[00:00:00] Tandi Tuakli: Welcome to HappyPorch Radio, the Circular Economy Technology Podcast, where together with leading experts, thinkers, and doers we explore the intersection of technology and the circular economy. I'm Tandi and I've been working in fashion and technology for nearly 20 years. I help brands create circular business models that not only extend the life of their products, but also generate revenue and increase customer loyalty.

[00:00:35] Barry O’Kane: And I am Barry, the founder of HappyPorch. We provide software engineering expertise for a more circular economy. 

In this episode, we're joined by Leah Pollen. Leah has spent her career optimizing revenue streams and driving business performance through data-driven decisions for circular tech businesses.

Tandi, what stood out for you in this conversation? 

[00:00:55] Tandi Takli: I thought it was really interesting how Leah highlighted how important it is to set your business up for success when you're thinking about rental. Everything from what kind of secondary markets you might be able to sell your products into, as well as just taking into account the value of your product and whether that really makes sense for you to look at rental.

[00:01:21] Barry O’Kane: Yeah, definitely. In addition to that, one thing that stood out for me was where we talked about the humanity of it. We talked about empathy and needing to understand where people are, and particularly if you're working with well established businesses and people who have spent their career building a skillset and now they're trying to find ways to change that and maybe relearn something that's different.

I think that's especially important for those of us coming from the technology side. We're so used to working in a certain way and having the tools to do certain things and yet we have to now find ways to solve problems where people haven't yet quite worked out all the perfect solutions to those problems. So I really enjoyed that part of the conversation.

[00:02:00] Tandi Tuakli:  Definitely.

[00:02:02] Barry O’Kane: So let's meet Leah. 

[00:02:04] Leah Pollen: Hi, I'm Leah Pollen. Thanks for having me on, Barry. 

I come from the used mobile and consumer electronics space. I spent quite a few years working on wholesale and trade-ins and trading of mostly purchasing used electronics and working on trade-in programs worldwide with OEMs and carriers, and now I help companies with their profitability in the used electronic space. 

[00:02:34] Barry O’Kane: Awesome and thanks for joining us on HappyPorch Radio. This season of the podcast is all about rental and leasing and so one of the reasons I'm excited about speaking to you is your thoughts on, or your experiences, reviews on the mobile leasing phone device leasing models, how that fits into circularity, and is it circular? So maybe you can sort of set the scene a little bit with that.

[00:02:57] Leah Pollen: So when cell phones first became extraordinarily popular, they were not at the price range that they are now. And the carriers, at least in the US who were selling services, were happy to subsidize the purchase of the cell phones. And people got used to not really paying for cell phones at the front, at least for most of the Americans, but they were locked into contracts for two or three years, and at the end of their two, three year contract, they would get a new phone.

And this really became the pattern for most cell phone users. Over time, as the cell phones became more expensive, the OEMs and the carriers would subsidize a little bit more, but they had to do something with the phones when they were returned because there was still value that was left on them.

And that's where a lot of what we call circularity and circular economy came into place, that there were several players who understood that there was a value in the return phones and that they could make money off of them. And that really was the golden age of mobile. The mobile wholesaler used electronic space, and if you listen to my podcast, you can hear about how people were making a tremendous amount of profit on these phones.

Over time, the OEMs and the carriers, at least in the US, understood that this trade-in, this circle was profitable and they started taking from the devices themselves and the carriers would sell used devices.  But the OEMs, Apple in particular, who recognised that this was necessary to get users to return their devices so that they would get into a new phone. They had to figure out how to create price points so that they wouldn't compete with their existing models. They're new. They were very involved in this leasing model, both with the carriers and with the wholesalers and traders to protect the price of their new phones.

[00:05:02] Tandi Tuakli: Leah, could you just, for anyone that's not familiar with the term, like me , could you just tell us a little bit what you mean when you say OEM?

[00:05:10] Leah Pollen: The OEMs are the original electronic manufacturers. So think Apple, Samsung, and Pixel. Those are the big three that comprise the majority of the cell phones in the market. There are some Chinese manufacturers but most of the products are from Apple, Samsung and Google. Apple dominates the secondary market, both because of their pricing strategy and because they create their phones to be more long-lasting because they were the ones who recognised the value of the secondary market that they can get users into a new phone quicker if they leased their phones, because the users wouldn't have to pay for the full device, they would only pay for a portion of the device. They would return the device to either the carrier, mostly to the carrier or directly to Apple. And Apple would give them some value back that they would apply to a new phone. And then Apple and the carriers would take those phones and disposition them into the market. And these wholesalers and treaters would take those phones and they would find markets for them globally. 

The broken ones would go to repair markets where labor was cheap and perhaps they had parts or access to parts to fix the phones. The A Grade devices, the really good stuff would go either back into the US or they would go into Europe or to places where they didn't necessarily have so much access to new devices. And this system, kind of, still exists today and most of it, of course, is Apple. Now, when this was all going down and being created, Apple instead of denying the market and just turning the other way, they got involved. And when they got involved, they understood that this will help them sell new devices.

And so they're careful to protect the price of the used phone so that it doesn't compete with the new devices. Apple often keeps their “n minus 1”, the phones, that were released a year or two or three years ago, they still keep that at a reduced rate. This protects the price of their original phone while still targeting other users in the market that may not be able to pay for the full new device. And in doing so, they create this economy where everyone is constantly buying new phones.

So this circular economy that was created out of the used phones really was only created to feed the new device cycle and to kind of shrink that timeframe of when users would refresh their phones.

So the intention was to create support for new devices rather than to create a circular economy or to be sustainable in any way. But that is because Apple and the other OEMs like Samsung and Pixel understood how valuable that market was to support their new devices. And in doing so, they could and did raise the prices on their phones because if their phones would keep a percentage of their value, which we call residual value, that would support the new purchase of the new models.

[00:08:28] Barry O’Kane: That's really interesting and I think it's a brilliant example of what some people have said in this podcast before where the phrase that I like the describing is: circularity doesn't necessarily equal sustainability or the, sort of, other benefits. It may be one of the important prerequisites to making it happen, but it doesn't assume that that will happen. You also need, in both cases, the business model. 

Before recording, you used the phrase that this would be like “extending the linear lifecycle” rather than moving to genuine circularity. So I'm interested a little bit in your thoughts on, given that context of  how the cell phone and smartphone market grew and where it is now, where the resale of good smartphones is still a massive industry and we're leasing, still very much as part of the service. Are you seeing or can you see ways where that circularity is starting to feed more into the sustainability questions where the more genuine circularity rather than sort of extending linear?

[00:09:25] Leah Pollen: So yes and no. Real sustainability has to start with manufacturing and however companies that have a business case for extending life cycles of devices or any sort of product are more incentivized to create longer lasting products. And that's really how this accidental, circular economy can feed into a circular loop or an infinite loop of sustainability.

However, it doesn't really address remanufacturing or recapturing materials. That's where it doesn't, but it does get it started, and it does get the conversation started. It does get the mindset shift. People who think linearly where they start with manufacturing raw materials and that whole line of business where it ends with the consumer need to think about, well, maybe we don't want to end with the consumer. Maybe we want to continue that. And this leasing model where there is residual value at the end of the first user. And the incentive to create higher residual values and protect those residual values through longer lasting devices is a start. It's definitely a start, this model was borrowed from cars, right?

I have a friend who did the Samsung CPO program. He started it and he said we borrowed it certified, pre-owned, we borrowed the name from the car industry. And the car industry is similar. I'm not as familiar, but if you watch the progression, they had very expensive devices of items and they wanted users to come to refresh their cars. And so they created leasing. And with leasing comes financing. Once you understand the residual value, then you can finance and you can charge more money and hopefully create a longer lasting device. And this model really is the fight against the planned obsolescence model.

From a monetary perspective. From a revenue perspective. But again, if you're not manufacturing sustainably, then you're still in that situation. And this is really an, what we call, accidental circularity. But it's a start. It's a good start. And there are a lot of other industries that can take example from these, for example fashion. High fashion, leather goods. And a lot of the electronics, not necessarily cell phones or tablets, but products that are used in the home or in data centers. Having this mindset of “We can refresh the devices and find other users for them” is a start to circularity.

[00:12:08] Tandi Tuakli:  And do you think, you talked there just about, sort of, high value items and how obviously with the value retention it becomes easier to set up a rental model. Do you think that there's an opportunity there for products that maybe aren't high value to be able to have a profitable rental model or is the high value one of the key pieces of having a successful program for rental?

[00:12:34] Leah Pollen: In my opinion, it has to be somewhat of a high value because the actual program itself will cost money. The value of the device has to cover the cost of the rental, of repairing the item. There's a term that we use called BER, which stands for Beyond Economical Repair. However, in electronics, a lot of the components are difficult to retrieve from the earth. We call them rare earth metals and copper and gold, and these are high value metals that can be, theoretically, in the demanufacturing process. They can be retrieved, I'm actually not super familiar with leather, so I don't know if this can be applied to leather goods as well, the value of the item has to exceed the cost of the repair and the cost of the program to retrieve the item from the user, the original user, and then to find markets for them for the used and broken items.

[00:13:28] Barry O’Kane: So given that that's one of the requirements for successful rental business models, what are the other things that you would point at, or from your experience you pointed at, these are the things that create the conditions to explore a rental business model?

[00:13:42] Leah Pollen: So you really have to have a circular supply chain. That's really the first step. You have to be able to retrieve it, right? So the item now sits in a user who purchased it and in a rental model the rental ends and then the user needs to return that.

And once they return it, that needs to be checked because they're gonna come back in various conditions. And this is also part of the business case that we were talking about earlier, is that not every single item that's gonna come back is gonna come back in pristine condition. You're probably only gonna get 5% of the items in pristine condition. So that's understanding that is also part of it. So you have to understand that all the items are gonna come back, different categories of conditions. So perfect, used that you could probably sell, stuff that's repairable with small repairs and stuff that's broken or beyond repair.

And when creating a financial model for these, we're calling them leasing probes. To create a financial model for a leasing program, there has to be that understanding that they're gonna come back in different conditions. If you've ever leased a car, they charge you for the state of the car, if there's repairs that are needed, there's an understanding that in the contract that when you lease the car, they tell you if it comes back broken, you're gonna have to pay for that.

There has to be room for repair because, almost, very little will come back in pristine condition. And once all of that is returned to either the third party that is taking the items back or the original manufacturer, then there needs to be markets that are found for these items and customers.

And this is an important part and we're gonna go back to Apple and their understanding that there are different customers. There are customers who are new customers, trendsetters, who like new devices, and there are customers who like used devices. I'm going back to cars. There are people who will never buy a new car ever, and there are people who will never buy a used car, ever.

Consumer behavior can be somewhat influenced. However, people are kind of set in their ways and they do have their categories that they fall into, whether based on financial constraints or their own values, where they will lean towards either new or used products.

And those are the users that can be targeted for used products. And they're usually not the same. And this is important. I'm not sure if there's data yet on this, but the used consumer does not have to compete with a new consumer, especially in the price point. And generally the price point is somewhat lower, but it can still retain a percentage of its value after the first use. And users who buy into new products and understand that when they return their products, there will still be a residual value.

And this is what Apple knows because it retains its value over time and they're almost guaranteed a trade in value. However, we're talking about leasing models, putting that into a business model that there is still value there, that the company can pull multiple revenue streams from one device is very compelling. There's another element to it, and this is what we call aspirational marketing. 

That is very important because aspirational marketing doesn't just help the first user. There's also brand recognition as a result of aspirational marketing in the second, the used consumer who benefits, I don't know if they benefit, but the manufacturer benefits from the used consumer with their marketing for the new device. Because if that customer, you know, we spoke a little bit about that, where either their values or their finances prevent them from being a first time customer. They will still be influenced by the marketing and be a second customer.

[00:17:42] Tandi Tuakli: So you've touched on customer acquisition a little bit and I was just wondering, because based on my experience in footwear and apparel, I've definitely seen a trend with customer behavior and that people use rental as a way to try out new products or brands that they actually laid their purchase. And I wondered if you saw something similar happening in electronic space and particularly with smartphones?

[00:18:10] Leah Pollen: So that seems to be more of an apparel thing. Phones. We need phones. If you count how many times a day you actually touch your phone, how many hours if you've ever looked, my Samsung sends me a nice notification of how many hours I have used on the phone every week, and it keeps going up.

And yes, I know we wear shoes all the time, but we wear different shoes, usually not one. Most of us have several dozen pairs of shoes. So they would have to be manufactured for multiple users. An important part of a leasing program is to make sure that your product is manufactured in whichever way that are useful for multiple users. And I wanna point something out with Apple devices - most Apple devices can be used in almost every country in the world. There's a few exceptions to that rule, but if I wanted to sell my iPhone to almost anyone in the world, I can sell my iPhone with a few exceptions. That is manufacturing for multiple users. It is a near universal application. 

Cars are similar. They can mostly be used in different places. Of course they're heavier and they're difficult to transport, so they usually stay local. But they could be and I bet that they do get moved to different places of the world where they can't necessarily afford a brand new car. 

There's another part to this, which is Tariffs and VAT and taxes on new devices. In Europe, there is a concept of marginal VAT, which applies to cars and the cell phone industry as Oh, there's a word, a really nice use, appropriated this marginal VAT scheme, where the secondary user does not need to pay full tax on the item. Only on the profit that is being made on the device, on the sale.

So that's really attractive for someone who's a secondary user, particularly, if they're a secondary user because of financial constraints. And this is where the laws can, kind of, push the circularity, and I know Europe is doing a very good job of creating laws, whereas in America, we try to push the economy part of it and convince businesses that this is a smart move from a revenue perspective, from their bottom line.

[00:20:21] Barry O’Kane: Thank you. That's brilliant. And really insightful. 

I'd like to come back to the, sort of, geographical: What varies in different places, because from a circularity point of view, I think that's a really interesting conversation. 

But just one observation, and we touched again on this a little bit before recording, is how complex this all seems, particularly if you've optimized your business around this linear flow and everything is focused on just that. And then you're looking at this, Oh, I would love to be doing this for values or for revenue, or whatever reason, but it's just hard. How would you or how do you approach that or what do you see ways to help with that?

[00:20:56] Leah Pollen: So I'm gonna actually quote Karel Golta here. “Complex problems require complex solutions”, and if you think about the linear model, which most people, especially in the US, are reexamining the supply chain, the global supply chain, right now, because of current events, it took decades to build. And the greatest minds of our generation have spent their time creating data around this, creating college programs. 

If you think about what exists now and where we were in our post-World War II manufacturing and in those 80 years, what we have created as a society, the understanding that to move that into circularity is going to require maybe not 80 years worth of effort, but significant amount of efforts to undo the thought processes of the mindset of linear and all the supply chains and all the manufacturing and all the business books. If you go to look at what business books that have been written in the last year alone, or two years, or three years, or even just post-pandemic, the amount of books that are written on circularity, very few, and they're not popular.

The amount of business books that have been written on the linear model, all of the discussions, all everything surrounding business, the laws, the training, the universities, all of that is around linear models. That needs to change. The manufacturing needs to change, the consulting. All of the consultants, you know, the Big 4. Do any of them talk about circularity? I'm not sure. I recently saw some data, it was a McKinsey in Europe who came out with some data on the used electronics mobile space.

More of that needs to happen. There needs to be more data. We have a start. The amount of data that we can use, but people need to look at it and they need to use that, you know. 

Tandi, you asked again about building a  business case. We need to start, we need to make a universal business case and not necessarily from a climate change perspective. The business case should be from a revenue perspective. Circular economy, right? Because that's the start. And once there is a revenue perspective, then it can be built from a climate change perspective.

But if people are not making money on it, eventually, it's not gonna be sustainable. And I use that word sustainable ironically.

[00:23:23] Tandi Tuakli: You mentioned revenue, and I think it's definitely important that we highlight more of those successful circular businesses where there is actually a business case and they are successful in generating revenue. But I'm also curious -  here in Germany where I live, for example, I recently read that only about 50% of electronic devices are resold, and I'm wondering why that is when, as you said, there's such a good business case for it?

[00:23:51] Leah Pollen: So it was interesting that you brought up that 50%. The reason that most, probably, likely is because less than 50% of new devices are Apple devices in Europe. And so Samsung devices, Android devices, in particular, are more difficult because they're not as universal as the Apple. They have modem and perhaps connectivity issues, and they don't retain their value in the same way that an Apple device does.

Apple is less than 50% worldwide of new phones. However, in the used market it dominates 80, 90% depending on the time of year. So again, going back to manufacturing, creating long lasting devices, that is important, but companies go where the money is. So if you're a consumer buying used devices, buying used product, showing that you as a consumer will drive that business model. The more that used space grows, the more the manufacturers can no longer ignore it. Just like with cell phones. So that's what consumers can do. You can vote with your dollars or euros.

[00:24:54] Barry O’Kane: And not just individual consumers, but thinking of business purchasing of all scales. That's a brilliant answer. I wanted to continue exploring the business case question and a word that you've used in the past about I want to say empathy, if that's the right word, but like having these conversations and, as Tandi said , sharing success stories, but maybe also sharing the, I don't know, stories or I'm partway through, I'm trying to solve. One of the things we're trying to do with the podcast is explore this complex challenge, identify the opportunities and to help share those points. 

I just wanted to raise that as a point and get your thoughts on, you know, there's a kind of banner raising. We need this change to happen, and then there's the beginnings of the, Okay, how do we solve it? How do we build the business? How do we actually implement it? It feels like there's so much more to do and all of that. And I guess I just wanted to ask your thoughts on that mindset and the kinds of things that we could continue to do.

[00:25:47] Leah Pollen: So absolutely. That's a very good point to raise.

Influencing is important in this case, and I use the term influencing because that's a more gentle term than shoving data down people's throats. Even though we all want to be doing that, we know that does not work. Again, it took 80 years to build this.

If someone who spent a majority of their career, which would include a lot of senior decision makers in the manufacturing spaces, are confronted with a business case, even if all of it was laid out for them, there does need to be some level of empathy for the mindset shift that needs to happen.

We all know new ideas take time. They take time to process. And especially, if you've been doing things a certain way where your whole business, your whole career is built on linear. On an individual level, that's difficult. It's hard to not know something when you know so much. And it does require a little bit of opposite thinking. A line is not a circle, a line is not an infinite loop, and that point, getting products from point A to point B and that's it. 

And then well, wait a second, there's a whole other market there, and you have to learn about all that. You have to learn the data and understand the math and understand all the different parts of that, and it's different. Anyone who's operated in both spaces understands that it is different. And so to have empathy when you're coming with your business case or when you're trying to have a conversation with a decision maker, understand that they need some time and this requires time.

Yes, successful stories. Those are important. Data is important. You know, even those high level decision makers, they're always looking for new streams of revenue. That is my opinion on how we're gonna get there. Because everyone needs, well, at least where I live, people need to answer to Wall Street, and as soon as it becomes a more viable, accepted business model, you're going to see a shift and it'll be a tipping point.

It takes time, but it cannot be forced. There has to be an influencing and an empathy.

[00:28:03] Tandi Tuakli: That's really interesting Leah, it sounds like from your perspective, there needs to be quite a bit of change in terms of moving from linear to circular. Do you think that perhaps then we also need to think differently about what kind of metrics we're using to measure kinds of circularity programs?

I mean, revenue is often something that we use to measure the success of perhaps a circular pilot or a circular business model. But do we need to think about this maybe a little bit differently?

[00:28:33] Leah Pollen: That's an excellent question, Tandi. You are a hundred percent right. You probably need something different, and it really depends on the industry that you're operating in. It could be revenue rather than units sold or units purchased. I think a lot of people in the secondary market just focus on revenue as a goal, profit as a goal, because brand share can be a goal. But it does require different measurements to fall under the category of successful. And that really comes in with the original thought behind the original goal, the impetus. So if it's a company that's focused on sustainability or circularity as a concept from a value perspective, their goals are going to be different.

Versus a company that comes in with the perspective of creating a new stream of revenue. And that's where your measurement comes in. So if you're somewhat of a green focus company, then your measurement may be keeping products local or you may have different viewpoints on how to execute this secondary market.

But if your goal is simply a new stream of revenue, it will look different. That's a good place to start. But measuring success will look different depending on the values of the company.

[00:29:50] Barry O’Kane: Thank you so much. I'm conscious of time. So as a final question, one of the constant themes of HappyPorch Radio, given the type of business we are, is the technology and the software that enables all of these things.

As a final question, I'm wondering if you have experience or a thought you want to share, we're talking about this move from linear to rental and leasing and circular and the mindset and the business case and everything that's needed there. I'm wondering if you have thoughts around the tooling that enables that. Can we just say, Okay, we're gonna keep the existing stack, the business stack. I'm just moved to circular, or how much that needs to change, as part of exploring these models.

[00:30:26] Leah Pollen: So obviously the best tech would be the tech that's designed for secondary markets, and there are quite a few that are being built right now that I know of. Obviously, things need improvement. I do find that having it specifically for the secondary market will probably be more successful in the long term than using what already exists for the first market, because it's been designed differently and that comes back to that mindset shift. Tech operates in a certain way within its parameters, and if the parameters are linear, then it may not operate as intended for the secondary market of whatever the product is.

[00:31:02] Barry O’Kane: Awesome. Thank you so much. That's a nice a way to finish as much as I would love to keep the conversation going. But just finally, for those listening who want to find out more about what you do and maybe connect with you, where should they go?

[00:31:12] Leah Pollen: They should just find me on LinkedIn. I operate there, I hang out there. I won't say how many hours a day I spend on LinkedIn, but I am there. 

You can also find my podcast, the ReTech Roundtable, which is currently on Spotify. And if you want to learn more about the used electronics space there's quite a few episodes there.

[00:31:31] Barry O’Kane: Awesome. Thank you. And as usual, we'll share your link there and all the links and things we've mentioned on happyporchradio.com. Thank you so much for joining us. I really enjoyed that conversation.

[00:31:40] Leah Pollen: Thanks for having me.

[00:31:44] Outro: This podcast is brought to you by happyporch.com. Whether you need bespoke software development, fractional CTO support, or just expert advice, HappyPorch is here to support your circular economy initiatives. If you're driving innovation and circularity, we'd love to chat. Your hosts were Barry O’Kane and Tandi Tuakli. Barry is a software engineer, leader, and entrepreneur with over 20 years experience. He founded HappyPorch to help you create web and software solutions that support the shift to regenerative circular economy. Tandi is a circular expert with over 15 years working in the fashion industry. She's passionate about collaborating with brands to create circular programs that reduce waste, drive revenue, and strengthen customer loyalty.