The Risk and Economics of Quitting

This year, I traveled to the Game Developers Conference (GDC) for the first time. It was a really great time and I met a number of iPhone gaming developers — many who I’d known online for many months.

Despite my outsider status, it was great community and a very entrepreneurial one. The explosion of the iPhone App Store has really put financial success within the reach of the indie developer. I spent a fair amount of time hanging out with Imangi Studios husband and wife team Keith Shepard and Natalia Luckyanova. Keith had quit from his day job almost a year ago, while his wife has just given notice so they could pursue their iPhone game company full time.

I think it’s a great move, even in this economy. They clearly have a growing business and have the opportunity to do what they love. There is some inherent risk involved, but the lost opportunity of not pursing it is simply too great.

Yet, it still constantly amazes me to read comments by people don’t seem to truly understand the risk/benefit balance in making such a decision, and put too much weight on the “safe” choice (which may not actually be the safe choice).

The biggest success story to date is one of Ethan Nicholas who developed the iPhone game iShoot. iShoot generated Ethan over $200,000 in one week and has since generated over $800,000. Ethan didn’t waste much time in quitting his day job as a programmer. And yet there are even people who have criticized Ethan for quitting his job, suggesting that it was not the “safe” choice.

I think in making that decision, there are a few important factors, and I think Ethan’s choice to quit was by far the “safer” choice. Factors to take into account include:

1. Replaceability of your current job
2. Income of your current job
3. Income of your side job
4. Potential income of your side job
5. Happiness

In Ethan’s case, by staying at his (est. $100,000/year) day-job, he puts at risk his ($800,000/5 month) salary. The potential income for iPhone programming business is even greater and essentially has no limit. Even given the economy, I’d say his job as a programmer is reasonably replaceable. And in the end, he is much happier for the switch. There is also a once-in-a-lifetime opportunity factor in place as well. How many iPhone developers have a successful app? Now’s the time to invest in additional updates and followup games to take advantage of the momentum.

And if you don’t agree with that, would you suggest that someone who is making over $100,000 on their own business to get a 40-hour/week minimum wage ($15,000/year) job in an attempt to add more “safety” to their income? Because it’s essentially the same argument.

Obviously, this is an extreme example, and I suspect I’m preaching to the choir on this blog, but it was a topic that has been on my mind.

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11 Responses to The Risk and Economics of Quitting

  1. seth says:

    That’s it! I’m quitting this week!

  2. xht says:

    If you are talking about risk/benefit balance you need to look at the expected income, not the potential income. Sure, everyone could make $800000 in 5 months … potentially, but how much can one reasonably expect to make?

    Point 4) in your list therefore shouldn’t be the amount of money you hope to make, but the amount of money you reasonably expect to make – considering that only a few gaming apps are truly successful financially, the expected income would be much lower than the potential income and clearly lower than Ethan’s safe income as a programmer.

    Given the choice between $0 and $100 (with 10% chance) or the safe option of getting $10, many people will choose the latter. Particularly if there is more than just oneself to care about (if you need to support a family).

  3. Mach says:

    Great post! But I think there are a couple factors missing in the analysis. Certainly, if you are making 8x your salary, then there isn’t really that much risk to it. But there are a lot more people in the, say, 100%-150% of their current salary range. In my case, I spent about a month on my first app and it will net maybe 10% of my salary. So that’s pretty much even. (Of course, that doesn’t even consider benefits like health care, etc.) My second app took a couple weeks but I don’t think it will be nearly that big. After this year, it will be significantly more difficult for the one or two person teams to succeed even on that level.

    But an even bigger factor for me is that as a hobbyist developer, I can develop whatever I want without having to worry about sales. For example, I designed my second app around the fact that my wife and I wait around a fair bit (at the airport, at the doctor’s office, etc.). So I made a game that’s really casual that two people can play with one iPhone. That’s not a big market as most owners are by themselves when they’re using their device, so I would guess that it’s not going to sell many units.

    But that’s okay, because it’s just a hobby for me and I enjoy writing apps that are a little different, if not as universally appealing. It’s rewarding enough that some people have tried it out and also really liked it. But if this were my sole source of income, I’d have to focus on something more commercial. “Quitting the day job” would turn a hobby into a job and when you’ve got a job, you don’t always get to do what you want.

  4. Arn says:

    Yes the ishoot example is extreme but I still found people saying he made a bad decision. For most, including imangi, the decision is less clear cut.

    arn

  5. Natalia says:

    Hey arn,

    Great article. Great to see that we are an inspiration to some (and a befuddlement to many more).

    I think the reason most people are negative about people quitting their dayjobs to work on iPhone apps is that the App Store started out mostly for hobbyists. People writing apps in their spare time, and a few then hit it big. I’m sure that lots of people who HAVE hit it big on the App Store have NOT quit their jobs. And that’s perfectly fine. Running a business is not for everyone. It’s not just about income. Even if you have a $100k/year job and make $1M on the App Store, many people will still hold on to the safety of the day job. It’s individual preference.

    On the other hand, Keith and I have actually talked of starting a business for a long time. If it wasn’t the App Store, we would have done something else. The App Store gave us an opportunity to start a business *that was profitable from day 1*. That is a luxury that 99% of businesses don’t have. Many people invest their life savings into starting a restaurant; starting a software company; starting a daycare center; and the list goes on. Some would say those people are crazy, and many entrepreneurs certainly are. But hey, no guts, no glory, right?

    And finally, as far as risk, Keith and I left higher paying jobs to work on Imangi Studios. We’re very well aware of the risks, and we did not go into it blind with optimism. But we did always want to start a business, and this is the perfect time in our life to do it, since we have no debt and no kids. If we can’t make it work, we’ll do something else. But we’re working hard and hoping for the best. And I’m already addicted to our next game, and I think many other will be, too :)

    Natalia from Imangi Studios

  6. Arnold Kim says:

    @xht – but Ethan’s choice was not between “$0 and $100 with a 10% chance of $100″ vs “$10″. It was “$20 or $100 with a 10% chance” vs “$10″.

    If that analogy holds true. :)

    @mach – yep. the 100%-150% of your income is a much more personal area of comfort and drive. You are taking risks moving to your own business. And it’s a very personal decision.

    arn

  7. Jakko says:

    A couple of months ago I quit my job to go indy after fifteen years of employed game development and decided to develop for the iPhone first because I think the App Store is very accessible and takes a lot of the payment and distribution hassles out of the developer’s hands.

    Now that the first game is out however, this nagging thought popped up: it’s all a big lottery. Sure, developers do make money from their products, but aren’t they the tip-of-the-iceberg-lucky-ones? Hoping to win the lottery is not a very viable business model in my opinion. How does the 99,98% below the waterline fare? For every rock star there are thousands of (equally good, or better) struggling musicians.
    I don’t like nagging thoughts…
    So, work on game #2 was started, I think perseverance has a higher chance of success.

    Jakko
    PebbleBug Studios

  8. Gregory says:

    Arnold-

    Great post.

    The other issue is that in this economy with a good many “safe” jobs and companies folding, going independent might actually be the safer choice. Quitting a “safe” job and free-lancing might be just the impetus it takes to force a person to develop the skills and connections necessary to survive in a turbulent market.

    I have a good friend that left a very prominent and “safe” job at a leading Wall Street firm 5 years ago to start his own company. At the time, his friends and colleagues thought he was nuts. He doesn’t look nearly so crazy now. His company is booming while many of his former colleagues are now going to interviews for new “safe” jobs after their firms collapsed.

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