How a startup Fab raised $ 330 million and went broke
On Friday, October 11, 2013, Fab Director Jason Goldberg brought together the management team and presented each with a 5-page document. The total content of the document was reduced to the fact that from 2011 to 2013 the company spent $ 200 million from the earned $ 336 million. Therefore, two-thirds of the employees must be dismissed. An effective business model has not yet been found, and it is still not known exactly what the company's clients want to buy. Fab was under threat of ruin.
How did the billion-dollar business go bankrupt in three years?
Why did not Goldberg foresee the imminent threat? Why did investors keep giving him hundreds of millions of dollars?
Jason Goldberg began his career in the administration of the President of the USA - Bill Clinton. Later he worked as a marketing director at T-Mobile. In the 2000s, he founded Jobster, a recruiting platform that brought about $ 50 million, but, however, after that, she lost her position. In 2008, he launched the Socialmedia project, which was then acquired by XING.
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With experience in politics and marketing, Goldberg could convince people of everything and unite them around him. Although, in many ways, Goldberg was a controversial person. For example, he could not appear in the office for a long time, and sometimes, on the contrary, could work for days.
In 2010, Goldberg founded Fabulis together 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 for special offers. However, during the year they attracted only 150,000 users. The service has been closed.
However, Goldberg and his co-founders 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 choice of design 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 something that they could not buy anywhere else. One of the sales hits was a martini glass chandelier, which was sold for $ 1,775.
A few weeks after the start of the project, actor Ashton Kutcher and investors in Silicon Valley invested $ 1 million in Fab.
By mid-June, the site had 240,000 subscribers, and more than 5,000 new ones appeared every day. 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
The quick success of Fab could not go unnoticed in the global business community. However, as it turned out later, there was little good in this. Repeat the victorious way Fab found many willing. Among them were absolute clones, for example, the project Bamarang 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 such clones: Casacanda, Lluster and True Sparrow Systems.
Practice shows that start-ups usually do not enter the world market before they are well established in their own country. However, Goldberg decided that Fab is an exception. So, about $ 60– $ 100 million were spent on the conquest of Europe.
Meanwhile, in New York, another strategic decision was taken - 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. Shoppers still wanted to find something on the Fab site that they could not find anywhere else. But now, with such an abundance of goods, it was difficult, and the goods themselves lost their uniqueness. Fab gradually turned into a kind of Amazon service. Only on this field, Fab now lost to many such services, if only because their delivery 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, what was decisive was what he told investors, the board of directors, and how they would react to this.
Mr Goldberg’s speech that Fab could become the fifth e-commerce service in the world with a turnover of more than $ 10 billion in the shortest possible time convinced the board of directors to approve this decision. However, Goldberg had to promise that by the end of the year Fab would earn at least $ 200 million.
One of the means to achieve the goal was to launch the sale of gifts and memorable souvenirs for the house - “emotional commerce”, so to speak.
Thus, sales increased to $ 40 million during the first quarter.
However, Goldberg gradually began to realize that he would no longer be able to go to the turnover that was needed in order to collect the necessary amount. Goldberg realized that he had miscalculated. It was decided to reduce costs. First of all, activity in Europe was curtailed.
And so, in October 2013, Goldberg gathered his management team and told them about the new direction of development.
After this meeting, it became clear that Fab will not be the same as it was before. In this regard, after some time the project was left by the co-founder and friend of Goldberg - Shelhammer. He created his own company, like two peas in a pod similar to the old Fab, which had recently been a resounding success.
And in December, only 150 out of 700 employees remained in the project.
Did Goldberg admit his mistakes publicly?
Yes. The document that he distributed to managers at the October meeting also states the following:
I urged us to go too fast.
I forced us to leave the mainstream.
I did not pay enough attention to determining the needs of our clients.
I have allowed too many resources to invest in Europe instead of going the way of development and globalization from the very beginning.
Hem: a new twist
By mid-2014, it was clear that Fab was exhausted. As noted by former Fab employees, nothing bad would have happened if the project went on its original course.
But Goldberg founded the new e-commerce service, Hem, focused on selling original, highly profitable household goods.
Further, the share of furniture sales in relation to other goods began to grow, and, in aggregate with home decor goods, reached 40%. So there was another turn in the business of Goldberg, which, obviously, is the secret of his success and failures.
How did the billion-dollar business go bankrupt in three years?
Why did not Goldberg foresee the imminent threat? Why did investors keep giving him hundreds of millions of dollars?
Jason Goldberg began his career in the administration of the President of the USA - Bill Clinton. Later he worked as a marketing director at T-Mobile. In the 2000s, he founded Jobster, a recruiting platform that brought about $ 50 million, but, however, after that, she lost her position. In 2008, he launched the Socialmedia project, which was then acquired by XING.
')
With experience in politics and marketing, Goldberg could convince people of everything and unite them around him. Although, in many ways, Goldberg was a controversial person. For example, he could not appear in the office for a long time, and sometimes, on the contrary, could work for days.
In 2010, Goldberg founded Fabulis together 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 for special offers. However, during the year they attracted only 150,000 users. The service has been closed.
However, Goldberg and his co-founders 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 choice of design 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 something that they could not buy anywhere else. One of the sales hits was a martini glass chandelier, which was sold for $ 1,775.
A few weeks after the start of the project, actor Ashton Kutcher and investors in Silicon Valley invested $ 1 million in Fab.
By mid-June, the site had 240,000 subscribers, and more than 5,000 new ones appeared every day. 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
The quick success of Fab could not go unnoticed in the global business community. However, as it turned out later, there was little good in this. Repeat the victorious way Fab found many willing. Among them were absolute clones, for example, the project Bamarang 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 such clones: Casacanda, Lluster and True Sparrow Systems.
Practice shows that start-ups usually do not enter the world market before they are well established in their own country. However, Goldberg decided that Fab is an exception. So, about $ 60– $ 100 million were spent on the conquest of Europe.
Meanwhile, in New York, another strategic decision was taken - 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. Shoppers still wanted to find something on the Fab site that they could not find anywhere else. But now, with such an abundance of goods, it was difficult, and the goods themselves lost their uniqueness. Fab gradually turned into a kind of Amazon service. Only on this field, Fab now lost to many such services, if only because their delivery 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, what was decisive was what he told investors, the board of directors, and how they would react to this.
Mr Goldberg’s speech that Fab could become the fifth e-commerce service in the world with a turnover of more than $ 10 billion in the shortest possible time convinced the board of directors to approve this decision. However, Goldberg had to promise that by the end of the year Fab would earn at least $ 200 million.
One of the means to achieve the goal was to launch the sale of gifts and memorable souvenirs for the house - “emotional commerce”, so to speak.
Thus, sales increased to $ 40 million during the first quarter.
However, Goldberg gradually began to realize that he would no longer be able to go to the turnover that was needed in order to collect the necessary amount. Goldberg realized that he had miscalculated. It was decided to reduce costs. First of all, activity in Europe was curtailed.
And so, in October 2013, Goldberg gathered his management team and told them about the new direction of development.
After this meeting, it became clear that Fab will not be the same as it was before. In this regard, after some time the project was left by the co-founder and friend of Goldberg - Shelhammer. He created his own company, like two peas in a pod similar to the old Fab, which had recently been a resounding success.
And in December, only 150 out of 700 employees remained in the project.
Did Goldberg admit his mistakes publicly?
Yes. The document that he distributed to managers at the October meeting also states the following:
I urged us to go too fast.
I forced us to leave the mainstream.
I did not pay enough attention to determining the needs of our clients.
I have allowed too many resources to invest in Europe instead of going the way of development and globalization from the very beginning.
Hem: a new twist
By mid-2014, it was clear that Fab was exhausted. As noted by former Fab employees, nothing bad would have happened if the project went on its original course.
But Goldberg founded the new e-commerce service, Hem, focused on selling original, highly profitable household goods.
Further, the share of furniture sales in relation to other goods began to grow, and, in aggregate with home decor goods, reached 40%. So there was another turn in the business of Goldberg, which, obviously, is the secret of his success and failures.
Source: https://habr.com/ru/post/285868/
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