My Toughest Decision? Killing the Part of the Business That I Loved

By Sandy Jaffe, CEO, Booksource, St. Louis, Mo.
They say if you can work at your passion and make money at it you will be happy. For 30 years that's what I did. I love books and the core of our family business was being a wholesaler to retail bookstores -- we bought books from publishers and sold to both large retail chains and small independent shops. Our profits were never very large, but I was so happy in what I was doing in my life I didn't really care.

But my son Neil saw it differently -- and he convinced me to make the painful decision to jettison our core business in favor of a more lucrative sideline. It was the right move for the business, but it hasn't been easy.

Back to school
While Neil was earning an executive MBA at Washington University in St. Louis, he started looking more closely at the reduced margins in our core bookstore business compared to another smaller piece of the business, selling books to schools for use in the classroom. He made the case to me that we needed to get out of the retail business and focus entirely on schools.

Initially I just didn't want to do it. The retail bookstore business was always the heart of the company. I bought the company in 1974 at the perfect moment. Independent bookstores were thriving and chains like B. Dalton and Walden Books were about to take off.

Then, in the late 1970's, we started getting calls from schools in the St. Louis area asking if we could supply them with copies of books like Catcher in the Rye or To Kill a Mockingbird. I didn't know anything about selling books to schools. But I had been worried that too much of our business was going to the chains. So I jumped in, thinking this was a good opportunity to diversify. I never anticipated that this sideline enterprise would eventually force me out of the business that I love.

For the first several years we focused our school business in Missouri and Illinois and let it grow by word of mouth. In the mid-1990's we began to develop it more actively: I joined trade organizations to learn more about the market; we hired our first specialized sales reps; and we developed dedicated school catalogues. The business took off and, by 2000, it was far more profitable than our retail book trade.

Facing the truth
A part of me knew Neil was right about the problems in the retail bookstore operation. We were generating about $35 million in sales, $20 million of which came from the bookstore market. The trouble was that the bookstore business was generating very little profit. The reason: We were selling mainly to a few big customers -- B. Dalton, Borders and some airport bookstore chains -- and their size gave them the leverage to demand huge discounts.

But I was still passionate about bookstores and books. Happiness, I had always felt, was more important to me than earning more money. So I said no.

Then in early 2004 we lost a large airport bookstore chain because a competitor gave them a better deal on price. I realized that staying in this increasingly tough business was crazy. I told my sons I was ready to talk about getting out. I looked at the numbers more seriously, and we began to discuss whether the school business could generate enough earnings to sustain the company.

Preparing for the transformation
To make the change, we needed to get better pricing from the book publishers for the school business. The solution we hit upon was to negotiate a deal with the publishers to buy books on a nonreturnable basis, meaning we would give up the standard right to hand them back if they failed to sell. This was a gamble, but we knew which books tended to sell year after year.

Once a few publishers agreed to the new price, we were able to go to others and say, "We are getting a bigger discount from XYZ publisher than from you, so you need to meet that number." Most did. At the same time, we expanded our sales force, contracting with representatives who had real experience selling books into the classroom market.

In September of 2004 we returned our bookstore inventory to the publishers and announced we were getting out of the bookstore business. The shift was successful from the start. My other son Gary overhauled how our remaining business operated which led to a big boost to margins. We made more money in that first year than we made in any of the previous 30 years. This year, we will cross the $45 million mark in sales and are more profitable than ever.

Still, the transition hasn't been easy for me. My specialty and first love remains the retail book trade. That world is now lost to me. Moreover, I'm not as critical to the company as I once was, and, at 71, essentially serve as a mentor, advisor and consultant to my sons. But I have had to suck it up and accept that this is the only way we can continue to exist and grow.

When Sandy Jaffe isn't reading, he mentors entrepreneurs through several universities in the St. Louis area. He's also writing a family history to pass on to his children and grandchildren.
-- As told to Amy Barrett

Resources

• Learn how to avoid the biggest mistakes in selling a business.
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