Best EU Startups
23 July 2014

Best EU Startups: From Failure to the Success

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Skype, our (s)old estonian friend.

Skype was a revolutionary product and one of the most successful Internet companies of its time. Acquired by eBay on 2005 and later, on 2011 the idea today sounds as simple as the possibility to talk to anyone anywhere for as long as you want – with just an Internet connection.

From the problem to the technology solving the problem. 2001. Niklas Zennström, from Sweden and Janus Fris, from Denmark, were working in their second startup with Estonian developers, Ahti Heinla (third founder) among them. By that time, they had already developed Kazaa, a peer to peer file sharing company, so famous then! And again, it happened: from a need they got the idea. “We were spending lots of money on calls communicating between Stockholm, Copenhagen and Tallin”, founders say in the official story. “At some point we realized, ‘Hey, maybe this peer-to-peer technology we were developing could be a solution”.

Growing, but not doing revenue. Just in the first four months, Skype acquired 4.1 million users and made, through charging calls to landline and mobile phones, 19.8 million in its whole first year. But the company was never profitable by itself: it reached more than hundred employees and although the user base was growing (up to 150.000 per day, they said) revenues were not there yet. In the meantime, the offices in Talliinn were a unique adventure. “Skype employees played with a devotion akin to their immense work habits. At company meetings and celebrations, they took care of business, sure. But they also raced Go Karts, shot paintballs, cycled, danced, and occupied hotel pools until the wee hours of the morning. ‘It’s a culture where everybody is self-motivated and passionate about the work they do. For nobody it was a job. For everybody it was a mission”, one of them said.

eBay and Microsoft acquisition. 2005: the deal (“dramatic”, as they describe it) was closed: eBay spent $2.6 billion in the company. Skype was growing fast and eBay hoped it could help accelerate its own business – as it happened with PayPal. The network kept growing (and changing the way we communicate, as its mission was) and in 2009 eBay sold Skype to private investors. The company and product were restructured (and kept growing in users!) until in 2011 Microsoft acquired it again for $8.5 billion.

The legacy. As a company, Skype was not only a high-growth one but also a great technology product living aside the world of Silicon Valley that called the money of players such as eBay or Microsoft. “When you build a company, when you grow a company, there’s always things you can do better. Of course there were things we could have done differently,” founder Zennström said. “There’s just so many opportunities all around the world and of course you get distracted here and there; that’s just the nature of things. It’s never going to be perfect, but we did a good job of getting this company off the ground – especially a company born outside of Silicon Valley.” In fact, the relation with the corporate culture of the first one made some of the earliest employees left and create their own startups. Here we talked about them: Transferwise, Rdio or the VC Company Atomico.

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Rovio. 51 failures to success.

After 51 attempts and failures, they created their game nº 52… and had a hit. With that achieved, Rovio is today more than a mobile game company: they work on education, collaborate with organizations such as NASA and CERN, and are immersed in the entertainment market.

6 years developing to third companies. Rovio was founded in 2003 by three students from the Helsinki University of Technology, Niklas Hed, Jarno Väkeväinen and Kim Dikert. They did money by selling some of their games to other companies and reached, with some titles, about half a million downloads – but without great benefits. In 2009, Rovio began laying off workers – from 50 to 12 – and the financial situation became so desperate that a relative of one of the founders mortgaged his home to save it.

Let’s create the perfect game. At that point, they had to create the-perfect-game and they wanted to do and achieve it themselves – not third parties like they used to do before. “We thought we would need to do ten to 15 titles until we got the right one”, said Niklas in an interview to Wired magazine. One of the designers at the company had pitched an idea, showing cartoons of round birds moving towards blocks. They started working on it, made changes and almost give up on the project. “Eight months and thousands of changes later, after nearly abandoning the project, Niklas watched his mother burn a Christmas turkey, distracted by playing the finished game”, Wired continues. “‘She doesn’t play any games. I realised: this is it’”

The largest mobile app success the world has seen so far… after 51 attempts. Angry Birds was the 52nd game developed by Rovio. It was 2009. They knew the potential of the smartphone, they knew the public liked artillery games. And they knew they were going to like it more with the brand new iPhone touch screen. So they put all their efforts in developing this fun mobile game, in which users use a slingshot to launch birds to destroy green pigs. Angry birds has been called “the largest mobile app success the world has seen so far”. 51 attempts later, the company had finally its hit.

Mobile – and App Store – first! Touchscreens eliminated joysticks and buttons (launching slingshots was going to be more intuitive than ever!). So Rovio began developing for iOS. Paid apps AppStore start at € 0.99, the price at which put paid versions of Angry Birds.

But success in the AppStore is not so easy: it is, in fact, such a saturated market. Rovio conquered the ‘stores’ of small countries (Denmark, Czech Republic), where it takes less downloads to go to the top ten, before attacking the United States and the UK and distributed through Angry Birds Chillingo, an independent platform with good relationship with Apple. When they could prove a game the public liked the game, they prepared a free version and spoke to Apple UK to stand out as the game of the week. Apple agreed. Their place in the ranking went from 600 to 1 and remained in the top ten for months. Then, started on other platforms (Android, Symbian, Windows Phone, PC and consoles), upgrades (Angry Birds Rio, Angry Birds or Angry Birds Space Star Wars), merchandising and everything else. The viral was created.

From a game company to an entertainment one. “The important thing for us is to offer Angry Birds in every possible way”, told Peter Vesterbacka, Rovio’s CMO, at SME Assemby in Vilnius last year. “Games, entertainment, physical products, parks and anything else. Even education.” Almost half of the revenue of Rovio (which stands today as Rovio Entertainment, not as Rovio Mobile) comes today from non digital products. Playgrounds, merchandising, TV programs… The company is also developing the concept of Angry Birds Playground, focused on education in the early years and whose curriculum covers everything (maths, languages, etc.). And starting testing it in China. “It is something we believe will be significant in the future”.

Embrace failure, celebrate success. As a company that had 51 attempts before the hit, one of the core-values is accepting failure. Peter Vesterbacka, who is also an active person in promoting entrepreneurship, thinks that the spreading message of creating startups is not “pressing” youngsters around Europe.“It’s great that people want to do and we begin to understand that not all startups are successful, many of them fail. Is important and is the missing piece in Europe: we have to be much better at accepting failure. Rovio made ​​many games and then, look. In Finland we have created the National Day of Failure. We celebrated on October 13 and everyone who has been successful can talk about their failures. I think we need more people saying, “we want to be a startup.” Because we need more startups, we need more entrepreneurs. Society needs to understand that with success comes startups and failure more often than success. And one fact: in the U.S., if you fail is easier to get money again. We need to create that in Europe.”

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Blablacar, the long path to success

It’s been ten years since the service was born and just two weeks ago it made the largest VC round in a french startup. Their goal is clear: now that Blablacar has set up in Europe, this $ 100 million round will help the company expand their concept everywhere. It wasn’t an easy ride…

“From 2004 to 2009, I can tell you that I tried everything,” Mazzella told Techcrunch. His idea came up on a Christmas holiday, trains full, roads full of people driving home. Why not sharing costs with any of them? As there was no network to do it, he created it. “Create something you could use! This helps building and refining it. Be the first user and feeding the idea is shorter this way and helps to not lose your hope and trust the long-term sustainability of the project”, he said in an interview. He referred to collaborative consumption projects. Today ideas like Uber, Airbnb or Lyft (american companies) have made us trust each other again, but in 2004 was not easy – at all.

B2B 2 B2C. To make the concept grow, the company stuck to the original idea but before diving into the large consumer market it targeted segments like Universities. “We developed B2B solutions for companies and local authorities in order to get our project started with some revenues but the activity was different and we have lost some time on our main C2C long distance activity by spending time on this other B2B activity instead. If I had to do it again given the fact that investors are now more ready to invest in C2C marketplaces, I would dedicate all my time and energy to raising funds for the CtoC mode”, Mazzella recognizes.

Skeptical attitude. Blablacar was, and is not, doing something easy to explain to the market. It was creating a service it did not exist before. So when asked about the biggest challenges they faced, the founder always talks about the skeptical attitude of all the people. “We normal humans tend to not believe that something can exist when it does not exist yet!” For that reason, he also advises to be surrounded by people that truly believe in the project, to stick to the idea, but have complementary skills. “It would be a mistake to work with people of our same profile”.

The ability of seeing the future. “Entrepreneurs have the ability to visualize something that does not exist yet”, Mazzella said. ut it took time to make it grow. In 2011 the company already transported about 400.000 people per month, operated in France, Italy, UK and Spain and had a revenue of $ 1.2m. In January 2012 they got a $10 m round to expand the concept and just two weeks ago, on July 1st, they raised a massive $100 million to expand the concept. “Help the investor see the future and visualize the moment in which the service will develop all its potential. The investor will ask two things: will this product exist in the future? And will a small team be able to make it grow?”