Aug 252016
 

Evil Hat has gone through a number of changes over the years. We’re going through a new one now. But to talk about that, perhaps we need some context.

We—Rob Donoghue and I—established the company late in 2005, right on the heels of getting an offer from an old friend of mine to do an RPG based on his series of novels.

Right away we knew we weren’t the equal of the job that offer set before us. We had zero publishing experience. We’d gotten onto the radar as a possible team to make that RPG because we’d put some well-laid-out house rules for the Fudge system online, named them Fate, and gathered something of a community of interested gamers around them, which culminated in us getting a few awards for that work. Those awards got noticed by my friend’s agent, who in turn asked my friend if he’d rather have people he knew working on the game rather than a company of folks he didn’t know.

Looking at that lack of experience, I started charting a course that would get us to it. I severely underestimated the time involved in crossing that distance, but we did cross it over time. Early on, in 2006, we leveraged the early rise of affordable, online-friendly print on demand to release our first two games, first a “one-off” that I wrote called Don’t Rest Your Head, and the second a few months later, Spirit of the Century. That latter one was in essence an unadvertised-as-such public beta of the system we were working on for the game that started the company off in the first place.

That game was the Dresden Files RPG, and it took us four more years to get it to where we released it at Origins in 2010. We went at a slow and careful pace in all the years in between, putting out a few more things here and there, all relatively small, and supporting the hell out of the Fate community along the way. Open licensing for Fate and my strong tendency for (as Jeff Tidball puts it) pathological transparency helped give us an online presence that was far bigger than we actually were. We were a loud, small indie throughout.

When the Dresden Files RPG launched, a few things happened.

First off, we suddenly ended up bringing in considerably more income for the company than we had previously. Not tons, mind you, but enough that I started paying myself more than $0 a month for the work I was doing for the company, and enough that I was able to pay back both Rob and myself the money we’d put into the company to get it started back in 2005 (a total of about $10k).

Second off, we started getting into bed with traditional games distribution. Previously we’d been solely selling our stuff through Indie Press Revolution (I am a very big fan of paying specialists a cut for doing what they do best when what they do best is something I don’t do particularly well — in this case, running an online storefront and handling shipping; ESPECIALLY shipping). But the Dresden Files RPG was a big enough deal that it meant the distributors came to us asking to carry it, rather than the other way around. And that gave us some power; we were able to dictate a few terms (which a few years later we relaxed towards more standard rates, etc, because it meant we’d sell more), dip our toe in to exactly the depth we were comfortable with, and see how it went. Over the years that followed we eventually expanded beyond IPR and Alliance, and today we’re carried by most major RPG distributors.

Third, it prompted a conversation with Rob. I sat with him in his house one evening and said something like this. “So with Dresden Files money coming in, we’re at a fork in the road. We can consider us done, since we’ve achieved what we set out to do, but I don’t think either of us is interested in Evil Hat stopping where it’s at. We can continue to be an RPG publisher, which is us doing pretty much what we’ve been doing for the past 5 years, just on other things. Or we can look at what it will take to turn Evil Hat from a roleplaying game company into, simply, a game company.”

Rob and I both felt that that last option was the way to go. And this was the first big pivot for us, really. You can tell when you’ve hit a pivot point, because the clock gets reset to zero. We were back to a point where we were about to go and do something … and had no little experience in how to do it, just like we did in 2005.

The next four years, the time between 2010’s Dresden Files RPG release, to 2013’s Fate Core Kickstarter and its release late into that year, is what followed. That lack of experience meant a lot of experimentation, of selecting incremental “stretches” for the company where we’d take a few steps in a new direction, testing our footing, making mistakes, and learning how not to repeat those mistakes. We tried publishing fiction (my conclusion: not something Evil Hat should do unless it’s willing to really focus on the fiction market; it does not work well as a half-measures thing). We started looking at publishing board and card games, making a series of newbie mistakes both on the Kickstarter and manufacturing side as we did so, but still producing a game that as of today is in the black (Race to Adventure). And we pushed towards producing that no-setting-attached Fate system book we’d been promising our fans for years.

Honestly, it was a pretty messy time. We got some great work done in that time, and I at least started getting smart (I’ll let you know if I ever actually succeed at that) about running the company, by bringing Chris Hanrahan on towards the end of that time-span to help me chart a trajectory for the company’s growth. I was aces at implementing, at getting stuff that was ready to go out the door out the door, that sort of thing, but I needed help to do more than just fight the daily fires well. There was plenty of stumbling, and Chris had his work cut out for him, but he’d built other businesses before, and I knew he’d eventually compensate for enough of my stupidity that we’d start to get somewhere.

When Fate Core hit, we had another “Dresden-class event” on our hands, a big influx of funding that put us into a bigger weight class than before. This prompted the second pivot, the one where I started getting better about admitting that I was carrying too much on my plate and that we needed all sorts of help to have any hope of delivering what we promised. Chris, what with it being his job and all, blazed the trail, encouraging me to bring on Sean Nittner as our project manager (if you like how we manage to deliver our stuff on time and as promised, thank Sean, he’s the reason why we didn’t belly-flop after Core happened), and Carrie Harris as our head of marketing. This was our “and I’ll form the head!” moment, where the leadership of Evil Hat that we have today first really started to coalesce. If we hadn’t made this move, Core might have been the beginning of the end, instead of starting a new chapter of growth.

Since late 2013, then, we’ve been inside of Evil Hat’s third phase. We’ve expanded from making just books to also making dice and the occasional board game. We’re starting to realize that goal that Rob and I set for the company in 2010, and to push beyond it. A great bit of which culminated in the big success we saw with the Dresden Files Cooperative Card Game near the beginning of this year.

Which brings me to Origins 2016 and staying up late Saturday night there. I’d just finished trying out Tim Rodriguez’s excellent new deckbuilder design when Mark Diaz Truman came over and started talking about how companies in the “indie” space who are still around, like Evil Hat, should start thinking more heavily about the business side of things, and about how it might be time to transition from being indie publishers to operating at the smallest end of the “mid-tier”.

This dovetailed also with a conversation I had with Chris Badell from Greater Than Games where we talked about our different perspectives on risk (grossly oversimplified, me bearish, him bullish). And in the background over the past couple years leading up to both of these conversations, Chris Hanrahan, incrementally laying the groundwork for when I’d be ready for us to pivot again.

All of these conversations together started to get me clearer than I had been on how Evil Hat has still been running like an indie, and maybe shouldn’t be doing that any more, not at our scale of success, and certainly not with our ambitions factored in.

It didn’t really gel until I had a follow-up conversation with Mark a couple weeks later. I opened up the Evil Hat books to him and had him look over elements of cash flow and such, some deeper accounting stuff that I hadn’t really “got” before. Lots of light dawned with Mark able to point at specific numbers and such in our accounting to back it up — pointing out how we were keeping more cash on hand than we really needed to, for example — and then I had an afternoon eating call with Chris Hanrahan about all the stuff it made fall into place, particularly along the lines of realizing it was time to really, fully put people into jobs instead of treating all the work of running Evil Hat as something folks could just fit into their available time whenever. And so we realized we were now at the point where Chris had been trying to get us for a few years — so now it was time for us to start clicking everything into new positions, spinning dials, etc, to get all that happening.

The new pivot, the third-ish one, was here. And that started kicking off for reals around early July of this year. (Those paying close attention will notice that Evil Hat’s pivot opportunities have lined up with the biggest and most public successes we’ve had — DFRPG’s release in 2010, Fate Core’s big KS in 2013, DFCO’s big KS in 2016.)

The upshot of all of that goes a little something like this.

Thanks to the success of the DFCO KS, now is as good a time as Evil Hat will ever have for taking some risks to grow into the next-phase company we’ve been looking to become since 2010.

Chris Hanrahan, who was already acting as the company’s Vice President, has gone full time for Evil Hat. He’s working harder than ever at making sure that Evil Hat continues to grow and continues to seek new opportunities where we can find them (and where they fit our ethical and corporate and fans-of-games perspectives).

Carrie Harris’s head of marketing position has gone full time as well, bringing along with it an attendant increase in authority, scope of action, and marketing budget for the company. (Some time back we also brought on Tom Lommel to help us with our social media presence, freeing Carrie up to focus on bigger-picture marketing things.)

Sean Nittner continues to work for us in a part-time capacity, but we’re bumping his salary to pay him closer to what he’s worth (but it’s hard to pay someone whose work is priceless to the company what they are actually worth, let’s be honest). We’ll grow his project management team as needed, too. (We brought on Sophie Lagace and Chris Ruggiero a while back to help, already. Sean will tell us when he needs more help.)

We also brought on Brian Patterson as our “artist in residence”, generating original art for our marketing and product needs, as well as heading up our art direction efforts. Brian’s a multihyphenate talent, and he’ll be lending his support both to marketing and to product development.

That all said, this latest pivot isn’t just about putting people on the payroll and giving out raises & responsibilities. It’s also about shifting our perspective on how we handle our product releases, our crowdfunding strategies, and more.

We’re still sorting out what all of that means. The newest pivot is far from done with its “spin-up” really!

But, as one example, it does mean we need to stop doing things like this famine-or-feast release pattern we’ve been mired in for years. 2016’s been rough on the retail and distribution channel largely due to us focusing all of our releases into the recent Fate More kickstarter: folks looking for what Evil Hat’s releasing in 2016 have seen essentially nothing-nothing-nothing-nothing-nothing-OH HOLY CRAP HERE ARE SEVEN BOOKS ALL AT ONCE-nothing-nothing. Frankly that runs a real risk of undermining the individual books there — we’re having a tough time helping each one of them shine individually, if at all, when they’re all muscling through the doorway at the same time. (Mmmm, smell those metaphors mixing! It’s a heady aroma.)

That’s the sort of thing we absolutely need to stop doing if we want to continue to grow, and that means we need to stop the last few years’ pattern of trying to kickstart entire product lines — at least in scenarios where they all print, ship, and release at once. There are probably other things like that that we need to work on too, all part of this pivot, as we try to cement the company in that “small mid-tier” category and rise out of our indie, seat-of-our-pants roots.

It’s going to be a LOT of work. Work that I can’t, and shouldn’t, do myself. So I’m grateful as ever for the team we’ve been able to assemble to make Evil Hat’s continued growth and success a reality. It’s a scary time ahead, well out of my comfort zone as far as risk goes — but that’s what growing up as a company involves. I’m excited to see where the journey takes us next.

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Aug 182016
 

I posted this to Google+ a while back, but it strikes me it’s probably best served as a blog post. So here you go!

Here’s my position: Pricing a PDF at 50% of MSRP means the publisher, in the most common sales contexts (DriveThru for PDF, distribution for physical items), gets about the same payout regardless of format.

Therefore — for me at least — that sort of pricing strategy means that I’m consistently selling the content at about the same price, and everything beyond the content that the customer (and middleman) pays for is packaging for that content.

So if that’s the case, what’s the market value of the content on a product? About 1/3rd of its physical format’s MSRP. That means that about a third of a PDF’s price (assuming 50% of physical MSRP as its price point) is for the format & hassles & sales cost of providing that content in PDF. Meanwhile, with a physical item, about 2/3rds of its price is about the packaging, the plastic, ink, and paper that makes it something you can hold in your hand and not have to plug in a separately purchased electronic device to enjoy.

If you’re curious as to how I got to that approximate assumption, here’s the math, cribbed from a comment I recently wrote (which is a repetition of something I’ve written months before, I’m pretty sure).

Say you have a product with physical copy priced at M, and your PDF is therefore priced at .5M.

On DriveThru, that .5M is faced with a 35% cut (5% less if you’re exclusive); you’re gonna get 65% of it (tho you can increase that a little if you make a regular habit of using your referral code every time you link to your stuff there). .65 * .5M = 0.325M.

In distribution, you sell your physical book with an MSRP of M to the distributors at .4M (60% discount) most times. You’re often in a setup where you’re also paying some of the costs of getting the product to the distributors, as “must order a minimum of $X in order to get free shipping” deals are common in such transactions. So .4M is your cap. It’s not too much of a stretch to imagine that transactional and transportational costs could reduce that from .4M to something close to 0.325M.

So, conversationally, a good general estimation is that any established publisher that’s in reasonably wide game retail distribution and sells their PDFs on the premiere PDF retailer for games at 50% of the MSRP of the product is, regardless of the format, bringing in gross revenues of about 1/3rd of the MSRP of the physical book.

This should also illustrate why direct sales by the publisher to the customer, without a digital or physical middle-man taking a cut, are still attractive and important.

A PDF sold direct to a customer at 0.5M is going to bring nearly 0.5M to that publisher, which is about a 50% increase in unit sale revenue vs. DriveThru.

And physical items remain the king here: if you sell an item direct to a customer at M, it’s going to bring nearly M to that publisher. Even factoring in unit manufacture costs (which if managed smartly only come to 0.2M at most) you’re in great shape as a publisher making that sale, representing a 100% or greater increase to unit sales revenue.

Kickstarter is chock full of direct sales, which means that publishers get a lot more $ per sale than they normally would, which means they can cover a lot more of their costs and shore up risk factors much better. It just costs the publisher about 0.1M to do that, which still leaves a lot of M for the pub.

Even reward tiers that sell direct to retailers at 0.5M do better for the publisher, leaving him with about 0.45M per sale, which is at least 10-12% better than selling to that retailer through distribution.

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Apr 192016
 

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Apr 012016
 
Harry Overcome FINAL

Totally not his fault. Totally.

The Dresden Files Cooperative Card Game (DFCO) kickstarter is coming in just a few weeks, and I’ve got shipping on my mind, as I always do when another Kickstarter campaign is rolling around. (DFCO’s KS will be the ninth I’ve run.)

One of the shipping models we’ve tried for our prior Kickstarters is to charge no shipping during the Kickstarter campaign, but then bill for it later via BackerKit. (I love BackerKit, particularly because we have a deep enough catalog that we can do pretty well with our add-on sales after the campaign.)

It’s gonna make sense to do that again, here. International shipping is just straight-up gross right now, and bound to get worse over time. (And our game won’t ship until next year in all likelihood… who knows what new horrible rate hikes will occur between now and then?)

We’re looking at a potentially 3-point-something pound package here for the base game, which is functionally identical to an exactly 4-pound package as far as most international shipping rates are concerned. And the US Post Office estimates around $50 to ship a 4-pound package to most places outside of the USA. Fifty! (That’s not an April Fool’s joke. Gods, how I wish it was.) That’s about five times what we want to charge our domestic backers for shipping, and costs more than the game itself ($39.99).

When it comes down to it, time and again, much as I would like to launch our KSes without international options, it’s clear that even with horrifying, face-melting shipping costs, folks outside of the USA still want us to offer the option. It’s never smart to ignore our fans and customers. So that leaves us with the need to figure out how to offer it without sinking our project in the process — effectively hiding failure inside the appearance of success.

(In addition, this far ahead of manufacture, it’s difficult to get a clear read on the product weight. They’d need to make it first, and in order to make it we have to have a funded Kickstarter, so… yeah. What if it turns out to be less than 3 pounds, instead of more than 3? That could be a significant cost break for internationals. Variables, we gots them.)

So, time for some math. Let’s say that to fund a game at about $40,000 (accommodating costs of manufacture, royalties to game designer and licensor, and Kickstarter + payment processing cuts), and the game I’m selling is $40. I’m gonna charge $10 for domestic shipping of that game. (I’m choosing a nice round numbers here to keep the math easy.)

If I could rely on purely domestic backers, I’d add $10,000 to that funding goal. ($10 per shipment x 1000 backers @ $40 each to make that $40k actual needed funds target.)

But if I open things up to international backers, I can’t rely on math so simple and stable. The absolute worst case scenario would be 100% international backing, which is super ludicrously unlikely, but imagine that scenario, imagine that I couldn’t get a rate better than $50 per package, and I charged shipping during the KS. Each International backer would contribute $90, but only $40 of that would actually be covering my intended costs. We’d hit $50k with just 555 backers, but over $27k of that would be shipping costs, and I’d have less than $23k of the $40k I actually need.

More realistically, I’d say that when we do open things up to international backers, we can run as high as 20% in international backers for a campaign. Sometimes it’s a lot smaller, sometimes not. But I’m mostly comfortable using 20% as the ballpark when constructing estimates.

So let’s 80/20 that. If 80% of my backers are domestic, and 20% of them are international, and each is paying $40 for the product plus whatever for the shipping, then I’m looking at 800 domestics, 200 internationals to get the $40k, but I’ll need to set the target at (800 x $10 + 200 x $50 equals) $18k higher to accommodate that scenario. If I’m lucky, by the time we reach a $58k goal, I have only 200 international shipments to worry about. If I’m not, then my 20% estimate was low, and every international backer past that takes money away from the actual project.

(In reality, it’d be more than an $18k boost, because that $18k is also subject to payment processing, Kickstarter fees, etc, so I’d need to pad it out a bit to make sure I’m getting the actual $18k needed for the shipping portion of the bill.)

This all gets a lot cleaner if I can set aside shipping costs for now, and bill them later when my variables are clearer. I’ll also be able to offer my backers the benefit of a few months more of efforts to get those shipping costs lower. (For example, I’ve found a solution for getting DFCO into Canada at just $25 per shipment. Maybe I’ll be able to find some other good methods for getting the games to other locations abroad. That said, please don’t drown me in suggestions here. I’ve heard them before!)

If I don’t have to worry about shipping costs at all my Kickstarter math starts clean and stays clean: $40k goal, $40 buy-in, we’ll bill you an appropriate shipping amount later, hopefully at a rate lower than what we’re currently getting quoted, and international backers won’t distort our funding simply by dint of participating.

On paper it looks pretty good. Reality, as usual, has other ideas. While this is a pretty solid approach for me overall, it does have its pitfalls.

First off is there’s nothing stopping backers from pre-committing the shipping cash as part of their pledge. The problem is, if they do this, while it has the appearance of pushing the project closer to its various funding goals, what it’s actually doing is “hiding failure in success” — if you pledge $80 because you figure you’ll have a $40 shipping bill later, all $80 of that goes towards the funding goal, and it won’t really emerge that what you actually did was move the needle $80 closer to the goal, while only providing $40 of actual funding to the project itself (as opposed to the shipping operation). To head this off for the DFCO KS, I’m going to be explicitly asking people not to engage in this behavior. (If you think this behavior is unlikely, think again; I saw exactly this behavior in prior KS that used the deferred shipping model.) Hopefully they’ll listen and comply, because it really does undermine the entire point of deferring shipping costs to later.

Secondly, there’s a simple reality that many people don’t read closely enough, and this leads to surprise, outrage, and general sticker shock when the deferred shipping charge comes due. Again, this is based in experience. There’s not much I can do about it except communicate the message in as many places as possible, as often as possible, so people keep it in mind, and so when the shipping bill comes due months later they aren’t suddenly infuriated for things going exactly as I said they would. That’s a hell of a hang-time effect, though, and while it didn’t happen a lot the prior times I did this method, it happened enough that I felt a little sour about having used the model. That sour feeling has faded, though, and the rationale for bill-it-later shipping has remained strong, so this simply goes on the list of hurdles I need to make sure we clear.

Bottom line, bill-it-later shipping continues to make sense for us, and with a potentially big project like DFCO we need to use our best-of-breed strategies to make it all work. And hopefully, if we continue to use this model, the potential for sticker shock and undermining backer behaviors will fade due to it becoming a more familiar feature of our campaigns.

Fingers crossed! And stay tuned for the impending Kickstarter campaign. We have some fun reveals in store for the time leading up to the launch, too. Hope to see you there.

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Mar 312016
 

Whuf. So I woke up to this message (excerpt is part of a larger one) in my email. I think it’s worth talking about in public. Here’s what they said, asking for advice, and what I had to say about it.

“I make games that can not sell. But these games are my identity, my signature. It is all I am. But I chose to make games as a means of survival.”

That’s the crux of a problem right there. Well, problems, but I’ll try to unentangle them here.

I’ll start with the last part: “I chose to make games as a means of survival.” — This is not something anyone should do.

By and large, at most scales, games do not sell well enough to be a component of survival. I’d estimate at least 95% of people working in games cannot make a living from the work they do in games. The market simply doesn’t support that kind of income generation unless you’re able to aggregate a lot of smaller revenue streams into a bigger one and that often doesn’t happen at the creative end of things. (Sad fact, creativity is not in short supply. High supply vs. demand means the prices for creativity stay low.)

When I started Evil Hat in 2005, I definitely was not choosing to make games as a means of survival. I had a solid enough financial base already—and a spouse with health coverage and a salary—that as a household we could afford me making that decision. I was paid nothing or nearly nothing for most of the first five years that followed—I simply sunk sweat equity into the company, and took little compensation for that. From what I’ve learned about entrepreneurship, that’s pretty typical. 3-5 years of making nothing or losing money in order to start up a business in the first place. By 2010 I was firmly doing primarily business-work rather than creative-work, and from there on forward to now I’ve continued to. Luckily I’m wired to enjoy business-work, and I’ve been able to focus on publishing, which fits the “aggregate many small streams into a larger one” model nicely. Now, ten years in, I have a salary. A small one relative to what I’ve made in the past. Miniscule if you spread it out to cover the time I spent making nothing.

So, games to survive, games to pay for living — this doesn’t exist except at larger scales. You can’t milk that stone.

Then there’s “these games are my identity”. I understand that feeling — it’s common in the creative temperament. But it’s a dangerous feeling to combine with “and I try to sell these games”. Because “I make games that can not sell” is also a common experience, for one. Not to mention, if I took games out of the equation, and said, “Sell me your identity,” that would probably feel pretty… uncomfortable.  Pairing your identity with a profit motive is a recipe for unhappiness. It positions you to feel every failure — and there are PLENTY of those in games — both in your pocketbook and your heart. At the same time. And that’s simply too much to carry.

My advice? Continue to make games. For yourself. If folks happen to like them enough to give you money for them, that’s great.

But address your need to survive by doing something else that actually makes money. MOST people in games do not actually work in games as a job. The work they do for games is something they do as a sideline, a hobby, something they fit into their spare time when they’re not at their day job. Find something you can do that earns your keep, and break that deathgrip you’ve established between your identity and your wallet. Without some kind of financial support to back up your love of making games, there simply won’t be enough of you left for those games in short order.

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