Lessons from Esports Start-ups: Part 1

During my nine years in esports, I’ve worked for over 13 esports startups across six titles and alongside nine national work cultures. I’ve experienced a lot of personal successes, professional failures and lessons. Although the products and services we have put out had a varied probability of success, I often found that there were lingering issues or concerns that ended up deeply plaguing the company and the members involved.

Within this two-part series, I will draw upon my experiences to highlight common mis-steps startups approach esports, their businesses and some common pitfalls in their operations that ultimately lead to their downfall. This article will be more anecdotal and qualitative than quantitative. It goes without saying that what I may say is true for the businesses I worked with but may not be applicable to all current, past or future businesses. It’s recommended you take the lessons and advice listed here and critically think about how they apply (or not) to your work and experiences.

Funding issues is just the consequence

For the majority of the start-ups I’ve been a part of, funding have become the most frequent reasoning for the closing a company. But when I mention ‘funding issues’, that is merely a consequence of a manifested problem within the company and within expectations of all parties involved. Funding slows can occur for a variety of reasons, some at the uneasiness of the investor or because internal issues within the company show signs of weakness that do not spell ‘success’ in the longer run. That ‘longer run’ is what everyone is banking on for esports.

I often found that assessing the right investor for your start-up is as much as a dictation of your success as conveying the right level of expectations to that investor. Ranging from investments as small as X00,000+ to X0+ million, Here are some company issues I’ve encountered over the years:

Though impressively built, the ambitions of this invested esports studio was jumping ahead of its ability to deliver expectations equal to its investments. Its production quality was immense but its audience reach was poor.
  1. Invested at over 8 figures ($X0,000,000), this company (2013-2014) took over a year to establish its basis, set-up initial staffing and launch the company. 3 months later, the company faced funding issues
    • The company had a monthly burn-rate of about 2 million a month
    • The investor agree to future funding (8 figures), but made drip-payments of 2-3 million a month
    • The company closed and failed to pay its remaining employees for 4 consecutive months
  2. Invested at 7 figures ($X,000,000), this Nordic publishing corporation (2015-2016) looked to expand its current magazine business to new audiences (international millenials) and platforms (digital)
    • 9 months to launch, 4 months live before the corporation got scared and abandoned all relevant projects
    • the investor, though a stable corporation, did not anticipate potential costs and issues that come from adjusting a start-up to newly-learned aspects of the market
    • start-up brand made concessions in respect to what the corporation understood as a functioning business, but did not acclimate it to its new audience reach (international) nor current purchasing trends (free, daily, accessible – different from subscription models)
  3. Invested at 6 figures ($X00,000), this medium-sized accelerated start-up (2012-2013) looked to compete with established online league and match-making services like CEVO and ESEA. After several months, it failed to launch a working product that matched what it was heavily advertising and paying influencers to promote
    • after 6 months to prepare, it shuttered after a 1 month launch
    • heavy dependency on business development & marketing to compensate for the lack of product development
    • blew through initial investment without appropriately budgeting what’s most important prior and post-launch

It goes without saying that the issues I’ll be elaborating on aren’t the only problems these start-ups faced. Having said that, they have taught me key things when it comes to navigating this industry, mainly: investor expectations, execution of the product/service and sensible budgeting.

Investor Expectations 

All three example companies have faced a misaligned investor expectation versus actual company results and development. For #1, the investor expected a slower burn-rate, better results for potential ROI in view of the spending. For #2, the investor expected immediate success and revenue but were not ready to pivot their start-up product to further adapt to market trends. Finally for #3, the investor expected a functioning product with their current investment but poor product development halted reaching an adequate launch-time. Regardless of the level of investment, being honest about the challenges of launching an esports product/service before-hand, let alone growing it to potential revenue within a reasonable timeline, plays a heavy factor in not only receiving appropriate funding for your start-up but also justifying further investment and support down the line.

As esports goes through its growing pains, a lot more capital will be pumped in sometimes irresponsibly or, perhaps, to irresponsible ideas.

In addition, by not informing your investor with the proper expectation of ROI you are starting a relationship on miscommunication and misleading information which can hurt your credibility overtime should you fail to immediately succeed (and with most esports start-ups, your ‘success’ is lukewarm at best for the first 2 years).

Frankly speaking, this aspect requires the start-up leader to be accountable and responsible. For many years, it has felt that many start-up ideas in esports have started up because both parties wanted to get in on esports, without being reasonable on their approach or actual possibility of making a return.

Product/Service Execution

In all our examples, the concept behind these start-ups had validity but their execution was another challenge and often times, the ability to pivot makes or break these companies. For start-ups #1 and #2, their initial ideas were bold, albeit flawed, but their inability to pivot heavily determined their downfall.

For example #1, the initial idea had merit: connecting and empowering regional brands into an international cooperation and to signal that cooperation via a media studio megaphone and end-of-year convention with very high prize-pools (7 figures). The concept has a very sound viability but it’s based on initial success rather than its delivery. In other words, all parts of its tentative product needs to work for the rest of its components to succeed. Should the cooperation fail, the studio would be a heavy waste of money.

In example #1, the cooperation did not go as planned and the pivoting towards its studio megaphone execution was now even more important to achieve. The spending for the studio and now its heavy pressure to make a return proved an irreversible mistake that led to the company’s downfall. With it, it brought down two other associated start-ups (agency & live-streaming platform) and highlighted their own individual issues and challenges. With a shaky investor, a myriad of problems and poor pivoting – the companies and its members mostly dissolved.

For example #2, the product was a monthly digital magazine, something the investing corporation was familiar with in their regional market and demographic. In their testing, the concept of a magazine was very interesting for users and good feedback was given. The price-point and approach, however, was not reasonable as the product was seeking subscriptions (like their physical magazines) in a time where media, games and content were all free and accessible. The publishing company had learned what most corporations were learning for the past 20+ years: that digital media was the future and it was free (with advertising). They pivoted but did not have the human nor financial resources to maintain a quality that was set with their monthly digital magazine platform.

Very few esports start-ups brands have pivoted and succeeded. Vulcan has pivoted to their acquired brand: StreamLabs (then TwitchAlerts) and Unikrn is trying to stay in esports fantasy betting using their cryptocurrency: Unikoin Gold. For a lot of current brands, success in your initial idea is key before you can ‘pivot’ (e.g: expanding). Starting with a modest, singular and sound idea before trying to do more or other aspects of your business can mean tempering expectations from your investors, giving a clear vision for your team, brand and audience and ultimately reaching a unified goal rather than reaching minor steps to a larger objective

Vulcun’s acquisition and pivot with TwitchAlerts (now StreamLabs) is one of the few esports start-up companies that initially failed to capture an esports market but transitioned to an essential part of an even larger marketing: gaming livestreams

Sensible Budgeting

In esports, there’s often a misinterpretation that the more money a start-up raises, the more it is a success (or will be). For a lot of businesses receiving new funding, there is a perceived success that will come in the future and that company has a strong footing to be part of that success. That said, I’ve been part of a lot of businesses with many ranges of initial investment (from 8 figures to as low as 5 figures) and their investments have been with two expectations: 1. that the start-up will establish an initial success that will justify further investment to maintain presence and financial stability and 2. that the start-up will sensibly budget their company as a foundation for that ‘over-the-horizon’ success.

In part 2, I will talk about infrastructure, expansion and leadership but the amount of start-ups that overpay their executives, underpay trying to recruit expert staff and over-shoot their goals is very high. The viability of your start-up heavily depends on the timing of your entry into esports, the amount of investment you receive relative to your goals and how you wisely spend that amount. In example #1 (8-figure investment), the amount of investment received was incredibly high but the mis-spending of it was also incredibly high. Similarly, in example #3 (6-figure investment), the amount of staff hired that were not relevant to the product development also highlights poor budgeting (since the product never finished in-time for launch).

In short, be reasonable in your budgeting to ensure the viability of your start-up both for the long-term and in emphasizing your immediate goals towards launch and post-launch depending on your situation.

PS: After reading this article, you may think I’m an idiot or fool-hardy for being involved in so many start-ups that either fail to-go-to-market or faced so many obvious issues that current established companies have never faced (or have easily overcame). In retrospect, I can understand this perspective, however the precautions I personally took then and the contract advantages I negotiated to mitigate personal financial instability helped immensely. I may elaborate on this in future pieces.

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