I recently observed two game studios fundraising their pre-seed round. The former was raising 300K and the latter 3M. That’s a big difference, and there’s a lot to unpack there.
Attractiveness to investors is stellar with the latter: they have a highly experienced team with an idea that has an excellent founder/idea fit. Their concept has the right market timing, and they’ve also shown traction with their hires and prototypes.
The former is less attractive. They have experience, but their founder/idea fit and market timing are questionable, making the company a hard sell to investors.
But, I believe that both companies have a commonality: in all likelihood, both companies will have their first game fail.
Instead of worrying about the game, we should be worrying about how not to fail the whole company. I believe there are a few ways to stay in the game.
Be paranoid about failure
Founders should relentlessly ask what is driving their early success. Pre-seed founders, who’ve managed to raise, should understand why they raised successfully.
“Early success makes you not examine very carefully and cautiously what is driving that success. [We should be asking], are there superpowers that we should have as a company that we don’t have because clearly, other companies are growing very fast, making a bunch of money in this space with none of our superpowers? I wasn’t back then mature enough to be more paranoid about what is driving the success of these others.”
Segerstråle mentions the word paranoia eleven times on my podcast. Here’s another one that I liked.
“The chances are that you don’t have all the expertise to figure out every corner of the equation. And that paranoia around “Hey, just making my idea and executing well, based on my existing knowledge base is insufficient.” There are likely bits of knowledge out there that you need to learn, to cultivate, and to hire for, which turn out to be critical for you that you don’t know.”
There are countless moments in gaming where you’ve got to stay paranoid. Here are a few examples I’ve seen.
- Your game has excellent retention KPIs, and CPIs are pretty decent in soft launch. Be paranoid about CPIs increasing by 3x to 5x in a year.
- You’ve raised $2M, and you start building your game. Will you validate the concept when you have 2M left, 1.5 left, 1M left? After you need to raise more?
- Day-3 retention hasn’t improved even with four significant changes to the game. Do you continue to the fifth one?
I recently read “Only the Paranoid Survive” by Intel’s famous CEO, Andy Grove. In his book, Grove writes about not wanting to be fearful all the time, not wanting to wake up every day with the feeling that the sky is falling. But he can’t help himself.
“Fear can be the opposite of complacency. Complacency often afflicts precisely those who have been the most successful. It is often found in companies that have honed the sort of skills that are perfect for their environment. But when their environment changes, these companies may be the slowest to respond properly.”
Okay, so you are paranoid, then what? How do you develop the Spidey sense for what is about to happen?
One of the best ways is to learn vicariously how others dealt with their first game failing. How quickly did the team realize that the game was at a dead end? What action did they take to survive, to prevent the entire company from failing?
I’ve previously written about utilizing the knowledge and talking to other CEOs about their paranoia. Go out there and get the paranoid bug.
Watch out for five stages of decline
I love this Jeff Bezos quote. What follows is my attempt at applying it to gaming startups.
“Every day is day 1” — Jeff Bezos
- After your pre-seed, you have a long way to go. It’s day-1.
- Successful game launch. You have 10,000 DAU. It’s day-1.
- Product is scaling towards making $1M a day. It’s day-1.
- Product plateaued at $1M, and ROAS targets are starting to be hard to meet. It’s day-1.
There’s another way to look at this, and it’s Jim Collins’ five stages of once-great companies, in decline.
In the book Turning the Flywheel, Collins writes about the decline and of becoming irrelevant.
“Circuit City sought big new ideas for growth, anticipating the day that the consumer electronics superstores would run out of great locations in which to open across the country. This in itself was a good idea, just as Amazon continually sought new ideas to propel the flywheel. But, unlike Amazon under Bezos, Circuit City neglected to keep the consumer electronics retail business robust and relevant. Meanwhile, an upstart competitor named Best Buy seized the market.”
The same goes for a rising star in Merge games, the one that made headlines after raising a $20m A round, that now is struggling because the game didn’t stay relevant to the audience. (Note: No company like this exists, but many folks have been raising for merge games.)
A better executor, a more paranoid, “every day is day-1” entrant took over the market, and the rising star of yesteryears couldn’t compete in the CPIs anymore.
Finally, time to pivot?
Andy Grove writes in his book about the concept of Strategic Inflection Point, explaining that “a strategic inflection point is a time in the life of a business when its fundamentals are about to change.” He came up with the concept after Intel needed to ditch memory chips for microprocessors in the 1980s.
He continues later on that ”…the word “point” in strategic inflection point is something of a misnomer. It’s not a point; it’s a long, torturous struggle.”
Many developers are facing ever-increasing CPIs in mobile gaming. Some have moved to Play & Earn and NFT games, not to continue the torturous struggle.
Pivoting to blockchain gaming isn’t anything new. Game studios left Facebook canvas and started making mobile games because it was a better opportunity for them to stay in the game.
When a new way of gaming emerges, development costs are low because there’s a lot of free distribution and not many quality games. But eventually, the market saturates, and fees for acquiring players go up.
Even at the dawn of a new gaming” platform,” you have to continue being paranoid to survive.
All those five-star reviews can’t be wrong 🙂 Get my book, “Long Term Game: How to build a video games company” from Amazon. Available on Kindle, audiobook and paperback.
🎙 Carolin Krenzer — Building games with stellar execution
In this podcast episode, I’m talking to Carolin Krenzer, who is the co-founder and CEO of TrailMix, a mobile games studio well known for their hit merge game Love & Pies. Caro has an extensive background from free-to-play and mobile, and she has been doing her startup now since 2017.
We talk about so many things, like what Caro learned from working at Playfish and building the London studio for King, then on hiring, team building, and how execution on your core gameplay matters so much when you are building games in established game genres.
Listen to the full episode by going here.
📝 In case you missed these
- Building a big game
- Investing in early-stage gaming
- The perfect teaser deck
- Better M&A in gaming
- First year of Joakim Syndicate
- Opportunities In Mobile Games
- Success in fundraising
- and more
📃 Articles worth reading
+ 70 Learnings From Slush — “11. The difference between a truly exceptional leader and a good one is that both know what to do but only the exceptionals will do it. Usually, this is related to painful decisions.”
+ Gaming the Smiling Curve — “Whereas Microsoft is increasingly device-agnostic (of course it helps that they sell both Xbox consoles and Windows), Sony is doubling down on the integration of hardware and software. Their best content is designed to not only make money in its own right but to also persuade customers to buy PlayStation consoles; the more PlayStation consoles there are the more attractive the platform is to 3rd-party developers.”
+ On Employee Motivation — “The ability to tie an employee’s motivational fantasy or the specific motivation factors for an employee to do the work is something I believe has not been thought about well enough. Instead, there seems to be an over-excessive focus and a simplistic view on compensation.”
💬 Quote that I’ve been thinking about
“I keep wondering, how many people you need to be before you can be yourself.”
— Iain S. Thomas
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