How startup Fab died
businessinsider.com
businessinsider.com
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".
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.
my best guess is some sort of e-retailer.
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.
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.
"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.
Some names are a lot harder to explain than that.
Indeed, Bryght's revenues are in the multi-millions so they're clearly doing something right.
Or not. But I don't think assuming it's a net negative is necessarily justified here.
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?
Isn't that basically Etsy in a nutshell?
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.
[1] https://web.archive.org/web/20130806013728/http://betashop.c...
[2] http://www.bloomberg.com/news/articles/2013-06-24/fab-com-s-...
it's necessary, but not sufficient.
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.
Here's another list:
(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.
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 :)
Here are some VC perspectives on burn rates:
http://avc.com/2014/09/burn-baby-burn/
http://www.businessinsider.com/bill-gurley-silicon-valley-is...
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.
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.
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.
Potentially, but that also undermines your ability to use the existing business/user base to seed growth for the new one.
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?
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'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.
Screw the red and screw burn rate. No thank you.
The article says Fab was launched June 9, 2011.
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.
In fact, there is a connection to HN. I recall it was on HN that the founder was commenting on a story on undergoing major pivot and securing funding.
> 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.
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.
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.
What was the point of that?
"Fab had product market fit, but Fab
didn't understand its product market fit,"
a former Fab employee said.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.
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.
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?
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.
"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.
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.
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.
Best of luck, Jason, at your next thing!
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.
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?
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.
Flash sales to e-commerce
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.