The Quirky-ness of Crowds
The danger of handing your business over to a crowd that you can't control.
The central idea behind Quirky, a consumer goods startup aimed at “making invention accessible,” probably sounds familiar: harness the wisdom of crowds to decide which products move forward to commercial production and which products get left behind. T-shirt manufacturer Threadless, for example, utilizes a similar crowdsourcing model. But whereas others only dabble in crowdsourcing, Quirky dove headlong into the trend. The company would either thrive off of the wisdom of crowds or burn out due to the unruliness of mobs.
Quirky was founded Ben Kaufman in 2009 with the idea of revolutionizing the way that products make it to stores’ shelves. Prior to founding Quirky, Kaufman had built his first company, Mophie, from a teenager’s hobby into a sizable retailer of all types of accessories for Apple products. Having endured the many frustrations that plague first time inventors and entrepreneurs, Kaufman dreamed of starting a company that made the process of inventing a product easier. He wanted to find a way to tap into the unused innovative spirit of the masses by providing a glide path from creation to production. “The best products weren’t born in the boardroom,” Kaufman was fond of saying. And so he started Quirky.
Quirky’s unique product development model relies on user and crowd input at each of the most important steps. First, would-be inventors log-on to Quirky’s website, answer a few simple questions about their ideas (i.e. “what problem are you solving”), and attach any files that best explains or details the potential products’ use cases, design, or marketability. Quirky takes these submissions and opens them up for comment and judgement by its base of over 1 million community members. The products that receive the most member votes advance to a rapid product development stage where in-house engineers and designers use feedback from members to guide them as they hammer together a working prototype of a product. This process from initial idea to working prototype typically takes a couple of weeks, a lightning fast pace for new product development. Quirky then produces a marketing video about the prototype and distributes that video to its community in order to determine an acceptable price. Based on user feedback and the cost that it took to actually produce the good, Quirky makes the ultimate determination about what should be mass produced and sold to the public.
Importantly Quirky takes on all of the financial burdens of developing the product once it has been advanced to the product development stage – the cost of actually designing, engineering, prototyping and marketing all products is born by Quirky alone. In return for handing over their early stage ideas, inventors get a small royalty based on the number of their products sold and the knowledge that they invented a mass market product. Quirky keeps the rest.
Initially this business model achieved a fair amount of success. The business had a few hit products that were quickly picked up by major retailers such as Target, Amazon and Bed Bath & Beyond. Quirky received funding to the tune of $185 million, with megawatt names such as GE, Andreessen Horowitz and Kleiner Perkins listed as its backers. And the company even generated substantial revenue (estimated at around $100 million at its peak), a somewhat rare feat in this new age of revenue-less start-ups. Maybe Quirky really had cracked the code on new product development?
Unfortunately, these headline grabbing successes masked an existential problem for the Quirky– its business model was broken and was quickly bleeding the company of cash. Quirky filed for bankruptcy protection this past September with only a couple of month’s capital remaining. The company’s core problem, it appears, is that it fell in love with crowdsourcing and attempted to implement it across all aspects of its business. Relying on the wisdom of crowds to propose, select, refine and price products created a costly (if admittedly quick) product development cycle where Quirky had to pay to prototype an idea that may have no addressable market. And given no boundaries, it turned out that the crowd’s tastes were a little…. quirky. Often times the community would select products that solved interesting but meaningless problems (wheels that turned anything into a remote controlled car) that cost a lot to prototype and could not be sold. This process, repeated over and over, left Quirky holding the bag as the crowd’s imagination ran amok. By overestimating the utility of crowdsourcing, Quirky actually revealed some of its limitations. In fact, the greatest take away from the Quirky experiment is best stated by its founder, Ben Kaufman, “crowdsourcing is a tool, not a silver bullet.”
Great post. Shows potential pros and cons of crowd sourcing. I am curious if it will be able to change its business model to incorporate the important step of validating the potential market size. If and when Quirky notifies users of changes to its method it should use its recent bankruptcy as backup. It is a valid reason for users why it changed its operating model
How does Quirky protect the IP of its products? What would stop a big company from discovering new product ideas on Quirky and launching their own?
Quirky was responsible for ushering the inventions through the patent application process as well. Generally this happened as the product itself was being developed. It’s not clear how effective they were at keeping large companies from simply copying their designs through the use of patents, but my guess is that they generally were attacking such niche goods (which was part of the problem) that they never really ran into this issue.
I wonder what the cost structure looks like as Quirky move on from producing one product to another. It sounds to me like a very hard to sustain business model given that they would need to constantly source out new ideas to attract community engagement, but then when a product becomes popular, they can’t focus their energy on scaling production and have to shift their production model from one product to next (which could be completely different in processes). This makes me skeptical that they are scalable as a business even though I think the idea of empowering customers. I guess this is why they were on the road to bankruptcy in the end.
The first thing that came to my mind when reading this post was Henry Ford’s quote; “If I had asked people what they wanted, they would have said faster horses.” When it comes to product innovation, people don’t always know what they really need or want and relying on the crowd to design, build, and price new products that they may or may not have any expertise in seems risky to me. Crowd-sourcing can be an amazing tool but it appears that Quirky is a great example that it has to be used in the right way.