How Fab startup raised $ 330 million and went bankrupt

Original author: Alyson Shontell
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On Friday, October 11, 2013, Fab Jason Goldberg, director of the company, assembled a management team and presented each with a 5-page document. The general content of the document was that from 2011 to 2013 the company spent $ 200 million of the earned $ 336 million. Therefore, two-thirds of employees should be fired. An effective business model has not yet been found, and it is still not known exactly what the company's customers want to buy. Fab was at risk of ruin.


How did a billion-dollar business go bankrupt in three years?
Why did Goldberg not foresee the impending threat? Why did investors keep giving him hundreds of millions of dollars?

Jason Goldberg began his career in the administration of US President Bill Clinton. He later worked as marketing director at T-Mobile. In the 2000s, he founded Jobster, a recruiting platform that brought about $ 50 million, but, however, after that, it lost its position. In 2008, he launched the Socialmedia project, which was then acquired by XING.

Having experience in politics and marketing, Goldberg could convince people of anything and unite them around him. Although, in many ways, Goldberg was a controversial person. For example, he might not appear in the office for a long time, and sometimes, on the contrary, he could work for days.

Goldberg founded Fabulis in 2010 with his friend and co-founder of Socialmedian, Bradford Shelhammer, and his wife. Fabulis is a social network for the LGBT community, which later became a service for shopping on special offers. However, in a year they attracted only 150,000 users. The service was closed.

However, Goldberg and his co-founders pretty soon created a new project - Fab, an e-commerce service focused on products with a unique design. Sales were carried out according to the flash sales scheme: goods were offered to be purchased at a discount, but within a few hours.

Even before the launch of the project, the Goldberg team gathered about 45,000 subscribers for the site. And on June 9, 2011 the service was launched.

Thanks to the good taste of Shelhammer and the successful selection of designer products for placement on the site, the popularity of Fab began to increase with the speed of sound. Tens of thousands of people went to the site to find there that they could not buy anywhere else. One of the bestsellers was a martini glass chandelier, which was sold for $ 1,775.


A few weeks after the project started, actor Ashton Kutcher and Silicon Valley investors invested $ 1 million in Fab.
By mid-June, the site had 240,000 subscribers. and every day another 5,000 new ones appeared. In August, their number reached half a million.
In October 2011, Fab brought in $ 100,000 daily. And the number of subscribers grew and increased to 750,000.
By the end of the year, the project brought about $ 80 million, and the number of users reached 1.3 million.

Attack of the Clones

Fab's quick success could not go unnoticed in the global business community. However, as it turned out later, there was little good in this. To repeat the victorious path Fab was found by many people. Among them were absolute clones, for example, the Bamarang project from Germany.

Goldberg considered that the situation was clearly not in favor of Fab, so he decided to act quickly. The first thing that was done was the purchase of 3 of these clones: Casacanda, Lluster and True Sparrow Systems.
Practice shows that usually startups do not enter the world market before they are well established in their country. However, Goldberg decided that Fab was an exception. So, approximately $ 60- $ 100 million was spent on the conquest of Europe.

Meanwhile, in New York, another strategic decision was made - to abandon the flash sales scheme, organize storage of goods in warehouses and expand the range. Fab increases the number of products on the site from 1,000 to 11,000, and also adds new categories, including food and animals.

However, the results were unexpected for Goldberg. Instead of the expected increase in demand with increasing supply, purchases did not increase significantly. Customers still wanted to find on the Fab site what they could not find elsewhere. But now, with such an abundance of goods, it was difficult, and the goods themselves were losing their uniqueness. Fab gradually turned into a kind of Amazon service. Only in this field Fab now lost to many of these services, if only because the delivery to them was much faster.

Despite all this, Goldberg finally refuses flash sales and puts only goods from the warehouse on the site.

Was he right in this situation? If he was wrong, the decisive factor was what he would say to investors, the board of directors, and how they would react to this.

Goldberg’s talk that Fab could become the fifth e-commerce service in the world with a turnover of more than $ 10 billion in the shortest time convinced the board to approve this decision. However, Goldberg had to promise that Fab by the end of the year would earn at least $ 200 million.

One of the means to achieve the goal was to launch the sale of gifts and souvenirs for the home - so to speak, “emotional commerce”.

Thus, sales increased to $ 40 million during the first quarter.
However, Goldberg gradually began to realize that he would no longer be able to reach the turnover that was needed to gain the necessary amount. Goldberg realized that he had miscalculated. It was decided to cut costs. First of all, activity in Europe was curtailed.

And so, in October 2013, Goldberg assembled his team of leaders and told them about a new direction of development.

After this meeting, it became clear that Fab would no longer be what it was before. In this regard, after some time, the co-founder and friend of Goldberg - Shelhammer left the project. He created his own company, like two drops of water similar to the old Fab, which until recently had a resounding success.

And in December, only 150 out of 700 employees remained in the project.

Did Goldberg publicly acknowledge his mistakes?

Yes. The very document that he handed out to the leaders at the meeting in October also states the following:

I encouraged us to go too fast.

I forced us to leave the main direction.

I did not pay enough attention to determining the needs of our customers.

I have allowed too many resources to invest in Europe instead of following the path of development and globalization from the very beginning.


Hem: a new twist

By mid-2014, it was clear that Fab was exhausted. According to former Fab employees, nothing bad would have happened if the project had gone its original course.

But Goldberg founded the new e-commerce service, Hem, focused on the sale of original, highly profitable home goods.
Further, the share of furniture sales in relation to other goods began to grow, and, together with home decor goods, reached 40%. So there was another turn in Goldberg's business, which, obviously, is the secret of his successes and failures.

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