Although mass customization has proved to offer great opportunities to companies of all sizes, there also have been quite some failures. We will try to look into some of the companies that did not make it in a new series of posts.
And there are many of these failures! When conducting the research for the MC500 study, we learned that over the period of just one year, 17% of our original sample population went out of business. Analyzing the failure reasons showed that these startups on the one hand face "common" challenges of startups like not progressing out of the bootstrapping phase into a scalable business due to undercapitalization, wrong investment policy, overconfidence, and an insufficient business model as well as problems within the team, such as the loss of key employees.
But on the other, there are two more specific reasons for failures of MC companies, according to our research:
First, difficulties encountered by the studied MC companies may be ascertained to possible inadequacies of their toolkits. Many of the toolkits that we studied do not follow the design principles suggested as success factors by previous research: Only 55% instantly visualize consumer input, less than 20% of vendors make use of peer input in the design process, 61% do not provide information on progress of purchasing process. Only 22% allow customers to share their creations with others, just to mention a few shortcomings. The reality of toolkits clearly falls behind the academic research on design parameters of successful toolkits, suggesting a large shortcoming in transferring research into practice.
Secondly, problems in making mass customization work may also lay elsewhere. In an exploratory survey of 68 entrepreneurs and consultants active in the MC business (conducted in Oct. 2009), for instance, we discovered that detecting customer idiosyncratic needs and creating flexible fulfillment processes are considered as more serious concerns (average score=4.0/5 and 3.9/5) than creating toolkits that support the sales process (average score=3.5/5). This research, the preliminary results of the Customization500 study, and many interactions with managers during case-study based research show that profiting from mass customization is not an easy task!
Two current examples have been the market for custom tailored men's shirts. The German MC blog egoo.de recently reported on two consecutive insolvencies of companies believed to be promising ventures.
First company to be hit by bankruptcy was German start-up YouTailor, one of the leading entrepreneurs in the field of online custom tailors. Despite a number of potent backers like Holtzbrinck Ventures, Tengelmann Ventures and myphotobook, YouTailor CEO Michael Urban had to file insolvency mid-June caused by financial irregularities, as eggo.de reports.
Just two weeks later, another mass-custom shirt company, SHIRTS ONTHEFLY, had to strike colors or, as egoo.de quotes the company's announcement, to declare "the mission to make high-quality bespoke shirts available for everybody" a failure. Very sad indeed, seeing how they had announced to team up with Berlin-based venture Upcload, enabling customers to measure themselves via webcam capture technology.
May there be a trend indicating that custom tailored shirts are not very high in demand? Or may it be more likely that these two did not do one of the most important things when establishing a new MC company: Seek qualified expert advise and connect with other founders and MC entrepreneurs to share experiences.
Egooo.de is speculating that the heavy use of Groupon may have facilitated the bankruptcy of YouTailor. No other company in the mass customization domain has used Groupon so often, sometimes with discounts of 50% (which makes no sense at all for me if I consider the economics of mass customization manufacturing — there you wanted stable sales, no sudden peaks!)