Feb 12 2014, 9:29am CST | by Forbes
“We want to grow 20% month-over-month for the next 36 months,” says AJ Forsythe into a nearly drained iPhone 5S as he paces a seawall overlooking San Francisco Bay in Redwood City, Calif. It’s the kind of boast iCracked’s 25-year-old CEO likes to camouflage in tangential asides, like describing the cat-themed conference room planned for the company’s new 25,000-square-foot office. Or the $100 worth of fried chicken someone bought that morning after stealing his credit card information. Or the life-size oil painting of his older brother Chip that will hang in iCracked’s offices if Forsythe loses an undisclosed bet.
Don’t mistake the Ritalin-deprived detours for a want of focus. Forsythe is all business. He’s just booked a last-minute red-eye to London to work on the U.K. market, the latest target for iCracked, which runs a network of 470 “iTechs”–iPhone and iPad repair professionals. Customers summon a rep via the Web for such common snafus as a cracked screen, water damage and broken speakers and input jacks, and meet in person at a prearranged spot. You can usually get your phone back the same day for an average charge of $99.
What started as a dorm-room hobby in 2010 has exploded into an enterprise with iTechs in 43 states and 11 countries and 43 employees in the corporate office, who work mostly in operations, product development, customer service and marketing. ICracked broke even on $9 million in sales last year, up from $1.9 million in 2012. Forsythe conservatively predicts $30 million this year–”if we all do our jobs correctly.”
The math may not be perfect (based on December results, 20% per month gets you to $43 million in sales in 2014), but the manic pursuit of growth is real. Forsythe has already mastered a classic entrepreneurial lesson: building on one success to launch another–and another. In October he introduced a buyback program for old or wounded iOS devices: iTechs offer prepaid debit cards on the spot, and iCracked flips the mended phones via eBay or foreign wholesalers for a profit. Forsythe hopes this business outstrips repair revenue in 2014. Never mind that Apple introduced a trade-in service last August. He plans to start an insurance program by year-end.
Forsythe grew up wrestling, not writing code. With a Cheshire grin and hastily combed sandy-brown hair, he speaks in a deep, gravelly voice that still carries a bit of Texan twang from six years spent in Dallas. The rest of his childhood kicked across the country every two or three years, following his dad’s banking career. “It sucked as a kid,” he reflects, “but it gives you a pretty holistic view of things.”
After high school he followed his brother Chip to California Polytechnic State University on a wrestling scholarship. Two grades older, Chip had switched majors from kinesiology (the study of movement) to viticulture (the study of grapes) after mistaking an educational wine tour for a party bus one weekend. By the time AJ arrived on campus Chip was making wine from the leftover yeast and sediment of local wineries and storing it in casks under a bridge.
A psych major, Forsythe helped his brother plant a two-acre vineyard during freshman year, then started a honey business after taking a class in beekeeping. When that failed he tried a distillery, then looked into importing 25,000-liter casks of Russian vodka through Alibaba.com, the Chinese online marketplace. That didn’t pan out. At one point he bought a new iPhone screen for his broken mobile and fixed it himself.
Though a helpful skill for his own mishaps–he’s broken his phone nearly a dozen times since–he didn’t think to turn it into a business until an uninspiring career fair during his junior year in 2010. “I threw out all of my résumés, went to the library and started making neon-colored iPhone repair fliers on Microsoft Paint,” he recalls, and got five phone calls the next day. He charged students $75 a pop for repairs at his kitchen table.
That summer he teamed up with Anthony Martin, a recent UC Santa Barbara grad, to cofound iCracked. Flush with profits from Campus Radar, his textbook-rental startup, Martin invested $10,000, and the two spent the next year trying to recruit students, especially tutors, as iTechs across central California. Didn’t happen. Says AJ: “We would cold-call these guys, and they’d be like, ‘No, I don’t want to fix iPhones.’ ”
Before graduation in 2011, Forsythe and Martin teamed up with Leslie Lambert, a graphic designer, who replaced his amateurish fliers. They soon racked up $40,000 in credit card debt for replacement parts and packaging supplies, then moved to a rented basement in Sunnyvale, Calif.
Martin nudged Forsythe to apply to Y Combinator, Paul Graham’s Silicon Valley startup accelerator. “
I said, ‘Dude, I don’t know what Y Combinator is,’ ” Forsythe recalls. They missed a Skype interview while on a trip to China. After finally connecting, Forsythe walked away thinking they’d bombed. But Graham saw big promise in the kid: “ AJ seemed to me more of a Rockefeller than a Steve Jobs. He’s not some sort of tech visionary, but he has immense energy.”
The program’s $150,000 worth of seed funding proved a “godsend” for the indebted founders, and the company expanded from 60 iTechs in January 2012 to 125 by graduation that spring. Forsythe raised another $500,000 from SV Angel that spring, moving into a 3,500-square-foot office in Redwood City.
Typically IT veterans, iTechs are a select group: Fewer than 1% of the applicants survive three interviews and a background check. They meet customers 30 to 50 times a week to fix and purchase phones, earning around $60 per repair and $25 for buybacks; iCracked makes money selling them replacement parts at a 20% to 40% markup or marking up purchased phones for resale. The company also sells do-it-yourself repair kits for $20 to $150 each, some 35% of sales.
Forsythe’s quest to transform iCracked into the “AAA of smartphones” depends on an expanded iTech network–even putting one of his guys in every city in the world over the next 24 months. “Well, every city we have demand in,” he explains when pushed to clarify. That’s still 2,300 metros. In February he planned to hire up to 85 more iTechs, some in countries like the U.K., Germany and Mexico. The larger the network, the more toying with new services that can push sales higher–including add-ons like warranties.
Does Forsythe really want to compete with AppleCare or insurance from Verizon and AT&T? “There’s this crazy thing called convenience,” he contends. Two years of AppleCare costs $99, plus $49 to $79 per repair via mail, often leaving customers sans device for a week. Forsythe thinks folks will gladly pay a monthly fee in return for free, on-the-spot repairs.
But getting between Apple and Verizon and their customers will take big bucks. Forsythe is hoping to raise $50 million in Series A funding this year. That would cut into the “vast majority” of iCracked still held by the founders, but he says he’s willing to eventually give up 50% or 60%. Apple sold 51 million iPhones in the most recent quarter. “If you control the life cycle of these devices,” he says, wide-eyed, “that’s crazy awesome.”
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