With a multi-billion business, the gaming industry seems to have it all and some. But the brutal reality is that few games rarely get past the concept stage due to the lack of money to boost the production phase.
It’s down to how independent gamers can tackle well-worn business issues: pitching to investors with a cast-iron concept and having a business plan to underpin that pitch. Easier said than done as the art of a business plan is equal to coding for a new game.
What’s At Stake
There are three key issues at stake for gamers in getting their plan to reality:
Making Money: Less than 4 percent of games make money so investors will be keen to see how they recoup their seed money. And indie gamers will have to swim with their bigger cousins for the money out there.
Costs: A production is costly, a challenge and how do you make it commercially viable?
Narrow-minds: Unfortunately power in the gaming market is consolidated to the haves – the big boys; and the have-nots have to push themselves to get a distribution deal.
Assessing the Risks
Knowing how difficult it can be to generate money for your concept puts you at an advantage. Why? Seeing the risks from an investor’s point of view will give you an understanding of how thin the ice is in terms of journeying to get the money that takes your game from concept to distribution.
Investors want assurances that they will get a return – and computer gaming is seen at the riskier end of the market.
So a business plan that nails down all the costs, the risks and not just the story of the concept may well turn a few heads. So do your homework, get your research together and relate that in the plan.
Punch in Your Pitch
Here are some useful tips that will put some punch into your pitch to investors:
Research: Your plan needs a core, and that starts with discovering the data that will drive out the concept into investors’ laps. Get the data that works for entertainment and new media projects as it creates the foundation upon which your financial and strategic assumptions are based.
Sceptical investors are always drawn into a plan by quoting outside sources. So step it up with a relevant survey or study. Media media sources will have growth rates and predictions.
Competitive analysis magazines like Game Developer do a great job of tracking consumer, technological and industry trends. New media track sales figures and growth rates for the video game industry. This data will add credibility to your plan.
Be bold in your reach and place your assertions on ‘guesstimates’ on numbers and strategies to take your business plan forward.
“The Executive Summary”: Most sales pitches live or die on the two-page summary that wraps up the concept, plan, figures and the delivery. Failing to deal with this means an investor will not advance beyond page two. You can crack this out at the end of the plan as an overview for what is to be read. Lift the best bits and insert them into the section to give a feel for an investor.
The summary is a ‘bare-bones’ agenda where an investor can pick over it before diving into the meat and drink of the report. The final paragraph should be the Funds Sought paragraph. Here you state how much money you need and what the return on investment will be.
Distribution: This is where the plan comes into its own as you are dealing with the real world end of the product. The key to any game plan is a sound distribution strategy.
Distribution is a complicated element: most gaming projects sell their rights to distribute to the big boys who have a distribution network in place. But big distributors won’t be interested unless you have a financial backer and investors are looking for a strong distribution partner and a sound marketing strategy to ensure the product will get into the stores.
The easiest solution to the distribution issue, of course, is to partner with a major distributor. Partnering with a major distributor means you’ll get help with the marketing.
If you go with a “do-it-yourself” distribution process, make sure your sales estimates show a slow build as you get awareness. Show your investor you have some smart strategies for getting your game into customers’ hands.
Team Project: Be sure to mention the crew that’s on board as the investor may well be assured to see people rather than a lone creator on the project. Even if the team isn’t set yet it’s important investors know you have a crew ready to roll when the money comes through.
Include the background staff as the investor will know who to deal with in ensuring their investment is protected and being managed properly. It helps to show the chain of command and the critical responsibility hierarchy.
Tackle the Costs: Investors will want detailing on the costs, and while it may be too early to cover that, they will need some idea of the target market, distribution plan and profit potential. Pitch too low and it will be written off, pitch too high and it will be written off.
Although there will be a development period which won’t generate any real income, determine and detail the costs as accurately as you can. For the financial section you’ll need to track these expenditures month by month for the duration of the project.
Most gaming projects are averaging an 18 month production cycle, so questions to raise include: Will you be leasing office space in the third month? Will you need to hire programmers (how many and what month will the start expecting a paycheck)? Will you keep them on as employees or let them go after a few months?
Anticipate the costs of bringing in programmers and designers, the cost of an office, and other needs. These cost estimates will be based on the project schedule and launch date, cross-checked with budgets of similar productions.
Quantify: The dreaded “numbers” are usually the one thing that creative business people are intimidated by. Making “reasonably sound” projections is the goal. We all know that game titles live and die by the number of units sold.
However, the variables that dictate how hot a game sells are subject to a lot of intangibles – trends, platform penetration, gaming type, etc.
Create reasonable financials by looking at scenarios of what the world might be. Calculate your financials on three scenarios: worst case scenario (high costs, weak sales); middle case scenario (your best guesstimates); and best case scenario (Deliver under budget, strong sales).
Think Packaging: Some business plans die on what they look like. After countless investor meetings, we realize packaging is everything. So create a plan that’s easy to read with diagrams, character and environment sketches, gaming schematics and so on.
A well laid out, organized and bound plan offers a clear journey ahead for the investor. And the document should often be no more than 20 pages long with the Executive Summary, Financials, Game’s Storyline, Project Schedule/Budget and Production Team Bios.
The bite: Yes, writing a business plan can be hard work but if you can, get outside help, such as an accountant or a lawyer who works in the gaming industry, to review the draft. Their insight will be invaluable and take criticism as constructive. The plan of attack needs to be clear, lucid and easily understandable for investors to want to part with their cash.