After Three Pivots, This Founder Sold His Gaming Company for $800 Million

At Dallas Startup Week, Kevin Chou of Kabam discusses taking risks, the need for entrepreneurs to pivot and advice for aspiring founders.
Entrepreneur Staff

When Kevin Chou and his co-founders launched Kabam in 2006, an $800 million exit wasn’t on his mind. Nor was an acquisition. Actually, its current product wasn’t in the picture either.

“I didn’t originally start Kabam to be a gaming company,” he says. “We began as a professional social network in Facebook’s early days when only college students could use the site.”

But with only a few thousand registered users and no one returning to use their product, the co-founders decided to pivot to a sports app for Facebook.

“Within 30 days we had a million users and grew to 60 million users in our first year,” he says. “Despite our rocket ship growth we ran into yet another problem with our sports communities: the inability to monetize given low ad rates on apps.”

The 2008 recession didn’t help, as ad rates continued to plummet. “It was clear that even if we got to 600 million users, essentially the entire global sports fan base, we would never grow beyond a $30 million per year business,” Chou says.

So after hearing rumblings that people were making money on Facebook through gaming, the lifelong gamer decided to take a leap of faith and delve into this world. Kabam’s first game, Kingdoms of Camelot, ended up being a hit.

Related: 7 Key Steps to a Growth Strategy That Works Immediately

“We made our first $100 within several hours,” he says. “Within one month we had tens of thousands in revenue and hundreds of thousands of players. Within one year, we had 7 million players and $30 million in revenue.”

Still, it wasn’t enough. Facebook initially let developers keep 100 percent of its revenue, but it then imposed a 30 percent tax.

“We didn’t believe it at first that Facebook would do such a thing for developers that were helping to sustain its ecosystem,” he recalls. “When the news was confirmed, I felt complete disbelief as if I had been punched in the gut.”

The team decided to invest all of their resources in getting off Facebook and move into the mobile space.

The gamble paid off. After the breakout success of mobile app Marvel: Contest of Champions, Kabam attracted the attention of South Korean game publisher Netmarble, which ponied up $800 million for Kabam’s biggest asset, its gaming studio in Vancouver.

During Dallas Startup Week, taking place from April 3 to 7, Chou and I will take part in a fireside chat about his company's rollercoaster history, the risks he took and advice he has for entrepreneurs. I also spoke to him before the event. Here is some insight into how Kabam became a success in the gaming world.

When you started Kabam, what was the opportunity, or the white space in the market, you were looking to tackle?

I had heard early rumors that games were beginning to make significant amounts of money on Facebook. However, no one could really substantiate this, and many people thought it was crazy that anyone would pay significantly into a game for a virtual good. As a lifelong gamer who is passionate about games, it was easier for me to make that leap of faith into free-to-play gaming. By doing this, we were finally able to tackle the trifecta that had eluded us for so long: effective customer acquisition, sustained engagement and robust monetization.

How did you know you hit your sweet spot?

Our first product was a clear failure -- no users, no revenue. Our sports product was a partial failure -- users, no revenue. This was in stark contrast to when we released our first game, Kingdoms of Camelot. We made our first hundred dollars within several hours. Within one month we had tens of thousands in revenue and hundreds of thousands of players. Within one year we had 7 million players and 30 million in revenue.

Related: 6 Essential Components of a Solid Growth Strategy

For entrepreneurs, do you think there is a point when they should give up on one path or idea and pivot?

From day one, I didn’t want to build a small business that just got acqui-hired. My philosophy was to "go big or go home." This ultimately ended up being our north star in making the difficult decision to pivot our business multiple times when it became clear that our current path was not going to lead to a home run.

In terms of timing, the key is to a strike a balance between not abandoning an idea too quickly, which I think some entrepreneurs do now with the overwhelming emphasis on “lean startups,” and not waiting too long, at which point you lose the advantage of moving to new ground early.

When these sorts of challenges bubbled up for Kabam -- the need to pivot, think differently or not growing quickly enough -- how did it impact your day-to-day culture and morale?

Truth be told, there were many weeks where I would wake up in the middle of the night with cold sweats, unsure of whether I was making the right decisions. But when I got up in the morning, I made sure to walk into the office each day projecting 100 percent confidence -- not so much that it would get in the way of constructive feedback, but I do believe that if people feel like the CEO is not confident in the plan, the business will dramatically suffer as employees won’t be able to execute their very best.

For me it starts with spending a lot of time with my direct team to make sure they were 100 percent onboard with our strategy, then to project that confidence to the entire company during all hands. It’s not easy, especially when you are not sure. But I knew uncertainty at the wrong moments could be incredibly damaging to executing a company-wide change, so I was very careful.

As the company grew, I also gained more confidence. I was really lucky to have an amazing team of executives who understood that there is no plan that is 100 percent certain but with whom I could collaborate closely on decision-making and execution. I believe deeply that executing the hell out of an OK plan is superior to having no plan.

What advice do you have for others?

If you're wondering if you're doing a good job as CEO, remember there are only three key responsibilities. One: Set the vision and strategy of the company and communicate it all the time, so everyone understands it. Two: Hire the right people to execute the vision and strategy. Set the bar for the people at the company on the quality level, timeliness and amount of resources required. Three: Make sure the company has enough capital to do one and two.  Everything else is delegate-able.

Besides pivoting and figuring out a profitable roadmap, what mistakes have you made in and what did you learn from them?

My biggest mistake is keeping an executive in the job too long. I hired a great president when we were 30 people, but when we grew to 500 people a few years later, the challenges and complexities of the job had clearly outgrown the president at that point. I kept him in the role for two years longer than I should have, because he had been so valuable early in our growth. It almost ruined the entire company.

I had whole teams quit because of the way this person ran his organization, and I was always dealing with executive in-fighting. Letting him go solved the problem, but I had already lost a lot of credibility and talent by the time I corrected this very costly mistake.

Why did you decide to get acquired, vs. doing an IPO?

In our company’s lifetime there were many times that prospective buyers came to us with casual acquisition conversations. This is especially true as you get larger, and buyers have whole teams of corporate development to talk to interesting companies. However, I was careful to never waste much time with these non-serious discussions.

This last process, when multiple prospective buyers came to the table interested in acquisition, I recognized that this was the time to engage in serious discussions, and it became my full-time focus, much like a fundraise. Because we ran a competitive process, we ultimately got 14 bidders seriously interested in Kabam, and we able to fully realize the value for the amazing company we had built.

Related: 7 Vital Steps to Position Your Company for Acquisition

What advice do you have for people looking to start a company?

If "grit" and delayed gratification isn't one of your key strengths, I'd strongly advise taking more time to think about the entrepreneurship journey.

The other thing to know is it doesn’t get easier over time. I used to think, "Oh, my next fundraise will make this easier." Did that, and nope. Then I thought, "hiring executives will make this easier." Did that, and nope. Then I thought, "well, getting to profitability will definitely make it easier," and I’ll tell you, Kabam was profitable since 2012 and some of my toughest times were in that period.

So ultimately, my best advice is to find people you love to work with, because you'll be through a lot of hard times together.

 
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