AJ Forsythe built iCracked into a smartphone repair marketplace by matching technicians with customers using geographic heat maps. He spent $20-$30 to acquire each customer, burned $1 million monthly at peak growth, and waited 3.5 years to close one telco partnership. Now he's diversifying into smart-home repairs to hedge against better phone screens.
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So was this my first startup? So no. So I had started the winery with my brother in college, which was actually started because a winemaker called us and was like, hey, we're being audited at the end of next week, and you're taxed on the number of barrels you have. If you guys make these 3 barrels disappear, you guys can keep them, but they need to be off our property by midnight on this certain date. And so we grabbed a forklift, Took these 3 barrels, rolled them down a hill, and that was how we started the first winery. I then ran a small beekeeping operation, like catching swarms of bees, selling honey, and I still beekeep a little bit. Does anyone beekeep in here? We have one.
He's right there.
A round of applause for the beekeeper. So I started beekeeping, but that was basically just to pay for beer at the bars. But it was just a series of lifestyle businesses. I have a couple other businesses that I'd want to start, but I started this in college, so it was just a series of internships and jobs. And I actually think one of the— if I could go back and redo it, it'd be to work under a great CEO for 6 months so I didn't have to make all the mistakes I have made. But I can't do that now, so I have to live with my mistakes.
So first of all, thank you for the great talk. I'm interested about the customers. How did you acquire them? How did you reach them? And did you build up a workforce working for you first, or first customers, or was the growth kind of like started?
Yeah, absolutely. So we're a marketplace matching supply and demand. The demand is customers dropping their phones, breaking it, and then supply is like, do we have a technician in that area to service them? If we built supply, which is having technicians, but we don't have business for them, then they churn off and they go elsewhere. If we have too many customers that put in requests and we don't have technicians for them, then the customers go elsewhere. And so it was a balance of, we basically built customer heat maps, that say customers in 94065, which is Redwood City, we've had 50 requests in the last week there, but we only have enough technicians or supply for— to service 30 of them. We point our expansion team and then we add techs there. And then if we find out that, hey, we have more techs in Orange County than we have demand for, then we actually point marketing dollars. So like Google, Facebook, Instagram, we point marketing dollars there to like feed the techs. And so it's this Constant balance of like balancing supply and demand. There's about a two-week lag before you can match like us adding new technicians or us sending more demand there. The customer acquisition cost for phone repair right now is about like twenty to thirty dollars, so it costs us twenty dollars to get that customer on Google, Instagram, Facebook to press that ad to actually end up getting serviced. But it is it's a delicate balance. I think the One of the pitfalls that you can get in if you're a B2B company or enterprise sales, which we're moving to, which is shifting to being like a telco's technical workforce, is they'll say, hey, on July 19th, we're gonna turn on demand in these areas. You need to have supply built out. And so it's delicate on how do we build that supply knowing that the wave's gonna come, but up until that, you have no idea. I would say you build it carefully and just make sure that you have good financial— good people, financial modeling to make sure you're not building too much supply to not service demand, or what's arguably worse is having too much demand and then screwing over customers. But it definitely is a balance. Did that answer?
Yeah, that answered my question. But did you do it after your first financing round or before? Or you're going to have no money to do actual marketing.
Yep. So a lot of it early on, I think one of the ways that you tell if you have product-market fit is organic traction. So I don't think we were spending any money on marketing besides $0.05 on color flyers hanging, and we'd just get people calling us. So I'd say there's 2 schools of thought. If you have the capital, you can brute force, and you can try to prove a market's there if you don't know. Or you can look at early indicators on, like, do you have organic users that are trying to use your product that are just naturally finding you? We were fortunate that our market we're in applies to, like, 1 in 5 smartphone users, so they just naturally were there, and we had to, I guess we were fortunate that we organically found them. We did make the pitfall, and this was in, Probably 2015. So we've raised tens of millions of dollars in venture capital. We made the pitfall in 2014 where we're like, hey, we're burning $1 million a month. We're at a board meeting, and we're like, are you guys fine with us burning $1 million a month? And we were growing at 20% a month, and one of our investors was like, absolutely, step on the gas. Let's do it. And we stepped on the gas, and then we got to a point where it's like we were negative gross margin on certain customers 'cause we were spending too much. And so definitely keep that balance. We were fortunate enough that the growth allowed us to raise another round of financing, which is we're targeting profitability now. But it's definitely like, if you're spending more money to acquire customers, try not to be in that game. There's a saying that don't sell dollar bills for 90 cents. You'll sell dollar bills all day, but you're still losing money. It may be a good proposition, but try not to sell dollars for 90 cents, if that makes sense. Can you run through how long was the process to onboard a partner, like a large partner or a large customer like Amazon? Yeah, absolutely. Amazon's actually wildly unique in that they really function like a startup. If you're actually looking for an early partner, talk to them. They follow this 2-pizza team mentality, which is they want to keep their teams where 2 pizzas can feed them. For telcos or large insurance companies, they're a completely different animal. I hope that answered the question. For larger companies, I would say that plan on 6 to 18 month sales cycles. For telcos, plan on 24 month sales cycles. large partnership going live at the end of next month that conversations started 3.5 years ago, and it's like, it could be worth tens of millions of dollars or hundreds of millions of dollars in revenue, so it's worth it, but understand when a customer says, hey, we wanna launch on X day, or we wanna integrate with you, literally add 6 or 12 months. I've never had a single B2B or partnership sales cycle hit a specified launch date. It's always been months longer. So just plan for that.
As screen technologies get stronger, like Gorilla Glass or shatterproof technology, are you worried about that taking over a bit of your market size at all?
So this is a question that we've gotten every time we fundraise since 2012. The short answer is, yeah, like, does it keep me up at night? No. So from a high level, how technology works is screens get twice as tough and about half as thin, and so they break more. Another thing that we've seen is, like, historically over Samsung and iOS, phones are breaking more, not less. So your iPhone 8 actually has a front and back glass now, so, like, both can break where the iPhone 7 can't. Long-term, so I was fortunate enough to meet Larry Page once, and him and I were talking about the industry, and he's like, what are you gonna do when screens are made out of plastic? I think that it's an important question, but I think the whole idea is like, what happens when your market falls out, and what can potentially kill your company? One of the things that we do hypotheticals quite a bit on is not what do we do if screens don't break anymore, it's like, Hypothetically, what if Samsung and Apple say, we'll fix all phones we've ever made for free? What does that do to our business? The answer to that is, well, we double down on smart home. We want diversified business lines so that we'll be hanging TVs, doing Nest thermostats, whatever, and point our supply of technicians to that demand. I think it's like always try to out-innovate things that are going to kill you, and every company has their Achilles heel. Short answer is no, I'm not concerned about that. So Ashton Kutcher is one of our investors, and he's a spokesman for the Moto X, which had a sapphire screen that was supposed to be unbreakable. And I was like, dude, why are you doing this to us? But it didn't end up doing anything. So it's like, I'm personally not that worried about it. Now, 10 years from now, I hope that we have a diversified enough business line where if any certain business line changes or the market shifts or the dynamics change, that we have a robust enough business to absorb that. Any other questions? Awesome. Well, thank you for having me. You guys are awesome.
