EGD News #70 — You don't want to pay minimum
It’s Joakim here. Greetings from Finland!
The biggest joy in my work is to work with founders at any stage of their careers as entrepreneurs. The second big joy for me is writing EGD news, being as honest as possible. It’s time to promote some great newsletters that I subscribe to.
Monday Musings by David Perell — Weekly newsletter of interesting facts, links, and commentary. David’s thirst for learning is infectious, and I always discover something new in each edition.
Femstreet by Sarah Nöckel — Sarah is an investor at Northzone, and she’s been writing her newsletter for quite a while. Her newsletter is a weekly round-up of stories about funding female founders.
Brain Food by Shane Parrish — One of the best newsletters to spark your curiosity and see things from a different perspective. How can we learn to make better decisions, changes to our mental models, and become better versions of ourselves?
Master the Meta by Aaron Bush and Abhimanyu Kumar — MtM is an excellent source for the current topics of gaming. Aaron and Manyu focus on analyzing the gaming industry’s business strategies, from game launches to trends for the future of gaming.
Deconstructor of Fun by Michail Katkoff & co — Deconstructor has been around for almost a decade, but their newsletter got off to a perfect start last year when they merged with Kenneth Liu’s newsletter. It’s continually getting better and better, and it’s one of my favorite gaming newsletters.
InvestGame Newsletter by Anton Gorodetsky and Sergei Evdokimov — Launched last year, the InvestGame newsletter covers gaming-related investments, IPOs, and M&A. They talk about trends and big moves in the industry. Lots of fascinating insight!
Now, on to the news.
📹 Quick reminder on webinar
On March 3rd at 6 PM CET, I’m doing a webinar with Erik Bryant from Opera Event and Steven Chard from Luna Labs on the topic of “Innovation In Mobile Game Ads” where we talk about how developers can use innovative approaches when they are creating ad creatives. Sign up for this free webinar by going here.
🙌 Conscious Leadership Masterclass
Sophie Vo is launching a new initiative called Rise and Play, a knowledge-sharing platform for leaders in the gaming industry.
The first lesson to be launched is called “Conscious Leadership Masterclass,” focusing on “A New, Human-Centric Approach To Develop Games And Teams In The Gaming Industry.” Sophie has a waiting list for that one. You can join it on her website.
Sophie has been an advocate for better leadership in gaming. I had Sophie on EGD last year when we talked about remote work for game teams. She was also recently on the Deconstructor of Fun podcast, talking about leadership in gaming.
Here are my top 3 takeaways from that episode.
Building a new studio for Voodoo in Berlin, did you hire ex-colleagues and friends versus starting with a blank slate?
“It’s not because you onboard your friends that you have necessarily the right people to execute the mission and vision that you have. So I was cautious about that at the beginning, when I started from scratch, to not fall into contacting friends and just having friends, just for the sake of having the people I knew. So I was looking with distance about what I needed. And then when I became more public and visible about who I was looking for, who I was hiring, I reconnected with my network in Berlin, and talked about what was the mission I had for the studio.”
How hard was it to scale up the team for a new studio?
“Most of the team members came through our network. [When] you become visible, people know your values, they know you, and they can recommend someone who would be a great fit. And that’s how I get most of my team members.”
“Each time I wanted to scale, it became easier because the team was bigger. And the team members had their networks.”
“Each time we are looking for someone, it takes maybe one or two months to find someone that is a great fit for the team. And it’s through the network or recommended by others.”
How do you test the mindset of the people who are joining your team?
“The first step I have for any start with the hiring processes is an interview where I have a set of questions that I’ve been consistent with through my hundreds of interviews now.”
“And over time, I get better at identifying certain flags: I can see through either the answers or through the way people answer, or even through the type of questions they ask. So that’s the first impression already.”
“Then it’s a series of interviews with a different focus for each interview.”
“We have a team interview, focused on if this person can work with the team. Then there’s a culture interview, which is culture focus, done by people out of our team. And the technical interview is another way to see as well how the person thinks.”
“It’s like a puzzle, where we have more information. And I never stop completely on the NO because when there’s a No by a person during the interview process, it shows that we don’t fully understand or know yet. So it’s just a sign that we should investigate more. Sometimes we can find a reason why they could be a certain behavior, and it’s explained. And this creates trust for the process.”
In 2020, Sophie wrote an article about her knowledge on team building. You can read that by going here.
😵 You don’t want to pay minimum
Let’s face it: startups can’t hire the talent that’s gotten used to working in a big corporation. These people have lifestyles to upkeep and can’t be asked to sacrifice their short-term reward structures for long-term incentives. Or could they?
You want to plant the seed of the long-term incentives. I talked about asymmetric returns in the newsletter: You make bets in life that ultimately have the possibility of outsized returns versus the bets that have flat returns.
When we look at gaming hubs’ success like Istanbul and Helsinki, the startup scene is blossoming because these cities have such good seed planters. Gram Games, Peak Games, Rollic are spreading the word: if they can, so can the rest of us. In Helsinki, Supercell’s success has had a long-term effect on tolerating the risks of starting companies. People are willing to take a pay cut, step into the unknown, whatever the consequences.
Let’s talk about the incentives. You offer a monthly salary, which is short-term gratifying, and then you offer equity in the company, in the form of direct stock or stock options that is possibly long-term gratifying. Early on in the startup, you don’t have a lot to offer in the short-term, so you want people preferring equity over salary.
To make your employees feel like entrepreneurs, you could create a big stock option pool. It is not a 10% pool but a 20% one and gives out 1% to the first twenty joiners.
But the 1% won’t matter if you don’t have entrepreneur-minded people at the top of the funnel. And entrepreneur-minded people are already starting companies, where they own 10% to 20% of the company.
You got to balance things out and offer a salary that makes ends meet and is competitive with other startups in your city.
The good, the bad, and the ugly startup salary
What are some optimal ways to pay salaries in a startup when you focus on long-term incentives?
I’ve recently seen startups where they pay a flat 3,000 or 4,000 euros a month to everyone they hire, with the founders taking a similar salary. And they’re keeping it that way until the company sees breakout revenues from their games. This highly transparent salary policy creates unity. You can openly talk about all the costs without hiding any details.
When you’ve raised some money, low salaries allow for a long runway, but the low pay can backfire in a bad way if it lasts for years instead of one year. It’s not very productive for people to be focused on work if they are stressed about paying their bills.
At the end of the day, you want to have people who prefer postponed gratification over an expensive lifestyle now right now.
Startups talk about ownership, but not enough of the type of ownership that matters even more: owning a part of the business. Owning 0.1% is not life-changing. 1% or 2% can be if you hit a homerun and the exit is in the hundreds of millions.
As an angel investor, I get a bunch of ownership in companies that I invest in. Usually, it’s between 0.5% to 2%. Which is the equivalent of the ownership that an early senior hire might get. If I invest in ten companies a year, I get the equity of ten senior hires promising startups.
That’s why I’m going back to 20% ESOP (employee stock option plan), it’s where people feel more aligned and can work with an entrepreneur’s spirit. I’ve written about stock option plans before, you can read my article on them by going here.
To summarize: Define your hiring process for a low salary, high equity stake. Equal low salaries are the way to go but don’t hire people who can’t handle the low salary. Hire people who want an equity upside. Don’t give too much equity to investors. Leave more for employees.
📃 Articles worth reading
+ Clubhouse’s Inevitability — “Electrification of personal vehicles would have happened at some point; it seems fair to argue that Musk accelerated the timeline significantly. Clubhouse, meanwhile, Silicon Valley’s hottest consumer startup, feels like the opposite case: in retrospect its emergence feels like it was inevitable — if anything, the question is what took so long for audio to follow the same path as text, images, and video.”
+ How Coin Master Disrupted Social Casino and Pocketed $100M — “Coin Master successfully takes the traditional slot machine experience (the heart of all gambling games), marries it with very light mid-core mechanics of base building, attacking and stealing from other players, and supports all this with a strong social loop over brilliant live-ops, a well balanced economy, great gameplay UX and a casual art style – all resulting in delivering a highly unique slots experience with significant market traction.”
+ How to be an expert product leader — “The notion of expert leadership can be controversial. There is an important school of thought that suggests that product-agnostic leadership is the way to go. Leaders should not be hired because they have a sense of what leads to success, but rather because they can drive teams to work together – and get people who have the expertise to deliver. As someone who entered game leadership coming from a product strategy and business performance background, I have always found this to be very reductive.”
+ The first Industrial Revolution from home — “The next wave of entrepreneurs will form and build their ideas from kitchen tables and home offices with spouses, family members or find co-founders entirely virtually. It’s hard to imagine that workers will ever resign themselves to “extreme commuting” again. Instead, we’re entering a new era where individuals have more power than institutions: the corporate era is over and anyone can start the business of their dreams.”
💬 Quote I’ve Been Thinking About
“Success in startup land is binary.” — Ron Conway
Sponsored by Gameye
Developers that are looking for an easy game server auto-scaling solution should definitely check out Gameye.
Gameye is a platform independent solution. Game sessions are spread out over multiple providers to achieve the best possible coverage in every region of the world.
Gameye is your one-stop-shop for all your server orchestration needs. They create and provide their own API for this.
Take advantage of automated capacity management and always have resources to run game sessions. Scale when you need it, in locations close to your players.
Check out www.gameye.com
Sponsored by Opera Event
Looking for some great new authentic video creative? Try something totally new with Influencer Generated Content (IGC) by Opera Event. Influencers or actors will make specific creative content for your games and Opera Event will deliver you high-quality video ads that highlight the best parts of your game.
Note! You get a free video with the purchase of 4 or more videos. Remember to say that Elite Game Developers sent you!
Go to www.getigc.com to see some examples and get more information.
That’s all for this week. Take care and stay safe!