Numbers Deceive Only Those Who Want To Be Deceived

Tuesday, October 23, 2012 |

Calculating Total Cost of Ownership (or TCO for short) is something that's familiar to those of us who've been through the large organization planning processes.  Yet, there is no shortage of entrepreneurs that believe they can move mountains with nothing more than bubble gum and shoe string.  And there's no shortage of investors who believe that they can fund the next Google with $25k.

Well, as John Adams quipped, "facts are stubborn things, and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence."  Today brings news of investment freeze by Joystick Labs, a Triad-based video game accelerator.  Accelerators and incubators can be attractive to investors than an a single startup since they provide a rudimentary diversification mechanism, and hence reduce risk.  But without proper due diligence, the foundation on which this diversification is based is shaky at best.  And TCO is part of that due diligence (at least in our model.)  Bubble gum and shoestring, duck tape, and other such pronouncements may sound soothing, but things take as long as they take and there's still no such thing as free lunch.

Joystick Labs seems to have found this out the hard way:

John Austin, managing director of Durham-based Joystick, said the prevailing economics of the video game market – which have changed considerably since Joystick was launched in 2010 – requires more financing than Joystick and its investors could afford.  "It has become very difficult for an independent developer to get noticed,” Austin said. “For every ‘Angry Birds,’ there are literally tens of thousands of great companies not getting noticed.”

Did the prevailing economics of their market changed that significantly since 2010?   Or is it that they found through two years of experience in launching new video game companies that the startup TCO for their market wound up being much greater than anticipated?   Not a day goes by when I don't hear from entrepreneurs and investors questioning why something costs much more than they "feel" it should.  Those of you who know me (which is probably why you're reading this in the first place,) I'm not into feelings, I'm into numbers, and numbers only deceive those who want to be deceived.


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