Saturday, July 23, 2011

Wizards: Peter on the Cusp, Memorandum

Peter Adkison, 29 March 2011
Most startups go through a period that feels like the turning of a vice. We start with excitement and hope and begin to carry out our plans, and fairly quickly we begin to run into the tasks we need to resolve to get where we want to go. We begin to run into obstacles we cannot solve and must instead go around; our goals begin to shift as we search for ways to continue in the general direction we had in mind. Along the way we pick up burdens we have to carry, worries, debts, and responsibilities; just when we get used to carrying the load, we are surprised and disappointed to discover we must carry yet more.

At some point, we find ourselves lost in our work, turned all about from changing directions so many times, and staggering under the load we have to carry. There comes a point when yet one more task or obstacle or burden becomes the proverbial straw that breaks the camel's back. We lose our composure and begin to wonder whether we're being punished somehow.

Those of you who have never tried to start a company may think I'm exaggerating, but go ask your friends who have. Every entrepreneur knows about the long, dark night of the soul. Every classic story structure runs through this arc, because it is the arc of all our stories, the arc of life. One way or another, anyone who decides to become an actor in their own lives, who strives to change the world or their lives in some way, knows this moment.

Here is what Peter wrote on Thursday, 3 December 1992 when he faced his moment. He feared his team's disappointment when he sent it, but he stepped up to the plate, described their situation, responsibilities, and options, and helped them to see that there was still hope left, were still ways forward for their little company if only they could keep the faith.

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MEMORANDUM
Wizards of the Coast, Incorporated
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   Date:  December 3rd, 1992

   Memo:  PDA145
 
   From:  Peter D. Adkison
 
   To:    Cathleen Adkison
          Tom Des Brisay
          Jay Hays
          John W. Jordan
          Lisa Lowe
          Jesper Myrfors
          Beverly Marshall Saling
          Lisa Stevens
        
   CC:    Michael Cook
          Ken McGlothlen
        
   RE:    The severity of our financial situation

The financial situation with Wizards of the Coast has continued to deteriorate over the last few weeks. The stock solicitation is proceeding too slowly and my hopes are declining with every passing rejection. I think the company has to face the fact that we may have failed to jump immediately to that top tier in the roleplaying industry that we were hoping for.

The purpose of this memo is not to announce a major scaling back at this time, but to warn you that this eventuality may be imminent. Two days ago we went through our end-of-the-month bills and payroll and it happened to coincide with a threat about overdue taxes. It was pointed out to me by our friends in the government that if I didn't pay some of our taxes I could go to jail. Needless to say, we paid some taxes and that contributed, along with consignment fees to Steve Sechi, a payment to our attorney, and some other things, to our not making payroll.

Furthermore, unless we receive a tremendous amount of money, I'm not going to make payroll until after I return from the Palladium lawsuit preliminary hearing on the 14th of this month. At that time our employees will be due two payroll checks and I can't guarantee we'll be able to make those.

When I return from that hearing we will have to make a serious decision on how we can proceed from there. If we do not win the summary judgement then we'll be looking at a very expensive court case. And before we can even continue with the case we'll have to settle up our current outstanding balance, which I believe is on the order of $8,000 or so. Worse, because this balance has been delinquent so long, we may even have to pay a retainer on top of that. The bottom line is that I've got to posture the company to where we can pay them a sizeable sum in a couple weeks, and since we currently have a negative banking account balance (I'm hoping that some of the overseas deposits which I have no way of knowing about are covering this) this means the company basically won't be writing any checks over the next couple weeks. I think I can scrape together $100 for Beverly, Jay, and Lisa Stevens, but that's it until after the court hearing.

If everything goes well we'll win the summary judgement and we'll get ten or fifteen grand in investments by the 15th. But if we get less than that, or if we don't win the court hearing, than I think the company will have to go to a major fallback position. This would probably consist of a scenario composed of some steps along the following lines:
  • No cash salaries. This would mean we'd probably lose most of our current staff. The only work we'd be able to pay cash for would be contract work, on a by-project basis, and only for services that we couldn't find someone to do for stock.
  • Most of our cash would go first to keeping a bare-bones office open.
  • We would probably concentrate on paying off debts that various of us have personally co-signed, like the Luc Schepens loan, the line of credit, etc. The purpose of this is to try and minimize the hurt to us personally should the company go bankrupt.
  • The toll-free number might have to go and subcontractors might have to pay for their own calls; perhaps this would go even further toward encouraging people to use e-mail.
  • I'd look for a way of running the company in some sort of family or communal setting. Perhaps move into an apartment and run the office out of there with off-site warehousing and maybe talk to Jesper about having a satellite production office based out of his studio. Obviously this is an option only to the extent of my wife's tolerance level, which is already stretched to the point where I'm hesitant to stretch it any further, so I'm not sure where this option would lead.
Just so you know what the options are, if this scaleback didn't do the trick the last-resort options might be some things along these lines:
  • Look into what some of the bankruptcy-protection options are, where the company keeps going and is simply organized and protected by the court.
  • Look into merging with another company.
  • Look into a cooperative venture with another company, where we'd basically turn into a development house. This way I could perhaps devote my energy to writing only and slowly write books and pay off WotC's debts that way.
If things go sour you can rest assured that I won't be doing any fingerpointing. As president and acting financial officer I will assume responsibility for the situation and it will be my duty to explain the situation to the shareholders.

Please put up with my temper people. I've never been this stressed out in my life. I apologize for being this way, but the pressure is like nothing I've ever imagined and I don't always cope as well as I should.

But we're not dead yet, so in the meantime let's put on the best face we can and continue to give this our best shot. Many many times great success stories come on the verge of what seemed like a great tragedy. Our opportunities are still there; a couple of good breaks and we could be in great shape in no time. So let's remember our responsibility to our shareholders and do our best - we can do no less.

                                Peter D. Adkison
                                President, Wizards of the Coast, Inc.

6 comments:

  1. Who were the share holders Peter speaks of? Was WotC on the stock exchange?

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  2. No, Wizards was privately held. We'll explore the shareholders when I do my second pass over this material, including some work they had to go to to remain privately held. Because of all the friends and family members who invested small amounts in the early days, they almost ran up against the limit of the number of investors you can have in a privately held corporation, which became a problem later when they needed to find new investors but couldn't add any.

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  3. That issue, though, is an important one. When we discuss ownership I'll take some time to discuss the pros and cons of being privately or publicly held. That's an important strategic decision for a company, and it affects everything that follows.

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  4. Many thanks for the answer Rick. I'll look forward to the full explanation when it comes. Fascinating series.

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  5. This is an amazing series of articles. I hope that you continue with it, and that one day you have enough time and energy to publish it as a book. Would love to have the history of Wizards on my bookshelf.

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  6. Anonymous, the response from the Wizards community has been warm and supportive, so I'm confident that together we'll be able to put that book on your shelf. I'll resume writing in about a week and a half, after my board meeting and a family reunion.

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