Inside the Spectacular Failure of Fab.com

I mean, Uber is worth what sixty billion dollars, but at the time it was an incredibly exclusive club, very rare achievement. Jason was in our bloombrick headquarters in New York to talk about the successive is fundraising, and he was beaming on TV. The way we look at the world is that there are currently four e commerce companies that are worth more than ten billion dollars, Amazon, Racketan and Japan, Ali Baba and China and eBay, and we think Fab has a legitimate chance of being the fifth one.

But as soon as he got up the set, he walked downstairs to meet with the jackals the media. You Sarah I told him I had some documents to show him. It wasn't that excited about it. But the background is a couple of weeks earlier, I had met a fab former employee who told me about how dysfunctional the startup was internally, that they had missed the revenue targets a year earlier. By over, he introduced me to more employees.

To introduced me to more employees, and I ended up with the stack of emails that showed a little bit about the company culture and how difficult it was for some people to work there, and also just how many executives had departed in the last year. It was about eleven people. So Jason had presented this rosie picture on TV and then you presented him with these very uncomfortable internal emails. How did he respond to that? So the

thing about Jason is he's kind of a politician. He's very good at getting people on his side, being a very sympathetic character explaining his position. And so at the time we met, Jason was still very much in sales mode. He was like, maybe just don't understand that the culture of our startup. Maybe you need to come to our headquarters and will show you how it is to be Fab. So I presume you went, you visited the company, you drank a little bit of their kool aid, and then

you still publish a very harsh story. And what happens after that it was kind of war. At that point, Jason put out a blog post saying that there had been blatant misrepresentations in the story. He denied it all, he spun. But it turned out that wasn't a blatant misrepresentation, and it was really the beginning of the end for fab dot com. I spent the next year reporting on layoffs after layoffs, everything unraveled, and eventually Fab got sold

for fifteen million. Hi, this is Brad Stone and I'm Sarah Fryer, and this week on our very first episode of Decrypted, we're going to hear from Jason Goldberg. This is a particularly personal story for him, and it's a little bit of a personal story for you too, Sarah. Right. Well, for for me, it was just a constant back and forth between me and it's entrepreneur back in the day,

and now we get to actually talk it out. We spend so much time talking about all the successes here until Icon Valley, but we really don't talk enough about what it's really like to drive an entire company into the ground and leave a smoking, crater sized hole and failure just the way things in for the vast majority of tech companies. It's brutal, it's emotional, it's public, and it's kind of embarrassing, and for some reason, somehow a lot of founders find a way to pick themselves back

up and start a new company all over again. Jason is now launching an app called Peopo, and that's why he agreed to talk to me, probably so he can put all of this behind him. He called me the other week from Puna, India, where he was putting the finishing touches on his new startup before launch. You know, we had all sorts of promise and opportunity and it didn't work. And you know, I think my my, my biggest emotion of it is, you know, just you know

that I'm sorry. So let's take this from the beginning. Sarah tell us about Jason and fat So. Jason is not your typical engineer founder. He came up through the Clinton White House. He's kind of a serial entrepreneur with a lot of suave personality. He gets his suits tailored

at Bottega Vanetta. He takes an uber everywhere, it doesn't take the subway, and he sort of got this presence and he partnered with this guy Bradford Shellhammer, who has this incredible design aesthetic, and together they founded this site called Fabulous, which was a gay social network and it wasn't really going too well, but Bradford, with his design shops, started picking out these products that he really liked and he started doing this big gay deal of the day.

This was at the height of group on and Living Social. Everyone was going crazy about these things and those deals really took off, and eventually Bradford and Jason realized that should be our company, so they shut that down. They launched this new site a couple of months later with all of these really quirky, interesting products that you really

just couldn't find anywhere else. Yeah, I remember how much attention and hope there was around fab dot com and there could be this large space in e commerce outside of the amazons and the e bays for boutique products and eccentric product categories. You know, it took off like a rocket ship. Um. You know, when we launched we

had a really small team we had. You know, I think we had fifteen people at most in New York and we had a team of like fifteen people in Puta, India, and you know it it was it was kind of incredible. I mean it was like, we sold a million dollars of the merchandise in our first twenty days. Um, we were profitable, uh, you know, kind of a casual basis in the first month, and I was like, whoa, we really had something in our hands. And um, in just

six months, FABS old twenty million and merchandise. They raised money from investors at a two million valuation. And honestly, their biggest problem was that they couldn't keep up with demand. They were selling out of products too quickly and couldn't get things shipped fast enough. Right, So what did this mean? I mean, they sound like good problems to have, But what's the challenge. I just heard about a lot of angry customers who had to wait for months before they

got what they ordered. And while still dealing with all those issues, Jason and his executive team got wind of some copycat companies in Europe and they decided to launch there and compete with them and crush them early. That was an early I think when you have a lot of you know, smart people who tell you that, hey, you know, you really should try, you know, going to

Europe faster. And you know, we saw what happened with Airbnb, or we saw what happened with Pinterests or whatever it might be, you know you should go and you know, and and try to you know, going faster. I allowed myself to believe that, okay, you know, we should give it a look, and and then once we gave it a up, we got really excited about it. And so ultimately it became a distraction for both Jason and Bradford. And at one point they were spending a couple of

weeks out of the month. They're trying to set up the right teams and the right executives to run the year of operation, while they still had all these problems in the US with merchandising and inventory. It was just getting to be too much. In our first year, we worked with more than five thousand designers and sold nearly two million products, and our dreams for FAB are just

getting started. And even though expanding geographically onto an entirely new continent, FAB was expanding in some more product categories. This is about authenticity. This is about showing people products they will love and delighting them day after day, adult products, pet products, all sorts of things that they had to find interesting, unique things for. Jason said that the quality started to deteriorate. At fab. We believe we have a

special opportunity to become the world's greatest design resource. On the outside, everything's still looked great. I I remember spring two thousand thirteen story fab dot com winning the e commerce war with whimsy. Not quite sure if I remember who wrote that one. That might have been me. Okay, that was me. But inside, as you found out later, things were starting to fall apart. Well. They were spending so much money on marketing, I think like thirty million

in and the customers they were getting through marketing. Per Jacent's calculations, he thought that they would be as dedicated as the early customers. That's how he built all his projections, But in fact they were kind of one and done, like they would buy one product and never come back to the site. And behind the scenes he was out there frantically trying to raise money to fit those growth projections. But people were actually a little bit skeptical and he

fell short. He ended up with only a hundred fifty million of the three hundred million he thought he needed. What feeling at that time because everyone who talked to you around then describes you as just being completely, you know, religious about Fab's vision. And in anyone who thought that that the company maybe wasn't going to grow as fast,

UM would would get talked out of it. It is quite possible that, you know, I think you're in a situation like that, then maybe you can get somewhat delusional um in thinking that you can just figure it out. UM. And also you know, just you know, it's like you you see that you know in that that you're growing, and that if you can figure out way to keep growing,

that you can kind of grow your way through it. UM. And I think it was also kind of a fear for what happens if we don't if we, if we, if we if you know, if we did hit you slam on, if we did hit the brakes and we said let's not grow as fast, that would that would have meant, you know, it's pretty ter Cronian layoffs. And that brings us to the moment where we started today's show with us now for an exclusive interview is Fab dot com CEO Jason Goldberg. Jason, great to see you.

Thanks for the scoop, huge cash infusion for you and your company. What are you going to do with them? On TV, things seemed to be doing so well. Jason looked so proud, but in reality he was backed into a corner. And then Sarah, you present him with the emails.

You know, I was very proud of the company, very protective of the company, and UM and I also was scared at the time, um, because you know, I was in the midst of, you know, going through a fundraising process where you know, we raised a lot of money, but I also knew that we didn't have enough, and UM, I was worried about kind of like the chinks in

the armor. And at least to the public and to me, he was denying that things were pretty bad, but Fab's board members were looking at the company's numbers and urging Jason to face reality. Howard Morgan was an early investor in FAB and he also sat on Fab's board. This is what he was telling Jason at the time. At this current rate, you're gonna be out of money much too quickly. You've got to really make radical changes here.

You've got to make radical cuts. You've got to change some of the culture, because there was a very free spending culture for quite a while as well. Uh you know, Jason and Bradford were getting off for Europe a couple of times a month, and uh, you know, we're entertaining uh merchants and suppliers and stuff like that. You've got to cut all that. So it took a bit for this message to really reached Jason, but Howard says that

to his credit, Jason acted fast. Wants to click for him, and it wasn't just about cutting back on his first class flights to Europe and five star hotel stays. Just a little more than a month after that TV interview, fabulaid off a hundred employees in Berlin to refocus in the US, and they cut another hundred employees, mostly in New York two months after that. And in those difficult months,

Jason's best friend and co founder also left. Yeah, I reached out to Bradford to see if he would chat with us, he said in a Twitter direct message that quote. I've put that way behind me and I'm focusing forward. I hope you understand Bradford's nowaty day. You know my co founder, Bradford was, you know, my best friend. We you know, built the business together, you know, um, you know he he and I did not kind of see eyed eye on um the needs for cuts and um

and how deep we should go with the cuts. And it's very hard for him. And where I failed was I should have found a way to keep him on and involve him. Despite those cost cuts, Jason was never able to turn things back around again. After some more layoffs. In early Jason sold FAB to private equity firm for fifteen million. He used that money to fund a spin off site called him that made custom design furniture, and I never really took off either. Jason sold that company

earlier this year. So to recap, Jason Goldberg laid off hundreds of employees, lost hundreds of millions of dollars of his investors money, had a falling out with his best friend, and became a poster child for a start up belly flop. And yet he's still in the game and he's got a new company. So much hype back then, but his new company, he's lying low. It's based in Berlin, and his engineering team is in India. But you're right. For most people, you'd think that would be enough to keep

you on the sidelines, but really not Jason. That new company he started just a day after he signed the deal with him. That's I guess part of my therapy is just building something. And um, you know, I I love designing products. I love figuring out use cases, uh and acknowledging that you know, when it comes to turn it into a business that I have to make sure to avoid the missteps that we have with the What about you, I mean, what about your family and friends,

your new life in Berlin? Um, how are you? How are you doing just in terms of personally coping with everything you obviously you know from on a on a friends standpoint. You know, I got divorced from Bradford basically right and so that you know, and then we were friendly. Now took us a while to be able to talk to each other. And you know, we've seen each other a few times and we have a lot of friends in common, but you know, the relationship is seen hard for to ever be the same. And I think we

we have, we developed a mutual respect. Um, But it's it's you know, it's it's not the same and we're not best friends anymore. One relationship Jason has kept is the one with his husband. He and Chris got married in two twelve, which was back when things were still really good with BAB, and they stayed together even in the aftermath of bab Stermize. Now they live in Berlin together.

We're both enjoyed living in Berlin and um getting you know, kind of getting away from some of the kind of spotlight and glare from the kind the star in the world. But I said this year sixteen is you know, people who know me really well, and I've got a very good, you know, group of friends all around the world. Um, you know, they would say that they haven't seen me this kind of um at peace and kind of mellow

in a long time. Jason says that more than anything, he's just really sorry that you'd let his employees down at FAB, and he feels awful that Fab's investors never made a return on their investments. But Howard Morgan, who's that FAB investor and board member we've heard from earlier, says he doesn't regret investing in FAB. But I don't regret I don't regret doing it. Because we have to swing for the fences in order to get the big wins that we get. We were the first people in Uber,

were the first people in Blue Apron. I mean, you know, so we we've had we had some some of our successes as well. Howard Morgan even invested his personal money in the startup that Bradford Shellhammer started after he left FAB. I asked him if given the opportunity, he would invest in Jason's new startup too well first round because the idea conflicts with another one about company. So but I would invest in Jason again, absolutely, because you feel like

you've learned. I know that he's learned. I mean I see what he's trying to do with with with Pico uh. And not not only has he learned, but he's quite a bit humbler, I think. And he still has the skills to design great products and to motivate people to

join them in the effort. The stories are really a great commentary on Silicon Valley and how it perhaps doesn't celebrate failure as much as it says, but it tolerates failure, and an entrepreneur can drive a company into the ground, can fail very visibly, and yet there's always the second chance. There's going to be someone out there who believes that he or she has learned from their mistakes and deserves to try it again. Well, failure in Silicon Valley is

actually widely celebrated. You see see posters and Facebook's wall saying um, move fast, break things, fail fast fail. Often you have entrepreneurs who write these heartfelt medium posts about what they learned after they had to shut the lights off at their startup. And in this failure is unique because of how how big it was, but it doesn't make it any less a part of the Silicon Valley culture where we all sort of feel like, if you're going to take these big risks, some things aren't going

to work out. And actually more than startups fail. But let me ask you this, So let's go back to where we started the show two thirteen. You're seeing him in the Bloomberg offices. Uh, you're presenting him all these uh internal emails and documents from the company, and he's trying to persuade you not to run the story. Is

he now fast forward to today? Do you think he's still spinning you in terms of how he says he's learned and he says he's moved on, and um, you know, it's a much more humble I mean, I think I think any any time you go through something like that, you kind of have to force yourself to learn if you're going to have the confidence to go out there

and do something again. But what I will say is, oh my gosh, I'm reporting for this podcast, and in reporting on Jason in the past, there are so many people who will not cannot refuse to forget times that he's he's spun them, or lie to them or or screwed them over. And so I think after a while it becomes difficult to to believe. And I think, you know, even for Jason himself, he has to pick himself back up. And for you personally, are you still skeptical my job?

Are there days where I'm like, you know, gosh, I'll never you know, I'll never work again. And you know, who's want to hire this guy or invest in this guy? And yeah, but not too much. I mean, I think for the for the most part, I think the attitude of you know, I think that I have some talents and that has some flaws, and I need to prove to myself and to others that the talents can overcome the flaws and I can improve on the laws and um and be successful. And that's what I'm setting out

to do right now. Well, that's it for this week's episode of Decrypted. Thanks for listening. If you haven't already, subscribe to our show and iTunes or any of the great podcast apps out there and leave us a grating and review that goes a long way and getting our show in front of more people, and tell us what you thought of today's show. You can talk to me on Twitter at at brad Stone, Sarah's at Sarah Fryer, and you can follow our whole tech team at at Technology.

This episode was produced by Liz Smith and Akiato. Aaron Black assisted with reporting my print story, which I hope you'll check out on our beautiful, newly designed tech page at Bloomberg dot com. Slash Tech was edited by Emily Busso. ALC McCabe is head of Bloomberg Podcast. We'll see you next week.