Almost Famous: Mehdi Maghsoodnia of BookRenter

A feature wherein All Things Digital looks at up-and-coming and innovative start-ups you should know about.

This week: We took a coffee break (and made an interview and video) with Mehdi Maghsoodnia, CEO of BookRenter, a company that claims to be “numero uno” in online textbook rentals, a bone of contention between it and larger competitor Chegg.

Who: Mehdi Maghsoodnia

What: Chief Executive Officer

Why: BookRenter is in a battle with competitor Chegg. Mehdi freely admits that Chegg holds more market share, but says his model has the staying power to outlast it. Presumably, Chegg begs to differ.

Where: (Web site); @bookrenter (Twitter); Campbell, Calif. (analog place)

Who else: BookRenter is in a battle for the hearts and minds of college students everywhere. On one side, it competes with college bookstores, Amazon (AMZN), and a trial-rental program from Barnes & Noble (BKS). Once a customer goes the way of rental rather than purchase, BookRenter has to fight with Chegg, the textbook service now led by longtime Silicon Valley exec Dan Rosensweig and whose eggshell has been stuffed with $144 million in venture funding.

Five Stats You Won’t Find in His Facebook Profile

Worst Job Ever: I used to sweep the grounds for a hotel in San Francisco, called Roberts at the Beach Motel (it’s still there). It was right next to the zoo, and the wind would blow all the dust, sand and junk into the hotel, and my job was just to sweep the floor. That was not at all fun.

Geek Crush: I’m a fanatic in terms of business models, and I track the careers of people I admire. I keep track of Maynard Webb, who used to be the COO at eBay (EBAY). I track people with clever minds and clever ideas.

Gadget of the Moment: I love my Apple (AAPL) iPhone–for the first time recently I traveled without my laptop. It was great. The app environment is fascinating. If you look on my phone, the apps are in two distinct sections. One is all the games that keep my kids busy, and the second category is functional things for me. News feeders, banking…and I watch all kinds of videos on the TED app when I’m traveling.

International Businessman of Mystery: I was born in Iran. Then, we moved to London. I traveled a lot and lived all over. I realized early on that a consequence of that is I’m culturally very unmarketable. It’s pretty impossible to market to me. Which, by definition, means I’m not the greatest marketer, because I don’t know what makes people want to buy things.

It’s All in the Family: I sit on the board of Nature Air, an airline in Costa Rica. It’s the first regional green airline, and it’s the family business.

Bio in 140 Characters

Mehdi grew up global, but landed in Silicon Valley. He spent time as a VC then moved to head CafePress. Now he’s CEO at BookRenter.

The Five Questions

Let’s get right into this. How are you guys different from Chegg?

When I was at CafePress, we were the biggest online t-shirt retailer in the world. We spent a lot of time getting shirts in from China, organizing them, putting them in bins, tracking them, printing them and so on. I observed how much of our management bandwidth and resources went into back-end fulfillment as a retailer. I came out of CafePress and was sitting on the venture side when I saw Chegg and BookRenter. I said, “These are two teams satisfying specific demands out there, but with totally different business models.”

Chegg was trying to do everything–taking on warehousing, buying the books, etc. There were many companies doing that, by the way. Amazon among them. The BookRenter team was clever, and they said, “Let’s flip this on its head.” Investing in a book as stock is a losing venture, because your individual investment on the book loses value over time. You also lose money on leasing the warehouse, forklifts, all of it.

At BookRenter, we have all kinds of partnerships that handle those logistics, including recent partnerships with school bookstores themselves. We are in a cyclical business, where maybe four months out of the year we are handling books, and, in the other eight, the books are in the students’ hands. Our costs adjust within those cycles as quickly as changes happen.

How do you track and price all the books when you don’t own them?

So, most of the business is done today on an inventory capitalization model. That is to say, you have a position on what books you have. Everyone buys books and then has to find a match for that book in a rental relationship.

BookRenter takes a very different approach. Our software system creates rental relationships in real time, which means it figures out prices and availability for every new rental. If you come to us and say you want to rent a biology book, the system turns around and queries our suppliers and decides who will be able to get us that book at the lowest overall cost. Our cost algorithm is complex and takes into account things like the reliability of the provider for meeting its commitment on that book.

Once the determination has been made, only then do we take a position on that book and add it to inventory. I can offer as many books as [Chegg] or anyone else, because I’m offering that book virtually. I only pay when I have a paying customer.

You’ve got a lot to say about how you are going to gain on Chegg. Is this really a market that is worth the fight?

Oh yes, the market is growing very fast. We saw 300 percent growth year over year in January. The textbook business is a $9-billion-a-year industry. Someday we hope that a third of that is rentals. The value proposition is there. Renting is cheaper than buying. It’s even cheaper than buying used. Eighteen months from now, we are still going to be a smaller player, but we have the longevity.

Do you do this for the competition, or is it something else that drives you?

I’ll be honest. The best possible outcome for us is that Chegg stays prosperous. Both of us are fighting the same battle in terms of converting some of the buying market to a renting market. So, we are all in the same market development boat. But what I really like about this is the process. I see our business as a 0.9 version, so there are so many things we can still work on.

Organizationally and market-wise, it’s a very exciting thing to design a system for. You have to balance the needs of all kinds of partners. It’s like playing multidimensional chess with very good players. It’s just fun. Also, the growth factor is great. If I had to solve these problems in a business that wasn’t growing, that’s not a lot of fun.

I’ve been there man, that’s deadly. You put a lot of intellectual work into it and you can’t get anyone to care.

As a current student, I’ve got to ask: How have you dealt with undoubtedly the biggest customer problem–highlighting?

[Laughs] You know, that was a real issue early on. Our early policy was no highlighting at all, of any kind. It turned out that students didn’t seem to mind [the highlighting], and in fact many liked it. It was like someone had already done the work of showing them the important parts of the book. Today, we will only charge for damage if there’s been a real issue, like, someone spilled water all over the book and really ruined it.

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