Creating a New Game-Development Studio

How do you create a new game studio from scratch?

The topic came up recently when someone asked me what I’d do if I had the responsibility to create a new dev studio – what would I do, how would I go about it, etc? I’ve founded a couple of small startups before (both as CTO and CEO), and worked as everything from a secretary to a CTO (Chief Technical Officer) at other people’s companies, so I have some idea of how to do this on a practical level.

I also used to co-run a very successful business-plan competition, where we gave away hundreds of thousands of pounds of startup capital every year. Many of the finalists became good friends of mine, and we continued to work with and help some of the companies for a good few years after they won or were finalists as part of our ongoing support programme.

So, here’s some initial thoughts. I don’t know if this is right or wrong, good or bad, but it’s something I’d like to work out better because I may well find myself trying to do it someday.

Step 1 – Equity allocations

There are many legal and contractual things you have to do when starting a company. I learnt from experience back in the dot-com days that for high-tech / tech-driven startups there’s only two difficult things you absolutely have to get right: legal ownership of the company and its IP, and the allocation and awarding of shares and options.

We can assume that if you’re creating a new games studio you’ve got good lawyers who’ll handle the standard-legals of ownership and IP.

Which leaves the much more difficult problem of allocating equity (ownerships is easy: give it to the lawyers. There aren’t many decisions YOU have to make there). Get this right, and you’ll:

• Attract the best people
• Retain the best people
• Motivate everyone to go above and beyond the call of duty
• Create high-quality product that the whole team loves to play themselves

Secondary effects include:

• Attract best people
• Get some stunningly good input into your strategy from the start, when you’re most agile and most able to use it
• Coincidentally find yourself with domain-experts on hand for all the problems that come up that originally you had no idea you would need to solve at some point (because the best people are all to some extent polymaths)
• Gain lots of free publicity just for the movement of well-known people
• Opportunities to leverage your “names” into extra publicity and promotion further down the line
• Attract the most gifted of the inexperienced people, who want to work with the best people
• Mould the inexperienced people you take on in the best possible ways to be exactly what you need them to be, because you have the best people on hand able to teach them from their own experience and skill
• Insulate yourself against inevitable loss and churn of a few good people by having many other good people to take up the slack

…and so on. Perhaps more importantly, getting the equity allocations correct ensures you’ll actually KEEP these people, and not because you’re forcing them to stay, but because they choose to – even in the face of serious internal problems at the company (should things start to go badly – even if it’s temporary, if people have good reason to stay, they’re more likely to weather the storm and still be around when you recover).

I just wanted to make the point that getting this right has huge tangible ongoing benefit to the company.

How do you get the equity allocations right?

A few key points to read, assimilate, memorize, and then recite to yourself until you totally grok them.

1. Equity is real actual money – if you doubt this, bear in mind it’s TAXABLE: the government believes this!
2. If you give it away for anything less tangible than money, you’re an idiot
3. There is nothing unusual about equity allocations written as commercial contracts: “receiver of equity MUST deliver game X within 3 months of the scheduled ship date” (although that example would only be appropriate for a very narrow kind of person, someone with direct control over it, i.e. not the programmers designers and artists)
4. Equity is frequently allocated on a sliding scale: “10% of this equity is forfeit if the game is more than a week late; 30% if more than a month late; 50% if more than 3 months late” (again, an example only for a narrow kind of employee – not to be used as standard!)
5. The main limits to what terms you can place in an equity allocation are your imagination. You’re in the games industry, you have “creativity”: use it!
6. Equity comes in hundreds of different forms, a different kind to suit every different use you can think of. Do you want the equity to be allowed to vote in company-board-of-directors issues? Do you want it to be resellable for profit? Do you want to limit the total amount a person can have? Do you want the receiver to pay tax on it immediately, or whenever they try to sell it? etc etc etc. Consider every option (use a lawyer or accountant to advise you what the main options are)

Oh – and every individual is a different negotiation. For practicality, you’ll probably want to do similar classes of individual “mostly” together – but there’s no reason not to have the exact same shares / options / etc and yet vary the actual terms for each individual according to their job role and their own desire for more/less commitment/involvement/responsibility etc.

And if you don’t provide ownership to the staff in some form or other, then if they’re good enough to do the studio in the first place they’ll just go and borrow some VC money and found their own studio without you, and then sell it back to you (or a competitor) when things get tough or they want to cash in. Don’t risk it.

Step 2 – Hire a Head-of-Studio

“The buck stops here” – that’s what the Head is for. You’ve already got a CEO, a COO, etc in your parent company, so you don’t need those things precisely, but the Head is the “most executive” parts of the CEO and COO’s jobs: the problem-solving, the “bigger picture” strategising surrounding day-to-day activities, the “watchful eye on the wood, not getting distracted by the trees”. But it’s someone who – at this stage in the studio’s lifetime – is doing all that specifically for the practical aspects of the studio, not for 10-year planning etc.

Whatever problems you encounter next that are not a DIRECT aspect of the process of developing computer games, it’s the Head’s job to find and fix. They exist so that the best-of-the-best designers, artists, and programmers you have – your Leads, your Seniors, your Art/Creative/Technical Directors, etc – can focus all their considerable skill and brilliance on making the best games possible. There’s more than enough “hard” problems in the basic core processes of game development as it is – these people don’t have time to also be debugging your *company*.

Step 3 – Build a world-class hiring department

Read about Red 5 Studios and their now-infamous hiring procedure for “the 100 best people in the industry” (each of whom received an elaborate anonymous gift containing at it’s heart a personalized engraved ipod and a personalized audio message from the company explaining why they were being targetted). Although that is both “too expensive” and also “too global” in the number of people targetted for you, that’s exactly the kind of creative and impressively personal thinking you absolutely require from your recruiting team.

And these have to be people who will CARRY ON doing this kind of recruitment for years to come, because it’s quickly going to be one of your studio’s biggest assets in the cutthroat world of games-industry recruitment (not to mention saving you a small fortune in agency fees that won’t actually be needed thanks to these guys). I’d actually make the head of recruitment for the company one of the board of directors, right up there with the Head of Studio etc – not reporting indirectly through HR (Human Resources) or similar: they’re just Too Damn Important for that.

(NB: which of your senior management you choose to make part of your highest-level team says a lot about how you value your staff and your business, and where you think the biggest challenges are and where you think your company can most excel in the marketplace. Don’t pick that for political reasons, definitely not for reasons that will make individuals happy – consider it a fundamental part of your long-term business strategy. Bear in mind that your employees WILL notice how you arrange your company. Also bear in mind that the teams with the most senior representation will get the most direct communication with the most senior staff, and hence the greatest benefit of their brilliance and experience – and hence will perform better. Don’t make the decisions lightly!)

At Mind Candy, some of our earliest job adverts, before the initial team to run the company had even fully been assembled yet, and way before we hired our first full-time staff, included a simple text ad in the middle of Marketing Week, which had been encrypted with a simple text cipher that could be broken by hand (or with the help of google) relatively easily. But not a single word in the advert was unencrypted. The whole thing was a (relatively light) implicit challenge to every reader: “decode me, and find out what I am”. That was no more expensive than doing a plain ordinary job-advert, and yet hugely more successful.

Next steps…

Three should be enough to be going on with. I need to think about this some more, now I’ve got the most obvious pressing ones out of my head.

Of course, I reserve the right to realise I missed something that should have been “top 3” and add it later :), but if so I’ll deal with all that in a followup post.