The demise of a start-up…

My job title at CareerLounge is ‘Digital Copywriter’. It means that I’m in charge of researching articles that are relevant to our target audience (university students), and turning them into feature pieces. The fact that ‘university students’ is a broad market means that I’m allowed to be creative when selecting certain genres to write about. For example I can discuss travel, fashion, technology, sport, employment, pop culture etc. The list goes on. I try to stay clear from ‘heavy’ and ‘serious’ news articles because I know that it’s not what students are going to want to read about. If they do, they know that they can go to any news website and get their fix. For me, I like to scour through the many online blogging websites that exist. The beauty about blogs, is that they are easy, exciting and informative to read. They also direct your attention to interesting news pieces that you would not normally find on your average current affairs channel. It is how I stumbled across ‘Five Reads: The Best Five Articles On Every Topic’. It is a website that does basically what the title says — it gives people the best five articles on any of the six topics the site chooses to explore each week. The genre that grasped my attention was ‘Science and Tech’ and the topic was ‘Failed Start-Ups’. I guess the reason I was drawn to it, is that as a Digital Copywriter, I have read many articles and watched numerous clips on ‘cool’ start-up businesses that have been unbelievably successful. However, like all things in life, there are two sides to the story. Unfortunately for this story, it’s how many start-up businesses fail, and in doing so, owe a lot of money to a lot of people. I’m a glass-half-full-kind-of-guy. It’s a blessing and a burden. I get the impression that most Founders of start-up businesses are also glass-half-full-kind-of-people. They would have to be right!? Jumping out blind into the abyss of Silicon Valley takes courage. Optimism is essential, and there is certainly no time for pessimism. That comes later, if all goes belly-up. Like it did for Fab CEO Jason Goldberg.

‘Goldberg and his cofounders spent three weeks building what would become Fab.com, a design-focused e-commerce site. Fab would feature and sell third-party items from small design shops all over the world and use a flash-sales model, which had proved successful for sites like Gilt Groupe and Ruelala.’

There was definitely a market for Fab.com, and before the site was even launched, Goldberg and his team had already notched at 45,000 prelaunch sign-ups. ‘By October 2011, Fab was generating $US100,000 a day. It hired 80 people and grew to 750,000 users. Fab was called the “fastest-growing startup in the world.”’ It was evident the business model was working. To be called the ‘fastest growing startup in the world’ means that Goldberg was definitely doing something right. By the years end the company was valued at $200 million.

Fast forward to the following year (2012), and Fab became what employees describe as a “whirlwind of insanity.” That being said, midway through the year the company was valued at a serious $500 million. So what the heck went wrong!? Fab.com decided to go international. A move in which would seem logical when it comes to expansion. However it was viewed by most employees of being a ‘premature act’ for the company.

‘Fab sources estimate that moving into Europe prematurely cost the company $US60-$US100 million. There were too many employees and not enough sales generated. Streamlining the businesses was difficult; there was no US playbook to hand over to Europe. Additionally, Fab purchased a $US12 million warehouse there that eventually closed.’
It was the start of what would become the demise of Fab.com.

The start of 2013 saw a five hour board meeting with all the top executives of the company in attendance. ‘It (the members of the meeting) approved a plan to increase Fab’s burn rate to generate $US200 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 $US300 million more by then, the company would be fine.’ It turned out that raising the money would be a lot harder than Goldberg had first anticipated. It was soon clear to him, that Europe was a complete disaster for the company. ‘By July, Goldberg — who had been fully transparent with investors about the state of the company and Europe — was able to raise only $US150 million, but at a $US900 million valuation.

It wasn’t nearly enough. Money had become so tight that Goldberg was prepared to personally float the entire company’s payroll in August if the round hadn’t closed when it did.’ In October (2013) Goldberg sat down with his board members and explained the situation he had gotten the company into. At this stage it was clear that Goldberg lacked any business smarts, and was running the company into the ground. ‘By December, only 150 of Fab’s 700 employees remained.’ The company was clearly failing. It’s a shame, and according to one the employees the business ‘could have survived and worked.’ But it didn’t. Fab.com was all but over.

It’s bizarre to think that a start-up company that was declared the fasted growing EVER would fall so quickly. In such a cut throat world, it comes down to decisions. But as an optimist and risk-taker, Goldberg went on a gut instinct, that, unfortunately for him, didn’t work out. Don’t feel too bad for him though, he’s started up another business which is doing just fine. For now.

‘Let’s remember, though, that Goldberg is an eternal optimist. And it will be hard to forget the facts behind Fab’s spectacular three-year crash: Jobs lost: 500 — Value lost: $US875 million — Money burned: $US250 million’

Trying gives the impression of failing. However, at the end of the day, if we don’t ‘try’ we’ll never know what could have been.

All photos are taken from Monster Children

References^

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