If anyone ever doubted the level to which I’m a KSP fan or questions just how anxiously I’ve been chomping at the bit to check out Kerbal Space Program 2, you haven’t been reading my articles. I am a huge fan of the series, not just as maybe the best game to originate from Latin America, but as a phenomenal tool for teaching kids problem-solving, basic orbital mechanics, physics, design, logic, problem solving… That list just goes on ad infinum, and still the most important lesson kids can learn from KSP is how to embrace failure as a necessary step in the path towards success.
I am, with no equivocation at all, a massive fan of this franchise. That’s why I was really frustrated when I’d heard the game had experienced some delays. Even more, I found that irritation increased as I learned that the problem wasn’t technical in nature (which happens and I can forgive) but rather issues related to the business side of things (which I still kind of understand, though I’m a little less tolerant of).
Bloomberg posted an article relating the issues between Take-Two Interactive and the subcontractor they’d hired for KSP2, Star Theory. My problem with the article was that it was relatively hyperbolic about relatively standard corporate practices and made some assumptions based on third-hand information from people who may not really be in a position to actually know. I feel this lack of understanding was underscored by several facts mentioned in the article, but that may not have appeared as relevant to that writer as I’d deem them.
I’d like to take a shot at clarifying a few things today. In part, I’m talking folks off the ledge who might otherwise be inclined to take shots at Take-Two, which I think would hurt both developers and the project. I also feel that some general observations based on my previous experience running a subcontracted company might help with a little perspective. As a business owner and having a strong desire to see Kerbal Space Program 2 get to market, I have some obvious bias to disclose. I don’t really expect that it’ll play much of a factor in how I’m looking at this situation, though.
I can’t help but get excited about that image. There’s every reason to believe the game won’t be that pretty, but I don’t care. A new KSP with new mechanics and updated graphics in any form just gets me crazy excited.
Delay of Game
Obviously, the first issue is that KSP2 is delayed. There’s no getting around that, because Take-Two has publicly stated their new targeted release date is fall of 2021. Not surprising as the team takes a large pivot in switching developers, and then has to make another adjustment to account for the impact of COVID-19.
Super bad timing for all of this to happen back to back, and it’s definitely going to be felt with the game. Technologically-speaking, the impact may not be that big of a deal, as the team would have been using some form of version control. There’s nearly always a migration option for any decent version control system, so Take-Two shouldn’t have much of a problem with the code repository. Most of the transition will likely be centered around acquiring systems and the specific software that developers had been working with up to this point, maybe even in getting the same versions.
A fair amount of time and capital will be lost as system engineers try to stand up the environments. Systems and software have updated over the last couple years, and that means there’ll be version conflicts and problems as Take-Two attempts to rebuild the dev environment using newer resources or reverting to older ones when they run into problems. This is a significant time-sink, and KSP2 will pick up nearly all it’s delay in relation to this process.
I would have expected the total delay incurred from swapping studios, standing up a new environment, and backfilling newly vacant positions to take anywhere from one to three months, and since Take-Two had already wanted to make some changes requiring additional development time, it’s easy to see this delay shaping up into something closer to a year. Factor in the impact of the virus on the situation, and a year might even be aggressive.
False Start
Of course, the real question comes down to this controversy between Star Theory and Take-Two Interactive. The Bloomberg piece makes it out like Take-Two ambushed the smaller company and stripped them for parts in following some sort of Suits-esque hostile takeover. If you had pictures in your head of glass-walled boardrooms with insidious big-city lawyers steamrolling a small company into giving up a property because their own version of Tommy Boy never showed up to save the day, you’re probably wrong. Not that there won’t be some similarities, but only so much as to be misrepresentative of what probably happened.
Bloomberg calls the tactics employed by Take-Two as extreme. I’d say they’re rather typical and pretty obvious from what we know of the situation. While we don’t know a lot for sure, the article even hints at some critical information that gives us a fairly good idea about a couple key facts.
Star Theory has a decent resume and it would have been even better after KSP2, but without enough runway to get to the next project once this one was over, they may not have survived anyway.
First, Star Theory was not in good shape at all. They were drawing revenue from only one source at the time all this went down, and that was the contract with Take-Two. In fact, Star Theory had become a services-based company whether they wanted to think of it that way or not, and that’s something I know a lot about. Most of my own contracts have been of a similar nature. You effectively own nothing and are just involved to provide a specific service over time.
There are two ways these contracts tend to be negotiated. One is Firm Fixed Price where you agree to accomplish a specific set of objectives for a finite price. The other goes by a lot of names, but the one I’ve seen most often is Cost-Plus. This is the cost of the activity, plus a fee. Often these can be the most lucrative because they can be cheaper for the purchaser to enter into and then scaled up as the contractor demonstrates competence and value.
It sounds like Star Theory had entered into a Firm Fixed Price contract, or some version of it, in which they agreed to provide some period of development for a certain amount of capital and probably some revenue share of the game or royalties. As they neared the end of that period, Take-Two wanted to change a few things and began negotiations to extend that effort for some level of fee.
Granted, the math is a lot more difficult, but the short of it is that this is a relatively simple transaction, especially if you have no other work lined up that you have to negotiate around. You know what your costs are, you estimate the level of effort required to execute, add in some fee as profit for the company, and you have a number. That’s the number you need to execute, and that number can vary a little, but probably not by much.
Unnecessary Roughness
I suspect the sticking point was a share of royalties. When Star Theory came on board, it probably wasn’t clear to Take-Two how well Kerbal Space Program 2 could do in the market, so the royalty conversation was negotiated under a different set of expectations the first time. The second time, I suspect Take-Two felt they were just negotiating for a little more development effort and Star Theory felt otherwise.
At some point, ownership of Star Theory was thrown onto the table, and I believe that’s where the critical mistake was made. Rather than a nefarious plot by a large corporation, I believe Star Theory likely failed due to a simple mistake by their corporate leadership. They overestimated their value to their customer and they failed to understand their market value in general as a company. If your company has no revenue other than a single contract, your value in the market once that contract is over is basically $0. In reality, they were worth more than that because they have assets and had employees that could have been transitioned much more easily via acquisition, but… not by much.
One of the hardest things in the world is to get air via a short-term contract or extension and not blow it up through aggressive negotiation. When you’re desperate to survive, it’s incredibly hard to not fight for every cent. Sometimes you can negotiate your way out of a contract like that, though.
The moment that purchase of the company was raised as a viable option, Star Theory gave up all their leverage. They would have had to disclose that they had no pending contracts, and that told Take-Two everything they needed to know. The value of Star Theory at that point was the net value of whatever royalties had already been exchanged, physical assets, and people. In the tally, it was a number that wouldn’t have been very high.
In the end, I think Bob Berry and Jonathan Mavor negotiated themselves out of a contract, and a contract that they desperately needed. The company was dying anyway, and they were just trying to get enough runway that they could survive to the next project, but that’s not a viable model for a company. They were months from completing work on the contract they had and they didn’t have anything else lined up once that effort was complete, which we know because that was directly stated as part of their desperate bid for interest at the Games Developer Conference.
The fact is, I empathize with these guys greatly. I’ve been there. I’ve had to let people go while I tried to live just a little longer until I can get that next contract, and it feels absolutely terrible. If you’ve never been in that situation, words just can’t express the fear and the self-recrimination you feel as a business owner for letting your people down as you fail. It’s a definitive element of entrepreneurism that every one of us has to go through, and you go through it knowing that 95% of small businesses go under and there’s a strong probability that it’s you in that moment. It’s not an idle fear, and that makes it worse.
Star Theory failed in a very important way, though. Business development is the lifeblood of a small business. It’s not easy and it takes a special type of person, usually one you have to hire, from outside to take that part on. Working one contract at a time means you’re missing that piece, and that’s a huge risk if you don’t fix it. Star Theory failed in that aspect of business, and thus when times turned on them, they ceased to exist.
As I said, I feel for the guys that had to go through that, and especially the employees who are having to struggle to make ends meet in probably the worse period to do so in a century or more. At the same time, this risk is just part of being an entrepreneur. It’s the side most people don’t think about, but this is what being a business owner is really like. Yes, you can make a lot of money, but that extraordinary risk of losing everything is very real, too. It’s a high-risk/high-reward system, and that’s why it’s important to constantly be evaluating values. Had they stopped to really consider their value to the customer on this project and their realistic value as a company, that evaluation could have warned Berry and Mavor that they were making a mistake, I think.
Illegal Contact
You might be wondering about the LinkedIn message, though. I debated on even mentioning this, but I’ll wrap the article up by discussing it very shortly. Some folks might hear that employees of Star Theory started getting messages via LinkedIn where Take-Two was seeking to hire them. I expect many feel this was underhanded and possibly involved some sort of inside information, but neither is likely true.
For one, as anyone using LinkedIn knows, a look at any company will reveal a list of all employees working there (all who have registered, in any case). This is a common recruiting tool, and one I’ve used myself. If I know a contract that another company has been working is coming at an end and I have open positions on one of my own contracts, I’ll often take a look through their employees for anyone I’d like to hire. Like the video game industry, my industry is small and I often specifically target people I know are higher quality.
For another, larger companies typically hire recruiting services to help them fill gaps, especially when taking on new work where a larger staff-up is required. These recruiting services do precisely the same thing. They look for companies doing the same sort of work and target employees at those companies via LinkedIn and other similar sites. If they have information that a specific company is having trouble, they’ll even be more aggressive about it.
So many companies fail to launch, and then others explode before they even get out of the atmosphere. Sometimes it’s a design problem, sometimes pilot error. KSP has a lot to teach us about business, now that I think about it.
There’s nothing nefarious about it, but there’s both a reason for why Star Theory would have tried to talk the process down and also why we should all be glad that practice exists. On the one hand, Star Theory was trying to maintain their negotiating leverage, and that’s really hard to do if a sizable portion of your workforce gets picked up by the opposition. Obviously, they don’t want that and would try to discourage their employees from “falling” for it.
At the same time, it’s a very important process that’s actually good for the employee and one that you should know about. It is through this process that several developers remained employed despite the economic downturn. In some cases, folks may have even gotten raises by moving early. They brought value to the gaining company by helping them ensure some continuity as a worst case, and thus were paid in consideration for that value.
Like most things in life, business is a mixed bag. Also, as in most things in life, a better understanding of the risks and a little planning not only mitigate disaster but even yield dividends when chance meets preparedness. These things often seem to be cruel, but as most things in nature, it’s just a mechanical process that really has little emotional connection at all. I know that seems a little mean in some sense, but it’s important because understanding that will help you to not make similar mistakes.
With people and business, understand your value to your customer. That’s the only value that really matters. If you’re asking for more than that value, you’re at risk of not getting the contract or of losing the contract when costs need to be trimmed. If you’re getting less, your management may worry about losing you to a competitor and eliminate the risk on their own schedule by terminating the contract. If on the other hand, you provide value equal to the customer equal to the degree with which you’re paid, you will very likely never struggle for a contract. Need virtually always out-paces demand, the trick is understanding the value of that need and positioning yourself to capitalize on it.
I hope that helps, but feel free to ask questions below. I’ll answer as best I’m able. More importantly, don’t hold the drama of this situation against Kerbal Space Program 2. It’s possible that it’s the Wyld Stallyns of our time and could herald a period of world peace. Let’s not mess this up.
