The megatrend of open innovation has undergone many iterations since becoming more adopted in the early 2000s. The practice of organizations seeking contributions from an external community has spawned the acceleration of innovation among industry behemoths like Apple, General Electric and P&G. These market leaders endured significantly less risk with their crowdsourcing experiments than Quirky, a 2009 startup company founded by serial entrepreneur Ben Kaufman. Kaufman’s premise was to make innovation more accessible by creating a platform for users to submit product ideas in the home goods and electronic categories. The business model could be seen as a tech-enabled response to Joy’s Law, given the notion that most of the knowledge critical to innovation often resides past the boundaries of an organization, and the central challenge for those charged with the innovation mission is to find ways to access that knowledge.1
With a novel approach to open innovation, Quirky found early success and received subsequent capital investments totaling $150 million. The company was fraught with challenges as it scaled which resulted in a bankruptcy filing in 2015. The following year, the company had new financing and owners to embark on its second incarnation.
Since Quirky’s early days, open innovation was at the heart of the organization’s management of process improvement and product development. Quirky encouraged submissions from members as other members fervently shared their feedback. Quirky tapped into a concept Boudreau and Lakhani reviewed which stated that crowds are intrinsically motivated by the desire to learn as well as bolster their reputation with a given community.2 The company’s sophisticated online platform made it even simpler for members to feel a sense of gratification and achievement. By creating such robust software, the crowd had become a fixed institution available on demand to Quirky.2
The company implemented additional incentives for contributors to stave off criticism that crowdfunding resulted in many for-profit companies not appropriately compensating or acknowledging their contributors.3 Rather in Quirky’s case, users of the platform received “influence,” which denoted a user’s percentage-based contribution to an idea. Their level of influence was the equivalent to a percentage of royalties if the product went to market.
The original owners thought it would be best to have a vertically integrated company. Once an idea passed their initial criteria, Quirky funded the R&D, manufacturing, distribution and marketing. Each time, the company experienced a slew of problems in every phase of finding consumer adoption for products. Even more challenging, the cost of inventory when products didn’t sell at partner retailers like Target and Bed Bath & Beyond contributed to the company’s demise.
In the near term, the company’s new management has decided to continue leveraging ideas from the spectrum of crowdsourcing archetypes: The “professional,” who can contribute their academic/organizational knowledge, the “packager,” who draws inspiration from many places to create something unique of their own, and the “tinkerer,” who are just as capable as the professional, but would rather work on their interests on weekends from their proverbial garage.4 Looking further ahead, Quirky will no longer fund the tooling, manufacturing, distribution and marketing. Instead, it will license the products to companies like Shopify and HSN. 5
Based on Andrew King’s and Karim R. Lakhani’s findings, Quirky’s new management should consider internal crowdsourcing, which enlists ideas from employees.6 The past and existing model of external idea generation likely forces the company to have a surplus of employees simply to sift through the spectrum of ideas. With the sheer volume of ideas, a significant number of them would not pass Quirky’s criteria, thus the company could be more financially prudent by lowering its employee count. In their place, the company could hire fewer people who can ideate and execute a higher quality tranche of ideas.
Hiring employees with more expertise in innovation, product design/development could allow Quirky to position itself as a market leader in consumer goods innovation. With proper execution, the company could act as a consultant to larger companies needing innovation services, as well as implement its own version of Amazon Mechanical Turk (AMT), which is Amazon’s online crowdsourcing system which distributes tasks to many anonymous workers.4
- Quirky’s rapid ascent and decline is another cautionary tale of heavily-funded startups that couldn’t create a profitable business off the heels of a megatrend such as open innovation. Given this outcome, its level of funding comes into question as a possible variable for its would-be success story: If they had raised less money, would the financial constraints have urged them to embark on a less scalable yet successful business model to avoid bankruptcy?
- When Quirky was founded in 2009, the economy was still reeling from the 2007 economic downturn. If the company had started in today, would the timing be enough of a variable for its first incarnation to have been successful?
- Karim R. Lakhani and Jill A. Panetta, “The Principles of Distributed Innovation,” innovations / summer 2007.
- Kevin J. Boudreau and Karim R. Lakhani, “Using the Crowd as an Innovation Partner,” Harvard Business Review April 2013.
- Birgitta Bergvall-Kåreborn and Debra Howcroft, “Crowdsourcing and Open Innovation: A Study of Amazon Mechanical Turk and Apple iOS,” The 6th ISPIM Innovation Symposium – Innovation in the Asian Century, December 8-11, 2013.
- Jeff Howe, “The Rise of Crowdsourcing,” https://www.wired.com/2006/06/crowds/, June 1, 2006.
- Avery Hartmans, “Quirky, the invention startup that burned through $200 million and went bankrupt, is back from the dead with a new business model. ”, https://www.businessinsider.com/quirky-reborn-new-ownership-business-model-2017-9 , Sep 26, 2017.
- Andrew King and Karim R. Lakhani, “Using Open Innovation to Identify the Best Ideas,” MITSloan Management Review, Fall 2013 Vol. 55 No. 1.