How Game Developers Should Plan For Financial Success

While researching resources for an article I wrote recently for the IGDA Newsletter, I tapped a friend with an interesting perspective on financial strategies that I thought worth exploring a bit more.

Rohan Crawford has been a member of my network for about a year--someone I count on for an intelligent and "fresh-eyed" conversation now and again about the progress of not only the games industry, but also the film industry. A board member of the Film Alliances at Digitainment Georgia and a respected financial strategist, Crawford has developed a keen sense of project monetization from a "best practice" perspective and advises game developers from a solid business set of rules.

I'll share here some thoughts and ideas from Crawford based on a couple of questions I thought relevant for developers looking for clarity around the financial side of the business. If you have more questions, feel free to connect with him, yourself. Contact information is included below.

Question: When a group of developers decide to form a team to put out a project, what issues should they be concerned with that will help them in securing funding early on or even down the road?

Answer: As a consultant, I can view this from the standpoint of a company offering a new product/service or establishing a new business. Plus I'm also a former corporate lender so I can appreciate the issue of securing funding. Here are a few questions that should be answered or addressed by the company seeking funding from a bank or investor:

Project/Product

- What is the end-product and what is its competitive advantage?

- Is there any proprietary technology involved in its development?

Marketing/Strategic Plans

- Are there any barriers to entering this market? Discussing access to distribution channels or technology limitations are examples of this.

- Identify the major players/competition and their market share. What is the likely response by the competition to your product when it hits the market?

- How will this end-product affect the existing product mix? Will there be any cannibalization or will it allow the organization to tap into new demographics, and expand the product mix?

- How will the product be priced?

The Management Team & Team Members

- What are the core competencies of the members of the team? Has this team worked together before?

- Have they had some successes in the past that one can identify? Who is there to advise them during the course of completing this project?

Finance Matters

- How will the funds be allocated during the course of the project?

- Can the organization/company handle the debt? Interest rates could change or the economy could sour.

Distribution Channels

- What are the distribution channels? Are they stable? Are they going through brick & mortar channels or will this be done via the Internet?

Target Customers

- Has the company clearly identified who their customers are? How does the company plan to reach them? - How can the company ensure that they can retain these customers?

By addressing these matters it shows the potential lender/investor that the company has done its due diligence and has come up with solutions/mitigating factors to common concerns.

Question: When you look at a company that is trying to reorganize or keep themselves from going under, what do you look for and how would you advise them to move forward?

Answer: I'd gather as much information about the company as possible. Doing a thorough investigation of the company and its operations should provide some evidence and point to appropriate actions to take.

If it’s one that is failing, try to determine why it is failing. Is it a matter of bad products or services (out of date, poorly developed, etc.), poor management or a function of a bad economy?

Examine the industry.

Is it going through the emerging, mature, or decline stages? How has it been performing as a whole for the past year, 2 years, 5 years, etc?

How has this company performed compared to the rest of the industry?

Who are the market players and what is their market share? Is the company an industry leader?

Have there been any major changes to the industry (new players, increased merger/acquisition activity, new technology, increased regulation, etc.)?

What are the drivers of the industry (products, size of companies, technology, specific brands)?

Then, I'd look at the company's financial structure.

What are the trends in profitability and what are its margins? What are its trends in cash flows?

Is the company highly leveraged (carrying a high debt load)?

What is its relationship to existing lenders and how long have they been with the company?

In terms of dealing with existing lenders it’s always a good idea to see if they’ve had a long-standing relationship that’s positive. If so, lenders are more willing to work with an organization should debt-restructuring or securing more funding be a factor in turning the company around. Plus, you want to see what the chances of possible liquidation of assets are should things continue down a negative path.

We'd review the management team and the existing talent pool. There may be a reason to get rid of some dead wood if there are performance issues involved. Hiring someone from the competition or from a similar industry might be in order if the matter is determined to be one of poor management.

If needed, we'd secure financing to make sure that any turnaround plan has a decent chance of success.

It's important to make sure the company talks with banks/investors, suppliers and distribution channels. They are equally interested in the success of the company, so keeping them posted is a good way to make sure they don’t feel left out or blindsided should the company make any major changes in how it does business.

Once all aspects of the company are flushed out, I’d advise them to create a business plan that includes realistic and measurable short-term and long-term goals. They should prioritize those goals and get some quick successes under their belt as a confidence builder which should set the tone for what they have to do over the long run.

You can contact Rohan Crawford for more Q & A or discuss his consulting services by e-mailing him at Rohan.Crawford@Gmail.com