Niche E-Commerce in Textbooks: ClassBook CEO Tony Pfister (Part 5)

Sramana: What is the financing strategy you have followed from 2002 to 2012 as you have built ClassBook.com?

Tony Pfister: We have been investing everything back into the business. We took the approach that a healthy business would equal a healthy life. I like the idea of bootstrapping as much as possible. Eventually you hit a point where expansion and growth make the bootstrapping philosophy work against you. To date, our growth has been organic and we have been lucky enough to maintain strong financials. We have a very strong relationship with our bank and have not taken outside financial investment.

Sramana: Do you use inventory financing from banks?

Tony Pfister: We do. We started taking it about two years into the business. In order to scale the business, you need inventory. In our case, that means we have to stock a lot of inventory, and we needed bank financing to do so. If you want to operate on a small scale and buy on cash or finance it on a credit card, then you are never going to scale. We got our first $100,000 line of credit after two years. Today those lines of credit are more than $3 million. It is a revolving line of credit that zeros out every 30 days. We have been able to execute on that year after year.

Sramana: Today you have $11 million in revenue. What do you need for the next stage of growth? A large line of credit?

Tony Pfister: A larger line of credit will help. As we push into the digital model, inventory financing is not necessarily needed.

Sramana: What percentage of your business is traditional e-commerce rather than digital e-commerce?

Tony Pfister: Right now we are only doing 10% digital.

Sramana: So you still have to scale 90% of your business with inventory financing.

Tony Pfister: Exactly. As schools move toward a digital path they will scale down their physical book orders. Banks are very comfortable with us and the traditional model is easy to scale there. I don’t know how much we are going to need because inventory growth is not going to be required as schools move toward digital assets.

Sramana: What are you learning from the marketplace in that regard? What kinds of things are going digital in the education space?

Tony Pfister: Core publishers are pushing the top 20% of their products into the digital space. You also have independent authors who are self-publishing on multiple platforms.

Sramana: Do you see a lot of independent books being used in your platform?

Tony Pfister: It depends on the teacher. Some teachers use diverse curriculum, whereas others use the top sellers. I find that a lot of Advanced Placement (AP) English classes use novels. Teachers of those classes might have one or two niche books, but they all seem to have a list that they use in common.

Sramana: In the e-book business, what kind of terms do you work with?

Tony Pfister: A lot of the terms mirror the distribution arrangement. We get a small discount on the price of the book, and we must operate very efficiently to make our margins.

Sramana: Are you assuming that people are buying books to read on an iPad?

Tony Pfister: We know what the end user will do. The schools adopt curricula, which takes ambiguity out of the equation. We know what the teachers are going to tell their students they have to do for class.

Sramana: If the school adopts iPads or Kindles, don’t the books need be sold through those respective online marketplaces like iTunes?

Tony Pfister: Not necessarily. We have opened up all e-content providers through our market. The digital approach is different from the traditional approach, but we still know where that content is going to reside. We incorporate different content providers to a streamlined solution. When the student is buying his or her books, he or she don’t need to worry about getting the iPad version or the Kindle version. Students just have to know which teachers they have and which classes they are in. They get all their content, print or digital, in one stop.

This segment is part 5 in the series : Niche E-Commerce in Textbooks: ClassBook CEO Tony Pfister
1 2 3 4 5 6 7