12Society's sale proves that "slap a celeb on it" doesn't work

By Erin Griffith , written on July 5, 2013

From The News Desk

The idea of the celebrity endorsement has been around for ages, but the fast success of ShoeDazzle -- endorsed by Kim Kardashian -- catapulted celebrity endorsements into the startup world. For a myriad of reasons, subscription commerce sites have been the fastest to adopt celebrities. Beachmint, FabKids, TeeOlogy, The Honest Company, and more recently JustFab have all attached big names to their brands as a way to get press and (hopefully) subscribers.

Slapping a celebrity on a brand works well for creating early attention from that celebrity's fans and the mainstream media, but it won't make up for a lack of product-market fit. If you're selling stuff that no one wants or needs, no amount of celerity hawking will convert that attention into customers.

That's what happened with 12Society, an LA subscription commerce startup which took celebrity endorsements to the extreme. Not content with one celebrity endorsement, the company had six celebrity "co-founders." Each month, Nas, Nick Cannon, Michael Strahan, Blake Griffin, Kevin Love and Tim Lincecum contributed something to a monthly box that cost $39.

After launch last summer, 12Society accumulated 5000 subscribers, bringing in around $200,000 in revenue. But the margins were terrible. 12Society's whole business proposition was that it's curators' star-power could help them wrangle free stuff for the boxes. It was a stretch.

Birchbox has a hard enough time getting beauty brands to cough up enough samples to send to its growing subscriber base (300,000 at last count). The company is using personalization to cut down on the volume, sending up to 30 different versions of the box each month and even paying brands for some of the pricier samples. And that's just samples. Imagine asking Incase Audio to give you 5000 of its $60 Reflex headphones for free, because Nick Cannon asked.

12Society co-founder Sameer Mehta said the company only ended up scoring around 40 percent of its goods for free. It was losing money and had only raised $400,000 in seed funding from TV sportscaster Don Hutchison, Beachmint founder Diego Berdakin, and early stage VC firm Lightbank.

Making matters worse, subscriptions hadn't exactly grown. The company's 5000 subscribers had actually shrunk to 4650. The only option would be to pivot into a new business model and raise more capital around it, or sell. (For his part, Mehta left in March for apparel company FiveFour.)

So today 12Society announced it has sold to Quarterly, another celebrity-focused "stuff in a box" company. The deal was characterized as a sign of consolidation for subscription commerce companies, but that is incorrect. It's a soft landing for a business that wasn't working. It was a 90 percent stock deal. Mehta wouldn't comment on valuation, but I would be surprised if it were over six figures.

Quarterly itself has recently pulled off a turnaround. The company, backed by $1.25 million in VC funding, quietly hired Netflix co-founder Mitch Lowe last September to fix its issues with logistics and fulfillment.

The thing that made Quarterly a better candidate for survival than 12Society was also the source of its biggest issue. Rather than sell boxes of stuff curated by six celebrities, like 12Society, Quarterly sells boxes curated by an ever-growing community of celebrity curators, making its offerings infinitely scalable. Quarterly's definition of celebrity is also not limited to elite A-listers. It sells boxes to fans of people who are "niche-famous," often with big, concentrated followings outside of the mainstream. For example, Jeffrey Zeldman, the "King of Web Standards," and Reddit co-founder Alexis Ohanian both curate boxes for Quarterly. They're probably a bit obscure for the average shopper. Ohanian is also an investor in Quarterly through his Initialized Capital fund.

But that model turned out to be a logistical nightmare, leading to early complaints about operations and fulfillment. Quarterly says Lowe has helped to work those issues out. He also encouraged his celebrity curators to focus on long-term themes and hired a content person to help curators include more ambitious items. The point is to make the boxes less a boxful of random crap and more like an editorial experience.

With the 12Society deal, Quarterly adds six more celebrities to its stable of 36 curators. The company also gets 12Society's 4650 subscribers and its email list. Quarterly itself only has 8000 subscribers.

The soft landing for 12Society is not exactly a ringing endorsement of the celebrity subscription commerce business model. Other companies have pivoted away from it.  OpenSky, for example, started as a place for celebrities like Bobby Flay to curate stores of items and hawk their own goods. Even with three million members, the company decided to scrap that model within a year. Now OpenSky is pointing its community of three million members to independant designers and makers who want to manage their own stores.

Pair that with the more general challenges of subscription commerce. We argued a year ago that the subscription commerce model itself was a smokescreen and a fad. Certain players, like beauty products sample subscription sites Birchbox and MyGlam, have a greater chance of surviving because they operate more as creators of demand and brand awareness that goes beyond the basic "stuff in a box" model. Others serve a real utility, like Petflow delivering dog food, Craft Coffee delivering coffee, or Blue Apron and Plated delivering meals.

But the services that are simply aiming to delight customers with a surprising grab bag of fun gifts face a much bigger challenge. It will be an uphill battle, but Quarterly, with its flexibility on pricing, its less-frequent quarterly delivery schedule and growing stable of subscription boxes -- and with the deal for 12Society, double the subscribers -- may have the best chance of making it work.