EGD News #131 — Removing uncertainty
Sent on April 22nd, 2022.
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I recently had Are Mack Growen from London Venture Partners on my podcast. We talked about many interesting topics, and since we recorded this episode a few weeks ago, I’ve had time to process all the new insights.
One topic that I’m still thinking about from our discussion is the concept of removing uncertainty in startups.
In the podcast, I asked Are, “How can first-time founders become comfortable with the uncomfortable?”
Are has observed two kinds of startups: those that embrace the chaos and then ones that systematically remove uncertainties.
Are said, “I think that there’s so much risk in terms of features that don’t work out, or KPIs that are not where you need them to be, or “game-meets-market” risk, [etc.] There’s so much risk left that I would never really understand why anyone would want to not try to remove some of the other types of risks.”
You can listen to this moment in the discussion by going here and fast-forward to 44 minutes.
Are ends by saying that “Looking at our portfolio, I think some of the teams that are doing well are the ones that have invested early or had capability like that in the team. [They] were able to demonstrate their capability to manage the process, scale it and maintain it consistently, with high-quality output, and minimize knee-jerk pivots.”
Since the recording, I’ve been thinking about the areas where startup teams can build these systems to minimize risk and move a lot of uncertainty.
Testing hypothesis. Having to develop a hypothesis on your game and do lots of testing to prove or disprove the hypothesis is an excellent way to de-risk the business. One example: After Pokemon Go, Niantic started working on a location-based AR game, based on the Harry Potter IP. They had seen success with Pokemon Go, and they believed that they could replicate the success by making a Harry Potter game where you’d go on an adventure in real life and do sorcery at real-world locations.
After launching, the game failed to create a sustainable business and Niantic eventually closed it down. I believe that Niantic should have tested a hypothesis before attempting to replicate the success of Pokemon Go.
They should have asked: “Is there a sufficient sized audience segment who play Pokemon Go primarily because it has location-based gameplay, versus other reasons to play?” With a proven hypothesis, the team would have eliminated some of the risks regarding “game-meets-market.”
Tech risks. In my close to twenty years in gaming, I’ve seen several tech risks that have materialized. One of the most significant ones is building a game that requires a server but not making sure that the server scales when millions of players suddenly arrive. Many games have died because their servers couldn’t facilitate rapid, hockey-stick growth of concurrent players.
Other risks on the tech side relate to technical debt when development has been rushed, and proper planning and refactoring of the code base has been neglected.
I often think about work on a game as quick sprints and then resting. You’d “run” for two weeks, execute everything planned, and then take a week off to review, plan and prioritize with the rest of the team. This can eliminate many risks that come from rushing things.
Improving KPIs. Game teams have hundreds of ideas and features that they want to implement in their game. Prioritization is often challenging, and that’s why it’s good to start with the low-hanging fruits. First, you want to focus on a specific area of the game, like improving FTUE KPIs. At some point the focus turns to Day-0 to Day-3 monetization. Teams should avoid a broad “improve monetization” because you end up without a focus on a certain area where KPI improvement is isolated.
To proceed, you list out all the ideas and do your best “guestimate” on how to prioritize the improvements. You ask, “What can increase Day-3 retention by the most?”. You also ask, “Do we think these ideas can take us to the ballpark where we need to be?” Then you start executing in a focused manner.
“Risk… is what’s left over AFTER you think you’ve thought of everything.”
— Carl Richards.
Many founders talk about the game progressing, but it’s often a given that game teams don’t know what will happen in the future.
In startups, there are always risks that are impossible to predict. One way that I often think about beating the unknown is diversifying. Here are a few ideas on diversification for a gaming startup.
1) Build out a portfolio of games. If you have one game launched, start working on new titles as soon as you can. In my years in game development, the benefit of having two profitable games has always been a much stronger position than one. Sure, it can be distracting to spread your best people on two projects, but it eliminates the threat of having one game that suddenly starts declining.
2) Raise more money often. Think about your financial runway as the way to survive unknown risks that materialize. What if all your games start to decline? It would be best if you had time to plan a pivot away from what you’ve been doing. With this cash, you have time to figure things out and build the business again from the ground up. I’ve never regretted constantly having twelve months of runway in the bank account.
I’ll leave you with something that Christian Facey, the co-founder, and CEO of Audiomob, said on my podcast:
“[When something unprecedented happens,] you just doubled down on your bets in terms of what you can control. And then, when things become better, you’ll come out the other side stronger. That’s what happened in [the pandemic]. And the way that we get around unknown unknowns is we’re constantly thinking about the probability or potential scenarios that we wouldn’t have even thought would be possible two years ago. And then, we invest in the right methods to de-risk those specific things from happening. Whether it’s the world shutting down again because of a new COVID strain or if the geopolitical landscape means that some of our employees have to leave, we have to increase the amount we hire to prepare for that. Does it mean that our burn goes up? Absolutely. But it de-risks the business.”
(Photo by Airam Vargas)
Get my book, “Long Term Game: How to build a video games company” from Amazon. Available on Kindle, audiobook, and paperback. Check it out!
Are Mack Growen — Helping founders build
Are is possibly my favorite gaming VC, and I was thrilled to get him on the show. Are Mack Growen is a General Partner at London Venture Partners, a VC firm focused on investing in founders in the game sector at the seed stage.
In this discussion, we talk about Are’s extensive background in gaming, his journey to VC, what kind of learnings he is sharing, and how Are approaches risks, luck, and other challenges in gaming.
Listen to the full episode by going here.
If you missed out on these
- Founder dilution
- Game devs going Web3
- Startup Advisors
- Put your investors to work
- Be paranoid and stay in the game
- From operator to investor
- Gaming in Africa
- and more
Articles worth reading
+ Game Studio Fundraising for Dummies — “Series A, for us, was nothing like the initial Seed round of fundraising. We encountered several issues throughout our Series A process that surprised me. Adding to the confusion was the completely contradictory advice we would get from investors, advisors, and friends.”
+ Constructing the Ideal P2E Economy — “P2E game economies are, for all intents and purposes, synthetic and simplified versions of sovereign nation states. Therefore, the way these economies function and grow, bears resemblance to the efforts of national treasuries (fiscal policy), central banks (monetary policy), and exchange rate policy. As such, one can draw some very interesting parallels between a game such as Axie Infinity and a real nation-state.”
+ What is the Moonbird NFT collection, and why did it surge so quickly? — “The Moonbirds drop was clouded with controversy, with accusations by some that bots had manipulated the raffle to their benefit and concerns that the project’s leaders used inside knowledge to buy Moonbirds that featured rare traits, which could lead to their price being higher in the future, as CoinDesk reported.”
Quote that I’ve been thinking about
“Chips on shoulders put chips in pockets.” — Josh Wolfe
Sponsored by Audiomob
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