What’s Your Exit Strategy?

I didn’t start Stonemaier Games in 2012 with even the slightest thought about how I might stop–after all, I didn’t know if it would be a one-and-done project or something bigger. Nor have I really even thought about an “exit” much since then.

But today I thought I’d delve into the topic of exit strategies as a thought exercise that will hopefully be beneficial for you (and/or supplemented by you in the comments). This is specifically about exits for board game companies, though it could apply to other categories as well.

If you own and run a tabletop game company, here are your options for how you might choose to someday not own and run a tabletop game company. I’ve listed these somewhat in order of least likely to most likely.

• Big, sexy acquisition: This is the type of acquisition you’ve seen in movies and TV shows. You’ve built a company with some very successful games and a vibrant community of fans. A company or person offers you a sum of money you can’t resist, and then gain all of your company’s assets. For whatever reason, they’re only interested in your intellectual property (IP), so you have a large bank account and no job. Off to the beach for you! Does this sound too good to be true? That’s because it is, particularly in the game industry. If you’ve done such a great job building and running your company, you are one of your company’s most valuable assets. See below for a more likely scenario.
• Normal acquisition: You’ve built a successful company, and you attract the attention of a bigger company who wants you and your IPs to make money for them. So instead of working for yourself, you now work for another company. You might get a nice payday, but it’s probably paid out in installments, as the company wants to ensure you stick around for at least a few years. Plus, the company is only going to pay an amount that they can exceed in profits within 3-5 years. So you work through the duration of your agreement, deposit your final buyout check, and then quit your job. (Or you can continue working at the company, but today I’m talking about full exits.) There are very few companies in the game industry that make this type of acquisition (mostly just Asmodee).
• Good deal acquisition: You once had a successful company, but things aren’t going as well as they used to. You’ve had a few duds, you underestimated some expenses, and cash flow isn’t good. You need help. A company offers to buy most of your shares, gaining a controlling interest (you might still own some shares). Part of that money will go to covering your expenses. This is similar to what you may have seen on The Profit, a show about a businessman who buys significant portions of struggling companies at a low value and helps to revive them. In these scenarios, typically you will continue working at the company, though there are cases where you may end up moving on. There are only few companies in the game industry that consider these type of acquisition.
• Partial acquisition: You may have a very successful brand that draws the interest of other companies, but they only want that brand, not you or your other assets/IPs. Similar to the “normal acquisition” described above, the company will look to pay an amount that they can exceed in profits within around 3 years, so you would probably only do this if you have a hot property but you don’t see yourself wanting to run a game company any longer than another year or two. You could take the money, sell through your remaining inventory, and move on to other things.
• Shareholder buyout: If circumstances arose where you no longer felt you could continue to run your company (or shareholders no longer want you to run the show) and your corporate structure allowed it, you could sell your shares to other shareholders, most likely at a steep discount. They would either hire someone else to run the company or they would choose from amongst themselves or other employees.
• Merge and retire: Instead of an acquisition or buyout, you could pool your resources and IPs with another company, aid the transition process, then retire. You would likely retain some shares in the resulting company, and your income moving forward would be dividends from those shares.
• One-and-done project: Given the thousands of new companies that spring up thanks to Kickstarter, I think there are a significant number of people who run a campaign, produce the game, fulfill the rewards, and then stop. No reprints, no retail strategy, no follow-up project. This is perfectly fine for a lot of people. A passion project–even a successful one–doesn’t need to become a career. And if the Kickstarter was extremely successful, this may be one of your best chances to walk away with a significant profit compared to these other scenarios.
• Fizzle out: Stop reprinting old games and stop producing new games. Just sell what you have and don’t make more. This may sound anticlimactic, but I actually think this is a viable exit strategy (and one that will become common for most game companies in the long term). So much of a game company’s revenue goes into reprints and new projects that if you simply stopped making anything and are able to sell most of what you currently have, you may have a sizable return on investment. Ideally you would do this in a way that is respectful to other shareholders. Also, the timing is key–if you do this too late, you may be stuck with a ton of inventory that (at best) takes years to sell through. You may have miss an opportunity to sell some of your intellectual properties to other companies via this approach, but you’ll still own those IPs for a while and could at least arrange a royalty if another company wants to reprint one of your games.

This leaves the question: Should have an exit strategy? In the tabletop game industry, I think it may be more important to be aware of your options than to be actively planning an exit. If you focus too much on the exit, you may be sacrificing your present potential (and that exit may end up being a fool’s hope as a result).

Plus, so much of an exit strategy is about money, but if you’re like me, you got into this business because you love creating games and bringing joy to tabletops, not to fill your bank account to the brim. I’m focused on accomplishing that mission as long as I get to run this company. The concept of building a company for the purpose of selling it is completely foreign to me.

I will say this, though: If you work hard to build a successful company, I recommend that you make some choices along the way so that if the company does fizzle out over time–as I think most game companies will do–you have something to show for it. For example, after taxes are paid each year, take 20% of your profit from the previous year (capped at 20% of your current cash flow) and pay it out in dividends to shareholders. (do not count any Kickstarter funds received as profit until you’ve completely fulfilled all rewards.) Basically, reap the rewards of your success–as your company may wax and wane–without impeding your company’s ability to continue to be successful.

Those are my thoughts about exit strategies, and I’d love to hear yours in the comments below!

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Also read:

• When a Company Wants to Acquire You
• The Current State of Mergers and Acquisitions

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