Sramana Mitra: After you sold the healthcare business?
Tony DiCostanzo: Yes. I didn’t think of the book company as having a big potential because at that time, it was limited to probably about 20 different books that we sold consistently. Some of those books were from different publishers, but I didn’t really represent all the other books that those publishers carry. We didn’t develop our own content.
Sramana Mitra: Were you focusing the business on business books and those kinds of books?
Tony DiCostanzo: Those were for Air Force bases and health plans.
Sramana Mitra: Initially when you were doing this business, your target customer base was health plans and Air Force bases?
Tony DiCostanzo: Yes. Like I mentioned, we had a number of corporate customers who were buying because they were clients of the health care firm.
Sramana Mitra: Let’s trace this from the point where you became serious about this business. You obviously had capital from the other business that you sold, right?
Tony DiCostanzo: Correct.
Sramana Mitra: Did you put any of that capital into building this business?
Tony DiCostanzo: This gets into the teaching aspect of this. I very much believe in the lemonade stand approach to business. A lot of entrepreneurs that have failed went into businesses that require high capital investments to begin the firm. Some of that is obviously known in the restaurant space and in some cases, franchises. One example in particular was a sign franchise business where they had to buy a bunch of printing equipment and very expensive machinery to develop these custom signs.
With my company, I was able to develop the lemonade stand approach where the first iteration of our website was more of a hosted platform solution. The original investment was about $5,000. It was a robust enough platform to test if the business model made sense. I believe that websites are a little like shingles that you throw up. You can test to make sure something works. Maybe, the functionality isn’t exactly perfect but at the end of the day, it’s easy to change them.
Sramana Mitra: This is very much a lean startup approach. We use that approach extensively in our program. Tell me more about what you learned? You learned that there were some corporate customers that were coming to you and looking for a specific kind of inventory. Did you then stock up more of that kind of inventory and start trying to find more of those kinds of customers?
Tony DiCostanzo: The original solution was to engage in forming relationships with the various sources of published content. These are major publishers that had the core books that people would see on the bestseller list and on the shelves of Barnes & Noble. We went out and started engaging those publishers and forming direct relationships and direct accounts. Through one of our publisher contacts, I was actually put in touch with a firm that provided an exclusive distribution relationship where they were selling into a completely different space. We were able to engage their staff in helping us to initially fulfill titles outside of what we were historically fulfilling.
To answer your point, we stocked all the business titles and educational materials. Rather than hiring the staff to maintain relationship with these fragmented publishers, we engage the distributor that already had those relationships, and make sure that the business grew to support the overhead of having those relationships directly.
Sramana Mitra: You were marketing and getting the orders, and then the distributors were fulfilling the order?
Tony DiCostanzo: Yes, that was the initial model.
Sramana Mitra: You had a zero logistics model, basically.
Tony DiCostanzo: Essentially, it was probably a 5% logistics model. We ended up having possession of certain titles because the distributors wouldn’t be able to drop ship everything, but it was minimized.
Sramana Mitra: How about inventory? Did you have to buy any of the inventories or did you basically take the order and the distributors took care of everything else?
Tony DiCostanzo: That’s actually one of the initial learnings we had. This concept of bulk distribution that we have today didn’t really exist in the market as a model. The Barnes & Nobles website has links that say, “If you want to buy in bulk, fill out this form.” Nobody took a bulk-only approach. Within the first 60 days of my grasping this new business concept, it didn’t dawn on me as well that the bulk model made the most sense. Through the first 60 days, I got a number of orders for one to three copies from corporate clients. I ultimately realized that in order to become an expert in the B2B model, I needed to position myself differently from everyone else.