A System for Success

Oct 4, 2018, 19:06 PM
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September/October 2018

By Rachel H. Pollack

First things first: HOBI is pronounced “hobby,” and it’s simply a combination of the first two letters of the last names of siblings Cathy Hill, CEO, and Craig Boswell, president, the founders and owners of HOBI International (Batavia, Ill.). It was also a little joke, Boswell says: If the company never got off the ground, they could say it was “just a hobby.”

A-System-for-SuccessHOBI International was no sure thing when Hill launched it in 1992. She had recently returned to the Chicago area, where the siblings had grown up. Bill Boswell, their father, had retired from AT&T and was working on a small business venture recovering computer chips and precious metals from circuit boards. Seeing her father’s work, Hill also saw an opportunity in managing and selling end-of-life electronic products. “She got a desk in the back of somebody else’s warehouse, bought about 10 circuit cards from AT&T,” and started reselling chips and components, Craig Boswell says. Hill secured a contract with AT&T, then one with Motorola, and enlisted her brother’s help with the processing.

At the time, Boswell was working for Texas Instruments in Dallas on defense-related technologies. For a year, he says, he spent nights and weekends in his garage, dismantling electronics for his sister’s new venture, until his wife insisted on reclaiming the garage for the family’s use. He quit his TI job and rented a warehouse in Dallas; Hill rented one in Batavia, Ill.; and their “hobby” became their new career.

Twenty-six years later, HOBI is now a business with 400 employees that processes more than half a million mobile phones and 200,000 pieces of IT equipment each year, generating “well over $40 million” in revenue annually, Boswell says.

Sources of strength

Initially HOBI specialized in refurbishing and reselling telecommunications hardware. It soon expanded into information technology asset disposition, handling desktop computers, laptop computers, servers, and other hardware. It started to concentrate on processing mobile telecom devices in 1998, “quite a long time before mobile became a focus of a lot of the industry. We were really the first ITAD company deep into the mobile space,” Boswell says. Mobile devices are now 70 percent of its revenue and 80 percent of its volume.

From the beginning, HOBI has emphasized how it differs from traditional electronic scrap processors. “We were always a service business,” Boswell says. Their pitch was not “I can give you a little more money for your scrap electronics” because someone can always come along and offer a better price, he says. Instead, the pitch was “You have objectives” for the electronics you want to decommission, including value recovery, data security, and environmental protection, and “we will manage those on your behalf.” This approach was “more sticky,” and it’s now the norm for ITAD companies, he says.

As the company grew, it moved its Dallas facility four times, expanding from 3,000 to 100,000 square feet; its Chicago-area facility grew from 20,000 to 50,000 square feet. It opened a 20,000-square-foot facility in Phoenix in 2012. HOBI expanded to that third facility with a great deal of caution, Boswell says. “We knew we needed a West Coast presence” to mitigate some of the logistics costs of serving clients in that part of the country, he says, but “site management is where many of our competitors fail.” He believes those failures often are due to a lack of systems development. Electronics recycling companies tend to rely on tribal knowledge, he explains. When there’s something you don’t know how to do, you “go ask Joe,” the person with all the answers. The problem with that, he says, is that “Joe” has to be there every hour the plant’s open to guide operations and solve problems. “What happens if Joe gets sick?” he asks. Also, “you can’t clone Joe” to put him at other facilities. If you’re in that situation, Boswell says, invest in systems.

The patent-pending enterprise resource planning software system HOBI has developed, IR2, is integral to its success, Boswell says. It handles all tracking and reporting for its customers, managing both the breadth of products the company handles and the variety of services it provides, which include repair and resale, liquidation, certified destruction, and on-site data destruction. The ERP software “integrates marketing, operational costs, and product knowledge to optimize value recovery,” he says. In other words, the system guides customers in deciding what type of disposition for their technology will best meet all their needs. HOBI has three software developers on staff dedicated to ERP software development. Boswell says he and Hill waited to expand until they were certain they had the systems in place to ensure clients “had seamless processing, no matter what facility.”

An outside board of directors also has strengthened the company, Boswell says. The four individuals on HOBI’s board have backgrounds in telecommunications, technology, reverse logistics, recycling, and business and finance. The board has “challenged us, guided us, and provided expertise,” he says. One of its recommendations was for HOBI to add “a strong upper-level management team” so the company’s future was not just in the founders’ hands. In the past decade, its management hires have included Don Simms, vice president of operations, who spent 14 years at Nokia; Jack Johnson, vice president of sales and marketing, who came from Telligent Systems and Nortel Networks; and Michael Blankenship, director of marketing. Gilbert Javalera, the Phoenix facility’s operations manager, previously worked for ITAD firm Intechra, which became part of Arrow Electronics (Centennial, Colo.). These managers have “facilitated the rapid growth” the company has seen recently, Boswell says.

“It’s great to see how our team responds to different problems and challenges and client requests” at each facility, Hill says. Simms and Johnson “make sure the solutions are shared, and the problems are as well,” she says. “We try to create a multidimensional platform so that we’re communicating and learning from each other.”

As for the founders, Hill, based in Batavia, is responsible for more “client interface,” and Boswell, in Dallas, is responsible for more of the operations side. They say they’re constantly talking—by phone multiple times throughout the workday and in person about once a month. Large, strategic decisions go through the board, which to date has never had a split vote, they say. Boswell even credits the business with creating closer family ties. Living so far apart, he and Hill and their families might have only seen each other on major holidays, he says. Instead, “the business created a mutual connection. Our kids got to spend a lot of time together” over the years. “It’s been a blessing that has kept our families close.”

Making a name in mobile

The bulk of HOBI’s operations involve refurbishing and reselling mobile devices, both phones and tablets. It tries to make a case for reuse even with clients that historically have wanted certified destruction, Boswell says. He points out that Ford Motor Co. and other automakers sell certified pre-owned vehicles, and they still sell plenty of new cars. Value-conscious consumers put off by high prices for the newest phones and tablets might consider refurbished ones—and if that’s a good experience, he says, it will build brand loyalty.

What about data erasure concerns? Some of the fears about the theft of data left on refurbished devices were worst-case scenarios, Boswell says. “We talk to clients about creating [data-erasure] measures that are relative to the sensitivity of the data.” On mobile devices, HOBI uses a third-party software product for data erasure. Its process provides a second review after the data is erased to ensure technicians didn’t inadvertently create new data, such as by taking a picture while testing the camera functionality, he says. If that happens, the phone goes through the data erasure process once more.

HOBI is able to resell about 65 percent of the equipment it receives right now, but that proportion ebbs and flows based on its client base, Boswell says. It sells the refurbished products through a variety of sales channels, including online direct sales, small retailers, wholesalers, rent-to-own outlets, and sales to companies that serve the education market.

Refurbished phones are a small but growing part of the mobile phone market. One estimate puts them at about 10 percent of the global market, but that figure might not capture what’s likely a sizable informal reuse marketplace. A variety of stakeholders—retailers, refurbishers, and original equipment manufacturers—could do more to grow the market for refurbished devices, Boswell says. He’s working with ISRI’s Electronics Division to create standards for grading and testing refurbished products, for one, which could help build consumer confidence in used electronics. As the used device market becomes more robust, Boswell can imagine making the HOBI brand a household name. “We envision a time when ‘HOBI certified pre-owned’ is meaningful to consumers buying equipment because they know it’s high quality at a value price.” 

IT asset management

Like most ITAD companies, HOBI uses a mass-balance system to track its inventory. “When we receive something, we weigh the skid coming in,” Boswell explains. After processing, “I’ll be able to tell you, [for] every pound, what happened to it: A 4-ounce cellphone we sold to this guy, a computer we scrapped and turned into this much plastic, this much aluminum, this much copper, this much wire,” and so on.

Traditional ITAD is 25 percent of the company’s revenue. Whereas electronics recyclers looking for commodity value might be dismayed by consumers buying fewer desktop computers in favor of laptop computers, HOBI benefits from that trend. “The laptops retain their value longer, and the resale market is better,” Boswell says. Also, he notes, they’re more likely to get damaged, creating a repair opportunity.

A second proprietary system, HOBI Shield, records the computer’s configuration—make, model, hard-drive size, amount of memory, etc.—and erases the data. The process can be slow, taking as much as six hours for a 2-terabyte drive, but each facility has the capacity to perform more than 200 erasures simultaneously, Boswell says.

The company does very little shredding. Almost every device and accessory contains hazards that can’t go in a shredder, Boswell explains. An employee must open the device to remove those hazards, so that employee continues, using hand tools, to dismantle it and sort the components into dozens of commodity categories. HOBI tracks 90 such categories, including multiple grades of aluminum and copper—less than some companies, but enough to “maximize the return for clients and give them good downstream accountability,” Boswell says. Scrap—the commodities from dismantled or shredded products—is only 5 percent of the company’s revenue, he says. “The scrap decreased as we got more of a focus on reuse.”

The work environment

In the middle of the interview, the sound of a pipe organ comes out of the Dallas facility’s public address system. (It’s playing Bach’s Toccata and Fugue in D minor, an eerie tune used in the Disney movie Fantasia that brings to mind Halloween and haunted houses.) That’s the signal to employees that it’s time for a break. “We let one of the IT guys select the music,” Boswell says with a smile. The signal to return to work is a bugle call—the sound you hear in stadiums during sporting events, usually followed by people shouting “Charge!” It’s a bit of whimsy in what Boswell calls a “challenging” work environment.

“I hope that people feel, when they’re here, that we want them to work hard,” but also to have work-life balance, Boswell says. “Most people are working here to provide for their family, and if you can’t spend time with your family, what’s the point?” The Dallas facility runs two shifts, 7:30 a.m. to 3:30 p.m. and 3 to 11:30 p.m., giving workers some flexibility to work the hours that fit their needs. Turnover is very low, Boswell says, and some employees have been with the company for more than 20 years.

HOBI prefers to hire people who have cellphone or IT experience for its refurbishment and data erasure jobs, respectively, but the market for skilled repair technicians is “very competitive,” Boswell says. “What we love to do is to bring in someone at a lower-level starting position and, if they have the aptitude, train them up to the higher skill positions, which are typically higher paying,” he says. “It opens opportunities for them, going forward, to work for us or to take those skills to another employer.” The company’s history of growth and stability make it an attractive employer, he says, as does its “pretty comprehensive” benefits package, which includes profit-sharing.

HOBI has few safety issues, Boswell says. At the Dallas facility in late July, protection from the heat is a key concern. Outside, the temperature is hitting about 105 degrees F, and there’s no air conditioning in the high-ceilinged warehouse area where employees process incoming and outgoing inventory, perform IT data erasure and repair, and dismantle end-of-life IT devices. The company tries to keep things cool by opening the garage doors that line one entire side of the facility, securing the entrances with metal-chain curtains to keep employees and inventory safely inside while increasing the air flow. Fans at the work stations and frequent water breaks help as well. A sign taped to a whiteboard lists symptoms of heat exhaustion and heatstroke in English and Spanish.

The heat produced by a Dallas summer day is nothing, however, compared with the heat from the company’s biggest safety concern: lithium battery fires. “I’m pretty passionate about the issues the OEMs have created [that affect] our ability to process batteries safely,” Boswell says. Batteries can get damaged while a worker is removing them, or the batteries can arrive damaged. If that damage results in the battery short-circuiting, it can start to burn. The company experiences about one “thermal event” each month, primarily in the cellphone and tablet repair area, Boswell says. He doesn’t consider these events fires: The damaged battery gives off smoke, “it smells bad, then it’s over.” To ensure these events don’t become fires, HOBI trains its employees to not keep paper or other combustibles on the table where they’re working with battery-containing devices. Employees also wear safety glasses and get trained to use a tool to push a smoking battery on to the concrete floor, where it can burn itself out safely.

Lithium-ion batteries have good “value recovery” when HOBI can test, refurbish, and resell them, and end-of-life batteries have commodity value due to their cobalt content, Boswell says, but the difficulty of removing, packaging, and shipping batteries safely means they provide little profit. U.S. Department of Transportation regulations require special handling for damaged, defective, and recalled batteries; the definitions of damaged and defective could use further clarity, he says, but if DOT makes the definitions too broad, handling batteries will become an excessive financial burden.

Challenges ahead

The ITAD field is very competitive, and one of HOBI’s challenges, Boswell says, is to differentiate itself from its competitors and communicate those differences. He believes HOBI stands out for its “breadth of vertical service, both in IT and in the mobile space”; the scope of products it can manage; and its service excellence. But it also must face issues confronting the broader ITAD and electronics recycling industries.

Even though HOBI is almost entirely business-to-business and does not handle household end-of-life electronics, the many electronics recycler bankruptcies on that side of the business have had an impact, Boswell says. “The news has created fear within the client base.” The problems have “raised the bar for how companies evaluate us,” and the scrutiny is justified, he says. He holds out HOBI’s 26-year history as evidence of its operational quality, as well as the awards it has won, such as a 2016 Supplier Sustainability award from AT&T in the “reverse logistics and circular economy” category. Hill and Boswell also were finalists for Ernst & Young’s Entrepreneur of the Year award in the Midwest region this year.

Another assurance for its clients is its certifications: HOBI is certified to the Responsible Recycling (R2) Standard, the Recycling Industry Operating StandardTM, and ISO 14001 for environmental management. Hill estimates the company has spent at least $100,000 a year over the last five years, and more than $1 million total, on certification. “We’re constantly doing a cost-benefit analysis” of whether to keep the existing certifications or add more, such as the National Association for Information Destruction’s AAA certification for data destruction, Boswell says.

The recent industry problems encourage clients to conduct more oversight of their ITAD service providers, Hill says, and HOBI is ready to open its doors to them. “We have a transparent process and welcome visits, audits, and walk-throughs.” Where clients are worried about the risks, “we want to fill those gaps for them,” she says. “We want to show them we do what we say and say what we do.”

HOBI has faced a changing technology stream from the start, and the ongoing changes present both opportunities and challenges, Hill and Boswell say. They’ve established a niche in refurbishing mobile phones and tablets, but they want to be ready for the next wave of personal data-processing devices. “The cellphone has run its course in its current form,” Boswell says. They expect growth in wearables such as smart watches and fitness tracking devices, smart-speaker devices being used in homes and offices, and Internet-of-Things technologies that are “blurring the lines of what’s IT and what’s not IT,” Boswell says. When “your car is a mobile device, that creates a unique challenge.” HOBI’s leaders are “strategically looking at how what we do fits into a growing array of products that need traditional ITAD services but in nontraditional hardware,” such as vehicles, appliances, and more, he says.

And after that? “Some disruptive technology will come down the pipe,” Boswell says, whether it’s something wearable like smart glasses, virtual displays that don’t require screens or keyboards, or even devices embedded under the skin. “We want to be ahead of the game” on the next big thing that replaces the millions of smartphones in use today, he says. “We like to bring solutions to clients” even before they realize what the problems are, Boswell says. Hill sees clients asking more about the “true environmental footprint” of the various product disposition avenues, for example, and the company is ready to adapt its ERP software accordingly. “It’s an ever-evolving process,” she says. “We never stop developing as our clients’ needs expand, and I don’t see that changing.”

Rachel H. Pollack is editorial director of Scrap.

HOBI International has thrived for decades in information technology asset disposition by providing services that meet customers’ security, environmental, and value needs and developing systems that give structure and consistency to its operations, its founders say.
  • 2018
  • Sep_Oct

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