Threadless - Business Model

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Discussion

Crowdsourcing the design while still manufacturing the product

Massimo Menichinelli:


While Threadless cannot be strictly categorized as DIY Craft, it has a very interesting business model that can be taken as an inspiration: crowdsourcing the design and then manufacturing the products.

Threadless is a community-centered online apparel store founded by Jake Nickell and Jacob DeHart in 2000 with just $ 1,000. It is now run by skinnyCorp of Chicago. Members of the Threadless community submit t-shirt designs online; the designs are then put to a public vote. A small percentage of submitted designs are selected for printing and sold through an online store and the winners receive a prize of $ 2,000 in cash, a $ 500 gift certificate (which they may trade in for $ 200 in cash), as well as an additional $ 500 for every reprint. There are even two Threadless stores: Threadless and Threadless Kids, in Chicago. Anders Sundelin noted that producing a predetermined demand keeps costs low and margins high, and because community members tell the company which t-shirts to produce Threadless never produces unsold t-shirts: this is why it generates more than $ 17,000,000 in annual sales with a 35% profit margin with a growing community. Moreover, Threadless has a subscription revenue stream via the 12 club (a limited edition t-shirt for 12 months) and it has also a Street Team affiliate program members earn points toward future purchases by referring sales or submitting a photo of them with a Threadless t-shirt." (http://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/)

Frank Piller et al.:"

"For an alternative strategy consider Threadless, recently names the ”America’s most innovative small company“ by Inc. magazine. Threadless also includes customers deeply in the value creation process, but still sells mass products. Founded in 2000, this Chicago-based company sells a very simple product with great success: printed t-shirts. Together with just 20 employees, the company’s founders sell more than fifty thousand t-shirts and earn profits amounting to over one hundred thousand dollars per month. This is achieved by transferring all essential productive tasks to their customers who, in turn, fulfill their part with great enthusiasm. Customers design their own t-shirts and help improve the ideas of their peers. They screen and evaluate potential designs, selecting only those that should go into production. Since customers (morally) commit themselves to purchase a favored design before it goes into production, they take over market risk as well. Customers assume responsibility for advertising, supply models and photographers for catalogues, and solicit new customers.

Astonishingly, customers do not feel as though they are being exploited. In fact, they show great enthusiasm for the company that has made collaboration possible. They protect Threadless from imitators, (whose websites they tend to hack) and send innumerable ideas on how the company can become more productive and even better at what it does already. In return, the company Threadless focuses its attention on the operation and further development of their communication platform, over which interaction with and among customers takes place. Additionally, the company defines the rules of the game, honors those customer-designers whose designs were selected for production, and manages processes involved with the material delivery of goods (production and distribution). By doing so this small company was able to generate thousands of new designs with almost without any paid stuff.

While mass customization has been successfully implemented in many industrial markets and, for example, the sports good industry, we see large opportunities for health related products and services. People are becoming more health conscious and companies will find techniques to design for the individual, based on age, weight, diet, family history, lifestyle and behaviors.

Comparing the strategy of Threadless with a company offering mass customized t-shirts reveals the difference between both business models: Take Spreadshirt, the market leader in custom t-shirts. Here, users can design their individual t-shirt that is produced just for them with a digital printing machine. At Threadless the production of t-shirts is going on in the classical way of good old mass production. But Threadless is following the bright idea of turning market research expenditures into quick sales. This method, which is called Collective Customer Commitment, exploits the commitment of users to screen, evaluate and score new designs as a powerful mechanism to reduce flops of new products. The method breaks with the known practices of new product development. It utilizes the capabilities of customers and users for the innovation process." (http://www.we-magazine.net/volume-01/mass-customization-and-beyond/)