Invention startup Quirky files for bankruptcy

Quirky, an ambitious crowdsourced invention startup, which raised $185 million from investors that included General Electric and leading venture capital firms, filed for bankruptcy last Tuesday. The failure of the company, based in New York, will surely raise questions about how far the crowd-based model of innovation and product development, made possible by the internet, can go.

Other companies are using crowdsourcing to make physical goods, from T-shirts to cars.

None, though, were doing it as broadly and across as wide a range of products as Quirky. The company said on Tuesday that it was seeking protection from its creditors while it arranged a sale of “substantially all its assets”. Quirky said that it already had an initial bid of $15 million for its Wink subsidiary, which was created last year. Wink makes software so that an array of internet-connected home devices, as varied as thermostats and door locks, can be controlled from a smartphone app.

Flextronics International USA, a contract design and manufacturing company, made the bid. Quirky hopes to attract other bidders in an auction to be completed in roughly 60 days.

‘Restart’ In a blog post announcing the bankruptcy filing, Quirky said it also hoped to find a buyer for its main business of collecting, winnowing and manufacturing product ideas from a far-flung community of inventors. Quirky has suspended that business, but in its statement it said it was “hopeful that the ultimate successful purchaser will restart those operations”.

Quirky had 1 million registered online users and had brought more than 400 Quirky-generated products to market – sold on its website, but also at major retailers including Home Depot and Amazon. Its venture backers included Silicon Valley firms such as Andreessen Horowitz and Kleiner Perkins Caufield & Byers. GE invested $30 million in Quirky. In an interview in January, Beth Comstock, president of GE's business innovation unit, described the startup as "a real-life laboratory" for faster, more democratic models of designing and producing goods.

On Tuesday, GE said it was “disappointed” that Quirky had filed for bankruptcy but that the experience would not deter GE from investing in experiments in the future as it is “continually seeking new ways to innovate”. Quirky had some success, with revenue rising sharply last year to about $100 million. But the scale of its ambitions – managing a sprawling community of inventors, transforming raw ideas into product designs and orchestrating manufacturing and distribution – proved daunting and too costly.

At the start of the year, Quirky shifted its strategy to focus more on internet-connected devices for the home and less on offerings such as kitchen utensils and pet products. It also sought to be a supplier of ideas and designs to large companies such as GE and Harman International, a maker of audio equipment, and then let them do the manufacturing and distribution. The products would carry the big-company brands and the tag line “Powered by Quirky”.

But by this summer, it had become clear that the new initiatives were progressing gradually, while Quirky, founded in 2009, was burning through cash.

Layoffs When investors proved unwilling to pour in more cash, layoffs followed. In July, during an onstage interview at the Fortune Brainstorm Tech conference in Aspen, Colorado, Ben Kaufman, Quirky's energetic young founder, detailed some of the company's challenges. Ultimately, he said, the business model just "didn't scale". Two weeks later, Quirky announced that Kaufman was leaving the company.

In an interview in January, Kaufman said that community-based innovation was surely an asset in finding ideas and in guiding decisions on a product’s price, colour, name and design improvements. Truly original ideas or complex engineering challenges, he said, tended to be the province of inspired individuals or dedicated small teams of people. Crowdsourcing, is “a tool, not a silver bullet,” Kaufman said.

On Tuesday afternoon, Scott Weiss, a general partner at Andreessen Horowitz and a Quirky board member, praised Kaufman as "a passionate, creative entrepreneur" and called Quirky "a great idea" but not one that found its footing as a business.

“It’s the nature of startups,” Weiss said, “that some succeed and others don’t.”

– (The New York Times News Service)