#1 - Choose the wrong product

In the last year alone, I have met with at least 20 development startups.  Of these, all but three were working on run-of-the-mill, multi-player first-person shooters for the PC.  And one of the three has since dropped its (rather original) project and switched to a standard FPS.

Depending on who you listen to and on your definition of a commercial release, there are between 1,200 and 3,000 PC games released every year.  In recent years, several hundred of these (at least) have been either first-person shooters or real-time strategy games.  Knowing this, and knowing that Carmack and the guys from Valve and Blizzard and Westwood have been monopolizing the top of the charts for years and aren't going anywhere anytime soon, I would avoid those genres like the plague.  Unless, of course, I could find a very unusual angle to differentiate my product from the pack.  Needless to say, none of the 15+ groups I mentioned earlier came close to that.

Be realistic.  Odds are you won't ever be able to outcode Carmack.  Your chances of coming up with the #1 shooter of the year while he's alive are slim at best.  Betting your future on it is ridiculous.  And even if there is a market for, say, 5 great FPS games in the same year (a risky proposition), there are hundreds of other teams going after that tiny slice of the pie.  Might want to start looking for another pie, huh?

Going head-to-head with a crowd is not the only way to destroy your company.  I know of a small development house which once spent years developing a hockey game for the PC, and then decided to go up against EA Sports without a license from the NHL.  Somehow, they survived despite sales of about 5,000 units (most of them at liquidation prices), but not without skipping a payday or two (or ten).  I also once met a group of moderately talented kids who spent months on what is essentially an (unplayable) air hockey game in a tube, where you try to hit an old guy's head past the opponent instead of a puck.  How they could ever think for one second that they were going to make it to retail with that kind of junk is beyond me.

The bottom line: "Market research" and "originality" are not dirty words, people.

Step #2