So You Want To Start a Game Business? (Step 0)

So You Want To Start a Game Business?
Step Zero: Stop! Do you have the money?

I’ve been asked by a lot of people to write a guide to show how to start out as a game business, instead of focusing on how not to do it. In light of these concerns, I think it’s time to clarify some things about how startups should (and shouldn’t) work, so that people understand what is proper and what is ridiculous. I’ll let you guess which of these things are more commonly suggested.

First of all, if you are thinking of starting a business, any business, I want you to stop right there. Stop thinking of your awesome game idea, stop developing amazing setting details, stop considering how your production model is going to change the industry. Stop!

Have you stopped? Good. If you haven’t, or you don’t want to, then you’ve already failed the first test. You probably want to write games, not publish them, and you should pursue that. It’s a difficult field, but you (and your games) will be better off.

We’re going to go over some things that everyone needs to consider well before we start talking about actually producing a game. The first one, of course, is money.

I mentioned this before, but I want to emphasize it: undercapitalization is one of the biggest killers of small businesses. You need money to start a business. There is no way around this. Any business needs capital sunk into it. But how much?

The quick and dirty method is all of your costs for the first year, plus twenty percent. Let’s take a hypothetical situation: new startup Badwrongfun LLC is interested in calculating how much capital it needs.

1. We’re planning on producing three games in the first year, which we have done our project cost calculations for (more on that later). These games are small-cost, small-run projects that will get us on the map as a game company and open up room for expansion into bigger, more profitable products.

The total costs for these games are:

Game 1: 1,000 (writing), 500 (art), 500 (layout/editing), 3,000 (production), 1,000 (marketing)
Total: $6,000

Game 2: 500 (writing), 1,500 (art), 1,000 (layout/editing), 5,000 (production), 1,000 (marketing)
Total: $9,000

Game 3: 1,000 (writing), 1,000 (art), 500 (layout/editing), 4,000 (production), 1,000 (marketing)
Total: $7,500

Total Production: $22,500

2. We’re going to run these projects virtually as a home office, so our adjusted costs for that are (essentially) zero. Since this is obviously a part-time endeavor, we’ll assume that the principal in the business is getting his main income from another source. As such, there’s no need to include any payment above and beyond any of the credited payments above.

When we do an income statement, we’ll write off part of the rent as a business expense, but there’s no reason to take care of that now.

Other expenses include a proper website and hosting ($1,000), LLC/tax registration ($300), and proper desktop design software ($1,000), for a total of$2,300.

3. We add a twenty percent cash buffer, rounded up to an even $5,000.

Okay, so our grand total is $29,800. Let’s call it thirty grand.

“Wait!” you say. “This is supposed to be a part-time business! How can I need such a ridiculous sum to get a part-time business running? That’s unreasonable!”

You’re correct. In this sort of industry, and especially for this sort of endeavor, that’s a large sum for a part-time business. Some of these costs are mitigatable, or delayable, and a few  reducible or available in trade.

Notice that I said some. You cannot start a business, a real business, with no assets. I cannot emphasize this enough: The less capital, the more likely failure. It is an absolute truth. Do not ignore it.

Now, let’s say we’ve got writers willing to work on profit shares, an artist or three who will do our art on 20% advance, and we’re going to do our out editing and layout. In addition, we’ve cut back the costs of our marketing plans to half. How much money do we need now?

1. Our total production costs are reduced to just $14,100.

2. We happen upon a software license, and find a student to do our website ($100).

3. Here’s a key: your 20% buffer doesn’t change; this is why we did the original calculations. You’re going to need that cash, I guarantee it.

This brings our total to $19,500, 65% of the original figure. Yes, that’s still a very lot of money. It is, however, how much investment you’re going to need, in advance, to start this small, part-time company.  You’re going to need this money when something goes wrong, and it will.

If you’re wondering why I’m running numbers for a business of this magnitude, and not the traditional idea of a lone hobbyist publisher, I would like to point you to my previous article on why this is such a bad idea.

Does it seem foolish to sink twenty grand into a game company? Well, we can’t answer that properly yet. Next time, we’re going to go into Step One: Define and Research Your Market, and determine if there’s any money to be made.

On Why the One-Person Startup is an Awful Idea

I don’t mean to sound uncouth or ungrateful, but it drives me crazy when people come to me for advice on how to start their game business. It’s not because I don’t like giving advice; I really do, and I love the dynamic process of developing a general plan for a business together. It’s something I love to involve myself in, so long as the idea has merit.

That’s the problem, though. Very few of the ideas have merit, because no one is making games that other people want. All of these small press publishers are pushing out games that they like, that they want, that they think are brilliant, playable, and fun. People aren’t looking at the market and trying to find a hole to be filled. They aren’t looking for a niche to fill. They just want to publish their game, and they think self-publishing is the best way to do that.

The truth, unfortunately, comes down to this:

The successful one-man startup is rare enough that the except proves the rule.

Let’s look an a roleplaying game. One guy who wants to write good games and make money doing it will need a pretty expansive skillset. He’ll need to be:

1. A proficient and prolific technical writer.
2. An experienced games designer.
3. A talented visual artist (and probably also prolific).
4. Reasonably proficient with page design and book layout.
5. Knowledgeable of proper marketing and advertising practices.
6. Able to run a business, balance a ledger, and negotiate costs.

That’s one pretty talented motherfucker, right there. Also, even if you are that polymath, you only have 24 hours a day to do it all in. How quickly do you think you could churn out a book? Hint: it takes a lot longer than you think.

This is why partnerships see so much success; one partner fills the artist, designer, and editor roles, while the other is a writer, salesman, and accountant. Of course, they’re going to share some of these responsibilities, but you get the idea.

One’s ability to produce a quality product is related to one’s willingness to pay for those skills you can’t muster. Nothing is free. Even when you are working for “free,” you should be “paying” yourself and expensing out the cost of the product (so the company owes you money).

Also, it takes a lot more than the ability to “balance a checkbook” to do market and profit projections and proper costing. These are skills, you can learn them, and you need them to reach a proper level of success. Hell, a proper business plan is a writing endeavor in and of itself, and if you’re not planning on doing one of those, then, well, I don’t know what to tell you.

It’s terribly unrealistic to expect success through vanity publishing, and that is essentially what a one-man press is. What’s more, the expectation that it’s going to build into something great and grand is absolutely far-fetched.

It’s like saying that you want to open a restaurant, but you want to start out as a hot dog stand first, and then expand that brand (and perhaps a few others you have) into a real restaurant (and maybe add a bar!). That’s a ridiculous business plan. If you want to start  a restaurant, start a restaurant. If you have to think twice about it, you’re probably in the wrong area.

Okay, that’s enough naysaying. Guess what? Monday’s post begins my series called So You Want to Start a Game Business! I’m excited! You should be excited too! Numbers shall be thrown, dreams shall be crushed!

Until then, I hope 2011 has been good to you, and may 2012 be even better!