Case #3 – Threadless: The Business of Community

A question that I get asked a lot in classes around open innovation is how to make money from being open. For example, no one would disagree that a large user community is a nice-to-have, but how can you best turn it into a profitable source of innovation? The multimedia case Threadless: The Business of Community (Product Number 608707) by Karim Lakhani and Zahra Kanji captures this aspect of open innovation beautifully, and also makes clear how it can be approached. Specifically, the case describes T-shirt manufacturer Threadless (once named America’s most innovative company by Inc. magazine) and delves into the business model they have designed around their community.

Threadless has implemented a business model based on empowerment of users and customers (see Martin Schreier’s research on this topic!): not only can people in Threadless’s community make suggestions about new T-shirt designs, they can also vote which ones the company should manufacture! To be able to do so, Threadless has taken considerable effort to facilitate the evolution and well-being of its community, and to design a successful business model on top.

The case itself is interactive – it features a series of video interviews with Threadless’s somewhat unconventional management team, designers that are part of the community, and customers. This information is crucial to answer questions like “Why would people contribute?” and “How can they make money of this?” which are necessary to understand the core issue articulated in the case, which is whether or not to accept the offer by a major retail chain which wants to feature Threadless T-shirts in their stores. Interestingly, videos exist supporting both the build-up to the decision as well as its aftermath. Both types are extremely stimulating for a class discussion to scrutinize the general validity of open business models and their specific implementation by Threadless,

Since the case is very new, I’ve found that many students are familiar with, or at least greatly interested in, the topic. In addition, the availability of interactive elements allows using this case with audiences that are less familiar with the case method. Even better, I have seen this case being taught to an MBA audience where a large share of the class had not read the case, and where the instructor got students up to speed by showing a selection of the videos and key data, and initializing class discussion afterwards. Thus, it will be easily possible to integrate case into a larger course or a single class, neither of which need to be case-based. Furthermore, while the way in which the material needs to be organized and approached of course needs to vary, this is one of few cases in my portfolio which I would not hesitate to use for any target audience from 4^th-year-undergraduates to executives (but be prepared to address the “this may work for T-shirts, but how does it apply to my industry” type of question). Also, there are varying angles you can take on it, ranging from a “organization” focus on community management and business model design (which elements are in place, what do they do, and how do they work together), to a “strategy” notion, focusing on the decision of whether or not to take the offer by the retailer, and why or why not.

Admittedly, the Threadless case falls into the core area of my research and I know the company well, so I have no problem in tailoring this case toward my specific needs. However, the accompanying teaching note (HBS Case 5-608-169) is a great help if you are new to the phenomenon, the theory behind it, or both, and also contains information on the issue of generalizability mentioned above. Slight problems may be caused by the multimedia nature of the case, which requires some coordination on distribution (i.e., students might need to receive a CD in advance if you want them to prepare the case using all available materials). Nevertheless, I would consider Threadless to be my “standard” case for community-based open business models.

Reference

Karim R. Lakhani, Zahra Kanji “Threadless: The Business of Community” Multimedia Case 608707, Harvard Business School Publishing, June 30, 2008. http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?R=608707-MMC-ENG, last accessed May 31, 2011.