How to bootstrap from zero to 50 million $: SteelSeries founder Jacob Wolff-Petersen
When visiting Morten Lunds blog recently, we came across a picture of a guy carrying a bunch keyboards, with the caption:
“Here is a picture of a real entreprenuerial hero.
Sales Is The Best Funding
Yesterday I tried to tell a crowd of very hungry entrepreneurs that they should go and sell stuff – and not hunt Venture Capital.. Jacob Wolff-Petersen – one of my best friends – he used 10years to build SteelSeries with +50mio€ in revenue – without taking in 1€ in VC money… beat that.”
Naturally, we had to find out more so we contacted Steelseries founder Jacob Wolff-Petersen, who told us that yes, SteelSeries bootstrapped itself to where it is now, from selling high end mouse pads in 2001 (the Icemat) to becoming a global player in the gaming world, renowned for their ultra high end gaming gear. It’s a great bootstrapping story, but also a great story of knowing your own limits as an entrepreneur.
As you would expect, the birth of Steelseries was a case of scratching your own itch.
Jacob Wolff-Petersen: “At least partially, yes. I was always a gamer – not on a high level or anything, but I certainly understood the games and what’s important to gamers.”
“Our startup story is kind of traditional, I guess – we started with a low tech, easy product: a mouse mat. I don’t know if you remember the computer mice from that day, but most of them were ball mice, that collected a lot of dust from the mouse pads. We designed a mouse pad in acid treated glass that kept your mouse dust free: the IceMat. It was very popular at the time, we sold a lot of them.”
“But more important than the product was that we understood the market better than the other players at that time. Gaming in 1999 was a very complex and confusing market for the traditional players, because it was so international. Everybody knew it was a growth market, but they didn’t know how to connect to it.”
Talking to the niche market
“The incumbents like Sennheiser, Logitech or Microsoft didn’t have a global strategy for a niche market like. It was more: our German country manager thinks we should do this in Germany. Unfortunately, that’s not how the consumers were organised. The gaming community gathered on English speaking forums, and they were from around the globe: Asia, Europe, South America, you name it.”
“We went directly to where these new consumers were from day one: on global forums, and we sold globally too. Which is basically the story of our first five years: we made products, developed the market, specialised our communication to gamers and got feedback from them – made them part of – our product development.”
“That’s the story up till 2005, and I guess it’s a standard startup story. I don’t even think it’s all that interesting, although I’ve been telling it a lot (laughs). For me, the interesting phase of our company comes around 2005. We started morphing into a company with a lot of other products, other complications of becoming a larger business.”
“By this time, we were doing about 10 million € in revenue, and that’s a very different environment. You have to start thinking seriously about supply chain, logistics, warehousing and processes in general.”
“When you’re handling very large orders, suddenly it becomes very important to start buying at the right prices, with the right terms and optimized quality control. Also: you have to be able to manufacture in those quantities – and be able to scale up and down your manufacturing according to demand. I’ll be honest: I didn’t know anything about this.”
“At a certain level, mistakes cost real money”
“And at this level, when you make a mistake, it’s actually becoming expensive. When you’re a 10 million dollar company, stupidity starts to cost real money. And one of the big things that we actually got right, I think, was to get a professional chairman and then a CEO who was into the company, without killing the entrepreneurial spirit of Steelseries.”
“A big part of the success that we have with Steelseries, I think, is due to me realising what I’m good at and what I need experienced people for, who put processes into place. I would call it the “boring stuff”, but it’s really important stuff.”
“Now, if you do this too early – get a CEO on board and a management team and corporate people: that can kill your company at an early stage, because these people also bring processes on board, which can be slow sometimes. But getting them at exactly the right time is one of the good things I did at Steelseries (laughs).”
“It was actually through an introduction by Morten Lund and our chairman Morten Steen Jorgensen that I found a good CEO, who used to run Motorola accessories on a global scale – building it from approximately a 100 million $ outfit to a 1,4 billion business unit.”
“But more importantly: he had started out at Motorola with very few people, and built an organization of 300 people in that time. That was exactly what we needed: someone who had experience building up an organisation. And he did: he built a management team, with development, marketing, supply chain and regional managers.”
“Everybody says this, but it’s true: everything comes down to finding the right people. I needed to find a CEO with whom I would have good chemistry, so that we’d have a good mix of me doing new things and him getting things formalised in a good way, and executing on those things like logistics and supply chains.”
“We don’t want Steelseries to be a dinosaur after only ten years in the business”
Would you say that keeping the entrepreneurial spirit alive in Steelseries is a happy accident, or was it by design?
Jacob Wolff-Petersen: “I was always very aware that it needs to be there. But it is really difficult when you’re operating as a bigger corporate entity. Keeping that spirit and vision inside the company is extremely important. To put it bluntly: we don’t want to become an industry dinosaur after only ten years in the business. You really need to focus on it, it doesn’t happen by itself.”
“So we could keep doing what we did so well the last decade – concentrate on serious gamers, be present at tournaments, sponsor pro gamers. But there comes a point where there’s a danger in doing things as you did them before. So we think a lot about how we can take the good things from professional gaming and make them relevant for casual games.”
“We are now faced with a big shift in the gaming industry – you have tablet and mobile gaming, but underneath that we expect gaming to become really cloud based. I can imagine a moment when my son is gaming on his PC or Mac and when we go somewhere, he would think it’s only natural to pause his console game, take the iPad and resume his game to play it in the backseat of the car.”
“We need to be ready for that and make peripherals that are compatible across platforms. We call that ‘freedom to play’. An end user doesn’t care if he’s playing on an Xbox or a PC or an iPad. So we now have a controller – the ‘Steelseries Free’ – a small controller that works on PC, Mac and iPad, and phones working on either iOS and Android.”
“That’s just a starting point: gaming is in a transition, and we should find a way to change the company to fit these new patterns, to find a way to talk to all those new gamers.”
Steelseries tackles innovation through “dark projects”
Can you explain how you do this precisely?
Jacob Wolff-Petersen: “First of all, by keeping resources free to focus on development. What happens is that people get caught up in projects and things are just running along. Which results in no one ever stepping back and asking questions like: what is our story? What is Steelseries? Are our values still relevant, which ones do we need to change to be compliant with the new gaming world?”
“I also sometimes develop products that are like dark products – where a smaller team is involved and where we don’t necessarily go through a long process. It’s a tradeoff where we deliberately step out of efficient processes with a lot of input from everybody.”
“You put technology and vision in those dark products that many people in the company might disagree with, but at least it’s new and it offers a vision on where we think the market is going. Of course you’ll get it wrong. But for sure, you’re coming out with innovative products that will help shape the future.”
It’s essentially a skunkworks strategy?
Jacob Wolff-Petersen: “Yes, developing in smaller groups, next to the standard processes. What can kill new ideas is needing twelve people to agree on them. In a larger group, the dynamic is to play it safe, not to say something stupid. So everybody often only says things that everybody already knows are obvious. Or if in doubt, they say: let’s ask the customer. But customers don’t always know what they want before they see it.”
“Whereas in smaller groups, you just stick your neck out, do suggestions. In my experience the outcome is often better.”
Does Steelseries have a process in place for product innovation?
Jacob Wolff-Petersen: “I think the most important thing is that we try to be guided by a few mantras that for us, express what Steelseries is about.”
“The first is ‘winning is everything’. It’s really the soul of our company, the idea that winning a game is everything – we do work for professional gamers after all. If we’re developing something new, that’s a question that always comes up: is this about ‘winning is everything’? The freedom to play is another important vision to us – we want to have cross platform capabilities in our products.”
“And our last mantra is: you decide. Sometimes you develop two different versions of something – both of which are attractive to a consumer, but which one you choose would be a matter of personal preference. In that case, we’ll always try to find a way to build a switch to toggle between the two versions, or put some software in it that allows you to choose. Those are the three things that you should recognise in each of our products.”
The clash between management and entrepreneurship
You were talking about getting a CEO on board. How’s the dynamic between you and your CEO? Obviously, management and entrepreneurship are two worlds that have a potential for collision.
Jacob Wolff-Petersen: “It’s important that we respect each other. If the CEO would shoot everything down because we might not get every drop of profit out of it, that wouldn’t work. On the other hand, I can’t go on living like all we have to concentrate on are AMAZING NEW PRODUCTS. I also have to think about the company now. Without mutual respect, we will not survive, right? The way we work is that we both know that both of us are important, but we agree on a set of values about what Steelseries is and then simply discuss things instead of just doing them. It’s knowing when to say: okay, I give in. But honestly, in everyday work, I don’t feel it.”
It would be weird if you would feel it: you’re the largest shareholder, after all.
Jacob Wolff-Petersen: “I may be the biggest individual shareholder, but it doesn’t come down to that. If you need to pull that weight all the time, people will just not work with you for very long. You need to create a spirit where the best argument wins, where people don’t think that you are the owner and thereby you’re correct. You want your people to think of you like a guy who comes up with good ideas, has decent arguments and a vision.”
How about the other way around? Are you bothering your CEO a lot by somehow having the final word on things?
Jacob Wolff-Petersen: “No. Our CEO is a strong minded person. He can really put his foot down, when he thinks I’m wrong. But personally when I have different ideas about things and I’m involved in discussions, I think: will this make or break the brand? Often it won’t. So I back off and let people make the decision, even if I think they might be a bit wrong.”
You aimed to be a global company from day one – was that in part possible thanks to being a B2C company?
Jacob Wolff-Petersen: “Part of it, yes. But being in a successful company for me means that you got the symphony right: the team, the products, the processes of supply, marketing, manufacturing. The global presence. All that, while making new stuff. You can’t be successful on a big scale just by making products, or being global. You have to get the symphony to sound right.”
“There comes a time as a company where you’re your own greatest enemy. The biggest risk of failure comes of implosion: not being able to deliver, or simply not being able to keep generating new ideas. Or focusing too strongly on the strong markets in your portfolio instead of planting seeds worldwide. Or not being able to scale manufacturing up and down. ALL of these things have the potential of failure.”
“We realised very early on that we needed to have a continuing process of making products. If we couldn’t do that – we can do as much marketing as we want, be globally present. It won’t help.”
“Yes, there was a moment when I was nervous about an implosion of Steelseries”
Was there a moment when you feared for an implosion of Steelseries?
Jacob Wolff-Petersen: “There was a moment when I was nervous, yes. At a certain point, we went to the US, and we seemed successful, while we were actually failing big time. Supplies that we thought had sold were still sitting on shelves. And all of a sudden all of these bills came in together which made it clear that we were failing big time in the US market. It was like holy fucking cow! All that was the result of a wrong hire in 2005.”
“We escaped first of all because we luckily sold a LOT of products in Europe, and also by visiting every single customer and talking to every creditor. It was a very close call.”
“Most important: we told our bank as soon as we knew about it, so we could face the challenges together. I clearly remember having a meeting with our bank telling them about our plans – our current CEO, a regional lead and our chairman gave a presentation. After the meeting, the bank director came over to me and said: ‘Jacob, I really think you handled this well.’ And you know what? All I did was present the people that would help me solve the challenges, we didn’t have a formal plan yet. We showed them that afterwards too, of course (laughs).”
“Looking back, I see that it was very much our own mistake, and it comes down to processes. We didn’t put the processes in place that would have averted this. All our US bills had to go through one person – obviously not a good process. We didn’t have a decent flow of information about our stock levels.”
Those are mostly tactical errors, let’s say. Have you ever made a really bad strategic bet?
Jacob Wolff-Petersen: “Oh, we thought at a certain time that we should build MP3 players, but luckily we made very few of those (chuckles). The biggest strategic challenge might have been the fact that we had two brands – Icemat and SteelPad. It wasn’t a strategic choice, it was just something that happened. But those two brands were really torturing us, because every time you invest a dollar, you have to choose: where do I put the dollar? We ended up creating just one brand, and I still feel that was the right decision.”
“Right now, we’re betting big on mobile gaming. Whether that will be the right bet, we’ll see. We think so. But it’s also a big bet on being part of a whole different ecosystem of stores – Verizon, Orange, O2. You wonder: do they understand gaming?”
“Do we now target the 80 year-olds who game on their iPhone too? Or do we stick to the hardcore, 25 year-old gamer? It’s one of those things that’s very difficult. You don’t want to end up as the Rolls Royce of your product class that starts to produce Fiat like cars. That kills the brand. And it’s also a lot more fun to build Rolls Royces.”
You said your role has changed dramatically over the years. Some entrepreneurs miss the early garage days. How about you?
Jacob Wolff-Petersen: “I still enjoy it. In the beginning, it’s the selling, being a big part of the marketing effort. What I enjoy is developing the roadmap with the team, the strategy, talking to people inside the company. It’s not that I concern myself too much with the supply chain – we have very good people taking care of that. I help out in the things that I have an interest in, and where I can hopefully contribute to the team: developing new products, thinking about where gaming is going in the next years.”
“But will you bet on it?”
Do you have any European CEO’s or writers that are examples to you?
Jacob Wolff-Petersen: “It’s funny that you should ask. Morten is very into that: who’s where, how are they doing. He sometimes asks me about a person and I seldom know who he is talking about. I just concentrate on my own, I don’t care what other people are doing. I’m interested in: how do people interact with my products, what products are successful?”
“You know, you can put a lot of people in a room, and they can probably figure out where things are going. But for me, the big question is: will they bet on it?”
Visit the Steelseries website: www.steelseries.com
Photo via Morten XO Lund
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