“What to do when it all goes to hell”

Escape Factory Post-Mortem

James Gwertzman
Former CEO, Escape Factory Ltd
Managing Director, Sprout Games, LLC
 Goals for Talk
• Share lessons we learned the hard way
– Prevent your deal from being cancelled
– If cancelled, prevent your studio from closing
– If closing, prevent financial ruin & heartbreak
 Company Milestones
7/10/2002 9/18/2002
EF turns 2 1st milestone rejected 12/19/2002
9/24/2001 PS2 budget “on-hold” Project
8/14/2000 7/16/2001 Demo accepted 6/10/2002 Cancelled
Move into Valve’s Decision to license Project approved! 1st Playable 8/1/2002
Offices 10/2/2000 Unreal engine
Level PS2 budget 10/24/2002 2/14/2003
Hire 1st Employee 8/17/2001 approved PS2 1st
Round layoffs
5/14/2001 Funded demo Cancelled
7/10/2000 Join Xbox incubation gets go-ahead 4/17/2002 1/16/2003 4/15/2003
EF Incorporated Program New publisher New Demo 2nd Round
producer assigned Completed Layoffs

4/25/2001
5/1/2000 Finish Valve demo 11/16/2001
James/Ed Attend E3 Move into our Contract signed 6/1/2003
own offices Final Round
Layoffs

3/10/2000 6/1/2003

3/10/2000 - 8/14/2000 8/14/2000 - 4/25/2001 4/25/2001 - 11/16/2001 11/16/2001 - 12/19/2002 12/19/2002 - 6/1/2003
Startup Phase Valve Contract Work Search for 1st Contract Work on 1st Project Search for New Contract
Project Mistakes
 People Issues
• Startups can’t afford hand holding
– In some cases we chose potential over experience
– Strategy was hit or miss… and misses are expensive
• Startups can’t afford personality conflicts
• Startups can’t afford to change people
– Changing people takes a very long time
– Instead you can either:
• Change job to match person
• Replace person
– Focus of performance reviews was on self-improvement
– Should have been focused on finding right job
• Too slow to fire people when it didn’t work
– Impact of a negative person on team was tremendous
 Hiring Track Record
• Hired 30 people
• 2 “weak performers”
– Easy to identify & fire or shift responsibilities
– Minimal impact on company & schedule
• 2 “bad cultural fits”
– Harder to identify
– Harder to fire because often strong performer
– Big impact on company & schedule
• 4 “left voluntarily”
– All left because they were in the wrong job
– Potentially huge missed opportunity
 No Full-Time Producer
• Producer is absolutely a full-time job
• Finding great producer took 18+ months
– Great producers are very hard to find
– Joined team 2 months before project cancelled
• During search, president was also producer
– But president and producer are both full-time jobs
– President (optimist) not good fit for producer (pessimist)
• Lack of full-time producer caused:
– Production pipeline inefficiencies
– Communication gaps
– Overly optimistic schedules
 Wrong Organization Structure
• Wrong org structure is very expensive
– Symptom: too many meetings
• Org structure must match core values & personalities
– Core values stressed collaboration & independence
• Reward great ideas ahead of ego or rank
• Zero tolerance for mediocrity
• Close collaboration
• Disciplined approach to development
• Ridiculous amount of fun
• Hire & retain best people in industry
– Hired to match core values
 Actual Org Structure
President / CEO

Lead Game
Art Director Producer Lead Engineer Dir. Operations
Designer

Office Manager
Lead Level
3D Artist Lead Artist Level Designer Engineer Engineer
Designer

Sound Designer Game Design

3D Artist Senior Animator Level Designer Engineer
(Sierra) Engineer

Animator Tech Director Music Composer Engineer

Level Designer
(MDN)
 Idealized Org Structure
President / CEO

Creative Director Producer

World Building Art Director

Character Team Systems & Tools
Team Concept Artist

Animators Engineers Level Designers 3D Artists Engineers

Technical
Sound Designer Music Composer Sound Designer
Director
 Never Hired Admin Assistant
• Founders’ time is simply too valuable
• Good assistants are relatively cheap
• Ideally you will find someone who can:
– Keep your financial books & pay your bills
– Manage your office
– Play “mom” (or “dad”) to your employees
– Sort through incoming resumes
– Free you to focus on building a great game
 Didn’t Feed the Dragon
• Publisher investment driven by P&L forecast
• P&L forecast based on sales-force forecast
• Sales-force forecast based on… what?
– Developer’s reputation
– Great playable demo
– Sexy art & videos
– Target platform & genre
– Enthusiastic marketing team
– Passionate & committed producer
• Didn’t produce enough “demo” materials
– Seemed like a waste of time…
 Company vs. Game
• Invested too much in the company?
– Ladder levels
– Endless process discussions
– Performance reviews
– Profit-sharing plan
– 401K plan
– Highly automated build tools
• Made a big bet on success of first game.
• Much of that can come later…
 Why was our project cancelled?
• Weak P&L (low sales forecast)
– Platform choice: Xbox (not PS2 – engine issue)
– Target Demographic: 10-12 (vs. GTA3)
– Genre: “platformer” (vs. GTA3)
• Publisher slipped other projects, losing 2003 revenue
• We cut a key “unique selling point” during budgeting
• We were looking at a 3-6 month schedule slip
– Forced to redesign main character half-way through
– Operating in “Zero tolerance” environment
Dealing with Cancellation
 Have Disaster Plan Ready
• Figure out accurate financial picture
– How much money do you owe?
– How much do you have?
– You may already be out of business…
• What is best way to spend remaining $$$?
– Start a new project?
– Marketing/Sales blitz?
• Do you have the right team to restart?
• What projects are realistic?
• Do you have the energy to restart?
 Pay Yourself First
• Founders took minimal salary and repeatedly went without
pay
– Allowed us to hire one extra person
– But burned through founder savings
• When crisis hit, no safety net for founders
– Limited options in dealing with cancelled project
• Once deal is signed, pay yourself first
– Just don’t be greedy…
• If money tight, better to lay-off weakest employees than
starve your strongest
– Saves money, demonstrates high-standards
– Often increases productivity
 Minimize Long-term Debt
• Starting a company requires enormous optimism, faith,
and self-belief
– Money is place where that’s inappropriate
– Must be total pessimist when managing finances
• No debt unless you KNOW you can pay it off
– Line-of-credit to bridge milestone payments: OK
– Long leases for expensive h/w, s/w: not OK
– Line-of-credit to build demo for possible deal: not OK
• Debt reduces your options
 Always have deals on table
• CEO’s primary job is bringing in business
– Time to sign projects is when you don’t need them
– I should have been far more actively networking while
SQ was under development
• Instead I was too head’s down with game
– Acting as producer for over a year
– Trying to solve too many problems, write code, etc
– Let the team solve more of their own issues
– Ideal CEO: “No aptitudes, high vocabulary”
 Be Realistic
• Natural impulse is to find another deal
– “We’re bigger & better now… We should have no problem
finding another deal!”
• But the market may be very different
– Publisher more willing to bet on hungry startup than
unsuccessful studio
• Startup is blank slate for publisher to fill with hopes & dreams
• “Project cancellation” smacks of failure despite: team, technology,
lessons learned
– Team probably more expensive now
– Different point in console life-cycle
 Console Life Cycle Affects Deals

2nd Wave: Publishers

approve many new Unit Sales
projects. No teams have
prior experience.

Deal Signing Ease

3rd Wave: Bar goes up;

Publishers prefer teams
who published in wave 1.

Launch Titles 2nd Wave Titles 3rd Wave Titles

Self Confidence Issues?
 Be Open with Employees
• Be honest about what’s going on
– Smartest thing we did at Escape Factory after project
was cancelled
– Anxiety is bad enough without rumors
– People will want to know how they can help
• We promised to tell people when to start sending
out resumes
• We also helped employees get jobs
 Why did we shut down?
• Assumed we would find another project…
– Market much more competitive 2nd time around
• Assumed team was most valuable asset
– “20 person team ready-to-go”
– Didn’t really check market value; should have gotten bids
– We were too expensive for available projects (ports, etc)
• Started shopping new concepts
– Morale boost, but LONG, expensive process we couldn’t afford
• Didn’t really slash costs
– Deferred salaries: illegal; ended up paying it anyway
– Rent: still owe $30K+; should have bargained up-front
• Took on new debts
– Ran up line-of-credit to pay for team
 Escape Factory Headcount
30

25

20

15

10

3/10/2000 6/1/2003

3/10/2000 - 8/14/2000 8/14/2000 - 4/25/2001 4/25/2001 - 11/16/2001 11/16/2001 - 12/19/2002 12/19/2002 - 6/1/2003
Startup Phase Valve Contract Work Search for 1st Contract Work on 1st Project Search for New Contract
 Escape Factory Net Worth

3/10/2000 6/1/2003

3/10/2000 - 8/14/2000 8/14/2000 - 4/25/2001 4/25/2001 - 11/16/2001 11/16/2001 - 12/19/2002 12/19/2002 - 6/1/2003
Startup Phase Valve Contract Work Search for 1st Contract Work on 1st Project Search for New Contract
 Looking forward
• Sprout Games
– Casual game studio
– True “mass market” games
– www.sproutgames.com
• New philosophy:
– Spend no money… Unless truly critical
– Revenue = Profit
– Very small partnership
• Personally satisfying
– Actually making games vs. building company
 Reading Recommendations
• http://www.gamasutra.com/
– Read every article; invaluable background & “best practices”
• Organizing Genius, Warren Bennis
– Insights into creating “Great Groups” (such as Disney, Apple)
• Software Development, A Legal Guide, NOLO
– Critical to reducing your legal bills
• Employer’s Legal Handbook, NOLO
– Eventually you’ll need to fire someone… Are you covered?
• Managing the Professional Service Firm,
David Maister
– Written for the traditional service firms, but highly relevant
• Built to Last, James Collins
– Great survey of great companies to imitate
 Thanks To:
• Gabe Newell, Valve
• Rick Goodman, Stainless Steel Studios
• Tony Goodman, Ensemble Studios
• Chris Taylor, GPG
• Ron Moravek, Relic
• Brian Fleming, Sucker Punch
• Mike Ryder, Buena Vista Games
• Josh Davidson
 Call To Action!
• Don’t be afraid to take risks
• Don’t be afraid of failing
• Pay someone to be paranoid
– And listen to them!
• An articulate vision is your best asset
– Will help hire team, attract $$$, attract deals
• Know your competition
– If you can’t beat them, get out
Q&A
 Why were we late?
• Pre-production was largely wasted
– Team not yet fully staffed up
• Engineering team especially understaffed
– Game-design focused on writing massive
design doc vs. prototyping & iteration
• Licensed engine – no free lunch
– Unless you’re making identical genre game
– Biggest advantage – faster prototype
 People Issues
• Mistakes:
– Hired a few “bad cultural fits & kept them too long
– Had some people in wrong jobs
• Results & Symptoms:
– Created rift between teams
– Wasted lots of time dealing with fallout
– Lower productivity from people involved
• Solution:
– Be super hardcore about hiring/firing
– Listen to your gut & your team
– Act quickly to move people around if in wrong jobs
 Great hiring process not enough
• Candidates had 1:1 interviews with 6+ people
• Everyone else met candidate over snack
• Consistent & simple criteria:
– Passion
– Effectiveness
– Horsepower
– Cultural Fit
• Company-wide wrap-up: “hire / no-hire”
 Must listen to the results
• “We can change this person”
– Nearly impossible to change a person
– Startups can’t afford personality conflicts
– Performance reviews focused on changing
person to match their job
• Should have focused on finding right job
• “Low experience but high potential”
– You can’t afford to grow/train new people
 Office Space
• Mistakes:
– Leased more space than we needed (initially)
• Results & Symptoms:
– Lowered energy & passion than before
– Private offices meant less looking over shoulders (“hey,
that looks cool. What is that?”)
– Longer walks between offices = less random visits
• Solution:
– Keep office slightly too crowded; cram together
 Not violating values is hard
• Reward great ideas ahead of ego or rank
• Close collaboration
– Requires great professionalism & maturity, especially in a creative
organization
• Zero tolerance for mediocrity
– How to balance with “disciplined development” and schedules? Okay to
rush to hit milestone?
• Disciplined approach to development
– How to reconcile with above points?
• Ridiculous amount of fun
– If work isn’t fun is something wrong?
• Hire & retain best people in industry
– Hard to do as a startup
– Room for junior team members?
 Core values must be reinforced
• Mistakes:
– Some core values occasionally ignored
(e.g., sub-par work to meet milestone)
– Potential contractions not openly discussed
(e.g., “discipline” vs. everything else)
• Results & Symptoms:
– Values seen as empty promises
– Can’t assume team on same page if not reinforced
• Employees could pick & choose their values
• Solution:
 Lots of Passion
• Passion & energy are sexy
– People want to be inspired
– Employees, partners, bankers, etc
– An alternative to the “mundane”
• Create “Skywalker Ranch of Gaming”
• Controversial Call to Action
• Downside: hard to maintain…
 Call To Action
…So what's our dream?

That we'll be the studio that finally elevates the video game
into an art form where it rightfully belongs alongside film
and theatre. An art form that unites epic stories, beautiful
cinematography, and rich drama with the forgotten magic
of childhood play.

We can't wait for the rest of the industry to do it because

most developers are too deeply sunk into the culture of "by
hardcore gamers, for hardcore gamers" and most
publishers are too busy chasing whatever sold the most
last year…
 Exciting Clear Vision
• Unique time to enter game industry
– Internet: disrupts channel, allows multiplayer games
– Mass-market potential
– High powered hardware = greater creative freedom
• Company goals:
– Break new ground, inspire copy-cat imitators
– Look back as most fun, creative, productive times in our lives
– Entertain millions of people of all ages & interests
– Cultural impact on par with Star Wars
• Build games that:
– Suck the player in through great stories, compelling characters, addictive game-play,
intuitive UI, and breathtaking worlds.
– Encourage and reward players to think and be creative.
– Provide a social game experience with competition and collaboration.
– Offer players an escape from the mundane with the opportunity to be the hero.
 Company Culture
• Reward great ideas ahead of ego or rank
• Zero tolerance for mediocrity
• Close collaboration
• Disciplined approach to development
• Ridiculous amount of fun
• Hire & retain best people in industry
Regular Post-Mortems