
How startup Fab died - prostoalex
http://www.businessinsider.com/how-billion-dollar-startup-fab-died-2015-2
======
andrelayer
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.

~~~
GuiA
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".

~~~
__Joker
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.

~~~
mgkimsal
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).

~~~
velodrome
Did you go through with the business? If so, did you end up reaching your
goal?

~~~
mgkimsal
No, ended up scrapping it. Not just because of that, but it was a small
factor.

------
gnufrra
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.

~~~
lobster_johnson
Can you name your company? (I'm asking because I'm interested in furniture,
not for the startup gossip.)

~~~
gnufrra
[http://www.bryght.com](http://www.bryght.com)

~~~
jayzalowitz
Change the url and you could grow revenue really quickly man.

~~~
aaronbrethorst
I think the name's fine. Google? Facebook? Whatsapp? Blergh.

~~~
untog
They're all pretty phonetically obvious. Bryght, on the other hand...

"Oh yeah, bought some great stuff from Bryght the other day"

"Hey man, tried that Bright web site you mentioned. It didn't work"

"Where did you go?"

"Bright dot com"

"Bryght dot com?"

"Yeah, bright dot com"

and so on and so forth, for all eternity.

~~~
lucaspiller
You could say the same about IKEA too. I'm still not sure I pronounce it
properly...

~~~
galactus
IKEA was a huge brand before the internet was there to make it important for
people to type its name correctly..

------
lordnacho
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?

~~~
ChainsawSurgery
> 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?

Isn't that basically Etsy in a nutshell?

~~~
lordnacho
Maybe, I'm not familiar with Etsy. But my understanding is they're not Amazon.

~~~
jonnathanson
They're not Amazon, but they've eaten a heck of a lot of eBay's lunch, and
that's a big lunch.

------
_ak
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.

------
rwhitman
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]

[1]
[https://web.archive.org/web/20130806013728/http://betashop.c...](https://web.archive.org/web/20130806013728/http://betashop.com/post/53834299838/what-
its-really-like-to-work-fab)

[2] [http://www.bloomberg.com/news/articles/2013-06-24/fab-
com-s-...](http://www.bloomberg.com/news/articles/2013-06-24/fab-com-s-race-
to-1-billion-valuation-brings-missteps)

[3]
[https://news.ycombinator.com/item?id=5942543](https://news.ycombinator.com/item?id=5942543)

------
IgorPartola
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.

~~~
callmeed
No it's not (IMO). At least not to the extent where cost control is paramount
above growing revenue. Check out this HBR article from 2013:
[https://hbr.org/2013/04/three-rules-for-making-a-company-
tru...](https://hbr.org/2013/04/three-rules-for-making-a-company-truly-great)

(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.

~~~
IgorPartola
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 :)

~~~
callmeed
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.

Here are some VC perspectives on burn rates:

[http://avc.com/2014/09/burn-baby-burn/](http://avc.com/2014/09/burn-baby-
burn/)

[http://www.businessinsider.com/bill-gurley-silicon-valley-
is...](http://www.businessinsider.com/bill-gurley-silicon-valley-is-taking-on-
too-much-risk-2014-9)

~~~
timr
_" 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.

------
rogeriolou
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.

~~~
ugh123
>I met one of the founders (I can't remember which of the two) at a conference
in 2010

The article says Fab was launched June 9, 2011.

~~~
nazgul
There was a previous iteration of the site. It may have been that one.

------
hga
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.

~~~
zyang
I scanned the article and couldn't find the reason they pivoted away from
flash sales model.

~~~
michaelbuckbee
Doing flash sales is good for profit (low inventory, good for sales b/c it's
going away etc.) - but limited their overall topline revenue.

------
IanDrake
I see this a lot these days. Great sub-100 million dollar businesses that fail
because investors believe they can make it a 1 billion dollar business.

~~~
bsdpython
Once you've raised significant VC funding they expect you to target $1B+. You
basically can't slow down once you've stepped on that treadmill.

~~~
keypusher
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.

~~~
gotrecruit
> 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.

------
grandalf
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.

------
nsxwolf
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.

What was the point of that?

~~~
jsprogrammer
Clicks * Conversion_Rate * Average_Click_Profit = $Total_Profit$

------
aaronbrethorst
Most interesting line of the article to me:

    
    
        "Fab had product market fit, but Fab
        didn't understand its product market fit,"
        a former Fab employee said.

------
sehutson
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.

------
jamesmcq24
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.

------
AndrewKemendo
_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?

~~~
vskarine
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.

------
bsdpython
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.

------
Asparagirl
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...](http://pando.com/2012/08/16/breaking-down-fabs-copycat-claims-
against-touch-of-modern-innovate-dont-copy/) Touch of Modern appears to still
be in existence.

------
subpixel
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.

~~~
std_throwaway
Ebay works like this (and to a much lesser extent Amazon). Yet we still go to
ebay to discover products and many people buy them on site.

~~~
subpixel
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.

------
tribeofone
Get ready to hear alot more stories like this in the next two years.

~~~
Slartibreakfast
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.

------
ecaron
The similarities between Fab & Jobster shouldn't be overlooked. And a lot of
the lessons from 2007 ([http://mashable.com/2007/12/13/jobster-ceo-steps-
down/](http://mashable.com/2007/12/13/jobster-ceo-steps-down/)) seem to be
forecasted in 2013 ([http://www.inc.com/magazine/201303/how-i-got-
started/jason-g...](http://www.inc.com/magazine/201303/how-i-got-
started/jason-goldberg.html) / [http://thisweekinstartups.com/jason-goldberg-
of-fab-twist-31...](http://thisweekinstartups.com/jason-goldberg-of-fab-
twist-313/)) and now history has repeat itself again.

Best of luck, Jason, at your next thing!

------
jonathanjaeger
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.

------
rokhayakebe
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.

------
bruceb
"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.

~~~
Jare
Seems more like a badly constructed phrase than an incorrect fact:
[http://www.truesparrow.com/](http://www.truesparrow.com/)

------
crucifiction
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.

~~~
juliangregorian
What's so bad about it?

------
Animats
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.

~~~
jsprogrammer
Didn't one just fold up? And they had the entire "flies on planes" market
wrapped up.

------
dennisgorelik
It is Jobster.com [1] fiasco all over again:

Goldberg got $50M in investments ($200M+ for Fab), spent most of it, produced
no good product and sold his company for peanuts.

Would investors ever learn or will they invest into Goldberg again in a few
years?

[1]
[http://en.wikipedia.org/wiki/Jobster](http://en.wikipedia.org/wiki/Jobster)

------
pajju
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.

------
emergentcypher
What was Fab, exactly?

~~~
lobster_johnson
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.

------
pearjuice
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?

------
itsbits
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.

------
rasz_pl
There was a documentary about Fab on TV:

[https://www.youtube.com/watch?v=sYeup5zrZbs](https://www.youtube.com/watch?v=sYeup5zrZbs)

------
TheAcen
Ah, I remember Fab. I liked it a lot for browsing and such. But I can't recall
ever purchasing anything off it.

------
damonpace
It seems they poured the gas on before the engine was actually running.

------
fsaezc
wow. Had already forgotten about them.

------
impostervt
The main picture on the page is a really, really badly done photoshop. I'm
kind of surprised they'd use it.

~~~
650REDHAIR
Why? It's purposely bad and it's spot on for this situation.

------
hackaflocka
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.

