"Famous Last Words"

Getting Off the Ground: Start-up Suggestions for New Studios (November 2007)

Dear Jim:

Several of us are talking about leaving our jobs at an in-house studio and starting up as an independent developer.

We don't have any illusions about how difficult this will be. We all expect to take pay cuts at least in the beginning.

What advice would you give for a start-up?

Dear Realist:

Congratulations on taking the leap.

None of what you are setting out to do is easy. And I am going to presume that you can manage the set-up, develop a technology base that does not use any of your employer's confidential information (taking anything out the door would be a major no-no!), and mount a business development effort to the point of securing your first contract (get an experienced lawyer to help make that deal).

But there is at least as much peril after you are up and running as before. Studios, even talented studios with credits and projects, can fail for a myriad of reasons.

Here are some considerations that may help you get up and running:

1) Be careful with whom you do business. All publishers are not created equal. The world is divided into A-list, B-list and C-list publishers. Don't ask me who is on each list. You already know!

In looking for your first project, don't overlook your current employer. If you can leave on positive terms, it could be the best prospect for that first job. The devil you know if always preferable to the devil you don't know. That can also apply to the way your employer looks at you!

If your previous employer has nothing at this time, check around before you agree to a deal with a C-list publisher; and maybe even before you agree to a deal with a B-list publisher. Learn who their current developers are. Research their games to see who has worked on them. Then treat those developers as references. Contact them. Ask the tough questions. Are milestones reviewed on time? Are payments prompt and made in full? How are their producers to work with? Does the product development staff have a consistent vision of the game or is it all over the map? Were there bad surprises during development? Once you know the answers to these questions, you may still decide to go forward. Or you may decide it is too risky. But you will know what to expect and can try to negotiate safeguards into your deal.

2) Stay on Top of Milestone Approvals and Payments. Game development is a very cash-flow intensive business. If a publisher is late making payments for any reason, or only makes partial payments, you will have difficulty making payroll. The only mistake from which an entrepreneur can not recover is to run out of money. It is critical that each milestone and payment be micromanaged through development, the approval process, and then the publisher's accounting system. No milestone is complete until payment has been received, deposited, and the check clears. Managing this process from start to finish should be the responsibility of someone you can trust in your organization.

The milestone process starts with preparation of, and agreement to, the milestone schedule. This is the one place in the development contract where the developer always takes control. Be careful not to overpromise. It is critical that the milestone schedule be realistic and achievable. The developer is far better off coming in early and looking like a hero then repeatedly missing dates. Delivering a great game consisting of clean code ahead of schedule is the best way to inspire confidence and get further work.

One of the most important factors in a developer's pre-contract analysis of a publisher is the publisher's ability to make payments. I am aware of a situation several years ago where a publisher consistently was late approving milestones and making payments. This negatively affected the developer's ability to make payroll. The developer gave notice to the publisher alerting it to the grave financial circumstances developer faced. Developer warned publisher that unless payment was received by “x-date,” that developer would have to shut down the project and lay off staff. No response to the notice, or payment, was received. Developer laid off staff. Publisher threatened to sue developer for breach!

While caution may weigh against doing business with a publisher who has that kind of track record, business considerations may trump. In such a case, work out a worst case cash flow projection, then presume it may be even worse, and integrate it into the milestone schedule. This usually means greater front loading of the deal. Hold onto that cash for the potential rainy day.

Ask your lawyer to provide that every obligation of the publisher, providing materials, reviewing milestones, and above all, making payments, is a material obligation of publisher (see Contract Walk-Through – release 2 on Breach). And be careful about transferring ownership of work product before payment has been received.

None of this guarantees timely payment or a good experience with your publisher. But it may give the developer a few carrots when it is standing in line waiting to get paid.

These days, a professional front office is as important a part of a game studio as brilliant technical and artistic abilities. If you can manage the business side of your studio, there is a possibility that you can succeed as an independent.