Startups · Leadership

What caused Quirky to Rise & Fall?

Joey Nima Investment Banker at Wells Fargo

September 26th, 2015

After reading an article about Quirky's Rise & Fall, I was left with mixed feelings- Where did CEO Ben Kraufman and team go wrong with his Quirky/Wink? They raised a ton of money, so are the board members not also at fault? 

Ben Shan Product at Viator

September 27th, 2015

It seems to me the original premise was very interesting but it had some flaws, and the execution did not find a way to handle mitigate those issues. I had no involvement with the company, but based on a couple of articles I too can be a Monday Morning Quarterback and throw out these thoughts...

1.) TheRisk/Rewardmodelpossibly overvalued the idea?
In my opinion, the model sounds like it may have put too much value in the idea, even if it is well refined one and comes with a great name. The leave-the-rest-to-us business model which includes handling all of the engineering, manufacturing, marketing, and retailing just feels like Quirky was taking on too much of the work and the risk. We've all seen how important execution is, how risky it can be and how unexpected things will happen. It seems they had all the skin in the game after the idea was presented and refined. Shifting the balance a little bit (ie lowering the 10% to the inventor to say 5%) maybe would have helped some, but it likely would not have covered the costs of the products that never made any profits. I dont know what the models looked like but I would want to see if Quirkly had enough upside factored in across the porfolio for the wins to make up for the losses.

Possible solution? What if the output of an Eval was automatically submitted to KickStarter? Quirky could have matched the funds at some level (ie 50%). This could have helped further gauge customer demand and also created product specific funds for contingency labor on a product by product basis.

2.) The Greenlight Process was too easy?
400 products in 6 years? That's a lot. Hindsight is 20/20, but there had to be some clues somewhere that certain products were either weak in terms of demand, expensive relative to other solutions or kind of hefty in terms of resources needed. This quote from the NYMAG article is pretty telling: "I failed to see how any of us could know what a product scout from a company like GE or Mattel could know". And that played itself out 400 times. Sure, some of those products were legit and others will get lucky, but the higher the volume, the more the losses will add pile up.

Perhaps they felt the need to greenlight lots of products to keep the community engaged. So really, this is something that weighed on the original premise.

Possible solution? Tighten up the ROI requirements for a product within the greenlight process.I would love to see the development costs, BOM costs and sales of each one of those 400 products. I wonder where they would be if they never greenlit ideas #201-400. Certainly some of the results of the products from years 1-3 could have guided the greenlight process in years 4-6. I would love to hear how/if the launch criteria changed over the years.

3.) Lack of focus
I agree lack of focus hurt. The different types of products made it tough to build a brand. The variety probably also taxed the team who had to constantly learn about new product categories or new technologies, etc. I've been through this a little bit. It's fun and invirgorating, but it can also be exhausting.

Possible solution? Some constraints would have definitely helped. Limiting ideas to certain product categories would have helped, but it could have also limited engagement opportunities for the community. Again, this could have been seen as antithetical to the original premise.

4.) Scale
How many people NEEDED the products that were being created? Marketing 101: some items are WANTED and some things are NEEDED. Many of these things were "nice to have", and that is not an ingredient for consistent, long term success.

At PlayStation, the Strategic Business Development group looked at a lot of potential hardware/accessory and service partnerships. I had a colleague that liked to say "hey, 30,000 superfans will buy 1 of anything we roll out." The question then is, can you justify the effort if that's all you sell? Obviously, that leads to the next question, what is breakeven? And then, what is breakeven when you factor in Weighted Cost of Capital and/or the opportunity cost of what you dont move forward on?

Possible solution? Same as #2 - tightening up that greenlight process. Maybe bring in market experts to help.

5.) Product Iteration
I dont see this as critical of a misstep as others have mentioned. Sure, revisions on products could have made them better and more profitable, helping the overall financial picture. But which of the 400 do you iterate on? Do you slow down the pipeline of new ideas or mix them in or pick up the pace and do both? It was probably true in many cases that v2 of a good product could have had more promise than a shaky new idea.

Also,hardware purchasers dont benefit from revisions the same way that software users do. 1st time purchasers often dont buy again, and you need to factor that into the forecasted sales of the next batch you build. Also for hardware, revisions that lead to more non-recurring-engineering (ie upgrading the integrated chip or the changing the mold) add more fixed cost to be amortized. Hardware business cases often try to include high volume component purchases to get the per-unit costs down to get the business case to work but if you want to iterate, you either buy a smaller batch and eat the higher per-unit costs for v1, or for v2 you live with the sub-optimal batch of whatever you bought or you eat that inventory. Not a fun dilema.

Again with the community - directing resources back into launched products could have engaged some of the community, but I could see how it might be boring if there were 1 or 2 clear flaws that didnt require much discussion or voting or collaborating, and thus be a disappointment to the community. A lot of this and you may start to lose engagement.

Overall, iterations on some products could have helped for sure, but I feel the other reasons above would have impacted the business more beneficially. Hardware is a tough game. These are some of the exact reasons I went back to software. :)

Brian McConnell

September 26th, 2015

Lack of focus. Bad ideas (a wifi eggminder?). Making crap that nobody wants. I would never have heard of them except fot the medium piece about how they flew too close to the sun. Sent from my mobile phone. Please excuse any typos or discombobulations.

Michael Barnathan

September 26th, 2015

I'm going to write this from a consumer's perspective, being the most valuable / illustrative one I can give.

I haven't dug into the root cause (or Quirky's structure at all), but as an early adopter of IoT, I can attest that the extremely poor and inconsistent quality of Wink products was what kept me from adopting them, despite their partnerships with big box stores, ready availability of products, and (the really condemning part) despite the fact that I got the Wink Hub for free. Yes, they literally gave it away and I still couldn't use it.

I suspect they did something seriously wrong on the engineering / QA side, although they also made some design decisions that showed they simply didn't understand the needs of the market (for example, their hub required talking to their servers before it would do so much as flip a light on - and latencies of above 1 minute were not uncommon).

Can't say much about the rest of Quirky's products except for the fact that I didn't find very many of them useful. And the ones that did have marginal use tended to be overpriced enough to dissuade a purchase.

Kelly Kuhn-Wallace Tech startup consultant, founder coach.

September 27th, 2015

Ben (above) exposes a fundamental flaw in Quirky's business model: keeping the community engaged required a certain velocity in the approval and production of products, but approving and producing only profitable products required more time than this velocity allowed (and more expertise than the Quirky community could offer).

John Seiffer Business Advisor to growing companies

September 27th, 2015

Based on the article and a visit I made to their office in the early days, I'd say they let their mission get in between them and their market.

Eric Ryherd

September 27th, 2015

Lack of Focus is a classic startup failure.
Do a few things really well, really OWN a small sliver of a specific market space, listen to your customers and respond to their needs is the recipe for success.

The shotgun approach of being a little of a lot of things just doesn't work.

I was pulling for Quirky, it was a very cool experiment while it lasted.

John Seiffer Business Advisor to growing companies

September 27th, 2015

Based on the article and a visit I made to their office in the early days, I'd say they let their mission get in between them and their market.

John Feland Accidental Data Scientist and Ardent Customer Advocate

September 26th, 2015

The article you mention is a good one because it highlights an important tenet of product success, iteration.  Quirky didn't allow iteration because their focus was spread over a disparate portfolio of unrelated products.  Quirky allowed consumers to vote with no skin in the game to support projects, in contrast to Kickstarter or Indiegogo where consumers have to vote with their wallets.  Quirky was to Kickstarter like Fantasy Football is to the NFL, all of the drama and passion but no one typically breaks a sweat.  Our analysis of several of the Quirky products that made it to market, such as the smart air conditioner, showed a product that was sold based on a good idea but rejected as a poor product, a pattern that was repeated for much of Wink's products as well.  Building products is tough, building multiple products a year is even tougher.  One of the reason Apple continues to beat out the likes of Samsung and LG is that Apple focuses all of their efforts on a small handful of experiences while Samsung tends to use the spaghetti form of innovation, cook a bunch of ideas up, throw them all on the wall and see what sticks...  Turns out for Quirky, not enough of the products stuck for the overall concept to be financially viable.  Is this the fault of the board?  Should they have realized the overall model was destined to spread attention and resources so thin so as to make success more and more elusive?  Or did they just have too much faith in the wisdom of crowds and the law of large numbers, that if they launched 100 products, one would be a breakout rainbow spewing unicorn?  A bit of all.  Hubris is what both makes and breaks entrepreneurial leadership.  If they hadn't gone Chapter 11, we'd all be singing their praises for keen insight and brilliant execution, but given their model, the chances of that success were slim.

Anonymous

September 27th, 2015

My son bought a Wink. He had some trouble getting it to work. The Wink system is poorly designed in that everything had to go through their cloud, e.g. if you want to turn on a light via via your smartphone, the app sends a request to the Wink hub, the hub retransmits the request to the cloud, the cloud responds with the command to turn on the light to the hub and finally the hub sends the turn on command to the lamp. This occurs with everything, even when all the components are on the same local network. Some people have "jailbroken" their Wink to get around that poor design (but of course, it voids the warranty).

I did like the idea of the Pivot Power, but it was too expensive. I did buy one when I saw it at a discount store.

Karl Schulmeisters CTO ClearRoadmap

September 28th, 2015

I lean towards Ben's view that the iteration wasn't the issue and that "GreenLighting Being Too easy" was. To GreenLight a consumer product, you need to understand its usage and its real market demand. Remember, Apple's biggest hits have been in markets that were well established (MP3 players, SmartPhones) - but they simply executed them better.

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Nor is Apple's success in comparison to Samsung etc. simply because "Apple Apple focuses all of their efforts on a small handful of experiences while Samsung tends to use the spaghetti form of innovation"
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Apple's success is because it has built a premium brand and thus has a huge price-premium for its products. Whereas the other smartphone mfgs are the more traditional hardware vendors with smaller margins that have to continually update and innovate or die. There is a very interesting WSJ analysis on the cost of "innovation" in retail/consumer goods http://www.wsj.com/articles/retailers-overlook-supply-chain-impact-in-search-for-product-innovations-[removed to protect privacy](truth in lending: a friend of mine is co-founder of Terra Technologies)
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As someone pointed out - a wifi Egg Minder? Seriously? This is the same problem with WINK and home automation. Most folks have taken the WRONG lesson from the success of NEST. IoT is not going to spur a major expansion of home automation in the near term. The reason is that the setup is going to be a PITA for a long time yet. So home automation will remain a high end product (because of the cost of custom setup) or a niche product - for the geeks who are willing to put up with the hassle of the install.

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IE their incremental Value Add is going to be very low and thus have low uptake. But NEST! you say. The key here is to understand what the true Value Add of NEST was:

To show your Tech Hipster Cred to other digerati.


.Thus with the exception of the iPhone connection, you could buy all of the features of NEST for about 1/4 of the price at HomeDepot from Honeywell (hence the lawsuit).

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and THIS is where Quirky failed. They failed to have a solid process in place for truly identifying the Value Add of the products they were Greenlighting. And thus they could not understand how much of them to build or even how to advertise them. Rapidly making Quirky into an online version of SkyMall magazine