When the Game Ends: Closing a Gaming Business and Lessons Learned

I talk with the founder and CEO of a mobile gaming startup I backed in 2021 and what the learnings were as they are now shutting down.

When my angel syndicate invested in late 2021, Flowstate Games was building a web3 game with lots of potential. Here’s what I wrote to my syndicate as to why I’m investing:

The last free-to-play game that the team launched had Retention Day-1 numbers of over 55%, but the team felt that it would still be an uphill battle in the crowded markets of arcade mobile.

Since their ambition is to make arcade games that have the potential to become a worldwide phenomenon, they struggled with the brutal facts of mobile f2p. Sure, you could build an arcade game that makes $10m to $20m annual, but they are aiming ten times bigger.

Additionally, I’ve been helping Eddie for a year now and he is definitely in the Top 3 early-stage CEOs that I’m working with.

Now, in mid-2024, the company is shutting down. The CEO, Eddie, just posted about the company's ending on LinkedIn. I spoke with Eddie about the post and wanted to share a Q&A with him. Here’s what we covered.

Joakim: Thanks, Eddie, for doing this. In your LinkedIn post, you talk about "too much chasing after shiny things" and starting game projects in genres you weren't familiar with. Do you think there are exceptions to this, and if you need to do so again in the future, such as building a game in an unfamiliar genre, how would you prepare?

Eddie: I think the key is being honest about the reasons for your pivots and understanding what you’re getting yourself into. There might be a lot of good opportunities in unfamiliar genres or markets, but in the end, it’s probably not going to be any easier. You’re essentially trading one set of problems for another, and that’s fine as long as you accept that it may be a case of picking your poison. And if you’re dead set on making this leap, do your homework. Play reference games until your fingers bleed, read all the breakdowns you can get your hands on, contact developers working within the space and pick their brains, and most importantly, ensure your entire team is doing all of the above. As you’ve probably built a team around something completely different, I don’t think it can be overstated how important it is to ensure you have the right team composition for whatever’s next.

With Flowstate, you worked on games with VC financing. How should founders prepare to operate, to have a good chance at raising, and then get somewhere meaningful to raise again? How would you do it differently next time?

Understanding what potential future investors were evaluating when looking at us as an investment opportunity proved difficult and ended up influencing our production at times. Instead of focusing on developing according to our original vision and building a proper business case, we read too much into whatever “flavor of the week” KPI or feature was mentioned in casual conversations and allowed it to influence our roadmap, which was frustrating for the team.

I think focusing more on product-market fit as opposed to “product-VC fit” would have put us in a stronger position in terms of product development and fundraising. In the end, you should build what you and your team believe in and find investors who, in turn, believe in you. 

As far as the ideal way of getting started, I realize that bootstrapping early on can be tough for founders with financial obligations like mortgages and not a lot of savings - it certainly was for us - but I think it would be valuable to get a bit further along with validating a thesis through, e.g., a proto or a demo before turning to VC financing. That way, there would be a better understanding of how a concept could work in practice and more confidence in the team’s ability to ship whatever you’re selling, allowing you to hit the ground running after getting funded. This is how I’d want to approach a hypothetical ”next time.”

You mentioned that your postmortem process on game projects getting killed wasn't optimal. Can you explain how you'd run an optimal postmortem to optimize for learning?

Killing a game usually means the conclusion to a painful period of development, with things not working out the way they were supposed to. There’s a high chance the team experienced stress, frustration, and disappointment - perhaps even heated arguments regarding project direction - putting a strain on relationships. It’s only natural that everyone is in a hurry to move on, especially as what lies ahead can, by contrast, be one of the most fun parts of development, i.e., concepting and prototyping with nothing but possibilities in sight.

I’d argue that taking a proper time-out to reflect on pivotal decisions of a project (analyzing key hypotheses, reasoning behind them and outcome) can be one of the best investments a team can make. But to really get to the root cause of what went down, there needs to be

1. a sense of psychological safety where team members can raise their hand and say “my bad” without fear of being judged and

2. humility in knowing that a lot of what we do is educated guessing. The way to get better at it is to constantly reflect on how reality matched with our various hypotheses, and thus calibrate our aim for next time.

I think it’s important to reflect on what went well and what went wrong. If a failed project isn’t properly broken down and analyzed in terms of positives and negatives, there’s a real risk that everything related to it will feel toxic, and potential learnings will be lost. One way of approaching this could be to ask everyone in the team to reflect on their own key decisions throughout the production - both the ones that worked out and the ones that didn’t - and then discuss, as a group, how to potentially avoid the same conclusion next time around.

I really like the part where you discuss identifying a team's blind spots. Your post says, "The attitude from the get-go should have been more “let’s do everything we can to prove to our backers they made the right call in investing in us” and less “We got funding, so that probably means we’re good." If you were building a game team now for a mobile game, how would you seek out those blind spots?

I think many developers are so caught up in their day-to-day tasks that one crucial element of game development often gets neglected: playing games. Successful competitor games, in particular. Even worse, sometimes people will be too busy to even play their own games. Sure, we’ll all test new features, etc, but few of us have the patience to truly play and experience games as a real player would - grinding away week after week and month after month. That’s like setting up a restaurant and not trying out the other neighborhood eateries while only sampling your own appetizers.

Making games that are fun to play is easy. Making great commercial products that can scale as a business is hard. Understanding how a game goes from good to great is instrumental, and the only way to gain insight into that is to study games that made it, as well as the ones that seemed liked they would but didn’t. When you have a team that gets good at this you’ll have plenty of notes to compare, which will help you turn those pesky ”unknown unknowns” into - at the very least - ”known unknowns”, if not provide you with outright solutions. A lot of the work is iterative, and understanding what has previously worked is a prerequisite for successful iteration.

If you were starting a game startup now, with all your learnings, how would you pick co-founders?

I would look for matching values related to humility, curiosity, and ambition.

In other words, individuals who share an acceptance of how little we truly know and how much professional development and personal growth it’ll take to have even a remote shot at hitting the moving targets in this constantly evolving industry. Individuals with an insatiable appetite for knowledge accumulation and a Sherlockian obsession with digging beneath the surface layers of how things function. Individuals with a true passion for building great products - with a shared definition of “great” - and the willingness to go the extra mile in the pursuit of the most elusive of holy grails - domain mastery.

But I would also look for cool people who are fun to work with.

Finally, how would you pick investors?

To be honest, this is one of the few parts of our journey where I probably wouldn’t change a thing.

I consider myself truly privileged to have had the chance to work with the investors we had. I always felt there was trust, support, and patience in the relationships, which enabled a positive working environment for our team. Working with investors in the same industry made our interactions so much more valuable, as well as enabled a lot of knowledge-sharing among portfolio peers.

Tl;dr. Pick investors who understand your business and whose thoughts and feedback you believe will be of value to you.

Thank you! All the best to you and the team.