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The rise and fall of Fab.com. A good case study on why growth is not enough, and sustainable/cost-conscious growth is important.

  • IK

    Ivan Kreimer

    about 5 years ago #

    This is an interesting case for those that think that the 90's dot-com bubble was a one-time thing. Companies can still get overvalued if they do things the wrong way, such as Fab. Let's hope this is a unique case and not a new "trend" in the startup world.

    • JB

      Joseph Bentzel

      about 5 years ago #

      Not a unique case. The same patterns that characterized the dotcom crash are in evidence today.

      One lesson for GH community is not to conflate 'growth' with a particular valuation placed on a startup by the VC community.

      I see far too many growthhacking write-ups that use phrases like 'growthhacked a billion dollar startup' with the 'billion' referring to valuation, not revenue.

      Sober growth metrics focus on revenue, not VC-driven valuation. Today's unicorn, tomorrows goat....without a consistent and proven growth strategy.

      • RS

        Rob Sobers

        about 5 years ago #

        Not nearly the same as the dotcom crash:

        http://mattermark.com/wordpress/wp-content/uploads/2014/05/Mattermark_IPO_revenue_expense_ratio.png

        On the whole, tech companies are making more money than ever before.

        Of course there are going to be many cases like Fab where valuations are pumped up based on growth that can't/won't ever be monetized. That's the gamble.

        And if you *can't* monetize, you have to sell the dream to someone else. Many VCs and founders have made that work. Look at Tumblr. They sold to Yahoo! for $1.1B and the founders and VCs had a huge outcome without ever having to show profitability. If Tumblr ultimately can't monetize, that's the public shareholders' problem.

        • JB

          Joseph Bentzel

          about 5 years ago #

          Actually worse than the dotcom crash.

          Just propped up by different Fed monetary policy of basically free money to the banks. Your Mattermark chart actually makes my point with a high band of players GAAP unprofitable and justifying it with LTV hustle.

          Here's the reality. Amazon.com is still GAAP unprofitable. Armies of analysts tied to their stock price tell the world they are 'investing in growth' to justify it.

          Salesforce. Still GAAP unprofitable. After 15+ years. What does that say for the 'LTV' metric. IPOs still mega-high burn rate and cheerleader 'analysts' pumping up prices to justify the creation of inflated values so these companies can buy other companies to keep the thing rolling.

          Startup cultures. Many totally focused on raising money vs. creatively driving organic growth.

          And don't use Yahoo as a buyout role model. Activist investors are after Marissa Mayer's head for some of the buyouts.

          Sure VCs can exit. That's the whole basis of their business model. Exiting. That's what they do. They pass the risk to public markets and retail investors.

          My point stands. "Valuation" is not a growth metric growthhackers should tout as proof of anything, and valuations can implode in short order when ongoing funding gets pulled and VCs get cold feet.

          Think of the case of Fab as a canary in the coal mine. Not an aberration. The aberration is the 'unicorning' of tech which is a tell for more of these kinds of stories.

  • AS

    Amit Sonawane

    about 5 years ago #

    Here's a good account of events and decisions leading up to it http://uk.businessinsider.com/how-billion-dollar-startup-fab-died-2015-2

    Also, here's one of my favorite Foundation (w/ Kevin Rose) interview with Jason Goldberg (Founder) in its golden days: http://youtu.be/JDZTmwnqks4

  • MB

    Morgan Brown

    about 5 years ago #

    Amazing story. They should've stuck with the flash sales.

    • VN

      Viet Nguyen

      about 5 years ago #

      Not sure it would have worked. Flash sales were in decline and brands were limited

      • YO

        YM Ousley

        about 5 years ago #

        One of Fab's original strengths was sourcing from brands that weren't the standard ones that everyone else was chasing. Gilt, RueLaLa, Hautelook for the most part all went after higher end fashion and home brands, but Fab almost always had smaller, quirky, really original brands. I've seen this scorched earth pivot policy do other startups in too. There may be limitations to how far you can grow a certain channel, but throwing the baby out with the bathwater rarely works. If they'd stuck with flash sales in some capacity, they may have still had issues, but not to the extent that they exist now.

  • SE

    Sean Ellis

    about 5 years ago #

    Ouch! Good find @heyitsalexp

  • PG

    Pushkar Gaikwad

    about 5 years ago #

    I think the selling price is $15M as mentioned in the article but yes, really less considering they were getting valuation at USD 1B just 2 years back.

  • AP

    Ankit Prakash

    about 5 years ago #

    ohh...that's bad.

  • TM

    Tony Mariotti

    about 5 years ago #

    I thought this was an Onion headline until I saw that Bloomberg was the source. Even the 'preferreds' got hosed.

  • ZT

    Zetong Teoh

    about 5 years ago #

    Is anyone with me in thinking that this subpar performance is actually due to the strategies made to the business than anything else?! I'm not optimistic with Hem either.

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