Money & Business: A grand experiment -- Kepler's has a new business model that's being closely watched by booksellers, but ultimate success will depend on community support Money & Business: A grand experiment -- Kepler's has a new business model that's being closely watched by booksellers, but ultimate success will depend on community support (November 23, 2005)

By Renee Batti

Almanac News Editor

The resurrection of Kepler's bookstore last month after its unexpected closure in late August was a minor miracle in the world of independent businesses.

The closure, due to severe financial difficulties, shocked the community. And it was one more body blow to the independent bookselling world, which has seen its share of failures in the shadow of big-box stores and online giants such as Amazon.

Now, all eyes are on the 50-year-old Menlo Park institution as it finds new footing -- or rather, blazes new trails -- in its effort to return to life and survive in a world that has become inhospitable to independent retailers. That includes the eyes of other booksellers, who will be monitoring Kepler's to see what new, innovative practices it has put into place might be useful to protect their own businesses.

"As Kepler's has created this new (business) model, people in the bookselling world are starting to talk about ways to position bookstores" to inspire enough community support to keep their doors open, says Hut Landon, executive director of the Northern California Independent Booksellers Association.

That new business model includes a five-member board of directors, chaired by owner Clark Kepler, the son of founder and local legend Roy Kepler; a "patrons circle" of investors/shareholders; a membership program, much like those of nonprofit arts groups; programs to sell books outside the store's four walls; and a volunteer corps to help with membership, events and, at least for now, general work in the store.

Kepler's reopened with much fanfare on October 8, partially staffed but full of hope for the future. This week, the store met its hiring goals to get it through the holiday season.

New book shipments have begun to flow in, and the shelves are being restocked as quickly as staff and volunteers can move the books from their cartons. And the membership group continues to grow; last week the tally reached 1,300 -- just 200 shy of the store's goal.

But while hope remains, those who are working to return the store to good financial health and stability note that the community should not take for granted that Kepler's will be part of Menlo Park's future.

"We're doing better, but we're still not doing as well as we'd like to," notes Anne Banta, the store's chief marketing officer.

Clark Kepler says that after being closed for nearly 40 days, the store has had to face a number of "operational challenges," including a scramble to hire more staff (only about 60 percent of former staff members returned) and the wait for two and a half month's worth of new titles to be shipped, then stocked on the shelves.

Daniel Mendez, the Menlo Park technology wiz who led the effort to find investors to save the store and now sits on the board of directors, calls the resurrected Kepler's "a grand experiment."

He hopes the store's closure was the community's "amnesia prevention program," he says. "People were shocked into action, shocked out of complacency. But if we don't protect what we've got, ... if they don't buy books from the store, it will close for good."
Directors and patrons

Mr. Mendez and Mr. Kepler are joined on the board by two others, with one other position -- that of a book industry expert -- yet to be filled.

Director Bruce Dunlevie, a general partner at the Menlo Park-based Benchmark Capital, has worked in the venture capital industry for more than 15 years, according to keplers.com. His professional expertise is an obvious plus for a board making decisions to financially stabilize the store, but Mr. Dunlevie's 23-year history of buying books at Kepler's is at least as important.

Director Geoff Ralston, chief product officer at Yahoo, is an Atherton resident and also has been a Kepler's regular. At Yahoo, his responsibilities include analysis of future product trends, advancement of services and advocacy for consumers, according to the Kepler's Web site.

It was Mr. Mendez, along with David Cowan, who met with Clark Kepler the day after the store closed to talk about ways to structure investments in the business to save it.

The chief technology officer and co-founder of the Visto Corp., Mr. Mendez lives with his wife and three children within biking distance of Kepler's. He's a passionate reader and book collector, and rushed in to help lead the effort to reopen Kepler's.

"I was very grateful to have spent the time we spent in the past at Kepler's," he says, adding that he wanted to do whatever he could to ensure that it was around "for our children and grandchildren."

Board members are not paid; current members are also investors, although that's not a requirement to serve on the board, Mr. Mendez says.

The 23 investors own 70 percent of the store's shares; Mr. Kepler owns 30 percent, making him the single largest shareholder. Mr. Kepler also serves as the store's CEO.

Mr. Landon of the Northern California Independent Booksellers Association says that if there is another independent bookstore structured with a board and shareholders, he's not aware of it.

He gives an example of another bookstore -- Cover to Cover in San Francisco's Noe Valley neighborhood -- that was rescued two years ago by customers who contributed $1,000 each to bolster the store's finances. But those "investors" expected no return, and the store's operations continued under the same management model.
Membership program

Mr. Landon says he also doesn't know of any other independent bookstore that has a membership program, which Kepler's calls its Literary Circle. But, he adds, "that notion is one that more and more bookstores are looking at," and they're watching Kepler's to see how the community responds.

The program is modeled on those of arts organizations such as museums and theater companies, with levels of memberships from $20 for students to $2,500 and up to be part of the Platinum Circle. Each membership level offers varying benefits to participants. "We want the public to look at us as an arts organization," Ms. Banta says.

"One of the things the Kepler's experience has shown is that bookstores are not regular businesses like a shoe store or grocery store," Mr. Landon says. "The community feels differently about them, and are willing to do whatever it takes to keep it going."

But he adds the caveat: There are not a lot of bookstores in Silicon Valley, where "people are able to write the kind of checks they wrote for Kepler's."

There are other ways, however, for the community to help, and that's why the membership program has attracted so much interest among independent booksellers, he says.

"If you talk about bookstores as cultural institutions, about the cultural contribution they make to a community ... then you talk about them the way you talk about the opera and the ballet. They represent the literary arts.

"They've always been important centers of literacy, of free speech. It's not like they have to reinvent themselves; it's that they have to reposition themselves."
Exploring ideas

The Kepler's board is also exploring the possibility of making the store a nonprofit. The advantage, Mr. Mendez says, is that members can deduct their contributions from their taxes.

He says he doesn't know of any other bookstore that has become a nonprofit, but he believes it can be done. "We need to research it, as the tax rules and regulations are Byzantine."

Ms. Banta says that once the store has reached smoother operational ground, Kepler's will work on creating a stronger online presence and will have more book-selling events out in the community. It will work more closely with the schools, and will partner with businesses to make book ordering available at work, she says.

One development is a new author program to be hosted by Google, with Kepler's providing books for sale and a cashier, Ms. Banta says.

Kepler's own author program, which had featured some 12 to 15 authors monthly before the store's closure, should be back in swing after the holidays, Mr. Kepler says. Most of the events are free, but Ms. Banta says in the future, the store won't be shy about asking for donations.

She says she's been pleasantly surprised by the willingness of customers and volunteers to contribute time and money when asked, and gave the example of volunteers who refused to accept a discount offered on merchandize.
Staying alive

The community support for Kepler's was impressive, but not totally convincing for everyone who watched the amazing death and rebirth of the store. Sustaining the momentum of support, and the willingness of the fickle customer to buy more at the store and less online or at a chain store, will be key to Kepler's long-term survival, many agree.

Michael Tucker, owner of Books Inc. and a member of the American Booksellers Association, says it's too early to tell how Kepler's will fare. "For the sake of the city of Menlo Park, for Clark and for the store, I hope it works," he says. "But it's very much dependent on the community.

"By and large, we're seeing an upswell of a recognition that if you lose your small businesses, particularly if you lose your bookstore, you're not going to get another one."

Those trying to create a stable new Kepler's are well aware that complacency and "amnesia," as Mr. Mendez puts it, could endanger the store's future. "We are trying a lot of innovative ideas," Mr. Mendez says. "We are working to keep giving people what they want (in a bookstore and a cultural center). But ultimately, we cannot force them to buy books."

Mr. Tucker of Books Inc. notes: "You need to recognize that if you want (a bookstore) there, you have to give it more than lip service. (It doesn't necessarily depend on) what business model you choose -- if people don't buy books from you, you're not going to stay in business."

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