long, long time, you know, over a decade we didn’t. And we just grew the business on its own steam and its own profits and we bootstrapped it. But then in 2013 we had a great opportunity. We were one of the first developers to have access to what was then in the Windows 8 operating system which is now evolved into Windows 10. And so we had kind of first mover advantage on a platform that we thought could be the next app store. And I think frankly Microsoft thought it could be the next app store.
So we thought if there’s ever a time that we should consider taking in an outside capital it’s now because the cost of creating games, and a lot of people play them and a lot of people get angry when they get asked to buy a virtual item or this or the other. Well, the cost of creating a high quality game is in the millions of dollars even you know, little games that you play on your phone. So we really thought this is the right time that we can take in money, we can capitalized ourselves better and then we can put more things into production to really take advantage of the fact that will be early to this platform. So that’s why we did it.
Andrew: Okay. And then the platform didn’t turn out to be the new app store like the iPhone app store.
Jessica: Right. Yeah. So life kind of happens and outside of Microsoft going through a change in CEO and a change in platform and a million other things, the gaming industry really consolidated and was much different than when we had taken our funding. And then I think finally, we went through this crazy experience which maybe we’ll talk a little bit about where because we had bootstrapped our business we had about 100 developers based in Ukraine.
Andrew: Let’s hold off on that I definitively want to get into that. That was scary just really in retrospect.
Jessica: So that was another thing that happened, right. That kind of was like whoa, all these things happened between 2013 and 2015, 2016 and it was like everything we had planned for kind of went out the window.
Andrew: Okay, all right. Let’s go back to how . . . since you and your husband are the two cofounders of the company, where did you meet?
Jessica: So we met working at a dotcom. Dot bomb I would say.
Andrew: Which one?
Jessica: It was called On2 Technologies. The concept was pretty cool actually, they’re a video compression codec company. They eventually sold their video compression technology to Google. But I like to think of it as kind of YouTube, before YouTube, and no content created by end-users. So it was like a very early platform for video content on the web.
Andrew: And when you say this was a dot bomb era what are some of the pains that you felt when the two of you were working there at On2 Technologies?
Jessica: Yeah. It was just, you know, I think that there were lots of, for those of us who kind of live through that era, you know, where it’s like giant offices with scooters, and actually, today, it feels very reminiscent of that time for me because things are so crazy with employee perks and what people are doing in their offices, and their benefits packages, and all this craziness. It felt very much the same way then. So not much of a business model, no clear path to revenue, did a reverse merger to go public, burning through a lot of cash, and as I say this completely tongue and cheek but it’s like know-it-all, 25 year-olds who were like, “We could run a business better than this.” And so we decided that that’s what we would try to do. Made a huge round of mistakes obviously, but 20 years later it’s still here, so.
Andrew: No, I mean their company on On2 you’re saying you just saw of tons of waste, no clear business model. It was an idea of we’re going to somehow figure it out. We’ve got a good way to create video online. We don’t know yet where the money is. We’ll just keep spending money on this. And I could see they raised a bunch of money as they were doing this. Then they started going on some kind of acquisition spree where they were buying things like Quickband, Inc. They bought . . . what was it? There was something like DVD . . . Oh, that’s was it was, DVD Mags, Inc. they bought. All right, and the two of you are sitting there going “This is actually not really for us.”
Jessica: Right.
Andrew: But you’re falling in love or are you?
Jessica: Yeah. I mean it was interesting because I think we went from . . . I really feel like we broke kind of every rule that there is to break in terms of how you start a business, right? So I think first and foremost when we started dating, we both got the advice that like this is a disaster, right? You don’t date somebody that you work with, it’s not good for your career, it’s not good for you, whatever. And as I get past that and it’s like, well actually, we’re going to start a business together.
Andrew: I don’t understand how people do it. I love my wife. I love spending time with her but if we spent time all day together, we would have issues. All right, this whole thing started because the two of you in this like cute dating period said, “You know what, I like playing video games. Do you like playing video games?” “Yes, I do.” And you decided you’re going to play a game against each other. What was the game that you’re going to play?
Jessica: Ms. Pac-Man.
Andrew: Ms. Pac-Man.
Jessica: So we’re going to play each other Ms. Pac-Man. Yeah, this is kind of like our ’80s throwback moment where we’re early on dating, going on dates, and we’re like, “You know what was awesome about growing up in the ’80s, we used to go to arcades all the time.” And I was like I’m a boss Ms. Pac-Man player and he was like, “No, I don’t think so.” And so we went online to try and kind of settle the score of who was the better player because there weren’t many throwback arcades then like there are in 2018 and we couldn’t find a place to play. So we’re like “That’s interesting idea for a business.” And then that . . .
Andrew: So you said, “We’re going to create a site where people can play these old games.”
Jessica: Yeah.
Andrew: I’m wondering why you said that at that time. This was a period where people doubted the internet at all would succeed.
Jessica: Yeah.
Andrew: And then why did you see it as an opportunity? What did you see that others were too scared to realize at that time?
Jessica: I wish that I could give you some really erudite answer about having done market research and fully understanding what I was getting into. It wasn’t any of that. It was pure unadulterated instinct. It was just like something from the inside of me that in a voice louder than I probably had ever heard before was like you must start this business. And it didn’t necessarily make sense. It certainly didn’t make sense, I was doing it with my boyfriend, right? And it certainly didn’t make sense that I was doing it in this era where people were no longer . . . like the internet was a dirty word and it certainly didn’t make sense that even though I played games and I loved games growing up like I had no ability to make them myself. So not a lot of it made a lot of sense but which is that voice that I had to listen to.
Andrew: And that’s when you went to Kenny’s mom and you asked for how much money?
Jessica: We actually didn’t, we just told her that we wanted to, we were thinking of creating our jobs and starting a company and we expected I think from all of our parents like that, are you out of your mind sort of thing. And it was great. They were fully supportive. They’re like, “You’re at the age, go for it. I’ll write you your first check.” And that’s really what got us started.
Andrew: When you talked to Arie Desormeaux, our producer, you said to her that this was the early days of outsourcing and naturally that’s the direction you went in but I feel like most people didn’t realize that that was a possibility at that time. This is before Tim Ferriss popularized it. This is before all these different virtual assistant services. How did you even know that this was an option for building your first version?
Jessica: I think out of necessity, honestly. I think that when you decide to quit your six-figure job to start a business that has zero prospects and you’re not an engineer and your cofounder isn’t an engineer and you have $2,500 essentially to do something you get creative about figuring out how you’re going to do that. And so we knew we couldn’t it ourselves, we knew we couldn’t hire people in the United States to do it, so we just started using the internet because that’s, and that’s what we had been doing, that’s what we’re building a business on and we found a very early site that was connecting developers oversees with people who wanted projects.
And that’s become pretty ubiquitous at this point, right, but back then it was kind of like be very earliest days of outsourcing. And so it was pretty intense and for about a good two years, we got it 100% wrong, no doubt and [inaudible 00:12:58]
Andrew: How much did you spend and what did you get?
Jessica: I would say we spent probably $25,000. Even though we’d gotten the $2,500 investment, we’d like liquidated our very small 401(k)s at that time sort of 25 years old, 26 years old. We just scraped together anything we could do to get money. I think we spend probably about $25,000. We created our first application this is . . . when I say application I mean like desktop computer application, not like what we think of us apps in the apps stores.
Andrew: This wasn’t going to be a web-based experience?
Jessica: Nope, not initially.
Andrew: Wow. Okay.
Jessica: Yeah. One our original really bad mistakes so it was going to be an application and it was made in Visual Basic which for the people listening who know about coding is like a really ridiculous language to create games in. So we just did a huge amount wrong. Font was really small, it was really difficult to use and it broke a lot.
Andrew: And it was, did you do Ms. Pac-Man? Did it do what you thought it was going to do?
Jessica: We couldn’t do Ms. Pac-Man because that had IP is isolated with it, right? So we did our version of Ms. Pac-Man which as that time was called Mr. Munch, a brilliant marketing maneuver on my part there. And it was like a little false teeth that would go around a quasi-looking board and it was just awful. Yeah, it was awful.
Andrew: Okay. It’s so impressive. One of the things that I learned from your conversation with our producer was that you were going to go with skill-based game wagering at that time, right from the beginning.
Jessica: Yeah. So like 25 years ahead of our time.
Andrew: I don’t even know that I see a lot of that today. So it’s obviously . . . can you explain to people what that is and I feel like at that time it was just starting to crop up.
Jessica: Right. So betting on games of chance is illegal unless you’re licensed to do it, right? So blackjack is a game of chance. Roulette is a game of chance. You don’t know what the card is going to be, you don’t know how the wheel is going to turn, you don’t know how the dice are going to throw. But betting on games of skill is legal on a state by state basis not federally but on a state by state basis. So chess is a game of skill. There’s a certain states where you can bet on a game of chess and it’s legal.
So the original concept for the company was to allow people and this goes back to our Ms. Pac-Man conversation, because that was a bet, right? It was like how could we bet on this Pac-Man and we knew that people were playing games with each other at that time, it’s probably on Yahoo and things like that where you might have a friend who is in LA and you are in New York and you could play a multiplayer game together and people were enjoying that and doing it. We said, “Well, what if we add this additional thing where it’s like not only am I going to play you in chess, we’re going to put a small wager on it.” And so that was what the original concept of the company was and what it was originally founded on.
Andrew: And there were companies that did that at that time. I think SkillJam, I’m looking for it, was one of the big ones in this space.
Jessica: Yup.
Andrew: There were a handful and they were starting to do really well.
Jessica: Yeah. There was one called WorldWinner there was one called SkillJam and the interesting thing is King which is one of the largest gaming companies in the world they created Candy Crush, they originally started as skill-based game company.
Andrew: I didn’t realize that.
Jessica: Yeah. So a big part of what they did originally before they went through many iterations of being public and private and all the stuff was in skill gaming. So, yeah, there were a couple of small players and there are a couple of large players and we were one of them for some time.
Andrew: So why did this space not . . . I don’t see it anymore. Why didn’t it take off the way that I expected it to?
Jessica: Yeah. It’s still there and it’s still does okay. I think that I’m guessing for the same reasons that you just don’t see people being so excited to go to the backgammon or the chess club and spend money the way that you do see them go to casino, right? I mean there’s just an inherent difference between mastery of the game of skill and your nervousness about your ability to do well there versus scratching a lotto ticket. I think that’s part of it. There’s definitely the legal part of it is something as well. I mean at least for us as a smaller business the idea that we would have to deal with states attorney general across 50 states to figure this out as a company that has $2,500 to their name is, it was a tall order.
Andrew: All right, I’ll take a moment to talk about my first sponsor and then come back in and I want to find out what happened, what your first version look like and then what happened after you put it out in the world. But very quickly I’ll tell people and I should tell you too. Anyone who’s looking to hire who doesn’t want to do . . . let me see what you paid, you paid according to my research $3 an hour for the first version of the software and we’re going to see what that look like.
Jessica: Worth every penny.
Andrew: Yeah. So if you want a $3 an hour person who’s worth $3 an hour, totally fine, lots of websites will do that for you. But if you’re looking and you’re saying, “You know what, there’s a reason why Google is doing as well as it is. They’ve got people who make decisions based on their real experience.” These are people who are obsessed with coding, obsessed with problem solving, and when you’re ready to hire at that level, where do you go? Many people would just go to the standard job boards, spend forever looking on there, spend forever interviewing and often not end up with the right person because that person wants to work at Google.
What Toptal decided to do was offer a different model. They recruit those people ahead of time and they’ve got all these tactics that I’ve talked about in the past for doing it. They have them in their networks so when you’re ready to hire the best of the best, you go to Toptal, you go to the page that I’m about to give you, hit that button, talk to a matcher, tell him what you’re looking for, full time, part time, team of people even, or maybe you’ve got a client who needs special project that you can go and hire just for that and they’ll find that person for you and you can often get started with them within days.
Go to toptal.com/mixergy and you’re going to 80 hours of Toptal developer credit when you pay for your first 80 hours. That’s an addition to a no-risk trial period. Here it is, top as in top of your head, tal as in talent, T-O-P-T-A-L, toptal.com/mixergy.
The first version, you said to Arie, “You know what, we weren’t agile, we weren’t lean, we did everything wrong,” but what did that first version look like?
Jessica: It looked like an iPhone sort of before we even knew what an iPhone was because this is in 2002 probably. So it was a little silver application that looked like kind of like phone, it had rounded edges and it had a chat area at the top and then it had a menu system would come out with all of the games listed and the tournaments that we were offering and the wagers that you could make on those particular games.
Andrew: Did it work?
Jessica: From time to time it worked. I wouldn’t say it work consistently. But the interesting thing is I think everything, I guess hindsight is 20/20 but I can see now what the company has become really was kind of a series of interesting events that took place that can go all the way back that. So we originally started looking for other people who could create games for us to put in this weird application we made and that’s how we kind of evolved away from the developers we’re working with, started getting leaner, creating a bigger library, and then . . .
Andrew: Meaning you’re no longer going to create every single game, you’re just going to have a platform where people can bet on games and as long as the games plug into your platform, it’ll work. Is that right?
Jessica: Less about that and more about we want to get as many games as we can on the system for people to be able to work with and play with and the speed at which we’re going we’re not doing enough. So are there people outside of the developers who are making the system who can actually make the games and who can make them in a better language than Visual Basic, something that will actually work.
Andrew: Okay. And so you started finding those people and today you’re no longer doing that. At what point did you start to switch away from creating this wager-based game platform?
Jessica: So I would say about three years into being business. We were still bootstrapped. We weren’t making any money. We were trying to just figure out how we were going to make it all work. And one of the ideas that we came up with, so I’d been in marketing before this and so I was like kind of charged in our business of two or three at the time with figuring out how we’re going to get people to find this thing, how are we going to market ourselves, how are we going to do PR, and one of the concepts was well, what if we give this little games away for free outside of the application. We give them for free and then in exchange to people who already have traffic and in exchange at the end of the game, it gives a pass back to us. So we can get some maybe recognition out there instead of having to pay for advertising which we couldn’t afford.
And at some point we realized we’re spending 95% of our effort on this application which is making zero money, and 5% of our effort on distributing these games to these third parties but it was the inverse in terms of interest and revenue potential. And so we’re like, “Well, what if we just stop doing this thing that we’re spending 95% of our time on making no money from and 100% of our time on these games that we’re distributing through these third parties and figure out a way to make that into a business?”
Andrew: And it wasn’t profitable at that time. They were just sending you links back your site but you were thinking . . .
Jessica: Right. At that time they were just sending us links back but that’s when we kind of got the idea to tweak the model so that we could either license those games outright to partners or run advertising around them and share the revenue with the partner. So they bring the traffic, we bring the content, we share the revenue.
Andrew: You mentioned that you had some marketing experience. This was back when you’re working for Artisan Entertainment. As soon as I saw Artisan on your resume I immediately thought Blair Witch Project.
Jessica: Yeah.
Andrew: That was a hugely successful viral something. I don’t even know what it was. I remember when it came out people said, “Is this Blair Witch Project like a documentary about people who found this witch into something or is it a video or is it someone tricking us?” It was a movie and you were tasked with promoting the movie.
Jessica: Yeah.
Andrew: And what did you do that worked so well?
Jessica: I mean I like to say to think that I was in the right place at the right time. I think a huge amount of successful people the way they got successful is because they were talented, they were ready, prepared but a ton of people are that way. They also just got an opportunity and they were able to take advantage of it, so I think that’s what it was with Blair Witch.
So I was 23 years old, and I was the first and only at that time, director of online services for Artisan, which is an independent phone company, because frankly I don’t think that [it uses a 00:24:37] 1999, 2000, nobody who was older than me even knew about the internet, so I got lucky enough to step into a job like that. And it was again one of these things where necessity bred what ended up being something wondered which is that the directors of the movie had all of these content. And it was like, “Well, what are we going to do?” It’s kind of this mockumentary but people don’t know what is.
We have this internet thing and all this content didn’t end up in the movie. Is there a way that we could put it in the internet to get people kind of excited before the movie comes out about what this is going to be? And so again, kind of necessity turning into this thing, it was really interesting because we made out a calendar or like, “Well, I can’t physically digitize and upload this stuff all in one shot. So I’m going to have to calendarize the releases of this stuff so that I can just do it.”
Andrew: Like an editorial calendar releasing like you put it from this movie.
Jessica: Like an editorial calendar, right. And so I did that and then started posting on the website, okay, next week, you’re going to get this audio clip. And the week after that you’re going to get this or in two days from now you’re going to get this. And that ended up I think being it’s kind of really similar to what somebody like a Snapchat does now which is like because there was a finite amount of time that you could find, see, get to this content and then it would be gone there was this scarcity effect. And then people started going crazy.
And so, yeah, it was like a cultural phenomenon and it was just one of those things where as a 23-year-old kind of being in the middle of it, I was really happy to have experienced it but, yeah, that was my prior marketing experience.
Andrew: Ephemeral, you are going to take it down where most people wouldn’t but it was more than that. You were giving the impression that what you were releasing were parts of a real experience that somebody shot on, forgive me, a shitty video camera and that whole thing led to the belief by many people that it was real, right?
Jessica: Yeah, a lot of people thought it was real and then it was crazy. A lot of people started saying, “Well, we think you’re faking your traffic because the traffic is too big, no website gets traffic this big. And that was like peeking behind the curtain, it’s like 23-year-old, it was like, “God, I don’t know, I’m just trying to keep up with what’s going on here.” Yeah, so that was an incredible experience.
Andrew: And it became a monster hit and then . . .
Jessica: It became a monster hit.
Andrew: And so that’s your marketing background. By the way you became, you got a big reputation from it, you earned as you said six figures and still at that time that we’re coming back to your story, you were trying to get people play your games and you couldn’t do it, you were living on, what? How did you even feed yourself? What did you feed yourself at this period?
Jessica: So a lot of rice and beans literally which is the cheapest thing possible and then Kenny and I would take odd jobs. So he would like post around the East Village, these signs that we would make saying like, “I’ll come repair your computer.” I knew how to code a little bit so we were making like mom and pop websites for people at $500 here or $500 there. It was really just enough to be able to pay the rent and buy some food and that was pretty much it. And many months we weren’t able to pay the rent. Many months, you know, luckily we had family who would stand behind us and say, “Okay, for your birthday, I’ll pay your rent for this month because I know you’re struggling or whatever.”
Andrew: Yeah, but you’re in New York. The thing that I don’t believe that people understand is when you live in New York you’re surrounded by such wealth. You’re surrounded by so many people who were doing well at what they’re doing even the artist who are living in rent-controlled apartments are creating art that’s like having impact. Did it suck for you to be in the situation surrounded by so many people who are doing well?
Jessica: Yeah. And I think it’s also like . . . what’s the, I’m trying to remember the expression about like comparison is the thief of joy, right? Like when all you see around you is people who at least on the outside look like they’re happy and successful and it’s so easy for them, it can be really difficult kind of daunting situations to be in. And yeah, we had multiple years where it was kind of like why are we doing this. How are we . . . like this is not cool mentally. We were adults, we can’t pay our rent, we can’t even go to the movies.
And remember this is us as kind of a couple as well as being a team of cofounders. So it wasn’t like one person could take the brunt because they had some job and they were just supporting their significant other. We were both in this, so we were both struggling, and neither of us could go to the movies, and neither of us could take the other one out to dinner, and neither of us could pay our rent. So, yeah, it was hard. There was, I remember a bunch of times where it was just kind of full on breakdown crying, yeah.
Andrew: I bet. And then Kenny’s parents had an anniversary, you guys were celebrating and you get a phone call, from whom?
Jessica: Oh, boy. I remember it like . . . it’s one of those things where it was so impactful in our lives that it’s like almost my body can be brought back to that moment. It was kind of a last-ditch effort. We were engaged at that time, we knew were going to be married and I said to him at some point, “Listen, like we have other dreams. This is a huge dream. Don’t get me wrong, I love this dream, I support this dream. I want this dream to become a reality.”
But we have other dreams and our other dreams are travel and adventure and starting a family and all these things. And if we hold on to this one dream of Arkadium for so long that nothing else becomes possible when like three years in we’re not making a dime, nothing is working. By December 31st if things haven’t turned around one of us got to go find a job and maybe we can sustain one person for another year or two or whatever but we got to move on with our lives because most businesses failed within the first year and we had been failing for multiple years at this point.
Yes, so we went away with Kenny’s parents and it was in the early December and my deadline was December 31st and we had made a proposal. At this point we were still doing things. We were always aggressive. We were always driven. We were always hustlers. We were always finding a way. And at this point we had moved to some great developers who are based in Ukraine. If you remember kind of going back in time, this is probably 2005 or so, poker had become a big thing.
Andrew: Yeah.
Jessica: You saw poker everywhere like they’ve been playing it on NBC, it was just there was this poker craze. And we just happened to have probably the most amazing multiplayer poker system that had been developed that was for non-gambling use. And we made a pitch to R.J. Reynolds Tobacco Company because they wanted to create a poker casino. And like December 15th or something they called us and they’ve said that we had won the deal. And that’s essentially what put us in business. And it was right up into the wire, it was right up into the wire. And then we got another call about a week later from “TV Guide” who we pitched the game to at that time who said, “We want to go forward with this game that you pitched us.” So those two deals, they put us in business, yeah.
Andrew: And we’re talking about like quarter million dollar deal?
Jessica: Right.
Andrew: So this is significant.
Jessica: So like going from nothing to kind of like everything, yeah.
Andrew: Beans and rice which literally cost 75 cents to suddenly a quarter million dollar deal. I see some information about the poker software on your website. You’re basically offering Texas Hold ‘Em to anyone who wanted it. They could customize it for themselves. You offered 24/7 support, powerful back office and reporting, and the phone number on the website used to be, I think it was your personal phone number.
Jessica: That’s quite possible.
Andrew: Somebody could just dial into you and . . .
Jessica: Quite possible. That’s hilarious. Thank you Wayback Machine. No, it’s . . .
Andrew: How did you celebrate when you went from that like difficulty to suddenly doing well?
Jessica: We had a steak dinner, that’s what we did. So at that time, somebody’s who’s currently a VP at Arkadium and on our management team, he was our first . . . we had one cofounder who we met at On2 who like was doing it with us not taking a salary for a couple of years. Then our first real employee wanted to get into the games business, graduated from Princeton, we offered him a MetroCard as his salary. So it was the four of us at that time. It was the four of us and none of us had eaten like a real meal in I want to say like six to eight months. So when we got that first check, our credit cards were probably already maxed out at this point so probably to get and cash the check. And then we went out to a big steak dinner which funny enough like ever since then that has become kind of a part of company tradition where we’ll do like a big celebratory dinner once or twice a year for the entire company now. Yeah.
Andrew: All right, we’re going to come up with what happened when Putin had different views on what should happen in Ukraine . . .
Jessica: Yeah.
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All right. So what happened? You got new developers, you finally were saying no more $3 an hour developers. You got great developers in the Ukraine . . .
Jessica: Yeah. So we’re skipping way forward, but basically like we had started in India, eventually went to Ukraine, been working with outsource developers, had a team of six ended up [higher/hire 00:36:28] like fully buying that team. So created like a real business there not outsourcing but a representative Arkadium business in Ukraine never even like been there practically, and then grew that team from six to a hundred over the course of a few years, probably five years, six years. So everything was going along. We had about 50 people in our New York office, we had 100 people in our Ukraine office, we had signed this deal with Microsoft, we had gotten our series A, everything . . .
Andrew: Would you talk about that? The deal with Microsoft is one that impressed me when you and I started talking. What is it that’s on Microsoft right now?
Jessica: So right now we have, so we did the original version of solitaire which since been updated by another team probably three months, four months ago. So that was what came preinstalled on Windows 10, the Microsoft Solitaire Collection, it’s called. We also did the Sudoku, the mahjong, the minesweeper which a lot of geeky developers love.
Andrew: Now, the first version of that was done by Microsoft, wasn’t it?
Jessica: Windows 95 probably.
Andrew: And then when they want an updated version they went to you. Why does Microsoft go to you instead of hiring . . . they got their own developers. Why did they need you to do it?
Jessica: Yeah, good question, because we’re the experts in creating games like that and they’re called Evergreen Games so kind of back to our origin story as being this skill-based games companies. Skill-based games are many of them are games that people have been playing forever and no, chess, backgammon, solitaire, things like this. So we had just over the course of a decade become kind of the best in the industry creating these types of games.
Andrew: What makes you so different? If these games have been around for hundreds of years in some cases, longer, what have you figured out that people hadn’t figured out before? It seems like that’s an easy one for Microsoft to say, “We’ll create this. Let somebody else create Halo.”
Jessica: Right. And it’s the opposite, right?
Andrew: Yeah, right, exactly. Good point.
Jessica: I think it’s that je ne sais quoi. I mean I wish I had the magic formula for what makes a hit or what makes something feel different. There’s this subtlety to it and there’s an art in game design that contributes to all this stuff not only from like the sound effects and the subtlety in what you’re seeing in the animations and how clear it is or how large it is or just a little payoffs that you get. Those are all kind of tricks of the trade. But then there’s stuff what makes the song a hit versus a movie a hit versus a TV show a hit. Games are a hit-driven business just like everything else and there are some things that just kind of like we catch lightning in a bottle. And so we just happen to be really good at this style of game and so . . .
Andrew: Okay. So they were clients of yours.
Jessica: Yeah.
Andrew: You’re finally starting to do well. You had this big office and I interrupted, I’ll let you continue.
Jessica: Yes. So we have a hundred people in Ukraine at this point, 50 in New York, we had actually kind of gone back to trying out direct-to-consumer because the app stores were all exploding at this point. So we went from B2C to B2B to back to kind of quasi B2C. And we had had our office in Ukraine for probably six years at this point, had an apartment there, we spent a lot of time there, and we had always kind of watched the geopolitical situation but it was, listen, it was Ukraine. So it was rough, I mean, don’t get me wrong. That is a rough place to do business, but geopolitically it wasn’t like there were wars going on or anything. Start of 2014 there’s all these riots in Kiev. Before we know it our little town, Simferopol that nobody has ever heard of in the United States people would be like “You’re based where?”
That was the town where these mysterious tanks started rolling through the street. Fast-forward, a couple of months later we learned that’s the Russian government and they basically annexed this entire portion of the country. And so we’re watching from afar. We can no longer travel there because it’s on travel warnings and all these stuff. Our people are kind of like walking amongst tanks and soldiers getting to work in the morning. A lot of crazy stuff is happening. We get fully annexed by Russia. We have to start become a Russian company from being a Ukrainian company.
Now, granted the office hasn’t move, the people haven’t moved, right, but the country that they are in has changed, so all their citizenship is changing, we’re changing our entire legal structure to become Russian. We’re paying in Rubles, the time zone changes . . .
Andrew: You had to become a Russian company too if you had this . . .
Jessica: We had to. Yes, we were required to even though we hadn’t moved, the country, the territory that we’re in became another country.
Andrew: Okay.
Jessica: So we’re doing all these stuff. It’s kind of a disaster but we’re kind of limping along. And then at the end of the year with zero warning the American government sanctioned any American company doing business in this territory in Ukraine which is called the Crimea, and so essentially my business became illegal overnight with zero warning, just illegal. It was December 17th or 19th couldn’t pay people, couldn’t give them their holiday bonus, couldn’t get code in or out of the country. Yeah, it was a disaster. It’s a disaster.
Andrew: I’m looking right now on the Treasury’s website. I think there’s still sanctions on that area.
Jessica: Yup.
Andrew: Because they don’t want people doing business with Russia in this disputed area, meanwhile . . .
Jessica: Right. You can do business with Russia, other places.
Andrew: Right.
Jessica: You just can’t do it here.
Andrew: That means the people who are most important . . .
Jessica: So, yeah, we have an apartment but nobody has been into in whatever it’s been now, five years.
Andrew: Yeah.
Jessica: Yeah.
Andrew: And that means all of your people can no longer work for you?
Jessica: No.
Andrew: What are the ramifications of the sanctions on your business beyond that? Like did you get penalized?
Jessica: No, we didn’t get penalized because we followed the sanctions.
Andrew: Do they said, “Stop doing business.” You had to go back to your people, you said, “Look, we can’t work with you anymore. This is shocking. You guys need to go find another work.”
Jessica: Yes, with zero-warning not only can we not work with you anymore, not only can you not be employees of the company if you stay here. But we can’t even give you a severance. We can do nothing.
Andrew: Wow.
Jessica: Because if we wire you any money we will go to prison for 25 years.
Andrew: And wow wee, I’ve read about this, the size of your company went from how much to how much roughly?
Jessica: Yeah. So we at that point decided we’ve got to move quickly and we’ve got to make big decisions. And so over the course of three weeks over the span of the New Year holidays in Russia and Christmas in the United States all government were shut down in both countries, we basically got 50 of our Ukrainian employees to agree to get up and move themselves and their entire families into southern Russia which was a sanction-free zone.
Andrew: You know what, I’m looking at this on the map.
Jessica: Yeah.
Andrew: I thought that they much closer than they are. We’re not talking about an hour drive away. We’re talking about a significant distance, right?
Jessica: Yeah, and across a body of water as well. So, yeah, it’s about maybe 15-hour, 20-hour drive if you take like a ferry across this body of water.
Andrew: Go around the Sea of Azov.
Jessica: Yeah.
Andrew: Wow. And so they did it. How many people made that move?
Jessica: So we had a hundred people, 55, and their families dropped everything and over the span of three and a half weeks packed up all their stuff and move to another city that we had never been to.
Andrew: And became Russian?
Jessica: They were already establishing Russian citizenship because that portion had already started and we were already a Russian company at this point, so basically it was like what are our options, do we go to Ukraine but we’re no longer a Ukrainian company because we were forced to become Russian when the Russian’s annexed it. Do we go out of business? Do we move people? And again like over the span of three weeks and over Christmas, and, you know, Congress is shut down, the Russian parliament is shut . . . everything is shutdown so you can’t . . . nobody will pick up the phone. You can ask any questions, it’s just done.
Andrew: All right. How did you recover from this? Did you?
Jessica: Yeah.
Andrew: Okay.
Jessica: I mean I think that’s probably the single thing that I’m most proud of in building this business for the course of 20 years is how well and how strongly we recovered from this. So we went from a 150-people to 75-people in less than three weeks. We had to lay off some of our staff in New York to be able to pay for our Russian employees to move because we had to buy them new . . . like rent them new apartments for months at a time. They had never been to the city before. Their children had to go to new schools I mean it was, you can’t even like we talk about it as Americans, we can’t even imagine being put in a situation like that.
Andrew: My wife and I can’t . . . we live in San Francisco. I would like to go to South Bay to live in Palo Alto which is an hour south. She would like to go to East Bay live somewhere, I don’t know, Berkeley, an hour north. We can’t agree on that, it’s just an hour away. You’re still in the Bay Area. That’s a big life change and we can’t agree on it.
Jessica: Right.
Andrew: I can imagine making that big of a move but you got to do it.
Jessica: Right, leaving everything behind, leaving your family, leaving your apartment or your home or whatever.
Andrew: So then how did that impact you giving money back to your investors and I read an article on Forbes about this where you said that it wasn’t just giving back money to your investors. It’s not like saying, “Hey, thanks for $5 million. Here’s your money back.” It’s showing them a return on their investment meaning taking cash out of the business. Why did that impact your decision to do that?
Jessica: Listen, people who take investment for the most part, I mean I took investment 13 years in so I was already kind of the experienced business person at this point. I had grown a profitable business. I remain the majority shareholder of the business even after we took investment. But when you take investment you understand that the people who give you investment expect a return, right?
Andrew: Yeah.
Jessica: And especially professional investors, institutional investors, they have a window of opportunity where the fund that you’re in, right, where your money is essentially coming from has a lifespan on it. And so they want to see returns in some amount of time in that lifespan, right? The four years, five years, six years whatever it maybe, and I think we just understood that we had a lot more life left in our business. We just launched a new product. We believed in where we were going. We had bounced back so many well from the whole Crimea situation. We were making money. We were profitable. But we hadn’t hit nearly the level of success that we know that we’re capable of.
And so I think at some point you just have a divergence of value and timing and it’s always really important to be honest with the people who have put their trust in you and put their money in you and for us it was like we’re not at a point where we are ready to sell or we’re ready to go public or any of that stuff. And yet, we know that you’re going to expect a return and so let’s figure out a way to . . .
Andrew: But wouldn’t they just be patient? It’s not like you’d taken it a long time before. I’m looking here, you raised the money when was it?
Jessica: 2013.
Andrew: 2013?
Jessica: Yeah.
Andrew: So that’s less than a decade that they would give.
Jessica: Yeah. But we were five years in and we were late into our, you know, we were one of the last companies I think in the fund list and I can’t speak for them and what their motivations are. I just know for us it was like we want to be building this business for a long time and I think that we learned that not everything is going to go the way you planned. I mean that sounds frivolous because everybody knows that but like having a huge deal with Microsoft and that not working the way you thought it was going to be, then like going through being annexed by another country and going through a war, like those are not typical things that take place.
And so I think we felt like we took like a multiyear like punch in the gut that we had, you know, we know that there are still a lot of fight and resolved left in us and we want to innovate and we want to put a huge amount of our profits back into your people and do all of the things that I think allowed us to bounce back. Right? If we had been a company that hadn’t focused on culture, that hadn’t focused on people, that hadn’t really cultivated relationships and allowed people to grow their careers here from more than three years or four years, which you see with a lot of tech companies and even that seems like a huge amount of time. We wouldn’t have had people who would have been willing to uproot their families and their lives to help save our company.
Andrew: I didn’t think of that. All right, you said innovation, let’s close it out with what’s new. But before, actually, just to be clear, you guys create games on websites. All I gave was USA Today as an example and the Microsoft example. What are some other sites where people can play your games today in addition to your own site arkadium.com?
Jessica: So most of the large newspapers in the world. So LA Times is a huge partner of ours, Washington Post. We work with CNN. We work with Chicago Tribune.
Andrew: So if I go to games.washingtonpost.com that’s you?
Jessica: Yeah.
Andrew: That’s you powering it even though it looks like a total Washington Post experience?
Jessica: Yeah.
Andrew: By the way, so you mentioned others, why would the Washington Post need this? The Washington Post is known for articles. Why do they need to have you create Klondike, the solitaire game? Why do they need all these other stuff?
Jessica: Good question. Well, I mean for a number of different reasons but I mean foremost when you think about kind of your traditional newspaper, hometown newspaper that you got when you were a kid and you opened up, there was always kind of a funny section or a comic section and a gaming section, right? There was always a crossword, eventually there was a Sudoku, there was a word jumble, there was always something there. So this has always been part of kind of the publisher experience from the reader perspective.
Andrew: Okay.
Jessica: We just digitize that and the reason that they have it is for that plus that we typically do about 20 minutes time onsite for our end-users and unfortunately we’re just kind of living in a day and age where people are not spending 20 minutes reading an article. Right? So we are helping these publishers kind of increase the amount of time people spend with them, increasing their brand loyalty, their engagement allowing them to make more money from advertising and as we’ve seen over the course of the last couple of years this is an industry in particular which is critical to the success of our democracy and is suffering at the hands of the Facebook news feed, and Google and all of the advertising dollars being kind of gobbled up by everybody else.
Andrew: So the way to generate money from advertising, keep people engaged with the site longer, and it’s part of the long history of publishing that they would have these games and keep the content a little bit more fun than the international news might be.
Jessica: Yeah. And it allows them to focus on what they do really well which is investigative journalism and reporting, right? They’re not going to have game experts who sit in the newsroom.
Andrew: Yeah, totally get that. I mean Microsoft was a shocker but them, I get that they wouldn’t want to keep it. Before we started I asked about the new product, InHabit. Can you help me understand how this works?
Jessica: Yeah.
Andrew: That is the new thing, this is beyond gaming, this is what makes you a truly interactive content publisher. What is it? Give us an example of what it is.
Jessica: InHabit is essentially a, to put it in a simplest terms, a data-driven gamified infographic. So back in the day you might read a story about last night’s football game and in that story you’d see what the score was for example. You know, you read an article about it. What InHabit does is it reads and understands within 2 milliseconds the contents of any story on the internet in any language. So if the story is about the weather, it knows it’s about the weather. If it’s about last night’s NBA game, it knows it was about last night’s NBA game. It then within those 2 milliseconds pulls and injects into the story in completely interactive infographic related story, so using data in real time.
So imagine you’re reading a story again about the NBA, instead of it just having the score of last night’s game, it knows well LeBron James was in last night’s game and it was the Lakers versus the Celtics. And so it pulls in kind of a gamified experience related to the Lakers and the Celtics with all of the data of what they played and allows the user to kind of have a two-way conversation, if you will, or an interaction within the article. So instead of just having this sit and lean back experience for their reading, they really get to kind of gamify that by delving into the data about that game or making a guess about who perform better in that game, so it’s completely related.
Andrew: The question on it might be who performed better. I would click on one of the two players and then I’d know whether I was right or wrong and then the movement or the player that I pick would slide up on the screen or something. So when you say it’s an infographic, I feel like you’re underselling it which is probably the right thing to do because you get excited. I think of it as more of like an interactive game or trivia around it but that might be setting people up with the expectations of something more intricate. It’s just a way of making the content on the page deeper by injecting information beyond the article and also more meaningful by having us not just read it but interact with it.
Jessica: Interact with it, yeah. It really is meant to be kind of a data exploration come to life. So it may not just be and you know we tend to not call it a game because that can also oversimplify it. And it doesn’t have to be a binary yes or no, it could be like related to where somebody tends to be hottest on the court, like it could be the zones where they are. It’s not just a win-lose or a person and their data. There are so many different ways that we kind of delve in and explore that again, completely contextual to the article and then the data that we have to support it.
Andrew: Not bad for a couple of kids who decided that instead of getting a job what they want to do is create a new version of Ms. Pac-Man for the online world. And I like to constant changes and improvements and additions to the site going from direct-to-consumer where people can win prize moneys to then finding a way to get on publisher’s site as a way of getting more people to your site and then saying maybe that’s the future for us and creating content just for other people’s site and then getting them to pay you to customize it for them and then and then and then and then here we are with a company that’s now, what, over 2 years old, 20 years old, or about there, 17?
Jessica: Almost 20. Almost 20 years old.
Andrew: Almost 20?
Jessica: Yeah.
Andrew: And doing well, profitable?
Jessica: Very.
Andrew: All right. For anyone who wants to go checkout the games, I like arkadium.com for just being a clean website. As a researcher I hate websites that are just too involved and too complicated for me to quickly understand them. This is so clear, so well done, beautifully designed, arkadium.com for anyone who wants to check it out, number one.
Number two, I want to thank my two sponsors who made this interview happen. If you want to hire developers who are not $3 an hour but really the best of the best, go to toptal.com/mixergy. I think they’re so proud of their quality of people. But the fact that I’m even mentioning $3 an hour developers in the same breath there’s Toptal developers, someone, and they’re going, “Andrew just, what is he doing?” All right, I don’t mean to pollute your brand guys, toptal.com for anyone who wants the best of the best. And if you want to get hosting done right, go to hostgator.com/mixergy. Jessica, thanks so much for doing this.
Jessica: Thanks so much. It was great.
Andrew: You bet. Bye. Bye, everyone.
