'Board games are experiencing a renaissance in Russia and the world right now'

In the pursuit of digital projects, interesting business niches sometimes go unfilled. Higher School of Economics graduate Mikhail Pakhomov, founder and CEO of Cosmodrome Games, turned an analog project into a profitable venture. He told Success Builder how board games are created, how to turn a hobby into a source of income, and how to buck the trend towards all things digital.

You were among the first to enroll in ICEF. What prompted you to experiment with a department that had not yet turned out any graduates?

I initially planned to attend the HSE Faculty of Economics, but I discovered during the enrollment process that I could get a good discount at ICEF. The department defied the usual university stereotype in that it offered full-fledged studies like the Faculty of Economics, plus outside coursework with a London university. It was a new and interesting idea, a fresh approach to education—a programme offering two diplomas. We would study in Moscow and receive a diploma from the London School of Economics at the same time. There was no better option at the time, and for those people who knew why they wanted an economics education, ICEF was an especially good choice.

How do you account for your strong interest in economics?

Oddly enough, I made this choice four years before going to college. In the summer between my 7th and 8th forms at school, I had to choose to focus on either physics and math or, for example, economics. I chose the second because I had already realized by the end of the 7th form that I wanted to study economics and that it would become my future profession. In childhood games, I often played the company director, and the economics faculty seemed like a direct path to achieving my childhood dream. By the time I graduated from high school, I knew I wanted to study at HSE. Of course, not all of the specialized classes in high school were great, but in my case, they were a step in the right direction.

Does your current work match your formal education?

Not exactly. My LSE degree is in finance and banking and, ideally, I should work in a bank. Actually, I did have an internship in a bank after my second year of college. It was very disappointing, but it was a valuable experience. And the thought processes that come from being immersed in finance, and the ability to structure and analyze information help me now in my daily business activities.

There are three main paths open to an ICEF graduate: investment banking, strategic consulting—where I have also worked—or a career in research. A fourth and less popular option is to actually become an economist—that is, to go into business for yourself. I chose the fourth option.

What prompted you to create your own business?

As often happens, I was motivated to succeed by like-minded people. The university community itself and the creative environment in general—and it is precisely such an environment that ICEF manages to create—gives you certain values that you can successfully apply to the activities you later pursue. The business partner with whom I started the games project was a university classmate. As students, we were interested in entrepreneurship and often thought up different projects and ways to start a business.

At that time, HSE had a Business Laboratory course taught by Dmitry Molchanov in which many ICEF students, including my friend and I, were enrolled. This introduction to the practical side of business helped me understand some important things—for example, that you need a particular temperament to be an entrepreneur and that you need to be a little bit crazy to start your own business. An understanding of finance is a big help: making a realistic assessment applies to other ICEF graduates who have also built successful businesses thanks to their professional approach to finance. Many investors have told me that I make excellent financial models, something Russian entrepreneurs rarely produce.

Why did you choose to make analog games—in some sense an unusual and even archaic business?

I don’t agree with the term ‘archaic.’ Yes, our grandmothers played lotto and bingo is an integral part of life for retirees in the U.S. However, board games are experiencing a renaissance in Russia and the world right now, and a growing number of people are getting into this hobby. Global turnover in board games is more than $10 billion annually, with a double-digit rate of growth. Several thousand new board games launch on the market every year: the industry is booming and moving further and further away from the notorious ‘Monopoly’ game.

They enable us to gather around one table with family and friends, spend our free time together, and experience positive emotions. All of this is important for us as ‘social animals’ that technology has succeeded in driving apart. This form recreation is particularly inspiring and refreshing compared to the virtual, imitation life of social networks. People are hungry for communication in the real world.

Technology is making major changes to the economy but, at the same time, there are things ‘from the past’ that we will always need, such as pianos…and board games. At the same time, we are thinking of ways we could use technology to enhance our games—it could be voice assistants like Amazon’s Alexa, Siri, or Alisa, or augmented reality, VR, computer vision, or enabling a smartphone to understand what is happening on the board in real time and to make moves on its own. We created a small investment fund at the company to support such experiments. At the same time, we are holding firm in our niche and do not go chasing trends, trying to reconfigure the business into each new digital format.

You seem to be board game fan yourself. Is that true?

Yes. My friends and I at HSE played board games a lot. Even then we came up with a business project for board games, but after we had done all the calculations, studied the market, and made a growth forecast, it seemed that there was a huge risk of going up in flames and being disappointed. We weren’t crazy enough to start. It turns out that we were wrong about the prospects, as the example of Mosigra (Moscow Games) shows. We should have launched our business back then. We did ultimately make it happen, though only in 2013. By that time, I had already gained some business experience and had managed my own English school for several years.

In practice, how does an unusual business idea like this get off the ground?

By 2013, I had accumulated a fair bit of knowledge about e-commerce, so at first we planned to make a game for smartphones. But any game for phones begins with an analog prototype on paper for focus groups to test. We started making the cardboard game pieces and really got a big kick out of it. Then we happened to see an article about the guys from the Stupid Casual company who had launched the Imaginarium board game. They said they hadn’t been afraid to launch an analog game, which they admitted was a bit crazy. Their success caught them by surprise. It turned out that there was a demand for such things.

We wrote a letter to those guys, met them, and found out that, compared to mobile games, this market was relatively empty and, what’s more, making a board game is not as labor-intensive or expensive as making a digital game. So we started Cosmodrome Games. At first, we used our own money for everything, but later we decided to spread out the risk and invited the guys from Smart Casual to invest in our project. We started with the game 500 Cruel Cards. It became popular overnight and we realized that we should keep going.

How long were you with Stupid Casual?

We were always independent in our policies. The SC guys only helped by giving us tips, resources, and contacts. They did not interfere in our editorial policy because they had seen our positive results. After a couple of years, we combined the two publishers, turning Cosmodrome Games into the third largest publisher of board games in Russia.

How do you define success in your business, and how quickly did you achieve it?

After the two companies merged, we retained the name Cosmodrome Games for the publisher and I was the head of a company that was now five times larger than before.

I am grateful to ICEF. My education really helped me to understand what needed to be done at that point.

At the largest international exhibition of board games in Essen in 2018, two of our new products, First Contact and Smartphone, were so popular with guests that we wound up in the Top 100 without any promotional campaign at all. As of 2019, seven of our games will be sold widely in the West and in large quantities.

What is the actual process of creating a board game?

It is similar in many ways to the book business. It starts with an author who comes up with a new idea. We choose the ones that we feel have the greatest sales potential and then set out to create a full-fledged product based on it. Refining the game takes from six months to 3-4 years because you have to test and adjust the mechanics, produce the illustrations, write the texts and work with the great many professionals involved in the process. The Cosmodrome Games editorial staff includes editors who bring together all the people working on a game, developers who work out the game’s mechanics, and designers. We bring in the best illustrators, copywriters, correctors, translators, and text editors. For now, we work with Russian authors and secure rights for the whole world. For example, four years ago we acquired from the Trekhgrannik a game group that is now known as Pandorum. Last year we conducted a successful Kickstarter campaign where most of the buyers were from the U.S. and Western Europe.

Another interesting business model involves a charity project. How did that come about?

Before the project started, we occasionally contributed to several orphanages. One day, people from the Public Chamber of Russia—who, as it turns out, were big Imaginarium fans—came by and suggested we team up to produce a similar game using drawings made by the orphans. We liked the idea and brought in illustrators who refined the children’s drawings. We then placed a catalogue of the kids’ original drawings into each game box so that people could see the pictures that had inspired the illustrations. The result was the most striking version of Imaginarium in the game’s seven-year existence—Imaginarium Dobro (Kind). We donate 100 rubles from the sale of each game to charitable organizations and to the orphanages that took part in creating the illustrations. This case is unique because no other game in the world integrates a charitable project. Ours is the first.

What can you tell us about the Russia board game market?

The annual turnover of the Russia board game market is approximately 10 billion rubles. More than 20 companies have a presence, including market leaders Hobby World and Mosigra. Major wholesalers of children’s toys, such as Unitoys, book publishers such as MIF (Myth), and hobby store chains such as Leonardo have joined the market recently as well. Approximately 500 new board games go on the market each year—that’s a lot for a market with stagnant demand. With that kind of competition, you have to stand out. For that reason, even as we are signing a contract with an author, we are thinking about how we would promote the game and trying to identify its target audience. Our goal is to publish a small number of games that are ideally suited to the intended target audience.

At the same time, despite the fact that this is an analog product, we use and are developing digital sales channels—even though, until recently, we were doing very well with large wholesalers. On the Western market, we tried the crowdfunding format for releasing a game and learned that this gives the buyer an entirely different level of influence on the product. Now it is possible to go to the client and say that we want to do this or that type of thing for them and we receive their money in return. Direct communication with the client changes the economics of the product. Direct sales give the manufacturer higher profit margins, and this improves the quality of the product significantly. It also leads to increased competition as an ever-greater number of quality products enter the market. We have to grow along with the market, keep changing and never stop.