Venture capitalist Stewart Alsop II used to be editor-in-chief and executive vice-president of InfoWorld. Before that, he wrote a few proto-geeky articles for Inc., like this one on fast-growing TSR Hobbies, from 1982:
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.”
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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.”
In October, a newly incorporated TSR Hobbies, with Brian full-time, and the printing and assembly subcontracted, began to get serious about business. The third printing of 3,000 copies of D&D also took only five months to sell out.In the next fiscal year, 1976, the company had $300,000 in revenues. “We knew it was good,” says Gygax, “but we didn’t know just how good. We decided in 1975 to compete with Milton Bradley and Parker Brothers.”
James Maliszewski notes the complete absence of any mention of Dave Arneson.
TSR’s income statement for fiscal year 1981 caught my eye:
| Net sales | $9,789,376 |
| Cost of sales | 2,484,010 |
| Gross margin | 7,305,366 |
| Selling and G&A expenses | 5,599,245 |
| Operating income | 1,706,121 |
| Other income | 302,287 |
| Net pre-tax income | 2,008,408 |
| Income taxes | 955,000 |
| Net income | 1,053,408 |