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Don't Be Seduced by the Wrong Investors

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Quirky founder Ben Kaufman describes why the biggest money mistake involves accepting funds from the wrong people. You should instead make sure that your interests and investors' are aligned.

Founded in 2009, Quirky is an online consumer products company with a social development twist: products for the people, created and designed by the people. The company's online community is at the heart of Kaufman's effort to democratize invention. Each week hundreds of inventor hopefuls, or "ideators," submit their concepts online. To simplify the development process, product ideas must retail for less than $150 and should not require integrated software.

The community, composed mainly of hobby inventors, students, retirees and product-design enthusiasts, votes on the submissions. The two most popular ideas are sent to an in-house team of engineers and designers to research, render and prototype. The best suggestions are incorporated, earning secondary "influencers" a portion of future sales revenue. Finally, if enough units of a product are pre-sold, Quirky will manufacture it.

And while direct competitors have cropped up, Quirky remains one of the first companies that rewards participants' input with cash payments. Thirty cents of every revenue dollar goes back to influencers, and a number of them have already earned tens of thousands of dollars. Kaufman puts the upfront costs of building a company around a single product at about $200,000--just to get the paperwork done and the first prototype out.

Quirky also retains the rights to all the cool ideas that are voted into the development process, and because the company gets validation from thousands of potential customers before making a move, Kaufman avoids all the costs associated with early design phases. Quirky, he says, never has to pony up money for manufacturing unless measurable demand (in the form of pre-orders) is there. And there's no missing out on any opportunities, since customers tell you exactly what they want to buy.
 

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