Case 1 Entrepreneurship

Case 1.1. Move Interactive Introduction The case study revolves around the Varela Brothers, one with adept skills in videogame creation, while the other has an acquired knowledge in management. Coupled with their respective expertise, they started their own business called ‘MoveInteractive’ with the goal of producing ‘Ugo Volt’, a unique conceptual videogame for PC’s and game consoles intended to penetrate the international market. Such a feat was the first of its kind in Portugal, making MoveInteractive the first videogame company in the country. Being a company under sole proprietorship, initially the business was funded using their family’s resources and a grant from the Madeira Government. With this, they were able to acquire new technologies to produce the game’s first demo. The launch of the first demo received positive reactions which catalyzed the production of the second demo. However, their technology was outdated and needed to be replaced in order to recapture the market. They opened a subdivision within their company which handles multimedia projects to help fund their game development, but it wasn’t enough. The brothers then, acquired the extra resources from venture capitalists and successfully recaptured the market with a new demo. Entering the second phase of development, the game was denied the required funding and they were asked to dismiss their employees to which they inevitably did. Due to the limited resources, the project was put on hold and other projects were ongoing to keep the company alive. Establishing agreements with other companies for funding was unsuccessful due to the small number of employees. Hence, the struggle continues. How important is technology for high tech start-ups? For high tech start-ups, technology is the most important element. The better the technology you have, the higher the quality and environment of the start-up. In any high tech start-ups, technology can give you the information about the target market. Besides, for high tech start-ups the technology is the most important thing to compete with other high tech company. Especially, in the game market, the high tech is the key determinant factor for the customer to choose the game they will play. In some special cases the technology will be minimal such as flappy bird, but this is just a black swarm (the thing with a very low chance of happening) so we won’t count them here. In the case of Ugo Volt, this game was produced for PC, or other high tech consoles of its time. All of them represent a huge market. However, this game is identified as a bad copy of Creed Assassins as they both possess similar qualities in terms of their concepts. Storyline aside, we can see that their game engines differ in technology, whereby Ugo Volt’s is much more outdated as compared to Creed Assassins – a game with the same gameplay and time of release. A better game engine enables better graphics and achieves them in a faster time. So as the failure of the Ugo Volt, we can learn that in the high tech start-ups, the technology is the most important element to join in the high tech market. Besides, with the high technology, you can easily manage your product and your company as well as help to compare yourself to your competitors. After getting the technology, you can easily choose your market segment to target on. Hence, in the game industry, high-tech start-ups are the utmost important. Was money the key to success? What other options could they consider to develop the project? Even though, Roberto and Rogerio Varela put their effort to develop the project with different ways including entrepreneurship awards, financial subvention, establishing a multimedia department, investment in venture capital and finding new partners and investors, unfortunately, their efforts couldn’t generate returns from the Ugo Volt project. In our opinion, we suggest to consider other options to getting funding and remain organized as a limited partnership corporation for develop the project. Firstly, the founder should increase contribution of their personal fund as internal funding. If the founder is not enough personal funds, founder should put more effort and value of time by founder as sweat equity in this project. Others way are founder need to minimize the expenses by pursuing cost cutting and money saving tactic. For example: minimize personal expense, coordinate purchase and sharing office space or employee with other businesses. Next, Founder also can raise fund through asking their friends and family for new ventures. In this way of raise fund, founder need to fulfill the requirement about to disclose all the potential risk involved of project to their just like would to deal with banker and investors. The loan agreement between company and friends and family should prepare the promissory note with repayment schedule and need should be signed by both parties. The assurance of agreement will set as safeguard to both parties and cut down all the misunderstanding. Lastly, the business was invested in using the venture capital institution to avoid bankruptcy. This risky investment will not successful in high percentages so founder need to find others option to raise fund such as sale- leaseback equipment. The advantages of sale-leaseback are immediate receive cash today from the sales, shift the risk of equipment ownership and tax deduction but the disadvantages is the loss the ownership of equipment and need to make periodic lease payment to lessor. In conclusion, we hopeful this above options will help the project continue develop in future. Should they keep trying? Before making a decision on whether to stop or continue the project, we first have to apply a feasibility analysis to determine whether Ugo Volt is a viable or impractical project. In respect of product feasibility, Ugo Volt basically meets the public’s expectations as it received positive feedbacks from the first demo and successfully attracted the publisher’s attention during the first phase of production. However, they presented poor performance while conducting the second demo due to financial and human resource limitations. Without financial support, Moveinteractive got into serious technological difficulties and insufficient resources which resulted in taking a longer time to complete the demo, thus, led to poor organizational feasibility. Also, it is unlikely to collect €2.2 million to proceed their project in the market for proprietorship (Kaiser, 2012). In short, most of the dilemmas in Moveinteractive are caused by financial inability. Ugo Volt is actually a highly profitable project since its concept was well accepted and was impressive to publishers. As long as financial problems could be solved, they can fix their outdated technological problems. The Varela brothers should keep trying with consideration of opportunity cost. They are almost successful to bring Ugo Volt into the market, if they give up, they will waste their previous efforts. Personally, the brothers should not give up this profitable project even though they have failed many times. Alternatively, they should change their strategy to overcome current problems. There are some factors which cause them to stop Ugo Volt project temporarily. As proprietorship, it is likely improbable to collect €2.2 million huge amount of fund to finance project. Also, in the beginning business, they have no well credit worthiness to get large loans from any financial institutions. Despite they were struggling hard to seek financial support, it did not work out at all. If they continuously try on it, they would waste time and resources and ultimately make substantial loss in business. Moreover, changing in company structure and lack of employees are the threats in developing this project. A successful entrepreneur is able to go through countless failures, however, instead of sticking onto the current strategy, they may try in alternative solutions. Ideally, they can raise fund by generating profit in running other lower cost projects with existing resources. It could increase Moveinteractive’s popularity gradually in videogame industry and good reputation can assist them to get loans easily from financial institutions to continue Ugo Volt. Termination of Ugo Volt project may have certain risks, but high risks may bring higher returns. For example, they may discover better ideas in modifying Ugo Volt while running other small projects. This could improve Ugo Volt into more innovative and proactive product. All in all, raising fund by running small projects, then only continue in Ugo Volt is a preferable way for Moveinteractive. What Could They Have Done Differently? The key fault in their failure, was the insufficient monetary funds. A large project requires a large amount of capital. However, acquiring such a large capital pool is difficult for a sole proprietorship as business lenders are subject to high risks upon investing, and thus choose not to according to Gitman and McDaniel (2008). This is due to the fact that a sole proprietorship faces unlimited liability, hence their business assets are left unprotected. According to the case study, this situation applies for the Valera brothers when DDM rejected their agreement to fund them and the venture capitalists withdrew their resources. Besides that, a sole proprietorship is limited to only a small number of options to raise their capital. Usually, by personal funding or through friends and family. With that point in mind, the Valera brothers should have incorporated their business. A corporation can issue stock over a stock market under many different classes to cater to many classes of investors as suggested by Allen (2012). Hence, acquiring capital for developing Ugo Volt would have been easier. Many game developing companies in the world are incorporated, for example Electronic Arts Inc that is known for Fifa games and Activision Blizzard which is popular for Call of Duty. On another note, reducing the number of employees was also another wrong move. Due to this, development of the project was jeopardized and also caused them to lose the deal with DDM for extra funding. MoveInteractive’s main assets are the people within the organization, instead of relying on the funding from venture capitalists, they could have continued to do small projects and slowly build up their company with their existing employees. A totally different approach however, the business could have ventured into upcoming game markets as a side project. During that time period, smartphones were already in testing. The brothers could have invested into making Android or iOS games which are both inexpensive and have high potential for profit. Take for example the game ‘Flappy Bird’, which became an overnight sensation and easily profited millions. Other than that, they could have gone into software developing in terms of 3D animation. Editing softwares were highly sought after during that time. Conclusion Conclusively, possessing entrepreneurial qualities does not necessarily equate to a successful project. A huge deciding factor in this is money and not being able to acquire what caused the downfall of MoveInteractive. With money, they could have acquired the technology and human resources needed to produce the project, possibly reducing production time as well. Besides this, many other factors could hinder such success such as poor decisions and an unfavorable market or environment. An example of the poor decisions made was by relying solely on investments from venture capitalists which are known to be risky. Relying on them has caused the business to go into a complete standstill when funding stopped and without a stable income the company could have gone into bankruptcy. In addition, an unfavorable market for the brothers is also the cause of the projects failure. Being the only game company in Portugal makes banks weary on providing bank loans to the company. Hence, this led to the downfall of the company. The Varela brothers could have been successful, but their lack of experience in business management surely were the main reasons for their loss. Should wiser decisions been made, the company could have been one of the companies we would see headlining the gaming industry with ‘Ugo Volt’. References Kaiser, U. (2012). A Primer in Entrepreneur. [Online]. Retrieved on 12 July 2014 from http://www.business.uzh.ch/professorships/entrepreneurship/teaching/past/hs12/primer/Lecture3APrimer.pdf