Start-Up Pioneer Learns to Ease Up on the Pedal

The walls at the Silicon Valley headquarters of are almost completely unadorned, the carpeting threadbare, the cubicles in large part vacant. It’s the stage of office decor at which one can’t be sure whether the tenant company is just coming into existence or on the road to extinction.

In this case, it’s the former. Yet KeepMedia, an online archive of articles from popular magazines, is a Redwood Shores, Calif., start-up built, in a sense, from the lessons of one of the dot-com era’s most spectacular busts.

That was Webvan, an online grocery delivery service that burned through $850 million in venture and shareholder capital before going out of business in 2001. The experience taught Webvan’s founder, Louis Borders, some tough lessons about how quickly to scale up a big idea. The answer, he found, is: not very.

“From a vision and strategy point of view, you have to separate your grand vision from your launch opportunity,” he was telling me not long ago in a spartan conference room at KeepMedia central. “You must not only be modest but have a compelling business in and of itself. And we’re a very modest start-up.”


In today’s Silicon Valley, Borders is something of a throwback. His eyes burn with an entrepreneur’s fervor as he outlines the idea behind KeepMedia, which launched its subscription service less than two months ago.

He still uses expressions such as “elevator story,” the once-common term for a pitch sufficiently boiled down to be delivered during an elevator ride. He still talks in terms of 100% growth rates, and about the right timing to get into great businesses. And in an age when sworn entrepreneurs are still thin on the ground in Northern California, he’s still capable of saying: “I love start-ups.”

No Stranger to Start-Ups

Consumer-oriented start-ups have been in bad odor in the venture finance community for several years now. But not to the 51-year-old Borders, who has founded two famous specimens of the category.


The first was Borders Books, which he started with his brother Tom in Ann Arbor, Mich., in 1971. The original store, which Borders describes as the outgrowth of his hobbyist love for books, grew into a pioneering chain of superstores.

Eventually, the brothers sold it to Kmart Corp., which coveted its inventory management software designed by Louis Borders. Kmart merged Borders with its Waldenbooks chain and eventually spun the unit off as an independent entity in 1995.

In 1996, Borders launched Webvan as a hybrid online ordering and home delivery service focused initially on groceries. Like the bookstore in its late incarnations, Webvan was founded as a broadly appealing consumer service backed by exceptional technology -- in this case, an elaborate system of software and hardware governing everything from the mouse-clicked order to the assembly of the package, delivery by one of a fleet of trucks and inventory restocking.

Webvan was born at a time when a good story and even a distantly beckoning opportunity could attract hundreds of millions of dollars in investment capital. The company was showered with money like an only child showered with Christmas largess. Like many dot-coms, it got hooked on spending money even faster than it came in.


“At Webvan we got caught up in spending too much,” Borders recalls, speaking in the soft drawl that still gives away his Louisville, Ky., upbringing. To serve its launch market in the Bay Area, the company built an Oakland warehouse the size of seven football fields and equipped it with a staggeringly complex network of conveyor belts, color-coded bins and carousels of goods.

And why not?

By late 1999 the company already had raised about $850 million, including $375 million from a public stock offering that valued the fledgling operation at more than $4 billion. The mantra at the time was Get Big, Fast. Webvan mapped out a nationwide expansion well before the kinks had been ironed out in the Bay Area.

To this day, Borders maintains that the only flaw in Webvan’s business model was its overexpansion. “Webvan had a good business, but it grew too fast,” he says. “It didn’t have the model honed enough; we just needed a little more time to handle the demand.”


As a company that had to roll trucks to serve its customers -- with all that implies about dealing with delivery routes, traffic and capital equipment -- every step in scaling up increased the complexity of the operation exponentially.

Riding Another Elevator

It’s probably no accident that Borders has left such physical interaction with the customer out of the model for his new company, which so far he has funded himself at an undisclosed level. (He says he expects to undertake a round of venture or strategic financing in the next year.)

The elevator story of KeepMedia is that it’s a sort of digital newsstand.


For a fee of $4.95 a month, subscribers gain access to the archived articles of more than 25 general interest magazines, including Esquire, Forbes and BusinessWeek. They can search the online library by topic or text, store favored articles in an electronic drawer or e-mail them to friends. They also can annotate articles and ask the system to alert them to other offerings similar in subject matter, style or even reading level. They also can subscribe to print versions via the site, which gives them accelerated access to the most current articles.

By comparison to Webvan, whose executives used to boast of owning a critical pipeline into the customer’s home, KeepMedia is the essence of modesty. This is not to say it’s entirely above putting on airs: The site bills itself as affording access to more than 140 publications in all, but at least 108 of those are trade organs such as Waste Age and Refrigerated Transporter rather than general interest periodicals.

Of the latter, the pickings are still somewhat slim. Borders certainly will have to expand significantly the inventory of top-shelf publications to attract a critical mass of subscribers. Two magazine giants, AOL Time Warner Inc. and Conde Nast Publications Inc., have not yet signed up -- Time because it is still trying to get its own fee-only site for its namesake newsmagazine as well as Fortune, People, Sports Illustrated and its other lofty titles off the ground, and Conde Nast (Vanity Fair, the New Yorker) because it apparently is slowed by what Borders calls an institutional conservatism.

The publishers also are, presumably, waiting to see if the public is yet ready to pay money to obtain reading material online. Numerous earlier attempts at consumer-oriented pay-per-view or subscription models have failed. Borders maintains that their timing was off or their format uninviting. Contentville, a venture by publishing entrepreneur Steven Brill, confused users with its mix of magazine stories, academic dissertations and whatnot.


“They were putting up theses and John Doe’s thinking about the new world order,” Borders says. “Consumers didn’t know if they were reading high-quality content or garbage.”

The notion of charging for information on the Web has faced customer resistance for years. Among major newspapers, only the Wall Street Journal, which boasts specialized material and a well-heeled audience, charges a fee for online access to all its current content.

But that’s changing. At the urging of its America Online service, Time Warner has started making some or all material from People, Sports Illustrated and its other magazines available only to its AOL or print subscribers. The Los Angeles Times recently placed the entertainment and culture content of its Calendar section behind a fee-only firewall.

Timing the Market


“Timing is everything,” Borders says. “Only 10% to 15% of the reading public has paid to read online, but the rate’s growing at 100%. That’s the exact time you want to start.”

He adds that publishers have only recently gotten used to the idea of turning over their material to an independent online distributor, preferring to host their own Web sites, even after discovering this was not as easy as it looked. “They thought information technology was one of their core competencies,” he says. “They’ve now given up on that idea.”

He’s trying to bring the publishers along with a revenue-sharing scheme that grants them a healthy 40% or more of the money paid by users to access their articles.

Borders believes that his subscription model leaves plenty of room for creative pricing to serve a varied market.


“There may be content we’ll sell for $25, like a business report,” he says. “Look at us as a cable TV service. We’ll have a broad-based subscription service but also pay per view with special subscription rates for certain sports or business content.”

Theoretically, this is a model that also can service media other than print. Borders talks speculatively about eventually providing audio and video content to his customers. But in the current style of thinking big but executing small, he acknowledges that the time’s not quite ripe.

“One thing we did right was steer away from the music business,” he says. “With all the legal stuff, it’s a hellhole right now, and I wouldn’t want any part of it.”

Moving beyond magazines at the moment is more than KeepMedia could handle, anyway. That’s the lesson of Webvan, Borders says: “I learned that you definitely need to prove your business model before you step on the gas.”



Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at