Chegg, a College Hub. Togas Not Included

When it launched in 2007, Chegg quickly became known as the Netflix for textbooks. Rather than spending $100 or so on a physics or biology tome used for one semester, students turned to Chegg to rent books for as much as 80 percent off the cover price. The startup’s bright orange boxes became as recognizable on college campuses as Netflix’s red envelopes are in living rooms. Chegg received glowing press coverage for disrupting a stodgy industry and saving students hundreds of dollars a year. Venture capitalists fell for the idea, putting more than $140 million into the company by early 2010.

That’s when Dan Rosensweig, the former head of Activision Blizzard’s Guitar Hero franchise and previously a Yahoo! executive, took the helm. He quickly realized that Chegg, for all the positive attention, was a money pit. The company was approaching $100 million in annual revenue but hemorrhaging cash. Chegg bought any book requested by a user, regardless of its likelihood of being rented again. It also spent heavily on shipping and on a warehouse in Kentucky. After a review of the business, Rosensweig found that Chegg was six months away from going broke. “The company was truly at risk, it just didn’t know it,” says Rosensweig. To fix things, he raised an additional $75 million, hired a new finance chief, and culled the textbook catalog, keeping only titles he knew could earn back their purchase price.