Data is the lifeblood of fast-growing businesses – whether they function in the real world like Airbnb, or exist in the digital realm like Facebook. But app companies, especially gaming companies, because they were “born digital”, are a special case because the practice of collecting and mining data is not just table stakes in order to delight customers.
It’s essential to inform an effective UA strategy and – more important – fund app marketing to maximize and monetize users. While many games companies are beginning to grasp the metrics –CPI, CPE and, above all, LTV – that are crucial to their success, few have appointed CFOs with the capabilities to steer the course. I catch up with Nusrat Shah – CFO of Exient, an award-winning UK games studio best known for its work on the Madden, FIFA, Need for Speed, Tiger series for Electronic Arts, the multi-award-winning DJ Hero for Activision, Angry Birds Go, Angry Birds Transformers and Dancing With the Stars – to discuss why games companies have to beef up their business skills, or risk collapse.
THROUGH YOUR MANAGEMENT AND FINANCE CONSULTANCY BACKBONE2BUSINESS LTD. YOU PROVIDE IN-HOUSE, STRATEGIC, FINANCIAL AND COMMERCIAL SKILLS TO COMPANIES THAT REQUIRE A HIGH CALIBRE PROFESSIONAL, BUT HAVE LIMITED RESOURCES. THIS IS THE SUPPORT YOU ARE CURRENTLY PROVIDING EXIENT, BUT MANY GAMING APP COMPANIES DON’T VALUE A CFO. WHAT DO YOU SAY TO THEM?
Gaming app companies want to be doing and making exciting stuff, but they also need to understand they can only do this within a wrapper – and that wrapper is the company. That is the vehicle that will support and enable developers to realize their dreams and goals. To deliver the games to market – and to acquire users – requires resources: staff or contractors, infrastructure, offices and so on. The first job of Finance focuses on making sure you are realistic about these costs and conscious of what is going out. But Finance is not about bean counting. It’s about commercial astuteness and creativity in financial planning that will ensure everyone can get on with their business and contribute positively to the company’s success. For this reason, Finance should be allowed to add value as a sounding board for ‘crazy’ ideas and to ensure the business does not inadvertently overtrade.
As most CEOs or leaders in a mobile gaming app company are either creative or technical, there isnaiveté and a general lack of core business skills such as commerciality and financial management. Even if they have been lucky and found success through a hit that allows them to obtain finance to keep a venture going, if they lack the skills to negotiate the best deal for the company, then that success may be short-lived. The main challenge is cash and cash management to fund the growth of the company and the UA strategies that will allow the company to achieve sustainable success. This is where Finance is needed to communicate effectively – internally with creatives and developers, as well as externally with banks, accountants, or investors. It’s about being able to carry gravitas without frightening your internal customers and stakeholders. And it’s about using instinct and your own abilities to forecast as effectively as possible, and steer the company as smoothly as possible through all the potential icebergs.
LET’S DISCUSS SOME OF THOSE ICEBERGS. HOW DO YOU SEE THE CONFLICT BETWEEN FINANCIAL SECURITY FOR THE COMPANY AND SPENDING ON GROWTH, AND HOW WOULD YOU ADVISE COMPANIES TO OVERCOME THEM?
There has to be a balance. If you look for pure financial security, there is a risk that there will be no growth and in the end the business may suffocate, or at the very least just stand still. If you are continuing to spend on growth and what may be in the future without ensuring that you have a strong foundation to grow from, or the right metrics that support it, the whole thing may collapse. Know your company’s goals and ambitions – and use this as the starting point to plan short-, medium- and long-term strategies to ensure you grow in a sensible way, building on the foundation as you go. You also need to have a balance within your organisation. Realistically, if you want to be a success in F2P, then your F2P aspiration has to be icing on the cake, not the core of your business. You have to focus first on business strategy and planning that allows you to achieve your end-goal andcover all the costs.
Don’t underestimate the importance of Finance within your company. Most app companies don’t hire skilled, competent people because they believe having a CFO is an “overhead” and “waste” of money. They fail to see having a good finance person or CFO – not just someone in the team they appoint to take the position because someone has to watch the costs, or deal with the VCs – adds value in a variety of ways. Get the right talent, and the CFO will also be complimentary to the creative and technical leads in the business, taking care of Operations as well as Finance. I, personally, can cover a wide breadth across Finance, Operations as well as Commercial requirements.
AS YOU POINT OUT, MANY APP COMPANIES DEPEND ON WHAT WE’LL CALL AN “ACCIDENTAL CFO” AT THE HELM, SOMEONE FROM THE TEAM THAT IS GIVEN THE POSITION, REGARDLESS OF TRAINING. WHAT SKILLS ARE NEEDED TO DO THIS JOB WELL?
It’s about being effective and – more importantly – creative in how you approach financing. You also need to be an effective communicator able to assess the audience being addressed and present financial information in a way that will be understood by them. Say you plan to go out and find external investment to fund new ideas or future growth. You have to have an investment story; you have to have something the investor can buy into, and you need proven success. Ask and answer the questions: What is the amount of money you want to raise? How will it be utilised? What can you offer to the investor in return, such as a percentage share of equity in the company?
A LOT OF TOUGH QUESTIONS. YOU ALSO TALK ABOUT BEING CREATIVE, WHERE DOES THAT COME IN?
If all the metrics are right, then you can be creative in how you match financial planning strategy and tactics. You can consider alternatives and weigh your options. Rather than raising money and giving up equity within your organization, or giving significant security or personal guarantees to your banks, you can explore other forms of financing such as revenue recycling, which is a form of financing specifically geared to the app industry. What Pollen are offering is effectively the same structure as banking, but specifically tailored for the needs of game and app developers who have cash tied up within the Apple, Facebook or Google accounts – cash they can’t use for several months. Getting that cash early allows you to reinvest in the business – so, if the metrics are right and it makes sense to do that reinvestment early, then your profitability and growth will just accelerate. Once you’ve reached certain business milestones, you can continue to be creative in how you finance the next phase of growth. You don’t then have to give up equity; you balance that by taking on debt, which is less expensive than equity.
LOOKING AHEAD, WHAT IS THE BIGGEST CHALLENGE FACING GAMING COMPANIES?
Sustainability. Certainly, when you are F2P, it’s risky and in many cases too risky for traditional financiers. If you want to get into F2P, then you have to understand that it needs to be a transition. You need to have some level of foundation that’s covering your costs and your F2P aspiration, at least to begin with, has to be something like the icing on the cake, not the core of your business
Nusrat qualified as a Chartered Certified Accountant in 2000. She has over 20 years international finance and commercial/risk management experience in software, high tech manufacturing, renewable energy, other clean tech sectors and the video games industry. Having been involved in fund raising, acquisitions, disposals and exchange listings, she also has strong corporate finance experience.