Fueled by a shared passion for classic arcade games, a New York City couple built Arkadium into a multimillion-dollar business by staying lean and bootstrapping growth.
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When they began dating in 2000, Jessica Rovello and Kenny Rosenblatt got talking about the games they’d loved to play in arcades and could no longer find (think Pac-Man). It led to a brainstorm: Why not launch a development studio to create those classic arcade games for Internet play?
Today, Arkadium, based in New York City, with outposts in the Ukraine and Canada, is a leading developer of casual games — that is, arcade-style video games involving card games, puzzles, trivia, word play games, and board games. With a staff of nearly 150, the company boasts a library of over 300 games being played by 9 million people across such distribution channels as Facebook, MSN, ESPN and AARP. The firm reeled in about $14 million in 2012, up from $10.1 million in 2011.
The kicker? Despite a decade of continuous expansion, the couple never raised any outside capital. They continue to own roughly 75 percent of Arkadium, with the remainder split among family, friends and a few early angels.
Playing without a rulebook
Nowadays, the co-founders, who’ve since married and had three kids, extol the benefits of their pay-as-you-go growth strategy.
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“A lot of 20-somethings who think about starting a company are trying to make a bazillion dollars quickly and be the next Mark Zuckerberg,” says Rovello. “But not taking any financing and growing organically means you get to maintain control of your business.” Bootstrapping, she says, also gave them time to “become the businesspeople we needed to be at each stage of the business.”
But that was hardly the first plan. In 2000, Manhattan was still swimming in dot-com fever and investor cash. Rovello and Rosenblatt were poster-perfect for the era. At 25, they already had digital track records: He in engineering, business development and the implementation of networks and database systems; she as the online marketer who produced the website for the breakout film “The Blair Witch Project.”
Their expectations mirrored the times. “We gave ourselves six months, and if nothing happened, we’d abandon the idea,” says Rovello. After tapping $15,000 from 401(k) accounts, they launched in 2001.
“I had a business plan and I was going around to mentors and advisors to raise $1 million,” says Rosenblatt. But advisors pointed out that they had zero valuation and therefore no leverage: “We had nothing but 30 pages of paper, and they said we’d get eaten alive by the terms.”
So the two put their heads down and began building a business.
Playing to win
The idea was to develop a game or two, then seek funding again. But 2001 had other hurdles in store. First, the dot-com bubble burst. “No one wanted anything to do with a dot-com,” says Rovello. Next was 9/11, which, among other horrors, brought the economy to a standstill.
The pair took side jobs building websites for $5,000 a shot, didn’t take salaries while paying employees, and kept developing products. “We believed in it,” says Rovello.
To save money, they outsourced development of their first game to two-dollar-an-hour programmers in India — in retrospect, a rookie mistake. The couple had never designed a game, and the developers weren’t much better. After six months, the software still crashed the system and little was delivered. On September 11, when the towers came down, Rovello and Rosenblatt were in Chandigarh, about a two hours’ drive north of New Delhi, desperately trying to fix the errors.
They lost a year and began again. “It was a good lesson,” Rovello says today. “It taught us that you got what you paid for.”
Soon after, they hired developers in the Ukraine, this time commissioning $100 and $200 projects to test skills and deliverables. That evolved into a solid relationship and the Arkadium office in Simferopol, Ukraine.
But two years after launch, with games now ready, the company still wasn’t making any money. Lots of people liked to play games; few would pay for play. Arkadium was circling the drain.
“At that point, we were married and thinking about starting a family,” says Rovello. “We thought we had six more months before one of us had to get a job. We didn’t want to be held hostage by our dreams.”
They were literally saved by a phone call. An executive from R.J. Reynolds Tobacco Company called to ask if they had any casino games available for the company’s website. Rosenblatt said sure; Arkadium had none.
They shifted into gear, creating a poker game proposal and winning the bid for $250,000, which netted $50,000 after costs. R.J. Reynolds gave them more work and, at last, Arkadium was moving into the black — albeit with a different business model, focused on creating custom games for corporations.
“We had to go where the money was,” says Rosenblatt. “Being self-funded, we didn’t have $10 million to spend to find a business model. It made us disciplined.”
Playing for keeps
Virtually nonexistent a decade ago, casual gaming has burgeoned into an $8 billion industry, according to the Casual Games Association.
As a result, while maintaining business-to-business sales, Arkadium is edging back into consumer business, boosted by the growing anywhere, anytime play made possible by tablets and smartphones. Late in 2012, Arkadium signed a multiyear, multigame partnership with Microsoft Studios to develop games for Windows 8.
“2012 was a building year, because it takes about nine months to develop a quality casual title, and we’ll see the fruits of that labor in 2013,” says Rosenblatt. “We have a ways to go, but the future looks bright.”