We are sharing the message we shared with our team today. The only change is a small redaction on proprietary projects in development.
All,
I have some sad news. Today, I made the difficult decision to reduce the size of our team by 16%. That means parting ways with many friends and colleagues. These are great and very talented people and this is no reflection on them or their work. This wasn’t an easy decision, but ultimately it’s one we had to make for the long term success of Rec Room.
Rec Room’s grown far beyond what I could have imagined over the past 9 years. The credit for that success goes to the teams who built things others often thought were impossible, but this decision, the company’s position and our long term direction are my responsibility.
Rec Room is not just a video game. It’s a place where millions of people make new friends, express their creativity, and find fun each month. It’s a community that’s larger than many countries. It’s a place where people were able to fight loneliness and isolation during some of the hardest times we’ve seen. Ensuring Rec Room can thrive for years to come is a heavy responsibility, and sometimes living up to that responsibility requires making difficult decisions.
I’ve always tried to be transparent with all of you on what’s happening across the business in good times and bad, so I’d like to outline what we’re doing for the people who are impacted, why I believe this is necessary now and our plans for the future.
How are we helping people who are impacted?
We’re grateful to the people who have worked hard to build Rec Room into what it is. These people have been our friends and colleagues for many years. We recognize this will be a difficult transition for them, but we want to ensure we’re giving them all of the resources we can to help them with whatever is next for them.
We have spoken to all of them directly this morning and we will be providing them with 3 months of paid severance and 6 months of healthcare premiums. They’ll also receive access to outplacement support including 1:1 assistance with resume writing, cover letter drafting, career coaching, and job interview prep. This will ensure they have the time and the resources to find what’s next.
Many of you have asked if you can reach out and offer support. Yes, you absolutely can. Still, be aware this is a difficult time for them, and they may need some additional time and space.
How did we get here?
The market has changed dramatically from where it was in the earlier part of the decade. Gaming market growth has slowed, while higher interest rates and a more challenging fundraising environment make cash harder to come by. As a result, we have to change the way we think about Rec Room’s financial strategy.
In good times, startups look to raise funding every 18 to 24 months and that’s what we did in the early years. In challenging times, the advice was generally to budget for 3+ years of runway. When we last raised money, we budgeted for 5+ years because the economic outlook seemed uncertain for late stage private companies. It remains uncertain three years later. Our current assumption is that we need to become self-sustaining using our current cash and not plan on any future fundraises. We need to control our own destiny by bringing in more money than we spend.
Layoffs are a last resort, and we took as many preventative actions as we could before reducing our team size. Rather than hire externally, we re-trained individuals into new disciplines. We cut UA spending. We reduced third party spending by taking some key systems in-house. We made large reductions to our infrastructure spending which made it much more efficient to run the Rec Room service. We also launched Rec Room onto Nintendo Switch, the game console with the widest install base in existence.
These changes all improved our financial position, but as our largest spend each month goes to people and payroll, they weren’t enough on their own.
What have we learned and how do we change moving forward?
This is a tough day and we don’t want to do this again. I’ve learned a lot in this process and I’m going to make sure I fix as much as I can based on those learnings. No one can predict the future, but we can learn and improve so we’re better prepared for whatever the future throws at us.
I’ve had conversations with many of you about the changes you believe are needed. One clear theme came forward. We all want to move at startup speed, but the organization and our process is getting in the way.
We need to look and feel like a startup again. We need to get back to our roots. We’ve taken missteps over the past few years that have pulled us away from our startup process, and we need to fix them now:
Flatter Organization
As Rec Room the product grew, so too did the organizational structure. There are too many people splitting time between IC work and management. This hybrid role creates too many negatives and not enough positives. It creates more layers of management, a wider group of “leads” that need to buy off on all decisions, and it means fewer IC hours. It’s making us slower and less effective.
Moving forward, we’re going to create a stronger separation from the IC and the manager role. Be a great IC or be a great manager. Don’t try to be both.
This will result in a flatter org with fewer managers, faster decisions and more time for ICs to dedicate toward building product.
Smaller Cross-Functional Teams
For the past few years, we’ve been organizing across disciplines or functions (horizontally). This has some advantages, but it requires more communication, process and managers to coordinate. This is how a big company organizes to reduce duplication of effort and consistency in process. It is not how you organize for speed, and it is slowing us down.
Moving forward, we’re redrawing our organizational structure to be both flatter and more interdisciplinary (vertical). Teams will be smaller and will contain devs, designers, artists. They’ll be able to operate more autonomously. This is what the early years of Rec Room looked like.
Scrappier & More Efficient
Too often, we’ve been trying to solve problems by spending our way out. When confronted with an obstacle, often our first instinct was to buy software to solve it, scale up rather than optimize or hire more people to workaround it.
For the past few months, as we’ve focused more on costs, we’ve shifted back to our scrappier roots. When we’ve taken the scrappier approach, we built better internal tools than anything we could buy. We were forced to optimize our systems making them better and more resilient. And we’ve spent time simplifying and automating our processes rather than throwing people hours at an unoptimized workflow.
When we create the right conditions, the resourcefulness and inventiveness of our team is incredibly strong. Let's lean into that.
What’s next?
We have a very unique product. Rec Room spans 10 platforms from phones to consoles to headsets. It has millions of games where you can shoot, fish, race, roleplay, hangout, take care of monsters, battle a clown or pass a ticking bomb back and forth. Those games are built and enjoyed by millions of players across more than 150 countries each month.
But Rec Room’s been an underdog from the start.
Gaming startups don’t work. There’s no market for VR. You can’t port that game to consoles. Phones? Forget it, it’ll never run. UGC gaming is a fad. In-game creation tools will never be powerful enough to build “good” games.
We’re still an underdog now. In the past we overcame underdog odds, by staying focused on what matters.
Now is the time to focus on a smaller number of high priority areas that let us expand who can create, what they can create, and how that drives our business forward
Ensuring Everyone Can Create = ************** and ***** ** will dramatically expand who can create. They’re simple enough for anyone to use. They’re fast and varied enough to make building fun, and powerful enough to get complex outcomes, worlds and gameplay.
Rooms 2.0 = This is the largest bet we've made as a company. Rooms 2.0 is what gets us to bigger, more complex, more reliable rooms that run everywhere. It sets us up for breakthroughs on everything from load times to circuits.
Rec Room Plus = This is the financial engine of the company. Plus subscribers are by far our most engaged players and creators. We need to put more value into the subscription and do a better job of explaining that value so that subscribing is a no-brainer for any serious Rec Room player.
We need to get back to our startup roots and stay focused on what matters.
For all of you here, I know this is one of the toughest days we’ve had as a company. It will take time for us to regroup and reorganize. The future is always uncertain, but we made these difficult decisions to ensure the Rec Room is in a stronger position moving forward.
Thank you all for your help in building Rec Room into a place where anyone can create games and come together regardless of their age, technical knowledge, financial resources, or geographic location. Let's continue to build.
Nick
