What you can learn from one of the biggest startup flops of all time

By: Cristine Lagorio-Chafkin

More than two years after Fab.com collapsed, its founder Jason Goldberg looks back and reveals where he and the company–despite $300 million in funding–went wrong.

If you’re familiar with the recent track record of entrepreneur Jason Goldberg–the man best known for co-founding flash-sale flame-out Fab.com–you might be forgiven for not taking his advice.

But, within a post he wrote on Medium this week, you’ll find–brace yourself–some quite good pieces of hard-won wisdom that he’s come to over the past three years of recovering from his startup’s meltdown.

He writes–perhaps amusingly– that “every now and again we see a Medium post about early-stage startup failure but even less common are first-hand accounts of epic execution failures like Fab.” He’s right–because blowing through $336 million–which Fab raised in its three-and-a-half-year lifespan–is pretty damn uncommon. Not Quirky, not Kosmo, not even Webvan had raised quite that much. 

So what happened? According to Goldberg, the company took in $112 million in 2012, its first full year of operations. For the first year-and-a-half, things looked good–and it felt good, to him and to investors. However, it didn’t hit the goal he’d projected: $140 million in sales. And Fab was a people-intensive, logistics-intensive, warehouse space- and inventory-intensive business. Not easily scalable–and operations were already costly.

Goldberg writes that in early 2013, the board met to discuss options. They, essentially, were: “(A) Hunker down, retrench and focus on the U.S. market only, and target profitability around $150M in sales, or (B) continue pushing for 100% year/year growth and world domination. To be fair, it wasn’t much of a debate. Only one board member argued for path A, while everyone else, including myself, pushed for the rocket ship.”

By halfway through the year, the company was valued at $900 million. But–as Goldberg writes in his post–it was an illusion. He knew the company was “sailing right into a shit storm.” By the third quarter of 2013, Goldberg told the board that the company had to lay off two-thirds of the staff. By then, it was far too late to listen to the board member who pushed for frugality.

This leads to his first lesson for would-be entrepreneurs. Others follow, sprinkled through his Medium post, mostly, inexplicably, in italics. I’m excerpting the best here:

When the Voice of Reason Speaks Up, Listen

“You know the really annoying board member who is constantly yelling “stop!” while everyone else is cheering “go!” – Rather than secretly wishing you could remove them from your board, focus instead on listening to them more!”

Get a Handle on Growth

“We had no business going overseas before we had figured it out at home. Had we instead forced Fab to get profitable in the U.S. before expanding overseas, the rest of the Fab story would have turned out very differently and quite possibly very positively.”

Be Conscientious About Cutting

“Looking back, this is the period in the story that I regret the most. I slammed on the brakes of a speeding rocket-ship and that’s incredibly hard to do, and I failed miserably at it. I was too quick to focus on slashing costs and narrowing scope vs. taking a step back and devising a plan with our board to preserve value for our shareholders.”

“Everyone always says: “Cut fast and cut deep.” I now disagree. It should rather be: “Cut smart, cut with a plan, and cut with help.” I got too far out ahead of our board on the cuts and didn’t ask for enough help from them. I didn’t involve our executive team well in the decisions. I unceremoniously laid off some of my most loyal colleagues. I broke up with my best friend and co-founder – putting aside that the core spirit and culture and purpose of the company was always designed as a blend of the two of us – while I should have figured out a way to make him part of the solution.”

View source version on Inc.com