Successful startup: Is there life after death? (part three)
What should the team wait for, who decided to make a game with the money of a third-party investor, – he told App2Top.ru Operating Director of Crystal Clear Soft Nesvit Bogdan in the framework of the third article from the series “Successful startup: is there life after death?”.
- The first material of the cycle: Why was it easier to launch your own startup ten years ago?
- The second material of the cycle: What problems await the development team that decided to create games without attracting third-party investments?
As I wrote in the previous article, there are two possible options for a successful gaming startup: an indie startup and an investment startup. We considered the first option a week ago, let’s talk about the second one.
At first glance, it seems that an investment gaming startup should be significantly different from an indie startup. But upon closer examination, it turns out that they are similar in many ways, but there is also a whole range of cardinal differences.
Axioms of success of an investment gaming startup
If we talk about the axioms of success of an investment gaming startup, it should be emphasized that the axioms concerning the success of an indie startup are also true here.
An investment gaming startup. Expectation
0. Determining the source of project financing
In an investment gaming startup, this point is an axiom. To launch such a startup, you first need to receive investments. But we will assume that you are an established team that aims to get investments and develop a game for someone else’s money. And, in general, this is a rather pleasant option, because, as it may seem at first glance, there are no risks. Success is success in Africa, and failure is a waste of other people’s money, which is also unpleasant, but it seems not so critical.
1. The presence of experience, professional skills, the necessary team
We still assume that at the time of the launch, all the necessary components remain at your disposal: experience, skills and a team. The only difference is that now, after receiving the investment, you will have money and it will be possible to strengthen the current team with new personnel, or calmly fill the “empty” places, if any. For example, if you do not have a 3D designer, and he is badly needed, you will only need to find such an employee and offer him the desired salary. That is, the personnel problem should disappear in theory.
2. Analysis of your own capabilities
3. Determining the niche of the future project, its genre and setting
4. Competitor and Audience analysis
These theses remain identical with an independent startup. All preparatory procedures are important and must be carried out, otherwise the probability of failure remains quite high even at the start of development. Naturally, you are an experienced developer, so you have done the necessary work and look happily into the future.
5. Development process
There shouldn’t be any problems in the development process either. If earlier someone could take the matter lightly, or the person lacked motivation, now these problems have been solved. A colleague has a salary and he is obliged to do his job, do it on time. He can relax and give himself to his favorite thing 100%. There will be no quarrels and disputes, or they will be resolved without consequences. If someone lacks qualifications or professionalism, you can strengthen the team with third-party developers. The same method solves the problem of secondary frames. And if you have a gaming investor, then he can give his own staff and help in every way to increase the quality of the product. The problem of management will be solved by searching for a project manager. In general, everything should be fine.
6. Completion of the project and its promotion
And at this stage everything is rosy. Now your project has an investor. You can seriously think about promoting the project by yourself or by your investor. In addition, if an investor has money, then it is logical that he has connections. He, if anything, will introduce you to the publisher, and will give money to the press at the conference, and will agree with the storeys about the feature. In general, you can solve some of your problems with the help of an investor. And the number of solved problems and the result of this activity directly depend on the “weight” of the investor.
7. Making a profit
In general, the result of this thesis is also obvious. As a result of working on item 6, you have a good profit. Moreover, it is much larger, because now you can not only ask for traffic from the publisher, but also buy it yourself, have a “net” profit. It remains only to divide it and buy a house on the ocean.
An investment gaming startup. Reality
Unfortunately, in reality, you are still waiting for a lot of obstacles and pitfalls that can lead to disappointment at any stage.
0. Determining the source of project financing
As always, difficulties begin when development has not yet begun. By definition, your startup cannot exist without investments, because it is an investment. But getting an investment is a whole problem. This is a huge problem.
In the first article of the series, we already talked about the fact that today investments are not given just like that. We said that no one would give money to newcomers. By definition, an investor needs to invest money in a potentially profitable company (which is on the border of self-sufficiency), an already profitable company (one that already earns and can earn even more), or in a team of experienced developers who will be able to prove their worth and return the investment. The first and second options exclude the very essence of a startup, because a ready-made company is not a startup.
Accordingly, let’s think about what you need to have in order to get an investment.
- Stable and experienced team of professional developers
Your team should not only be experienced and professional, but also stable. No one likes instability and no one will invest money in a potentially unstable team.
- Good reputation
It’s good if you have not just a clean reputation, but also positive feedback from colleagues in the shop or influential people.
- Successful experience
Another positive factor is the experience of participating in successful projects. Together or separately, your team had to prove itself in different companies on different projects. If an investor understands that you not only know how to achieve success, but have already achieved it (even if as part of another company), it will be easier for him to make a decision about investing in your startup.
- Availability of ready-made developments for a specific business offer
You have to have a really good idea that will be both unique and original. It should be as convincing as possible. You must provide a clear and transparent plan of action. You have to convince the investor that your idea is really great, the game is worth the candle, the plan will work and a profit will be made. Even better, if not just “some kind of profit”, but a very specific profit, with exact amounts. Ideally, if there is a very large profit.
- Preparation of documentation, conversations, interviews, contracts and other processes
You will need to prepare a lot of documentation, from a business plan to a resume of each team member. You will be talked to, your team will be interviewed. In short, you should be prepared for the fact that the whole process will take a long time.
But, what is most annoying, even if you pass through most of the parameters, it is far from a fact that the investment will be received.
There are a lot of factors that influence the final decision of a potential investor, you can also write a separate article on this topic. In the first part of the cycle, some factors were described that today force investors to be less active. But that’s not the main problem.
The main problem is that investment funds in the CIS can literally be counted on the fingers of your hands. And they practically do not invest in games, because they consider the gaming direction too risky. There is no such venture business in the CIS as there is in the West and in the USA. And to go to Silicon Valley and take investments there, a young (and not only young) developer simply does not have the money and the opportunity.
In short, the probability of receiving investments is initially minuscule, even if it exists.
1. The presence of experience, professional skills, the necessary team
If, when working in a team of friends or like-minded people on their own startup, everyone had the motivation for a full calculation, then the developers of an investment gaming startup have a much lower motivation. Not those who have earned these investments with blood and sweat, but those who come to the ready. It’s a double-edged sword. You need a qualified specialist to strengthen the team, but he can also make an imbalance in your work. It is necessary to approach new employees selectively. You can’t make a mistake about a person. He should have the same motivation, be responsible and serious. But often the original motives of people are unknown to us. At first, everyone is motivated because they want to prove themselves. But as soon as the developer feels that you need him and something is holding on to him, he can immediately “sit on his head”. For example, to demand a significant increase in wages. Or demand your own percentage of the startup’s profits.
2. Analysis of your own capabilities
3. Determining the niche of the future project, its genre and setting
4. Competitor and Audience analysis
The bad news: these items are identical to the items of an independent gaming startup. The mentality of our man has not changed and he still very often learns from his mistakes, and not from others. The good news is that if a developer has received an investment, then most likely he is already an experienced developer and has filled bumps before. And this means that the probability of the right approach to creating a game is much higher.
5. Development process
And again there are reasons for unpleasant thoughts and disappointments.
- Constant monitoring
You will always be closely watched. The investor will constantly keep his finger on the pulse, demand results. He will point out, prompt, sometimes force you to do as he sees fit, and not as you would like. It is likely that the investor will want to introduce his observer into your team so that he monitors the state of affairs and reports the results.
- Moral pressure and fatigue
This is a big moral burden that will have to be sustained. And, most interestingly, it is quite possible that the investor will always have a reason to be dissatisfied. Especially if something goes wrong, or not according to his instructions. By definition, an investor is always unhappy until the money invested has paid off and started to make a profit. And if the profit goes, but it is not big, then he is still dissatisfied.
You need to be able to withstand this moral pressure.
- Disputes and quarrels
These negative aspects will still remain. But the cost of an error will increase significantly.
- Responsibility
Logically, the responsibility should increase, because now everyone gets paid for their work. But the paradox is that efficiency can decrease significantly. When a team is stressed and hungry, it does everything to achieve success faster. And if there is no stress, but there is money, and they are strangers, then no one is in a hurry to work.
- Development time
The thesis is adjacent to the previous one. As soon as the efficiency decreases, the development time increases.
- Life problems
They’re not going anywhere either. Regardless of whose money the development is sponsored with, people will still take the session or get sick. And it seems that the situation is simpler, because at the expense of funds, you can find a replacement for the retired one. But in practice, it turns out that the team is never ready for someone’s illness and few people take care of replacing the main team in advance (sometimes there is no opportunity to prepare, because, let’s say, development is in a small city and personnel are limited there). Besides, if an artist is sick, that’s half the trouble. But what to do if a programmer went to the hospital? How can a new person be introduced into the project quickly and without wasting time, if there was no safety net against such situations?
In short, each of the factors can manifest itself at one time or another. And in the aggregate, this leads to the fact that the development deadlines are disrupted, the team ceases to invest in the budget, the race for a release with an unpredictable ending begins, from which the quality of the game can seriously suffer.
6. Completion of the project and its promotion
It seems that at this stage there will definitely be no problems with the investor. But even here there are pitfalls. If you have a good project, then there should be no unsolvable obstacles. They will help you as much as possible with marketing or a publisher – it doesn’t matter. The final decision depends on the situation and on the investor. If he has resources and finances, he will have his own traffic and his own advertising company. If there are no resources or finances, then there are connections, so cooperation with the most acceptable publisher will be organized. In general, everything here coincides with the project’s own development.
The problem is different: if your project initially failed, then no investor will help. And you will be to blame for the failure, even if you did everything on the instructions of the investor. This, by the way, is a separate pitfall. You need to be able to maneuver so as to make decisions that the investor will like, but will not go to the detriment of the result.
7. Making a profit
And at the last stage there are also pitfalls that you should be aware of. Obviously, if the project is not successful in the end, then the investment stops and the team is left without support. We will talk about the negative consequences of failure a little later.
- The main owner is an investor
It is also obvious that when a team takes an investment, the investor automatically becomes the main owner of the final product. In the best case, the developers will have their own percentage of the profit, and the value of this percentage will vary and it will be shared by the entire team. That is, the profit will have to be shared not only with the store and the publisher (if there is one), but also with the investor. And it is logical that the investor will want to return all his expenses first, and then share the net profit with you. This means that you will have to wait an indefinite period before getting your hands on “live” money (the duration of the period depends on the success of the product: the more successful the game, the faster the investment will pay off and the net profit will go).
- The risk of being unnecessary
If the team works successfully, then it is unlikely that the investor will clean up the chicken that lays golden eggs. But at the same time, the team’s place is still not guaranteed. We will have to be very careful, because at any time the team can be replaced with another one. For example, a more accommodating one, with whom you do not need to share profits, but which is enough to pay a salary for supporting a ready-made project.
- The risk of being overboard
A derivative of the second thesis, or rather its worst version. Even if the team has achieved success, the investor can always banal pick up the project under various pretexts.
Especially if it is not an investment fund with a reputation, or a gaming investor, but a third-party investor from another business. Believe me, no contracts will give guarantees.
Firstly, because a simple team of ordinary guys has no money and expensive lawyers. And there are always loopholes in contracts. And you can’t close them, because when you receive an investment, you are required to sign the contract that you were given. You cannot dictate the terms on the development shore by changing the terms of the contract issued for yourself, because if you do not agree with the proposed terms, you will be left without money. And it is unlikely that you will immediately find a lawyer who will be able to provide for all the loopholes of the issued contract. At least because the contract issued to you may well be drawn up in the legal field of the European Union or the United States, and it is not only very difficult to find an intelligent lawyer of such specialization in the CIS, but also very expensive. And you haven’t received the money yet.
And even if you are given a contract that was drawn up in the legal field of your country, an expensive and experienced lawyer will still be needed for high-quality study.
The exception is the situation when you have several investors to choose from. That is, you will be able to choose the terms of the contract that you consider the most acceptable. But this is an almost unrealistic situation, feasible only if the proposed project has very good prospects.
And secondly, because we live in the CIS. If you have a serious and influential person (or a group of such people) listed as an investor, then they may not always talk to you from the standpoint of jurisprudence and the law. Sometimes, if they have their own desires and motives, such people can call for a personal conversation and conduct it very rigidly with certain words, requirements and other related terms. And after such a conversation, you can take your contract and forget it. And it is better to donate it as an exhibit to the national Museum, where it will be used as a visual aid on the topic “Peculiarities of doing business in the CIS”.
In short, this is domestic politics and diplomacy, for which, again, experience and knowledge are needed.
Consequences of the failure of the investment game project
And finally, we will talk about the consequences of the failure of the investment game project, which, by the way, are quite serious.
1. The investor will have to answer
If your startup has failed, then you will have to answer to the investor. You didn’t spend your money, but his. What are the consequences of this “answer” – it all depends on the circumstances. One thing is guaranteed: you won’t feel good.
2. Damaged reputation
If hardly anyone finds out about their own startup and its failure, then everyone will know about the failure of an investment startup. This is a stigma that cannot be erased. Of course, no one will die from this, but it’s not pleasant enough. All the consequences that follow from this are obvious.
3. Lack of investment and lack of future in such startups
Obviously, the current project will be closed and they will not give money for a new one. Moreover, no investor will ever give money to other startups. Unless only if it is just a killer idea with a 300% guarantee of success, or you will be able to deftly and convincingly hush up the previous failure.
4. The only possible future is working as an employee of the company
No matter how insulting it may sound, but all team members will need to fall from heaven to the sinful earth, forget about their ambitions and go to work as a full-time employee in the company.
Desperate heads will decide to start their own startup, but according to the experience of many colleagues, it is unlikely to lead to success. Although some colleagues came to success on the third or fourth attempt
General conclusion about the written
Whatever it was, with any of the options, it is not enough to be a serious specialist to succeed. You just need phenomenal luck. And, unfortunately, in addition to professional skills, wisdom, cunning, diplomacy, literacy and foresight will be needed. It is necessary to be able to see the pitfalls, and lead your team to success through all obstacles and distances. It will be much easier if you have a team of friends with whom you will go to success together and complement each other.
Personally, it seems to me that any gaming startup is an incredible risk. Someone will say that the world rests on idealists who always believe in success and break all stereotypes. Yes, it is. But in practice, what is the percentage of successful idealists? It’s incredibly minuscule. Reality is harsh, and sometimes even a lot of skills and knowledge is not enough for success.
Therefore, before launching any startup, you need to sit down and clearly weigh all the advantages and disadvantages of such a solution, because life is much more cruel than they write in books, and the consequences of wrong actions are always great.
