Why the founders of the leading service for iPhone repair out iSmashed were forced to sell the company. Edition vc.ru talked with co-founder of service for repair of Apple technology on the road iSmashed Sergei Warth.
In February 2017, he sold it to the General Director of a competing company Fixland Ruslan Gareev. Warth talked about the mistakes that led to the failure of the company. Services on repair of Apple technology on the road iSmashed start in February 2015 in Moscow.
The starting capital amounted to 100 thousand rubles. Its founders were Sergey vart, Alexander Pasechnik and his brother Denis Pasechnik. For all time of existence iSmashed have used the service more than 10 thousand people, and the companys representative offices were opened in several Russian cities, including St. Petersburg and Krasnodar.
By July 2015 master of service has fulfilled more than 450 orders and receipts for the month exceeded 2.5 million rubles. However, by November 2016 under the previous turnover iSmashed began to operate at a loss. “Despite the help of investors and mentors players are not able to build a profitable business,” says CEO Fixland Ruslan Gareev, who in February 2017 gained an unprofitable service VARTA. Alexander Pasechnik Sergei vart met in “Foundation of Russian economy” under the program of support of talented students in 2014.
The Foundation was founded in 2012 by Oscar Hartmann, who later became a mentor for entrepreneurs. He told them to be based on international project and adapt it to Russian conditions. Beekeeper and Warth won a scholarship Foundation and began to think over the opening of a joint business.
The basis they took the idea of American service iCracked repair Apple out. In 2014, the fastest growing startup in the US, even started to open their branches in Germany and England, wrote Techcrunch. “We decided to repeat the success of iCracked [in Russia] and also to grow rapidly”, — says Sergey Warth. In the US the client willing to wait one to three days.
The American system is designed so that the master himself sets the price for the order. And the company gets a percentage that is looking for customers for the masters. “It all works on the business model of Uber. The client leaves the application, the application is sent to the masters and waiting for it to respond.
But the wizard in America, not so agile,” explains Warth. The entrepreneurs decided that this model does not correspond to the Russian conditions. Why would a man who has a broken iPhone, to spend your time to take the phone to a service center when you can call the master in any point of the city, and he in 19 minutes will repair the phone.
A feature of this service was the guarantee for three months. “If within fifteen minutes with a man no one has contacted and couldnt help him, then he will go to nearest service. So he will receive may not be the best, but relatively fast service.
In early 2015, in Moscow alone there were about two thousand stationary service centers on repair of the iPhone”, says Warth. The second problem was that the Russian masters did not want to take lower-paid orders. “Wizard, for example, chose the repair orders of the iPhone 6 and ignored a cheaper (replacement Flex cable for iPhone 4S). So we lost customers,” says Warth.
To solve these two problems, the company decided to change the model. “We are working as Gett. Also established its customer service, accept applications, process them yourself, set your price, and craftsmen were hired as individual entrepreneurs”.
The team gave them fixed the user how to work. Employers demanded from the masters of such quality standards. The client needs to arrive within hours the repair should take no more than 20 minutes, in difficult cases — a little more.
The first customers were attracted by the founders of the social networking sites by friends who were doing reposts of publications about the service. Presenting the draft service in the startup Academy SKOLKOVO, Warth attracted the attention of major media. After the appearance of new publications, users made 75 orders.
In April and may 2015 iSmashed entered into an agreement with Mail.Ru Group, where he worked before vart, and the international auditing company PwC to place their service on corporate websites. “People liked the service more as a show. They have never seen,” recalls Warth.
Gradually the service got to know entrepreneurs from the regions, and began to seek co-founders with the request to give them rights to open a franchise, however, Warth and the beekeeper decided not to risk it. “We realized that if we were to open a franchise or branches in other cities, not until the end after all the processes, it will incur only losses.”. By July 2015, the number of monthly customers of the company reached 450 people, and revenues exceeded 2.1 million rubles. The main channels to attract left Facebook, “Vkontakte”.
“We bought paid traffic to Facebook because our audience – employees of the companies that sit in the business centers and offices,” says Warth. In the summer of 2015, the founders decided that they have enough resources for expansion. Abandoning the franchise model, they began to open their own branches in the regions — in Saint-Petersburg and Krasnodar.
However, two months later, the entrepreneurs Warth and beekeeper realized what hurried to the regional markets not receiving benefits on your main market in Moscow and Moscow region. “In two months we turned this experiment. It was necessary urgently to undertake something, because [in the regions] was not working those marketing channels that we used in Moscow. After that, we saw that without a professional marketing we cant do. Still, Moscow is the largest market for this service, and to capture at least 10% of this market would be a fairy tale,” said Warth.
“iSmashed started very brightly, had a good press, well-known mentors and investment. They were obviously ahead of us,” — says the Director of a similar service for the repair of equipment Apple Fixland Ruslan Gareev.
After seeing an article about iSmashed in the spring of 2015, he decided to learn the business model of the service and found weaknesses. According to Gareev, iSmashed took a lot of costs to support call centre and procurement of parts and equipment from suppliers. Just for receiving calls worked up to four people, which was extremely inefficient due to increased operating expenses. Founder Fixland decided to resolve these problems through automation of service (this allowed him to refuse call-center) and the conclusion of contracts with suppliers for the centralized purchasing of parts, to the masters and not have to search them yourself on the Internet.
By August 2015 Fixland reached profitability. ISmashed, on the contrary, began to lose half of the orders, says Warth. “In August we started to find out why this is happening. The problem was in the marketing flaw”.
We did not notice the moment when our marketing channels came competitors with similar offerings. We began to copy, down to the words in the ad, same pictures, which just led them to their sites. We realized that this is something you need to do to strengthen marketing.
By the fall of 2015, the situation has deteriorated iSmashed. One of the competitors VARTA — Fix it easy — attracted investment and began to invest in marketing and promotion. From August to November 2015 the company returned the speed to 1.3-1.5 million rubles due to marketing moves.
Further, the founders iSmashed continued to seek options for scaling the business. In November 2015 need urgent investment and expertise to the team, without which it would be difficult to survive in the market. “We Alexander Pasechnik urgently moved away from the operating Affairs, the Manager left, and began to meet with investors, funds.
In November I flew to Kaliningrad to the event SmartHub, where we met with our investors,” says Warth. Then from November to April 2016 the company was engaged in optimization of business processes and preparation of the transaction. To improve the quality of infrastructure service, they had to close the site for two months — November through December 2016. This has led to faster processing of client requests.
A minute later the user is already connected with the master. According to VARTA, services algorithms used information about previously completed orders — for example, which streets are most often caused by masters. In parallel, the service refused from paid advertising and focus on customer retention.
“We have to consult with our investors in marketing how to proceed. We turned off all paid traffic for six months while maintaining a turnover of one million rubles due to repeated customer requests. So we are not paying for marketing, remained at the same level, because people talked about our service to their friends,” says Warth.
In April 2016 the founders iSmashed thought about changing the name. So they would be able to fix not only iPhone but also other smartphones. “We looked at how people are looking for us in search system and realized that we lose a percentage of potential customers. I do not. In addition, the initial letter I is associated only with the Apple”, says Warth.
In the end we settled on “Masterzen”. “its such an “enlightened master” or something”, says Warth.
In April 2016 Masterzen received investments from business angels on the platform StartTrack. In addition, the project has aroused interest from such investors as former head of business-projects of “Yandex” Leonid shnyr and founder of boutique SmartHub and business angel Bogdan Yarovoy. Entrepreneurs iSmashed helped their good friend Vladimir Batishchev, – “Mule.ru”. They gave the project the total investment in the amount of 3.6 million rubles, which Masterzen spent on the development.
“From April 2016, we again began to invest in marketing, invest in new channels — for example, in contextual advertising. By September 2016, our turnover was about 2 million rubles, and we have doubled. Growth has been stable at about 20-25% per month,” says Warth. In July 2016 the conversion Masterzen peaked.
Per month orders have made about 6% of users. “So we came to the profit of 100 thousand rubles per month. But in August there was a lull, which lasted until the beginning of autumn”, — says Sergey Warth. According to him, by that time, increased competition in key market.
Began to appear a lot of small players in November 2016. This was due to the low threshold of entry, where any entrepreneur with a startup capital of 100-200 thousand rubles could also open its service to repair phones on the road. “By November of 2016, we found that began to operate at a loss, fell sharply the number of orders.
At first we were the only ones on the market repair on the road, but then the number of competitors began to grow. For 2015 appeared about ten services, and in 2016 reached 120 companies in Moscow alone,” says Warth. To attract customers, the new company began to reduce the price of the repair, saving on parts, says Warth. “They could not compete with us in quality.
So, if we have repairs cost 6900 rubles from another company – 3900 rubles. People do not explain that they have parts worse”. In addition, involved in the fight the big players.
In may 2015 inpatient service for repair “Pedant.ru” have added the ability to call the master of the house. For eight years he has accumulated advantages in SEO, targeted and contextual advertising. According to VARTA, that was one of the reasons why Masterzen from the first positions in search results.
“We really experimented a lot, and put high rates, and as low as possible, if only the economy had converged in one order. But we didnt earn anything. Just wanted to see how it would have affected the client and its recommendations,” says Warth.
From November 2016, the company is in loss. The costs of marketing and contextual advertising began to grow rapidly. 30-50 times are estimated VARTA. As a result, on the market there was a situation when many companies have lowered the price and began to work at a loss. “Turnovers have remained the same, but at each order, we were losing money, margins have become negative,” says Warth.
Sergey vart with the team didnt want to close the service because they have built a strong infrastructure. Instead, in February of 2017 began to look for a buyer. “About to leave the business, could not be and speeches, after all, weve developed a good it infrastructure for the distribution of orders and accounting masters,” says Warth.
Among all the companies on repair of Apple technology on the road, Fixland was iSmashed on methods of doing business. Both services based on startup iCracked, and tried to make the company as open as possible to service users. Besides, Fixland guaranteed quality spare parts.
“In February, invited them to join. But combining them is not very interested, and they said they are thinking to sell your company,” says Gareev about the details of the transaction. According to VARTA, its main business mistake was a careless attitude to competitors.
“We need to be alert to their competitors from the very beginning. Even if your company is the only service on the market — it is impossible to imagine yourself on the podium. On the contrary we need to calculate all the risks associated with marketing and advertising.”. In addition, the owner made a mistake when setting the price of a service in crisis.
“Prices had to be put above the market and to work in this segment due to the retention of good quality”. One of the mistakes the founders iSmashed Gareev believes the inexperience of the entrepreneurs and in General the wrong approach to doing business. “Will miss the point that they young guys.
Today in Russia most Internet companies take an offline business processes, but do not use all advantages of e-Commerce and transfer them to your online business. Where there are people, there are errors, the preferences between suppliers, kickbacks. Thus, the processes are not automatiseret, and do everything like in a regular retail chain. It happened with them, as a result suffered financial loss.”.
With the acquisition of Sergei VARTA Fixland got a website with high traffic, well-known brand and a loyal customer base. In the near future Gareev plans to restart the service Masterzen where you can get the service at a lower price, unlike site Fixland. This is especially true in a crisis.
The company will be able to attract customers for whom price is the main criterion of purchase. Change of ownership will not affect the masters, says Gareev. “We just switched them to our platform.
Masters who were there, website, brand, all locked on our company. Thus Masterzen has expanded our audience. Soon we will start to use the site,” he concludes.