How a bubble helped accelerating innovation in Greenwire

Recycling and reselling of used electronic devices – a bubble bursting

Rainmaking launched a new company, Greenwire, last year, which is specialising in recycling and reselling of used electronic devices (mobile phones, laptops, printers, game consoles etc.). The company is for example trading under the brand www.simplydrop.co.uk, which we purchased from Royal Mail.

In the last 3 months we have seen the reselling prices in Hong Kong (where the most buyers are placed) dropping dramatically. In any commodity trading market you will expect price fluctuations and in this market fluctuations have historically varied by up to 10% in the last 7 years. In the last 6 months prices paid to consumers in UK for smartphones kept going up as more players entered the market. This was further strenghtened by the fact that one player started pricing very aggressively on price comparison sites and all other followed like lemmings to avoid losing market share. In the end the cash paid for mobile phones in UK was out of sync with the demand in Hong Kong and the prices dropped by 60% over 2½ months.

This has caused servere problems for many players, since there typically is a long lead time from pricing a phone on a website and until you collect, process and finally resell the devices. Many have therefore been stuck with huge stocks and have to take the decision to either take a bath on the margin by realising the losses now – or getting funding to keep stock and wait and hope for better prices in the future.

In our case we decided to take the losses now and then adjust prices rapidly to reflect the new market situation. This has caused a loss, but we think it is better to get ahead of the curve and start building sensible pricing – even if this causes loss of market share in the short term.

Accelerating innovative improvements

The interesting learning for us has been to see how the last 3 months of dramatic drops in prices and resulting losses have accelerated the development of new innovative improvements for Greenwire.

When we launched Greenwire we already thought we made dramatic improvements to the business we took over (Simply Drop from Royal Mail). We did for example:

- lower acquisition costs per device by 30%

- lower processing costs by 50%

- reduce overhead by 50%

- introduce new value proposition to customer using vouchers via new platforms (see www.opensesame.co.uk)

We therefore already felt lean and innovative, however, the new situation has accelerated new innovations, which we honestly probably would not have done at least for another 6-12 months. This includes:

- accelerating international expansion

- finding new acquisition channels where we are less dependent on cash payment to customer (i.e. where customers are less price sensitive)

- finding new buyers who have more niche needs, i.e. we break up our batches into smaller batches where each part has a more hungry buyer

- investing into further improvements of our IT platform

All in all we think this will help us having a more solid business going forward, but I would have wished we did not need a bubble to burst before accelerating innovation. It is probably naive to think that we will not fall back into some kind of complacency again, but I will do my best to maintain innovation – and maybe every 6 months create a “constructive crisis”, which can help spark innovation and make us take radical decisions and make radical improvements faster, instead of small incremental improvements.

/Carsten