A venture capital firm I really respect passed on looking at The Grommet because they felt their Quirky investment was too competitive. I applaud any VC who protects their portfolio companies in considering new investments. But the Quirky business model is so difficult and also so unlike The Grommet’s, I wanted to ask the investor, “Do you even know what Quirky does?
Quirky, the “invention company” has just pivoted to focus on providing crowd-sourced ideas to big companies. But for the first six years of its operations, the Quirky business model was that of a classic consumer products manufacturer and brand itself. Its true cousins would be companies like Cuisinart, GE, or Rubbermaid. Yet, because of its much publicized community inventor input, Quirky was seen as a very disruptive product development platform. The unfortunate reality is that ideation is less than 5% of the effort in building a product line. Calling Quirky an invention company required believing that 95% of the actual Quirky business– the long haul of bringing products to market and building a brand– was apparently just happening magically.
Their PR fueled that myth heavily, as seen in this video.
In the public-facing Quirky story, doing the R & D for hundreds of new products, solving supply chain and logistics for each of them, funding massive inventory, conducting consumer and trade marketing, and servicing major retail chains with their draconian financial and operational requirements was somehow…a piece of cake. Even worse, the “community invention” front end that Quirky bolted on was ineffective–yielding mostly unviable products. Just as mind-boggling, the royalty rates the company paid the community were 2-4X industry standards, saddling the company with an impossible cost structure.
How could this get so big and so bad? As with many such startups, venture capital played a critical role. Despite Quirky’s inherently difficult business model, VC’s were seduced into pouring over $175M into the company over many rounds, only to watch that money go down the proverbial drain. Perhaps Quirky is a case of flawed “pattern recognition” which often causes VC’s to fund a certain archetype of telegenic, disruptor founders. There are industries where a fresh-thinking founder can defy the laws of physics, but classic consumer products is not one of them.
The case of a challenged Quirky, as thoroughly reported by Ben Popper in The Verge (“How the Invention Factory at Quirky Almost Invented Itself Out of Business“) was entirely foreseeable. That is, if Quirky’s investors had understood the hard road to building a consumer products brand. As Popper describes, Quirky has pivoted to adding on product consulting to large brands. I wish Quirky well–as harnessing a vibrant inventor community in an organized fashion could have meaningful impact in large enterprises.
As for the original business model, what Quirky was trying to do was as old as the hills. They, and their investors, just seemed to be the last to know it.