How to Export to China: Recycle!

Guest Post by Chris Holmes at Cohort Capital

It’s amazing how quickly a simple concept to recycle smartphones, a dorm room hobby really, can grow into an actual business propelled by the energy and enthusiasm of one person. It’s not an uncommon story, and in fact, it’s one that has been over-popularized to the point where an increasing number of college-aged kids believe the path to success involves leaving the classroom to bootstrap a start-up that’s sure to be bought by (insert name of tech-company-acquirer-of-the-day here), turning them into young millionaires. Yes, it happens, but rarely, and the mythologized story tends to downplay many of the essential start-up ingredients. But that’s a whole other discussion…

Refreshingly, Brennan Zelner, and his Fort Collins Company, Newaya, aren’t caught up in Silicon Valley lore and are instead focused on achievable goals and organic growth. Admittedly, theirs is not the sexiest concept you’ve ever heard of, although it is a novel one when you think about it—the idea that we (America that is) have any electronics of value to export to China—especially when it was made there in the first place, is a bit counterintuitive. How did Brennan discover this anomaly of international commerce? He found, after years of flipping used iPhone’s on Craigslist and Ebay, that overseas buyers would purchase as many high-end phones as he could get his hands on. Why? The cost of cell phones in China are not subsidized by long-term service contracts with the carriers and therefore retail at full MSRP (about $600-$700US). This creates an arbitrage in which Newaya can purchase the used phones from American consumers and sell the phones to Chinese wholesalers who still find enough margin to sell the phones to Chinese consumers for less than they would pay new.

Founded during his sophomore year at CSU, the company has seen steady growth within the confines of Brennan’s excess bandwidth, studies, skiing, and probably a bit of college fun here and there. The guy’s enthusiasm is undeniable and infectious, arguably a key ingredient to the company’s success and ability to attract attention as well as valuable partnerships. From humble Craigslist beginnings, the company has expanded into retail outlets, corporate offices, and a robust web platform through which anyone in the country can get a quote, sell, or recycle their phone. Most recently Brennan has secured partnerships with New Belgium and Otterbox where, in exchange for advertising to their employees, Newaya will offer a 10% premium on the buyback of their phones. As another point of differentiation the company is also testing a new model in Alaska in which cell phones can be dropped off at a retail location rather than being mailed. “The conventional model—drop your phone in the mail—has proven to be difficult in Alaska. People think it’s a scam or it’s too inconvenient, so we’re providing a space where they can go in and leave the phone until we can get them a quote,” Brennan states.

Since entering the Rocky Mountain Innosphere, a Fort Collins Incubator responsible for propelling successful companies such as RideKick and CZero Inc., Newaya has tripled sales from about 30 phones a month to nearly a hundred. Brennan attributes this to the focus he’s found in an entrepreneurially collaborative environment away from the distractions of daily life, “They get me out of my dorm office and into an environment where any resource or connection I need in Fort Collins is at my fingertips. It’s been invaluable.”

Like his competitors (of which there are many), the buyback process is easy; simply fill out a short form online and Brennan will get back to you with a quote. You mail the phone, he mails a check. It’s a highly competitive marketplace, and in addition to Newaya, lots of other companies want to buy your phone. The guy on Craigslist wants to buy your phone. Your carrier wants you to trade it in. Charities want you to donate it. Options abound for the abandoned cell phone yet Newaya’s biggest threat may be a new phone. A number of companies, including Xiaomi Technologies, are producing smartphones costing under $200 specifically for the Chinese market. The aforementioned company sees itself as the next Apple and plans to dominate the Chinese market with its low-cost MI-One. As brand new smartphones move into reach for the price-conscious Chinese consumer, it’s difficult to say how long the buyback/resale model will last. Brennan predicts, “As Chinese manufacturers develop high quality alternative smartphones, I think we’ll see iPhone demand shrink a bit. I believe that the proprietary nature of the iPhone app ecosystem and the prestige of the devices themselves is why they are so coveted, and that’s not changing. Newaya will be adapting to the phone markets as they evolve. We might even be importing some popular Chinese handsets into the US at some point! For the next 2-3 years, I think that we’re on the right track expanding our exporting of iPhones and high end Android devices into Hong Kong, and actively searching for more buyers in other markets.”

So, what’s the next big step? For Brennan, it’s graduating, which comes in May. Beyond that, is the company pushing to raise capital? Take on the big competitors? “I’m in the middle of deciding if we want to pursue a franchise model in which we pay retailers per phone that they collect, or we want our own retail stores, or do we just want to focus on mail-in and B2B,” he says. While the company is open to a small amount of Angel funding its founder seems more interested in slow organic growth. “Every transaction we do has generated profit, and that to me is a successful business model,” Brennan professes.

Regardless of Newaya’s chances, this is really the story of a great young entrepreneur who, before even graduating college, has an impressive business philosophy and his own definition of success:

“There are two schools of thought in business. Set really big goals and build a road map back to how you will achieve them, or celebrate every incremental step you take so it doesn’t feel like such a huge undertaking. I like a hybrid model. If we can teeter between conservative and explosive growth and keep providing great value and continue with a strong social mission, I’ll be psyched.”