Topic: Leadership & Management Skills

A Retro Video Games Lesson in Leading a Company

3 min read

Dec 16, 2016

Console Wars by Blake Harris tells the story of an upstart company disrupting the status quo and taking on a major competitor.

Back in the early 1990s, the rivalry between Sega and Nintendo was one of the biggest in business. But it wasn’t always that way. Nintendo was king in the mid- and late-1980s, with the success of games like Donkey Kong and Super Mario Bros.

Nintendo had single-handedly turned around the video game industry. After the video game crash of 1983, the Japanese company took a disciplined approach to business. Nintendo protected their intellectual property using a “lockout chip,” preventing unlicensed developers from creating software for its console, the Nintendo Entertainment System. The company also kept strict controls in its agreements with retailers, ensuring that profit margins stayed steady and that demand always exceeded supply.

But like every successful company, Nintendo faced serious challenges. Console Wars focuses on Sega CEO Tom Kalinske, who transformed the company from an also-ran to an industry leader using tried-and-true business principles.

Know the Competition

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Kalinske started by learning as much about Nintendo as he could. He did this in part to learn about why the company had been successful, but also to determine where the company’s weaknesses lay. He was determined to make Sega the “anti-Nintendo.”

He found that Nintendo’s consumer base was almost entirely children. Sega targeted their latest hardware — the Sega Genesis — more toward teenagers and adults. Nintendo focused on providing “family entertainment” (the Japanese version of the Nintendo Entertainment System was literally called the Family Computer), so Sega would allow for more freedom in content. This led to one of the company’s greatest successes: the Sega version of Mortal Kombat featured bright red splashes of blood, whereas Nintendo’s didn’t.

Take Big Risks

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When Kalinske took over at Sega, the company was in danger of shutting down its home console market. Kalinske figured he had nothing to lose and took big risks in an effort to topple the mighty Nintendo.

For example, when Sega of Japan initially created Sonic the Hedgehog, the character had a metal-studded collar, fangs, an anime girlfriend, and an electric guitar. Kalinske said there was no way this would work in the States. After several arguments with his superiors at corporate headquarters, Sega of Japan agreed to tone down the “bad boy” vibe. The cute-with-attitude style of the new Sonic was a huge hit, the killer app Sega needed to compete with Nintendo.

Kalinske and his team also created a number of advertisements that went directly after Nintendo. While the big N would never stoop to mentioning the competition, Sega set itself up entirely in relation to its competition. Its aggressive advertising style won it fans and sparked heated “Sega vs. Nintendo” debates on school playgrounds across the country.

Treat Your Business Partners Well

In general, where Nintendo represented control, Sega represented freedom. Nintendo maintained strict, almost punitive contracts with third-party software developers. Sega rejected this, instead actively recruiting software development companies and negotiating openly with them. Nintendo also had a single way of dealing with all retailers, whereas Sega was more flexible.

Build a Great Team

Kalinske wasn’t successful on his own. He hired a core group of talented, committed individuals who helped build the company. He had people he trusted in marketing, public relations, and development. All of these people were passionate about making Sega a success and weren’t satisfied with being second to Nintendo.

The Genesis became a major competitor, even grabbing a majority of the market. However, Sega’s hardware division would collapse years later after failures like the Sega Saturn and the Sega Dreamcast. Nintendo would survive and eventually even have a breakout success with the Nintendo Wii. The company learned from Sega and adapted its business model to be less rigid without sacrificing its core value of providing family entertainment and consistent quality. In the end, Nintendo made perhaps the most difficult move in business — it evolved.

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