Designing a Business Model
Greetings Humans! Stefan from 2GuyGames here. I am the second founder besides Marco and the guy with the unusual ability to know more numbers besides 0 and 1. Plus, I am condemned to constantly clarify to Marco why it is, on a cost side of view, not reasonable to buy Alpacas for the office, but I leave that for another time.
Anyway, last time, Marco was letting you know who we are, what we want to achieve and that I will hit you “(..) with a more in-depth view into our business model, financing options and such”. I want to uphold that promise, so here we go!
Our initial dream was and is to make games that you and ourselves would enjoy playing and aren’t common from a story and gameplay point of view. The question that came to our minds was how we could achieve this dream and how to handle a company build around that idea? Marco already told you last time that we want to create a so-called hybrid-business-model by working for other companies and making our own products as well.
Maybe you will ask now, what are the benefits and what are the characteristics that have to be considered? First of all, the commissioned work for other companies is a chance to generate a constant revenue for us to finance ourselves and of course our own projects (e.g. games). One of the biggest challenges of game development is the lengthy time you have to consider when you develop a game. Of course, the involved costs and risks that have to be considered and financed for years in advance too. Moreover, there can also occur problems that may lead to either a delay of publication or that the game is published unfinished due to mismanagement or coincidence. If that happens, even a really good idea can lead to a product of poor quality, just because you did not have enough time, money or planning at hand.
Not just in theory, by using a hybrid business model you can diversify the risks of game development and enhance the quality of your products. If you can then address human resource management, marketing, community management, public relations and so on correctly, you will be able to create a healthy environment that makes stakeholders happy. Particularly, because you consider possible outcomes of developments and communicate decisions fair and transparent — and that is not just the babbling of a manager to dupe their stakeholder. Admittedly, management has a negative connotation due to shallow or narrow minded thinking and/ or bad communication of measures taken. These, whether you call them costs of misunderstandings or malicious intentions, can cause customers to turn away from a company, despite generally good reputation.
Of Course, every business idea needs a plan to create a successful and sustainable company. For that, you have to consider many aspects like clients, staff, equipment, office, internet connection, electricity, water, toilets and many other things. This list gets longer the more you plan and the deeper you go into details of the planning process. But this is absolutely crucial to get a precise overview of possible cost developments and revenues over three to five years in advance.
If you finished the finance plan for three to five years you just settled the easy part. Now you have to acquire money to finance your plan. For that, you can use various approaches, but mainly you have to convince venture capitalists, who will lend enough money for your ideas. Of course, your sponsors (e.g. investors, crowdfunding) expect shareholder value. That could be some kind of yield for the lent money, shares of the company and so on. You as founder have to decide what kind of financing model you choose and whether you mix them. For ourselves we want to utilize a mix of different financing approaches. The first approach is credit-acquiring by lending money from investment banks, because it offers relative cheap money to work with, so to speak. The risks, like interest rates and the clearance of debt are quite manageable compared to regular credits at high interest rates. The second approach is provision by subsidies, like enterprise allowances. One benefit of this approach is that it is often not necessary to repay the subsidies in full. The third approach is the conviction of private investors, so called business angels. The clear benefit of this approach is, that they can not only lend money to us, but also can help us refine and establish our business, by sharing their expertise with us. This approach contains also some risks like a certain moral hazard of some investors to only get a crucial amount of control over our business to maximize their own profits. We are well aware of this risk and try to avoid its occurrence at all costs. The last possible approach is a more specific one. Acquiring money for specific projects like the development of a specific game by crowdfunding. This can give us the clear advantage, that if the game ideas interesting enough to convince gamers, it helps us funding the project and gives us feedback at a very, very early stage of development. The game itself then tends to become a more interesting product to a wider audience.
Sounds all a bit boring and typical for a manager? That’s true. The development of a business model or planning a company has little to do with romantic dreams but more with cold, hard numbers. But it is necessary to have this side of the medal in mind if you want to establish a sustainable successful company, that exists longer than just a couple of years instead of releasing one game and dying a few months afterwards.
I hope you all had some fun with this more business oriented and often boring point of view of how a business model/ company is founded and managed. Next time, Marco explains some programming principles, why they are not only important for the gaming industry, but also generally should be considered more often.