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Mistake #1 – Going into business without a plan
A business plan is a valuable tool for any business venture, including all types of game development. Too often, developers start a project on crowdfunding sites like Kickstarter without a clear idea of what the development of the project will actually cost. Cost overruns, delays, and other catastrophes can potentially be avoided with proper planning and business advice.
A properly drafted business plan should have several sections that cover certain aspects of the proposed business. The plan document should start with a summary of what is to come, letting anyone who reads it see the big picture on page one. Next should be a description of the business and the industry that the business will be a part of. The document should then describe how you plan to profit with the endeavor. This can be any business model that makes sense, as long as it is described in enough detail to convince someone who reads it that it can work.
The market for the product and how you plan to appeal to that market should be addressed next. Pricing and distribution should also be touched on, along with how the product will be advertised and promoted in the marketplace. There can be much more to the business plan, but the bare bones of how the business will function and succeed as laid out above are the minimum to get started.
Once completed, the business plan can be used to craft the business strategy going forward, help in drafting partnership agreements, and to show investors when seeking funding. This planning phase is invaluable in avoiding future trouble for any project or business.
Mistake #2 – Going into a partnership without an agreement
It is not uncommon for a group of friends to get together with the idea that they will make a game. Often they get started without creating any kind of written agreement, either assuming that they will sort out the details later or that the details aren’t important at all. These details, however, can make or break a project or a friendship. For instance:
What happens when the game that they created together becomes profitable?
What if the amount of work done by each member of the group was not equal?
What if there is an impasse over an important game design decision? Who is in control?
Deciding how the money should get split up and who controls what is imperative for all partnerships. The roles must be defined before any work is completed. Legally, absent an agreement, profits and losses in a partnership are split equally among the partners. The same goes for voting, with each partner getting an equal vote. If one partner is doing 90% of the work, then they would naturally expect to get most of the money. Without a prior written agreement, this would not be the case.
Mistake #3 – Raising money without a separate business entity
Whether you are using crowdfunding sites like Kickstarter, or raising money in exchange for equity or other securities, attempting to raise capital without first creating a separate business entity could lead to a lot of trouble if something goes wrong. It is not unheard of for a crowdfunded project to go belly-up, leaving backers or investors empty handed and ready to litigate. In that case, the project creator may be personally liable for the losses to the backers if the project was run as a sole proprietorship.
The benefits of a separate entity are very helpful in such a situation. The entity, whether a corporation or an LLC, creates a limited liability for the owners or members, usually up to the amount that they have put into the business. If there is no separate entity, then the people running the business can have their own funds liable for the damages. The results could be disastrous for an individual.
For creative people, these are not usually the issues that come up in the initial excitement of game design. However, a little work up front can save a ton of headache later, especially if something goes wrong during development. Consult your local game attorney for consultation and advice before things get too far along.
Digital Extremes —