Some of you might remember the business Quirky. The startup was founded by Ben Kaufman in 2009 as a platform for inventors. Quirky would select the best, most marketable inventions, manufacture them and then sell the products while taking a percentage of the revenue.
Over the next 6 years, Quirky would raise nearly $200 million from blue-chip VC investors such as Andreessen Horowitz and Kleiner Perkins. And while Quirky created some products that had some success in the marketplace, by 2015 the company was declaring bankruptcy and shutting itself down.
All of those VC dollars, and more importantly, all of that time and hard work, was gone.
Building a startup into a profitable, scalable company begins as a series of experiments to test some basic assumptions.
- Is there a problem to solve, and will customers want my solution? (Desirable)
- Can I bring that solution to market and find those customers before I run out of money? (Feasible)
- Will my solution and my target customers combine to build a profitable, scalable business? (Viable)
The simple concept of Design Thinking, and how it applies to startups, is a great way to frame this challenge. The sweet spot is the intersection of the Desirable, the Viable and the Feasible.
Tim Brown, from the well-known design firm IDEO, describes Design Thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.”
I would make one change to that description. We can think broader than simply ‘the possibilities of technology’. Because not every startup is a technology-powered startup. Feasibility for your startup is constrained by your access to capital and your ability to attract the right kind of talent to help build the solutions you want to bring to market.
When you connect the design thinking framework to an innovation accounting framework, you can start to see how a constant cycle of product iteration, testing, and measurement is the only way to find that sweet spot that sits between desirability, feasibility, and viability.
To measure Desirability, you will pick the right customer-focused KPI’s to measure conversion rate, purchase metrics, retention, and engagement. You’ll connect your customer-focused KPI’s to your financial model so that you can plan for Viability. And you’ll have to balance your available cash and the skills of you and your team to develop a solution that’s Feasible for your startup at this particular point in time. (That’s the secret to the MVP. It’s not supposed to be your idealized version of your solution.)
So what happened to Quirky? I wasn’t very close to the company, so I have no inside information.
I wouldn’t be surprised if they very quickly proved a high level of Desirability. I’m sure there are plenty of inventors that want help bringing their ideas to life. And plenty of customers that want access to cool new products.
Because Ben was able to raise so much cash, you could argue that almost anything was Feasible, at least in the early days. So he was able to quickly ramp up a team of product designers, people with experience in manufacturing, logistics, and e-commerce.
But I suspect that early Quirky financial models that showed the path to Viability were overly optimistic with respect to the potential for profit while underplaying the risks of loss on a product by product basis. For anyone that has ever been involved in the manufacture and marketing of products, you quickly learn that not every product is a winner. And the losers can really tie up your precious capital as they sit in your warehouse. Even if you have more winners than losers, which often isn’t the case, the losers suck up all of your cash.
In addition, great brands are built on repeat buyer behavior. If most of your customers are one and done, it’s incredibly difficult to build a scalable profitable business. Because customer acquisition is expensive.
Assuming Quirky had a very broad range of products from a large number of different inventors, you could expect that many customers would be attracted to one product, but not necessarily become repeat customers for a wide range of ‘Quirky’ products. That creates a death spiral of customer acquisition costs while unsuccessful products sit in the warehouse and new product development requires fresh capital.
That’s a tough business. And ultimately, it wasn’t a Viable business.
Often in the world of product development, you’ll hear the phrase ‘Fast, Cheap, Good. Pick two’. In the world of building a profitable, scalable startup, you don’t have the luxury of making that choice.
Desirable, Feasible, Viable. You need all three.