Why did Angry Birds maker call "game over" on CEO?
Mikael Hed to leave Rovio at end of 2014, as company fails to build on early success of its iconic mobile game
Finnish gaming firm Rovio’s announcement that its CEO Mikael Hed will be leaving his role at the end of the year has provided a timely reminder of the challenges founders face in taking their businesses to the next level, after initial runs of success. Fuelled by an easily-grasped format and a rise in the popularity of gaming apps, the firm’s Angry Birds game skyrocketed into public affection following its launch in 2009. Indeed, the franchise became so big that Rovio was able to generate further revenues through licensing and other forms of entertainment beyond mobile gaming. For example, physical children’s toys based upon the game were released last year, a full-length animated Angry Birds film is in production.
However, in recent years Rovio has had difficulties with growing its business and has fallen behind competitors – such as Candy Crush Saga creator King Digital Entertainment and compatriots Supercell – in an industry that research outfit Gartner Inc expects to grow by up to 30% this year. Rovio’s uninspiring financial reports have shown that full-year revenue grew by less than £3 million to £123 in 2013, compared to the previous year. With these factors in mind, the company has responded by moving current chief commercial officer Pekka Rantala to the helm from 1 January.
A veteran business leader, Rantala was chief executive at beverage maker Hartwall from late 2013 to April this year, and prior to that held a range of senior posts at personal technology and telecommunications firm Nokia. Hed – who helped to launch Rovio in 2003 as a mobile game-development studio named Relude – will remain a fixture of the organisation, serving as chairman of Rovio Animation Studios: the division behind the impending film.
Rovio’s change of leadership points to the wider issue of how startup companies should develop following their explosion into the mainstream. The issue of whether founding CEOs are more beneficial than veterans for growing small firms into giants is a constant topic of debate in the business world. On one hand, supporters of founding CEOs can flag up Microsoft under Bill Gates –but critics could just easily cite Google under professional CEO Eric Schmidt.
Arguing for founder CEOs to be kept in senior roles in their companies, Joel Bomgar – founder and CEO of IT support firm Bomgar Corporation – wrote in a 2011 Fortune column: “The founder should start as CEO and remain CEO unless it is blatantly clear to everyone that it absolutely, positively isn’t working. If the founder lacks operational expertise – as I did – the company should hire a really strong CFO or head of operations, or even a president/COO. If the founder needs coaching – as I did – the board or company itself should provide it. A company is a living, breathing organism, and the founder is a key part of its lifeblood.”
In the case of Rovio, it is clear that the board believed Hed had taken the company as far as he could. Angry Birds’ success happened at perhaps the best possible time – just as the use of internet on mobile devices started to gain popularity. However, instead of building an array of successful games and projects on the back of that early headway, the company has relied too heavily on the series.
While merchandising deals with firms such as Hasbro and Hennes & Mauritz for branded toys, hoodies and cutlery have squeezed extra funds from the franchise, waning interest in the core game has led to a year-on-year 52% fall in Rovio’s net profits. Meanwhile, the franchise has become overshadowed by successful, low-tech gaming products in the past 12 months that have shot to the top of the app charts – for example, Flappy Bird and celebrity-driven games such as Kim Kardashian: Hollywood. In the face of diminishing market share, Hed has tried to transform the company’s revenue model by making downloads free and introducing Candy Crush-style fees for in-game purchases. But, so far, there has been little change in fortune.
In parallel with these challenges, Rovio has undergone dramatic personnel changes in the past year – expanding its workforce by more than 300 staffers while weathering the departures of many key management figures – including a chief operating officer and head of advertising.
According to a 2013 article by LinkedIn co-founder Reid Hoffman, when a company begins to expand very quickly, founding CEOs are bombarded with issues they never had to address before. “As we scaled from a handful of people in my living room to dozens of people at an office,” he wrote, “I saw the job of the CEO shifting. At 50 people and beyond, a CEO increasingly has to focus on process and organisation, and that wasn’t what I was passionate about.
“I’d rather be solving intellectual challenges and figuring out key strategies, not debating which employees should get a promotion, or configuring project timelines.”
On the other hand, Rantala is an experienced boss from the telecoms sector and investors are likely to trust that his decades of knowledge and wisdom directing blue-chip companies will ultimately steady the ship and carve out the next chapter. Reigniting growth at the company and diversifying its business are the new chief’s top priorities.