Broken iPhone? Call iCracked, the Aspiring “AAA of Smartphones”
In the underappreciated 2000 M. Night Shyamalan thriller Unbreakable, Bruce Willis played a security guard with powers of invulnerability and super-strength, and Samuel L. Jackson played his brittle-boned archnemesis, Mr. Glass. Imagine that you were recasting the movie with Apple’s iPhone in a starring role—which part would the device play?
After AJ Forsythe’s iPhone had an unfortunate collision with a ceiling fan back in 2010, the former Cal Poly wrestler realized he was looking at not just a shattered screen, but a business opportunity. It turns out that 30 percent of all iPhone owners manage to break their phones within 12 months of purchasing them. For people under 35, the rate is closer to 50 percent. (Which explains something about Forsythe’s accident. “That was a function of being in college,” Forsythe says. “It was an underhand toss to a roommate—‘Hey, the phone’s for you’—and the ceiling fan intercepted it.”)
A shattered iPhone screen can provide a good excuse to upgrade to the latest model, but many consumers can’t afford to do that, or aren’t eligible yet under their wireless contracts. For them, the options used to be very limited: they could tape their cracked phones back together and try to keep using them, or go to the Apple Genius Bar and pay $150 or more for a new screen assembly.
But in 2010 Forsythe and his UC Santa Barbara friend Anthony Martin came up with a new alternative. They founded a network of local iPhone, iPad, and iPod repair technicians called iCracked.
Key your ZIP code into iCracked’s desktop or mobile site, and you’ll hear back within minutes from one of 310 “iTechs” around the world who will schedule a repair visit, usually for around $100. (The exact charges are up to the technicians, who are self-employed and pay iCracked only for parts.) If there’s no iTech in your region, you can order a DIY iPhone screen replacement kit from iCracked for $65 to $75.
If you prefer to simply sell your damaged device and put the cash toward your next phone, iCracked can handle that too. An iPhone 4 with a cracked screen fetches around $105. The startup fixes those devices and resells them on the secondary market.
Overall, repairing iOS devices is a growth business—Apple has sold more than 85 million iPhones in the U.S. since 2007 and more than 34 million iPads since 2010, and the statistics dictate that tens of millions of them will need repairs at some point. With just 12 employees and less than $1 million in seed funding from Y Combinator and other investors, Redwood City-based iCracked is already earning enough revenue to be self-sustaining, Forsythe says. But the company is about to start raising Series A funding, and has big plans to introduce new services and evolve into what Forsythe calls the “AAA of smartphones.”
“We’ve been telling people we’re already one of the world’s largest iPhone repair companies,” he says. “The cool thing is, it’s an incredibly low bar, because there are no other worldwide iPhone repair companies that we know of, except for Apple itself. And I don’t think they really want to be in the repair business—they want to put all their time into creating new products.”
Forsythe and Martin are both born-entrepreneur types. A banker’s son who grew up mainly in Dallas, Forsythe quit wrestling after his sophomore year at Cal Poly and took a job with the campus entrepreneurship club raising bees and selling honey. Martin, a former star of the UCSB baseball team, came from a Southern California home where his father ran a construction firm and his mother was a “serial homemaker” who did everything from selling handbags to renting bouncy-houses for birthday parties. “It was in the blood that you were going to start a company,” Martin says.
Martin says that he, too, has broken a number of phones—“more than I can count on two hands,” he confesses. He and Forsythe, who had met through mutual campus friends, decided in late 2010 to start selling startup kits to students on various campuses, promising to help them set up local iPhone repair businesses. They posted ads on university job boards, and found 25 guys willing to pay them $250 to become iCracked franchisees, including training and parts, says Martin. He and Forsythe maxed out their credit cards buying the needed parts, and drove to the post office every day to ship them out.
The idea seemed promising, but the company’s first crop of technicians didn’t include a lot of aggressive businesspeople. “The thing about iPhone repair techs is, they are 90 percent technical, 9 percent managerial, and 1 percent entrepreneurial,” says Forsythe, drawing from a typology in Michael Gerber’s underground classic The E-Myth Revisited. “And being college students, they didn’t have this burning desire to put food on the table—they cared about beer money and having a summer job to get their parents off their backs.”
So the first big change for iCracked was to recruit a group of older technicians who wanted to make iPhone repair into a full-time job. The next was to move the company to the Bay Area, where the co-founders crashed for a couple of months in Martin’s brother’s apartment, then rented a five-bedroom house in Sunnyvale. “The conference room was the swing set in the back yard,” Forsythe says.
In October 2011, Martin came across a TechCrunch article about Y Combinator, the famed startup accelerator and investing operation in Mountain View, CA. It was the last day before applications were due for the YC’s Winter 2012 batch. “He was like, ‘YC is getting an application every minute. Let’s apply. What can go wrong?” Forsythe recalls.
Forsythe filled out the Y Combinator application, but he didn’t really think iCracked would get in. “We were getting a couple orders a day for DIY kits, and we were having a blast working and trying to trick people into becoming iTechs, but by no means had we arrived. It was really a fake-it-till-you-make-it type deal,” he says. The first version of the application essay got erased when Forsythe’s browser crashed, so he rewrote it—to good effect, as it turned out. “I think the only reason we got an interview was that I had to write it twice,” he says.
But getting into YC wasn’t a slam dunk. Martin and Forsythe missed their first scheduled Skype interview with the Y Combinator partners because they were in Asia buying parts and miscalculated the time difference between Hong Kong and Mountain View. When they finally got to YC’s office for their rescheduled interview, almost no one talked except YC co-founder Paul Graham. It turned out he was less interested in the iPhone repair business than in all the auxiliary services iCracked could wrap around it, such as insurance plans (of which more in a moment).
The startup ultimately won a berth at Y Combinator. The best thing about being in an accelerator, Forsythe says in retrospect, is that “it gives you an incredible excuse to do nothing but build your product for three months and really shut off the outside world, except for your users.”
The connections to YC’s huge network of investors and alumni companies were also invaluable, he says. But, crucially, it was also during the Y Combinator program that the company began a gradual transition from being a hardware company into something more like a software-enabled company that happens to service hardware. The startup still earns 90 percent of its revenue selling iPhone parts to iTechs and selling repair kits directly to consumers—but Forsythe and Martin think the startup’s real competitive advantage, as it scales up, will lie in the software systems it’s building to make life easier for iTechs and customers. “In the last six to nine months, we have really been figuring out how we can scale a hardware company nonlinearly, like a software company,” says Forsythe. “I think we are close to getting it.”
A case in point is the company’s new mobile website, which is optimized to allow customers to get help fast, even if they’re typing on a cracked iPhone screen. The home page is dominated by two huge buttons: “Repair My Device” and “Sell My Device.” Click the repair button and you get a choice between on-demand repair from an iTech, or mail-in repair; then you just have to pick your device type, model, and network, specify your location, and enter a name and phone number. Everything else happens behind the scenes—either an iTech calls you, or iCracked sends you a DIY repair kit or a shipping envelope.
The iTechs have their own app, which they can use to see open repair requests, track their own jobs, and order parts. (When Forsythe demonstrated the app for me, it showed that there was somebody 15 miles away with a white iPad 3 with a cracked screen, and somebody 5 miles away with a cracked iPhone 4S.) From the app, an iTech can call the customer, schedule a job, run through diagnostic steps, set a price, and get the customer to sign off on the estimate.
On the back end, separate apps help iCracked keep track of parts orders, buy-back requests, and the like. The point is to make the process seamless for both the iTechs and their customers. “We want to make it easy for our technicians to make over $100,000 per year repairing these devices,” says Forsythe. And many of them do, he says: “There are a lot of techs making way more money than anybody working here.”
Revenue at iCracked is growing 20 percent per month, Forsythe says. But he and Martin want to grow even faster, so they’re thinking hard about how to recruit more iTechs, and how to turn the repair business into larger ecosystem.
The “900 pound gorilla” for the company, Forsythe says, would be the ability to upsell iCracked repair customers on an insurance plan that would help cover their next iPhone repair bill in advance. For roughly $3 per month, Forsythe says, iCracked could insure anyone’s iOS device against loss, theft, damage, or failure, with a $50 deductible. That would be a much more attractive deal than the extended-warranty plans sold by many smartphone retailers, which cost four times as much and have $200 deductibles, according to Forsythe.
“What’s cool is that you can say to these customers, ‘You broke it once. You had to come see me. This is a $99 event for you but next time it could be $50, and in one repair it would cover your costs.’”
The high-level concept—going back to Paul Graham’s idea—is to turn iCracked into “the AAA of smartphones, where we can buy it back, fix it, sell you a new one, insure it against damage at any one of our thousand locations,” Forsythe says. “That is what we have to prove we can do.”
Meanwhile, Martin and Forsythe admit they’re profiting from design decisions in Cupertino. Apple could have made the Gorilla Glass on the screens of its mobile devices thicker and more resistant to breakage, but over time the company has chosen to make the screens thinner and lighter, and therefore more vulnerable. “It’s hard to have your cupcake and eat it too,” says Forsythe. “As these things get smaller and lighter you are going to sacrifice structural integrity.” (The iPad mini, by the way, turns out to be much more breakable than the iPad, for exactly this reason.)
“But in no way are we trying to step on Apple’s toes or take any market share from their repair operation,” Forsythe hastens to add. “At the end of the day we only exist because Apple has created this ecosystem for us. We are trying to thrive inside of it.”