Sramana Mitra: Pinpoint for me the strategy for growth.
Rizwan Kassim: First was having the right distribution. This is a business that was about distribution.
Sramana Mitra: What was the distribution strategy?
Rizwan Kassim: These cellphone shops are used to getting screwed by the carriers. Sometimes they don’t get paid commissions. Sometimes they don’t get treated well. We had the ethics of doing right by the dealer. We always pay our commissions all the time. In all of our relationships, we try to be authentic. That was new to this space. It sounds very trivial, but it meant a lot as it gave us credibility in a crowded space. We also hired people who had built these channels beforehand. We had a leadership team that didn’t know wireless but knew telco. We layered that in with a series of people who had built this type of business beforehand.
We have these interesting conflicts when we talk about how to get things done. That creative tension led to us innovating in a number of ways. We focused on the dealer and said, “We’re going to make this process as easy as possible for you. We have a first class dealer portal.” In a world where activation was a pain, we made it easy in the portal. We sent people into the stores to train them. We also gave up margins by expanding quickly. We gave higher compensation. We poured as much gas as we could onto the fire because we knew we had to reach a certain scale.
Sramana Mitra: What kind of growth did you experience? What metrics can you share?
Rizwan Kassim: In 2011, we had about $100,000. I believe we were at $118 million in 2014. The business is continuing to grow since then.
Sramana Mitra: There’s obviously an arbitrage here. This is the gross revenue. What is your net revenue?
Rizwan Kassim: That’s not something I can disclose. We need to keep that quiet but what I can say is we definitely sacrificed profitability for growth.
Sramana Mitra: No question. We do a lot of stories of two-sided marketplaces. This has been a very popular business model for many years. In that business model, people often call their revenue as the gross merchandise value, but that is not the real revenue. The revenue is the marketplace commission that the company takes. That is what’s interesting.
In your case, while it’s interesting that you have $118 million revenue, my guess is that you are operating at a relatively thin margin. You have a very small gross margin business. A $118 million business is a huge business if you have a 30% to 40% gross margin. I don’t think that’s what you’re working with. Just comment on that. You don’t have to give absolute numbers.
Rizwan Kassim: At least in the US, businesses target 30% to 40% gross margin. You have to realize that we have additional cost of goods. We get billed by the carrier for our usage but then we still have acquisition and subscriber costs. It’s not the same as a two-sided marketplace.
Sramana Mitra: It’s not. All I’m saying is you are operating with an arbitrage model. Arbitrage businesses often have very small gross margins.
Rizwan Kassim: It’s not a straight arbitrage too. We construct our plans. There are subscribers. It’s not a reseller model so much as we purchase something in wholesale, figure out how to package it, and then take the risk based on the usage level. In the MVNO space, businesses target 35% to 45% gross margin after payment to the carrier.