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.
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.
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.
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.
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.