Keeping IV from the Wolves

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Keeping IV from the Wolves

Postby Mark » Fri Jul 03, 2009 12:24 pm

“Success in 2009 is survival.” I can’t remember who told me that, but it is a quote that I have found myself repeating a number of times this year. I would normally consider it weak leadership to set a goal so menial as simple survival, however it’s been a very rocky few months for Introversion and there are times when one needs to accept the reality of the situation and I think it would be foolish to continue to try to grow the business when we are clinging on to the cliff edge with our fingernails.

I’m going to come on to the steps we have taken to ensure that we can keep the lights on, but I also think it’s important to understand how we have ended up cash strapped and months from our next release. Introversion is founded on a very strong belief that maintaining creative integrity is the most important aspect of the business and that belief has informed our strategy and shaped our growth. We have avoided work for hire projects and have used the sales revenue from each previous game in order to fund the next. Rather than being paid by a publisher during the development process we have to wait until the game has shipped and whilst this puts a strain on the cashflow during dev, the upside is that we receive a much larger chunk of the sales post launch.

This method works as long as each previous game generates enough cash to complete the next title, but the whole thing goes wrong when a game doesn’t sell as many copies as expected. This happened to us in September last year when we launched Multiwinia. From our point of view we considered this to be Introversion’s fourth major PC title and we expected to continue our upward trend of game sales – each of our other three games had sold more than the previous and we really expected Multiwinia to do the same. Sadly that wasn’t the case and we found ourselves in September last year staring at day one sales data and realising that we were going to struggle to make it to the launch of Darwinia+ on Xbox Live arcade.

Now this is quite a scary situation to find yourself in and the temptation is to panic and whilst I’m going to present a rationale view of what we did it’s important to note that we suffered an enormous loss of morale and the team very nearly fell apart. When faced with this situation it’s critical that the top team are positive and support each other – if the board members are weeping with their head in their hands talking about the end, then the employees soon pick up on this and things just spiral down. Probably the hardest thing I had to do, but also probably the most important was to stay positive and get the other directors to do the same. In hindsight I think we handled it well, but my advice to anyone in this situation would be to surround themselves with impartial outsiders who can provide the perspective on the situation. It’s very easy to feel swamped and overwhelmed, but strangely things don’t seem so bad when your massive problem is dismissed as a “short term cash-flow issue” by your business advisers.

Keeping morale high is critical, but I also want to describe some of the practical steps that we took to stay afloat. So firstly it is important to obtain an accurate view of the problem. We run a monthly cash-flow projection that forecasts our income (from our back catalog of games and the other revenue generating projects that we run) and our outgoings (wages, rent, tax, project payments etc) at the end of each month is a number, if it is red (negative) we have an issue and if it is black we are fine. The size of the problem is indicated by the size of the number and if it’s big and black then everyone gets a bonus. The problem in September was that it wasn’t big and black instead it was small and black and it wasn’t long before it turned red. The important point to note was that we knew immediately how long we had before we couldn’t afford the wage bill. We also knew how long it would take before the next big cash injection (the launch of Darwinia+ on the Xbox 360), so the challenge was to make the cash last long enough.

So armed with detailed knowledge of the scope of the issue there are only two things that you can do, and you usually need to do both:

1. Increase the cash in
2. Decrease the cash out

We are quite a small organisation and we run pretty efficiently so reducing our spend is pretty tough. We went through the cashflow looking for lines to cut and the biggest related to our old office (a sexy townhouse near tower bridge) this was the first casualty. Sure we didn’t want to move out, but when we rolled up to our new rented office space it turned out to be better – we were now all together in a single room (before we had been spread around the house and never talked to each other) and it meant that we could communicate better and a stronger sense of team emerged.

The second largest outgoing in the cashflow represented the enormous sums that we pay to the British Government each month for the privilege of living and working in this glorious nation. Of course we had taken steps to minimise our tax liability (because we are smart and have a good accountant), but it’s also possible to agree terms to defer the tax to the end of the financial year. So we did exactly that it’s completely legal and the tax office were surprisingly lenient with us – of course we’ll need to pay it back, but we can defer it until after the launch of our next game and that’s what’s important right now.

The third big cash sink is the most important – salaries. We have a small highly motivated efficient team and I’m pleased to say that we didn’t need to lose any of the guys. Making people redundant is an important option that needs to be on the table, but I’m pleased to say that we didn’t need to push anyone out.

So then we looked at increasing the flows of cash into the firm. Firstly we redoubled our efforts with Multiwinia. We phoned up Valve and as always they helped us out. If you can get on a splash screen on steam then you see a massive increase in your sales figures. You usually need to drop the price, but often it can be a sensible move. It certainly was for us and in the run up to Christmas we saw a number of promotions that really helped to bring the money in.

Now Multiwinia is our newest game, but there are three others that we sell from our store in reasonable numbers every day. Our next big push was to try to increase the number of sales we were making of these games. Our web site is made up of separate sites for each game and the company home page – if we could increase flows between those sites or increase the conversions (number of people who bought from us after visiting one of the pages) we would be much better off. We realized that we were way out of date and doing the e-commerce thing really badly. It’s now possible to track traffic though a web site and optimize the site to result in maximum purchases. We launched a project (codenamed “Glengarry”) to metricate our site with Google Analytics and test two new Uplink sites to see which generated the best results. The project is still running and we haven’t seen massive improvements, but we know a lot more about e-commerce then we did a few months ago and I’m confident that as we keep improving the site our back catalog sales will continue to improve.

As well as trying to sell more we wanted to know if we could generate entirely new revenue streams based on our existing project portfolio and with a little networking it soon became apparent that there were a couple of opportunities that we needed to take advantage of. Firstly the same government who collects tax from all us serfs also gives it back to techno-serfs who conduct research and development. Remember what I said about Introversion’s Creative Integrity, well the reason we need that is because we like to push the boundaries and do stuff that has never been seen before. Now stuff that hasn’t been seen before = research and development so a quick call to the boys at Braithwaites and we’re looking at another chunk of cash coming our way.
Now as well as giving back tax on R&D conducted in the past, the government also provides funds to support projects that meet the right criteria and they really dig it when Industry jumps into bed with Academia. Being an ex Imperial College London graduate I had maintained links with that hallowed institution and we crafted a proposal based around our Subversion project. An august body known as the Technology Strategy Boardgranted us funding and away we went.

In September last year I looked at a cash-flow that said that Introversion was out of money by Christmas and a plan for Darwinia+ that said that we wouldn’t be able to launch until June. It’s now ten months later and I’m looking at a project plan forecasting the launch for September / October and a cashflow that runs out around the same time. It is certainly not the case that we are out of the woods and I’m currently trying to craft a proposal for a bank loan, but I think we’ve done a pretty outstanding job over the last few months. In sticky times like these we all need to stick together and I’m aware that the descriptions above are pretty brief – if you are a small developer in the same situation drop me a line and I’ll try to help you out as much as I can.
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Postby mirkob » Fri Jul 03, 2009 1:00 pm

maybe another selling channel you could consider for the older games,

it tackle a growing sector of the market of people that want to play good old games, little gems lost in the past, and have little patience for drm :)

both apply well to the old introversion games

if the prices of the site are acceptable for you obviously.
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Best place to buy?

Postby MarquisDeMizzle » Fri Jul 03, 2009 3:28 pm

Where is the best place to buy Introversion games so far as the profit you see? Do you net more through direct website sales compared to a Steam purchase or does it even out when you factor in bandwidth and all? I usually buy my games through Steam for convenience, indeed that's where I bought the Introversion pack, but I don't yet have Multiwinia. I'd rather purchase from the outlet that does you all the most good, even if the cost is higher on my end.
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Postby LoveDaddy » Fri Jul 03, 2009 3:42 pm

You are kings among men.

Long live Introversion!
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Postby bert_the_turtle » Fri Jul 03, 2009 3:45 pm

MarquisDeMizzle: Typically, it's against the contract to publish revenue details of Steam and similar platforms. My uneducated guess would be that IV gets most of it if you buy directly from them; bandwidth is cheap, and credit card handling fees enter either way.
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Have you considered raising money from fans?

Postby markltbaker » Fri Jul 03, 2009 5:40 pm

e.g. selling 'Introversion Bonds' to fans instead of a bank loan?

Larger companies do this all the time - well, not raising money from 'fans' but certainly selling corporate bonds:

Obviously I am not a Lawyer or an accountant and I don't know how tax-efficient that will be. But it may be an option. Could have a 'friends of Introversion' website section or something like that.
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Re: Have you considered raising money from fans?

Postby estel » Fri Jul 03, 2009 7:15 pm

markltbaker wrote:e.g. selling 'Introversion Bonds' to fans instead of a bank loan?

Larger companies do this all the time - well, not raising money from 'fans' but certainly selling corporate bonds:

Obviously I am not a Lawyer or an accountant and I don't know how tax-efficient that will be. But it may be an option. Could have a 'friends of Introversion' website section or something like that.

With all due respect to this incredible fanbase, I can't see this really raking in money on the scale that a company even of IV's modest size will really be interested in right now.
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Postby RagingLion » Sat Jul 04, 2009 4:33 pm

It's great to see the same creativity Introversion applies to their games present in the way they are approaching their finances in this difficult period, though admittedly out of necessity. I admire the way you have responsibly thought about your costs and explored all avenues to keep this company going. I wish that your goal for 2009 would indeed come true.
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Postby johndrinkwater » Sat Jul 04, 2009 10:40 pm

Two simple ideas to get enough for another month:
    More developer CDs! Uplink was great, how about doing the same with Darwinia or Defcon? Definitely something likely to appear on digg, reddit, /. to get you more monies.
    Preorders for Subversion. I want this game to happen, so i’ll gladly help make sure it does. If the worst comes and you did fold before release, pay those investors back by plonking the source on bittorrent…
(yeah, I like code…)
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Postby Perpetual » Sun Jul 05, 2009 4:14 pm

Congrats on securing financing until your next projected release! One of the earlier blog posts about the trouble IV was in really stuck me, because as neat as Subversion looks, it didn't look anywhere near the point of bringing in money. So I'm glad to hear things are at least tentatively alright. Introversion is actually really inspiring to me, from the uniqueness and "fun factor" of the games, to the "bedroom programmers" story of success (or at least survival). Uplink especially has influenced a project I'm plinking around on.

No real suggestions for financial things, just encouraging words. .. also the red striped background for the blog is murder on the eyes. Love the updates!
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US based R&D?

Postby Flayra » Tue Jul 14, 2009 6:51 pm

Great blog post, as usual. Very inspirational for small game-devs.

This got me thinking - are there R&D tax benefits for US companies as well? Does engine development, or other game "platform" development qualify? Does anyone know of the US version of Braithwaites (esp. one that knows about game tech)?
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Postby Sentientv2 » Wed Jul 15, 2009 6:07 pm

Just wanted to note that I posted this forum article on Digg. I am sure this wasn't meant solely as a statement for help, but I took it that way. I think the creativity and innovation that Introversion Software has contributed to the games industry doesn't deserve to be lost in the crashing waves of the current lackluster world economy.

I ask that you please visit, and echo your support there by digging the article. If you don't like the title, whatever, deal with it, :) I'm just trying to help.

This is my attempt to get the attention of people that perhaps have pirated Introversion's games or having been sitting on the fence about purchasing their games to get involved and actually contribute to the company's success.

Take care,
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Postby modernTelemachus » Mon Jul 20, 2009 11:12 pm

Valve: "Let Fans Fund Games Development" ... evelopment

Gabe Newell:

"One of the areas that I am super interested in right now is how we can do financing from the community. So right now, what typically happens is you have this budget - it needs to be huge, it has to be $10m - $30m, and it has to be all available at the beginning of the project. There's a huge amount of risk associated with those dollars and decisions have to be incredibly conservative.

What I think would be much better would be if the community could finance the games. In other words, ‘Hey, I really like this idea you have. I'll be an early investor in that and, as a result, at a later point I may make a return on that product, but I'll also get a copy of that game.'

So move financing from something that occurs between a publisher and a developer… Instead have it be something where funding is coming out of community for games and game concepts they really like."

Have you considered funding from the gaming community? To my knowledge, no-one has yet tried this; the novelty factor alone might pull in quite a bit of interest.
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Postby Jazz Ad » Mon Aug 03, 2009 9:49 pm

It worked a couple time for music already. Several hits were made by guys funded straight from the internet.
I for one am so sad to see Introversion in misery.
You guys remind me teh Spectrum and Armstrad days, when people all programmed.
Subversion funded by the fans. Mhhh..
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Postby skull13 » Tue Aug 04, 2009 9:42 pm

Thats the issue with the strategy. Its an obvious flaw, and yet a good strategy to use if you want to keep game quality high. Any bad games will be a genuine mistake, so you guys are kept honest by the fans.

It makes me feel sad to see you guys down like this, but what you did was good. I do think a four story house for an office of nine was a tad excessive. (Was it four story? I don't remember) At least you guys can talk to each other in person more easily now, which is both good and bad.

Good luck!

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