FICTION · An Unfair Advantage Intervention
Fiction. Real history. Sourced below.
In its 2000 annual report, Borders described its website as a convenience retail channel that would support the stores. In the same season, Barnes & Noble’s annual report admitted its website might be cannibalizing its own shops — and doubled down anyway. Two companies, same year, same document, opposite classifications of the same technology. Everything that followed was already decided in those two paragraphs.
I’m Sarah Jones, and I spent years at Cartwell believing volume was the business before I understood that the customer relationship was. So Borders is the case I find hardest to read calmly, because it isn’t a story about a company that missed a technology. It’s a story about a company that correctly identified the technology, filed it in the wrong category, and then paid its executioner to run it for seven years.
Full fiction disclosure and sourcing note
This is a work of fiction. Sarah Jones is a fictional character from The Unfair Advantage by Todd Hagopian, and Cartwell is the book’s fictional company. Sarah analyzes the real, documented history of Borders Group from the present day; she never worked at Borders, never met or spoke with any real person, and no dialogue is invented for anyone. Company statements are quoted from published annual reports and contemporaneous reporting. The historical facts are accurate and sourced as of 2026; the framework analysis is invented.
- Two Annual Reports, One Year Apart in Judgment
- The Stagnation Genome, Run on Borders in 2006
- Position Building: Everything Was Rented
- Why the E-Reader Question Was Never the Question
- What Actually Happened
- From the Operator’s Chair
- The Monday Morning Playbook
- The Contrarian Reappraisal
- The Borders Timeline
- By the Numbers
- Frequently Asked Questions
- About the Stagnation Assassin
Two Annual Reports, One Year Apart in Judgment
The most useful documents in this case are two annual reports from the same year, and they contain the whole outcome.
Borders’ 2000 annual report stated that online investment would be channeled to support the in-store platform, with Borders.com continuing to be used as a “convenience retail channel.” Read the classification carefully: the internet is a feature of the stores. A convenience. Something that supports the real business.
Barnes & Noble’s report from the same period reached the opposite conclusion from the same evidence. It acknowledged that its website might be eating into its own brick-and-mortar sales — and committed anyway, on the stated reasoning that visiting customers at home would bring them back into the stores.
Two management teams, same industry, same year, same disclosure document, looking at the same technology. One filed it under convenience. The other filed it under the business, accepted the cannibalization, and built it.
In 2001, consistent with its classification, Borders handed its entire online operation to Amazon. Visitors to Borders.com were routed to Amazon’s store, and Borders took a cut of each transaction. That arrangement ran until May 2008 — the seven years in which e-commerce was decided.
The Stagnation Genome, Run on Borders in 2006
The Stagnation Genome is a five-gene diagnostic — Performance Decline, Environmental Misalignment, Cognitive Blindness, Structural Calcification, and Innovation Suppression. Run it on Borders in 2006, the year the e-reader question supposedly arrived, and all five are expressing. This is the same result the diagnostic gives for Eastern Air Lines in 1985, but with a different gene doing the killing.
Performance Decline. Sales falling as book, music, and video revenue moved to the internet, with near-continuous turnover in the management ranks — a revolving door of chief executives that is itself a symptom rather than a cause.
Environmental Misalignment. A company built for destination superstore retail operating in an e-commerce market, with roughly 70% of its stores sitting in direct competition with a Barnes & Noble outlet. The physical footprint was designed for a competitive environment that had been replaced.
Cognitive Blindness — the dominant gene here. Not ignorance. Borders knew about the internet, had a website, and wrote about it in its annual report. It categorized it wrongly, as a convenience channel supporting stores rather than as the business. Blindness of this kind is never a failure to see. It is seeing accurately and filing under the wrong heading, which is far harder to catch because everyone can point at the thing they’re looking at.
Structural Calcification. Oversized superstores locked into fifteen- and twenty-year leases, which Borders itself named in its February 2011 bankruptcy filing as central to its collapse. Leases of that length convert a strategic error into a physical one you cannot exit.
Innovation Suppression. Every response to a new capability was a partnership rather than a build. E-commerce went to Amazon. E-reading later went to Kobo. The company did not lack awareness; it lacked any mechanism for turning awareness into owned capability.
Five of five, in 2006. Which means the question the war rooms always ask — should Borders have built or partnered on an e-reader — is being asked of a company that had already failed every diagnostic test before the question arrived.
Position Building: Everything Was Rented
Position Building concerns the specific moves that create competitive positions over years — cost, brand, capability, network, regulatory — and its inverse is the more useful lens here. Borders’ pattern was to rent every position it needed rather than build one.
The 2001 Amazon arrangement is the clearest case, and the framing matters. Borders did not outsource a cost center. It outsourced the customer relationship, the transaction data, and the accumulation of e-commerce capability, to the firm best positioned to use all three against it. As one industry analyst put it at the time of the bankruptcy, the arrangement meant Borders could not control the entire relationship with the consumer and simply took a cut of each transaction.
Here is the detail that proves capability is built rather than bought back. Borders ended the Amazon deal in May 2008 and launched its own site. By the third quarter of 2010 — more than two years later — online sales were about 2.7% of revenue. The URL returned. The seven years of accumulated merchandising, logistics, data, and customer habit did not, because none of it had ever been Borders’.
The Kobo arrangement in 2010 repeated the pattern under worse conditions. By then Borders did not have the cash to develop its own device, so it invested in Kobo, which built an e-bookstore for it and sold its reader in Borders superstores. A position rented at the point where there was no longer money to build one.
Why the E-Reader Question Was Never the Question
The standard framing of this case asks whether Borders should have built or partnered on an e-reader in 2006, and produces a sensible-sounding answer: partner, preserve optionality, engage with the disruption. It is decent general advice and it would not have mattered here, and the reason we know is that Borders eventually did precisely that.
The Kindle launched in November 2007, the Nook in November 2009, the iPad in April 2010, and Borders’ Kobo partnership arrived last. It changed nothing, because by then the leases, the debt, and the absent e-commerce capability were all beyond reach.
The trap in the tidy counterfactual is that it locates the failure at the last visible decision point rather than at the one that determined the rest. A five-gene diagnostic run in 2006 would have told any operator that a device decision was not the company’s live question. The live question was whether a business failing all five tests could be restructured at all — and that question was harder, less satisfying, and the only one worth asking.
Worth noting on the Barnes & Noble comparison too: the Nook gave B&N a real digital foothold, but B&N struggled badly for years afterward and the Nook never approached the Kindle. The difference between the two companies was not one gadget. It was that B&N owned its online platform, its customers, and its data, and Borders had rented all three to Amazon.
What Actually Happened
Borders was founded in 1971 by Tom and Louis Borders, acquired by Kmart in 1992 for $125 million, and spun off as a separate company in 1995 — the same year Amazon began selling books online.
From 2001 to 2008 Borders outsourced its online sales to Amazon, routing its own customers to Amazon’s store. It regained control in May 2008 and launched Borders.com, but by the third quarter of 2010 online sales were about 2.7% of revenue. It had 35,500 employees as recently as early 2006. Debt of roughly $350 million was restructured twice after the financial crisis, and near-continuous management turnover left no cohesive strategy.
Lacking the cash to build its own e-reader, Borders contracted with Toronto-based Kobo, a division of Indigo Books & Music, to build a customized e-bookstore. Borders filed for Chapter 11 in February 2011, citing its expansion strategy and its fifteen- to twenty-year leases, with roughly $1.29 billion in debt against $1.27 billion in assets.
Unable to find a buyer acceptable to creditors, Borders began liquidating its remaining 399 outlets, closing its last stores on September 18, 2011, and ending around 10,700 jobs. Barnes & Noble acquired Borders’ trademarks and customer list, paying about $13.9 million for the database.
The final detail is the one worth sitting with. When the Borders online store closed on September 27, 2011, a banner allowed users to browse and then directed them to Barnes & Noble to complete their purchases. Customers had until October 29 to opt out of having their contact and purchase information transferred. Borders began by routing its customers to a competitor’s store, and ended exactly the same way.
From the Operator’s Chair
I’m Todd Hagopian, and I’ve spent my career in businesses that sell through channels and live or die on channel strategy. Three things from this case.
First, watch how your organization categorizes a new technology, because the category decides everything downstream. Borders didn’t miss the internet — it filed it under convenience, in writing, in an annual report. Once a thing is a convenience feature of the real business, every subsequent decision follows logically and every one is wrong. When something new arrives, I want to hear how people classify it before I hear what they propose to do about it, because the proposal is almost always just the classification carried forward.
Second, never rent the customer relationship, and understand that you cannot rent it back. The Amazon deal is the decision that makes me wince, and the part people skip is the recovery attempt. Borders got its website back in 2008 and online was still under three percent of revenue two years later. Capability is accumulated, not purchased — the seven years of data, merchandising judgment, logistics, and customer habit belonged to Amazon and stayed there. If you’re weighing an arrangement that hands your customer relationship to someone else for operational convenience, price it as permanent, because that’s what it is.
Third, refuse the tidy counterfactual, including when it flatters you. It would be easy for me to say Borders should have engaged with digital disruption and call that a win for strategic foresight. But Borders was failing all five diagnostic tests by 2006, and a company carrying that much structural damage doesn’t get rescued by one good technology decision — it tried the recommended move and died anyway. When a team hands you an “if only we’d done X” story, treat it with suspicion. Real failures are overdetermined, and the work isn’t identifying the magic move in hindsight. It’s having the honesty to count all the fronts you’re losing on at once.
The Monday Morning Playbook
- Audit how your organization has categorized new technology, in writing. Look at your own annual report, strategy deck, or budget lines. If something transformative is filed as a convenience or a support function, that classification is your strategy and it’s wrong.
- Price any customer-relationship outsourcing as permanent. Borders got its website back and never got the capability back. Ask what accumulates on the other party’s side of the arrangement, and assume you will not recover it.
- Run the five-gene diagnostic before you debate the headline decision. If a company is failing multiple tests, the device question, the pricing question, the campaign question are all downstream and none will save you.
- Check the exit cost of every long commitment. Fifteen- and twenty-year leases turned a strategic error into a physical one Borders named in its own bankruptcy filing. Know what you cannot walk away from before you sign.
- Distrust the “if only we’d done X” story. Borders eventually did the recommended thing. The counterfactual that produces a satisfying answer is usually locating the failure at the last visible decision rather than the determining one.
The Contrarian Reappraisal
The consensus reading — Borders missed e-readers and died of digital disruption — is the wrong frame in three ways.
The failure was a classification error, and it’s documented. Borders’ 2000 annual report described its website as a convenience retail channel supporting the stores, while Barnes & Noble’s report that season acknowledged its site might cannibalize its shops and committed anyway. The divergence wasn’t information or foresight. It was where each company filed the same fact.
The vital error was the 2001 Amazon arrangement, and it was irreversible. Handing online sales, customer relationships, and transaction data to the eventual victor during the formative years of e-commerce was more damaging than any device decision. The proof it couldn’t be undone: Borders regained its site in May 2008 and online was still about 2.7% of revenue by late 2010.
The e-reader move was eventually made and changed nothing. Borders partnered with Kobo in 2010 — the moderate, optionality-preserving recommendation every war room reaches — and filed for bankruptcy months later, carrying $1.29 billion in debt and leases it had named as central to its collapse. Five diagnostic genes were expressing by 2006. The device was never the live question.
The Borders Timeline
- 1971–1995 — Tom and Louis Borders found the chain; Kmart acquires it in 1992 for $125 million and spins it off in 1995, the year Amazon starts selling books online.
- 2000 — Borders’ annual report describes its website as a convenience retail channel supporting stores; Barnes & Noble’s report accepts cannibalization and commits to its own platform.
- 2001–2008 — Borders routes its online customers to Amazon, taking a cut of each transaction, through the formative years of e-commerce.
- 2006 — Borders employs 35,500 people; all five diagnostic genes are expressing before the e-reader question arrives.
- May 2008 — Borders ends the Amazon arrangement and launches its own site; by Q3 2010 online is about 2.7% of revenue.
- 2007–2010 — Kindle (Nov 2007), Nook (Nov 2009), iPad (Apr 2010), and finally Borders’ Kobo partnership, entered because it lacked cash to build its own.
- February 2011 — Chapter 11, with $1.29 billion in debt against $1.27 billion in assets; the filing names expansion strategy and long leases.
- September 2011 — the last 399 stores close and about 10,700 jobs end; the website closes by directing customers to Barnes & Noble.
By the Numbers
- 5 of 5 genes — all expressing by 2006, before the e-reader decision the case is usually framed around.
- 2001–2008 — the seven years Borders routed its own online customers to Amazon, taking a transaction cut.
- ~2.7% — online share of Borders’ revenue in Q3 2010, more than two years after regaining its own website: capability doesn’t come back with the URL.
- ~70% — the share of Borders stores in direct competition with a Barnes & Noble outlet.
- 15–20 year leases — the commitments Borders named in its own bankruptcy filing as central to its collapse.
- $13.9 million — what Barnes & Noble paid for Borders’ customer database, the asset the strategy sessions always called the crown jewel.
Frequently Asked Questions
Why did Borders go bankrupt?
Not for one reason. Borders outsourced its entire online business to Amazon from 2001 to 2008, over-expanded into oversized stores locked under fifteen- and twenty-year leases it named in its own bankruptcy filing, lost music and video sales to the internet, carried roughly $350 million in debt restructured twice after the financial crisis, and endured near-continuous management turnover. It filed for Chapter 11 in February 2011 with $1.29 billion in debt against $1.27 billion in assets.
Was outsourcing online sales to Amazon really that damaging?
Yes, and the recovery attempt proves it. From 2001 to 2008 Borders routed its own customers to Amazon’s store and took a cut of each transaction, meaning it never controlled the customer relationship or the data. It regained its site in May 2008, but by the third quarter of 2010 online sales were only about 2.7% of revenue. The URL came back; the seven years of accumulated capability, data, and customer habit did not.
Did Borders ever launch an e-reader?
Yes, and too late to matter. Lacking the cash to develop its own device, Borders contracted with Toronto-based Kobo, a division of Indigo Books & Music, which built a customized e-bookstore and sold its reader in Borders superstores. That came after the Kindle in November 2007, the Nook in November 2009, and the iPad in April 2010. Borders filed for bankruptcy months later.
Why did Barnes & Noble survive when Borders didn’t?
Because it owned what Borders rented. Barnes & Noble’s 2000 annual report acknowledged its website might cannibalize its own stores and committed to building the platform anyway, keeping its customers and data. It also avoided the worst of Borders’ over-expansion. The Nook gave it a real digital foothold, but B&N struggled for years afterward and the Nook never approached the Kindle — so the difference was ownership of the customer relationship, not a device.
Would an e-reader have saved Borders?
Almost certainly not. Borders eventually made exactly the move most analyses recommend — a partnership rather than a build — and it changed nothing, because the leases, the debt, and the absent e-commerce capability were all beyond reach by then. A structured diagnostic run in 2006 shows a company already failing on performance, environment, categorization, structure, and capability. The device was never the live question.
About the Stagnation Assassin
Todd Hagopian is a Fortune 500 product and transformation executive who has driven $3B+ in shareholder value across Berkshire Hathaway, Illinois Tool Works, Whirlpool, and JBT Marel, where he is VP of Product Strategy and Marketing. Known as The Stagnation Assassin, he turns proprietary frameworks — including the Stagnation Genome and Position Building — into field-tested tools for operators who need a diagnosis before they debate the headline decision. He is the author of The Unfair Advantage and the Stagnation Assassin series, a Forbes contributor, and an award-winning keynote speaker. Connect with Todd on LinkedIn or bring him to your stage via his speaking page.
Borders didn’t miss the internet. It filed the internet under convenience, in writing, in an annual report — and every decision after that followed logically from the wrong category. It began by routing its customers to a competitor’s store and ended, eleven years later, doing exactly the same thing.
The discipline of diagnosing a company before debating its headline decision is in The Unfair Advantage.