Resource Incentives

The language of the invention and performance clauses you build into each founding team member’s compensation package should strike a fair and proper balance between subjectivity and the corporate bottom line, providing equal protection and respect for both your all-important maiden product and the people charged with constructing it for you. This statement is not obvious to everyone, nor does it jive with how some people wish to do “business.”

While established game companies are not being referenced here, a few common trends to expect down the line are worth mentioning – regarding resource incentives from the perspective of both the companies and the employees.

While quite a few established game development individuals have begun to wise up on signing (straight-away) any standard-issue employment agreements that include vaguely described incentives (stock options, bonuses, and raises), the newer members of the games industry workforce are just happy to be in the business. They will typically sign up without reservation and complain later if they have outperformed their agreements. Such is an industry that now can pull resources from truly global, lower-cost competition. The quality of that competition is another story . . . but I digress.

You can expect the highly-coveted veterans, however, to want everything established upfront and in writing, with forward-thinking clauses designed to compensate for performances above and beyond the call of duty at every stage of production on current and future products. This desire goes hand-in-glove with the depth of resource valuation and planning you should be performing in general.

Some established game companies are willing to negotiate with veterans on certain employment agreement terms, such as built-in performance review dates, where if specific employee goals are achieved, reasonable compensation incentives are triggered in the form of an instant salary increase or a pre-product release bonus. While most companies will never agree to simple performance goals or free giveaways (unless the employee in question is a figure head), there are companies that do appreciate getting something positively unexpected or remarkable from their resources. You can expect their performance goals to be challenging but achievable without an employee having to give up their first born.

Performance review dates, to be clear, will always be more palatable to an established company, as the performance reviews that occur on those dates can be performed with a subjective eye, for better (with an appreciative and empowered supervisor) or worse (with a company who wishes to get the milk for free rather than buying the cow). “It is nothing personal, just business.”

Other established game companies are determined to stop short of that point, explaining that "everyone else has fallen in line with our standard compensation agreement, and we only want team players." It is, after all, a company’s right to take this approach, which is fairly common practice in the industry unless the company is dead-set on signing a specialist with rare skills.

A start-up provides a clean-slate from which a new employee compensation plan can be generated, with plenty of room for customization. An established company who takes the “one size fits all” approach would have to perform a quadruple bypass on their general compensation plan to allow for the same level of customization, potentially leaving many (of the "at will" employees) within that company extremely unhappy with the results.

Resource incentives are never absolutely perfect. You can, however, make the honorable effort as with resource valuations – to discuss your talent-to-value ratios face to face with your team members – and establish incentives from those discussions. Your team members will be far less likely to balk – or “sit out training camp or the regular season” as professional athletes sometimes do when they feel they have been financially wronged – in the face of your honest desire to meet them half way.

Geographic Location

The physical location of your studio – even in this growing age of outsourcing – can be incredibly important depending upon your approach to game development and corporate visibility. Your approach dictates the level of investment in your company headquarters, and it all begins with trust. Baseline questions on "location, location, location" would be:

A) Do you implicitly trust your would-be teammates outside of a corporate firewall with proprietary assets at their digital fingertips?

B) Do you have any concern that one or more of your would-be teammates would ever attempt to restrict access to assets or hold product development (and your company) hostage at any point in the future?

C) Do you need to be working shoulder-to-shoulder with your development team every day for optimal productivity (whether you are a control freak or feed off the creative energy of those around you)?

D) Do you believe your team can deliver the highest quality product possible, whether as a same-location team or scattered to the four corners of the planet?

E) Do you believe that allowing your team to work from home, err, "engage in remote work" would ease their own personal / familial burden and encourage them to work that much more enthusiastically for you?

F) Do you believe in having a “core hours” policy?

G) Do you need a formal office space for investor presentations and publisher meetings, as well as press events and personnel interviews?

Regarding core hours, I have a more flexible alternative I call “core availability.” Employees – whether in-house or outsource – are still encouraged to perform their tasks during core hours. If something occurs to derail their ability to attend mandatory meetings in person, then, they simply have to be available by any means of communication (mobile phone, land line, web camera, or two tin cans and a string).

It should come as no surprise that this policy only works with some of the most capable, mature, and organized folks in the industry – some of whom you may get to work with someday. If you have a team that just knows the score and “gets it,” then, core availability will blend very nicely with them. While there are some exceptionally-talented international night owls – like a good friend of mine in Tokyo – external contractors outside of your country should be exempt, unless they are insomniacs.

Regarding literal and virtual office spaces, some people focus on camaraderie when discussing the merits of all team members being together in one location. Others are focused on the increasing proof that team members – given proper telecommunication connectivity – can function, represent a company, and succeed just as well on their own. My experience leads me to believe that you can be flexible depending equally-and-specifically upon the type of product you are building and the maturity level of your team members.

I enjoy knowing that I can approach any team member about an urgent issue, in person, when I have everyone under the same roof. You do not have to worry about time zones, faulty Internet connections, or poor quality web cameras. I also enjoy knowing – if I have my core team of between 4 and 10 developers in-house working shoulder-to-shoulder with me – that my directives will be delivered to the rest of what could be a very large outsource team.

You have a choice to make – from having a literal, virtual, or hybrid office space – that has much more to do with your team’s maturity and reliability than it does with your monthly lease amount, spectacular views, carpet quality, or paint color.

Funding Commitment

Once you have made your best effort to valuate your founding team members and have settled on the most feasible geographic requirements, it is time to direct your complete attention to your funding source and the financial support being made available to you. This is assuming your funding source agrees in principal with your requirements versus the list of production expenses and statement of work you will have provided. His agreement is not a given – no matter how prepared you appear – no matter how viable your product idea.

There are people, even in today’s unpredictable economy, who like to romanticize that they will receive funding from a Daddy Warbucks investor who has “always been a big fan of video games and who is just so thrilled to be involved." This unicorn investor just wants to “provide palettes of money so that you and your buddies can realize your dream of running your own game company and making your own games by your own rules.” Yes, there are still a few of those impossibly generous and unquestioning people out there – who are in constant awe of the sheer creative energy you display – and I have met some of them.

Pretend for a moment that you will not be meeting Daddy Warbucks or breaking bread with him anytime soon. If your funding source wholeheartedly agrees with the materials you have provided, be prepared for the possibility that he may ask for a piece of the company or even co-or-sole ownership of your IP in exchange for his investment. After all, potentially getting a solid return on your investment plus interest is just not exciting enough these days, regardless of economic conditions it seems.

Now, I know you have not come this far, working so hard to start-up on the right foot . . . only to give even a small piece of your professional life and soul back to THE MAN. This is supposed to be your show, not his or anyone else’s. It has become quite popular, however, to offer investors “a seat on the advisory board” of a company – start-up or established – in exchange for additional and future rounds of funding. That advisory board only meets once per year, and any guidance gleamed from that meeting is merely "taken under advisement." It is your ship and you are the captain . . . unless your funding source happens to be a prominent games industry advisor. If this is the case, he may decide he wants the (real) advisory seat as a permanent token of your appreciation.

Your advisor / investor, ideally, will have meaningful business or product development guidance to offer, including some well-publicized and voluntary evangelism for your company and maiden product (e.g. John McEnroe is now the Chairman of the Board for "You Cannot Be Serious Games" - read the interview here!).

Nonetheless, the due diligence you were supposed to have performed on your potential funding source either tells you he is a safe funding bet only . . . or a safe funding bet with advanced and reliable knowledge about the inner workings of the games industry and product development. If your funding source is all that and a bag of chips – and you believe you still have a lot to learn from someone like him – then, make a reasonable stock proposal that allows you to keep controlling interest in your company.

If he is relatively passive about securing part of your operation, you may be able to get away with forking over as little as 10-30%. If he is aggressive, however, be prepared to end up with a 51 / 49% split in your favor. And, in case you were unaware, any stock options allocated to your founding team members originate from YOUR remaining share of the company. “Think” – remember?

And what if neither you nor your attorney – in finalizing your financing – have the backbone to retain-and-protect any more than 49% of your company? What if your funding source proves to be your own personal Carl Icahn? You will have the (tremendous) added pressure of always trying to deliver acceptable results one step ahead of his impatient desire to forcibly finish, err, sell off your dream.

Cuddly corporate raiders aside – after agreeing to share the company with your sugar daddy, you may find him to have an unforgiving eagle eye for pretenders and razor sharp talons for unprepared talent. “You take the good with the bad,” as the saying goes, but if the plan you delivered to your new partner convinced him that “we will not cut corners,” then, do not give him an excuse to think otherwise.

In the event that you are not forced to give up part of your company in exchange for funding, there may still be another gotcha’. Your funding source may actually be disinterested in covering the expenses for anything more than the pure product development effort (salaries and commercial tech licenses only), forcing you to enlist a second investor just to cover the remainder of your not-so-secondary expenses – such as an office lease, production software costs, furniture and hardware expenses, utility installation and usage, employee benefits, food stuffs, and so much more. It could be worse, as you may not find a second willing dance partner. You could end up having to approach a traditional banking institution about a business loan in YOUR name. Your banking institution of choice may struggle to take you and your business / product proposal seriously. “May good credit be with you . . . always.”

The Top Dog

Once you have finally committed to your funding source and received the life blood of your product development effort, you must focus the microscope on yourself. It is assumed that you – as the owner of a game development company – are both an established game developer (artist, designer, programmer, musician, or a hybrid) AND a responsible business person. As much as you may rejoice at being down in the development trenches with your founding team members, you must apply equal attention to your business.

If you suddenly have a change of heart and are unable to perform such a carefully balanced workload, then, you should choose between product management and business management . . . with alacrity. You should hire a highly-recommended manager to take the “short straw.” If you choose to ignore your own shortcomings and you place your own ego or need for complete control before the needs of your company (product and team) – for which you have so painstakingly planned – then, you have potentially doomed your whole operation to mediocrity or absolute failure. People at the top of the mountain – whether there by choice or not – all have one thing in common: they all must perform their duties with the big picture and dependent employees in mind at all times. You are no different.

Then, again, there have always been business managers who think they are creative enough to be game developers, and there have always been game developers who think they are savvy enough to manage a business. And, then, there are those who prefer one over the other while still wanting credit for both. Which one, pray tell, are you?

I have been a part of the games industry for about 19 years now, starting with an internship at Broderbund Software. The industry business model, however, appears to be stuck in a perpetual internship of its own that began with the creation of the first pinball machine. In an industry that encourages a regular habit of poorly planned beginnings and unnecessarily painful endings, you should take an all-hands-on-deck approach to why you and your colleagues wish or need to go into business.

Successful games are great fun to play, hard work to create, tough to manage, and a nightmare around which to build a business – if you do not keep up your forward-thinking end of the bargain. You should honor the long-term requirements of your company by making your business model as airtight and contingency-laced as possible . . . and by developing well-rounded compensation agreements, thus, keeping all eyes focused on your maiden product. The effort of your focused team will help ensure a successful product that helps turn the potential of compensation agreements into a well-earned reality for all involved. You need to be as reasonably and proactively prepared as possible – before reaching the starting line – to lead the good fight against any issues that would conspire to shoot down your start-up.

The Lasting Message

The only difference between you and THE MAN involves the choices you make following your first taste of success – assuming you have followed my guidance in the lead up. THE MAN began just like you with the best of intensions: nimble, manageable, and focused on quality products above all else. THE MAN had more hits than misses, and the stars began to align, allowing him to expand, develop more products at once, and build a name brand. Once THE MAN had a name brand, his focus changed from maintaining the infrastructure and quality necessary for top products . . . to leveraging his name brand with as many products for as many markets as possible.

THE MAN added shareholders by the acre and used the proceeds to continue growing his mass market armada. Today, THE MAN has a bloated empire with enough brand names to fill an entire grocery store, but too few innovative, quality products. THE MAN – for all of his immense profits – must continue spending all of his resources to annually replenish those brand names within all of those markets or be faced with overhead reduction in order to keep his shareholders happy. Overhead reduction is not a win . . . but a temporary distraction from the reality of average products propping up an increasingly hollow brand name.

I wonder what you will do following your first taste of success in the topsy-turvy games industry. “Think” – remember?

Go To Part 1 – 2 – 3 – 4