Beating the odds: 23 key insights from two decades leading Arkadium

Starting a game company is risky business. Keeping a game company alive is nearly impossible. Obviously, there is a big difference between developing AAA titles and the browser-based casual titles we focus on at Arkadium, but I think our learnings are relevant regardless of the sector of the game industry you’re working in.

Let’s look at some of the data. In our industry, less than 10% of game companies make it to their 20th year anniversary. If you layer in revenue, less than 1% of companies generate more than $10m/year and only 0.2 - 0.3% generate more than $20m/year. Thus, the odds of succeeding in the game industry are horrendous – you’ll have better odds in an online casino. However, the potential to succeed in the game industry exists, and the ~$200 billion dollar market has too much potential for entrepreneurs to ignore. As someone who has built and kept a gaming company alive for more than 20 years that generates more than $20m in yearly revenue, let's take a look at some of the key learnings that kept us going for more than two decades.

Please note, that I did not set out with the following learnings in my tool chest. They were all lessons I learned over the years, and each one could have tanked the company at any time. I kid you not, there have been over 500 instances when “something” could have put the company out of business. Like I said, this journey is not for the faint of heart. My goal here is to share some of these learnings with you so you can avoid some of the scars that I hold with me today:

Data Source: Bureau of Labor Statistics

https://www.investopedia.com/terms/b/bls.asp

https://www.commerceinstitute.com/business-failure-rate/

1. Generate positive cash flow.

When I started Arkadium in 2001, my Dad gave me a simple piece of advice. He said to just focus on making more money than you spend every single month. This sounds simple, but it's actually the best advice I ever got. Why? Because if you generate a profit, you don’t run out of money. It's really that simple. If you’re saying to yourself, but I want to build a hit game and it takes money and time to develop it, please see point #2.

2. Don’t put all your eggs into a single game.

The success rate of games is abysmal. The chances of creating a hit are so low that it's amazing that anyone even tries. If you look at Steam and the App Stores, the number of games that have less than 100 downloads is astonishing. My point is this, if you are betting the farm on a single game, be transparent with your staff and let them know this is your strategy. It’s hero or zero. Which leads me to point #3.

3. Show your cards, and be radically transparent with your team.

The only thing we don’t share to all our staff are the individual salaries to respect roles and privacy of each person. Everything else is for everyone to see, question, and understand. Cash in the bank, monthly revenue, monthly expenses, EBITDA, etc. Why? Because if you are mission driven and want to have loyal and committed employees, there is no reason to hide anything. If you are rapidly running low on cash, the staff needs to understand the urgency of their work & they need to understand how to protect their livelihood and their own families. Management keeping secrets is bad business.

4. Build a vision statement that gets you out of bed in the morning.

These statements have evolved over the years at Arkadium, but we are currently on a mission to build the world’s favorite game site. To us, favorite means at least 5m DAU and best in class user retention for D0, D7, D30 and D365. Hitting those metrics and the overall vision is what gets us up in the morning, and that’s the scary challenge that we battle every day. We also have three company values of having fierce drive, positive energy and living a full life. These are not just statements on the wall of our office. We live, breathe, and reward these values and behaviors when we see them.

5. Don’t let your game break your heart and your bank account..

I’ve fallen in love with no less than 10 of the games we’ve developed over the years. I’ve loved them deeply and thought they were guaranteed hits. I was wrong. Many of them I continued to fund because it was the “next iteration” that would be the breakthrough we needed. It never was. The data is the data, and if you aren’t hitting your retention and monetization metrics after several iterations, you need to stop funding development, shelf the game and move resources to another project. Otherwise, you risk the game taking the whole company down with it.

6. Be careful of employing staff in geopolitical regions.

I employed some of the most amazing and talented people when I had studios in Ukraine and Russia. I always knew it was a risk, but I forged on. I enjoyed more than 10 years of success in these regions, until I didn’t. In what felt like a blink of an eye, my Ukrainian studio became illegal overnight (sanctions against the region), and my Russian studio was at risk with the latest war with Ukraine. I ended up closing up shop in these locations which was a significant source of sadness and an unexpected logistical nightmare to move employees out of the country or give them severance packages that would keep them on their feet. If you employ a significant amount of staff in these areas, father time will eventually catch up with you. Have back up plans, for the safety of your staff and sustainability of your business.

7. Creating a hit game isn’t a business model. Singles and doubles are the key to longevity.

I have at least 20 games that are still live today on Arkadium.com that are constant earners. These games generate profit every month and keep the lights on. However, they aren’t considered out of the park homeruns. They are constant earners and that’s fine with me. As I said above, my focus has been on making more than I spend every month. These games provide the funding necessary to keep going so I’m ready for the day I stumble onto a blockbuster franchise.

8. Work-for-hire projects are opportunities to build new tech.

We’ve completed more work-for-hire projects than I can count. Literally, hundreds of them. Why? They are profit centers and they allow you to test your teams, build new tech, and take some of the risk out of the business. One thing I always try to do with ‘work for hire’ projects is to build some upside into the deals. Even if you can get a 5% royalty on a work for hire project, that’s a win and gives you some upside in case you created a profitable game. Always build in upside.

9. When resourcing your employee base, consider McKinsey’s the three horizons of growth model.

This model was introduced to me several years ago, and I love it. In a nutshell, the first tier is your current business and major revenue generator. Keep this Tier 1 going, make sure you are investing in the right people and focus on this area. For Arkadium, 70% of my employee base is focused on Tier 1 products. Tier 2 is your business builder. What are the new games or strategies that will become Tier 1 in the next 1-2 years? I try to invest at least 20% of my resources in Tier 2 initiatives. Lastly, Tier 3 are your moonshots. Your wild ideas that have a high degree of failure but have a chance to become a Tier 2 or even a Tier 1 category. We have 10% of our staff devoted to Tier 3 initiatives.

10. Fire the assholes. Nuff said.

11. Hire slow & fire fast, two quarters of underperformance and you’re out.

It's taken almost my entire career to get this one right. It's been quite the journey. Even after all these years of learning, I’m still getting 30% of my hiring wrong. I’ve been so guilty of making excuses for employees or thinking things will just get better with time. They won't. For new hires, you will know after 30 days if someone is going to meaningfully contribute or not. If someone has been with you for a while, you owe them the courtesy of setting clear objectives and outcomes. For me, if someone misses their outcomes two quarters in a row, they are asked to leave the organization. Spoiler alert, no surprises because of point #12.

12. Feedback is a gift.

Feedback is a gift – positive feedback always feels good, and unfortunately, most managers are afraid or simply don’t give constructive feedback in a way that can be heard. I use the SBI model of feedback. Essentially, it's your job to deliver feedback in a very clear way. The S in the model identifies the situation. i.e. Todd, I’d like to talk to you about being late for meetings. The B is for behavior. Todd, on Wednesday you showed up 10 minutes late to the team meeting. On Friday you came 5 minutes late to the Daily Standup. The I is the Impact. Todd, this makes me feel like you don’t care about team communication and don’t have proper time management skills. This SBI model takes the emotion out of delivering the feedback, focuses on the facts, and lets the other person know how their behavior makes you feel. No one can realistically argue that your feelings are wrong, because they are your feelings and you’re genuinely feeling them. After you deliver the feedback in this way, you just sit back and listen. It’s the other person’s job to take the feedback and do something with it. The last point I’ll make here is to ask the other person to repeat it back to you. This ensures that they heard the feedback accurately. Ok, one more thing, delivering positive feedback is also critically important. I try to deliver 3 pieces of positive feedback to every one point of negative feedback. This ratio feels genuine to my style of leading.

13. Content may be King, but distribution is the Queen, and she wears the pants.

How many low-quality products do you see on the shelves of Target and Walmart that make tons of money but are poorly made? Too many. However, they generate revenue because they have tons of distribution. The same goes for the digital world of games. Distribution is critical for your success. So many game companies fail because they put all their focus and attention into creating their game, without putting the necessary resources/deals/partnerships in place to acquire users. We have focused equally on building a distribution network, while developing our games. We put equal weight in both areas and that has served us well.

14. If the schedule is too long, it's wrong.

I’ll caveat this next point by saying the following is specific to the browser-based market and not the AAA industry where timelines are long. However, in the casual, mobile, and browser-based industry, anything that takes more than 3 months to play with and test worries me. I’m not talking about a polished, finished product, I’m talking about being able to quickly test mechanics and features. I want to see visual progress quickly. I’ve seen so many projects with long development times spiral out of control with scope creep and lack of focus. I understand that games can take years to develop and reach the necessary level of polish to become a hit. I personally want to play with prototypes constantly and see them being iterated on and improved over time. If you don’t get something in your hands to test within the first few months, something is usually wrong.

15. Let ‘em cook.

Resource your teams, empower them, give them agency to make decisions and have a DRI (directly responsible individual) to hold accountable to outcomes. I am always trying to stay out of the way of teams, unblock them, and let them do their thing. We try to hire the best in the business, so there is no need to micro-manage these professionals. From my perspective you should always have a SINGLE decision maker who is accountable for the outcome you desire. Give them the agency and freedom to achieve that outcome. If they do, fantastic, shower them with rewards and praise. If they don’t, see point #11 above.

16. Data is great, but strong vision is greater.

Everyone wants a data-driven product culture, and I understand all the reasons. However, an excellent product leader should have such a strong vision that data doesn’t get in their way. Sure, split AB tests can help determine which button to use, or what creative to pick for UA, however deeply understanding your customer is more important than all of it, which leads me to my next point.

17. Talk with your players.

When I say talk, I mean really talk. Get on the phone, understand their motivations for playing. Find out when they play, why they play, what they dislike, what they want to see in the future. This data is gold and a great product owner will use this to guide their next product iteration. A platform like UserInterviews.com is great for this.

18. Peel back the layers - the 5 Whys’ to the rescue.

Shit happens. It always does but it doesn’t need to stay as such. I’ve found that getting to the root of the issue is always better than solving the surface level issue. The 5 Why’s approach is pretty awesome and can lead to very powerful breakthroughs. I use this approach in both my business and personal life.

19. Be willing to change your opinion.

As leaders, we get things wrong. That’s ok. We are human like everyone else. However, admitting when we are wrong and changing our opinion is important if you want to survive in this business. Sometimes you are required to make a decision without having all the data and you need to make a choice. You make that choice and at a later date get the data that contradicts your decision. It's ok, admit your mistake, share the new information you received, and communicate why your decision has changed.

20. Let the money flow from multiple sources.

Over the years, we have found ways to generate revenue from lots of different places. At Arkadium we generate revenue from advertising, micro-transactions, subscriptions, game licensing, work-for-hire projects and now 3^rd party publishing. Having money flowing in from multiple sources is a good thing. If there is a single source of revenue that makes up more than 20% of your revenue, have a plan B or C. For example, if you only make money from a single game on iOS, what happens if iOS rejects your latest build and bans your app? What if you are making games for Telegram and the platform unexpectedly removes your app for a week? Things like this happen all the time. How many companies did Twitter put out of business when they removed 3^rd party access to their API? Having multiple revenue streams is critical when the thunder strikes.

21. Disagreement leads to discovery..

I am always trying to stir the pot in leadership meetings. Not because I like the drama, but because I want to challenge our assumptions and ensure we get unique and fresh perspectives. At Arkadium, we’ve always had a diverse culture and one of the best male to female employee ratios in the industry. When you hear a variety of perspectives it always leads to better outcomes. The key part to this point is to create a safe environment so that people can disagree but not take things personally. Finding that balance is like threading a needle, but it’s possible when you hire the right people with growth mindsets.

22. Set SMART goals quarterly.

Everyone knows what SMART goals are but very few people actually set SMART goals on a consistent basis. When you set SMART goals and get aligned with other departments and more importantly your direct boss, you make it very clear what you’re trying to achieve and by when. Having these goals, tracking against them, and allowing others to view them leads to great outcomes. We use Paycor’s 7Geese tool to track and manage our quarterly goals.

23. Play the Long Game.

When you play the long game, you ultimately make better decisions. However, you can’t play the long game if you’ve ignored point #1 above (generate positive cash flow). If you’ve followed point #4 about setting a long-term vision then it’s very clear on what you should and should not be doing as an organization, where your resources should be applied, and how you should prioritize your initiatives.

At the end of the day, building a game company isn’t for the faint of heart, but if you’re crazy enough to give it a shot, it can be one of the most rewarding rides of your life. You’ll need resilience, a touch of insanity, and more than a few backup plans, but if you keep your focus, take care of your people, and listen to your players, you just might beat the odds. Arkadium celebrated 23 years as a company this past September, and the lessons learned are what makes the journey exciting, not to mention the successes along the way. There will be more of both in Arkadium’s future and I look forward to sharing additional findings in the years to come. Remember, it’s a marathon, not a sprint—so strap in, keep learning, and above all else, have fun. After all, isn’t that why we’re making games in the first place?