Author: JD
VENTURE CAPITAL SHOULD FUEL YOUR COMPANY, NOT YOUR EGO: 6 CRITICAL LESSONS FROM THE FALL OF FAB.COM
BY DANIELLE SACKS If there is one case study in startupland that will haunt investors and entrepreneurs for years to come, it’s Fab. From The Fast Company Archives: Fab.com How High Can Fab Climb? 10 Of The Corniest Products On Fab.com A Terrifying Memo From Jason Goldberg Jason Goldberg Launches Hem The former design flash-sale site pivoted more times than Madonna reinvented herself—and today, the sorry story of Fab came to an anticlimactic resolution. After raising $325 million from everyone from Andreessen Horowitz to China’s Tencent at a billion dollar valuation, the shell of Fab’s formerly fab self (sorry) has finally sold to PCH International for, reportedly, a meager $7 million in cash and $8 million in stock. How did this once Internet darling unravel so spectacularly? For entrepreneurs and investors looking avoid the same mistakes as the Fab, here are six lessons to extract from this e-commerce train wreck: Investors, Sometimes Failure Actually Means Failure Fab cofounder Jason Goldberg has a long track record of running startups into the ground. Earlier in his career, he founded a search engine called Jobster—and managed to vaporize $48 million in funding before the company was sold for parts. “I was this poster child in Seattle of this guy who had burned through VC money, like a pariah,” Goldberg told Fast Company in 2013. But Silicon Valley investors, who tend to view startup “failure” as a virtue, ignored the red flags—and Goldberg managed to talk investors into throwing a whopping $325 million at Fab. It’s Dangerous To Grow Too Fast In 2013, two years into Fab’s business, Goldberg tried to evolve the company from a flash-sale site to a traditional online retailer. But instead of just mastering the fundamentals of e-commerce—an elusive enough exercise for a founder who never worked in retail—Goldberg also decided to pursue a number of other ambitious tweaks to his business model, which included operating its own warehouses, manufacturing private label products, and acquiring startups in Europe to expand internationally. “I would say that a lot of Fab in the last 18 months has been go, go, go, go, and we’ll figure it out later,” Goldberg told Fast Company that year. Fab investor Allen Morgan, an adviser with Mayfield Fund, admitted back then: “When you grow this fast, it’s very hard because things can fall off the table and break before you catch them.” Nevertheless, Goldberg managed to raise $105 million to fund all his frenetic expansion. Of course, only months after opening a five-story office in Berlin, they virtually shut it down, laying off the majority of its European workforce. Beware The Perpetual Pivot Fab’s original pivot in 2011 from Fabulis, a gay social networking site, to a flash-sale design site was a smart, strategic move. The founders (Goldberg along with best friend Bradford Shellhammer) recognized a real hole in the design market. But after the flash sale site became an e-commerce site for designers, then morphed into a private label design retailer sourcing from Asia, and then turned into a customized furniture site, Fab began to look more like a business parody than a company with an actual strategy. (Ultimately, Goldberg pivoted his way into another company, Hem, a custom furniture spin-off of Fab which he’s now running.) Building A Startup Is A Marathon, Not A Sprint As the company’s leader, Goldberg always appeared more motivated by quickly reaching amorphous milestones than achieving sustainable economics. At an internal company meeting Fast Company attended in 2013, Goldberg regaled his staffers with the many records Fab had broken: “I have done at least 100 investor pitches in the last three months,” he said. “We will be the third-fastest company in history to be valued at a billion dollars. We will be the most heavily funded private e-commerce company in the past 10 years.” Goldberg should have paused to catch his—and the company’s—breath. Just a few months after he made all those boasts, Goldberg found himself laying off much of his staff—a trend that would continue until the once 700-person New York-based company was ultimately a shell of its former self. Venture Capital Should Fuel Your Company, Not Your Ego Every time Goldberg had a new idea for how Fab’s business should shift, he went to his investors, who willingly fueled Goldberg’s impulsive acts—even when they were fueled more by egotistical goals than practical needs. In late 2011, he wanted to boost Fab’s sales from $20 million a year to more than $100 million, so he raised $40 million to expand operations. By 2013, Goldberg had filled Fab’s coffers with another $165 million at a $1 billion valuation by selling an outlandish dream to China’s Tencent, among other investors, that Fab would become the fifth e-commerce company in the world worth more than $10 billion. “Money should be hard to come by,” says Rob Forbes, the founder of Design Within Reach and a Fab adviser. “If it [money] comes easy, then you have to have really good people around you who are keeping you honest.” Like Goldberg, most of Fab’s investors weren’t experienced in design retail, so all of Goldberg’s moves—no matter how irrationally aggressive—either appeared logical or were fueled by collective, naive fantasy. “Private label, exclusive partnerships, licensing from designers—these are things every retailer tries. It keeps their heads above water, but it doesn’t accelerate the growth of anyone’s business,” says Sucharita Mulpuru, an analyst with Forrester Research. “It sounds new to their foolish investors, but it’s not going to be the game changer they are hoping it is.” A Founder’s Goal Should Be To Build A Business—Not to Cement Their Reputation As An Icon Goldberg fancied himself a philosopher entrepreneur, regularly sharing his wisdom on his now-defunct Betashop blog. He also liked to put himself and his unproven business acumen in the same category as tech’s greatest mavericks. “If you look at companies that have succeeded over the last 20 years—Steve Jobs, Jeff Bezos, Bill Gates—they owned it,” said Goldberg, referring to his control-freak impulses. “You have to be obsessed with the details.” Goldberg’s drive to win (whatever that might mean), his fanaticism about building a massive company, and his urge to cement his status in history ultimately distracted him from the unsexy details of actually building a great company. “Either Fab will be worth four or five billion dollars in three or four years from now, or Fab will still be worth a billion dollars,” Goldberg told us back in 2013. But, as we predicted, he left out one other scenario. The one in which, for the second time in his life, he squanders bales of VC money—but this time it’s $325 million, not $48 million. Unfortunately, we were right. A Short History OF Fab.com 2010: Jason Goldberg and Bradford Shellhammer launch Fabulis, a gay social network, raising $3 million. February 2011: They decide to pivot Fabulis to Fab, a flash-sale site for designers. Menlo Ventures led the company’s $8 million Series A round. June 2011: On its first day in business, Fab sells $65,000 worth of product; in less than three weeks, it hits $1 million in sales. December 2011: Andreessen Horowitz leads Fab’s $40 million Series B round, valuing the company at $200 million. February 2012: To expand internationally, Fab acquires German flash sale site, Casacanda. June 2012: To continue international expansion, Fab acquires 10-week old U.K. design site, Llustre. July 2012: European VC firm Atomico leads Fab’s $105 million Series C round at a $600 million valuation. Spring 2013: Fab acquires German customized furniture company MassivKonzept. June 2013: Fab raises $150 million Series D for Asia expansion at $1 billion valuation. July 2013: Fab lays off 100 people from Berlin European Headquarters. November 2013: Fab lays off 50 employees. November 2013: Fab cofounder and chief design officer Bradford Shellhammer steps down from the company. May 2014: Fab lays off 90 employees. June 2014: Fab acquires Finnish modern furniture company One Nordic. Sept 2014: Based on One Nordic acquisition, Goldberg launches Hem, which he dubs the “Nike ID of custom furniture.” The business is ambiguously connected to Fab (Spin-off? Pivot? Unclear). January 2015: Ex-Fab cofounder Bradford Shellhammer (and design guru of the founding duo) announces he will launch Bezar, another flash-sale site for curated designers. March 2015: Fab is acquired by PCH International, a custom design and manufacturing business, for a reported $15 million in cash and stock. Goldberg steps down as CEO, now runs Hem.
Ex-Power 106 DJ Big Boy Given Green Light to Be on Air for iHeartMedia
The longtime L.A. radio personality is now free to work for 92.3 during a trial on the matter. In Los Angeles County Superior Court on Tuesday (March 3), Emmis Radio was denied a preliminary injunction to bar longtime KPWR (Power 106) morning personality Kurt “Big Boy” Alexander from joining crosstown rival iHeartMedia’s KRRL (Real 92.3) until a trial on the matter ends. L.A. Radio Rivals Fight Over Hip-Hop DJ ‘Big Boy’ Alexander The ruling stems from a breach of contract suit that Emmis filed on Feb. 3, seeking no less than $5 million in damages, as well as preliminary and permanent injunctions. On Feb. 10, the court granted Emmis a temporary restraining order — until now. Following Tuesday’s ruling, Emmis issued this statement: “While Emmis is disappointed with the Court’s ruling and will evaluate our legal options, we are pleased with the Court’s indication that damages are an available remedy at trial. Emmis remains resolute in continuing to protect our legal rights and committed to the continued success of Power 106.”
Soon anyone will be able to beat the iPhone’s fingerprint sensor
So far, only two companies have smartphone fingerprint sensor that’s good enough to be useful: Apple (in the iPhone 5S and iPhone 6) and Samsung (in the upcoming Galaxy S 6). But chip maker Qualcomm has a new device that everyone else can use, and it might be better. At the Mobile World Congress in Barcelona, Qualcomm announced a new fingerprint sensor called Snapdragon Sense that can read a user’s fingerprint even if it’s wet. It uses sonic technology to blast sound waves through moisture to get an accurate reading of your fingerprint. The Snapdragon Sense has another advantage over the sensors used by Apple and Samsung: It can be embedded beneath steel, aluminum, or glass, so smartphone makers don’t have to show it on the surface of their devices if they don’t want to. Apple and Samsung embed their sensors in the home buttons of their phones, but many other smartphone makers don’t use home buttons, so Qualcomm’s sensor will likely be very appealing to them. And naturally, the Snapdragon Sense can be used to enable mobile payments, logins, etc., just like the fingerprint sensors on Samsung and Apple phones. Qualcomm is one of the biggest mobile parts suppliers in the world. Its chips and radios can be found in practically every tablet and smartphone available. Now that it’s selling this new fingerprint technology, you can expect a lot of its partners to adopt it soon in order to catch up with Samsung and Apple. Qualcomm says you’ll start seeing the Snapdragon Sense in phones in the second half of this year.
CHRIS BROWN SURPRISE … I’M A FATHER!
Chris Brown is the proud father of a 9-month-old baby girl … TMZ has learned. The baby’s mother is a 31-year-old former model named Nia — who we’re told has known Chris for several years. Sources connected to both Nia and Chris tell us they are on very good terms — however they’re not together romantically. We’re told 25-year-old Chris is happy about being a father. It does not appear there is a formal child support order in place — and we do not know the nature of any informal terms of support. One thing’s for sure … baby girl looks a lot like Daddy.
Mishon – Man Up
I REALLY WANTED THIS TO BE MISHONS FIRST SINGLE,FOR A NUMBER OF REASONS,YOUNG NIGGAS REPRESENT NO LOVE IN TODAYS SOCIETY,THE KIDS VOCALS AND THE TOPIC
Michael Jordan Appears on Forbes’ “World’s Billionaires List”
In a basketball context, being rated 1,741st amongst your peers wouldn’t put you close to superstar status. But for Michael Jordan, he has found himself (for the first time ever) in the company of the planet’s wealthiest – appearing on Forbes’ annual “World’s Billionaires” list. Joining 290 other newcomers, his estimated net worth of $1 billion USD – along with his $100 million a year royalties he receives from his deal with Nike – puts him nestled between Summerfield Johnston, Jr. of Coca-Cola and Morris Kahn of Amdocs. Other people of note with an athletic connection include Nike’s Phil Knight at 35th with $21.5 billion USD (tied with Los Angeles Clippers owner Steve Ballmer). Seattle Seahawks and Portland Trail Blazers owner, Paul Allen, checks in at 51st with $17.5 billion USD. Additionally, Chelsea FC owner Roman Abramovich stacks up as the 137th wealthiest person in the world with $9.1 billion USD. The wealthiest man in the world remains Bill Gates at an estimated net worth of $79.2 billion USD – thus making him the “Michael Jordan” of making money. To see the entire list, head here.
You think Snapchat is for sexting, but it’s actually a giant threat to Google, Facebook, and TV
WHOA!!!!!! The most popular TV show of fall 2014 was NBC’s broadcast of “Sunday Night Football.” It averaged 21 million viewers per week. The strongest cable show was AMC’s “The Walking Dead.” Its midseason finale, in November, reached 14.8 million people. Big numbers, right? Try this one: 24.79 million. That is the number of people who, on the evening of Jan. 26, 2015, and over the next 24 hours, watched a video broadcast on their phones depicting the sights and sounds of New York’s “Snowpocalypse.” Unlike “Sunday Night Football” and “The Walking Dead,” the camera operators for the “Snowpocalpyse” broadcast were not professionals. They were mostly teens or adults in their 20s, shooting videos and photos with their phones, often photos and videos of their faces. They were Snapchat users. Not just for sexting Snapchat started out in 2012 as an app people could use to send one another disappearing photos. Initially pretty much everyone assumed it was an app for sexting. They assumed this because three rambunctious Stanford fraternity brothers created Snapchat. They assumed this because, in early marketing materials, one of those founders pitched Snapchat as a way young men and women (“betches”) could share “incriminating photos” with one another. They assumed this because the app was most popular with teenagers and college students. Sharing naughty photos probably was and is a big part of why some people use Snapchat. But as early as mid-2014, disappearing photo-sharing was no longer Snapchat’s most popular function. It was something called “Snapchat Stories.” How Snapchat Stories work Launched in late 2013, Snapchat Stories are in the same social-media genus as Facebook posts, Twitter tweets, and Instagram photos. A user snaps a photo or a video and taps a button, and the video or photo is stitched into a single video. That video, or story, is then shared with all of the user’s friends. There are two major differences between Snapchat and Facebook, Twitter, and Instagram. The first is that Snapchat Stories disappear after 24 hours. They are, in this way, almost live events. Like broadcast TV in an era before DVR or VCR, if you miss a story during its 24-hour run, you will never see it again. The second major difference is that Snapchat Stories are not automatically displayed in a vertical stream of content the way Facebook posts are in its News Feed, tweets are in the Twitter app, or photos are in Instagram. A user can get to a friend’s story only by opening the app and swiping right, to a screen called the “My Friends list.” It is a list of friends who have posted stories in the past 24 hours. Then the user has to touch one of those names and hold that finger on the screen as the story plays. If you remove your finger, the video stops playing. If you’re not paying attention to your friend’s story anymore, Snapchat knows. 25 million people watching one story The night of Jan. 26, 2015, after predictions of a historic snowstorm, thousands of New Yorkers were taking photos and videos of the city’s snowy streets and adding them to their stories. Meanwhile, over in California, a team of Snapchat employees was skimming through the videos and photos being posted in New York that night and selecting the best ones to stitch into a single mega-story. Snapchat Snapchat then published this onto every single Snapchat user’s “My Friends list.” Over the next 24 hours, 25 million people watched this mega-story. Then, as with every Snapchat story, it disappeared. Snapchat calls these mega-stories “Our Stories.” It first produced one back in June, during the Electric Daisy Carnival in Las Vegas. Since then Snapchat has made mega-stories about New Year’s Eve, the Golden Globes, the National Dog Show, something called the Wally Festival, the Daytona 500, Duke’s home basketball game against North Carolina, fashion weeks in the US and Europe, Vanity Fair’s Oscars after-party, and dozens more events. The company will not come out and say exactly how many people watch these mega-stories, but we have been able to suss out some figures. This past fall, Snapchat CEO Evan Spiegel said Snapchat’s mega-stories about college football games attracted larger audiences than the audiences that watched the same games on TV. One of the Snapchat users who took a video that was stitched into Snapchat’s mega-story about the Snowpocalpyse told a friend that the app on his phone showed the video was watched 24.79 million times. That friend wrote a blog post about it, and tech news site GigaOm wrote a news story about the blog post. Since then, we were able to confirm the number shown in the app meant the video was watched by 24.79 million individuals. 24.79 million! It’s a staggering number. Remember: “The Walking Dead” midseason finale reached 15 million, and “Sunday Night Football” reached 21 million. Those are the biggest hits on TV, and their audiences are smaller than Snapchat’s. The perfect advertising platform Snapchat does not yet run advertising in its mega-stories, though it’s in talks with marketers about the idea. It is impossible to imagine that it will not run ads in the near future. The reason: Never has there been a content format more perfectly suited to make money than Snapchat “Our Stories.” Consider the following traits of “Our Story” videos: The audience is 100% engaged. Because users have to press and hold to watch Snapchat Stories, advertisers will know whether their ads are being watched. The same cannot be said for TV commercials, which you can avoid by walking to the kitchen, or Facebook and YouTube videos, which you can leave open in another tab or even just put in your pocket. They are opt-in. A Snapchat user has to go through a couple of screens to find a story to watch. It is a very intentional act. Facebook, Instagram, and Twitter ads are much easier to accidentally bump into. They provide the right context. A story about a fashion week is a perfect place to run an ad from L’Oreal. A story about the Duke-UNC game is a perfect place to run an ad for Gillette. The have the right demographic. According to Business Insider Intelligence, more than 60% of Snapchat users are in the 18-to-24 age group. That is a coveted demographic for advertisers. They are nearly “live.” One reason ESPN and Turner are willing to pay $24 billion to broadcast NBA games is that, in the era of DVR, on-demand, and Netflix, TV sports are just about the only thing anybody watches live anymore — and advertisers love to advertise against live content. They are broadcast scale. Advertisers love commercials — video advertising — because it is easy to tell a story with it. Advertisers also understand that consumers are spending more time with digital products and less with TV. But advertisers hate how small online TV audiences are. They want to spend lots of money on spots they know are going to be seen in the right context by a lot of people. They want broadcast scale. They are actually great videos to watch. No one wants to advertise against boring, bad content. Snapchat’s mega-stories are not boring or bad. In fact, they are an exciting new entertainment format. They give viewers live, intimate access to events they would never be able to attend on their own, like the Vanity Fair post-Oscars party. While the biggest of live events covered by TV are captured by maybe a dozen cameras at most, Snapchat’s mega-stories can be stitched together using video from thousands of cameras. Finally, Snapchat’s best “Our Stories” videos can sometimes do something magical; they can give you that “Being John Malkovich” feel of actually being inside someone else’s head in another place for a moment. The trick is that they are made up of the kind of photos and videos you would take with the very same device you are using to watch the video. It is almost as if you are at the event being recorded, looking at a video or a photo you just shot. A threat to Google, Facebook, and TV The size of Snapchat’s “Our Stories” audiences is terrible for Google, Facebook, and broadcast TV. According to Nielsen data from 2013, only 58% of people age 18 to 24 watch any of the four big TV networks. Average prime-time TV ratings on the four major networks declined from 6.1 million viewers per show in 2007 to fewer than 5.6 million in 2012. If those numbers keep shrinking, advertisers are going to start looking for other places to put the $174 billion they spend on TV advertising every year. Socialbakers When Google bought YouTube for $1.6 billion back in 2006 it was with an eye toward making it one of those places. But YouTube was built in a pre-mobile era, and it is struggling in mobile. People watch a lot of YouTube videos, but not through the YouTube app or by going to YouTube.com. They bump into them via Facebook or other social media. Wall Street Journal reporter Rolfe Winkler says YouTube still is not profitable, and it is generating just $4 billion per year in revenue. Facebook executives see YouTube’s weakness in mobile and are working very hard to capitalize. One of the company’s biggest pushes in 2015 is to bring more video to its platform and stick ads in front of it. Facebook no doubt is going to make a lot of money selling video ads. Its audience is huge, and it has been eating away at YouTube’s share of videos viewed for a long time. Facebook’s advantages over YouTube are many, starting with the fact that 20% of the time people spend looking at their phones they are looking at the Facebook News Feed. But Facebook is weak in a few areas in which Snapchat is strong. One technical advantage: While Snapchat videos stop playing if the viewer stops holding a finger to the screen, Facebook videos in the News Feed play automatically. One more meaningful advantage: Facebook has no video product that compares with Snapchat’s “Our Stories.” It has nothing so topical, so live, so huge. And, more frighteningly for Facebook executives, “Our Stories” are just the beginning for Snapchat. Your phone’s rabbit ears If you want to use jargon, the way to think about Snapchat is to think of it as a communications and consumption platform. If you hate jargon, think of it as a cable box for your phone. On that cable box, Snapchat’s “Our Stories” are the shows by the Snapchat channel. There are also other channels. Some of these channels are run by big media companies, including Vice, the Daily Mail, and CNN — each of which put out daily stories on a screen Snapchat calls “Discover.” Other channels are made up of shows produced by independent creators. There is a small but growing group of Snapchat celebrities who produce daily stories for huge audiences of “friends” on the service. The New Yorker recently profiled one of those stars, Jérôme Jarre. The New York Times’ Nick Bilton wrote a column about another, Casey Neistat. Neistat, who has 480,000 followers on YouTube, says the engagement he gets on Snapchat is unlike anything he’s ever seen. He says it’s the future of social media.