Usually companies that make games are started by people who make games. This is a huge problem and why most game companies fail. The reason why a person who makes games will choose an action and why a person with a business background will choose an action are far different. Many times the frustration with yielding to the business person’s choices will lead game makers to quit and start their own companies. The new company follows the game maker’s decisions right down the toilet. Many companies started by game makers never release anything.

When I was a kid, I used to throw a baseball over our house to see where it landed. It was always interesting for me to try and hit a specific spot even though I could not see the spot and it was hard for me to throw the ball high enough to get it over the house (we had a two story home). I would always focus on getting it high enough and less on where it would land.

In the past businesses I have run, I have basically had a similar kind of issue - I know where the business needs to be, but making a great product was consuming all of my attention. Doing the things to make it a success has been a secondary concern which, in the end, I almost never had time for.

Then I wrote a game for Sony on their PlayStation Home platform called "Cutthroats: Battle for Black Powder Cove" which is inarguably a fun game. At the end I realized that the business side of it was actually going to eventually be more important than how fun the game was to play. It became so important to me that I eventually had to step back because others who had a say in my continuing employment were getting irritated with my constant insistence that the game was financially doomed. Since it was Sony (a large corporation that could afford this mistake) and everyone who began the project had been laid off but me, I decided to step back rather than fight.

All my concerns were eventually born out. People flocked to the game in huge numbers and very few players paid for anything. It was fun, but did not generate the income to justify its creation. If you told the decision makers up front the revenue numbers it would eventually generate, they would not only have not done it, they would have questioned why you would bring such a project to them. It would be much more fun to take the money and give it out to strangers on the street. It was almost that bad.

On “Cutthroats” I had anticipated the financial issues for the first time on any game I had worked on. I had run a few companies that went out of business due to lack of money and had never spent much time thinking about the financials before the game was done. On “Cutthroats” I put together an entire business plan just for the game. The reason they did not like it was that it predicted only a 60% return on investment. They wanted a higher return.

At the time, the hot idea was “free-to-play”. I told them that by my estimate we would need 7 times as many players to get the same amount of revenue as a “pay-to-play” game would generate. My more recent estimate is 12 times, but I was young and naive. And that was just to break even. If you wanted to surpass the amount, you would have needed even more players.

The problem was/is that PS Home has a limited size customer base. You can only get on PS Home if you own a PS3. And only a fraction of PS3 owners ever even go to Home. And of the people who get on Home, only a fraction of those ever spend any money. Sony does not give out numbers about much, but let’s run some numbers just for fun. The estimates I have seen for PS3 sales are about 80 million units. At one time Sony claimed that 20 million users had gone into Home which sounds possible based on the number of units. Let’s assume they have about a 20% long term retention rate (typical for MMOs) = 400,000 current users. While a typical free-to-play game can expect 1.5% of people to spend money on their game, since PS Home is a 24/7 virtual world, I expect that more like 15% of the people spend money on things. That leaves us with an optimistic number of 60,000 potential customers. My expectation was that we could get 10% of the people to pay to play the game in a pay-to-play scenario. That is 6,000 players. Now if we go free-to-play and need 7 times as many players to generate the same revenue, that is 42,000 out of the 60,000 people willing to part with money on the platform. Almost all of them. And if my new 12 times multiplier is right, we would need more users to spend money on the game than there are currently who spend money just to break even. While that is possible, it assumes people would be pulled into the platform or that some current users would suddenly start spending money when they have not in the past. Not a good bet.

If those numbers had been presented to you, would you choose a “free-to-play” or “pay-to-play” business model for your game on that platform?

This experience taught me that the business model needs to be as good as the game for it to succeed. If you want to be a millionaire, you have to do something that can get you a million dollars. While buying a lottery ticket is a long shot, it is infinitely more possible to become a millionaire buying lottery tickets than it is working at a typical job.

If you want to make a game and have it sell a million copies, you have to have it in enough stores and on enough platforms to make that happen. While that seems kind of obvious, my focus has always been on making great games. Now I start by looking at how much a game will cost to make and making sure that it will generate more money than it will cost. Planning to break even is just busy work. Not planning at all is equivalent to buying a lottery ticket. By the way, lottery tickets almost always lose no matter how sure you are you are going to win.

Start your business plan by defining success and finish it by explaining how you will get there. And do it before you start making the game. Trust me. It is important.