Business Model Breakdown – iCracked

iCracked is an interesting company with a great story. In 4 years the company has grown from a dorm room startup to a legitimate business. They made $15 million in revenue in 2014 by solving a real need. Break your fancy iPhone? Enter your location on the app or website and an iTech repairperson will come to you and fix the phone for about $100. The service is smart but the interesting part is the business model.

Creative Capitalism

This infographic was recently posted across relevant subreddits (r/startups, r/entrepreneur) with an enthusiastic post about how cool the iCracked business model is. Exclamation points included! The crux of the coolness, according to the post, is that they don’t actually make money by repairing iPhones, they make money by selling parts to the iTechs themselves. The post was taken down due to typical Reddit backlash, but you can get the gist through the infographic.

Enthusiastic Spin

Although it is true that iCracked does not receive any direct revenue from repairing iPhones it must be noted that iTechs are company trained and branded. iCracked may earn their revenue from selling parts but they market themselves as a repair company and know who their end customer is.

In a similar vein the infographic notes that the ‘iTech keeps all’ of the $100 repair fee, but this is only after they have bought the parts and paid iCracked an upfront fee to use the platform. This is a brilliant move by iCracked. I am all for on-demand businesses that allow people to make money and scratch the entrepreneurially itch. The brilliance of the business model is not, however, that iCracked empowers people, it is how the model reduces expenses and shifts risk outside the company.

Reducing Risk

Entering new markets is expensive and risky. Under a less sophisticated business model iCracked would need to do market studies, hire local iTechs, ship them inventory and hope sales meet projections. If the market is dry then you just wasted time and money.

Under iCracked’s model iTechs pay iCracked for the right to purchase inventory. If the iTech buys 100 parts and then realizes there is no demand in the market then the iTech is stuck with the parts, not iCracked. In fact, iCracked already got paid. If there is a market but the iTech quits then iCracked does not suffer too much. In fact they profit from the individual.

Hiring is also expensive, but not when your employees pay you to get hired. Benefits are expensive, but not when your employees are contractors that have to cover their own insurance.

Responsibility

For the record, I am not against this business model and I think it is quite clever. We are all grownups and can make our own decisions, but thinking of this this as a way to get rich with no personal risk is ridiculous.

iCracked does not sell themselves as such but this is not the first time I have heard public dialogue about how empowering this type of business model is. I am fascinated by on demand and collaborative economy business models since they highlight the strengths of capitalism, but they can also reveal capitalism’s darker side. Uber may allow drivers to free themselves from the chains of an oppressive taxi company, but who pays the medical bills and insurance when a driver runs someone over? Airbnb is a great way for people monetize an asset, but can you be sure you will get reimbursed when someone throws an all night sexy party in your apartment?

Being your own boss is a great thing, but these business models do not only empower people, they give them an added layer of risk and responsibility.

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Designing & The Bloomberg Terminal

Designing & The Bloomberg Terminal

One week into my first job my boss handed me a post-it note with a list of four character codes on it.

“Owen, get me the spreads for these” he said and turned to walk off.

“Uh, what?”

“Get me the spreads, I need them for a client.” My face resembled a color-blind baby trying to make sense of a Rothko painting.

He continued, impatiently, “These are some securities is one of our MBS funds and I need the current spreads over treasuries. The Bloomberg Terminal is over there.”

I had never used the famed machine, but I had an internet connection and years of experience clicking on screens. I could barely read the first time I crossed the Oregon Trail without dying of dysentery, so how hard could this be?

Blasting Off

The Terminal looked like it could launch satellites into space and I had no idea what I was doing. I was worried that I would hit the wrong button and liquidate all of Fidelity Investment’s assets (AUM of $1.7 trillion at the time). I didn’t ruin Fidelity that day, but I was working on a high-yield mortgage backed security fund and AIG imploded shortly thereafter.

Probably not my fault…

Confusion & Despair

I pressed onward but the Bloomberg Terminal had the least intuitive user interface I had ever seen. There was no mouse so I banged away on a periodic table that some alchemist turned into a keyboard.  I was lost. I was a little sad. I was not sure if my confusion was the result of running full speed into my own stupidity or into the type of bureaucratic inertia that keeps outdated versions of Internet Explorer alive.

What Were They Thinking?

The original interface was designed in the early 80’s when about 5% of Americans had personal computers. There was nothing sexy about being a software engineer or UX designer and design thinking was not yet an approach being taught in business schools. IDEO, which had not yet been formed, was 20 years away from their experimental attempt at a redesign.

The development team at Bloomberg did not take an approach based on empathy, intuition and iteration. They knew what goals a user should be able to accomplish and took a blunt approach based on rote memorization. The core elements of the design have not changed much in 30 years.

Help Is On The Way…maybe

It is an easy design to bash, particularly for those of us that freebase WiFi and legitimately wonder what the web will look like when flat design is no longer cool.

We can forgive the early days when Bloomberg cornered the market by providing unmatched data and tools at a speed no one could rival. We can even forgive the decades that followed when building disruptive technology was not accessible to anyone with chops and a good laptop. But how is it that one of the most profitable and industry dominating pieces of technology feels 30 years old and a $24,000 subscription includes a bundle of services most people will never touch?

The Arguments

There are a lot of arguments.

Corporate inertia and lack of vision.

Traders not appreciating the art of a beautiful front-end.

The ‘badge of honor’ of being able to use something so complicated.

The fact that long standing professionals are bad at learning new software so they force the next crop to treasure Bloomberg and learn the terminal.

The fact that the Bloomberg Terminal performs a long list of highly complicated services and has rightfully earned the trust of people that make massive bets that move markets.

What Have I Become?

When I started writing this post I wanted to join the fun of bashing ugly design. I wanted to talk about how ripe Bloomberg is for disruption by some smart team that understands design and finance and wants to build from the end user out. I wanted to understand what a Bloomberg Terminal would look like if we wiped our memories of the current technology and started from scratch. Bloomberg is not the only source for comprehensive data and financing good software is not terribly hard these days, so what improvements can be made?

The answer? Marginal ones in the short term. Although there are opportunities for improving on various aspects of the Terminal I do not think anyone is close to offering a better wholesale solution. Even if a company could promise the same speed and accuracy with a better design, what are they odds they will be around in 5 years? Bloomberg is safe, dependable and committed to this market. Traders and bankers love it. They may complain about how hard it is to learn but they love feeling like they are part of an elite group.

More important is the fact that the Terminal works. The interface may be complex, but so are the jobs it accomplishes. Can these jobs be accomplished through a more intuitive design? Perhaps, but great design requires an understanding of your users. The fact of the matter is that users like the Bloomberg Terminal and it is not going away anytime soon. If it gets replaced then I will put my bet on Bloomberg. They know there users better than anyone, and they are always ready to acquire young companies that encroach on their turf.

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No Developer? Get to Work.

Many tech ideas from ‘business’ people die on the vine because the founder wants to launch everything at once and believes they need a developer to do so. Just because your idea lives on the internet does not mean it requires deep technology from the outset. Let’s use a simple example.

Your Big Idea

One day it hits you; Sports fans need a dating app. It would be like Match.com but dates are centered on games and you can add Tinder like functionality for meeting people in the stadium or at the bar. It is a subscription service but you can target your users with sports related ads. You can make it sticky by building a social network for all your amazing users, then think of what you can do with big data. Big Data! You are going to be a millionaire and all you need to do is find a developer to do all the work without paying them any cash. How could they not want equity in your amazing idea?

Testing Your Small Idea

Talented developers get pitched ideas everyday and your growing list of features reflects scope creep, not an increase in potential. Rather than figuring out all the possibilities you need to isolate your core value, trim the fat and create a doable Minimum Viable Product (MVP) that will test your hypothesis. Your hypothesis is not that a massive user base is profitable but that sports fans will use a service that allows them to date other sports fans.

Do People Want It?

Stop relying on an unknown to build your business and spend some time learning free or cheap website builders such as Wix, WordPress or Squarespace. Find some pretty pictures, explain your idea and provide a call to action. “SportsDating is the easiest way to meet other singles that share your love for the game. Enter your information below and our proprietary algorithm will match you with your perfect mate”. Set up a form that directs to your email address (you can figure it out) that asks the relevant questions. Go hustle and drive some traffic to your site. If you get 1000 hits and a 99.9% bounce rate then chances are your idea is not a business, it is a bad example in a blog post.

Faking It

But what if lots of people entered their info and now you have 100 people that want a date and no proprietary algorithm? Fake it. Dump all the information into a spreadsheet and see if there are any natural pairs. Shoot them an email from the account you just created that says ‘You two are a match! You both want to go to the Red Sox game on Saturday so make plans and start making out’. Keep going and see how many more matches you can make. Now you have some proof of demand and the momentum to keep moving forward.

Next Steps

There is still a ton of work to do but now you have some validation. Keep moving forward with your idea and keep growing your network. That developer that was unwilling to work for a person with an idea may be more inclined to jump on board with a hustler that has some traction.

Mentality Over Tactics

The general approach in this example is more important than any of the specific points. There are numerous tactics you can read about elsewhere and you will find few people that agree on what constitutes an MVP. Let them argue while you continue to scale. At some point you will need a CTO but the point is to break the mentality that someone else is going to build your business for you. If you think that not having a developer is the bottleneck then you are the bottleneck. Get out of your head and get to work.

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Tech Ideas From Non-tech Professionals

One great thing about founders with engineering backgrounds is that they possess the tools required to fix problems and the mentality to go get it done. They see a problem, build a solution, give it to users and iterate all the way to the bank. It is no wonder that such a large proportion of early stage investment goes to companies founded by engineers.

But what about non-tech professionals? Everyday they see problems within their industry or find pain points in their workflow. They conceive ways to make their business more productive, and my first rule of business is that a company will pay for a product reduces expenses or increases revenue. What should these individuals do when they have a moment of inspiration, or better yet an idea that won’t leave them alone?

Building and launching a product is not easy, but taking the first step is not as prohibitively inaccessible as many people think. Everyone does not, however, live in the world of entrepreneurship and they aren’t exposed to the practices many of us take for granted, such as throwing up a landing page or testing your market through a concierge approach. One common refrain from developers is ‘learn to code’. This is great advice as coding ability can only yield positive results, but it is easy for talented programmers to forget just how daunting this is. This is doubly true for smart, capable individuals that aren’t even comfortable with math (yes, they exist).

What can be done for all those people that don’t have tech skills or a network that can easily be tapped? There is always room for hustle and grind, and it is always beneficial to meet people and ask questions, but I believe there are a lot of ideas that die on the vine. Some people have the inclination to take on risk and charge fearlessly into an idea, but some people have full time jobs, a family to be with at night and no idea how to get their ideas to market. But many of them would know what to do once they can get in front of industry stakeholders once they have something to show.

There is no reason for most developers to know understand inefficiencies in markets and industries they have no exposure to. Existing companies cannot solve every problem in their niche, and even if they can it is not always a smart investment for them (we can get into a discussion of hurdle rates another day).  But what if a provider comes along that has solved the problem for them, and offers the solution at a cost less than what it would take to put an internal team on it?  How do we get that company off the ground?

This is not trivial.  There is a lot of value being left on the table. Many of these services may not grow to be billion dollar home runs, but two singles and a double still scores a run. This is not, however, the strategy of most early stage VC funds or angles.

The problem is a misallocation of resources, where dollars chase the huge win and a disproportionate amount of investment ends up in small pockets on the coast. For every successful venture fund there are many more than elbowed their way into an overhyped party round and went back to banking, while good ideas were ignored. This is anti-capitalist.  Hell, it is anti-American. This is a problem I see everyday, and one that I want to solve.

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Sun Tzu – Modern Business Genius?

I stumbled on an article mentioning how Evan Spiegel, CEO of Snapchat, bought each of his employees a copy of The Art of War immediately after meeting with Mark Zuckerberg many months back. I was surprised to see that this nugget could be traced back to a Forbes article from earlier this year. The articles state that “Chapter 6 in the Art of War specifically addresses the need to attack an enemy where and when he displays weakness” and draws a connection to how the Snapchat leadership wants to take on Facebook rather than play nice with them. I respect Spiegel for not bowing down to Facebook. Snapchat has its place as a product, but does the fact that Spiegel bought a 2500 year old book on war really make him seem that edgy or badass? This is nothing new; The Art of War has been referenced in every cliche movie and book about cut-throat business for decades and talking about it was trite when I was still cool (I peaked around 2003).

If you have not read The Art of War then I suggest going through it over your next cup of coffee. It is widely available online and has some interesting lessons that apply to many competitive situations. Can we please, however, stop pretending that it is the book every CEO should have on his desk as the go-to reference for strategy? It is tempting to read the book as a metaphor for modern day business but Sun Tzu was a general writing for generals. When he states that ‘[the fifth use of fire] is to hurl dropping fire amongst the enemy’ he is literally telling you to set your enemies on fire so that they burn to death. I know that successful CEOs can exhibit sociopathic tendencies, but where do we draw the line? Is undercutting a new competitor to defend market share really analogous laying siege to a city and indiscriminately starving innocents in an act of ancient war?

I don’t have a major gripe with cut throat tactics in competitive industries and I don’t make a practice of backing off due to pressure from those with more power or money than myself. I respect being tough in business and I know that behind the veil of disappearing, goofy selfies lies real money with major investor interests. I take fiduciary responsibility very seriously. I also have great friends who served in the military and I recognize that warfare is a reality, but enough is enough.

We need to stop taking business advice from people whose goal was to kill people as efficiently as possible and The Art of War should not be the first book you give your employees. If you want to emulate hardline managers, read Jack Welch. If you want a role model for how to be a successful business person but still be a good human being then look up to Warren Buffet. If you want to model yourself and your career off arrogant 20 something’s with a good idea and a decent product, then that is your choice and I wish you luck. My choice is to work with good people doing honest work. There are a lot of down to earth leaders that are trying to make the world a better place, and they should and will profit from that. I’d like a boat.  I want a nice house on the beach. I plan on playing golf at the best courses in the world, but I want my foursome to be comprised of people who hold as heroes the best humanity has to offer, not those willing to succeed at all costs.

But if you want to base your career off The Art Of War, then take Sun Tzu’s lessons to heart. When you are building your time-killing iOS app for college kids,  never forget this important lesson that surely applies to your social media marketing strategy: “Moor your craft higher up than the enemy, and facing the sun. Do not move up-stream to meet the enemy. So much for river warfare”

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