TinyCo

The licensing playbook: borrow a brand, pay a fee plus a revenue cut

Shaan walks through how his friend Sully's TinyCo licensed Family Guy: pitch the IP owner on a category they ignore, build the product yourself, and pay an annual licensing fee plus a per-dollar royalty.

“If you license us the brand for, uh, for Family Guy, we will create a mobile game that uses Family Guy characters, and I'll pay you a $3 million a year licensing fee. For this, plus, you know, an extra, you know, dollar for every $10 we make on the game.”

Steal thisApproach an IP owner about a category they neglect, offer an annual fee plus a per-dollar royalty, and build the product they won't.

TinyCo got its name from a $700 domain

Ali and Ian Spivey wanted a cheap, fun domain. Every good name was expensive, but TinyCo was available for $700 — suggested by engineer Bo Shi — so that became the company name.

“We were looking for domain names that were really cheap and fun. And TinyCo we bought for $700. All the other domain names and ideas that we had were very expensive. So that's how we arrived at the name TinyCo.”

TinyCo's first mobile game made $500K-$600K in its first month

TinyCo's debut game Tap Resort, pushed into the iPhone App Store top-5 free apps via a Tapjoy partnership, generated $500,000–$600,000 of revenue in its first month.

“So we get hundreds of thousands of downloads immediately, and those downloads are turning into revenue. So in the first month of launch, we generate $500,000-$600,000 of revenue. Not bad.”

Japanese gaming giants drove TinyCo's ad costs from $1 to $9 and flipped the unit economics

TinyCo spent ~$1 to acquire a customer and earned ~$2.50 in net revenue. Cash-rich Japanese mobile gaming companies entering the US drove acquisition costs to $4, then $6, then $9 in six months, turning the business upside down.

“We would spend about $1 acquiring a customer, and we generate about $2.50 in net revenue from that customer.— a bunch of Japanese mobile gaming companies were making so much money in Japan but saturating that market, and there was no more growth left there for them. So they were moving to the United States, opening up offices in San Francisco, and saying, "OK, we're going to become dominant mobile game companies in the United States." They drove the cost of customer acquisition up from $1 to $4 and then to $6 and eventually to $9”

Founder puts his own $1M angel windfall into the dying company, behind $10M of debt

TinyCo's $100K MoPub investment turned into $1M when Twitter acquired it. With investors refusing more money, Ali put that $1M into his own failing company — junior to $10M of SVB debt — and a16z matched it dollar-for-dollar.

“I had invested in this company called MoPub, started by this guy Jim Payne, and I'd invested $100,000 into it. It got acquired by Twitter and that $100,000 turned into $1 million. So I said, okay, I just made this $1 million. I'm going to go put that money into the company. And that million dollars is going to be behind the $10 million of debt that we've got from Silicon Valley Bank.”

He left the office assuming the company was dead, then woke up to $400K in a day

When the Family Guy game got a weak App Store feature, Ali concluded the company was over, went home and slept. The next morning the stats showed $400,000 in revenue the prior day — it was working.

“I immediately go to look at our stats and I'm like, oh. We just generated $400,000 in revenue yesterday. So this is working. Holy fuck, this is actually working. We're winning. I run to the office and like rally the team and say, wow, this is working. We did it, guys.”

The Native deodorant 'sniff test': run a mile, smell each other's armpits

Ali and his brother built Native (later sold to P&G) by buying deodorants off Etsy, applying them under each armpit, running a mile, then smelling each other to find the one that actually worked.

“So we put some of the deodorant that we bought from Etsy under each of our armpits. We go run a mile and then we sniff each other's armpit. To see, is this deodorant actually good? Highly scientific. It's totally unscientific, but also very effective. Effective. And we eliminate all these terrible deodorants from Etsy that are not effective, and we find one that works.”

TinyCo's first mobile game made $500K-$600K in month one

TinyCo's first game, Tap Resort, was pushed into the top 5 free apps via a Tapjoy marketing deal, generating $500,000-$600,000 of revenue in its first month from hundreds of thousands of downloads.

“So we get hundreds of thousands of downloads immediately, and those downloads are turning into revenue. So in the first month of launch, we generate $500,000-$600,000 of revenue.”

Never lie to yourself about reality

Ali's core lesson: founders constantly lie to themselves about market reality because they want to please investors and keep employees excited. The strength of a team is admitting the reality you live in has changed and acting immediately.

“I think that one of the things you need to do as an entrepreneur is never lie to yourself about reality. It's very easy for an entrepreneur to lie to themselves about reality, especially when they've got investors that they always want to say the nice thing to or the right thing to, especially when you've got employees and you always want to be— your employees to be excited about your business and where you're going.”

Steal thisWhen the market shifts, name the new reality out loud and change course immediately — don't let optimism for investors and staff blind you.

How TinyCo won the Family Guy license by asking 'what more can we do?' daily

Competing against EA and Zynga for the Family Guy game license, Ali asked his BD lead every single day what more they could do. They wrote a memo on why EA was wrong, and pulled board member Marc Andreessen and Hollywood's Tom Rothman to vouch for them — winning the deal.

“So every day I would go to Andrew and say, what more can we do to get the deal done today? And he was like, there's no more. I have nothing. There's nothing we could come up with. And I was like, no, we need to come up with something more.”

Steal thisWhen chasing a make-or-break deal, ask 'what more can we do today?' relentlessly until the other side is afraid to say no.

Signed a $10M license with $2M in the bank, then laid off 70 people

TinyCo signed a Family Guy license owing Fox $10M within 30 days while holding only $2M. They got a ~$10M SVB loan to pay Fox, then laid off 70-80 of their ~160 employees one at a time in a single brutal day.

“When we sign the deal with Fox, we sign a deal that says that we're going to pay them $10 million for the license and that we're going to pay them $10 million within 30 days. We have $2 million in our bank account.”

The Iron Man heartbeat: the founder's conviction keeps the company alive

During the near-bankruptcy, Ali compared himself to Iron Man's artificial heart — the only thing keeping the company alive was employees seeing his conviction in the office, and if his heartbeat stopped for one beat, everyone would quit.

“And in Iron Man, he's got sort of this artificial heart that's keeping him alive. And I felt like during this whole time period, the only thing that was keeping the company alive was people seeing me in the office, people seeing the level of conviction that I had, and that, uh, if my heart stopped beating for one beat, the company would die and, uh, everyone would quit and give up.”

Put his last $1M into the company knowing he'd likely never see it again

Out of cash, Ali took a $1M windfall from his MoPub investment and put it into TinyCo behind $10M of SVB debt — financially the wrong call, but he needed to turn the card over and see if there was an ace in the hole.

“And financially, I felt like it was the wrong decision to make. But emotionally I just felt like I need to see this through. I have come this far. Just need to see if this game is successful when we launch it. And I can't give up. And if what it takes is me putting this money in and losing it to find, to turn that card over and find out whether there's an ace in the hole or not, I gotta do it.”

Went home and gave up — woke up to $400K in day-one revenue

On launch day, a bad Apple featuring spot made Ali conclude the company was dead. He went home, watched Netflix, and fell asleep — then woke to discover the game had generated $400,000 in revenue the prior day. It was working.

“So I fall asleep, I wake up the next day, I immediately go to look at our stats and I'm like, oh, we just generated $400,000 in revenue yesterday. So this is working. Holy fuck. This is actually working. We're winning.”

TinyCo sold at $85M revenue and $15M EBITDA

The Family Guy game went on to do $150-$200M in revenue. TinyCo sold the year it was doing about $85 million in revenue, $15 million in EBITDA, with roughly 150 employees.

“We sell the business. The year that we sell, we do— we're doing about $85 million in revenue, $15 million in EBITDA, about 150 people at the time.”