In February of this year, the staff of the New York startup Quirky gathered at the company’s headquarters on the West Side of Manhattan. Hundreds of community members also tuned in to a live stream of the event. Normally, these Town Hall meetings were a celebration of the company’s growth, a chance to highlight exciting new products and discuss upcoming partnerships. But this evening would be different. This was a reckoning.

Quirky’s tagline is "making invention accessible." It lets anyone submit an idea, vote on which products should be built, and contribute suggestions for how to tweak the final product. It then handles a lot of the design, manufacturing, and retail distribution, as well as some online sales. The mission of helping small-time inventors succeed has always resonated well with the press. "It’s easy to think things are going well," said founder and CEO Ben Kaufman. He flashed a slide of some glowing coverage on the screen behind him, followed by slides of the growth in the number of products it was creating and the revenue it was generating. "But this isn’t the full story," he concluded, before turning to the bad news. Great ideas? Yes. Profitable? No While Quirky’s overall revenue was growing, its losses were mounting as well. And that’s because the business model at Quirky was, for many of its more ambitious products, fundamentally broken. Kaufman highlighted a number of stranger inventions that the company had created: a set of wheels to turn any object into a remote control car and a bathroom mirror that eliminates the fog from shower steam. The company had spent over $800,000 developing the products, but neither one ever made it to store shelves. These were not anomalies. Kaufman pointed to the Beat Booster, a wireless speaker and universal charging station that Quirky spent $388,000 to develop. At the time it had sold fewer than 30 units. And even when products did sell well, the margins were so bad the company often lost money. Quirky had paid out more than $9 million to the inventors who submitted ideas for new products, but it had lost more than $150 million in the process. "Are these great ideas?" Kaufman asked. "Yes. Can Quirky do them justice, sell them, and scale them profitably? No."

A video profile The Verge made about Quirky back in September of 2012. The inspiration for Quirky came from Kaufman’s personal experience. In 2005 he decided he would make accessories for the iPod, dropped out of college, and got his parents to refinance their home. He used the cash to travel to China. It was an impulsive, rash, and brilliant bet: Kaufman founded Mophie, which boomed along with the popularity of the iPod and iPhone, making best-selling cases, battery packs, and arm bands. By the age of 20, Kaufman was a star entrepreneur, the top pick on Inc’s 30 under 30 list. In 2007 he sold Mophie, and two years later he founded Quirky with the stated goal of helping lots of people enjoy the same success he had creating new products. "Like walking into Willy Wonka's factory." For a while, things seemed to be going very well. One employee The Verge spoke with recalls entering Quirky's offices for the first time: "It’s a magical place, kind of like walking into Willy Wonka’s factory. Everyone seems to be living the startup dream." The company began by building simple products and had a hit with For a while, things seemed to be going very well. One employeespoke with recalls entering Quirky's offices for the first time: "It’s a magical place, kind of like walking into Willy Wonka’s factory. Everyone seems to be living the startup dream." The company began by building simple products and had a hit with Pivot Power , a flexible outlet that earned over $1.5 million for its inventor and the community members who contributed. Over the next five years, the company raised $175 million from blue chip investors like RRE, Andreessen Horowitz, and Kleiner Perkins. In 2014 it opened a new customer support center in Schenectady, New York, and a micro-factory in San Francisco. It announced a partnership with GE and spun out an entirely new company, Wink, to focus on creating connected devices for the smart home. As time went on, Quirky moved into making more ambitious electronic hardware. The company’s premier product in 2014 was the Aros, an air conditioner it built with GE that customers control through the Wink app. Quirky partnered with Uber and bought a small fleet of ice cream trucks to deliver them to customers with a flourish. Kaufman, billing himself as the world’s least important CEO (a title he still uses on LinkedIn) began appearing on billboards and nationally televised commercials. From the outside, Quirky looked successful At that point Quirky was launching three new products each week. Its merchandise sold everywhere from from Target, to Walgreens, to the Museum of Modern Art. The company seemed poised to become the next great consumer brand across categories as diverse as electronics, pet toys, and cookware. But while Quirky appeared more successful than ever, in reality the company’s finances were rapidly deteriorating.

Quirky had always operated on the thesis that by crowdsourcing its inventions, it was gaining great signals about what the market wanted. But the truth was that many of the products it was creating simply could not be made at profitable margins, especially since the company was giving 10 to 30 percent of each sale back to the community. It also lacked the scale and experience in any one category to negotiate good deals with suppliers or retailers. Kaufman pushed through projects others warned against Many of the more experienced product people Kaufman hired tried to point this out, but he didn’t heed their advice. Take the Egg Minder, a smart tray connected to an app that would alert you when you were about to run out of eggs or when some were close to going bad. It was a fun idea — the device was even featured on The Tonight Show — but from the beginning it made little economic sense. Many of the more experienced product people Kaufman hired tried to point this out, but he didn’t heed their advice. Take the Egg Minder, a smart tray connected to an app that would alert you when you were about to run out of eggs or when some were close to going bad. It was a fun idea — the device was even featured onbut from the beginning it made little economic sense. A former staffer we spoke with recalled the process of "pre-val," where the staff went over submissions before starting to design and engineer them. "It came up on the board and everyone had a few laughs about it, but the serious consensus in the room was that this was not a viable product. At the price point it would cost to make, we can’t make enough money or sell enough volume," they said. "A lot of good business and technical rational went into that. Ben comes in and says, ‘We’re doing this.’ So we did, and it did not work out well for the company." In many ways Kaufman was still that crazy kid, going with his gut. Even when products did make sense, Kaufman was often overly aggressive about how many they could sell, say former employees. After returns, the company ended up with a glut of unsold inventory it was later forced to liquidate at pennies on the dollar. "We need to test the product before we ship it!" To make matters worse, many of the products did not live up to the elegant design, spiffy packaging, and glossy commercials that were used to sell them. Take a look through the reviews on Amazon for Aros and you will find many withering one-star rants about its many problems. The Verge's Chris Ziegler had a similar experience with his first Aros (and the second one that replaced the unit he sent back.) It was extremely loud, often didn’t connect to the Wi-Fi remote, and was shipped with very bright front panel lights never turned off, making it tough to sleep in the same room. To make matters worse, many of the products did not live up to the elegant design, spiffy packaging, and glossy commercials that were used to sell them. Take a look through the reviews on Amazon for Aros and you will find many withering one-star rants about its many problems.s Chris Ziegler had a similar experience with his first Aros (and the second one that replaced the unit he sent back.) It was extremely loud, often didn’t connect to the Wi-Fi remote, and was shipped with very bright front panel lights never turned off, making it tough to sleep in the same room. "We needed to test the product before we ship it!" said one former employee, speaking not about Aros specifically, but the design and engineering process at Quirky in general. Kaufman often wanted to skip that phase in order to move faster. "He doesn’t want to listen to those realities. He wanted to run the company based on the fantasy he thinks it should run on." Quirky had just above $50 million in the bank in February of 2014 and was burning through an average of $5.8 million a month. The company wanted to raise new funding, but wasn’t getting traction with investors. Finally, in September of 2014, it brought in a new CFO, Ed Kremer, who had been working as the VP of finance at Beats. Kremer knew the company had to make drastic changes, and fast, or it would be out of cash. So starting in October, the company instituted a series of deep cutbacks. A series of deep cutbacks Between October of 2014 and this February's Town Hall when Kaufman publicly disclosed Quirky’s woes, the company let go more than a third of its staff. It ceased production on the majority of products it had in development, even those into which it had sunk hundreds of thousands of dollars. And, according to employees, it stopped paying its bills for a number of services.