Here’s a story that’s all too familiar for low-income families. You pay your bills and don’t over-leverage your credit. But then the unexpected happens: Someone comes down with a serious illness. First, you’ve got to deal with the illness yourself. But even when the battle against the illness is over, the medical bills remain, damaging your credit score. This pain point has ramifications for years as you try to rebuild your credit score, which affects everything from your chances of finding a place to rent, right down to your ability to buy a new laptop.
That’s where UpgradeUSA comes in. The startup has launched a service that sells laptops on a lease-to-own basis to low-income families, college students, people with damaged credit lines, and others in similar positions. It’s a risky business, but founder and CEO Jon Weisblatt may have what it takes to mitigate the risk while also helping the poor.
When someone with a bad credit rating wants to pay for a laptop in installments, one of their first options is to go straight to the manufacturer. So, they go to Dell and apply for financing. Often, they won’t be accepted. At this point, you’d assume, they’d have some other options. Well, sure. They could go to a loan shark, for instance, or borrow from unsavory businessmen. Neither is a great idea. But there aren’t many options that are tailor-made for the electronics industry.
That lack is in part due to the fact that not many people who could feasibly solve this problem care to. It’s not exactly a sexy market. It is, however, a large market, in the US and globally. – which is what makes it such an attractive business, despite the risk.
So, I’m excited about UpgradeUSA. If you’ve got crappy credit, and Dell stops you from buying a laptop that you really need for work or school, you can apply via UpgradeUSA. Whereas companies like Dell look primarily at credit scores, UpgradeUSA looks at the 90-plus factors that Experian tracks to assess a candidate’s suitability.
Weisblatt’s family has a long history with the lease-to-own business model. His parents have run a furniture store for the underprivileged for over 20 years. Along the way, they’ve developed methods to determine true risk, which Weisblatt is now adapting for the electronics industry.
At some point, however, the system will fail. Weisblatt has a plan in place for when that happens. It’s not feasible to repossess the electronics, so instead the company makes them worthless for as long as the bill remains unpaid, by installing locking software on the devices.
Right now, the service is only available in California, Texas, New York, and Florida. There are two reasons for that limitation. The first is that each state has different laws for this market, meaning the company has to localize contracts on a case-by-case basis. The second is that these states have the highest density of the market that UpgradeUSA wants to reach: immigrants, lower income families, and the like. It helps, too, that they’re also the most populated states.
The company plans to one day roll out in international markets. To that end, it’s working with students at the University of Texas El Paso to determine how it should localize its product for Mexican and Hispanic communities. It also wants to roll out nationwide, but so far it has been constrained by a lack of capital.
As Weisblatt told it to me, not many investors, who tend to come from affluent backgrounds, understand this space. He recounted a time he pitched to someone for a VC firm, only to have the Stanford-educated scout express disbelief that the market for low-income electronics resale even existed.
However, while the company is having a hard time convincing investors that the market is big enough, Weisblatt is trying to build relationships with firms to raise a round of seed funding. “It isn’t the focus of the business,” he says, “but it would help us to scale the service nationwide faster.”
In the meantime, UpgradeUSA is focused on getting more customers. Its first step will be to target the college market, and possibly partner with local governments to prove the concept and its profitability. The second is to distance itself from the connotations that accompany the rent-to-own market. It hopes to achieve that in part by word-of-mouth, and in part by making the website and application process as friendly and welcoming as possible.
UpgradeUSA is also looking to expand its fairly limited product catalog. Most customers want MacBooks, and even more want tablets. The company has plans in place for both, and will start selling tablets in the next few weeks. However, for now it is avoiding the smartphone market, which comes with unnecessary complications, such as contract lock-ins, carrier negotiations, and a highly-fragmented market.
The company may not be sexy, but it does something that too many people shy away from. It reaches out to the underserved areas of the public, treating lower-income families fairly. For that reason alone, it is worth talking about. The fact that it is already bringing in revenue is just a bonus.
[Illustration by Hallie Bateman]