Plastic Elves. Software Margins.
S U M M E R S C H O O L · L E S S O N 7 O F 7
The last lesson of Summer School is the one company I’d tell every founder to copy — a Nottingham business that sells toy soldiers and out-earns half the FTSE.
Last day of term. For six weeks now, this series has mostly been a study of how good businesses die — profit that wasn’t real, cash that wasn’t there, brands that outlived the machines beneath them. I promised we’d end on the opposite, and I’ve saved my favourite for last. Not a tech unicorn. Not a bank. A company in Nottingham that makes small plastic figures of elves, orcs and space marines, which customers then pay to assemble and paint themselves.
In its last full financial year, Games Workshop — the maker of Warhammer — reported revenue of £617.5 million and pre-tax profit of £262.8 million. Read that again: roughly 43p of every £1 of revenue becomes profit before tax. Those are the margins of a software company, achieved by a manufacturer that runs its own factories and its own shops. It joined the FTSE 100 in December 2023, sitting alongside banks and oil majors, and its latest update says this year will be better still. Somewhere along the way, a share that traded at around £5 in 2016 went past £100.
So what do they know that everyone else doesn’t? Having read their annual reports — which I recommend, they’re the plainest-spoken in the FTSE — I’d say they know three things. None of them is complicated. All of them are rare.
1. Focus is a financial strategy, not a slogan
A decade ago, Games Workshop was drifting — flat sales, tired stores, a business that couldn’t quite decide whether it was a toy company, a games retailer or an entertainment brand. The turnaround that began in 2015 under Kevin Rountree started with a sentence: we make the best fantasy miniatures in the world. Not games. Not toys. Miniatures.
That sentence is a financial document. It tells you what to stop doing — and stopping things is where the margin came from. Every product line, store format and side project that wasn’t the best-miniatures-in-the-world got cut, and the capital went into the one thing that was. Most businesses I meet are doing five things adequately because saying no feels like shrinking. Games Workshop is the proof of what one thing done brilliantly earns instead. If you can’t state your business in one sentence sharp enough to kill projects with, that’s the exercise — and your management accounts, split honestly by product line, will tell you which sentence it should be. Lego learnt the same lesson the expensive way, back in lesson one.
2. Own the thing that makes the money
Games Workshop owns every layer of its machine. It invents the worlds, so it owns the intellectual property outright. It manufactures in its own Nottingham factories, so nobody upstream takes a slice. It sells through its own stores and website alongside trade partners, so it keeps the retail margin too. Control of the chain is where those 43p margins actually live.
And then comes the clever part: having built the asset, they rent it out. Licensing — video games like Space Marine 2, which sold over seven million copies, and a deal with Amazon to put Warhammer on screen — brought in £52.5 million last year at close to pure margin, because someone else spends the capital while Games Workshop collects the royalty. The founder translation: somewhere in your business is the layer where the margin genuinely lives — the IP, the method, the client relationship, the thing you’d still own if everything else burned down. Know precisely which layer that is, own it outright, and be very slow to give any of it away. Then ask whether anyone would pay to borrow it.
3. Boring capital discipline, compounding quietly
My favourite line in their annual report is this: “we believe shareholder value is created, primarily, by not destroying it.” They state, in writing, that they have no intention of acquiring other companies. They hold a defined cash buffer — three months of working capital, plus upcoming tax and major commitments — and everything above it is declared truly surplus and returned to shareholders. Last year they also paid around £20 million of profit share to staff, in cash.
After six weeks of collapse stories, look at what’s absent from that paragraph. No debt-fuelled expansion (Wilko would like a word). No acquisitions bought on optimism (as The Body Shop’s owners can testify). No profits that exist on paper but never arrive as cash (Carillion). Most corporate value isn’t lost to bad luck; it’s destroyed voluntarily, through adventures the numbers never supported. And the cash buffer rule is one you can copy this week at any size: define what your business needs to hold — mine is three months of overheads plus the next tax bills — and only when you’re above it does the word “surplus” exist at all. Every founder I know who sleeps well has a version of that rule. Every one who doesn’t, doesn’t.
End of term
That’s Summer School. Seven companies in seven weeks, and if there’s a single thread running through them, it’s this: in every case, the numbers knew first. The fake profits, the vanishing cash, the brand outliving the business — all of it was visible in the accounts long before it was visible in the headlines. And the two success stories weren’t magic; they were businesses that read their own numbers honestly and had the discipline to act on what they found.
Your accounts are telling you the same kinds of truths right now. September is traditionally the month founders come back from the beach and decide to finally get on top of them — so if this series has been quietly describing your business back to you all summer, this is your term-time nudge. Thank you for reading along all summer. The newsletter returns to its usual rhythm next week. Subscribe if you haven’t, and tell a founder friend who needed one of these lessons — you know exactly which one, and exactly which lesson.
Sophie Wright is the founder of WrightCFO, a top-five UK fractional CFO practice working with founders scaling between £1M and £10M. Everything this series covered — product profitability, cash discipline, funding relationships, deal readiness — is the day job of the specialist CFOs in the practice. If the summer’s lessons described your business a little too accurately, book a 30-minute discovery call: tell Sophie about your business, and she’ll match you with the right specialist from the practice.
