BUSINESSWEEK ONLINE : SEPTEMBER 27, 1999 ISSUE
COVER STORY -- E.BIZ -- THE E.BIZ 25

Louis H. Borders


LOUIS H. BORDERS

WEBVAN GROUP INC.

Position: Founder and CEO

Contribution: Making home delivery of perishable goods possible at grocery store prices.

Ambition: To fulfill virtually every local delivery need--from groceries to dry cleaning to video rentals

A Q&A with Louis Borders is available at ebiz.businessweek.com
Louis H. Borders may be the newest--and perhaps unlikeliest--member of the Internet brat pack. After all, the 51-year-old entrepreneur is known as the man behind bookseller Borders Group Inc. (BGP), the second-largest bookstore chain in the U.S. What does he know about doing business in cyberspace?

Turns out he's got an idea compelling enough to lure more than $120 million from hallmark investors such as CBS (CBS), Yahoo! (YHOO), LVMH, Softbank, and venerable venture-capital firms Sequoia Capital and Benchmark Capital. And soon public investors will be able to get a piece of the action when Borders' latest venture, Webvan Group Inc., launches an initial public offering. They will all be banking on the same thing: That Webvan is going to be one of the biggest ideas to hit the Net.

It's not just that Webvan, which delivers groceries ordered from its Web site to customers' homes, is going after a piece of the $720 billion grocery market. Or that the Foster City (Calif.) company hopes to offer nearly double the selection of products of a typical grocery store--at comparable prices. It's more because Borders looks to have invented a novel way to make a buck on an industry that has, so far, largely stumped the online crowd. In 1998, fewer than 1% of all groceries were sold online, according to Forrester Research Inc. That's despite formidable efforts from the likes of Peapod Inc. and HomeGrocer.com Inc.

But those upstarts haven't taken the tack that Louis Borders has. The mathematics wizard--he has a math degree from the University of Michigan and did graduate work in the subject at Massachusetts Institute of Technology--has used his analytical knowhow to reinvent much of the back end of the grocery business. Spending many a night with his old math textbooks over the last two years, Borders has devised more efficient ways to assemble customer orders, store them while in transit, and deliver them to homes within the 30-minute window customers select. ''Intuitively, I knew I'd have a great financial model if I could eliminate store costs,'' Borders said in a May interview before entering the quiet period required by the company's planned IPO.

That's not all that has been eliminated. Borders also got rid of the need for most stock clerks and multiple warehouses. In their place will be giant distribution centers that Borders designed to service major metropolitan areas around the globe. Borders maintains that each of its facilities, which at peak will be run by some 700 employees, can handle the equivalent of 25 traditional grocery stores. ''Louis is a genius at applying technology to business,'' says Benchmark partner David Beirne, who also serves on Webvan's board.

The first facility, a 330,000-square-foot center in Oakland, Calif., that opened in June, includes 4 1/2 miles of conveyor belts as well as temperature-sensitive rooms to house items such as wine, cigars, and fish. The idea is to make it possible for workers to assemble customer orders quickly. Instead of traipsing down numerous aisles to find specific items, selected products are brought to workers on the belts or on rotating carousels. Borders actually mocked up various scenarios of his scheme in a warehouse before deciding on the optimal number of items to put on carousels and how far apart they should be to minimize the amount of walking a worker would have to do.

The result, says Webvan, is a one-of-a-kind system that allows so-called pickers to compile an average 25-item order--out of an eventual 50,000 available products--in less than an hour. The expected result of all this increased efficiency and logistics magic: an increase of more than 10 percentage points in the grocery industry's traditionally low 6% operating margins.

Borders says his Web dream has a sort of ''back to the future'' quality. His company is harkening to such warm and fuzzy traditions as the milkman, providing reliable, personal service to customers' homes. At the same time, Webvan uses high-tech innovations to offer more than yesterday's home delivery businesses ever could. Down the road, he hopes Webvan will expand beyond groceries and provide door-to-door service for such routine chores as dry cleaning and film development. ''Webvan is giving customers back some of their time so that they can relax and hang out at home like Ozzie and Harriet,'' Borders says.

Although Webvan is still unproven, supporters say if anyone can pull off its ambitious plan, it's Borders. An intense, soft-spoken man, he brings a wealth of experience from his days with the bookstore chain. Back then he devised an inventory tracking system that is now widely used throughout the book industry. And friends say his knack for business and sheer brainpower make up for his uneasiness amid the often wacky Internet crowd. A few billion in market value won't hurt, either.

By Linda Himelstein

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[empire builders]
Jeffrey P. Bezos
AMAZON.COM INC.

Stephen M. Case
AMERICA ONLINE INC.

Timothy A. Koogle
YAHOO! INC.

[the innovators]
Louis H. Borders
WEBVAN GROUP INC.

Jay S. Walker
PRICELINE.COM

Margaret C. Whitman
EBAY INC.

Glen Meakem
FREE MARKETS ONLINE INC.

James H. Clark
MYCFO INC.

Christos M. Cotsakos
E*TRADE GROUP INC.

[bankrollers]
Masayoshi Son
SOFTBANK CORP., JAPAN

Robert C. Kagle
BENCHMARK CAPITAL

Lawton W. Fitt
GOLDMAN SACHS & CO.

L. John Doerr
KLEINER PERKINS CAUFIELD & BYERS  

Bernard Arnault
LVMH MOET HENNESSY
LOUIS VUITTON  

[the visionaries]
Mary G. Meeker
MORGAN STANLEY DEAN WITTER

John Hagel III
MCKINSEY & CO.

William Joy
SUN MICROSYSTEMS

[the architects]
Louis V. Gerstner Jr.
IBM CORP.

Pehong Chen
BROADVISION INC.

David C. Peterschmidt
INKTOMI INC.

Kevin J. O'Connor
DOUBLECLICK

Ellen M. Hancock
EXODUS COMMUNICATIONS

[the pace setters]
David S. Pottruck
CHARLES SCHWAB CORP.

John T. Chambers
CISCO SYSTEMS

Michael S. Dell
DELL COMPUTER



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