Creating The Textbook Rental Industry – With Aayush Phumbhra, Founder Of Chegg.com

by Tim Jahn on November 9, 2010

When Aayush Phumbhra, founder of Chegg.com, was in college, he noticed how expensive textbooks usually were.  He noticed how Netflix was doing so well with renting movies and thought the model could be applied to college textbooks.

Aayush created Chegg.com, a website that allows students to rent textbooks for as long as they need them.  In this interview, Aayush explains how he created Chegg and a brand new industry with it.

Transcript

Aayush Phumbhra:
My name is Aayush Phumbhra, I’m the founder of Chegg and Chegg is a textbook rental website. We started with the basic concept of making textbooks cheaper for students. You know, when I went to school and textbooks were really expensive, they — and the only way you could buy in textbooks was buy it new or buy it used.

We saw how Netflix was getting so popular with their rentals, so we sort of said, and we figured by renting textbooks, you could actually save students a substantial amount of money.

Tim Jahn:
How did you actually execute on the idea? How did you go from idea to real live business?

Aayush Phumbhra:
So we started up as a Craigslist for college students. It was a — the whole concept in the beginning was to provide a central place for students to buy and sell things.

Albeit electronics went in to our computers textbooks and we always knew that textbooks was one category that students spend a lot of money. and with increasing focus on education becoming more and more expensive, 14 million out of 18 million college students being on some kind of student loans. It became very apparent that we had to do something in order to save money and the cost of textbooks.

Buying it used was one option but again, it wouldn’t save tons of money, give you some benefit as far as buying it used versus buying it new. So we started thinking in — Netflix was getting popular so we just said, why not just rent the textbooks and this was doing our time we were doing a classified model.

But, just a group of people sitting in a room, who just came together to say, “Hey, we should do something with the textbook idea in order to save students more money.” And the other co-founder was involved obviously, and we all just said, “let’s try renting them.”

We test the modeling 2007 and we started a website called textbooklinks.com and it was a direct take of Netflix and it was really successful. Then in January of 2008, we kind of created a central place for everyone on Chegg itself.

Tim Jahn:
At what point did you know that the idea was actually going to work?

Aayush Phumbhra:
I think based on the survey before that we talked to multiple students about, what did they think about the whole idea of renting? Everyone loved it, everyone knew that the savings were going to be substantial. So we saw a huge potential of students wanting to use the service.

The key issues were, how do we execute on it, and obviously the key assumptions that renting the whole model. Now no one had done this before at the scale, so we had to go through testing the model a little bit, pruning out all the assumptions and making sure that everything kind of happens according to plan in our little scale it even more. But, the demand is certainly there.

I mean we’ve scaled close to seven thousand campuses now and saved students more than a quarter billion dollars, and so there’s obviously a demand given the economy we’re in. You know, 14 million out of 18 million college students being on some kind of financial aid, the student fees going higher at colleges, so there’s a huge demand for such a service that could save you hundreds of dollars on textbooks.

Tim Jahn:
You mentioned that you had to do testing to see that the model would scale, how did you go about testing it? You’re in a business that definitely has a lot of overhead, a lot of logistics; this isn’t just your normal online startup. How did you go about actually testing that on a smaller scale?

Aayush Phumbhra:
We started by renting a smaller number of books and we said we’d rent everything, whoever comes to the site and looks for a book, we’ll rent that book. So, we started by renting a few thousand books and learned from there.

How and when the student returns the book, what condition they return it in, how much do we charge the student? How much did we buy the book for? When do they return it? Do they return it on time? Does it come late, etc. etc.? So there were tons of assumptions that go in the model and kind of create the whole business now. I had to be (inaudible) now because now we are on a much bigger scale. Plus, the whole warehousing piece never had that before and once we rented the first few thousand books, we didn’t even know when they were going to come back.

So, we actually outsourced the whole warehousing thing and we created a whole system where we will examine the book once they come back from a student, the conditioning. And now we’ve become so efficient at it that the books come back to the warehouse, we condition them, we improve their quality and they can be turned around in less than four hours.

Tim Jahn:
So I mean, when you’re ready to get a warehouse and to arrange an agreement with UPS; it’s easy to say that. But did you have to hire certain people that are more familiar with the warehouse industry?

Did you have to do a ton of research for a year to realize that UPS was the right person to go with? How did you actually — that’s a lot of stuff in a wide range of industries that you had to conquer. How did you even get into that?

Aayush Phumbhra:
Well I mean, being in select now, you get the advantage of actually having a lot of people who have done stuff before in other industries around. So we were really fortunate to have Tom Glenn, who was the first CEO of Netflix who helped build their first distribution center, come and help us with our warehousing systems and he’s actually involved as of today as well. and he continues to help us improve our warehousing system and make it better every day. So it’s a lot of people that came together in the industry that helped us.

And you know with UPS, I mean, they saw that this model was getting popular and we were getting to a scale where they actually like to — and their goal is the same thing, they want to provide a great experience to their customer in order by shipping the product to them and making sure that it reaches on the promised time and that’s what we were trying to do with our students.

They told us that they’ll be able to help us with our goal of actually making sure that the product gets to the students on time, on the promised day, when they promise on the website. Being in Louisville, Kentucky helps us because they have one of the biggest UPS centers right down the road.

Tim Jahn:
The common theme that I see is you continue to say you got a bunch of people together, you got a great group of people together. Did you and your co-founder pick out these people or did you pick out this team? How did this great team of people come together to accomplish all this?

Aayush Phumbhra:
It was — yes, it was part of picking out the team and it was also part of our business model getting popular, and growing, and people getting interested in working with us to make sure that they could help out and they can get involved.

Tim Jahn:
What’s one piece of advice you’d give to someone who was in a similar situation that saw a need, had an idea, wanted to actually execute on it?

Aayush Phumbhra:
I don’t think there’s a set recipe for getting an idea to where it can become a big thing. I think the first thing any entrepreneur should always look for is they need to believe in the idea, they need to be passionate about it, they need to believe that this could actually change the world. And, what we also saw is that we started off as a different company and now we are renting textbooks, but we started off as a classifieds with college students.

So, you have to be flexible along the lines to be able to change your business model to do something that actually works better for your audience; and Chegg did that really well. We transitioned from Craigslist for college students to now textbook rentals. So I feel that and entrepreneur should be very flexibly changing the direction if that’s what the students, or the audience that they are serving are looking for.

Tim Jahn:
What makes you get up every day and come to work at Chegg? What drives you to continue to want to you know take over the industry with this?

Aayush Phumbhra:
I think that the exciting part is that we’re in a very unique time where the economy’s not doing too well and there are more and more college students that are on financial aid. and it’s — I struggled with buying textbooks in school and I think it’s important for us to be able to help these students get actually value and being able to save so much money renting textbooks.

At the same time, Chegg is gone through almost 6,400 campuses and been able to save a quarter of a billion dollars and we — that’s really exciting. I see that we can do so much more in the future to help students get better, help save them money, save them time and help them get smarter.

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