Business is a game to the managers of TSR -- and they keep winning.
You are in a dim passageway with heavy oaken doors leading in all directions. Weak torches gutter along the dank stone walls. Your troops shuffle their boots restlessly behind you, waiting for you to decide which door to open. Behind any door, you might find a lucrative licensing agreement with a major manufacturer, an exciting movie deal with a Hollywood studio, or a new distribution avenue with a well-established publisher. Behind the same door, through, you may find a bottomless pit into which you will watch your capital drain sickeningly or a menacing black dragon that will snap up your untested employees and spit them out in the blink of an eye.
You are TSR Hobbies Inc. of Lake Geneva, Wis., the enormously successful publisher of the fantasy role-playing game, Dungeons & Dragons. In each of its eight years in business the company has opened more of the doors in its passageway. Using innovative management techniques and a dedication to the role of game-playing in business, it has deftly avoided the few dragons and pits it has encountered, and has nearly always discovered glittering mounds of treasure.
The company's success earned TSR Hobbies the sixth position on INC.'s list of fast-growing privately held companies (see "The INC. Private 100," December 1981). Founded in the basement of a house in 1973 and incorporated in 1975, TSR had revenues of $12.9 million and a payroll of 130 in the year ended June 30, 1981, and projects revenues of $27 million and a payroll of 170 in fiscal 1982.
The company is so profitable that it has never had to go hat in hand to bankers or other money sources to finance its spectacular growth. Though it has a $2.5-million line of credit at a Chicago bank, the company's debt-to-equity ratio was an enviable 1-to-10 at the end of fiscal 1981. Its return on equity was 116%, and by last December, the original investment of $3,000 had grown to $3.5 million.
In their business explorations, TSR's owners and managers have been called upon to use many of the skills that are required to play Dungeons & Dragons. "I quit playing the game about two years ago to get some objectivity," says Kevin B. Blume, 30, chief operating officer."I love to play, but it wasn't that difficult to forego. Now I'm playing a much larger game called business. That's why we're intuitively good businessmen -- because games are a great way to learn."
Dungeons & Dragons, or D&D for short, is different from the games most of us are familiar with, such as Monopoly or Risk. D&D is played primarily in the mind; there are no boards or player pieces, just a set of six odd-shaped dice and a rule book. "Individuals play the role of characters in a fantasy world where magic is real and heroes venture out on dangerous quests for fame and fortune," says the introduction to the rule book. "Characters gain experience by overcoming perils and recovering treasures. As characters gain experience, they grow in power and ability."
Participants in a game of Dungeons & Dragons -- there are now more than 3 million around the world -- soon discover that the game mimics real life. Indeed, at TSR, the line between playing the game and running the business sometimes becomes blurred. "It's a lot like business," says E. Gray Gygax, 43, co-founder of the company and a former insurance underwriter and shoe repairman. "In gaming, as you meet different situations, you have to innovate. I'd like to think that it teaches our employees to analyze and cooperate. Game players have to learn to look beyond the obvious and see the number of variables they have to deal with. They learn to know their limits."
Gygax, who wrote the original set of rules for Dungeons & Dragons, has been playing games and living in a semi-secret fantasy world for most of his life. When he was six or seven years old, he most enjoyed playing with nickel-and-dime lead soldiers, reading fantasy and science fiction books, and listening to his father's tales. "My father told me fantasy stories," says Gygax. "He was an excellent storyteller and could make them up on the spur of the moment."
For Gygax, the years between childhood and the founding of TSR were really no more than an interlude when he had to keep fantasy in the closet. He never graduated from high school, and spent 15 years as an insurance underwriter analyzing the actuarial experience of client groups. "There were too many boundaries in insurance," he says. "All I really wanted to do was write and design fantasy games."
In 1970, he quit his job and started living out his fantasy. He paid the bills by repairing shoes in his basement. He also got a trickle of royalties for writing and editing rules for war games, and was paid 60 cents a page for typing up the rules. In 1971, he published his own set of rules for a war game, which he called Chainmail. A year later, in the second edition, he added something called a fantasy supplement, describing an imaginative setting for playing the game.
To his surprise, all of the inquiries about Chainmail began to focus on the fantasy supplement. So in 1973, he persuaded his boyhood friend and fellow gamer Donald Kaye to borrow $1,000 against his life insurance and the two of them formed a partnership called Tactical Studies Rules (TSR). With Kaye's money, they published a set of wargame rules for lead miniatures, called Cavaliers & Roundheads.
In January 1974, Gygax and Kaye were joined part-time by another gamer, Brian Blume, who had been a tool-and-die maker for his father's company for five years. Blume invested an additional $2,000 and the three of them published the rules for Dungeons & Dragons. It took a year to sell the first 1,000 copies of D&D. The next January, Donald Kaye had a fatal heart attack: He had been scheduled for heart surgery, but had never told his partners. "The key to having a lot of success is enjoying what you do so you don't mind thinking about it all the time," says Gygax. "Donald never got a chance to participate like that in TSR."
The partnership moved into Gygax's basement and printed another 2,000 copies of D&D, which took only five months to sell out. "We had to compete with my shoe-repair machinery," recalls Gygax. "But the assembly process wasn't complicated. My wife, my kinds, and I would march around the diningroom table picking up the pieces and putting them in the box."
