If you’ve ever taken a full semester of college classes, then you know how expensive the books for those classes can be. Some students may pay over $1,000 in a single semester just to have the required reading and studying materials. Three college students had an idea in 2001 that there had to be a better way to make education accessible without it being so expensive. That’s when the idea that founded Chegg was formed.
Instead of purchasing the required textbooks, what if students could just rent them instead? This would eliminate the buying and returning process, allowing students to ultimately save some cash in the process. Seeing the initial successes of rental subscription services like Netflix, the founders of Chegg adopted the rental business model and built a multimillion dollar business.
Chegg is now often referred to as the leader of the textbook rental market.
How Did Chegg Get Started?
For college students who have just graduated, they are stuck in a Catch-22 situation. To get a job, they need to have practical professional experience. To get practical professional experience, they need to have a job. It’s the classic story of asking which came first: the chicken or the egg? That’s where the company name originates. It combines the words “chicken” and “egg.”
The Chegg business model also proves that you don’t need to have a lot of capital on hand to start promoting a good idea. Chegg has so little in liquid cash at first, in fact, that one of the founders would purchase the ordered textbook using his own personal credit cards and then just ship the textbook out from there. Because the textbooks typically rent for around 50% of the retail cost of them, it would take just 2-3 orders for the books to pay for themselves.
Based on these early successes, Chegg was able to provide a proof of concept that venture capitalists needed to be encouraged to invest into the idea. Although the figures are difficult to pin down, it is estimated that this organization has been able to raise over $150 million in funding over the past decade because of the risks taken at the very beginning.
Chegg Has Also Focused On Niche Promotion Efforts
Another unique component of the Chegg experience is their marketing efforts. One of their most notable arrangements within their business model is a relationship with the Global Releaf Program. When a textbook is rented or sold, then Chegg pledges to have one tree planted. If a student were to order a dozen textbooks from the site, then a dozen trees would be planted. According to the released information from Chegg, more than 5 million trees have been planted from this partnership so far.
Branding is also a key point to look at in the Chegg business model. All of the textbooks that are ordered from this site will ship out in a bright orange box. When the term of rental is over, then students can print off a shipping code and mail the books back in any box. A 21 day money back guarantee is offered as well, but students do need to be proactive with their returns to make sure that they can experience the full cost savings that Chegg has to offer.
What Can Be Learned From the Chegg Business Model?
Chegg also teaches businesses today that expanding within one’s industry niche makes sense when the timing is right. In 2014, Chegg purchased InstaEDU so that it could provide online tutoring services to students who want a little extra help. They are also involved in a student discount program to help money stretch further.
There have been some stumbles along the way. The IPO for Chegg topped its goals, but the stock price has stumbled from time to time. Not every textbook has been in stock when requested, so this company has used partnerships with other organizations to provide textbooks and this has caused confusion in students when it comes time to return the books. Savings also vary from book to book, so some students may find Chegg can provides negligible savings.
What the Chegg business model proves, however, is that when problems can be solved so that customer segments can save money, a business can be formed. If you are committed to the process of growing that idea to prove that the concepts behind it can work, then any problem solving idea could become the next multimillion dollar moneymaker.
In the end, it doesn’t matter whether or not the chicken or the egg came first. Customers must want a product for a business to be successful and Chegg has proven they are highly wanted still today.
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