Better world books case study pdf

Better World Books uses the power of business to change the world. We collect and sell books online to donate books and fund literacy initiatives worldwide. With more than 8 million new and used titles in stock, we’re a self-sustaining, triple-bottom-line company that creates social, economic and environmental value for all our stakeholders.

— www.betterworldbooks.com

It was almost time to present. Mike Miller, chief executive officer (CEO) of Better World Books (BWB), reflected on how much the company had changed during his short tenure at the company’s helm. He had successfully helped Better World Books develop its operations in his previous role as senior vice president of operations, but knew he had his hands full in guiding BWB toward maturity from its headquarters at the BWB corporate campus in Atlanta.

BWB was founded as a “B corporation,” one that is committed in its incorporation documents to meeting a triple bottom line of financial, social, and environmental performance. While traditional firms focus primarily on satisfying their shareholders, BWB recognizes that it has a responsibility to all stakeholders, including its employees, literacy partners, and “Mother Earth.” Over the past few years, BWB has grown significantly, from a small niche player frequenting college campuses to one of the most widely recognized social-entrepreneurship firms in the United States. As testament to its success, the company generated over $80 million in revenues for 2014 (see Exhibit 1). It has also raised over $18 million for literacy and saved over 150 million books from going to landfills.1, 2 Although BWB has successfully scaled to its current size, and investors are happy with the firm’s performance thus far, there were concerns as to how BWB would ensure future growth and continued triple-bottom-line results.

As Mr. Miller surveyed the crowd of students filling the auditorium to attend Georgia Tech’s iMPACT Speaker Series, he wondered how BWB’s transition from a start up to a mature company would affect growth and the expectations of investors and stakeholders alike, if at all.3 He was acutely aware of the growing competition in the online book market, both from companies like Amazon and eBay and from individual booksellers who now populate such online marketplaces. Similarly, the supply of used, printed books that BWB intrinsically relied on for donations was set to shrink due to the increasing popularity of e-books and e-readers like the Kindle. Was the company set to adapt to

Professors Frank T. Rothaermel, Marne L. Arthaud-Day, and Konstantinos Grigoriou prepared this case from public sources. We gratefully acknowledge Research Associate Michael McKay for updating some of the key data in this case. This case is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the authors’. © by Rothaermel, Arthaud-Day, and Grigoriou 2015.

Better World Books and the Triple Bottom Line

FRANK T. ROTHAERMEL

MARNE L. ARTHAUD-DAY

KONSTANTINOS GRIGORIOU

MH0034 1259927628

REv: FEBRUARY 26, 2015

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Better World Books and the Triple Bottom Line

the changing market and changing leadership? Would the necessary adjustment be at the expense of its triple-bottom-line approach or the company growth? Collecting his thoughts, he again began to mentally run through his talking points.

BWB’s History, 2003–2014

INCEPTION

As students attending Notre Dame University, Xavier Helgesen and Christopher “Kreece” Fuchs dreamed of jumping on the Internet bandwagon. In 1999, they developed a user-generated content application in which students could post teacher evaluations. The application quickly spread to other universities. Unfortunately, the dot-com bust halted their plans, and the pair was forced to sell the company at only a small profit.

Once again searching for a way to make some money, Fuchs and Helgesen went to sell their old textbooks to the campus bookstore. They left disappointed when the bookstore offered no more than a few dollars to buy back books that had cost them over $150. Believing that the books were worth significantly more, they decided to reach out to a wider audience and listed their books for sale on the Internet. Much to their delight, the pair found that Internet customers were willing to pay much higher prices: Books for which the bookstore was not offering even a dollar were selling for $50 online!4 Eager to take advantage of this business opportunity, they asked their friends for their old textbooks and sold those as well.

Realizing that they could use the Internet to create a market connecting sellers and buyers of used books, Fuchs and Helgesen began to search for more inventory. Their first project was a book drive to benefit afterschool reading programs at a local community learning center. Their motive was twofold: They genuinely wanted to give back to their college community, and they recognized that people were usually more willing to contribute when a charitable cause was involved. They collected 2,000 books in just a few months and raised $20,000, splitting the funds evenly with the community center.5

Encouraged by their initial success, Fuchs and Helgesen decided to take their idea to the next level. With the help of classmate Jeff Krutzman, who had experience in investment banking and finance, they drafted a business plan. The venture they envisioned had built-in social and environmental com- ponents. By sourcing used books through book drives and selling them online, they could not only generate profits but also raise funding for literacy and education programs. At the same time, they would be keeping old books out of landfills and thereby helping the environment. Building on their community-center experience, they sought to form partnerships with worthy and appealing causes that people would be willing to support through book donations. Xavier boasted, “Social and envi- ronmental responsibility is the core of the initiative—it’s in our DNA.”6 Their idea won as “Best Social venture” at a Notre Dame University business-plan competition, netting the young entrepreneurs $7,000 in startup capital.7 David Murphy, one of the competition’s judges, saw great potential in the idea which they had named Better World Books, and he offered to advise the trio as they continued to build their business. His expert guidance led to his eventual nomination as CEO and president of the young company.

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Better World Books and the Triple Bottom Line

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EARLY GROWTH

The eager entrepreneurs expanded their book drives to university campuses nationwide, partner- ing with student groups who received a small royalty payment for each book collected. The incentive for student groups was threefold: get students involved in a good cause, raise money for their student organization, and help fight global illiteracy. BWB benefited through access to increased inventory.

Soon, other opportunities emerged. After discovering that libraries had millions of excess books, BWB decided to make them an attractive offer:8 They could donate used books to BWB, which in turn would use the proceeds to support both the donating libraries and world literacy programs. Libraries already had a system in place to deal with unwanted books—by holding book sales (“yard sales”) and community giveaways, and then hauling the leftovers to landfills. David Murphy, the CEO at the time, explained how they managed to convince libraries to send their books to BWB instead: “We don’t want to compete with your yard sale, but you are missing a huge opportunity to create revenue by not selling online.” The company now gets more than half of its revenues from ex-library books. One important advantage to libraries as an inventory source is that the supply is much less seasonal in nature. By 2014, BWB had received books from more than 2,300 college campuses and 4,000 libraries across the United States, Canada, and United Kingdom.9

The company also cultivated strategic partnerships with bookstores in order to increase its prod- uct offerings and access to consumers. For example, in 2009 BWB partnered with Alibris, the largest independently owned and operated marketplace for sellers of new, out-of-print, rare, hard-to-find, and used books. Alibris’ website featured over 100 million items, while BWB carried around three million. The partnership made Alibris’ vast inventory available through the BWB website, giving BWB’s customers access to a much wider selection of both new and used books. At the same time, Alibris listed BWB’s inventory on its own website, increasing BWB’s customer base. The alliance has been very successful: within the first six months, Alibris’ independent sellers netted $1.5 million in sales on BetterWorldBooks.com.10 Similarly, BWB reached an agreement with Powell’s, an independent bookstore carrying both new and used books, to sell books that Powell’s could not keep due to space constraints. BWB helped Powell’s create shelf and inventory space by taking over the shipping costs and providing a generous percentage of revenues. The deal was attractive to both companies, as they have different but complementary customer bases and sales channels. Books sold through BWB but sourced from one of its more than 20 online partner companies follow the same revenue distribution model as the books in BWB’s internal inventory.11 Affiliates receive between 5 percent and 8 percent of every sale they refer to the BWB website.12

As a result of the company’s efforts to increase in scale, inventory grew exponentially from 92,000 books in 2003 to over 8 million in 2013.13 Revenues doubled every other year with a total revenue growth of 120 times the starting value in the company’s first 10 years of operations (Exhibits 1 and 2).14,15 The company currently processes more than 1 million books a week, selling 25,000 books daily, and it is one of the top three online sellers of used books in the world.16 Roughly 25 percent of BWB’s book sales take place through its proprietary website, which the company launched in 2008.17

PRODUCT DIVERSIFICATION

As BWB moves into a more mature stage of corporate development, it has started to pursue econo- mies of scope as well as scale. While print books remain the company’s main focus, it now offers more than 25,000 new and used audiobooks for sale on its website. BWB has also initiated an e-book

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Better World Books and the Triple Bottom Line

program in response to customer demand and carries about 5,500 titles in stock for use with iOS, Android, and laptop/desktop readers. However, BWB e-books are supported by neither the Amazon Kindle nor the Barnes & Noble Nook devices, which severely limits BWB’s growth in this market segment.

Additional product expansions include approximately 20,000 new or used traditional and digital games, as well as a limited selection of new or used movie DvDs and music CDs (approximately 1,000 each).