This multi-part series examines the history of Knockabout Games, a mobile games startup I co-founded in 2002, near the start of the pre-iPhone “first wave of mobile gaming”.  The start of the series can be found here, and last week’s post on Knockabout’s business strategy can be found here.

Funding and Equity

Knockabout was mostly owned by myself and Monty Kerr.  Monty’s role was largely silent — he had an existing game development business to run still — but he had quite a bit of extra office space, desks and computers for Knockabout to borrow.  He also had spare resources (people) for us to use on a part-time basis, to complement the rest of us who weren’t going to draw any salaries for a while.   Since game development is primarily a labor intensive activity — almost all the expense is tied up in payroll and the space to house everyone — this took care of the bulk of our costs and allowed us to bootstrap the business (we later leased our own space and in an unusual reversal, sublet to Monty’s company).

We also gave a small amount of equity to three seasoned game industry veterans we thought would be critical to our company:  a director level manager to oversee the specific titles, a technology director, and the CTO of Monty’s current business (who was to stay there and migrate to Knockabout later).  We wanted these folks to feel and behave like owners, not employees, since they were so important to our success.

And we gave them ownership straight up — no options, no vesting.  We did have an option plan drafted, but never actually used it.  Our take was that options, in 2002, still had a negative connotation left over from the dotcom bubble.  There was no point in handing them out if no one would take them seriously.  So for most of the staff we had a simple, and generous, bonus plan:  any time profit distributions were made, 50% of it had to go to the staff.

Development Staff

For staff, we only wanted to hire coders and artists with prior game development experience.  The platform was going to be a nightmare as it was — I didn’t want people learning how to make games for the first time as well.  I just wanted experienced game developers who were good engineers (or artists who had strong illustration, modeling and animation skills) — that was the harder thing to find;  any good engineer could learn a new platform easily.

On the flip side, we skimped on management.  I wanted producers who were former developers so they could communicate well with the team.  That struck me as particularly important since the teams were so small (often one engineer).   So we would hire guys who knew how to make games, but were trying to transition from a technical role into a management one.  I was to personally train and mentor them in those roles.

That wraps up the planning phase for Knockabout.  Next time I’ll talk about what actually happened.

This multi-part series examines the history of Knockabout Games, a mobile games startup I co-founded in 2002, near the start of the pre-iPhone “first wave of mobile gaming”.  The start of the series can be found here, and last week’s post on Knockabout’s product strategy can be found here.

Business Strategy

Building relationships were important for our long term exit strategy too.  By becoming indispensable to publishers, we hoped to create intangible value on top of explicit revenue generation.  And in circumstances where revenues aren’t as high as anticipated, having added value in other areas can often trigger a very profitable acquisition (my first company sold this way).

To get those relationships going, we had a three step approach:

• Step one:  introduce ourselves.  Don’t be arrogant game developers coming to teach mobile how real games are being made.   Be humble and acknowledge that while we know games, we really don’t know mobile and would like to learn.  Spend the first month or so meeting with publishers and asking them questions.  Let them bestow their wisdom upon us (people love to talk about themselves, or in this case, about their companies).  Don’t pitch anything, but leave them with a business card.  The goal was to create familiarity first;  we’d come back later and pitch.
• Step two:  show some demos.  After a couple months, we’d come back and show some early demos.  We would seek distribution relationships, but would also inquire about high profile brands they needed addressed.
• Step three:  close a couple deals over the following three months, both for distribution of our titles and third party development of theirs.  Make sure to diversify our risk by working with multiple publishers.

And of course, step four would be to then deliver the highest quality game we could and up the ante on the next round of development and distribution deals.  And step five would be an acquisition by one of our publishing partners.

I should also note that we didn’t cold call anyone.  For phase one, our plan was to always get an introduction from someone into the company (if we didn’t know someone already there).  Whatever your role in the game industry, after a few years you end up either knowing someone at every company, or being one degree removed (friend of a friend).  Like most industries, we work in a small and nepotistic space.

We also thought it was important to talk to more than publishers.  We spent a lot of time with handset makers and platform technologies (like Qualcomm), building those relationships.  They were great at making further introductions to publishers and other business opportunities.  And we talked to developers.  They’re a good source of information, and by sharing, we could all raise the quality of the deals that were out there.  The traditional game space has always felt a bit like a community — open and helpful — and we thought mobile would benefit from the same approach if we could nudge it in that direction.

Next time:  Funding, equity and staffing.

This multi-part series examines the history of Knockabout Games, a mobile games startup I co-founded in 2002, near the start of the pre-iPhone “first wave of mobile gaming”.  The first part can be found here.

Product Strategy

The common perception of mobile phones at the time was that they were essentially 15 year old computers.  This led to such nonsense as porting old titles to the device and severely underestimating hardware capabilities.

The reality was very different.  Yes, the processor in the mobile device was very much like a computer from 15 years earlier (although the range was astounding — some devices were orders of magnitude more powerful).  But the screens, while not large in picture resolution, were 12 to 16 bit in color depth and the pixel pitch was a good as any modern LCD.  The keypad, with its 100ms – 250ms latency was like something out of the seventies (i.e. press a button and it would be 250ms before your software would get the notification).   All of this meant developing games that understood this unique combination of hardware.

Misconception of hardware didn’t fully explain why mobile games were sheer crap though.  Despite the odd platform, it was actually capable of far more than what was on the market.  What we observed was that publishers and developers were unwilling to spend the money to fully take advantage of the device.   To some extent this makes sense:  the space was new and no one was quite sure where it was headed.  But it was also a very narrow view, examining current sales to determine funding for tomorrow’s products.  In a brand new space growth is rapid, often double digits on a monthly basis.  Even with two to three month development cycles, this is a short sighted strategy if you want to remain competitive.

We also noticed that the value chain was really scattershot.  The carriers were the gatekeepers, but all kinds of companies were participating in multiple layers, combining development with self publishing, or content creation with handset manufacture.  There was also a crazy matrix of devices and carriers, hundreds of each and an absurd number of combinations.

We decided to look ahead.  We thought this would all shake out, with different parties dominating different parts of the value chain, and a structure not too dissimilar from the traditional game space (substitute carrier for retailer, pre-iPhone, and that’s pretty much what happened) .  So we decided to focus on one piece — content development — and be better than anyone else at it in anticipation of what was to come.

We knew it would be important to own our IP, but we also knew we’d need relationships with strong publishers (who would have the distribution relationships at a time when app stores were controlled by carriers).  In order to insure they’d give our self-funded products the right amount of attention, we’d need to build products for them based on their IP (this would also help raise our profile as a developer).  In theory, if we did good work and they wanted to keep working with us, they’d want to keep us happy by being fair with our own titles.

That was the other part of our product strategy:  build the best possible product for the device, not the budget.  Even if we were building a game to be owned by a publisher, we’d spend some of our own money to make up the shortfall of what they were paying us.  Why?  We wanted to hook them on the quality.  Product cycles were short — we could eat some of the cost and raise our rates with each subsequent iteration.

So we decided to spend half our cycles on self-funded IP we would own, and the other half on publisher brands that were funded in the typical game industry publisher-developer model (advances against royalties that would never earn out).  We decided that for publisher IP, we’d only work on very high profile or high selling brands (preferably both).

Next time:  the business strategy.

This multi-part series examines the history of Knockabout Games, a mobile games startup I co-founded in 2002, near the start of the pre-iPhone “first wave of mobile gaming”.  You can find all eight parts of the series below:

Before The Start (this post)

Product Strategy

Business Strategy

Funding, Equity And Staffing

What Actually Happened

Where We Failed

Knockabout’s Demise

An Epilogue

Before The Start:  Why Mobile?

In the fall of 2002 I sat down with longtime friend and business collaborator Monty Kerr to talk about a new venture.  I already had two game startups under my belt, and I’d just come off a one year break (most of which was spent living on a catamaran).  I was recharged and ready to dive into something new.

We didn’t have any idea at that point what kind of games we wanted to make, but we had two requirements:  it had to be in a relatively new space, and it had to be games.  So I got on a plane and made a three city tour of the west coast — Seattle, San Francisco, Los Angeles — to chat with friends and colleagues about the state of the industry and where things were headed (we also spent some time with folks here in Austin).

There were three sectors we were considering:  casual downloadable, mobile, and boutique MMOs.  All three were fairly new and unexplored at the time, but each looked ready to explode (indeed, in hindsight they all did).  We ultimately chose mobile almost by reduction:

• Boutique MMOs were much more costly than the other two ($500k – $1m a pop) and would require raising capital.
• Casual was exciting, but it felt like we could do this sort of startup any time — shareware games had been around almost 15 years at that point and it didn’t seem like anything was going to make entry into this space more difficult in the future (although that turned out to be wrong).
• Mobile had a small window that had just opened up.  If we wanted to try it, we had to go now.

The clincher was actually a conversation I had with Mitch Lasky, then CEO of JAMDAT (which later became EA Mobile).  Mitch gave me a thorough rundown of the value chain and how money flowed through it, and talked about the various challenges of building games for handsets.  And he shared some data.  What was most interesting, though, was that the first mainstream color handset had just launched (the Motorola T720), and people were suddenly starting to buy games.  Real money was flowing.

Building The Plan

I spent the next two months diving into all manner of research about mobile games:  carriers, publishers, developers, technology providers, handset makers, and so forth.  The way I like to do this is to write an operational plan, of sorts.  The goal is to create a document that covers how the space works and how we’re going to build a business that can thrive in it.  But it’s not as organized as a business plan and isn’t trying to pitch or sell anyone on the concept.  It doesn’t even need to be complete.  The purpose is to identify all the moving parts and look for opportunities on which to build a strategy;  the act of writing it down forces one to see everything and articulate that strategy clearly.

Knockabout’s plan was about 200 pages and unfinished.  And it was never looked at again after we launched.  That wasn’t because parts of it became slowly invalid over time; rather, it was because the process of putting it down on paper had effectively committed it to memory.  We knew it inside and out.

There were four basic parts to our strategy:  product, business, funding and development.  Next time I’ll dig into our product strategy.

One of my startup philosophies is to always plan for two or three things going wrong, all the time.  New businesses are chaotic enterprises, operating on limited information in new domains, constantly adapting.  You have to set an expectation for the unexpected.  If your baseline is a couple surprises every month or so, they’ll feel less like threats and more like business as usual.

That sort of attitude shift goes a long way toward coping with challenges as you build a company.  No more “oh my, what are we going to do?”, just a calm, rational “ok, we thought something might happen, lets figure out what to do about it”.

And if nothing goes haywire?  Great, you had a good month.

Next week I’ll be kicking off a multi-part company postmortem on Knockabout Games, the development studio I founded in 2002 to build games for mobile phones (during the first wave of mobile, i.e. pre-iOS).