There has been a lot of chatter in the startup community about a company you may not have heard of. Quirky, which makes Wink (a major player in the smart home space), raised over $180MM over the course of six years from prominent investors and then filed for bankruptcy on September 22, 2015. So why did the company fail? Articles that have been published explaining the failure are nicely worded and tell a good story, but tend to be extremely biased. Here are five unbiased reasons why we believe Quirky failed.
1. Bad Business Model
Quirky relied heavily on retailers to sell its products. Due to the mass reach of these retailers (such as Home Depot), the partnerships appeared to be a blessing, but margins were dramatically reduced and it ended up a disaster. Quirky was on 50,000 shelves in the country, and as a result the company had to produce a ton of inventory. This was a big upfront cost for products that had not entirely been proven. As a result, Quirky overspent on inventory and continued to raise capital as opposed to growing on revenues. This is a vicious combination that proved to be unsustainable.
The poorly reviewed Wink Smart Home Hub is probably the most well known Quirky product. While it has been reported to generate revenues of $25MM in its first year, Kaufman claims that because Wink was never spun off into its own entity, and because it is still a subsidiary of Quirky, Wink has actually caused problems. Kaufman says he could not properly raise money for Wink because of its attachment to Quirky, and that issues related to Wink ended up coming out of Quirky’s bottom line.
3. Spread too thin
Quirky’s approach was to develop an idea and launch it at break-neck speed. This meant that instead of launching 2–3 products a year, which is a busy year for any startup, the company would launch 50. While it was indeed impressive that the company could churn out so many new products, it wasn’t able to actually focus on any one product enough to develop it fully. Which leads to the next point …
4. It made bad products
Simply put, the products Quirky made were junk. This may sound harsh, but you would be hard-pressed to find any good review out there of a Quirky product. This is not to say that the products were bad ideas. Indeed many of the products were exciting and had potential. The problem is that once a product was released, it was never refined. Typically a startup will release a product, listen closely to the feedback of its customers, and release a new version with more features that customers want. Quirky never did this. Iteration is an important part of the product process. It helps a company to better connect with its customers. And now this brings up an even larger question about the focus of the business …
5. Who is the customer?
Any business comes down to one thing: the customer — and you need to clearly identify who that customer is. Maybe Quirky lost track of who its customer was? Based on the products it was pushing out, it is clear that Quirky did not consider the customer to be the person buying the product. If that were the case, it would’ve done something about the feedback from all the people complaining that its products did not work and that its customer service was terrible. But then who did Quirky consider its customer? Who was the company listening to?
Ben Kaufman clearly had a vision and did a great job convincing others that his approach to change the startup process was the right one. As soon as the company gained capital and recognition, Mr. Kaufman expanded his staff and office space making himself and the company seem bigger and greater than it really was. It is mind boggling to think that all these big time players who were on the board of directors sat back and watched the company fail over the course of six years. Somehow, no one took a step back to say, “Hey, we aren’t making any money.” Everyone got wrapped up in thinking how great they were that they forgot about the basic rules of business. It is impossible to generate revenues without a product that customers want to buy. Instead of being built to satisfy the needs of the customer, Quirky was built to satisfy the egos of the founders and investors.
No doubt, the story of Quirky will make for excellent case studies that will keep business school students busy for a long time. Mr. Kaufman seemed to enjoy the ride, though, on what was arguably his $180MM social experiment. If there’s a take away from this whole debacle, it’s to focus on (1) building great products your customers love, and (2) make sure your business model adds up. Follow those simple rules and you’ll be in good shape!
This post was written by Nader who heads Business Development at Josh.ai. Previously, Nader was managing partner at GenYrator and before that he was Vice President / Supervising Execution Trader at Bank of America Merrill Lynch. Nader has an MBA from USC and a BS in Electrical Engineering from UT Austin. He likes to play volleyball, travel, and rock out to pop music.