Entrepreneurs run with crowdsourcing model

Every Friday afternoon the staff at cutting edge New York-based product development firm Quirky reviews ideas submitted by the public and voted on by its online community of consumers.

Ultimately just one idea is chosen to be sold in Quirky's online store.

"Of all the ideas submitted each week, we look at the most meaningful product we can bring to market," said 23- year-old founder Ben Kaufman, the former teenage wunderkind who developed and sold Mophie, an iPod accessories company built on the back of suggestions from users.

"It really doesn't matter to us."

What does matter is that the year-old site is developing ideas introduced and collaboratively considered by a loyal online community.

Individuals pay US$99 to submit an idea for consideration and the best are vetted against real-world considerations such as manufacturing complexity, intellectual property rights and overall fit with the existing product line.

The submissions can range from a portable juicer to a pocket knife.

The inventor, as well as Quirky website www.quirky.com users who influenced refinements such as color and packaging, eventually get to divvy up 30 percent of the revenue, with their share of the spoils determined by Quirky's proprietary algorithms.

"We act as curator, brand manager, product design team," said Kaufman, whose venture has raised US$7.5 million in private funding to date.

Crowdsourcing craze

The company, which is yet to turn a profit, but aims to double weekly product additions by September, is representative of a broad-reaching trend called crowdsourcing.

Among the most democratic of processes, it relies on a large group to influence development of an idea.

Its supporters believe collaborative input is more valuable than the limited knowledge that exists within the heads of a company's employees.

"One of the key components of this model is that most of the knowledge needed for innovation resides outside of the boundaries of the firm or organization," said Karim Lakhani, a Harvard Business School professor who specializes in distributed innovation.

"As you open up the process to allow for diverse perspectives, you actually get better results," Lakhani said, pointing to open-source software development as a successful precursor to crowdsourcing.

Among the best examples is Wikipedia, the free online encyclopedia that relies on user-generated content.

Startups in a variety of industries have embraced variations of the model; they range from InnoCentive, a forum to collaboratively solve complex scientific problems, to Shutterstock, a photography website of royalty-free stock images uploaded by photographers around the world.

Crowdsourced ideas often come from competitions.

That's the case at Threadless, a community-based seller of t- shirts celebrating its tenth anniversary. Started on a shoestring by Jake Nickell and Jacob DeHart after entering an online t-shirt design contest, Threadless www.threadless.com is now considered the blueprint for a successful collaborative model and has been profitable since inception.

Parent company skinnyCorp doesn't disclose financials, but CEO Tom Ryan confirmed Threadless sells millions of shirts each year.

Its eclectic designs are developed by aspiring graphic artists who enter weekly contests pitting them against hundreds of rivals.

Ideas are voted on by community members, but company insiders make the ultimate selections based on institutional knowledge and current trends.

The odds of winning a US$2,500 design prize are slim; Ryan concedes maintaining an active community requires much more than financial incentives.

"People clearly aren't doing it just for the money," he said during a recent interview at the company's expansive loft headquarters in Chicago, complete with ping-pong tables, free-roaming pets and indie rock.

"We're tapping into a community of artists who truly want to be creative."

Ryan, who took the helm of the fast-growing venture two years ago, has been working to create additional opportunities for the company and its community of artists, including partnerships with iPod case maker Griffin, flip- flop company Havaianas and computer maker Dell, which allows for customization of computer cases.

Threadless, which has two of its own retail shops, is also testing distribution with other brick-and-mortar retailers.

Revving up old industries

The popularity of such collaborative models hinges on transparency and fostering an ongoing dialogue with loyal audiences. It's particularly critical when creating a complex product such as a car.

"The auto industry was extremely out of whack with what customers were looking for," said Jay Rogers, co-founder of Local Motors, a startup dedicated to developing custom cars through collaborative input.

"I wanted to see car companies adapt more quickly."

Founded in 2007, the Chandler, Arizona-based company is laying the groundwork to begin production on its first vehicle, a US$50,000 off-road model called the Rally Fighter, in August.

Rogers, an Iraq war veteran, Harvard Business School graduate and long-time automotive enthusiast, said he has 105 orders for the car to date.

"We listened to our community," he said. "You want to be honest and give feedback. It's about being real time. We manage expectations that way."

Local Motors www.local-motors.com offers frequent contests to refine components of the Rally Fighter, whose original designer was awarded $20,000. The company also offers competitions for cars that will likely never come to fruition.

"The reason we're doing it is to maintain excitement," said Rogers, whose firm is backed by private funding from a group of angel investors.

Ultimately what makes crowdsourced business models compelling for followers is their ability to level the playing field, allowing aspiring creators a shot at developing a product they could never do on their own.

Andreas Klinger, co-founder of Garmz, an Austrian startup dedicated to producing popular fashion trends using collaborative methods said it was "almost impossible" to break into the industry without a lot of money.

"The main idea is to find interesting products and support some upcoming fashion talent that could be the next Lagerfeld or Armani," said Klinger, a software developer who previously worked on technology in conjunction with Facebook Apps.

Up and running for just a month, he was surprised Garmz www.garmz.com had already caught the attention of Threadless CEO Ryan.

"You're kidding me," he said. "Could you send him best regards from Vienna?"

- Reuters