Bringing magic to our youngest generation – Mind Candy’s story

Taking a small start-up business from anonymity to global success in six years is no mean feat. But this is exactly what Divinia Knowles, Chief Financial Officer and Chief Operating Officer, has done with Mind Candy.

Home of the ever-expanding online children’s game that is Moshi Monsters, Mind Candy was the brainchild of technology entrepreneur Michael Acton Smith back in 2004. Divinia joined the firm soon after and between them they’ve created a British digital success story that leads the way for UK innovation. We sat down with Divinia to talk about creating educational games for kids, the challenges of expanding into physical products and why a little bit of creative magic is needed in any thriving business.

Mind Candy was still developing as a business when you joined in 2006. What were the opportunities that first attracted you to this small start-up, technology business?

“I came to Mind Candy through a coded message in The Guardian newspaper. They’d put a puzzle in the paper that you had to decode to send in your CV. The advert itself, once you’d decoded it, was talking about a global treasure hunt, which was Perplex City, Mind Candy’s first product. I just found this fascinating.

I’d worked for eight years in the antiques industry before that, so this was quite a shift. But I’d been using the internet and knew that it was going somewhere and that there was going to be a fundamental shift in businesses and what they could do online. And working in a really low-tech environment, I just wanted to get into businesses that were going to utilise this platform.

So I saw the puzzle, met Michael and he was a real driver behind me coming to Mind Candy. I love working with someone who really believes in their company and where it’s not just a business, it’s their life – and I could definitely see that in Michael. He’s a very inspiring individual and I could really see myself working with him.

Michael wanted people who played the game to have an amazing, creative, immersive, inspiring experience and Moshi Monsters is exactly the same – he really wanted kids to absolutely love it, get emotionally engaged and really enjoy themselves. And that is massively inspirational.”

You have a number of ‘hats’ that you wear as part of the board, covering finance, operations, and HR for the company. Does this diversity keep the role interesting and challenging?

“I’ve learnt so much by covering so much of the business. When I first came in, there was no HR, no finance, no operations people and no legal people – apart from the fact that the COO at the time was a lawyer. So I started those different departments from scratch and I still have all of those teams who sit below me...but I’m currently divesting myself of some of those ‘hats’.

We’ve just hired a chief people officer/HR director and she’ll take over the recruitment team and the HR team. We’ve got a general counsel now, who takes over a lot of the legal overhead and looks after the legal team. For the time being, I’m going to keep the financial side of things, just because I love it and I don’t want to part with it.

But I am more operational now. I work very closely with everyone, with all the stakeholders across the whole of the business, to make sure everything’s running the way it should. I’m still across everything and that still really appeals, but I need specialists in most areas and I can’t keep hold of everything.”

Moshi Monsters, your online game for children, has been an amazing success story. What do you think has been the major factor in its success?

“There are a couple of things that worked really well with Moshi Monsters. The first one was the emotional connection between kids and their virtual pet. The virtual world in Moshi Monsters is vast now, but when we first started and we put it out as the minimum viable product, it was simply much more about the interactions with your pet. Kids went bonkers about it – they really loved it. They really resonated with the characters they’d created and I think that’s at the heart of its success.

We put in safe, social tools which accelerated Moshi Monsters success as it allowed kids to send each other messages and gifts. And all of that worked very well, in a safe environment. Parents trust it, kids really enjoy it and we’ve heard from a lot of parents that it’s also good value. The collectability side of it has been unbelievable. The fact that all of the little characters have their own personality and kids can collect them has been amazing.”

One of the main aims of Moshi Monsters is to make it educational. How do you go about developing content which educates, but is also fun for kids?

“We want parents to know that there’s this educational element but not so much that the kids would then feel that it was totally uncool. In Moshi Monsters you can’t get past the fact that it has puzzles in it – it’s part of the gameplay. You can’t bypass that, you have to do that to earn more rox (in-game currency) to customise your online world.

We have lots of conversations about how we advertise the educational side and sell it. So we tread a very careful line between making it cool for kids and parents knowing that there’s educational content. We call it ‘stealth education’, in fact. We’ve had lots of stories from parents about how their kids have actually learnt things from Moshi Monsters, particularly the flag game in there which is incredibly popular with kids.

We do focus groups with children all the time, which is part of the reason that the office looks like it does, so when they come in they feel like they’re in Monstro City. The kids come in weekly and we show them artwork and new characters, we get them to play new games that haven’t been launched yet to see how they react to them and we ask them for feedback.”

Safety is obviously something that will be paramount in any parent’s mind – how do you keep Moshi Monsters safe, risk-free and secure?

“We do take the safety side really seriously, obviously, because parents trust us with their children. We have a multi-pronged approach. We try to educate the children to abide by the rules of the site because we can suspend and ban them, which sounds awful, but you have to have that sort of discipline.

We have different software on the site; filtering software which filters out things like swear words and addresses, and also a behavioural management system from a company called Crisp.  This actively looks through all the conversations on the site and flags behaviour to our moderators.

We also have 24 hour moderation on the site; live moderators who dip in and see what's going on and that kids are behaving themselves and are safe. Kids can also report other kids – there’s a report button that goes straight to a moderator if kids don’t like a certain kind of behaviour. So there’s lots of ways of keeping it safe. We firmly believe in educating children in good, online behaviour for their future.”

Innovation is vital to a technology business – how does Mind Candy push the boundaries of digital technology?

“Product innovation is very important at Mind Candy. On Moshi Monsters innovation is very feedback driven, we look at the stats and see what kids are doing. We utilise our community and talk to the kids to find out what they really enjoy – they give us suggestions all the time, which we try to take on board.

In terms of new intellectual property (IP) development, that’s an area that we’re working on at the moment. We have three different project teams here that are building up some new IP and that’s all about rapid prototyping. We get a very small team together that will include a product manager, a developer and an artist and get them to iterate on something, user-test it and then try it out on kids so they can give us their feedback.

We also have Candy Labs which is the studio we acquired down in Brighton. They’re a very small team of people who experiment with new technology and different products. They’re also prototyping different IP, so we’ve gone about innovating in a number of different ways. We try and promote innovation a lot internally and get people together in their spare time for an internally run Game Club where they come up with ideas and iterate on them with other people from different parts of the company.”

Is the Government doing enough to encourage this kind of innovation more widely in the UK

“A lot of the innovation techniques that we use are inspired by the US gaming world. Product management and innovation are much more sophisticated over there in the digital space. So, no, I don’t think the Government is doing enough to promote innovation in the UK – most of our experience has come from talking to other companies that we respect.

R&D tax relief is interesting as are the different tax reliefs around innovation. But R&D tax relief isn’t geared around the gaming industry whatsoever. I know there are plans for games tax relief for the creative industries, but that doesn’t seem to cover it either. I think they need to talk to people in the games industry and see how we work and what might be good for us.

I also think that university courses and schooling don't really gear you up for a company like Mind Candy. It would be really good if they re-visited some of the existing gaming courses and looked into what skills are actually needed in the gaming business.”

You’ve been instrumental in turning around the financial side of the business. What are the challenges you’ve overcome in order to maximise your revenues?

“We’ve always been a business that believes in products first. So we developed Moshi Monsters as a free product, initially, because we wanted the product to be right and the customers to love it. And then we knew that monetisation would fall out of the back of that. That’s still very much the ethos here.

When I first started it was a non-revenue generating business, but with Moshi Monsters we turned on the subscription element and that was great and worked really well. Then we realised we needed to broaden our revenue streams - as a brand it has so many places that it could go. We’re quite careful about modelling opportunities before we commit to them, so making sure we know there’s a commercial route but not being constrained by it so much that it affects our product development.

We do have a lot of conversations about over-commercialisation – you don’t want to upset parents by having the constant nag of having to spend money. It’s a very delicate balance, but the intention internally is that Moshi Monsters doesn’t become an over-commercialised thing. Lots of the price points of our products are deliberately pocket money level.”

The recession created many issues for small to medium-sized, private businesses. How did Mind Candy deal with the economic downturn?

“We were quite careful with cash-flow planning. That was our main focus because we were burning money rather than generating revenue. We knew quite far in advance when we were going to run out of money, hence the reason for having already spoken to quite a few venture capital firms. The problem was that when term sheets vanished in the awful financial crisis of 2008 we were getting closer and closer to the wire at that point.

I did a lot of ringing suppliers and deferring payments, but I do truly believe that in that situation you need to just have good relationships with your suppliers. I don’t believe in hiding it; that’s a recipe for disaster. So I had agreed payment arrangements and had a PAYE agreement with HMRC – and we could do this because we’d planned up to a point.

At that same point, we also got an R&D tax relief payment through of £100k, which all came in at the right time, and we had the investment from our super angel. So it all worked out, but mainly due to careful cash-flow planning and having good relationships with all of our creditors.”

Was global growth easier when you were a purely digital, online business instead of now where physical products are part of your product range?

“It was very simple when it was just the game – there were a couple of payment methods and it was very easy to run. Interestingly, on the tax side of it, there are lots of jurisdictions which haven’t caught up on digital businesses selling subscriptions. Trying to work out the tax situation around the globe was interesting as we have some employees on the ground in the States.

The physical goods have been amazing for the brand. There are lots of children who don’t realise it’s an online game now – they may have just bought the trading cards or bought toys. So it’s added this really nice balance to it where kids are enjoying it not just online but offline as well.

But the withholding tax side of physical products is difficult. They’re all licensed products in different territories and that’s a massive overhead that we hadn’t really realised when we first went into it. But we have a dedicated in-house tax accountant who works on all of that for us.”

What direction do you see your development moving in?

“The future for Moshi looks more mobile. Kids are moving away from the web and onto smartphones and tablets and so on. So we’re developing a mobile version of Moshi Monsters and that will be localised for each territory rather than having different web versions.

It’s fascinating when you see kids using mobile devices. I’m absolutely positive that there’ll be a time when kids don’t even know how to use laptops and PCs – mobile is so much more natural and intuitive.”

Having the right talent with the right skills is crucial to any company’s growth plans. How easy has been for you to find the right people with the right skills?

“We’re very careful about who we hire – we have a culture here that we want to continue. Michael and I try and meet everybody still because we started this whole thing off and we know what makes a Mind Candy person a Mind Candy person. We definitely try and hire people who are smarter than ourselves in certain areas. I definitely think that’s the way to help a company scale.

Once people get into Mind Candy they’re on a probationary period, but we have a very carefully planned induction process so they get to understand what it’s like to be at Mind Candy and what they can expect. They learn how different departments work and we have monthly new-starter lunches where they get introduced to the company. We have an intranet which contains everything about Mind Candy and the events we run. We have events with speakers, both from inside the company and outside.

We use OKRs, which are an objective setting tool developed by Google and Intel, to set quarterly objectives. So we’re quite clear about what people should be working on and what their managers can expect from them. I really believe that if our employees know what to expect from us then we know what to expect from them.

When we’re hiring for new positions we do look internally first to see if there’s anyone who has the skills to do it. We have lots of stories internally of people who did do one thing and then got the opportunity to do something completely different. One lady joined as a community assistant and is now the editor of our Moshi Monsters magazine – which is now the best-selling monthly kids’ magazine in the UK.”

You’ve been on the management team of Mind Candy for six years now. Where do you see the business in another five or ten years?

“We have big goals that we want to achieve. We’re very flexible about where we’re going – we’re always open to looking at new opportunities. Where we’re hoping to be is to be known as an entertainment company, where we have multiple brands across different devices.

We want to be known for quality, enjoyment and that kind of magic that companies like Pixar and Disney are known for. And we want to be an enduring global brand over a long period of time and still have lots of kids who enjoy it.”

You can read more from this interview in the December 2012 edition of our Private Business magazine, which will be available on our Private Business website soon.

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