threadless harvard business case study

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Threadless: The Renewal of an Online Community

• Format: Print
• | Language: English
• | Pages: 12

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My Harvard Business School Case Study Interview about Threadless

• by fouchnickens
• posted Jul 06, 2007 in General
• 19 Comments

I was interviewed on Friday, July 6, by the Harvard Business School about my experience and opinions on the Threadless business model and internet experience. It was really fun throwing my two cents into the pool of voices that hopefully will inspire other business entrepreneurs and managers to truly trust the voices of the customers -- not a consultant that tells them what the faceless masses want.

Some of the questions I was asked included:

How did I learn about Threadless and what prompted me to join?

What keeps me coming back to participate at Threadless?

Would a distribution partnership with a chain store retailer change the nature of Threadless experience or my opinion of Threadless? (theoretical question, guys...)

What differentiates my experience at Threadless from other internet chat groups/forums that I participate in?

Zahra and Brian ("the HBS film crew") also tailored questions around my personal experiences, which was really cool (having worked in a lot of nonprofit programs, they were interested in my opinion on political design at Threadless, for example).

The whole interview experience was designed in such a way that made it very hard for me to look like a complete and utter babbling idiot (which is my normal state) -- so if you are in the metropolitan Boston area and have some time, send an e-mail to the team at [email protected] .

PS: The HBS crew do need to return to Chicago for one more interview with the Threadless folks, so people from Chicago might want to mention an interest in participating in the case study as well -- it never hurts to ask!

Lucretia Mott

fouchnickens

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• Assignment: Leveraging the Collective Intelligence…

Threadless: The Continuing Success of one of the older Crowdsourcing companies

Freakanaut design (sold out)

One of the most well-established crowdsourcing design companies is Threadless (est. 2000), a design company that does not create designs but instead sources them from its users and sells them. The users create designs to put on various products, vote on them, and buy the winning designs. In return, Threadless creates the items that carry the designs, markets them, and sells them with a portion of the money going to the designers. This company has been around for around a decade and has expanded from just selling t-shirts to iPhone covers, wall art, and bags. Now that the company has been around for a while, one should look at how innovative they really were and are.

Painting the Universe Pillow (also available for various phones, tote bags, and wall art)

Pathways to a Just Digital Future

Threadless was one of the first Internet-based, custom-clothing companies, and it mainly competes with companies that either enable user creation or pick designs by competition. For instance, CafePress (est. 1999, one of the first) allows users to put designs on garments and either purchase them or sell them through CafePress’s online store, with Cafepress getting a share of the profits. These companies differentiate themselves in different ways. Some claim they are easier to use for people who do not know believe they can do art or design (ex: CustomInk), the range of products that can carry the design (Underground Printing), allowing one to sell a custom shirt that will only be produced if it sells enough shirts (Teespring), and setting the amount of commission you make on each shirt you designed (Skreened). A few weeks ago Amazon released its “Merch” service which, similar to its Kindle service, allows independent designers to upload designs and such to Amazon and Amazon will sell and print shirts on demand in return for a cut of the profits ( http://smallbiztrends.com/2015/10/merch-by-amazon.html ).

The Gift of Knowledge phone case

By contrast, Threadless’s core is its engagement with its users. The users are encouraged to blog about their lives (and promote the website) and create media content based on their designs. Threadless uses its users’ ratings to find good designs (ignoring those it finds offensive or that infringe on copyright), which allows the company to save money in design and marketing ( http://support.threadless.com/ics/support/TSList.asp?folderID=15&task=knowledge ). This system allows designers to show they can make popular designs, make money off of the designs (in return for giving Threadless a cut), and keep making more t-shirts. Other users see that the system consistently makes shirts they want to see, so they keep buying shirts. From that point on successful designers get rewarded with money, are pushed to make more designs, and the cycle continues. By this point Threadless is considered grounded enough that it hosts contests with the blessing of companies such as Disney ( http://www.wired.com/2013/05/threadless-disney-t-shirts/ ).  As a result of all this, Threadless sells millions of shits per year ( http://www.ducttapemarketing.com/blog/how-threadless-nailed-the-crowdsource-model/ ) and remains the one of the most recognizable of the custom shirt and shirt competition websites.

One of the winning “Iron Man” shirts (no longer in stock)

This company has done quite well in its fifteen year existence, but how much longer can it continue on its current model? On the one hand its reputation is strong enough that it can coordinate contests that allow its users to work with copyrighted designs (the Iron Man one above came from a contest). It has over 3 million users, 128,308 of whom have submitted designs, and 1,821 of whom have become “alumni” with shirts that Threadless sold through its website ( https://www.threadless.com/search/users/ ). This large base of people is committed to using this website to hone their craft and build their reputations. This creates a feedback loop where people can make designs, build up a reputation, and use it to either get a job and/or sell more designs.

How can Threadless hold on to its main designers?

Threadless has one potential problem: how does  it keep its  successful designers? By this point companies such as Design by Humans (Est. 2007) adopted similar business models, although this simply means that successful Threadless alumni can multi-home. Companies which have similar models without the competition portion such as Teespring in particular transformed some of its designers into millionaires after they set a price and percentage of profits from the sale ( http://fortune.com/2015/09/28/t-shirt-teespring-funding/ ). If Amazon puts some heft into their new Merch service, they may be able to overwhelm Threadless and company in the same way that IBM successfully overwhelmed the Apple Computer in the 1980s ( http://www.businessinsider.com/how-apple-really-lost-its-lead-in-the-80s-2012-12 ) and Apple Music is threatening to do to Spotify. Furthermore, now that some of the users have created names for themselves, there is less of an incentive to work with Threadless when they can sell through vendors that do not force you to compete or has better terms or simply set up their own companies to sell their designs. While this may not be a big problem now- Threadless does not release its revenue numbers- it may become one later on.

An Important Part of the Future?

To encourage people to continue working through the Threadless system, the company is allowing its users to have some room to sell on their own. It is allowing designers to set up their own stores on the Threadless platform through “Artist Shops.” This risks breaking up the brand, since the “point” of Threadless is that the designs are coveted by their users and are considered ready for greatness by the website. There appears to be no qualification requirement for these stores, which may mean anyone can create a shop where they can sell shirts ( http://support.threadless.com/link/portal/15110/15140/Article/1774/When-can-I-start-my-Artist-Shop ). This may help grab people who think they know they can sell garments and such regardless- or are already successful- but it will have to manage these specialty stores well to ensure they do not become overwhelmed with lower quality goods ( http://chicagoinno.streetwise.co/2015/06/09/threadless-launches-artist-shops-for-diy-e-commerce/ ). If the stores do not succeed, Threadless may have to get rid of it and find another way to hold on to its alumni, which is fine as long as its business model remains. Its branding is strong, its model is proven and respected, and it should continue for some time to come.

Student comments on Threadless: The Continuing Success of one of the older Crowdsourcing companies

Thanks for your post! Threadless is definitely an interesting example, and I think that holding on to successful designers who may be able to make better money more easily on their own is definitely an issue. That said, I imagine that even if Threadless serves more as a launching pad for new designers and less as a long-term home for already-successful designers, it may still have a steady flow of attractive and interesting designs. However, I’d be curious to see how this develops as the site grows. I think you’re right to point out that Threadless may face brand risk as it makes some changes to help build growth. Besides the designers’ own stores, Threadless has had pop-up stores in larger brick-and-mortar stores, for example. These actions – along with the inevitable decrease in exclusivity that accompanies growth – may threaten Threadless’s brand image as a unique, creative, exclusive, “by the people” kind of place. I’m curious to see how they will either preserve or evolve their brand to accompany growth.

Yeah, Threadless at least acts as a good testing ground for one’s skills. In that way it is quite similar to TopCoder, whether the boss likes it or not: after you win a few contests you can use your skills to get hired by an employer who wants your particular set of skills or freelance on your own. I am not sure Threadless just wants to be a design student’s college career however.

As we both can see Threadless needs to find a way to expand. Threadless has done some things in the past, such as creating a permanent store ( http://www.yelp.com/biz/threadless-chicago ) but closed it down for a number of reasons. It is also undergoing some difficulties; last year it cut 27% of its staff and closed the brick and mortar store ( http://chicagoist.com/2014/01/14/threadless_announces_layoffs_store.php , http://www.chicagobusiness.com/article/20140112/BLOGS11/140119968/threadless-lays-off-27-of-staff-shifts-strategy ). It says it is still focusing on retail; I think the Artist Shops is part of that. I remember some people suggesting it could have made a deal with a big retailer with Macy’s instead; that may have been preferable to the store. Let’s see what Threadless does next…

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Threadless: The Business of Community Harvard Case Solution & Analysis

Home >> Business Case Studies >> Threadless: The Business of Community

Business Model

The business model of the company is community driven, which works best for the company. Threadless is using a different business model as compared to the traditional retailers in the T-shirt designing market. Despite being different from the traditional business models, the community driven business model of Threadless is not just unique, but also inspiring. This business model has some key aspects that are quite impressive and attractive, which can be viewed as the source of attraction in the coming eras.

There are no in-house designers such as the competitors and designing is done through crowdsourcing, which is very cost effective. The only cost that is endured by the company is the manufacturing of the product. Competition provides an opportunity to the owners of the company to initiate this entrepreneurial venture by leveraging the community for design. The designs are done by the community and processed by Threadless, which works effectively for the company so far.

Although the question is there about the future of the company however, through this business model the company has witnessed significant growth since its inception. As it operates as an e-commerce channel, the company does not have a physical retail outlet, which is a major point of parity for the industry that is missing.

However, there are certain drawbacks, which are in the business model of the company, but it also offers multiple benefits that have allowed the company to witness tremendous growth in all these years.Therefore the discussion needs to comprise the costs and benefits associated with the business model.

Advantages and Disadvantages

As stated above, there are certain advantages and disadvantages, which are associated with the business model of Threadless that are important to address in order to gain strong rationale about the business model. The business model is vastly dependent on crowd sourcing that offers multiple benefits, but is also a threat and a disadvantage as well. This is the reason why this point is somewhat the main strength of the business model as well as a major weakness.

However, by analyzing the advantages of the business model, it is presumed or assessed that benefit, which the company is gaining by perusing such a unique business model is the cost benefit. The normal retailers have in-house designers that are assigned with the task to developed the designs and are employed, which increases the fixed cost as the in-house designers are ought to be paid.

On the contrary, Threadless is leveraging the community for the designs and is crowd sourcing the designs,which is the reason the need of in-house designers is eliminated, which also eliminates the unnecessary cost associated with the business. This allows the company to price the products appropriately by keeping a competitive price and also allowing the company and the owners a handsome margin per unit.

However, this is a point of parity in the industry that should be catered, but the uniqueness of the business model is not allowing the company to do so. Therefore, the company gains benefit despite missing a major point of parity and till date, this approach is working effectively for the company.

However, the company also has some major benefits that are also occurring through the business model of the company. The company is focusing on outsourcing and does not rely on manufacturing, printing, screening etc. All these activities are outsourced and the company only buys plain T-shirts in bulk, which are sent to different printers and are received at the warehouse. This approach is cost effective for the company and is highly differentiated from what being followed by traditional retailers and manufacturers.

Aside from the above stated cost benefit, the company is also gaining such benefit by operating online and following e-retailing. The company does not have any physical presence in the form of an outlet or a retail outlet. This allows the company to pay no wages to the sales associates and do not have to worry for the sold and unsold merchandise. Thus, the company saves a huge amount of cost in this regard and avoids the mess of handling operations on daily basis and adding additional cost between the customer and the company. Threadless The Business of Community Case Solution

Although all the above stated benefits are the point of parties in the business however, the company is neither the sole manufacturer nor the designer but is serving as the distributor. The risks associated with the business are minimized by the company by following such approach, which is the reason why the company is quite successful as far as the growth and financial stability are concerned..................

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