I was employee #30 something at Fab and had a decently unique vantage point for a while. I would say the problem was one of ambition. We had a working $100M company, however Jason and all of the investors decided that that was not enough and that we needed to be a $10 Billion company. I actually don't see that much wrong with this, it's just a bet they all bought into and they all were smart enough to understand the risks. The bet failed. Simple as that.
You just summed up a big part of silicon valley. Everyone thinks it's written in the stars that they are the next billion dollar company; anything else is given the derogatory "lifestyle business".
It's just a silly game that people way above us are playing. When I left a failing startup (that could have had seen some success had it been less ambitious and raised less debt), the CTO told me: "the VCs have more money than we have time".
I also worked for a company that got very serious acquisition interest in mid 8 figures, but the founders wanted a 9 figure company (and 1-2 weren't the first digits they had in mind either.) We swung for the bleachers, and went out of business.
I got the impression that most of VC simply look for multifold returns and they shun companies which can be successful in a limited way with moderate returns.
Years ago I pitched a VC with a working prototype and biz plan - actually was looking more for angel-level money (perhaps) - somewhere between $300-$500k, and I was projecting revenue (which would be mostly profits) of $5m/year within 4 years (aggressive growth by my estimation, but doable). No dice - they wanted to see numbers north of $20m/year for sizable exit before they'd be willing to put in.. $500k. Those numbers always struck me as insane, but have stuck with me (this was... 15 years ago perhaps now).
It's understandable why this would irritate you but worth remembering that the VC economics don't work out for reasonable-sized successes. The wins have to pay for the losses, and the win rate is something like 2 in 10.
My sister was one of the super early employees as well, I think under 30. She's given me a very similar picture. Seemed like a lot of young people were hired who way over purchase on terrible merchandise that just didn't sell. Jason also seemed to be a terrible CEO and run the company into the ground.
I really don't consider Jason a bad CEO. He was incentivized heavily to go big along with everyone else. He made a plan to get there, a plan I actually think was the best route to try and get to $10B. It just didn't work, doesn't mean it still wasn't the best plan.
I just feel for employees that were paid in part with equity. I'll bet a lot of them would have been very happy with a $100m valuation, but they wouldn't have had any say.
The lesson here to any even mildly talented developer is: unless you believe in the company/CEO 1000%, don't rely on equity. Take the cash, and walk away when it all burns to the ground.
Something about Fab's story always makes me feel sad. They did so well, and made a great product, having pivoted out of something they recognised wasn't working, and made a bunch of money. The decisions made don't seem like bad ones. The people seemed good. And a lot of the European companies they bought were doing great stuff too.
Sometimes you lose despite achieving a lot and making what seems like good decisions.
I hope you're all OK and wish you the best of luck.
And getting away from those Flash sales appeared to be a significant part of its downfall (at least according to the article -- that and the Europe expansion).
It's really sad to see a company end up like that... In the end, you should only risk what you are prepared to lose. Those guys maybe risked a bit more than that.
I am the first employee of a startup with less than 10 employees. We are a direct competitor of Fab latest incarnation Hem (One Nordic).
We have been around for more than 2 year now. Our revenues are in multi-million and most importantly we are profitable.
Lucky to be working with founders who believe in reaching profitability first. We are a data driven company from the get go. Which allowed us to make smart decision while been super lean.
Yet Flickr did ok for itself. As did Twittr, and del.icio.us (sp?). I agree that names matter but the scenario you've painted isn't fatal by any means. In the modern connected age, 'word-of-mouth' is just as much about text as it is about talking (ie FB posts, tweets, msgs, etc).
Indeed, Bryght's revenues are in the multi-millions so they're clearly doing something right.
So they had a shop that was known for unique designs, sourced from small manufacturers. Wouldn't they naturally think that was a limited market, which you couldn't turn into another Amazon?
Also, if you're having the producer send stuff to the buyer, why do you need a European acquisition? Just hire some people who speak the languages, maybe open a small London/Berlin office, put in the translations, and maybe find a few local products. Why go out and buy three copycats?
What I really don't get is what was so special about Fab. It's a shop on the internet that sells goods. Aren't there vast numbers of similar businesses? What was the magic about them? Just good taste?
> So they had a shop that was known for unique designs, sourced from small manufacturers. Wouldn't they naturally think that was a limited market, which you couldn't turn into another Amazon?
What I was told by people how things were going in the Berlin office, I seriously wonder whether the Europe business hadn't failed if the employees had actually focused on working instead of just partying.
It even went so far that an HR person bragged about how drunk everybody got the night before, and how hungover she was, in front of a whole room of people expecting to undergo a day-long recruiting process.
In memorial of Fab, let's all take a little time machine back to this HN gem when @betashop (Jason) wrote a blog post [1] defending allegations in Bloomberg [2] that he blasted the entire staff of Fab several times with threats they'd be fired, and then proceeded to continue to defend the practice in person right here [3]
Sometimes I wonder if the key to a successful startup is controlling expenses. I have seen so many companies who spend $750k on a "state of the art ecommerce backend" just to sell a half dozen SKU's. Or they are a tech company with 0 technical staff (outsource everything to contractors). They almost never do well. Instead, the companies that seem to consistently do well tend to be the ones that have tiny budgets, are located in inexpensive places to live with lots of talent, and do things such that their liabilities are tiny.
(keep in mind this is a fairly exhaustive study of thousands of companies over 40+ years, not some link-baity blog)
Rule 2: Revenue before cost—that is, prioritize increasing revenue over reducing costs.
Now, there's a slight difference between "controlling expenses" and "reducing costs". But there's also a difference between "controlling expenses" and "making stupid decisions" and I think some of your examples are in the latter camp (as were Fab's).
If you have product-market fit and you can extract value, your focus should be on growing revenue. A couple $100/mo SaaS subscriptions, a corporate retreat, or buying employee lunches aren't going to make or break you. Unfortunately, as Fab confessed (in the article), they never found product-market fit ("we spent $200M and we have not proven our business model").
Playing with millions of other people's dollars™ makes it easy to forget this I suppose.
I'm not so sure about that. I think they found product-market fit and subsequently decided that they didn't like that market.
As a flash deals site, they were generating substantial revenue. With some operational rigor, this could have been turned into a sustainable and growable business which was worth hundreds of millions of dollars.
Unfortunately, it seems like both the founders and investors weren't satisfied with the market they had found a fit for: they wanted to instead build a product which fit a truly mass market. If they were successful in that, it would have been a billion dollar business, but they weren't.
Lesson learned: once you find product-market fit, be very careful about changing your product to reach a bigger market.
> Wouldn't the better play be to spin off the product-market fit business before doing your pivot... especially if the business was a 100+ million one.
Potentially, but that also undermines your ability to use the existing business/user base to seed growth for the new one.
To some extent, but on the other hand... you can integrate logins across a larger brand so you there's no sign-up requirements for your new product, and you can market to your existing customer base in numerous ways as long as you don't overdo it. You just can't change the existing product into something else under their feet.
I can see that. Why limit your revenue by a potential $1m/year because you don't want to spend the extra $50,000/year (for example).
At the same time when you start out saying "I need to pour millions into this idea to make a single dollar back", I start questioning whether it's a viable idea in the first place. Granted, some ideas/problems do require expensive solutions: converting from our current transportation system to driverless cars cannot be done on the cheap. However, if I was an investor, I'd be picking startups running out of someone's basement on a farm in Iowa, rather than someone that wants to use my money to open a lavish office in NYC.
Then again, I'm not an investor, so I have no idea what I'm talking about :)
> "I need to pour millions into this idea to make a single dollar back", I start questioning whether it's a viable idea in the first place.
In the late 90's, Google had tens of millions of dollars in funding, and took 3 years before it started making revenue, with the launch of Adwords in October of 2000.
Yes, if it takes you $5 to make $1, then something is probably wrong. But, if it takes you $1.10 to make $1 and there's a clear path to efficiencies/economies of scale, then maybe you're on to something.
"But, if it takes you $1.10 to make $1 and there's a clear path to efficiencies/economies of scale, then maybe you're on to something."
I agree with everything you've said, but the latter part of that sentence is easily overlooked when the money is flowing freely: there are a lot of big-name startups right now who sure seem to have business models that are the equivalent of selling dollars for 95 cents. You hear a lot of things that sound like "if only we can solve this NP-complete problem and/or ultra-efficiently operationalize labor-intensive tasks that have been the bane of much larger companies for decades, we'll print money!" If only...
In particular, you can hand-deliver low-margin things (that people clearly want) and goose your revenue like crazy...but can you do it profitably in the long run? I'll bet you a Kozmo messenger bag that you can't.
This is more of a problem in the valley than elsewhere. People so techno-utopian that they sometimes forget to ask basic questions of feasibility, because revenue growth.
That said, I have no idea how you get to hundreds of millions of dollars in funding without someone taking a step back and saying: "hey, wait a second...are there unit economics here?" That's just nuts.
I'm with you, but it really depends on the attitudes, philosophy, and ethics of the leadership.
I'm bootstrapped and ran in the red for an appreciable amount of time, and I will say that I will never do that again. Not more more than three months with my own money, at least.
Obviously some business models are made to work in this capacity. Get funding, spend big, get users/revenue at any cost, and sell.
But not me. I will never go through that amount of stress ever again, and will take no part in any such business that I'm a part of. I also don't think it's ethical to take someone else's money and do it, but hey, if that's the business plan they bought into, then that's their deal - good luck is all I can say.
In the end, I believe that reasonable, non-VC-funded success comes down to one basic thing: make more money than you spend (and if you're bootstrapping / running solo, that includes personal expenses). If that requires you to work 16+ hour days, cut expenses like mad, or do client work to make up for the gap, so be it.
I think you've hit the nail on the head: "it really depends on the attitudes, philosophy, and ethics of the leadership". Having seen what being in the red does to people, I'd prefer to start small, grow slow and steady and win the long game; yet I understand that's not everybody's philosophy or preference and that doesn't fit every type of company or product.
Yeah it seems they had spent millions and were only managing 1000 items at one point. Why that needed a $80M investment in Europe defies logic.
I'm sure I'm misunderstanding, but Fab seems like a curated Etsy plus a lame (compared to Amazon) fulfillment system. If the value of your company is all in front end (marketing/UI) I'm not sure it makes sense to spend so much on the backend.
And, if you're selling a $10 light with $50 of cups on it for almost $2000, you've got plenty of margin to spend on outsourcing... Would Amazon fulfillment have been too expensive/unusable for their use case?
Expanding into Europe was an expensive mistake, definitely. But the Samwer brothers are a dangerous team to play against, so I understand why they wanted to head them off at the pass. They just went about it in the wrong way, at least that's how it seems in hindsight.
Yeah but those guys don't threaten the US business. They might clone Groupon in Europe, but they're not going to expand out of Europe and take over Groupon in the US.
To try to head them off before you've taken enough profit in the US Is a curious combination of hubris and greed. Especially at that cost.
>>> To try to head them off before you've taken enough profit in the US Is a curious combination of hubris and greed. Especially at that cost.
This was my reaction as well.
Instead of working their business model here and continuing to ramp up profits and margins, they took a huge bet to get into Europe. Not sure why they thought this, considering there are a half dozen other countries you could try and get in front of first.
In the end, their panic more than anything killed the business. I would also say greed played a big part. Instead of building a solid, sustainable business over a period of time, they got greedy and over stepped their bounds.
i think their fulfillment issues came from allowing the producers, whom probably didnt ship a lot of product daily, to manage their own shipping. Generally you need to have a good shipping team to streamline packing and shipping to keep it on time and efficient.
Wikipedia, while not a for-profit company, had to operate in a lot of ways from day one like any other startup. They control costs quite well given their immense scale.
Microsoft was fanatical about controlling costs. They were very profitable from early on.
GitHub was founded in 2008, and only took their first major venture capital in 2012. The business funded (or close to funded) itself from very early on.
Craigslist never took venture capital. Funded itself by very low costs of operation, and a minimum revenue approach.
37signals, from what I know, never took any major venture capital and was bootstrapped.
Instagram. I am not a fan of the product, but their story is the poster child for "we can't spend millions on the thing we want to build, so let's build the smallest possible thing that'll work and iterate."
It goes hand-in-hand with the thought on 2+2 that the key to being a long-term successful poker player was not about being the best player, but about having the best bankroll management. Without it, you'd see these guys who would make big scores and then blow it all on games outside their core competency.
I'm not the least bit surprised. I met one of the founders (I can't remember which of the two) at a conference in 2010. We were seated at the same table during lunch, and judging from the reactions of the other people at our table, it was a big deal that we were seated with one of the Fab founders. Everything about Fab was supposedly awesome. The growth. The revenue. I chatted with the founder and my one take-away was: Even after everything he told me, I had absolutely no idea what Fab did or what it was about. Yes, of course it's an ecommerce site, that much is clear, but the founder totally failed to actually explain how Fab was different from any of the other many ecommerce sites that are not considered to be the holiest thing since the Eucharist. I really thought at that moment, this company is doomed.
Micro tl;dr: Build a company with a successful business model, and then pivot away from it, plus get concerned about someone trying to replicate your success in Europe and prematurely enter that market.
Maybe the "Ronco principle" has some truth to it. The two things I remember about the CEO is 1) Getting mad at someone who wont switch seats in a plane 2) Not allow employees to hang their jackets on their seats and joking about firing people
The article implies it was because of delivery time. My marginally informed $0.02:
They wanted to become an ecomm giant. But every sale they ran originally was fairly small-batch. One step up from an etsy store. You can't really scale that up. They decided they wanted to go big, and to do so meant holding inventory and selling more mass-produced things.
coz it took average of 16 days for customers to get the item from 3rd party designers, so they figured if they held the inventory themselves they could cut that down. They did, but in that process lost the originality of the small boutique items, and became a commodity shop.
Seems like a recipe for disaster. Have there been any companies that actually accelerated this fast and made it work?
> The board [...] approved a plan to increase Fab's burn rate to generate $200 million by the end of the year. The plan would drain Fab of its remaining capital by August, but as long as Goldberg was able to raise $300 million more by then, the company would be fine.
> Have there been any companies that actually accelerated this fast and made it work?
depends on your definition of "work". i'd say the most recent example I can think of is groupon, and they were quite successful up until a certain point. even at this point today, the founders and early investors cashed out big time before the bubble burst.
I'd argue that Fab never really had a business, it just had investors willing to finance a growth hacking strategy.
For enough investor dollars you can buy sales and create a convincing hockey stick graph sufficient to attract more investors.
I think investors should insist on a few weeks every few months with ZERO marketing spend so that the cycle can be broken long enough to accurately measure organic growth. Inevitably the founders try to misattribute paid growth for organic growth.
The result would not be investors pulling out, it would be a more rational focus on retaining customers and building a sustainable business. Optimistic metrics don't do anyone any favors.
I'll tell you why it died. I kept seeing ads showing an interesting looking product, but clicking on them wouldn't take me to that product. The product was unnamed as well, so I couldnt even search for it.
Their service was also terrible. I ordered a Christmas item in mid-November and never received it. When I contacted support in December, they told me to wait until a full 45 days had elapsed (after Christmas). I knew of at least 5-6 friends who gave them a try and waited anywhere from 1-3 months to get their orders, even though the website offered no warnings of such abnormally slow shipment.
If you search "Fab.com reviews", you can see they rate pretty poorly on several review sites, mostly for quality and slow shipping issues. Spending a lot to acquire customers doesn't work when you can't live up to the most basic expectations of what an e-commerce site should do.
Another possible reason they failed - What a horribly, horribly slow website.
After reading this article I visited fab.com as I'd never visited before. Saw some interesting products, some I might buy, but loading a single page of items shot my fan speed up and froze the page for a good 7-8 seconds while what I guess is their javascript "enhanced" the page.
Awful, awful user experience. I couldn't last more than 3 pages of items before giving up. It doesn't matter what your product is if you annoy the hell out of your customers with badly designed technology.
Jason can talk and sell you water ... He convinces himself that what he's going to do is going to work ... Jason had so much energy and passion that he drove you to want to do something.
I read this kind of thing from people all the time and it confuses me. I'm not sure if it is just who I have been around in my life, but I don't think I have ever met anyone that inspired that kind of blind devotion. Am I alone in never having experienced that?
These people are rare but they exist. I've seen it happen more than once. They inspire you, give you sound logic, and then you forget to check the facts because you just trust them at their word.
These are usually great leaders that also take great risks. I am personally one of the people who needs this kind of motivation to get stuff done, therefore I try to be around people like that but I learned to always check the facts.
No one's saying he inspired blind devotion. The people who put money into Fab made a decision to go big or go home. They ended up going home. No blindness there.
Lots of people who worked for Fab probably had a bad experience but many of them may have had a great time working at an interesting, dynamic place. They knew what they were getting into.
I thought raising so much money so fast, hiring so many people so fast and burning money so fast died out in 1999. I guess I'm surprised that investors didn't demand a more airtight and proven business model before investing post Series A.
I was an early Fab customer and they did feature some unique and interesting gifts. The daily e-mails were also beautifully designed, to the point that Fab eventually sued or threatened to sue a different company who had ripped off the look and feel. But over time those Fab e-mails started featuring more and more tchotchkes and mass-produced junk, I guess in an effort to push more products. So when I read in the article that...
"Shellhammer has since started a new company, Bezar, that's almost an exact replica of what Fab used to be."
...I signed up for Bezar right away. Because Goldberg may lack business savvy, but no one denies that Shellhammer has excellent taste. And I need some wall art for my house.
EDIT: It was "Touch of Modern" who was sued by Fab for supposedly ripping off their design elements, but I don't know if the lawsuit was successful or not. Details: http://pando.com/2012/08/16/breaking-down-fabs-copycat-claim...
Touch of Modern appears to still be in existence.
One thing that has gone unmentioned: when you run flash sales that promote other retailers' products, you're strengthening your competitors' business as much as your own.
For example, it was very common to see discounted jewelry or apparel on Fab from brands with a much deeper collection on their own site. It's 2011-2014, of course I'm going to Google the designer or brand, find their own site, and make an informed decision about what to buy.
Designers know this, and are savvy enough to use other channels to promote their own, where they charge the sort of prices they can build a business on. I'm willing to bet that Fab made quite a few designers more money via these sort of implicit referrals than via discounted flash sales.
Hindsight being 20/20, if Fab wanted to build a billion dollar business, they should have bought an e-commerce startup, not other retail operations. That's the only way they could have captured more of the value they were creating. Say they managed to buy Shopify. A, they'd be swimming in revenue. B, Shopify would have the marketplace they failed to make work on their own.
I think those are very different marketplaces, solving different problems. Still, this is why Amazon shows ads from other retailers on their site.
Fab was selling what's cool, and creating a price incentive. But for their audience, cool is actually more important than cheap, so by promoting the makers of cool (all of whom also have their own e-commerce channel) they were eroding their own business.
I'm not suggesting that was what killed them. I'm just saying they didn't have a bulletproof model before they started taking crazy pills.
Shhh, you're going to ruin everything. And right when I've got a bunch of investors on the hook with my idea for a healthcare portal run by a former surgeon general.
They aggressively spent money on Facebook ads at the beginning and it seemed at first like a winning strategy. But if lifetime value < cost of acquisition you're burning through money. We saw it in daily deals and then we saw it in Fab. Fab just didn't know their LTV at the beginning and seemingly didn't care. Add to that a business that relies on third party manufacturers/designers and a low gross margin and it's a tough business to make profitable.
You know, I am not all that mad at these guys. This is crazy, but when I compare it to the millions people spend on lottery to enrich a handful, sports to enrich a few hundred, and movies to enrich a few dozens, I find it not too bad (but still a little bad) that people are spending millions to try and create value for many customers, thousands of employees, and enrich thousands.
"Fab acquired three similar European startups that year in all-stock transactions. It bought Casacanda in February 2012, Llustre in June 2012, and True Sparrow Systems in November 2012."
True Sparrow Systems is a web development company in India not a flash sales site. Hope the rest of the facts are correct in this story.
I can tell why it failed just from that document capture they posted. Does that look like the kind of document that a CEO who knows what he is doing and is able to turn something into a billion dollar company would be producing for his execs? Its bullet point garbage.
This class of startup is a chicken run. "Fab would feature and sell third-party items from small design shops all over the world" is not exactly a novel idea. There are hundreds of catalog houses in that space. Some of their glossy catalogs are probably in your recycling bin right now.
So there's an expectation that growing too fast to get a predominant marketing position is a winning strategy. Only one company wins that game. The others die.
I presently Run Jumkey.com - currently Positioned as India's largest Jewelry Destination.
Its been a Roller-coaster ride so far.
Have kept our Operational cost very low.
Worth mentioning, we are still a small team of 3, very complementing,
managing the whole eCom, mobile apps(iOS and Android) and
without any external funding - Completely bootstrapped Venture.
Let me share my experiences so far -
1. Think Really-Really-Big from Day 1.
2. Reaching Profitability is easy in eCommerce, if the cost of operations are kept low. Know where expenses are going most.
3. Learn to Say NO to Crap Investors.
Don't raise money from wrong Partners.
Raise money only if you really want to. Needs, wants are different. Sooner or later you'll suffer otherwise.
Jumkey was approached by Top Investors, and we've told NO.
4. User on-boarding experience is very Important.
5. Build Partnerships.
Build a network of Partners who shall build the Brand and do sales for you,
Delegate sales & marketing efforts to specialists. Delegate tasks. Don't be a Jack of all.
6. In the early days, what matters is - Growth Hacking and Building Trust, Confidence.
Growth Hacking makes more sense than Spending Millions on advertisements.
We Invested heavily(time) on Growth Hacking.
Results = have 50K+ Combined followers from Social networks.
Biggest transition happened to me was - turning into as a growth Hacker, being frugal on expenses, Saving a lot of money.
7. If you're in confusion, Consult early.
8. Finally, Validation based model is the key to Run any Business.
Well, it still exists. There's no plans to close it down, as far as I know (but I haven't finished reading the article).
Fab is an online store focused on design goods — furniture, gadgets, a smattering of clothes and shoes and so on. The inventory changes out pretty fast. They have occasional pop up shops in NYC. They just launched their own line of furniture called Hem.
The online store is nice -- one of the nicer store UIs, actually -- but their inventory tends towards the Urban Outfitter/Think Geek kind of flashy, youth/nerd-oriented, ultimately low-quality or ephemeral fashion items that are going out of style soon. When I think of Fab, I mainly think of wall decals and phone cases with skulls.
So about these investors, did they just throw away a few hundred million dollar? Or do they somehow have contracts which define that they with future business operations should get the money back? Loans? Or is it just free money provided as-is? On what terms do they invest?
I had an offer from Fab before I decided to join else where as UI dev. I was impressed with their site. But during F2F with Jason, I didn't get proper answer for whats the plan when other online stores like Amazon joins competition.
First, let me unequivocally state that I'm not a homophobe by any means. A large number of the founders and initial employees were gay men, with strong ties to NYC Media and Wall St. They were hyped as being the Queer Eye for the Straight Guys of eCommerce. The people who were going to save boring straight people from themselves. The entire thing was a ponzi scheme designed to create a lot of hype, and take money from fools. By the looks of it they succeeded.
