When University of Notre Dame recent graduates Xavier Helgesen and Kreece Fuchs went to the campus bookstore in 2002 to sell their textbooks, they returned home with the tomes still in hand. The store, they decided, was offering too little money. Curious about what the Internet could do, Fuchs posted his textbooks on half.com and the first day made $500 in sales. Impressed, Helgesen started selling his own textbooks and soon he says, “We were pretty good Internet booksellers.”
To Helgesen and Fuchs, used textbooks proved a valuable commodity, but it was unclear how they could gather enough of them to create a profitable business. The following winter, they teamed up with a local learning center and split the online sales profits from a book drive at Notre Dame’s campus. The book donations flooded in. “The first day we put the books online, we did $5,000 in sales,” Helgesen recalls. “That was the holy cow moment.”
It was also the start of a business—Better World Books (BWB)—that has gone on to donate, by its own tally, more than 6 million books to literacy programs worldwide, sell or recycle 87 million books, contribute from its sales $12.3 million to more than 80 literacy programs and thousands of libraries worldwide, and grow to $55 million in revenues during the 2010-11 fiscal year. In the process, the company has diverted thousands of tons of books from landfills.
BWB’s beginnings represented a marked departure from how the used book business operated. “When we entered the business, most of the folks in the used book world were wholesalers or used bookstores,” Helgesen says. “We were online only. The combination of book collections physically offline and book sales online proved to be a winning one.” BWB also expanded because it used a consignment model in which it paid commissions to libraries and booksellers only after a book was sold, creating a self-funding financing mechanism.
From the beginning, BWB departed from standard business strategies. In 2003, when Helgesen and Fuchs wrote BWB’s business plan, they decided theirs would be a for-profit company with a social purpose—to sell books to finance literacy programs. The plan won Notre Dame’s annual Best Social Venture prize of $7,000. The next year, Helgesen and Fuchs along with their CFO, Notre Dame classmate Jeff Kurtzman, printed up one-page statements for a meeting of the American Library Association. The meeting produced more than 300 leads, Helgesen says. “So we knew we were on to something. In the company’s first two years, its revenue went from zero to $1 million and in the next two years to $10 million.” By 2008, BWB had received venture capital—$ 4 million from about a dozen investors, including Good Capital in San Francisco. “Today I am totally proud of how they’ve grown,” says Kevin Jones, Good Capital’s general partner. “About two years ago we calculated they were giving $1 to literacy every minute of every day, and a month ago it was $5.07 every minute.”
A Booming Charitable Business
Today BWB employs 350 people and has been profitable for the last three years, Helgesen says. And it has forged partnerships with five literacy programs: Books for Africa, which distributes books to African children; Invisible Children, which targets young people in war-affected regions; the National Center for Family Literacy, which has worked with more than 1 million US families to improve at-risk children, and parents’ reading skills; Room to Read, which aims to improve literacy in developing countries; and Worldfund, which trains Latin American schoolteachers and principals.
“Many people love their local independent bookstores, and there was not an equivalent online that made people feel good about their purchases,” Helgesen says. BWB “offered the wide selection and low prices of larger companies, but the personality and social benefit of an independent bookstore.”
Yet unlike independent bookstores, BWB’s business is booming. The company’s warehouse in Mishawaka, Ind., receives 100,000 books every weekday—mainly from book drives at 1,800 campuses and 3,400 libraries. BWB sends donors boxes, tape, and preprinted mailing labels and pays for shipping. It donates 7 to 10 percent of its sales proceeds to its nonprofit literacy partners.
BWB also has been ahead of the curve in its assessment of books’ worth. When a book arrives at the warehouse, employees scan its International Standard Book Number (ISBN), transferring it into the company’s software. The software, developed for $10 million, determines how often BWB receives the book, how often it sells the book, how many copies are in inventory, and the book’s price on the basis of internal and external sales data—enabling a final determination about whether to put the book into its for-sale inventory, donate it, or recycle it. “We built the first enterprise-class software to sell used books online,” says Helgesen. In 2005, BWB spun out a company, Indaba Systems, to license the software to other businesses.
Unlike independent bookstores, Better World Book’s business is booming. The company’s warehouse receives 100,000 books every weekday—mainly from college campuses and libraries.
BWB works with 53 booksellers, including Amazon.com, BarnesandNoble.com, eBay.com, and its own BetterWorldBooks. com, which receive a 15 percent sales commission on every BWB sale. If a library donates a book, it receives 15 percent of the book’s net sale and gets to designate which of the BWB-supported literacy programs receive an additional 5 percent of the book sale’s net revenue. About a quarter of BWB book sales are textbooks. Popular categories include business, economics, medicine, and history. As for individual donors, when they send books to BWB, they get no payment but know that their books will be sold, raising funds for literacy, or donated to a literacy program. Since 2011, BWB promises that for every book purchased, it will donate a book to one of its literacy partners.
BWB is not without its critics. Some have questioned how it balances its social and financial missions. Here Helgesen points to its B Corporation status, the maintenance of which requires the company to answer a survey and provide documentation every two years on how its operations aid all its stakeholders, not just its shareholders. The company also has become carbon balanced by paying an undisclosed sum to 3Degrees Group to obtain carbon offsets for wind generation in the United States and to Tree Appeal to obtain offsets for tree planting programs in Scotland. In 2009, BWB received the US Environmental Protection Agency’s WasteWise Gold Award for Paper Reduction and the following year EPA’s WasteWise Gold Award for Climate Change.
Helgesen’s interests in environmental sustainability have grown since he founded BWB. In 2010, he left his full-time post to pursue an MBA at Oxford University. Today he is BWB’s board chairman and CEO of Off-Grid Electric, which works to bring solar power to developing countries. Fuchs is BWB’s vice president for global logistics, and Kurtzman has gone on to work at other startups.
By 2013, BWB plans to sell eBooks. “As a defensive move, we have to do it, but eBooks aren’t a threat in the near future,” said John Ujda, BWB’s marketing vice president. “If you reflect on the market, bookselling in the United States is a $41 billion market, and in 2010 eBooks did $878 million.”
A Replicable Strategy?
Helgesen says others could replicate some of BWB’s strategies. Instead of a buy-sell relationship with suppliers, for example, BWB shares its sales revenue with its literacy partners and libraries and is transparent about its costs and sales prices. “This gives them comfort to know that the better we do, the more revenue they receive,” Helgesen says. In addition, in 2009 BWB unveiled a program in which it set aside about 5 percent of company ownership as stock option grants for its five literacy partners. Last, by pledging to donate a book for every book it sells, BWB enables its customers to know their purchases’ direct social benefit.
BWB has “turned waste streams into value streams … through simply making an existing waste stream available to a global market,” Helgesen says. Yet he admits that BWB also benefited from having the right idea at the right time. “When an industry is changing, the change creates opportunity for small outfits to do things the big outfits can’t or won’t do.”
There is one aspect of BWB that Helgesen says may not be easily replicable. “We were able to start with the business’s cash flows,” he says. “That was possible because our product was donated, and we didn’t have to pay money up front. We didn’t raise outside funding until five years into the business.”
Helgesen still has ambitions for BWB. He says the company isn’t as profitable as its executives would like it to be. He also wishes more people knew about BWB and its charitable business model, but getting the word out is hard, because the company has a small marketing budget. He also wants to find a home for more donated books. “We are one of the largest book donors in the world,” he says, “but we still have many books we have to recycle and would be glad to donate if we could find a partner who could distribute them in quantity.”
Fiona Wilson, a University of New Hampshire assistant professor who specializes in business strategy and social entrepreneurship and has studied BWB’s operations, says what’s remarkable about the company is that it “has proven that the right model can indeed create a social venture that delivers on people, planet, and profits.” The next big opportunity for Better World Books, says Wilson, “is to scale its sales of new books, leveraging on its unique brand, and to find innovative ways to apply its model to the growing world of e-books.”