"There are a lot of scumbags who would kill to save 25 cents."
And what if the retailers made a mistake in forecasting and ordered too many phones or too few? What if sales slumped for a day--where could they get secure storage for just a day or two? The network carriers didn't want to deal with those problems--they were too busy trying to convert their systems to GSM and making decisions on subscription plans. It was easier to let Brightstar tell them how many phones they needed, and at what price, and let it handle warehousing, inventory control, forecasting, customs, and shipment.
For instance, when the biggest network in the Dominican Republic, Codetel, asked for logistics help, Brightstar dispatched two of Marcelo's inventory aces to do an assessment. The Brightstar guys ended up staying eight months. "It was so chaotic, we couldn't even find the workers, let alone the product," says Alejandro Miranda, one of Brightstar's setup managers. "We'd chain the doors shut from the inside and make everyone stay there till we were through. We'd have food sent in, but no one left until we had each day's orders in shape."
60 minutes...
Funny, how the room has seesawed: At the beginning of the meeting, the VC guys were hunched forward at their table, squinting and almost scowling in concentration as they took notes and fired questions, while the Brightstar team sat back and answered. Now, the VC guys are lounging back, arms thrown across the back of one another's chairs, while the Brightstar execs are leaning forward and rattling off info excitedly. Body language tells it all--the VC trio is relaxed and really getting a kick out of this show, while the Brightstar team senses that they're close to winning them over.
"Let's talk about Telefonica Moviles," Marcelo is saying. "They spent untold millions, they wanted to do their own logistics. Then, they're calling us in emergency mode, saying, 'Hey, guys, come in and take over this whole nightmare." Today, Brightstar is the purchasing agent for Telefonica Moviles, buying phones from all manufacturers on its behalf and delivering them directly to the point of sale.
"Are they ever going to want to go directly to the manufacturer?" Marcelo asks. "Difficult--they'd have to redeploy the warehouses, redeploy people, get insurance, security..."
When Brightstar asks carriers how much it's costing them to carry inventory, Marcelo says, they almost always reply, "Two to 3%." By the time Brightstar's analysts get done ripping through their costs allocations, looking at such hidden debits as duty fees, obsolescence, lost interest from holding inventory instead of cash for 90 days, advertising costs to fire-sale unwanted stocks, the most efficient carriers find that inventory is costing them 10% to 12% of the purchase price of the phone, and the worst realize they're losing a whopping 30% or more.
"So the best think they're at 2% or 3%, and you convince them they're really above 10%?" VC 2 muses.
"Then we charge them a percentage of the savings," Marcelo continues. "For example, one carrier network is very good, so we might charge them 8% for the exact same service we're doing for another company at 18%. Exact same services. The only difference is, that company's cost of managing was in the 30s and 40s, so when we offer them 18%, it sounds good to them."
"So you've got value-based pricing?" VC 1 says admiringly. "Can't beat that."
"What do CellStar and Brightpoint charge?" VC 3 pipes up. Everyone looks over, surprised to hear him ask his first question all day; up until then, he'd been watching and scribbling notes on his legal pad. Just the sound of his voice suggested that another barrier had been broken down; whatever roles the VC guys had decided to play before coming into the meeting room, they had now dropped.
"They're out of Latin America," Oscar Fumagali says.
30 minutes...
There's barely time for show-and-tell, which is Marcelo's way of addressing the unasked second part of the distribution question: What if the manufacturers decided to cut you loose and ship on their own?
The answer is back in the Brightstar Batcave, a giant, nicely lit and smoothly laid-out assembly plant on the ground level of its headquarters. As Brightstar logistics chief Tony Faraco explains, "Each carrier wants phones configured its own way, and there are different technologies for each carrier. Fifty percent of the phones we get from suppliers aren't ready for the carrier, so down here, we plug in the software, snap on faceplates, change PINs for chargers." Faraco's teams will handle 500,000 phones down here every month; even more will be handled at Brightstar's plant in Mexico.
"More and more, Motorola is sending us generic phones and letting us do the customization," Marcelo says. "If it ever gets rid of us, it would have thousands of little tasks like this on its hands." And while Motorola was spending money to handle its own customization, Brightstar would be making a call to Nokia, or one of the smaller players in the market like Erikson, Samsung, or LG, who'd most likely be happy to help themselves and hurt Motorola with the same contract.
And essentially, that's why Brightstar wants the VC trio's money. With $50 million, Brightstar can bankroll its own expansion into Asia, Europe, and Brazil, build its own assembly plants and shipping operations without having to rely on financial assistance from any of the phone manufacturers.
Since the fat new bankroll will make Brightstar much less dependent on manufacturers' credit, it will also make the company more attractive when Marcelo launches Part II of his plan: Sometime in the near future, he plans to defy the terrible reputation of telecom stocks and take Brightstar public.
