Last Update: Monday April 6, 2020

id software: The Transcript & Teaching Notes (Case Study Guide)

id software breaks all the records

A few of the key ideas from this episode of the show:

You trade your time for a business.
When you let the marketplace experience a great product, they'll buy it.
Create a team of people who have diverse skills.
Collect your debts, but do it right.

Key Idea #1: You trade your time for a business

In the course of their work, John Carmack, John Romero and Adrian Carmack (no relation) discovered an idea for a new type of computer game. Their employer was not interested in the idea, so in addition to working 60 hours a week for their employer, the three met for 30-40 hours per week to develop their new idea which led to their own company, id software. Today all three are millionaires, yet they still work long hours. They love what they do and don't think that creating computer games is work. Plus, this work environment encourages people to hang around -- lots of juice in the refrigerator, a pool table, couches and quilts, Nintendo room, a "dressdown" code, music, all-doors-open policy, and an understanding of one another that comes from a shared vision.

You think back: Have you ever heard that you can build a business in eight hours per week and earn $100,000 per year?

Answer: That is a very typical multi-level pitch. While some in those kind of organizations do earn money, if you talk with them, you will discover that they, too, work long hours. You have to answer this key question, "What do you like doing so well that you could do it 100 hours a week with no guarantee of success?" Do you have an idea that you are willing to work on just to see if it can be profitable? Remember, the founders of id software had no guarantee of success. They worked long hours hoping that their idea would generate them enough money to simply create the next game.

Big Idea #2: When you let the marketplace experience a great product, they'll buy it .

In selling, this is a famous technique known as the "Puppy Dog" close. If you let a child take a puppy home to see if he/she wants to buy it, the child will fall in love, and the sale is made. id software used this technique. They loaded part one of a three part game entitled "Doom" on the Internet, a place where a lot of people who love to play computer games hang out. Computer buffs eagerly play part one, which ends on a cliff-hanger with an 800 number to order parts two and three. And this "puppy" is sold!

What do you think? Can you think of other companies who use this technique?

Answer: Samples of cereal, soap, fragrance and other consumer products have been delivered to my door. In many grocery stores, you can taste samples of prepared foods. In the world of advertising, this is called, "trial."

What do you think? Why was id software's idea so efficient and profitable?

Answer: They made the sample available to the audience for which it was developed. I say it was the perfect product in front of the perfect prospect at the perfect time. Many of us work on this for a lifetime. Good for id software that they hit with the first product.

Key Idea #3: Create a team of people who have diverse skills.

At id software, each individual knows what is expected of him, so there is no need for written job descriptions or project plans. Ideas are simply tossed back and forth between team members which is much more efficient than written memos.

You think back: Trust must exist between partners if they attempt to duplicate id software's working style. How is trust developed?

Answer: Trust is a process that develops over time. As people do what they say they're going to do and do it at a high level of competency, they establish themselves as trustworthy.

Study other companies: Here are links to businesses that were founded by partners who have great trust in one another: Tom Gegax, Kathleen Barnes, Darrell Van Citters (video), Bill Sugars and Margaret Quenemoen.

Bonus: Collect your debts, but do it right.

This key idea comes from another segment of this episode.

Attorney John Dolan reminds us that "The federal government passed a law called the Fair Debt Collection Practices Act, and what it basically says is you need to collect your debts in an appropriate fashion. So you don't want to call people at 3 AM, and you don't want to send Vito the leg-breaker to beat down their front door, and you don't want to call and abuse people at their workplace. If you do, you could be in trouble."

What do you think? Can collection problems stem from your own poor business practices?

Answer: Sure. The best practices include clear communication at the beginning of any relationship. Next comes the paper process to which you stay committed. The best company on this subject we have ever studied is Medallion Funding, and, you'll find
Laurie Snyder of Flap Happy very good at collections. My philosophy is that people will treat you the way you treat others. So, if you pay your bills on time, others will pay you on time. In 20 years of running my own business, this has always worked for me. Chalk it up to "Karma" or that old saying, "What goes around comes around."

"The closer students get to a perfect 800 on the Graduate Management Admission Test, the worse they're equipped for the real world." -BusinessWeek

LawTalk, a segment within this episode

HOST: If someone owes you money, how do you go about collecting? Well, there are some right ways and some wrong ways, as John Patrick Dolan tells us in this week's LawTalk.

JOHN DOLAN (Legal Consultant): Well, you need to collect the debt. And so the question is how do you collect the debt and what's appropriate? The federal government passed a law called the Fair Debt Collection Practices Act, and what it basically says is you need to collect your debts in an appropriate fashion. So you don't want to call people at 3 AM, and you don't want to send Vito the leg-breaker to beat down their front door, and you don't want to call and abuse people at their workplace. And if you do, you could be in trouble.

Let's say you have somebody that owes you $500, and so you decide that you're going to figure out a way to get them to pay, because maybe, as a small-business person, this is the profit that you make in this transaction. You're allowed to contact them and see if you can get them to pay, under reasonable circumstances, during regular business hours at work--unless they say, `Please don't contact me at work anymore'--at home, through correspondence, etc. The federal Fair Debt Collection Practices Act, however, says if you abuse your ability to collect your debts--that is, if you do things that are really rude, abusive, inappropriate--you can be liable up to $1,000 for any particular debt. And recently a case came down that said this: It's not just $1,000 on your hypothetical $500 debt, but it's $1,000 every time you do something rude and abusive, like three phone calls at 3 AM, four knocks on the door from bad guys, and three other abusive acts adds up to 10 acts, you could be liable for $10,000 to this person.

HOST: OK. I don't want to abuse them, but how do I get my money?

JOHN DOLAN: Well, I would say the simple thing to do, first of all, is to correspond in the beginning. After you correspond, there are a number of reputable collection agencies where you could send out a bad debt--and, of course, when you engage an agency like this, make sure that they're familiar with the Fair Debt Collection Practices Act--and you might even, by the way, put together in your relationship--contractual relationship with this debt collection agency an agreement that if they act beyond the scope of your engaging them--that is, if they do some things that are inappropriate--that you are going to be held harmless, and that they will take full liability for this.

And then after this, you end up in litigation. We try and avoid litigation wherever possible, but sometimes it's the only alternative.

HOST: But then we've got to get lawyers involved, and we definitely don't want to do that, right, John?

JOHN DOLAN: Lawyers are expensive, but there will be some times that you need us.

Please note: This segment of the television episode was filmed in January 1995.

HATTIE: If you have a son over 12 years old, he probably knows more about Doom than you would like. If you want to know more about this incredible success, here's a look at Doom, first through the eyes of our producer's 13-year-old.

JAY WILBUR (id software): Go into god mode.

HATTIE: (Voiceover) What could be captivating Benjamin Matthews? It's Doom, the 3-D computer game, where you, the player, are the only human being left alive, and you are in a brutal battle with the ultimate evil.

BENJAMIN MATTHEWS (13-year-old): Jeez, this one was, like, impossible.

HATTIE: (Voiceover) What do the critics say?

Unidentified Announcer: The biggest adrenaline jolt this year! The best of the breed! The most addictive PC game!

JAY: He's spitting these cubes out that'll eventually turn into monsters.

HATTIE: In a few short months, Doom became the most popular computer game in history. Three guys in their early 20s had an idea and couldn't convince their employer to let them pursue it, so in their spare time, they started id software, with a $2,000 investment from their first distributor. Just three years later, sales are at $20 million.

Commander Keen was first. And what was second?

JAY: Wolfenstien.

HATTIE: Then Doom.

JAY: Correct.

HATTIE: Kids aren't the only ones playing Doom. It's been banned from many corporate networks because too many men were playing it at work, but will they admit it?

All right. Now, Jeff, you're trying to tell me, really and truly, you don't play this sometimes up here?

JEFF LONG: I don't. I have my own copy at the house.

HATTIE: (Voiceover) Id's headquarters in a Dallas suburb looks more like a men's dorm than the offices of millionaires.

This place is just totally full of games. There's a foosball here in the kitchen. I think people never go home. They've got cases of lemonade...

Unidentified Woman #2: ...a little Snapple. I mean...

JOHN CARMACK (id software): We've got computers, fast cars, ancient weapons and lizards, you know. It started off where we all kind of had some ideas. We started working on the games, but then we started doing some really clever things that other people weren't doing in the industry. John Romero, main partner that he started looking at these things, and the dollar signs went off in his eyes and just like, `Wow, we can make a lot of money on this.'

JOHN ROMERO: We all know what it is gonna turn out like, so we all know what we have to do, you know, what our--wi--each of us has our own jobs, and we don't step on each other, and it's just purely just something that we really wanted to do, and we all just worked on it and cooperated.

HATTIE: What is your job?

JOHN ROMERO: I write the tools that let us create the worlds that, you know, that we--that people play in.

HATTIE: What does the other John do?

JOHN ROMERO: He creates the three-dimensional engine and the program superstructure.

HATTIE: And what does Adrian do?

JOHN ROMERO: He does art.

ADRIAN CARMACK (id software): All right. Well, this was the first time I ever worked with clay. I never got to take sculpture in college. But the very first one I worked on was this guy right here. Yeah, I design all the monsters and draw all the blood and all that kind of neat stuff.

HATTIE: Did you finish school--college, or...

ADRIAN: No. No, I dropped out my junior year.

HATTIE: Did you go to college?

JOHN ROMERO: Nope.

JOHN CARMACK: I went to one semester of college, and it was really a lot too slow-paced for me. And I tend to be self-taught in most things.

JAY: They work vampire hours. There are actually weeks that'll go by where I won't even see John Carmack, because I'll come in during my 12, and then he'll come in for his 12, and we'll just...

HATTIE: OK, now what exactly do you do? What's your contribution to the puzzle?

JAY: All the business. Anything business. And if it doesn't have to do with development, I do it.

HATTIE: OK, Kevin, what do you do here?

KEVIN CLOUD (id software): I do the computer graphics and design the packaging and the advertising. These guys, I've worked with them in the past and knew they were a great group of guys to work with. All of them are extremely talented and have a lot of creativity and imagination. That's a hard combination to beat when you're developing computer games.

HATTIE: Who is your user? Is it people like this?

JAY: It's him, it's me, it's the guy behind that camera, it's the man over there, it's...

HATTIE: How many people are u--how many games are out there right now?

JAY: We estimate there are 10 million Dooms in circulation right now, 10 million Episode Ones. We take a game, we break it into three equal pieces. In Doom's case, we take the full game, it's three separate episodes of nine levels each. We take Episode One, we give it away for free.

JOHN ROMERO: Normal software companies, they write things down. They create design documents, and they're really thick and everything. We never, ever write anything down.

JAY: We use the existing online services, CompuServe, America Online, Delphi, Genie, the Internet, bulletin boards, both major and minor, to--we upload the game to these sources.

JOHN ROMERO: The game changes while we're creating it. So...

HATTIE: OK. I did read where some other companies might use 30 people on a project, you only use five.

JOHN ROMERO: Yeah.

HATTIE: And that's the reason, that your--talk, you move, you don't deliberate--you don't put it into writing, you don't fuss around with reports.

JOHN ROMERO: Right. Plus, we're not nine to five, we do more work than they--than other companies do.

JAY: And then the users grab ahold of this game, Episode One--which, I might add, ends with a cliffhanger and an (800) number--they move this game around. They just--they love it. They just--it's of such high quality, they have to give it to you, and you have to give it to him and so on and so on and so on.

JOHN CARMACK: So we consider it a very clean way of making money, because we don't have disappointed customers.

HATTIE: I was gonna say, they know they want more or they wouldn't call you.

JOHN CARMACK: And that gives us a very loyal customer base. Right now, all the decisions that I make are more important to keep me happy than to make more money. Money just piles up in the bank. I mean, happiness is something that I deal with every day.

JAY: And we don't want to lose the fun part. We don't want to--I mean, I think you'll find that almost all big businesses started out as small businesses. And if you go in and interview somebody who works in a big business, they're probably not going to have a genuine smile on their face, although they may have a smile on their face. We have genuine smiles on our face, and we plan on keeping them there.

JOHN ROMERO: This is fun. This is a lot of fun, and a lot of people really like what we do, which is another reason why we do it. You know, we do it because we like it, but we also do it because everyone else really likes it.

JAY: I just secured the book deal. Four books, through the course of two years, we signed a six-figure deal.

HATTIE: It's sweet.

JAY: Ain't it?

HATTIE: Hey, you can buy some more Snapple.

JAY: Life is good.

HATTIE: You can get a Ferrari, too.

JAY: No, I have a house. So I--yeah, I can't wrap my house around a pole.

HATTIE: Here we have quilts for when it gets cold in here.

Man #5: This was a recent purchase, for a fever I had.

HATTIE: This is what it takes to build a great business.

(Voiceover) Here's what I learned from spending the day at id software: There's no substitute for long hours. When the marketplace can experience a great product, they'll buy. And build a team with players whose skills don't overlap.

KEVIN: If you have a dream, if there's something you're really excited about doing, you owe it to yourself to give it a shot, and because--working with your dream is what you're gonna work the hardest for.