Virtue is a Virtue: Flat World Knowledge Raises $15MM led by Bessemer & Bertelsmann
January 20, 2011 2 Comments
One of my very best friends, Tripod.com and Village Ventures co-founder Bo Peabody, wrote a brilliant little book a few years ago called Lucky or Smart (great excerpt/summary of it here from Inc. magazine). If you’re an entrepreneur and you haven’t read it, you should. It won’t take long, and it offers some invaluable lessons and perspectives on what matters and what doesn’t in building a successful entrepreneurial enterprise. And, most importantly, it offers Bo’s golden rules of entrepreneurship (my term) – which I’ll very liberally paraphrase in these three points:
- Success in business usually requires luck.
- The best entrepreneurs create companies that get disproportionately lucky
And, most importantly. . .
- “Lucky things happen to entrepreneurs who start fundamentally innovative, morally compelling, and philosophically positive companies.”
I’ve been fortunate to work with a few such entrepreneurs. Steve Ellis, who founded and ran Pump Audio, which we successfully sold to Getty Images a few years ago, is one. Steve created a truly better mousetrap for pairing quality soundtrack music with professional and user-generated content. Critically, he did it in a way that empowered and financially rewarded independent musicians, opening whole new opportunities for these struggling artists to make money. And he did it in a way that, from the get-go, treated the artists equitably and respectfully, not just as mass of powerless suppliers. That “fundamentally innovative, morally compelling, and philosophically positive” approach to his business paid enormous dividends. Customers LOVED the offering, talented startup engineers and music industry executives were desperate to work for the company, and the network of musicians who were the suppliers of Steve’s product became, at no cost, his very best marketers. It all seemed quite easy, frankly, because Steve had created a company that got WAY more lucky than the average company.
Today we are celebrating another such company. Flat World Knowledge, the leading 21st century higher ed content company – has closed a $15MM financing jointly led by Bessemer Venture Partners and Bertelsmann Digital Media Investments.
Flat World is wreaking absolute havoc in the $8 billion higher ed textbook market. This is a market characterized by a product that hasn’t changed in 200 years – the 6 lb., $150, take-what-you-get doorstop. Enter Flat World, offering fully customizable, multi-media delivered, Creative Commons open-licensed “textbooks” that can be customized by faculty and read by students online for free, or by paid downloads as audio books, printable pdfs, ordered in 4 color print, or all of the above.
FWK was founded in 2007 by Jeff Shelstad and Eric Frank, two seasoned higher ed publishing industry veterans. After trying unsuccessfully to change what they perceived to be their “broken” industry from the inside, Jeff & Eric left the safety of Big Publishing to pursue the enormous opportunity available to create a totally new business model for content delivery in the higher ed market, going directly after the traditional publishers in an effort to knock them off their oligopolistic perch.
Jeff & Eric made big bets about each of the key constituencies in the market when starting Flat World:
- That top authors wanted a more dynamic, flexible platform on which to write, and that they would take the risk of working with a new type of publisher to gain that flexibility
- That professors wanted to be able to customize textbooks for their unique needs – reordering and reshuffling content, adding their own contributions, and integrating real world resources, and that they also really cared about the economic burden that traditional textbooks placed on their students.
- And that students wanted to purchase content a la carte, and in a variety of different formats, just as they consume other media.
To see how that all adds up to a winning formula, check out this brilliant little video – one of the best company intros I’ve seen to date:
Three years later, it’s working spectacularly well. The model is having a dramatic impact on both the bank accounts and learning outcomes of tens of thousands of students across the country. It is particularly impactful at the state and community college level, where the economic pressures are the most acute. In a world where the average community college student’s textbook bill equals a full 72% of her tuition and fees, a remarkable Gates Foundation study – With Their Whole Lives Ahead of Them: Myths and Realities About Why So Many Students Fail to Finish College – showed that unaffordable textbooks are in fact a leading contributor to students’ inability to successfully complete their degrees. Faculty and administrators are now reporting to us that use of Flat World content is leading to higher student retention and better learning outcomes, because there is no longer any excuse or economic barrier to getting the content.
Saving money for students and helping to promote better learning – what could be more virtuous than that?
Not surprisingly, this has been an extremely fun and rewarding business to be around. And it’s been my best illustration yet of the value of Bo’s Golden Rule. You can’t help but be struck, when working with businesses like Pump Audio and Flat World, by the degree to which “Virtue is a Virtue.” Nothing sells – to customers, employees, and partners alike – like a powerful and virtuous mission led by compelling, committed entrepreneurs.
Evidence Flat World’s phenomenal team – the company has had a remarkably easy time recruiting top notch talent from day one. People who join Flat World aren’t just taking a job, they’re signing up for a crusade. It’s a compelling pitch.
Channel partners want to work with us. Authors want to write for us. Investors want to buy our stock.
In short, the virtuous story that Jeff & Eric have created – the fundamentally innovative, morally compelling, and philosophically positive company that they are building – has become a magnet for talent, capital and resources. As investors, we’re in the envious position of getting to feel good about ourselves for being a part of this important movement while reaping the benefits of the company’s success. It’s a great way to win.
Congrats today to Jeff & Eric on this latest milestone in the Flat World story. We’ve got a long way yet to go, but I’ve got all the confidence in the world that with this virtuous tailwind at our backs and these guys’ exceptional talents as entrepreneurs, we’ve only begun to scratch the surface of what this will be.
And as an investor, I’ll continue to look hard for companies that have similarly virtuous missions. After all, it’s a lot easier to win when people keep helping you to get lucky.