Insight: Michael Acton Smith, creator of Moshi Monsters

Michael Acton Smith, 37, is the founder and CEO of Mind Candy, the company behind Moshi Monsters, a virtual pet and social networking game for children. The game has 60 million users worldwide, and last year was valued at $200m (£125m). An album, Moshi Monsters: Music Rox!, was released earlier this month. Acton Smith is speaking at the Do Lectures (dolec tures.com) on Friday 27 April.

In the age of Google, having a unique, original name is very important. My real name is Michael Smith, and my middle name is Acton, so I started calling myself Michael Acton Smith. But it's a bit long and clunky, so I might just go with Michael Acton. I'm still thinking about it.

I love creating entertainment that isn't confined to one medium. The first product we made at Mind Candy was Perplex City, an alternate reality game played across different media. We had websites, a magazine, a tourist guide, and an album, which sold about seven copies. I always envisaged Moshi as more than an online game. I drew a sketch on a napkin with Moshi Monsters at the centre, and orbiting it were toys, magazines, a TV show. That blueprint was there from the start. I'm a huge music fan, and I discovered that one of our writers, Steve Cleverley – who names a lot of the characters, and writes stories – had a musical background. We wrote down some song ideas, and the album grew from there.

To have a few good ideas, you need to have a hell of a lot of awful ideas. That's what I love about the digital age. The cost of failing is so much smaller now than it was in the old entertainment world. If you had an idea for a film or a video game, you had to have millions of dollars, a big team and years to put it together – then you had to launch it and cross your fingers. Now, you can come up with an idea and hack together a mobile game in a matter of weeks. And if it fails, you just try again. My philosophy is to make a lot of small bets, and if something shows promise then you start putting more resources into it.

If Spongebob Squarepants had been brought up in a brainstorming session, the person who brought it up would have been asked to leave. A lot of early Moshi stuff was created on my own in coffee shops. We have an extraordinarily talented team, but it's hard to create quirky, extra- ordinary kids' entertainment in a committee. The stuff that clicks with kids is weird and complicated, and it's best coming from one crazy brain.

My dad was a librarian and used to bring home amazing books for me and my sister, which I would devour: Richard Scarry, Dr. Seuss, Maurice Sendak. My head is filled with weird and wonderful worlds and creatures. Monsters have so much potential: they can be scary or cute; they can appeal to girls or boys; kids love them and teenagers love them. I don't have kids of my own yet – that's my next big project, once I find a wife. My godson and nieces are very helpful as focus groups, though.

I've always loved the idea of business. I had a computer games magazine when I was 11, I used to clean the neighbours' cars and do paper rounds. Business is the ultimate validation. If you've got an idea, people may think you're crazy, but if you put it in the marketplace, the consumers can tell you if you're crazy or not.

I never saw myself running a kids' entertainment brand, but I thought the next big canvas for extraordinary kids' entertainment was going to be the internet, where, instead of being broadcast to, kids would be part of the community, helping to shape the content.

The web is just one part of a balanced childhood. Children should still be doing their homework, playing football or making dens. But they're growing up in a world that is online and offline. We can't put the genie back in the bottle: they'll find jobs with LinkedIn, they'll make friends on Facebook. Smart parents realise it makes sense for kids to be online. And far better they discover this new world in a walled garden like Moshi Monsters or Club Penguin – a place that's specifically designed for them – rather than just letting them roam the wilds of the web.

Virtual goods pose the same questions as any other purchase. Whether you're buying a pair of designer sunglasses or a collection of pixels, it's how it makes you feel, the status associated with it, the ability to do things faster or more efficiently. For instance, Draw Something is an amazingly successful free-to-play iPhone game, and when I found out that you had to pay extra to get different colours, I thought "I'll never do that". But within days I was spending loads of money on it, because those colours enabled me to draw more exciting pictures, to have more fun with my friends, to build social connections. It was worth every penny.

I used to be terrified of public speaking. But a friend forced me to do it, and everyone laughed at my jokes, so I realised it's an amazing way to communicate and share ideas and inspire lots of people. There's some really boring conferences out there but a few have a real soul. The Do Lectures seemed to have something magical about it. It was described to me as TED meets Where the Wild Things Are, and I love both those things.

I'd love to see entrepreneurs in Europe being a bit more ambitious. Instead of selling as soon as Silicon Valley or the big US entertainment companies come knocking, we should have the ambition to build billion-dollar businesses in Europe. The smartest time to sell a business is while you're still growing, so you leave upside for the acquirer. But as long as I wake up every morning excited about going to work, I'd rather be doing this than sitting on a desert island drinking cocktails and collecting yachts – no matter how big a cheque anyone waves at me.

Interview by Tim Walker