Membership Lessons From a Shutdown: Why TechShop’s Machines Sputtered
TechShop, a for-profit chain of makerspaces that worked on a membership model, closed its doors suddenly this week. The company highlighted the clear value of membership organizations, but its challenges (for one, high overhead) offer important takeaways for associations.
In many ways, the maker-oriented firm TechShop represented a particular ideal: A for-profit business organized around the perks of traditional membership. Rather than aiming broad like most retail outlets, it targeted a narrow group of people with common interests who found its idea valuable.
But that wasn’t enough to sustain the company (nor was interest from big names like Barack Obama, who as president visited a Pittsburgh TechShop location in 2014). This week, the company was forced into Chapter 7 bankruptcy liquidation, forgoing Chapter 11 reorganization.
“In spite of many months of effort to restructure the company’s debt and raise new capital to fund our recently announced strategic pivot, we have depleted our funds. We are left with no other options,” company CEO Dan Woods said in a letter on the company’s website [PDF]. One location in Brooklyn had opened only last month.
What went wrong? And before that, what went right? The TechShop story has elements of both, and they offer lessons for associations:
People value in organizations what they can’t do for themselves. This goes under “what went right” for TechShop—at least initially. The company understood that its appeal was not unlike that of a gym, in that it helped people do more than they could do elsewhere. Technically, you can build things at home, but a membership to TechShop gave makers access to expensive industrial equipment they could use to build any crazy idea. As the company said in its goodbye note: “TechShop provided access to over $1.4 million of high-quality tools and machinery to its users for a membership fee of less than $4 per day.”
High overhead catches up with you. But all that expensive equipment, along with the trained people needed to run it properly and the electricity necessary to keep it running, meant that the shops had high overhead costs. And while the company had gained more than 9,000 active members in the U.S., it was difficult to keep the costs down, and near the end, it was delaying payment to its vendors, according to Woods, who described the situation as untenable.
A strategic shift requires a full commitment. Earlier this year, in an attempt to save the company, TechShop announced a new business model in which it would help other organizations run their own makerspaces. The concept showed potential, but the company failed to fully commit to the shift, according to Atherton Research Principal Analyst Jean Baptiste Su, who suggested in a Forbes article that “the TechShop management failed to act sooner to close or transfer unprofitable studios and actively seek enough partnerships with local ecosystems (universities, companies, cities…) to offset its operating costs.”
Offering an alternative can keep members engaged. Last summer, members of TechShop’s Pittsburgh location, which had announced its closure, collaborated on creating a nonprofit community alternative to support those who relied on the service. That offering, Protohaven, is expected to open in the coming months. TechShop supported the transition, keeping the Pittsburgh location open until the nonprofit space was ready. Protohaven’s founders are said to be “accelerating” their plans.
While TechShop’s U.S. locations have closed, four international locations—in Tokyo, Abu Dhabi, Paris, and Lille, France—were licensed separately and remain open.