Founders Playbook: Lessons from Riot, Discord, & More

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**Host:** Right now, we're in the second to third inning of a gaming renaissance. Gaming will ultimately dominate and become the primary entertainment medium for the future. I love the intersection of tech, art, psychology, and design and how they interact. It's just the coolest industry in the world.

Over the past few decades, gaming has undergone a radical transformation. From one-off experiences that came on a disc to viral mobile games to now intricate, seemingly never-ending online universes that actually feel like they have more in common with movies or social media than the video games we might remember from the 90s. Esports tournaments fill stadiums, games inspire major TV series, and the money spent on gaming content alone is five times what is spent on the movie box office.

So with all that said, leveling up as a game company should be a breeze, right? Well, it's not that easy. With intense competition, distribution challenges, and high production costs, gaming startups are used to playing on hard mode. But they're also pioneers of innovation, leading the pack when it comes to the adoption of everything from smartphones to virtual reality. And these hard-won lessons offer insights that can help startups across the tech industry to power up and advance to the next level.

So that's why we brought in some of the titans of the game industry. And today, you'll hear them discuss everything from the state of the gaming industry today, how to survive a bear market, the strategies that startups can leverage to build and market products that stand out in a busy crowd, and the potential impact of AI.

These conversations were all recorded during Speedrun, A16Z's extensive games accelerator. So ready, set, game on.

As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16Z.com/disclosures.

**Jonathan Lai:** I'm very excited because I legitimately believe that right now we're in the second to third inning of a gaming renaissance. If you're starting a game company, there's never been more tools and new technology to help you build games. There's never been more sources of funding, and there's more players of games today than ever before. There are three million gamers around the world, like Southeast Asia, Africa, India, all of these emerging markets are coming online.

At the same time, we have more distribution platforms that are hungry for content. Netflix is getting into games. I just heard that Walmart and Verizon last month are really excited about games. Apple Arcade, Steam is at all-time highs. There's just never been more demand for great content. Gaming has long been overlooked as an industry, but it continues to evolve.

**Andrew Chen:** A lot of Hollywood are intensely interested in the games industry because they've just seen in the last year, not just the Mario movie, not just what's happened with Hogwarts Legacy, Last of Us. I've had a ton of meetings with everyone from the team around J.J. Abrams, the Bat Robot people, the Eisner family who ran Disney for many years, the folks around Ridley Scott, and Riot has obviously been pushing from the gaming side. And it really feels like there's a tremendous boom that's happened in the same way that Marvel and the superhero franchises sort of became the core IP that then unlocked basically the last, I don't know, 10 years of films.

What you're really seeing is just an aging out of the population of folks that grew up watching two-hour movies, and that's their primary method of entertainment. And as that group ages out, I think what we'll see is we'll see gaming ultimately dominate and become the primary entertainment medium for the future. And it's inevitable just based on consumer watch time and engagement time if you just measure it in minutes and hours and monetization.

I think the folks on the business side are starting to really understand that gaming is actually larger than film, TV, books, magazines, radio combined. And you can actually build and monetize your IP and have daily interaction in a way that you wouldn't otherwise.

And it's not just Hollywood that's taking notice. It started at Fortnite, a smash hit that everyone in the globe was talking about for years. Right after Fortnite, you had Amarghus, which almost made the pandemic livable. Then you had games like Elden Ring, followed by Hogwarts Legacy, followed by now Power World. And so now it feels like every year you'll have like one or two games that just pierce the cultural fabric. It just becomes this thing that everyone talks about, which I find is like really amazing and a sign that games have come into their own right. It's a piece of culture.

If you need any convincing, remember that viral dance move, flossing? Well, part of its popularity came from the ability to buy it as an emote for your character in Fortnite.

While this pop culture breakthrough is great news for the industry, every quest still has its challenges. Like much of the technology sector, games industry investment stalled last year, falling to less than a quarter of its post-pandemic peak. But, at least according to one industry veteran, a bear market can bring its own advantages.

**Stephen Snow:** When we were pitching what we codenamed Fellowship, this open-world co-op free-to-play game, there were a lot of people who were telling us, like, there are dozens of these, they're so expensive, no one going to want to fund this, it going to be ridiculous. And I think if you look at the market two years ago, all that pushback was totally right.

That was Stephen Snow, a four-time gaming studio founder and one of the creators behind games like League of Legends, Dungeon Siege, and Total Annihilation. I think when you look at the market today, there's less than 10 of these product pitches still alive. Meaning like as the economy's kind of gotten more condensed.

And I heard everybody talking earlier today about how there are founders who prefer to operate in a more financially constrained market because it makes it kind of easier to ignore a lot of the riffraff and the noise. I don't disagree with that. In fact, I would say that we now find ourselves in a very interesting situation where we're one of a few, whereas three years ago we were one of so many it wasn't worth doing.

The current economic climate offers another potential advantage to gaming startups in the form of talent. As margins narrow, we've seen a wave of mass layoffs from major gaming studios. What's happened to us and our overall applicant pipelines over the last 60 days is we are flooded. We are seeing heads of studios apply for like base-tier leadership jobs. Trust me, if you guys are not checking your email inboxes right now, you're making a huge mistake. Everybody's emailing everyone trying to find a job. And some of these people don't need to. They're just looking to get out of a studio that handled their, I won't name any names, but they handled their folks very poorly. And so if you have cash, just figure out how you want to focus because there'll be so many people who are trying to get in.

But even a market full of big-name talent can present its own challenges. The mistake I see so many startups make is to go hire that person from EA. You know, go hire that person from Xbox. Like they get really wooed by the resume at the early stage.

**Eros Resmini:** Eris Rosmini is an angel investor and former CMO at Discord. And there are some amazing people at those two companies. Don't get me wrong, they really are. But the resume alone is not what is actually going to help you be successful as a startup. And you can waste a lot of time, a lot of money. These people are expensive often. Sometimes they're seeking the same salary they got from Xbox. And the thing is, they're probably really great in those environments. But when you're a team of 10 or less, 20 or less, 50 or less, it's a completely different ballgame. So all that amazing experience, all the knowledge that they have, all the skills that they have, don't necessarily apply to the early stage.

Now, this is just one of the ways that companies are trying to stand out in this sea of stiff competition. And it's truly a worldwide game.

**Jonathan Lai:** Competition is speeding up in games, even beyond the competition that we see here in the West. Most of the Asian game companies, call it Miheria, Tencent, NetEase, they're actually all moving West. And this has been an effort that has been going on for some time, but I think it's really accelerated recently. You know, the crackdown that China's had on, you know, gacha boxes and regulatory playtime and so on and so forth. Just using an example, Mihirio, I think, is opening three or four offices, like, here in the West Coast alone and hiring up a massive number of people. And so something to think about is if you are starting a game studio today and having to potentially compete against developers that can field massive workforces that are working around the clock and have very, very deep understanding of, like, monetization, how to run free-to-play economies and so on. I think it's hard to compete with one of these larger guys, just purely on like a content production sort of treadmill. It's like, what are the levers that you can pull to basically compete against an incumbent in your space?

So let's dive into exactly that. The tools and strategies that gaming companies are putting into action to get their products onto the leaderboard. Starting with listening to fans.

It used to be that back in the day, marketing was this combination of PR, conferences and events, and building case studies with your customers and doing field marketing. And it was sort of this like very repeatable playbook. Like the whole industry is getting foundationally disrupted. It's shifting really towards the idea of a lot of B2B founders actually instead talking directly to their audience, building direct channels with their customers, building in public, building a sense of a buzz around the work that you're doing. And we certainly see that a ton in AI, where the primary hunting ground for acquiring customers, for attracting funding, for recruiting employees, actually has been Twitter and LinkedIn and Discord and some of these other platforms. And I would certainly encourage anybody that's kind of working in a B2B context to really consider the same.

**Stephen Snow:** Stephen Snow learned the power of this approach when him and his team at Riot stepped away from their screens and set up a stall at the gaming industry's largest convention. When League of Legends made its big announce, we went to E3. And I had a booth at the end of a row in Kentia Hall. We told our community, if you want to do resume reviews, come by. All we had was our community, and no one knew who we were. We were a 45-person studio at the time, but everybody else thought we were three idiots in a garage, right?

The day started super sad. It's just me and a couple others in the booth, and within a few minutes, people are showing up. They usually just wanted to talk about the game, and I was like, I'll talk to you about the game, but I have one commitment before I talk to you about the game. You have to tell me something that completely sucks about League of Legends. It's a qualitative question. It doesn't matter what their answer is. I'm just going to source with them. Like, oh, is it a friction related to matchmaking? They might say, like, oh, it takes me forever to find a friend. It's like, okay, cool. Is that a matchmaking problem? Is that like a friends list problem? But I'd go through and pull it all out. I did it for three days straight, and it was horrible. And they're just eviscerating the product right there, right? Like just right in front of everybody. And the whole thing I just kept doing was writing down their feedback, writing it down. And by the time I got back to the office after that Kentia Hall debacle, I had a punch list that was more effective for the overall trajectory of League of Legends than if I tried to sit in a room with our top designers.

The end of the day, it's not personal. They are as angry and as furious about the state of the game because they care. Right? Like that is the secret sauce right there. It got to the point on League of Legends release notes, I was putting in parentheses next to the big beats, and we would give them credit for giving us the feedback. There's another detail that's going to sound completely insane. But when we had about 50, all the way up until about 250,000 monthly active players, I would meet with the top-tier players, and it was first come, first serve in a Ventrilo server. It was capped at 200. And I would just go every Sunday starting at 4 p.m. I would just go down the line of the 199 other people and ask them what sucked. And that was what fed the release notes.

Direct user engagement can be a game changer for any technology product. And the team at Riot takes their player-focused approach a step further by putting players at the heart of everything they do.

**Michael Chow:** The holy grail is the customer. And you just obsess about the customer. And when I showed up at Riot, I used to call our customers users because that's what everybody in consumer technology calls users. They call them users. I didn't realize how much I hated that until I started calling them players. And when you think of them that way and you start using language like that and you envision what they do with the thing that you're trying to give them, it just changes everything about how you can make great products. And so that for me was like, that was a huge inflection point, is just becoming really explicitly customer-obsessed. You don't make your dream game; you make players' dream game. And I think that is a very helpful way of thinking about it.

I think there are basically two kinds of game developers in the world. There are people who are the consumer tech companies who got into games. Mark Pincus, who was here yesterday, was my boss. I love him deeply. He has passion for the gaming space, but he's not a game developer by trade. He is a consumer internet technology product developer. So that's one kind. And then the other kind is what I would call real games companies or real game developers. Both are actually really important. But I think the highest level feedback or suggestion I give to any of you is to figure out which of those two things you are and then just do the other thing. If you consider yourself a consumer internet tech person, you think more about what is the market saying and you're thinking about the customer, which is nice, actually, that's good. You really need to tap into the internal part of you that has a very strong sense of inspiration and taste-making. Whatever is the product that you're making, really immerse yourself in it. Conversely, if you are a game developer and don't think of yourself at all as the consumer tech person, you mostly go inside out from your own inspiration and intuition into like shipping it out into the world. This is like Hideo Kojima is like my least favorite example of this kind of developer. All he wants to do is make what he wants. And if you like it, then great. But it doesn't matter. It's about him. That's also a noble way of being. But if that's your way, do the other thing. Learn to be obsessive about the customer and the market and work backwards from their needs rather than your own inspiration.

Over at Discord, Aeros and his team are focused on talking directly to their users as well. But in their early growth stages, they paid extra special attention to an important subset of fans. Now you're in a world where you've got your first 100,000, 10,000, 50,000 users. The question you have to ask yourselves is within those groups, who are your super fans and what are you doing to encourage their behavior? That's the thing I actually think works best for growth. Something we did phenomenally well at Discord. If you were a Discord super fan and we saw you, you knew that we saw you. You just knew it. You could tell that we were loving you right back.

And I remember Stan would always say, so Stan's the CTO at Discord. Stan would always say, my favorite thing to do is to get out of writing code and go to PAX and talk to the people about the code I'm writing. And he loved it. And he would always insist on being there and ask questions and take feedback. And he'd whip out his phone and show some new feature he was thinking about and get feedback. And he just really got into that. And then of course, on Twitter, you know, same day, someone's like, I just spoke to Stan at Discord and he's like, show me this cool thing. And like, there was a social love. And then our social team would be like, thank you so much for hanging out with us. And it was just as like, just effusive sort of love feel. And so the reason I say this, the reason why, those people are your most important asset from day zero to the end of year one. Your most important asset. They're the ones that are going to tell you what you're doing right and what you're doing wrong. Probably before the world sees it because they're using the product so much, so intently, so passionately that they'll know bugs that you don't know about. So embrace them.

There is another way to reach your super fans through some of the most influential people in the gaming world, streamers. What we noticed was a number of streamers on Twitch trying to figure out how to better manage their communities. It was very clear that there wasn't a great tool for them. They were patching it together with everything from Ventrilo to TeamSpeak to other sort of pseudo-Discord-like solutions. And we decided after we saw some sort of small uptick from some smaller streamers to just invest in that a little bit. We thought, hey, if we could show them that our tool is really good at what it does, we could provide them with some stuff that is streamer-specific, creator-specific, and we could get them to use Discord while they're gaming with their friends. It will literally show the world what our product is intended to do. Discord was really intended for you and your 10 friends to hang out. It was never intended to have hundreds of thousands of people on it, even though that happens now. The original intent was to bring people together through games, hang out, build your small community. So we built a few things. We helped them link their subscriber sort of status to special roles in Discord automatically. We handled some of the payment gateway pieces related to that. We just sort of made Discord a better tool for them. And anyone who sort of watched Discord grow up and was also watching Twitch at the time could see it. It was obvious. Like all the big streamers were using it. And the funny thing is the first few that talked about Discord, we didn't pay them. So we met Lyric at like a Twitch con and were just like, hey, here's our really cool thing. And like, we can pay you, we don't have money, but we think we built something cool, and we'd love just to get your feedback on our product. That was the conversation. A week later, he gets on stream and says, this is the best-built piece of software for what I do that I've ever seen. And you can just see the Lyric spike, boom, right? And that was a nice way to sort of validate that we should ride the Twitch wave. Because there are people on that platform that think the way we do, which is, let's make great products and let them speak for themselves.

Clearly, player feedback is a cheat code for identifying opportunities, building great products, and finding customers. But a focus on player preferences is also key to tackling one of the biggest challenges in the industry, distribution.

**Michael Chow:** The industry is in a tremendous amount of flux about channels for receiving your content and channels for paying for your games. I don't think we know how it's going to resolve, specifically the regulatory environment. The diaspora of platforms right now is pretty frustrating. Like, if you want to watch a television show right now, it's your guess as to whether or not it's on Netflix or Prime or Hulu or Disney+, which is now kind of Hulu, but not yet Hulu, or Crunchyroll or Peacock or whatever. And I think that players don't really want that in their games. I think they're much more discerning as players in games, and they're also more religious, which is why you see the divide between Steam and the Epic Games Store. And I think that you've got to rewind backwards from what the players want.

Despite players being siloed in their chosen platforms and floods of content being available, there may just be one major wave that could disrupt it all. Artificial intelligence. AI is already capable of helping us write stories, create artwork, and build software, some of the core components of game development. But it also presents a host of new opportunities, like more personalized narratives and custom virtual goods, or AI players that can help test games, and even tools for analyzing player activity.

**Jonathan Lai:** The way we think about AI and games is that there's going to be two waves of innovation. And so the first wave is making the same games that we have today, but just faster, cheaper, like at greater scale than before. And I think there will be valuable companies that do that and do that well. But I think long term, the incumbents are actually the most likely to capture value from the sort of faster, better, cheaper route to game development. And then so the second wave, which we are even more excited about, is the potential for AI to create entirely new markets. And so this is like new types of gameplay experiences, new social experiences involving agents, new types of genres that use AI as part of its core game loop that we haven't seen yet. And I think ultimately, like, you can create the most value here because if you're successful, you're bringing in net new players, right? Like, you're not trying to cannibalize Call of Duty or League of Legends and say, hey, like, come over here and play this game instead. You're actually appealing potentially to the people who don't self-identify as gamers today, but they might see something, say care of their AI, and say, hey, that's actually really compelling. And so I think that's the long-term promise of AI and gaming that we're very excited about.

And we probably have no conception of the innovation that's on our doorstep. People often talk about how if you knew that cars were going to be invented, you could extrapolate that gas stations would be a thing, right? Because that's kind of the first order. And by the way, you know, in a world of like horses, like, yeah, you need stopping stations for your horse to have water or whatever. So you're like, okay, well, a car is kind of like that. It is really, really hard to go from that and saying, you know, Walmart can exist because of the car, you know, where a city like LA can exist because it really is something that the urban sprawl kind of requires, you know, the invention of a car to support. That's the second degree aspect, I think is really difficult. I think that is why a lot of the, what we can imagine is just taking things that exist today and just doing it a little bit better. But the reality is, I think we're going to see people compete in a bunch of different avenues that they wouldn't have previously. Maybe when it turns out that we decide as a country, we're going to have Trump be Biden again, somebody that evening is going to spin up like a meme game. And people are going to play it for like 30 minutes that evening, and then they're going to throw it away. But it was instantly easy to build. Today, you talk about markets. You say, oh, well, I'm going to build this experience and it's got to address a market of millions of gamers and that's the only way we would possibly do it. Well, again, if it's super easy, the same way that you would make a little meme to make fun of someone in your office or whatever or not that we'd ever do that, then maybe you would build a little game that's for an audience of 20 people that's just a free-for-all thing with the A16Z partners shooting at each other. Maybe that would be fun.

When it comes to AI and gaming, there's still a lot of uncertainty. But the gaming community has always been quick to embrace new tools and new technologies. So given its track record, other industries would be smart to learn from these pioneers.

**Host:** The games industry is this really special force within tech because you look at how the PC came into the consumer household, how GPUs came to be, how 3D came to be, how VR is happening right now. The games industry has really been this sort of like alpha nerd kind of early adopter set of technologies that then comes to actually ultimately revolutionize the rest of the tech industry.

All right, that's all for now. Whether you're building directly in games or not, I'll be quick to remind you that the industry has long been on the frontier. And we hope this gives you a glimpse into how they're solving some universal challenges and progressing to the next level. If you liked this episode, if you made it this far, help us grow the show. Share with a friend, or if you're feeling really ambitious, you can leave us a review at ratethispodcast.com slash A16Z. You know, candidly, producing a podcast can sometimes feel like you're just talking into a void. And so if you did like this episode, if you liked any of our episodes, please let us know. I'll see you next time. Thank you.

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