How Arkadium CEO Neal Sinno grew to $22.5M revenue with a 119 person team in 2024.

you're gonna love this interview just got done editing it i'm glad i got it live for you i'll be in the comments for the next 30 minutes hanging out answering any questions you have in fact leave a comment below about data points or what you think is going to happen to the company and i will respond to every comment additionally if you're just loving the content click the thumbs up and i will go and check out your profile as well and give your videos some love as well in the meantime enjoy the interview hello everyone my guest today is jessica ravelo she's building a company called arcadium which provides interactive content to the world's most well-known brands and publishers like cnn jessica you ready to take it to the top i am ready okay so tell me first is arcadium a pure play sas model or is it more con consultative no so we are um quite simply a games company so we make games and we um either license them to brands or we deliver them directly to consumers and those consumers either pay us for them through things like the app store or they are monetized through um advertising okay great no no when did you find the company what year 2001 so it's been quite a long time 2001. now i want to get into the back story here because you raised capital then brought out your investors so i want to get into that because it's actually becoming a trend right now so 2001 you launched is it a trend oh my goodness there's more there's more people doing this so so that's why that's why i said yes when your folks said hey you should have just gone i said okay i'll have her on um so you launched the company in 2001. now do you remember what first year revenue was oh it was zero i mean we didn't have revenue for the first three years i would say okay um yeah first two to three years no revenue no revenue and then probably in the third or fourth year that we actually started making revenue and then it scaled fairly quickly probably the first year that we were um had revenue we probably did about six hundred thousand okay and what was that revenue basically advertising no back then i mean we had a slightly different model back then so we were still making games but we were um licensing them more um and directly to large brands so um that was that was pure licensing revenue at the time okay um and then so fast forward so 2004 caught six hundred thousand dollars in total sales what'd you scale to up in 2010 oh boy um i would say by 2010 we were probably six seven million six yeah sounds about right i'd have to go back and look to get you you know that's okay but same model licensing yeah primarily the same model i mean by 2010 our industry had changed pretty significantly so um when we started the business social gaming was not a thing and then that took off and then you know the iphone didn't exist when we started the business and then that started taking off so definitely shifts in how we earned revenue but it was all you know through the whole 18-year history it had something to do with games whether that be multiplayer games like poker or single-player games so i wanted 2010 as a beachhead because then in 2013 is when you raise the 5 million from edison so explain the dynamics around that start with what scale you were at so were you at about what 10 11 12 million an hour we were probably around somewhere between 10 or 12 at that time i would say um and you know it was more kind of what was i think there were two dynamics at play one was what was going on in our industry what we were seeing in our industry and at that time um if you can kind of remember back then it was like um at least in the gaming sector words with friends is really starting to take farmville was a huge hit and there was a lot of consolidation going on in our industry a lot of people were gobbling up game companies and so that was kind of the first time you know we had been through multiple cycles we've probably been through two cycles at that point that was the first time when we ever really considered because we're getting a lot of inbound interest like are we interested in selling are we interested in doing something um and the gaming industry is is um like many media industries very hit driven and what a lot of people who play games don't realize this is really expensive you know they think it's just some guy in their basement who's coding something you know and games i mean even casual games that people play on their mobile phones can cost upwards of a million dollars for a studio to make if not more and so if you have a string of those um and you don't have an out of the box hit like 99 of them aren't necessarily making their money back so to do that and be self-funded at the same time can be a very expensive prospect so that was the first time we kind of started looking at um this is something that we should even consider um and that kind of ended up with we looked at various different options from selling to taking investment um and luckily at that point we had already built a profitable business that was scaling and so we were able to take investment on um on pretty good terms we took a minority stake in the business how much did you sell um we sold less than 20 percent okay that's pretty good so less than 20 and how much did you raise five million okay got it so yeah i mean you're looking at it like a 20 million pre-money something like that yeah it was somewhere in that range and i mean i think the the other important thing um is that you know outside of the cycle that the industry was going through was just kind of what we were thinking and feeling as entrepreneurs and i say this because it kind of influences a lot of my thinking now and a lot of what i believe in as an entrepreneur now and that was kind of that i always had this little monkey on my back that if we didn't raise we wouldn't be a serious business we wouldn't be a a large business we wouldn't be a player um jessica i think you're up i think you're a player you you check the player you're you're good to go on you're good to go on these and you're a hustler i mean i think you know when you're an entrepreneur and you're you're in tech you're kind of you see a lot of of unicorns around you and they get a lot of ink and a lot of people talk about you know these high growth you know ridiculously scaling businesses and i think it's very easy to compare yourselves to what you see in the market and the truth of the matter is it's like you don't always know what's going on inside of business and people don't write about the 99 that that aren't necessarily having that success and that success from what i found is very um can be very shallow and it can be very fleeting top line revenue does not equal a healthy profitable thriving sustainable business now were you guys burning on 12 million in revenue in 2013 were you profitable or break even at least yes we were profitable yeah we've been like significant significantly we've always done somewhere between i would say ten and twenty percent ebitda margins i mean it's pretty good it's pretty high growth years maybe a little bit less um but you know that's what we always aim to be at now you know you raise the capital in 2013 you take dilution you you're gonna burn capital after that to invest it so i imagine in 2014 2015 maybe you were cash flow negative because you were investing the 5 million right we were maybe cash flow negative a couple of quarters um at most i would say one calendar year but never more than so where did you invest that five was it fixed cost or more like variable marketing it was in creating new product for the most part so um so we were um working on games that took longer to make that had larger teams that took longer to get to market um that was that was primarily where the investment went and then um yeah and then marketing so let's fast forward now we've got a good touch point in 2004 we got a touch point in 2013 take us up to 2018 right so how many folks are working on the company now today oh boy so uh as of today we probably have we're right around 100 range anywhere from 98 to 101 depending on no time of year and how many engineers we have about 40 engineers okay and uh and who are the rest uh sales marketing uh people innovation which is what we call uh our hr function um we have are the sales people are they on like commission are they a quota structure or no uh for sales yeah uh it's a it is a goal structure okay yeah fair enough so how many sales people do you have incentivized by this goal structure i would say one two three we have three who only do sales and then we have an additional uh for account managers who also do sales okay so what is the business now look like today so last year were you still selling and licensing games to larger brands is that still the product yep that's still the product i mean it is a mix between distributing our games through large brands and publishers and distributing them direct to consumer but the revenue comes from either via somebody else's website or via our own website people playing games is is are there any media outlets because i know this is very in vogue right now using things that almost feel like a game which is actually more like a survey where you're capturing you know you know play this game to see if you're like elon musk or tim cook right yeah yeah i mean that's not something that we do um but that's something that definitely exists in the market um i think that you know that's something that we'll see what the lifespan of that type of gamified data collection is based on how privacy is trending in the united states and certainly abroad it that becomes a more and more difficult thing to be able to monitor so what product did you create like give us an example everyone knows cnn what do you do for cnn so for cnn or for more specifically for somebody like the washington post for example we they all have um you know in the physical papers that have been around some for hundreds of years right they always had a crossword section and i'm sure you can picture it in your mind or a sudoku or a word jumble or something like that we basically took that concept and brought it um into digital in the early 2000s so a lot of these large news publications whether it be a cnn or a la times or washington post it's something that their readers are used to doing in print or have traditionally done in print they're not going to create a game studio in-house right they don't have the desire to do that um and they don't have the expertise to do that and so that's really where they turn to us and we provide them with kind of a turnkey gaming solution that they um that they put in their game section of their digital property yep okay very good and then last question on 2018 before we talk about how you maneuvered kind of buying out your investors what did you break in 2018's in terms of total top line revenue 2018 we were in the 15 million dollar just around 15. okay and still about 10 to 20 to margin yep that's great okay so when did the discussion start festering inside of you and co-founders and early team members that we should maybe buy these guys out you know i would say that it was a it was something that took place over time and i think it was something again nothing's ever like black and white there's nuance to every kind of decision that you make as a business person as an entrepreneur so i think two things were happening i think one um we noticed in us having been through a real existential crisis in our in our business um you know that involved a political situation we had engineers based in ukraine we had to move them um due to kind of the political crisis that was going on there and so in facing that existential crisis as the business and that was really kind of like a time of reflection we realized that like we're not done building this company we don't feel like we've hit um the the point of success that we know that we are capable of achieving and we love the journey that we're on in building this business so that was kind of point number one just coming to that realization i think point number two was just always kind of going in eyes wide open and understanding that when you take investment um your investors expect a return and if you have not necessarily been upfront with them about um uh you're thinking that and and because at the time we didn't even know to know it in ourselves this is something we may want to do for the next 20 years it seemed like it was the right thing to do to say listen we understand that you invested in us in order to get a return and that return may take significantly longer than your fund is uh is prepared for and so um you know rather than feel like you have to hold on to something that you know who knows when there will be a liquidity event and rather than us feel like we have to make decisions um for the business based on our investors outcomes as opposed to our employees outcomes or our company's outcomes um and luckily you know we had we had the the ability to do it um it just seemed like the right thing to do well so decode decode that yeah decode that for me so you know luckily you said luckily you have the ability to do it so what does that mean what did you buy these investors out for yeah well i mean i can't tell you specifically what the dollar amount was um or how it was financed necessarily i'll just say that the company is profitable and has been profitable and is healthy and we were just in a position where we could make them an offer that was palatable that gave them a return on their investment so it was whatever the deal was it was more than five million dollars uh it was more than they put in yeah they did they put in five million dollars yes they put in five million okay so it was more than five million dollars and was it i mean the reason i asked this there are a lot of ceos i've had on that have bought out investors but you know gumroad comes to mind right there was seven seven million bucks put in i forget the vc but they bought them out for a dollar because the vc wanted the 6.9 million dollar essentially write down because their other portfolio companies performed well so it's a tax loss why weren't you able to get a deal done at like a dollar uh you know i didn't i don't i that never was was on the table for us that was not something that was discussed and i'm sure everybody comes to new negotiation like that from a different place in terms of where their fund is or what they are willing to accept or what they're not um just for us as um as business people who value um in all of our relationships our integrity and doing what we said we were going to do we felt like um they trusted us with their capital and um and it allowed us to continue to grow the business for a number of years and just because our paths were divergent didn't mean that we didn't want to try and do the best that we could that wasn't going to harm the business in terms of you know what they came into the deal for which was to get a return yeah which which debt provider did you use to help fund the deal um i will say that we are a debt-free organization so you raise no do you literally i mean if you're no debt the only way i can think that you did this is you guys were just very good with your cash flow you saved up enough to get the deal we've been profitable and we've always been great with our cash but even though even though on 15 million in 2018 that you said you did top line or about 15 million and 10 percent ebitda margin that only adds 1.5 million your bank that year i mean you would have had to say been saving basically since 2013 but you said you were burning even in 20. i can tell you that as entrepreneurs we are not the types of people i run the company with my co-founder who happens to be my husband and our ethos from day one has always been to um be great with our cash and to put profits back into the business we are not the type of entrepreneurs that have ever taken significant amounts of money off the table for ourselves always reinvested back in and we've just been really smart with our cash yeah but just go i'm literally just doing math right 15 million top line and 10 these are your numbers 10 to 20 input to margin that means in 2018 at the max if you hit both those you put 1.5 million in extra cash in your bank that doesn't equal five million you have to be in business for 19 years yeah so i'm going to keep going i'm going to keep going backwards here okay you said in 2013 you raised the 5 million and you said you maybe had a couple quarters max a year of burning in 2014. so it's not like you've been saving up this 5 million since 2001 right you probably started why why would you assume that we spent all of the money that we took in well you told me that you were you burned that you said there was a couple quarters in 2014 of burning capital or you were negative earning for me can mean losing you know a hundred thousand dollars in a year it doesn't mean losing six million dollars in a year it can mean losing ten thousand dollars in a year okay anything that is not that is not you told me that games cost sometimes a million to create and you said you raised that 5 million to create new games to market so you could easily solve the number by simply saying if you feel like in 2014 you actually just didn't spend the money that's fine too i mean that would be a that's a great strategy as well so is that what happened here is you just you put the 5 million in you didn't spend the money there were a number of years that we had significant uh expense savings after we went through what we went through and having to transition the business and that allowed us to just be smart with the cash and continue to reinvest it back into the either into the business or to save it up yep this was when you went through the kind of political crisis you had to cut your team in half you're fixing to account for that significant everything got cut in order to make sure that the business was in a safe place and get us back to the point where we were putting significant amounts of cash um back onto the balance sheet and the best we were never ever ever we never ran the business in a place where we were burning significant amount of cash so just because i say burn burn in my world is anything that is less than zero it is not 10 000 a month it's not a million dollars a year it's not 10 million a year it's hard to conceive because we're kind of surrounded by people who are burning billions of dollars a quarter but like for my business at this scale that's just never happened yeah by the way i don't know if you listen to the show or not but i can tell you there's no one that protects bootstrappers more than i do okay i beat the hell out of people that come on and brag about what they burn so i'm not trying to get you caught in a catch 22 here what i'm trying to do is literally do the math so that other people can do what you did right so you just tell me if this is a true or false statement okay i'm gonna try and summarize as best i can you raised you raised 5 million in 2013. you sold about 20 of the company a political thing happened where you had to drastically change the expense structure of your business in 2014 and 2015. i.e you cut costs right in that year maximum potential ebitda to the bottom was 20 you said between 10 and 20 the past couple years 20 between then and now you number one didn't spend necessarily all the 5 million and you've been saving diligently since 2014 because of this better expense structure and we already had cash on hand when we took the investment got it okay so those are all the things that allowed you to have leverage to kind of do this at a return that your investors like we were not in a place where we raised when we were at less than zero we already had significant cash on the balance sheet when we raised and that's how we were able to raise on terms that allowed us to eventually put us in a position to buy out our series a yep you raised in 2013 at about a 1.7 x kind of multiple 12 minute revenue 20 million pre-money evaluation if someone offered you that same multiple today so if they offered you about 30 million bucks to buy the company would you sell no why not because i still do not feel like the business has reached the level of maturity and scale that it is capable of doing if you if you said if you went to tonight over dinner and said hey babe you're not completely i got a 30 million offer i told him no instantly would he be like oh yeah babe good decision or he go what were you doing yeah you know i think i think absolutely i think in our minds um we're pretty aligned on what we want to do with the business and honestly it's never been about an outcome being related to a dollar amount the outcome is related to the impact and the achievement that we have inside the business in the community at large in what we want to do with our lives it's really about the journey of building the business as opposed to you know sitting on a pile of cash guys there you have it arcadium founded back in 2001 between 2003 no revenue in 2004 600 grand in revenue mainly from licensing games to large brands in 2013 revenue hit 12 million dollars sold about 20 of the company for 5 million bucks raising 5 million from a vc then just quickly realized some changes in the business they weren't going to deploy that capital like they thought and ultimately did what i think a good founder would do you get creative saved cash a profitable growing company now today doing about 15 million in top line revenue still 10 to 20 percent even to margins but most importantly bought back that equity that they sold earlier in an arrangement that worked not only for them jessica and her husband and the kill founders but also for edison and the investor great way to keep control of your destiny and get wealthy and free off cash flow right jessica she doesn't like the numbers she doesn't like the numbers i like wealth okay i like money so jessica thank you for taking us to the top thank you you guys know i fight like heck to get these data points for you from the ceos that rarely do these kinds of shows if you want more shows like this make sure you subscribe right now we're trying to get 10 000 youtube subscribers by the end of september here 2019 and it would mean the world to me if you clicked now to subscribe additionally i've got two more great interviews for you if you want more data points from the world's leading sas ceos click and watch one of them right now