Welcome to Jester's Trek.
I'm your host, Jester. I've been an EVE Online player for about six years. One of my four mains is Ripard Teg, pictured at left. Sadly, I've succumbed to "bittervet" disease, but I'm wandering the New Eden landscape (and from time to time, the MMO landscape) in search of a cure.
You can follow along, if you want...

Thursday, October 20, 2011

Burn rate

OK.  Let's talk about those lay-offs.  I'm going to do this in two posts, one today and one tomorrow.  As I do when I write these kinds of posts sometimes, I'm going to write a post from the CCP perspective, and then a second one from the EVE player perspective.

This is the first.  So again, for the cheap seats: this post is written from the CCP perspective.  Come back tomorrow for the EVE player perspective.

Man... this post is going to get me yelled at.  And fair warning, it's going to be long.  OK, here goes.  Let's start with some background.

Back in June, when I wrote my Realities of EVE post, I delved into some of the financial issues surrounding a privately-held company answerable to investors.  But really, I didn't take that post far enough, and I'm going to do that now.

When you own a privately-held company, you own it.  It's essentially a piece of property, no different from your car.  There are people out there raging right now that someone should "fire Hilmar" or "replace Hilmar", which is ridiculous.  It would be like me saying that you should be fired as the driver of your car because I don't like how you drive it.  If you're not doing something patently illegal, guess what: that ain't gonna happen.  But maybe the bank owns your car, so to a certain extent, you're answerable to the bank.

And that's how privately-held companies work, generally: there are investors.  Here's a hard truth: the only person to whom Hilmar is accountable is his investors.  Not you, as an EVE player.  You may be a customer, and sure, that's important... but at the C-suite level(1), it's a secondary consideration, not a primary one.  On a quarter-to-quarter basis, Hilmar has to do what his investors want, or he doesn't have a company and how many customers he has doesn't matter.  No matter how organized EVE players think you are, you're not as organized as people giving Hilmar 12 million USD for two years.

CCP is a profitable company, and EVE is the source of that profit.  However, EVE does not produce enough of a profit to allow CCP to invest in new products.  Here's something you know, but you don't think about: video game development is freakin' expensive.  That leaves CCP vulnerable to situations that could cause their single and only product... and therefore, their single and only source of income to fail.  And if that happens, 600 families all lose their livelihoods.  As a C-suite level manager, you are being irresponsible if you allow that to happen.  CCP had to expand into a new market to protect those families.  Relying on a single product is business suicide.

That's why they needed investors, and a loan.  That 12 million USD was an investment in the projects that would allow CCP to have a second product, and a second source of income to support those 600 families.  The loan came with a caveat: it had to be paid off in two years.  This sets up a structure that in business is called your "burn rate": how fast are you consuming the capital of a loan on your projects, relative to the amount of time before that loan has to be paid off?  In my post in June, I said:
...my first impression is that they're burning through cash at a slightly faster rate than the 12 million USD two-year loan should allow them to, indicating this pattern is not sustainable even if they got an extension.

A closer examination of the financials in that June statement confirmed it: CCP had a burn rate of between 7 and 8.5 million USD per year.  They needed to be at 6: 12 million USD over two years.  Therefore, they were burning cash higher than the rate supportable by the loan.  Therefore, what they were doing was not sustainable unless that investment started returning a profit before the two years were over.

That, obviously, did not happen.  DUST isn't out yet.  WoD isn't out yet.  Therefore, they were going to be in trouble when that loan came due.  Instead of trying to develop a second product, they tried to develop a second and a third product at the same time.

That made what happened yesterday at CCP inevitable.  Hilmar had to show his investors that he was serious about making his business sustainable.  In the longer term, CCP could repay that loan.  But the ability to repay the loan isn't what this was about.  This was about demonstrating that CCP had a sustainable business model that could fit within their burn rate and maintain liquidity.  DUST still isn't out, which means that Hilmar needed to have that liquidity loan renewed by his investors.  And that meant that he had to show his investors that he was serious about fitting his business within the burn rate for the next two years.

That meant cutting costs, and the only significant costs CCP has are its work force.  And that's why you have lay-offs.  They're not easy and they're not fun.  I am not a C-suite executive myself, but I'm close enough to that level that I have a lot of sympathy for execs put into this situation.  After yesterday was over, Hilmar tweeted that he'd had a hard day.  Pretty much everyone ignored him, but I did not.

Make no mistake: sometimes, surviving a lay-off is harder than being hit by one. And sometimes, firing hundreds of people is harder than losing a job yourself.

This, incidentally, is why people talking about pay cuts for C-suite executives also don't get it.  Look, I get the impetus that makes people think this.  But when C-suite execs hear people say such things, they (correctly) dismiss them.  When you're at that level, you have the responsibility for the well-being of hundreds or thousands of families, collectively making tens or hundreds of millions of dollars per year.  A few tens of thousands of dollars taken from a executive's salary might be a nice symbolic gesture, but symbolic is all it is.  And such a gesture increases the stress on people who have to keep their eye on the well-being of the hundreds of families that didn't lose their livelihoods.

So if you're tempted to write such things, really: don't waste your time.  You will find your other, valid opinions being dismissed if you introduce this thought among them.

Yeah, you're probably mad at me.  I'm sorry.  Stay with me.  Because I'm really going to make you mad now.

So, here we are, in a situation where the investors demand a sustainable business model.  You have to cut costs.  Either your investors or you yourself set that number at 20%.  That's a horribly high number, but it's necessary: CCP has been burning cash at a non-sustainable rate.  They bit off more than they could chew, and that's an undeniable management mistake.  But now it's time to save the business.  By cutting 20%, you save the jobs of the other 80%.  Now, who do you cut?

Say you weigh 220 pounds.  You have to cut 20% of your body weight.  Where do you start?  I'll even give you a freebie: say your ideal weight is 190.  That's 30 pounds of fat you get for free.  Still, there's 14 pounds to go.  Where are you going to cut?  Sure, you can cut things like hair, and that's easy... but not particularly weighty.  Sooner or later, you're going to have to start cutting important things... even vital things.

Here's another horrible truth: when a business starts to cut, the jobs that are probably going to be safe are the ones that bring in money.  Bringing in money a) is what a business is about, and b) will allow the business to survive to bring some of those cut jobs back.  If I am a sorceror and I tell you that I'm going to magically remove 44 pounds from your 220 pound body, but you can have some of them magically back if you can run a mile to pick them up, is that going to change your decisions about what to cut?  I'll bet it will.  You're going to make sure you save legs and lungs and heart... and at least one arm.

But you might sacrifice the other arm... hoping to get it back.

Want to survive a lay-off yourself?  Make sure you're in a job that brings money into the business.  It's not a guarantee, but it's a better position to be in than the alternative.

Given that, is it particularly surprising some of the cuts that we're hearing about within CCP?  Community Managers and DBAs and even security people provide extremely valuable services, this is true.  I am not dismissing the losses of their jobs in the slightest.  Please do not think that I am.

But if you have to cut... if you must cut for the business to survive... these are better choices than game developers and artists.

Yes, even NeX artists.  NeX artists bring in money.

If you're not completely disgusted with my take on this topic yet, come back tomorrow and I'll try to make it up to you.  I'll have more to say about this topic, this time from the EVE player's perspective.  In particular, I'll do my best to look at the loss of what looks like virtually the entire Community Management organization.


(1) "C-suite" refers to company executives that usually have a "C" at the front of their title: Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, et cetera.

50 comments:

  1. It wouldn't be fair to dismiss anything said here out of hand, and honestly, I can't find any reason to be mad about your perspective offered. I can't vouch for its accuracy or inaccuracy, but it is interesting.

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  2. You're not allowed to speak logically from the point of view of a business, and you're not allowed to speak actual facts regarding business. You've just been labeled a 1% apologizer. A band of ruffians with rope and torches has just been dispatched to deal with you.

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  3. I agree with the perspective that cutting 20% to save 80% is very worthwhile, however, it is equally important in my opinion that high level management accept cuts, mostly for a morale issue. If the people at ground level see the exec's being down to earth it will motivate people, otherwise, it just looks like they are just out to line their pockets which is de-moralising and thus will mean the business as a whole is less likely to thrive.

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  4. I'm sure there will be people that yell at you for this blog post.
    But personally I think you did a great job of talking about it clearly and rationally.
    Lots of hard truths in there. It may suck that the community team got cut, but the *game* will be healthier with more feature creation staff.

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  5. Simplifying things (perhaps grossly) but which would I prefer :

    - Less devs/artists, but an army to tell me all about what isn't being added to the game.

    - Lots added to the game, but I don't really hear about it until patch notes.

    Hmmm... not a tough call from my position.

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  6. You could have taken the side of the eve-o forum idiots who are blaming the CSM for the layoffs.

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  7. While CCP isn't the first company in the world to make the kind of mistakes that led to the current circumstances, it IS frustrating that with hindsight it all seems to have been so avoidable--particularly in light of warning statements made repeatedly over the years by players with business, financing, and gaming industry savvy.

    But water over the bridge. In the here and now, it is impossible to argue the logic of your numbers. However, it goes a long way symbolically when top execs step up to share the burden by reducing their own salaries and bonuses during hard times. Every little bit helps. If they need to cut the burn rate by 3.5 million annually (based on your numbers), they could save a few jobs by agreeing to take on 10% of that burden themselves through salary and bonus cuts. I don't really care too much about any "added stress" this puts them under, considering it was their faulty decision making that put the ship in the wrong waters to begin with.

    Am looking forward to your players' perspective post on this topic. As always, your posts are intelligent, insightful, and often force consideration of a perspective that many (myself often included) sometimes prefer to ignore. And no, not mad :) Gonna have to try a lot harder for THAT, dear.

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  8. A business is about making profit, when you make profit, everybody is happy. If you loose some, not a big problem if you can stop the bleeding. It you can't you need to take (drastic) measure to staunch the flow of blood and get better.

    This said, there is perhaps one factor in your story that's underdeveloped and that is the relation the community managers had with the customer base. Many player viewed the laid off CM's as, well, acquaintances I guess. When you take away one well known person out of a group, they'll get over it. Take out a whole group that was well known and loved, the whole group will start to grumble to say the least.

    Lay-offs can be catastrophic if not treated rightly, time will tell if CCP will cope with the upheavel.

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  9. I understand why a company wants to have multiple products and or services.

    I also understand why there are times a company must lay off or otherwise terminate employment with its employees.

    What I have trouble understanding is where CCP is getting its input for the direction it takes.

    Just from an Eve perspective, if customers were actually treated with "the customer is always right" perspective (rather than the customer is wrong unless proven right, and by ___ I'm not going to let that happen) along with taking action from customer feedback -- fix fw, fix low sec, etc., then you would stabilize the Eve base.

    In addition, rather than "invite a friend" being mainly used as a source of abuse by existing subscribers (that's its own story), you would get real fresh blood as people were just ecstatic that CCP valued their customer base.

    A growing customer base of one product shows good business and customer service management skills that can translate in applying those same skills and model to other products and services.

    From my point of view, given CCP's current stance of the customer is an idiot that lies and should just be grateful they can play Eve with what we give them... I would not recommend any product or service CCP delivers.

    BTW, I don't consider myself anti-CCP in terms of I'm not telling people what to do, and actually share I'm grateful when someone I know biomassed comes back -- they changed their mind in time.

    But on the same token, I admit I play Eve mainly because it sucks less than other things out there at the moment (not that it is a better product and certainly not due to the customer service).

    Hopefully CCP can and will turn things around. But that will not start with hogwash apology letters from the CEO unless they are backed by actually change of direction with actions showing customers really matter.

    Thank you.

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  10. I'm gonna be even more contrary than that. The 20%... as customers, it's none of our damned business. Really. It's not. The only thing that should matter is the product we get and whether it's something we are willing to pay for. Maybe for subscription services we should look at whether we'll want to pay in a few months time also.

    That's not to say I don't feel for those that lost their jobs, I do, but it's really none of the players business what goes on inside the company.

    And yeah, execs taking a cut when lay-offs happen is symbolic, but it's a good thing to do, like others have said, for the morale of those left. Honestly, were I an investor looking in and demanding cuts, I would expect the person who is doing the most harm also put their pound of flesh in the pot. Otherwise it looks like you are rewarding incompetence. Now again, whether Hilmar cut his income or not is none of our business.

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  11. You talked about exec pay cuts as a 'symbolic gesture', well why not? CCP is cutting jobs because of Hilmar's (failed) direction. He's willing to hire out some PR to say as much in a blog post, but not willing to shoulder any fiscal responsibility personally?

    You're perfectly right about it being negligible from a business perspective, but (As you acknowledge in your multiple post format) it's not the only perspective.

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  12. Finally a sane voice. Someone that knows about how a company is run. I feel for Hilmar.. its not easy to lay off that many ppl. I've had to fire ppl.. and its one of the worst thing you might have to do if you run a company.

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  13. "This, incidentally, is why people talking about pay cuts for C-suite executives also don't get it."

    You're focussing way too fucking much on money. Yeah you can make the cuts. Yeah, you can make the cash flow a bit more positive. But you've laid off one in five staff. One in five. What do you think that's going to do for morale, and therefore motivation? How are the rest going to feel after this?

    Taking a pay cut isn't about balancing the budget so much as it is to make the pain of job losses a shared one. To make it so that everyone's hurting. Do that, and you've put the problem outside the organisation. Yeah, there's some shit to go through, but you're going to go through it together. If you don't do that, then all you get is people resenting the fact that their buddies got laid off and the manager is still in a Mercedes.

    It's about psychology. And that WILL impact your money flow. Those four out of five guys that remain, they're going to be dusting off their CVs, and then where's the cash flow?

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  14. Great post...feelings are up and down ( as any rational person with an invested interest should expect).

    However it is definately a great thought provoking post...trolls be damned.

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  15. I use to be in sales and worked on commission. If I didn't make my numbers, I didn't get a bonus and my paycheck would be small. When a C-suite executive fails to hit his target or even generate a profit, he always seem to get his full pay and bonus. If, in the rare occasion, he loses his job, he still manages to make out like a bandit with a golden parachute. It is this discrepancy and lack of accountability that makes people angry, and is the foundation for the outrage in the occupy wall street movement.

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  16. Good post, although i violently disagree with one particular conclusion, that it is useless to cut top brass salaries. Sure, its financial impact on the expense side will be negligible. But you also have to consider the potential financial impact on the income side. And if you have customers that have come to view your company as GREEDY, I can promise you that a CEO that continue to cash in millions while laying off his emploees will NOT alter that picture the slightest. In that case income could drop, making it worse. So top brass salary cut - symbolic it may be for the expense side of the equation - could save the company.

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  17. There is something to consider though. CCP has taken several decisions in regards to the loan terms and stipulations which at the time were already demonstrably incompatible with the project requirement assesments.

    CCP as a company has always had an overly heavy focus on "bigger, more" - with a perspective on "better" as a part of that mostly well balanced over time up until roughly four years ago.

    Here's the thing, the job of a CEO is to connect the dots. To be your own stakeholder. To validate your informative and communicative streams and instruments. That is a job which also applies to any specialised executive management in servitude to the company and the interests of customers and investors alike.

    As a company, CCP has failed in its attempt to branch out. For the time being, at least. I do hope however, that in contrast to appearances thusfar the core of CCP will do the hard work in addressing the disease, and not simply the symptoms. Without that, the next crises will encroach on targets set by the effective owners of the company.

    CCP has one golden goose. It is a service model, with its benefits but also its dependancies. And it is rooted in human behaviour. CCP cannot risk either of these. Yet having done so, they can simply not "wing it" again without addressing the disease and merely compensating in excess with focus on symptoms.

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  18. "Yes, even NeX artists. NeX artists bring in money."

    Or do they?

    I spent about an hour in Jita a month ago looking at the vanity items statistics. Doing some rough drafts and looking at how the free aurum affected the trends it seems to me that about 2% of the people spent money on that.

    Let's say each spent an average of one to two plexes? Well, 2% ~ 4% is way less than all the damage done in subscriptions by the NeX + Fearless + letter.

    So don't say that this is earning them money. To be clear, I don't think the problem is the artwork.

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  19. Nex artists quite likely *cost* money once you consider production costs vs reveneue, not bring it in. Furthermore, the community as a whole is unhappy with them - and thus they cost *even more*. Thought I'd point that out.

    -Liang

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  20. You people saying "don't care, take away executive money anyway" for various reasons seem to be living under the impression that an executive that has his salary cut by 25% is going to stay with the company that did it.

    Your natural response to this might be "fuck yeah, they failed, screw em!"

    And that natural response is wrong.

    Hiring and training a new executive is horribly expensive, time-consuming and disruptive to the executive's entire team... AND you lose the dollars you just spent TRAINING that executive not to do something quite as stupid as what they did before in the future.

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  21. Mixed feelings, but as always, well written.

    My disagreement is in the "must have more than one product" argument. Bollocks. If you have a great product and sell it well, that's all you need.

    In some markets where products have finite lifetimes (non-subscription video games are one), then you'll be releasing products in series. As someone else pointed out, EVE is actually a *service* model; you pay to be part of the EVE universe. You don't ever 'own' the game like a shrink-box model.

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  22. *Removed stuff about execs cause we don't agree, and it's a pointless argument*

    On another note though, your post above, and the "Realities of Eve" post, and the events of this year have gotten me wondering if EvE isn't at EOL anyway.

    . CCP needs to make money

    . Investment was for new products, not existing ie: Dust(?)

    . CCP back-burnered EvE to work on Dust/WoD

    . Devs have said the codebase is a nightmare

    . Seems that each new update adds new bugs, most of which aren't being fixed or can't be figured out (which again points to really bad codebase)

    . The 'Gee-we're-really-sorry-really' attitude lately

    . Dust, when launched, will be stand-alone with no connection to EvE what-so-ever (from the devs interviewed at last tournament)

    So, is EvE the albatross around CCP's neck? If Dust starts making money, good money, will Eve be chucked in the bin so they can spin up WoD again? Thoughts?

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  23. @Khalia: would you like a list of at least a hundred companies for which this was not true?

    How about one to start?
    http://en.wikipedia.org/wiki/Digital_Research

    That company OWNED the small-computer OS market for about a decade, with hundreds of thousands of licenses. Then their one product -- which was very, very good -- lost its market. The company very nearly died 18 months later.

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  24. I found this to be educational. I will now "occupy" your blog. ;)

    When I tried to start a gaming company with white papers in hand, the reality of running a business made me think twice about it. It is not easy to walk in those shoes. Leadership is not always easy.

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  25. Well, take it personal if you like, but this is also one of the reasons you (and Hilmar) will never be truly exceptional leaders in business. A handful of community managers are far more valuable to your bottom line than a handful of low- or mid-level developers, or that floating assistant who covers the phones of various departments when the regular receptionist is out.

    When it comes to promoting a product, the most valuable part of that chain is your customer - and your vocal customers are at the top of that chain. Apple has an entire program in place in their retail stores to convert customers to users to promoters - because the greatest amount of growth is caused by positive word-of-mouth. A well-liked promotional team creates an infectious enjoyment and desire to sustain (and grow) a product.

    Truly exceptional leaders will recognize that thinning the raw production ranks is a better choice, because frankly a C++ coder is easier to replace than the face of your company. There is never a good choice, but the difference between a company that survives the hard times and a company that expands out of the hard times is choosing the more valuable but risky road.

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  26. Jester, your arguments that it is unreasonable to expect execs to share the financial burden of cuts fail to convince me. Those at the very top are likely heavily invested in CCP financially and therefore less likely to leave. And even if they did leave, it is possible that changes at the exec management level is the very thing CCP needs.

    As for losing the dollars spent on training the current execs to avoid mistakes, what dollars? Do you believe that is happening? Why? Sure, it is needed. Yet even if they embrace the idea, one has to ask whether entrenched mindsets, habits, and attitudes can be overcome in the necessary timeframes. That is a very big question. There is a lot of risk there.

    It is possible that hiring more competent management could be cheaper, more reliable, and more effective in the long run for CCP. There are plenty of examples of improved corporate performance by other companies that underwent an executive management change. Doing so is not necessarily a net negative as your comments imply.

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  27. Also, to address the multiple products necessity, I agree it is risky for a company to have all its eggs in one basket. However, to branch out and successfully manage multiple, intertwined development efforts would seem to require brilliant technical and fiscal management plus a deep understanding of gaming markets/consumers. How well do you think CCP has those bases covered?

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  28. Very well written mate, very well indeed. You hit the nail on the head.

    I'm going to through you a challenge as I truly think you can do this one. How does CCP recovery from this constantly failing management? How do they fix this?

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  29. There's plenty of companies you could cite that have single-product and do exceedingly well.

    I would do that right now, but I'm actually playing EVE right now. And I've already typed way too much today.

    In any case, you can always pull examples out on either side.

    Perhaps with a bit of clarification, I'm not talking about iterating on successful products - eg, Apple Computer made the original Macintosh and then a better Macintosh. I'm talking about "let's add another entirely unrelated product so we can claim to have diversity to our board of directors."

    EVE Online: Spaceship video game
    World of Darkness: Vampire video game

    Yeah, not the right iteration. I would have been OK with "EVE Online: The RPG". DUST has some potential if they ever can manage to release it. WoD just needs to die.

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  30. @M.Linde: how many hundred people are you responsible for the livelihoods of? And/or what evidence do you base your first two sentences on?

    @Mynxee: same question. ;-) In my experience, in a privately-held company, past the first layer of management, there isn't a lot of financial investment in the senior management. And I don't dispute that CCP could probably use some new blood at the top. I question whether they can AFFORD it. True pro managers are expensive, both to recruit and to retain.

    The money spent training the current generation of senior managers at CCP will be quite visible on their balance sheets for this year, I assure you. I'll speak more in detail about that tomorrow.

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  31. @Jester: I think the balance sheets will also answer the question of whether CCP had or has those aforementioned bases covered. ;)

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  32. Everyone is entitled, and has the right to their own opinion, whether it's based on logic, emotion, intuition ect.. ect... It doesn't really matter.

    We can be cold about it blaming CCP, but we have to look at the broad picture of the market place as a whole. The gaming market isn't what it used to be in 2003, hell it's not the same market in 2008. Especially the MMO market, and with the recent financial melt down more commonly known as the great recession or the great depression 2.0; can you blame CCP or more accurately CCP management for burying their head in the sands and yelling lalala while everything crashes down around them, especially how Iceland is right now. I can't blame them for making these decisions. If anything, I'm surprised they have pulled this off, without board room coup de'eta.

    While I am somewhat in doubt if this will be enough, I believe in my opinion, not that's it's right or wrong, but the blame needs to put everyone involved. CCP management, the game industry, cultural trends, the economic bust, and even the bittervet syndrome that lead to this conclusion. Everyone has a share in this, no matter if they like to admit or not, so to sit here and blame CCP or blame the management is unconsiderate to the things they faced to come here in the first case.

    I am familiar with how corporations work, although I am a socialist I know that the current system for now isn't going to change anytime soon. So what do we do? We demand greater transparency, partnership and open handedness from CCP, and get rid of CSM. Sorry, but elected officials don't deserve power a few of them maybe honest to goodness people wanting to make a difference but most are corrupt capitalistic pigs more showmen than actual leaders. I also think CCP should provide greater backstory in EVE as in novels, books and such to gain better following and gain a profit in such things. And finally, listen to players but don't listen to closely because players aren't game developers.

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  33. your logic is flawed. I can't speak on CCP's numbers specificly but as far as executive pay goes you are living in a logic dreamland. Executive pay has gone through the roof. In the US they are making 475 times the average income. That means if they got paid a normal income 474 peole could have jobs or if they got 20 times a normal income 455 people could have jobs.

    These executive get paid this money not by saving jobs but by cutting jobs and destroying companies and stealing from pension funds.

    Hilmar fucked up and he's making other people pay the price it's as simple as that.

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  34. @Anon1808: Actually, if you're willing to do a little research, you CAN speak to CCP's numbers specifically, at least in orders of magnitude. Their total salary pay-out was included in their financial statement.

    Based on it, I can say with a good deal of assurance that nobody at CCP is getting obscenely rich at anything approaching the level that you speak of.

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  35. I'll play.
    To start--I am routinely directly responsible for groups of Firefighters, 3-5ish usually, sometimes up to 10-20, depending. I'm also responsible for pieces of fire apparatus that singly, minus value of people and tools, cost as much as low-end executives make in a year.
    Decisions I make carry not only financial weight, but lives ride on them... very, VERY literally. A misstep can easily mean a lost life, Firefighter or civilian, and/or thousands to millions in property damage.

    I've spent years studying management and decision-making, both civilian and military/fire/LE (in addition to the usual fire tactics/strategy/leadership classes) so I myself can understand WHY I make the decisions I do, and thusly (hopefully) make better ones.

    The first question, that neither you nor any of your readership has asked in this lil argument, and is perhaps the most important one of all:
    We know bad decisions are being made, particularly at the upper management level. Are these decisions the result of mistakes in "training", as you put it, or a deeper "character" flaw that makes that person unsuitable for an executive position?

    I've mentioned narcissism a couple times in previous comments to you, and I hate to be "that guy" harping on the subject over and over, but really.... CCP strikes me overall as a very narcissistic company in word and deed. The combination of "ooohhh shiny"-constantly dropping iteration of existing content vs "wouldn't it be cool?" content (admitted within their own blogs), the "damn the torpedoes, FULL SPEED AHEAD! MWD ON!" reaction to the fanbase's displeasure with said Dev-ADD, until literally forced to stop by the looming doom and gloom of no money -- make no mistake, Hilmar's backpedaling isn't a result of a sudden change of heart, the timing of the sudden-180 "we're sorry, we'll make EVE better, come back plzzz we need ur subs" blog is just far too coincidental to the "ohnoez, looming red ink!" blog -- and damn that's a long run-on sentence ... but all of it points to a very self-centric worldview (at least as far as the game is concerned) that just reeks of narcissistic leadership.
    EVE is, in short, a game by narcissists, for narcissists (subject of an upcoming blog of my own, if I ever stop playing long enough to do it lol).

    Anyways, in this particular case, it seems that CCP's executive-level management is possessed of a couple tragic flaws, narcissism being perhaps the most glaring and "tragic", as it contributes to and creates other flaws and problems (poor customer service, for example) -- of course since a narcissist is always right, the problem must be the customers -- and that's something you cannot "train" out of a person.
    In those cases, yes, heads must roll, and it'll "cost" money in terms of "training", but you'll save far more in the end vs losing your ass due to bad decisions made by CEOs with Shakespearian-style flaws.

    Not to fire too much of a shot across your bow, but the problem here isn't management, it's leadership. You manage things, and lead people. Keyword in "Leading" is LEAD. As in, from the front. You don't see too much of that anymore these days in lots of fields, yes, even the military, fire, and law enforcement.
    Managers dictate, Leaders demonstrate.

    So yes, if CCP's "leadership" is truly leading, they should be the first to voluntarily step up and take some cuts... maybe not even base pay, but sacrifice some fringe benefits, stock options, whatever "perks" they get...even if it's a lil inconvenient, it's a show of solidarity with their employees.

    So you got it "right" from the "managership" standpoint, now how bout some "leadership"?

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  36. The great and detailed analysis of private company's financial statements is cute but in the tech world not all that meaningful. Whereas normal private companies need to balance the budget constantly, a tech company always works towards an exit - i.e. IPO or M&A. Having a burn rate much higher than revenue is normal if it can be met by a "significant event". That would be a) more cash from VC or b) IPO or c) M&A with someone like Sony.

    Whilst we are generating rumors, here is a completely unfounded speculation. Sony execs told CCP that they would buy shares in the company and backpay loans IF they could make Incarna work since cute avatars are all the rage in Japan. CCP works their backside off to make the deadline and blows it. Sony watched the Summer of Rage and steps back from Offer. CCP is in deep financial [manure] and hence has to balance the books for this round - means reducing costs - means firing people.

    Disclosure - I have seen situations like this play out in RL and been involved in a few. It is not that far fetched. But of course, I have no evidence that it actually happened....

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  37. This article is clearly a morally reprehensible attempt to brainwash emotionally underdeveloped and distraught EVE players into committing acts of self-harm. It is thoroughly irresponsible to suggest acts of self-dismemberment in such a despairing and negative climate.

    All the sensible comments have been made, so I was left with this. A thought-provoking post, nice one. In fact I'm so inspired I'm off to remove 20% of my bodyweight now, starting from the inside.

    But seriously. Good post.

    Get help.

    ;)

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  38. This is the view I was looking for. Some sanity. Interested I am to see if I can agree as well tomorrow.

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  39. I see most people agreeing to the Exec level pay cuts, I do as well. Yes, it is symbolic in form and would help the employees moral. But, and I may be wrong here, I have not seen anything that shows CCP did not do that as well as the lay offs. So, it is possible that they have and no one is talking about it. CCP is not required in any way to inform us about their internal arrangements.

    Also, cutting the CM team is a sound decision. Yes, these are the majority of who we interact with, especially on EVE-O, but they are not direct revenue generating personnel. And I am certain that those positions would be some of the first to be picked back up when CCP starts on the upswing again.

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  40. Spot on post. Now, about that C-level pay thing. I was once a c-level type: that's 'C' as in Captain. I was responsible at times not only for the well being of over 100 people but also for the future of their families. It was a heavy responsibility and one I fortunately escaped without guilt or regret. I knew some other 'C' level types - as in Colonel. They were responsible for even more people and their family. They were not so lucky. Even good decisions left them with guilt and regret. I'll spare you the few 'G' levels I knew. There plight was even worse. Why to I take this tangent you ask? None of those 'C' and 'G' level officers made more than 6 digit salaries. What a lot of the 'C' level executives make for pay and compensation is obscene. These people are no more important than the senior officers with whom I served. If society values their soldiers at such a low value, so should it calue all contributors to society - even the ones who keep out economies running. I don't advocate stripping them naked and running through the streets to be switched by that populace. I simply point out that you don't need more than enough to live comfortably on. As a society, our values are skewed. That's what needs to be corrected. For the sake of the business (society in genereal) a few layoffs may well be in order.

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  41. "Tech company always works towards an exit - i.e. IPO or M&A. Having a burn rate much higher than revenue is normal if it can be met by a "significant event". That would be a) more cash from VC or b) IPO or c) M&A with someone like Sony. "

    Having worked in several Silicon Valley companies, I can tell you this is /not/ always the truth. Many small to midsize companies are content to run their own piece of pie, not to sell out or off.

    CCP's been going for for near 10 years. That's a long time to work toward an IPO..

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  42. I run a small business and built it from the ground up. It is "my baby" as much as CCP is Hilmar's.

    Now as much as I'd like to say I control all aspects of the business, I'm still reliant to a degree on the professional expertise of people such as accountants, lawyers etc.

    I've also worked for very large corporations both internally and as a contractor and know exactly how badly they can perform internally.

    This is due to a number of things: communications or lack thereof, empire building, toxic relationships, people not wanting to say no we can't, cashflow issues, media problems, the works in other words.

    The larger the company often times the worse the issue can be. CCP is not a small company.

    Hilmar would have no doubt taken advice from various stakeholders and teams within CCP before embarking on any course of action.

    Between what was probably incorrect forecasting and updates, Big H was probably also getting less than accurate input on development and delivery.

    I'm saying laying the blame at one person's feet, irrespective of their responsibility, is very much a simplistic view.

    This correction will no doubt be driven purely from a pragmatic and necessary point of view... if your revenue drops, something has to give.

    It would not have been done without significant thought and pain. It would have been done for the ongoing health of the company. It certainly doesn't make it any easier to do, or to be the person let go.

    I know from personal experience. In the last 6 months I had to let go two people in extremely shitty circumstances. Made worse by the fact they'd done a sterling job.

    As for myself? I dropped my salary by 25% to assist. There is no point in running a company into the ground if it cannot support your income.

    Symbolic? Yes, I suppose. Do my staff know about it? No. And they won't either.

    I value my soldiers. They do not need to stress about the health of the company. That is my job, and it is my business to ensure that they keep getting paid...

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  43. Excellent post. Will see if I can agree with the player's perspective as much as I do with this.

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  44. Mabrick: You're a good leader.

    Now read the Gervais Principle, and accept that sociopaths like The Mittani eat your kind for dinner.

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  45. It's quite common for Japanese execs to take pay cuts when there are profit warnings, although obviously that would appear to be a cultural thing.

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  46. I actually think this blog is spot on.

    Do not get me wrong, I have sat on both sides of the redundancy fence.

    5 times in 4 years, redundancies have been on the cards for me I'm sorry to say, such is the way of the world at the moment.

    I have survived once, been made redundant 3 times and sat on the deciding position once.

    It will offer little solace, but I believe it’s harder to be a survivor then being made redundant, being made redundant you are out of a job, but you have the initial anger and motivation to protect your assets, and assuming you are good at your role, you should have good odds on being gainfully employed promptly once more. Often survivors guilt occurs, not unlike war veterans, although believe me I do not try to suggest that brave service men and women losing comrades in combat compares to superseding fellow employees but to each individual is a matter of scale and trust me it's not pleasant even worse than being made redundant itself. Worse I felt relief of remaining and grief. Unless you’re totally selfish!

    You may be familiar with the principles of short term gain, long term loss and their counterparts. Well they apply here; survivors get the one above where as being given the axe usually a resort in the reverse being is true. Often in my experience I have obtained early promotion or gotten out of a job that was eating my motivation by being given the push out the door.

    Worse than both of these put together was being the manager deciding which 2 of my 11 members of staff I was going to cut recently. Believe me I had taken this for granted being on the receiving end, but as a manager, it is worse, especially in tight teams. I know all these people personally I count all of them as friends and comrades, some of them had young families, others large mortgage commitments, I play football (Soccer) with 2 of them on weekends. The hardest thing is none of that matters, all that matters as a manager is which people to keep making the business recover.

    Believe me, I had offered to take a pay cut to save one or both of the jobs, I had even calculated that if I took a 20% and they took a 20% cut I could save one of them on short term, but long term, there was no viable position. The retort came back a demoted member of staff aggrieved by a pay cut, and a manager struggling with financial burden and lack of focus is worse than one said member of staff, focus on your 9 remaining employees and get them working harder so they aren't next.

    Just because I am a manager now does not mean I am safe from redundancy, in fact although I was choosing the member of staff to leave, 3 months later and there are suggestions that my team and another is to be merged into one. They will not need two managers for one team if this happens, the manager of the other team has numerous years experience, the general consensus is I am as capable if not more so, but he has been with the company 14 years working his way up and it would be considerably more expensive to get rid of him than it would be myself, I know if I was the deciding party who the sensible choice would be. So the Vitae comes out this weekend and is to be dusted off once more.

    Point is, Managers are rarely safe, often have to make hard calls which may seem cruel, and get little thanks for it, it is what they are paid for at the end of the day, it is why they have bigger salaries to offset this responsibility. Owners are often in similar positions; everyone has a master in business, whether it is share holders, or other stakeholders, the economy. There is only varying illusions of power, the laws of Thermodynamics perhaps say it best, “all energy is finite and diminishing”, “all natural orders tend to equilibrium”, “levels of order are only borrowed and cannot be sustained indefinitely” these are paraphrases of mathematical functions, but who said maths couldn’t be philosophical as well?

    Sorry for the rant, but think you need all the info before making the decision, as always perspective makes a big difference.

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  47. http://www.eurogamer.net/articles/2011-10-21-eurogamer-interviews-ccps-hilmar-petursson-interview

    "Eurogamer: The statement was so frank that it read as though you were about to announce your resignation. Did you ever consider that option?

    Hilmar P├ętursson: I absolutely considered that but I think that frankly it would have been an easy way out. Being accountable for this type of situation, leading the company into this position, it's also my responsibility to lead us out of it. I've had support from employees in doing that. I've now learned a life lesson from going through this and I hope that will make me a better CEO in the future."

    So, which bittervet is going to call this a PR stunt?

    Anyway, I think that link is an interesting read.

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  48. You pretty much sum up my own thoughts on this.
    Perhaps we are in a similar job environment ourselves. I'm just removed two steps in my job from the directors and CEO and often more or less work directly for them in an 10K+ global company so I get the problems Hilmar is facing.
    As a consumer of the CCP EVE product of course I am still disappointed. But no yells from me, I agree with your analysis.

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  49. A CEO can step down. So people asking to see Hilmar replaced aren't asking for the impossible (no matter how stupid you might find that idea).

    Even if the CEO is the same person as the owner of the business, he can still step down as the CEO and become "only" the owner.
    Or to stay with your car analogy: The driver of the car doesn't have to be the owner - someone else can drive it. I assume you never saw "Driving Miss Daisy"?

    As for the "C-suite payments are not to be touched":
    I agree with the comments already made disagreeing with that.
    I mean, what kind of message do you send your employees with that?
    The company is in trouble, so far in trouble that it decides to get rid of 20% of their employees. And the people responsible for that receive full payment?!

    Do you expect anyone to keep working hard and smart and staying loyal to a bunch of people who apparenly have a "Get Out of Jail Free" card?

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  50. I just wanted to address a portion of what you said.

    On the whole, I completely agree. But then you said cutting C-suite salaries isn't a good option. And for CCP it probably isn't. But you made a blanket statement regarding it, and you are partially wrong. In the past few decades there has, amongst the most wealthy companies, been a ridiculous bloat of CEO and other executive salary and compensation, to the point where they now make around 110 times the wages and compensation that the average worker (as opposed to 30 in 1960).

    This bloat has little to do with how well an executive runs the company, and more to do with perception. Everyone likes to think they have a good CEO and so the board will elect to raise their wages and compensation by a little. This prompts everyone else to do the same. So on and so forth.

    So essentially, C-suites are over paid.

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