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Does Michael Acton Smith stepping aside as CEO at Mind Candy mark the end of the company behind Moshi Monsters?

By on July 11, 2014
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News broke today that rockstar entrepreneur Michael Acton Smith is stepping aside as CEO of Mind Candy, the company behind kids’ brand Moshi Monsters.

“I love this company, I’m obsessed with it but Mind Candy is a different kind of company to when it was just Moshi Monsters. There is a lot of staff, operations globally, and challengers. I’ve moved away from the creative side, which is the part that I’m crazy about… and the most value I can add is on the creative side rather than operational side. I’ve decided to step aside into a creative leadership role”

In true digital style, Acton Smith announced the change directly via YouTube, rather than via a press release.

COO Divinia Knowles is stepping up to the board with a new role as President., and the company is recruiting for a new CEO.

Two natures, one essence

Last November, I wrote about the perils facing Mind Candy. The biggest issue is that rapid emergence of smartphones and tablets, amplified by the fickle nature of kids, the increasingly competitive landscape for children’s entertainment and the pressures on valuation that happen when investors believe that your business is no longer a growth business but should instead be valued on the basis of predictable future cash flows not growth prospects.

It is determining whether Mind Candy is a growth business or a mature business that will cause the most difficulty for the new CEO.

Mind Candy is essentially two different operations:

  • It is a lower-growth merchandising business that has a popular brand (Moshi Monsters) that it can continue to exploit through multiple channels
  • It is a scrappy startup that needs to discover who its customers are, how to reach them, what they value and what they will pay for.

In short, Mind Candy is going through its very own Innovator’s Dilemma moment just a few years into its life.

Different skills required

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In 2011, I wrote a blog post asking if this was Mind Candy’s moment of maximum peril. I worried that the parties, the cool offices and aura of the rockstar CEO would attract people who wanted to work in a corporation that was fun rather than doing “the hard work of being a leading player in a hypercompetitive space”.

The thing is that many of those people will be hardworking people who excel at working in corporations. They can develop and implement five year plans. They can sign deals with major partners like Penguin and Vivid. They can execute such that this year was better than last year, and last year was better than the year before that. They look at the book deals and the toy deals and the movie deals and think that Moshi Monsters has a great product (which it is) with a great marketing and partnership strategy (which it is).

And then they get very confused about why external investors are less excited. About how the valuation falls as revenue and profits rise. And about why everyone is so obsessed about the next big thing, not the difficult and important work of taking advantage of all the hard work that Mind Candy has already put into building the Moshi Monsters brand.

But investors (at least the type of investors who might value a company at 10x revenue) don’t get excited by steady, slow growth. That sort of activity can potentially act as a the groundwork for an innovative business, but slow and steady growth is for the public markets, not for venture capitalists.

So Mind Candy has a whole big team executing against a plan. But its challenge is not to deliver what it did last year but 10% better (or 50% better, or 100% better). It is to disrupt and avoid being disrupted. It is to take the tenets of the Lean Startup and focus on the tricky phases of Customer Discovery (who are my customers), Customer Validation (can I persuade them to love my product) and Product/Market Fit (can I get them to give me wheelbarrows-full of money).

That’s a start up mentality. And trying to innovate like a scrappy startup when your organisation is naturally ossifying into a corporation is very difficult.

Mind Candy has been experimenting. It has Match-3 games aimed at grownups with a Moshi skin. It has Popjam, an Instagram competitor for the 7-13 year old market. It is experimenting.

But the new CEO needs to have one of two very different skillsets. And which skills they have will determine the future of the company.

Who will be the one?

If the next CEO is a company person 100% focused on operational challenges, I think it is game over for Mind Candy as an independent entity. The CEO will improve operational performance and brand partnerships as a precursor to an exit to a major brand. I think this will be a difficult role, because I think the moment of maximum “buyability” for Mind Candy was about two years ago. It is no longer the saviour of a traditional company scared about how digital is going to eat its lunch and now looks more like a cautionary tale about how one disruption (online games for kids) can be disrupted by another (tablet games for kids) in a very short period of time. It will be a brave corporate development executive who suggests to her board that Mind Candy is the saviour of their business now.

But if the next CEO is a startup person who has successfully helped a business overcome growing pains without forgetting their startup roots, there are still challenges ahead. The newcomer won’t have the authority that the founder has, particularly a founder as charismatic as Michael. He or she will need to drive scrappy, startup, validated learning within an organisation that has seen its growth over the past three years coming from the traditional corporate routes of partnerships and sales and merchandising. He or she will need to manage a startup and a corporate in one.

In the Innovator’s Dilemma, Clayton Christiansen argues that this is incredibly tough for a company. True disruption is hard to do from within a corporate structure and, as an outsider, I see MInd Candy as a corporate structure that is being disrupted. Michael has said that he wants to go back to being “creative”, and his YouTube video, he talks about new Moshlings, new games, new ideas. I think that the real creativity Mind Candy needs to show is how to reinvent itself as relevant when the market it serves has changed so radically in the last five years.

It remains to be seen if a new CEO can solve this Innovator’s Dilemma.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com