ON THE CASE

National Post (Latest Edition) - Financial Post Magazine - - COLUMNS & DEPARTMENTS -

A smart­phone re­pair ser­vice wants to open a do-it-your­self store, but fears can­ni­bal­iz­ing its ex­ist­ing busi­ness.

THE SIT­U­A­TION Changes in tech­nol­ogy are so rapid that they can quickly put com­pa­nies out of busi­ness if they’re not care­ful. Popular prod­ucts can lose favour with fussy con­sumers, new tech­nolo­gies can cre­ate ad­van­tages for new com­pa­nies too hard for older com­pa­nies to over­come and, some­times, new tools al­low cus­tomers to do what they once had to pay some­one to do. Kashif Khan, founder of Kmas­ter Elec­tron­ics, a smart­phone re­pair busi­ness in Toronto, was try­ing to stay ahead of the game by open­ing a new fix-it-your­self lo­ca­tion just out­side the city. This ven­ture would sell parts to cus­tomers who wanted to fix their own phones on site. Cus­tomers would have ac­cess — at no charge — to on-site work­sta­tions stocked with the nec­es­sary tools. “Am I on the lead­ing edge or am I pre­ma­turely destroying my own ser­vice model?” Khan won­dered.

When we last checked in on Kmas­ter five years ago, Khan was won­der­ing if it should start ser­vic­ing LCD pro­jec­tors. But about six months ago, Khan started to no­tice an in­creas­ing num­ber of cus­tomers look­ing to buy smart­phone parts. “They know we’d be happy to re­pair their phone for them, but th­ese cus­tomers want to try it on their own. They call us be­cause we’re seen as a trusted ser­vice provider, even though the sale of parts isn’t our fo­cus,” he said.

At first glance, DIY sta­tions seem like a coun­ter­in­tu­itive idea for a re­pair busi­ness — built on ser­vice fees — since they could jeop­ar­dize Kmas­ter’s main source of in­come. Fees for re­pairs range from $10 to $90, some­times higher, depend­ing on the prob­lem. Khan has a team of ser­vice tech­ni­cians work­ing for him, and he even of­fers smart­phone re­pair train­ing seminars to stu­dents across Canada.

But Khan was wor­ried that emerg­ing trends were mak­ing it eas­ier for cus­tomers to by­pass ser­vice shops. “Do smart­phone cus­tomers need ser­vice re­pair shops if they can buy parts on­line and, with a few clicks, learn how to fix their phones by watch­ing a YouTube video?” Khan won­dered. If the trend per­sists, ser­vice shops would see a decline in busi­ness. “Think about the decline in doc­u­ment print­ing and fax­ing ser­vices as con­sumer ma­chines be­came more ac­ces­si­ble. It’s not a per­fect anal­ogy, I know, but I’m afraid that the same could hap­pen to our ser­vice model.”

Open­ing a DIY lo­ca­tion would mean com­mit­ting to op­er­ate the ven­ture for a year in or­der to as­sess its viability. “Cur­rently, we only make a small mark-up on the parts we buy from a whole­saler,” Khan said. He sketched out a re­tail shop hous­ing 10 work­sta­tions, each of which would be equipped with the tools nec­es­sary to carry out ba­sic smart­phone re­pairs. “I may be able to boost our spare parts busi­ness by invit­ing cus­tomers to ‘fix-it-your­self, on site,’” he said. Khan would have to source parts di­rectly from Asia and buy in bulk.

“The ad­van­tage of a fully equipped work­sta­tion is clear. I wouldn’t imag­ine that many peo­ple own the spe­cial­ized tools re­quired for smart­phone re­pair,” Khan said. “Some cus­tomers will be mo­ti­vated to do it them­selves to save on the re­pair fees. There will be oth­ers for whom the ben­e­fit will be in­trin­sic: they are look­ing for the sat­is­fac­tion of be­ing able to re­pair their own de­vices. So let’s help both groups out.”

Khan con­ceded that there would be in­stances — per­haps half of the cases — where DIY cus­tomers would ask for as­sis­tance, and Kmas­ter would pro­vide a trained tech­ni­cian at an ex­tra charge to help them com­plete the re­pair. He could see open­ing six to eight lo­ca­tions across the coun­try quite rapidly if the ini­tial pi­lot proved vi­able.

Fur­nish­ing parts for DIY cus­tomers would al­low Kmas­ter to move into the parts whole­sale busi­ness as well. There was no doubt that he would be able to sell a sig­nif­i­cant vol­ume of parts on­line if he fo­cused on be­com­ing a whole­saler. “I’ve trained more than 500 stu­dents, many of whom are run­ning re­pair busi­nesses across the coun­try,” Khan said.

On the other hand, there could be a risk in even pi­lot­ing the DIY busi­ness, since Khan would have to by­pass his whole­sale sup­pli­ers and, in ef­fect, com­pete with them. He thought about the po­ten­tial re­ac­tion — likely neg­a­tive — from his sup­plier net­work.

“But I’m wor­ried that run­ning a dis­tri­bu­tion busi­ness will be markedly dif­fer­ent than run­ning a ser­vice shop, from a process per­spec­tive. And my ser­vice rev­enues could fall rapidly,” he said. There would also be a risk that pour­ing re­sources into a com­plex new busi­ness would mean the ser­vice busi­ness would rapidly decline. “I’d be do­ing less mar­ket­ing and this could ac­cel­er­ate the shift from ser­vice to DIY . What if I need to re­verse the changes?”

This case study was pre­pared by Fi­nan­cial Post Mag­a­zine and the Pierre L. Mor­ris­sette In­sti­tute for En­trepreneur­ship at the Richard Ivey School of Busi­ness (West­ern Uni­ver­sity). The case method is a key learn­ing tool in the cross-en­ter­prise lead­er­ship ap­proach used at Ivey. The views rep­re­sented here are solely those of the case au­thors. Some de­tails may have been changed to pro­tect pri­vacy.

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