Reformers [Episode 5]: Blaine Vess, Student Brands

The founder and former CEO at Student Brands (acquired by Barnes & Noble Education for $58.5M) shares his thoughts on the power of pivoting business models, M&A as an underrated growth tactic for startups, and why bootstrapped companies shouldn’t stray away from recruiters (despite the hefty bills)

For our fifth episode of Reformers: The gritty details behind the world’s greatest bootstrap successes, we are excited to share our interview with Blaine Vess, the Former Founder and CEO at Student Brands, an education technology company that operates multiple direct-to-student businesses. Blaine Vess founded Student Brands in his freshman dorm room in 1999. After slow and steady growth for the first 5 years, Student Brands hit an inflection point that saw tremendous user and revenue growth, much of which was due to an unconventional M&A strategy that Blaine executed. By 2017, after 18 years of operating the business without raising any outside funding, Blaine decided to sell Student Brands to Barnes & Noble Education for $58.5M. Below are some of Blaine’s key insights and lessons learned that he shared during the interview, which can be implemented in your own business. You can listen to the full interview here:

The power of shifting business models

Until about 2003, most of the companies in Student Brands’ space (including Student Brands) were utilizing an ad-based revenue model. Then, in 2003, a new entrant into the student content space was pioneering a new revenue model: subscription. Blaine and the team were fascinated by this novel business model approach, but they hesitated to switch to a subscription model as they had previously run into some issues (on a different venture) with chargebacks, which forced them to shut down a merchant account and left them scarred to the idea of subscription (i.e. they feared collecting payments from consumers vs. advertisers).

“As a result, we hesitated to switch to a subscription model longer than we should have. This was a mistake.”

After getting over the fear of chargebacks, in 2005 Student Brands ultimately made the switch to a subscription business model, and the company immediately hit an inflection point on growth. They went from making $60k in advertising revenue in 2004 to earning more than $1M in subscription revenue in 2007, $3M in 2008, and $5M in 2009, with growth only continuing from there.

As a startup, you often look for growth opportunities via new sales channels, new marketing tactics, or new markets. However, transitioning to a new business model (e.g. enterprise-wide contract → pay-per-user; freemium/premium → 14 days free; listing fee → % of transaction; etc.) is an often overlooked strategy that could result in a massive shift in trajectory.

Growth via M&A is underrated and underutilized

In 2007, a competitor of Student Brands approached Blaine to see if he was interested in buying their business. Blaine was excited about the opportunity, but the seller decided to go with one of Student Brands’ competitors; even though Blaine did not get the transaction done, this opened his eyes to the idea of rolling up their space.

Shortly after, beginning in 2008, Student Brands began aggressively acquiring a bunch of their competitors, typically identifying them by searching Google and identifying the top search results (which tended to be older sites). Since Student Brands had now fully implemented their subscription model and was receiving a lot of organic traffic from SEO, Blaine knew they had a better overall business than most of their competitors (many of whom had not yet switched to a subscription model and were still relaying on ads) and could therefore turn acquired properties into much better and more valuable assets. As a result, Student Brands began acquiring whatever they could, seeing an arbitrage opportunity in the market.

“We were buying momentum: Google rankings, content troves, traffic.”

The acquisitions were really small early on: they bought a couple of sites from one seller for $35k, another site from a different seller for $20k. Though these sites had no revenue at the time, they had immense SEO value and some of them wound up bringing in 10–20x their purchase price in just the first year! Perhaps the best part: since these acquisitions were very small, Student Brands didn’t need to raise outside capital to fund them. They ultimately acquired about 15 of their competitors (with the largest acquisition being ~$5M) and remained active on the M&A front all the way until 2017, the year they were acquired by Barnes & Noble Education.

While most companies these days want to build all their products themselves in-house, there is a compelling question here: why start at ground 0? If you can acquire a solid company/product (whether it’s a competitor in your current space or in a space you’d like to enter) for an attractive price, and it accelerates your traffic and/or time-to-market, M&A can be a very efficient growth model.

Avoid being overly cautious and conservative

Blaine launched Student Brands while in college, working on the company while attending classes and socializing with friends. Though the company had revenues and momentum by the time Blaine graduated, he decided to get a full-time job and began his career working as a consultant to New Line Cinema, making $40k per year. Blaine wound up spending several years working with New Line, even while Student Brands had surpassed $3M in annual revenue with 90% net margins. For Blaine, though he loved working with New Line and leveraged his fixed salary to support Student Brands, not leaving New Line earlier to go all-in on Student Brands is one of his regrets.

Additionally, Blaine believes him and his co-founders were too conservative in scaling Student Brands.

“We didn’t really professionalize the business until 2011, a decade after we founded it. It was just me and my co-founders working out of our house. We didn’t go bigger soon enough.”

In hindsight, Blaine believes him and his co-founders could have been more aggressive reinvesting the free cash flow back into the business to bring on outside software developers sooner. (Blaine had been coding everything himself for the first 8 years of the business; eventually, they hired freelance software developers from oDesk, which helped Blaine get out of the weeds of coding.)

Leverage recruiters to hire great talent

For Students Brands, it was very difficult to attract talent. Blaine leveraged a lot of recruiters from early on to help them find the right people.

“When you’re bootstrapped, people don’t really know about your company until you’re very large. For a company like ours, we were very profitable and growing nicely, but that wasn’t very interesting for the TechCrunch crowd.”

Recruiters helped with everything from selling Student Brands, to getting their vision out there, to finding and closing candidates. They were a huge boost to Student Brands because they helped land amazing candidates (like the company’s first President), and those candidates wound up bringing other great talent with them to the company. Even though recruiters can seem expensive up front, especially for a bootstrapped company on a tight budget, they can save companies a tremendous amount of time and value, since the cost of getting a hire wrong far exceeds the cost of a great recruiter.

Getting acquired was a path, not a process

In 2009, early on in the company’s life, a friend asked Blaine about his vision for Student Brands and proceeded to introduce them to an investment banker. This was the first time Blaine realized that Student Brands could be an acquisition target. They quickly began meeting with private equity firms, growth equity firms, and search funds; however, they did not get any significant interest (due to the space being relatively unknown, plus the fact that Student Brands’ messaging and marketing was subpar) and proceeded to build the business.

In 2014, the market environment for Student Brands changed. The company had drastically improved its branding and messaging (and business metrics), and several “hot” companies such as CourseHero began bringing VC attention to the space. As a result, Student Brands decided they wanted to take on some outside capital; but once again, their plan didn’t work out and they failed to raise any money, which Blaine is grateful for.

By 2017, Blaine was 18 years into building the business, which was still growing and very much on-the-tracks. Separately, he had recently founded another company called Solve, which he began spending more of his time on (note: he wound up going through Y Combinator and selling this company as well). Ultimately, Blaine realized that he was ready, physically and emotionally, to move on from Student Brands to other, newer endeavors. During this time, Student Brands had causally met Barnes & Noble Education, and Blaine immediately thought they were a perfect home for his company. Shortly after, him and his co-founders decided to sell Student Brands to Barnes & Noble Education for $58.5M, ending a remarkable 18-year bootstrapping journey.

“Trying to sell the company was not a one-time process — it was really more of an 8-year path.”

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