My approach worked out as follows:
Step 1) 2 months of vague ideas, resulting in the first design draft.
Step 2) 5 months of debate, resulting a second design draft and a prototype combat system.
Step 3) 11 months of further design, debate, refinement and recruitment.
Step 4) 11 months of coding with no players.
Step 5) 9 months of coding while a closed group of players tested the engine.
Step 6) 21 months of coding while running a spinoff mud to test the engine.
Step 7) 3 months of coding while running the mud as open beta (still doing this).
The design part of step 2 worked out badly; the three of us working on the basic design all had very different ideas of what the mud should be like, and the compromise we finally settled on didn't really interest any of us. The project derailed and discussions ground to a halt - so in the end of it I created a second design document, which incorporated some ideas from the original design but which was created around what I wanted. Of course the major drawback was that the other two team members weren't very keen on it, so it ended up primarily as my pet project.
Step 3 took far longer than originally planned, once again mostly due to disagreements on the design, which became even worse the more we recruited. In the end it seemed that we'd never get out of design if someone didn't start doing some actual coding, and it took a bit of a verbal kick to finally get things going.
Step 4 was the hardest from a motivation point of view, and you can see quite a quite a few gaps in the over that time. Development got easier the more the mud progressed, particularly when there were players to give feedback. However now that I'm at step 7, I'm finding myself spending a lot more of my time fixing bugs and addressing issues that were overlooked in the original design. I've also had to move development to a separate port, and whenever I'm online I find that most of my time is taken up answering questions - if I need to do some serious development I'm forced to log off the mud in order to concentrate.
I don't know how much longer step 7 will take, but I'd guess at least another year. I'm not really in any particular hurry, and the whole 'open beta' thing makes a good excuse for people who complain about balance, unfinished features, or new changes.
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