Thursday 14 December 2017

Confessions of a unicorn: It's hard to remain humble piloting a rocket ship

Jason Goldberg,
Jason Goldberg,

Sarah Frier

In June 2013,'s chief executive officer, Jason Goldberg, pictured, arrived at the Bloomberg Television studios in New York, ready to spread the gospel of quirky home decor.

Fab sold Texas-shaped coffee tables, necklaces with expletive pendants, cardboard lion heads, and other unique items, and investors loved it. Goldberg had raised hundreds of millions of dollars, and the latest round of venture capital valued Fab at $1bn.

Back then, a 10-figure valuation placed you in rare air, but Goldberg wasn't satisfied: He wanted to be bigger.

"There are currently four e-commerce companies that are worth more than $10bn - Amazon, Rakuten in Japan, Alibaba in China, and eBay. And we think Fab has a good chance of being the fifth one," he told Bloomberg. "We have more money than we need right now to run Fab well into the future."

But Goldberg had raised only about half of what he needed. Soon after his televised brag, Bloomberg published my story about troubling cracks in the business - revenue shortfalls, a revolving door of executives, low morale - and it was even harder for Goldberg to get cash from investors.

The turmoil that followed was well chronicled: round after round of job cuts, departures of executives, including Goldberg's co-founder, and, in 2015, the sale of what was left of the brand to Irish businessman Liam Casey's PCH. The selling price was rumoured to be around $15m.

Now Goldberg is back, with something new to sell. He's set to launch Pepo, a consumer messaging company. This time, he says on the first episode of the Decrypted podcast, things won't get as crazy. Fab's crash is a cautionary tale for any startup that relies on selling things directly to consumers. Flush with venture capital, startups use it to afford marketing or steep discounts for their customers, which help them grow - but it can't last forever.

The current startup landscape - with more than 150 companies valued at more than $1bn -is peppered with e-commerce companies yet to prove their business models.

In the larger startup landscape, enthusiasm for some of the unicorns has started to fade. Some of them are taking on debt, some laying off staff. Goldberg is well-equipped to tell those bosses what may come next: rounds of lay-offs that aren't enough, rifts between co-founders, and a sell-off of assets.

"Don't ever allow yourself to slip into thinking, 'We figured it out,' or you risk losing it all," Goldberg said. "If you are ambitious and if you grow your company fast, this will be your own personal epic battle. It is very hard to remain humble when you are piloting a rocket ship. It is very hard to remain humble when the world is telling you: You are winning."

Silicon Valley is a place where people like to talk about failure. Posters at Facebook's headquarters urge employees to "fail fast, fail often," and countless entrepreneurs on Medium who drone on about their shortcomings also preach that ultimately, to win big, you have to take risks. But failure isn't always a quick stop on the way to success. Sometimes it's final.

Goldberg and his best friend, Bradford Shellhammer, launched Fab in 2011 and sold $20m worth of merchandise in their first six months. The early problems were good ones to have. Sometimes, demand outstripped supply, and a lot of manufacturers were small and inexperienced. Some presents people ordered didn't arrive in time for Christmas 2011, so Fab paid for similar things on Amazon, just so there would be something under the tree (with the original gift still en route).

Fab sped up shipping, but it wasn't cheap as the company bought warehouses. Meanwhile, Goldberg and his investors were encouraged by how enthusiastic people seemed to be about the products, so they started spending to expand more. They had a $30m marketing budget in 2013. The customers flooded in, but not in the way he expected. They would see an ad and make a purchase, and then never come back.

Since Fab, there's been a deeper focus among investors on understanding the unit economics of startup businesses - how much the company makes from every item sold, according to Kirthy Kalyanam, who teaches marketing at Santa Clara University. Fab was badly positioned because it was selling a product people don't need regularly, so it costs a lot to acquire and retain customers through marketing.

"Some of these people invest thinking that the founder has some magic, that he can think about it in a way that nobody understands," Kalayanam said, noting that Fab had some high-profile investors -Andreessen Horowitz, Menlo Ventures. "Why did it take so long for investors to figure it out? That's the effect of a charismatic founder."

Now Goldberg isn't focused on being as big as Amazon and Alibaba. He started Pepo with $1m of his own money, and he's going to be careful not to take anything for granted, he said.

"I've had people ask me: How do I know Pepo is going to be successful?" Goldberg said. "I don't know if Pepo is going to be successful. Now I just think: We're going to build a good product." (Bloomberg)

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