Cover Story: The next unicorn ?

This article first appeared in Enterprise, The Edge Malaysia Weekly, on November 12, 2018 - November 18, 2018.

Globally, we are talking about 1.5 billion devices sold a year. When you consider that the world’s population is only seven billion, that number is crazy, right? So, when you talk about the 700,000 devices that we are dealing with currently, you will see that it is really a very small number. > Lim

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Julius Lim was banging his head on the wall. His business idea, which made so much sense when he was working for IT company MCSB Systems (M) Bhd, just did not seem to be taking off.

During his short stint at MCSB, he had identified what he thought was the perfect market opportunity. The company had started a service called PC (personal computer) lifecycle management, which was about upgrading a company’s hardware every three to four years to continue being on top of the technology.

The problem was, it was an expensive proposition and most CEOs were not willing to do it — unless you could help them sell the computers they already had. And since no one in the market was doing this in a proper or structured way, PC lifecycle management was basically dead in the water. There was clearly an opportunity here.

And Lim dove right in. Well, actually, he set up

CompAsia Sdn Bhd in 2012 and worked on the idea for a year before he took his first few tentative steps into the business. The idea — to buy used computers off companies that wanted to upgrade and sell them to others who could not afford state-of-the-art, top-of-the-line hardware — seemed to make perfect sense.

Lim was no rookie. Before MCSB, he had been a consultant with the Boston Consulting Group, where he rubbed shoulders with those in the C-suite at multinational corporations. He had the right credentials — a bachelor’s degree in electrical engineering from Johns Hopkins University and an MBA from Wharton. (Wharton School of the University of Pennsylvania)

He also had RM1 million to start his business, money that he had saved as well as borrowed from his family. With his education and background, he seemed primed for success, but that is not what happened.

The initial idea was to buy PCs from companies, refurbish them and rebrand them as CompAsia and sell them online. “But it took too long to gain traffic and we would probably have died,” says Lim.

So, he went with Plan B. “We tried to appoint dealers, most of whom were mom-and-pop stores,” he says.

But because of his education and professional experience, these people were somewhat beyond his ken. “They were in slippers and shorts and their shops were pretty small,” says Lim.

They may have been the “salt of the earth”, but they were not what he was used to. So, he had to figure out a way to sell them on his value proposition without actually using the words “value proposition”.

Somehow, he had not taken this into account during his year of careful planning. Nor did he foresee just how bulky (think storage space) his inventory would be and how long it would take to turn around his products (between 60 and 90 days). Finally, he found that the business could not be scaled very quickly.

In the beginning, there was not even enough of an upstream supply. To get going, Lim had to import computers from overseas. Then, he managed to buy some from local financing companies that were retiring their old PCs.

“So, we took them in and got a small team to take care of the business. There were five or six of us and I basically did everything. We had an operations manager who worked with the team to fix the computers,” he says.

They worked very hard and the business slowly inched along. Although Lim had RM1 million in start-up capital, he was careful not to spend everything in one place. He husbanded his resources and the company continued to limp forward.

“We were actually very bootstrapped considering that we did not raise any external funds. And RM1 million was nothing compared with what some start-ups take off with today. Also, it meant that we could not spend it all at once. We had to make sure we could get the business to the point where it was profitable or was able to generate more funds,” says Lim.

It was an uphill struggle and he felt disheartened. Neatly drawn plans on flow charts were not translating into real business. “It was definitely hard,” he says. “I thought of quitting every other day. I mean, first of all, you do not draw a salary for two or three years and you tend to think about what you gave up to do this — a good pay cheque, a comfortable life …”

But Lim did not want to go back to corporate life, so failure was not an option. He decided to dig in his heels and stick it out.

Then, in 2015, he started to notice a shift. “One thing my life as a consultant had taught me was to look at the data. I observed that the total global shipment per year for PCs were only 300 million to 400 million compared with 1.5 billion to 1.8 billion phones. There was clearly a trend,” says Lim.

His conjecture was supported by anecdotal evidence. “Many of our dealers were telling us that their customers were not buying PCs but looking for tablets or smartphones instead. So, we saw an opportunity there, but we could not figure out how to take advantage of it,” he says.

CompAsia decided to move into the mobile phone market. Three of his friends invested in the company, and when it went into mobile devices, it scaled down its recycled computers business, which now accounts for less than 1% of its total business.

But here too, supply was a problem. “At first, we only managed to buy small batches — maybe 50 to 100 — from different suppliers. And it just did not work. With those numbers, we were losing money. We could not figure out the pricing and we did not have scale,” says Lim.

Things turned around once it partnered a Japanese company that specialised in collecting second-hand mobile phones from consumers all over Japan and selling them to other countries. “We brought them through Singapore, which is our global redistribution hub. Then, we found customers we could sell to, from the whole region, out of Singapore. So, we really built up our Singapore business to support this growth. That was how we went into the mobile phone business,” he says.

Mobile phones were like computers, only better. They were smaller and easier to manage, more expensive than PCs and the turnaround time was just 15 to 30 days. This was a business that could be scaled quickly.

CompAsia was one of the first to recognise the potential of the second-hand mobile-phone market. Lim and his team moved quickly to secure their position, not just locally but regionally. To be successful, the company would have to diversify its upstream supply. So, this was what it did.

Today, CompAsia has many sources of used devices such as mobile operators, retailers, original equipment manufacturers that run trade-in programmes and consumers who want to turn in their used phones.

Recently, it invested in Jaipur-based Instant Consumer Tech, whose InstaCash app allows users to get a valuation for their device. “We invested in the company because it had developed an app that anyone can download and do a health check of their device and get an instant valuation if they want to sell it. The app handles the entire process,” says Lim.

“So, if you want to trade in an old phone that you are keeping in your drawer, just download the app and answer a few questions. The app does a diagnosis of the phone’s condition and spits out a value — for instance, ‘This phone is worth RM500. Do you accept?’ If you accept, we will arrange for someone to pick it up from you the following day, and you instantly receive payment in your account.”

The app was successfully launched in India and now, Malaysia. “In India alone, people traded in thousands of devices a month. We are looking to expand to the rest of Southeast Asia. We have just launched in Malaysia and will launch in Singapore soon. Then, we will launch in the other markets we are in,” he says.

 

Regional business

CompAsia is currently in seven markets — Malaysia, Singapore, India, Thailand, the Philippines, Taiwan and Hong Kong. “We are setting up in Indonesia as we speak and are looking to go into Vietnam and Myanmar over the next two years,” says Lim.

In the Philippines, the company has a partner in Samsung. “You walk into any Samsung dealer and the ‘trade in, trade out’ is run by us,” he says.

“Trade in, trade out” refers to trading in your old device for a discount on a new one.

Its business in Thailand is still new. “We just set up this year. We have not had much activity yet, but we are looking to work on some programmes next year. This will be a very important market for us,” says Lim.

CompAsia is in the process of setting up shop in Indonesia. “We are working with one of the operators there. In fact, we have a lot of Indonesian customers — dealers who buy from us out of Singapore. We want to be physically there as we can get better prices if we go direct rather than through middlemen,” he says.

In Hong Kong, the company works with CSL Mobile Ltd, one of the major mobile operators in that market which is allied to Australia-based Telstra Corp Ltd. “We collect the used mobile phones from CSL. Hong Kong is actually a massive market with China in its backyard. So, there is massive demand. But it is not from Hong Kong, it is from China,” says Lim.

In Taiwan, in addition to recycling mobile phones, CompAsia works with an insurer that provides mobile insurance. “It is not a big thing yet, but it is becoming big. As phone prices increase, mobile insurance will be more popular. A new iPhone today could set you back a cool RM6,000. So, if you dropped it in a toilet bowl, or if the phone is damaged or lost, the insurance company would compensate you,” he says.

“When mobile devices are returned for insurance purposes or to get replaced, we take those off their hands. We also work with one of the largest retailers in Taiwan called Senao, which is part of Chunghwa Telecom. Together, they account for 40% of the mobile phones used in Taiwan. We worked with them to collect used devices from consumers to resell. That was how we got into Taiwan.”

As a consultant, Lim had worked with the telecommunications companies and found that their major challenge was reducing the subsidy on the devices provided while improving profitability on the data bandwidth they were selling. “So we designed programmes for the operators to help them acquire more customers, retain customers better and reduce the cost of their devices,” he says.

Without planning to do so, Lim has become an advocate for the circular economy, which aims to keep products, components and materials at their highest utility at all times. “We believe in giving devices a second life. Every device can be used three to four times before it becomes absolutely obsolete. Today, it is used just once and people junk it,” he says.

“A lot of people keep their used phones in a drawer. Some even have three or four of these. Before I got into this business, I had plenty of phones and computers sitting around. Now, we help people get value from these devices because we believe they can be reused.”

Devices that are too worn or damaged are cannibalised for parts. At the very least, this keeps them out of landfills.

And it makes sense. By having a regional rather than a local business, CompAsia is able to exploit the preferences and appetites of the different markets. After all, what is considered trash by one set of consumers could be highly valued by another.

“The main group of customers who buy these devices are typically from the middle to lower-income group. That is because most of them do not sign up for post-paid plans with the telcos and thus, are not eligible for free devices. Operators are willing to give you a device bundled with your plan if you have good credit,” says Lim.

But unlike in Malaysia, where 20% to 30% are post-paid customers, only 1% of the subscribers in Indonesia, Thailand and the Philippines are on a post-paid plan. “This becomes a very attractive alternative for them. A way to get a good quality device at a very affordable price,” he says.

How affordable? “It varies depending on the model and age. We are talking about as low as 30% of the original selling price for, say, a two or three-year-old device. For an even older device, it can be as much as 80% off the original selling price,” says Lim.

When CompAsia entered the used mobile phone market in 2015, it was only doing 3,000 to 4,000 devices, chalking up RM7 million to RM8 million in revenue that year. This year, the company expects to sell 700,000 devices in all its markets and make about RM300 million, says Lim. The company is projecting revenue of RM1 billion next year.

“We have grown a lot actually. Last year, we only did RM85 million. So, we are growing by three to four times every year. We have to invest a lot if we want to maintain growth. It will be harder as we get bigger, but I believe there is still a lot we can do,” he says.

Lim says it not only plans to move into new markets but also grow its business in its current markets. “I think we are only doing a very small piece at the moment. We want to be a lot more visible, do a lot more and offer additional products and services.”

And he has the numbers to back his assertion. “Globally, we are talking about 1.5 billion devices sold a year. When you consider that the world’s population is only seven billion, that number is crazy, right? So, when you talk about the 700,000 devices that we are dealing with currently, you will see that it is really a very small number,” he says.

Lim points out that even in markets that CompAsia is currently operating in (excluding India), there are several hundred million devices. “So, we see tremendous opportunity in this space,” he says.

But CompAsia is diversifying its business. “We are looking to introduce apps that can be pre-loaded into the devices we sell, and we expect to sell more than a million devices next year,” says Lim.

It is also getting creative with how it moves the merchandise. “We are coming up with new programmes such as phone leasing, where you do not have to buy a phone upfront but can lease one for, say, RM100 a month. We will launch a few of these new programmes in the next couple of quarters,” he says.

As part of its expansion, the company is on the lookout for more investment opportunities in this space. “We are looking to invest in other start-ups that complement our business,” says Lim.

CompAsia has brought structure to the used-devices industry, he adds. “Over 95% of this industry is unstructured. It is what you see in Low Yat or Digital Mall — a lot of small shops selling these devices. The difference we make is in bringing professionalism to the trade.”

The company is not investing in the capability to repair faulty devices because that is not something that can be scaled rapidly. “That requires a lot of manpower so it is not a highly scalable business. We have been outsourcing some of the repairs. We only do the easier repairs. In general, as much as we can, we try to avoid repaired devices because these are not worth as much as original, unopened ones,” says Lim.

After all these years, despite its phenomenal growth, CompAsia has been content to remain under the radar. “Not many people know about us because we are in the B2B space rather than B2C,” he says.

But now, the company is emerging from the shadows because it is planning to be listed by 2020, either in Hong Kong or Singapore, and needs to increase its exposure in the various markets in which it operates. It has already started working on its plans, but there is still some way to go.

“There are a lot of things that we still need to tidy up internally. We need to have proper compliance, strict financial controls and procedures and processes on how certain things are done,” says Lim.

“So, we are putting a lot of these things in place, even systems. For instance, we will start using SAP next year. We are doing what needs to be done to get us up to scratch for our eventual listing in 2020.”