How tech titans ‘failed’ their way to the top

Founders of Skype, Spotify and Supercell share their stories.
Photo: Kai Kuusisto

HELSINKI – Every great company has at least three near-death experiences.

This is according to Daniel Ek, CEO and co-founder of digital music service Spotify.

Addressing delegates at Slush, Europe’s largest gathering for start-ups and investors, Ek said for a long time Spotify disregarded the impact of mobile devices on the industry.

The business was founded during a time when the majority of people used desktops and it didn’t even license a mobile product other than a premium paid-for product. It believed consumers would use desktops and smartphones concurrently.

It was a pretty ironic situation because although revenue and conversion numbers went through the roof, and investors were very excited about the company, management soon realised they had made a strategic mistake by ignoring mobile.

Fixing this however was not an easy task. It took about 18 months to rectify the situation. Spotify had to go back to the drawing board and renegotiate with the music industry.

“So we had to go back to the music industry and tell them no actually, you know what, the thing we used to charge money for you now need to give us for free as well.”

This wasn’t an easy sell.

“It was kind of switching out the engines midflight and honestly I remember the day we turned on this free service. Had we probably gone on for about six more months, I think we might have died as a company. So that was a really defining moment and that was as late as 2013,” Ek said.

Entrepreneurs have to look at mistakes or failure as part of a process of learning, Niklas Zennström, CEO at Atomico and co-founder of Skype, added.

“I think we need to have a culture where we need to embrace failure. Failure is a way to learn and to get there in the end.”

Had it not been for the failure of its file sharing software service Kazaa, Skype, which essentially used the same technology, would probably never have been born, Zennström said.

Kazaa was extremely popular with half a billion downloads – the most downloaded software at the time – but didn’t make it financially.

“We ended up in massive lawsuits. We became enemy number one from the US record and movie industry.”

Yet, they learnt an enormous amount about peer-to-peer technology and that a small team from Europe could build something global.

But running a business ultimately means entrepreneurs take on risk.

Ilkka Paananen, CEO and co-founder of Supercell, the mobile games developer responsible for Clash of Clans, said one of his favourite sayings was if it felt safe it was because the driver wasn’t going fast enough.

“We are in the games business and in every business it is really important to innovate. Innovation in my mind equals risk taking and risk taking means that you are going to fail more often than you are going to succeed.”

If over the past year you haven’t failed a single time, it meant you weren’t taking enough risk as an entrepreneur and wouldn’t have had a chance to win big.

During the late European summer this year there were months where Supercell didn’t have a single game in the global top ten. At the same time, the biggest marketing campaign in its history was a complete failure, while Niantic’s Pokemon Go, was a smash hit.

Paananen said being an entrepreneur naturally meant having ups and downs.

“It is what you should expect when you are in this business.”

But Ek cautioned that entrepreneurs shouldn’t strive to fail.

“I think it is okay if you make mistakes, but by the time they’ve become real failures you probably should have discovered this much earlier.”

Spotify constantly had to make bets. There were going to be times when they would be wrong about the tactics, but hopefully they wouldn’t be wrong about the goal, he said.

“Failure is not something you should strive for. Making mistakes is okay as long as you make them quick and cheap.”

  • The journalist attended Slush as a guest of the Finnish government.

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We only want to hear winners talk about failure. Otherwise, the concept of failure is too scary.

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