Why Fab's Top Brass Still Thinks CEO Jason Goldberg Can Turn This Hot Mess Around
But those articles tell only half the story.
Fab's top brass - its CEO, COO a board member, and its chief HR officer (and other sources, speaking privately) - tell Business Insider that Fab has been treated unfairly by the press, and that most of the criticism willfully misses the point: Fab is financially stable. It is growing. It has a plan to be profitable. It has plenty of money in the bank. And morale at the company is surprisingly upbeat. There's a sense that the company has finally figured it out, we're told, and knows where it is going.
"The one thing people have wrong is that we're in trouble," Goldberg tells us. "In addition to our $120 million in cash assets and solid customer base, all of our key long term metrics are trending positively."
The executives at Fab that we spoke to admit they - and sometimes Goldberg - made some mistakes that didn't serve the company well. They believe they probably shared too much information publicly, when the company was too young. All new companies make mistakes in their early stages, and Fab might have been better served having made its mistakes in private, they say.
But those mistakes aren't the whole story.
Pivots and layoffs
If you've been following the trials of Fab, you'll know the depressing storyline: Half of its 700 staffers have been laid off. The company is burning through $336 million in investment funding. Several senior executives have left or are leaving, including one of the founders and its COO. And this is CEO Goldberg's third business model at Fab, and his fifth pivot within two recent startups he has founded.
It's a mess.
In part, the media coverage has been generated by Goldberg himself. He once made a tone-deaf complaint to his 37,000 Facebook followers about a person who declined to accept $100 from him in order to switch seats in a first-class airplane cabin. ("It is kinda odd to ask adults to move and not have them agree.") He also posed for some sexy topless photos on a cruise. The photos aren't particularly shocking - they're vacation party pics- but most startup CEOs manage to avoid that sort of thing because it becomes a media distraction to their mission.
Even as recently as Dec. 2, Goldberg responded to a pointless Twitter fight with a London actress who had written a blog post suggesting "This site will go the way of boo.com." (Boo.com was the most famous dot com implosion of the late 1990s.) Goldberg tweeted, "Well @laurenmichelles if you are going to ignorantly call @fab F*cked I will defend this great company until forever."
Why does Fab's board back Goldberg?
Talk to Fab's management and its backers, and you hear a completely different story.
Goldberg and Fab are being unfairly punished for making some tough but necessary choices. Those choices came thick and fast this year, as Goldberg concluded that Fab's daily deal "flash" sales model was not going to be profitable, and the company had to change dramatically in order to survive. Part of the proof that Goldberg was right was the fact that he raised $150 million in new investment funding in the summer, after informing those investors that Fab was abandoning its old model and would lay off many of its staff to do so.
People don't give you $150 million if they think you're in a death spiral, of course. And what was Goldberg's alternative? To continue flogging a business model he'd realized was not working, until the whole company went under?
The board could have replaced him with a retail veteran, or even COO Beth Ferreira (whose history includes stints at Etsy, as vp/finance, and at Boston Consulting Group). But in fact, Goldberg has the "unanimous support of our board and investors," he said in an email to Business Insider. A board member says they were impressed that Goldberg had the humility and quick-wittedness to admit that his original plan was failing.
Instead, it's those laid off staff you've been hearing from in the media, according to Allen Morgan, a member of Fab's board of directors and an investor. "It's easy to get access to people who are pissed off because they just got fired."
"When the history of Fab is written, the picture of him will be pretty laudatory, for how he behaved in the last six or nine months. Most companies would not have made those decisive changes in such a compressed timeframe," Morgan says.
But, says Allison Rutledge-Parisi, Fab's new chief people officer, "He'll never get a fair break in the media. He's got courage, guts. I give him tons of credit."
'There have been lots of leaks because employees have lots of information'
"If he had to run everything by me before he posted it on Facebook or on his blog ... I would tone it way down," Morgan says.
"Jason has more than once published metrics that hardly any other company has published about its business," Morgan says, creating "grist for the media mill."
"He operates internally the same way," Morgan says. "It's deeply ingrained in his personality to be open. I wouldn't want him to dramatically change." There is a benefit internally with the employees - everyone knows where the company is at. But that comes at a cost. "There have been lots of leaks because employees have lots of information," Morgan says.
And through Feb. 15, Fab will have about 350 fewer employees, making it half the size it was at its peak. The losses will include COO Ferreira ("the company was top-heavy so I offered myself up") and co-founder Bradford Shellhammer ("I am focused on what I am doing next and will be happy to share that news with you when it's ready. But I don't have any interest in discussing Fab.")
That's a lot of disgruntled former workers.
"Two hundred people just lost their jobs and they're not super-psyched about that," says Ferreira. Rutledge-Parisi agrees, "Big actions are depressing. I've done a lot of them in my life. They are depressing."
What the media doesn't "get" about those layoffs is the amount of thought that went into them. People have the impression that, halfway through the year, Fab went into some sort of crisis and, suddenly, Goldberg began swinging the ax.
The ax had been falling for months
At the same time, Fab was spending huge sums of money on advertising and marketing, up to $40 million. That budget has been pulled back. (Fab was conspicuous by its absence from Business Insider's ranking of Facebook's top advertisers this year; it made the list in 2012.) But that spending successfully fought off a challenge from a German company in Europe that was trying to clone Fab's business.
"It's easy to look back ... and forget how fluid the situation was at the time in terms of Jason and the board's strategic thinking about the company," Morgan says. The flash sales model was not working: Although it was driving revenue, it was costly and logistically cumbersome to maintain. The gross margins on each sale were fine, Morgan says, but that profit was quickly eaten by operating expenses. In order to drive daily sales, the company needed to sell out of a new item each day, and that required a lot of marketing and personnel expenses. Fab's new "inventory" model, in which it holds goods for a longer period of time until they're all sold, isn't dependent on promoting, selling, and shipping everything right now. "It's just a more efficient business model," Morgan says.
The issues weren't limited to Fab, either. Both Groupon and Living Social went through layoffs as they discovered that selling daily deals just wasn't as profitable as they had hoped. Fab's problems were secular as well as specific, in other words.
So Goldberg went to the board and his investors, and proposed a change of business model. One that would require reducing the size of the company. It may have looked like a switchback to outsiders - why would a company that just raised $150 million suddenly need to cut staff? - but "the new investors were not surprised," Morgan says. They invested after hearing Goldberg's plan for Fab's turnaround.
The media also forgets that post-restructuring Fab has an advantage: It isn't starting from scratch. The company can build its new business model using its existing customer database and brand. "The one thing that is most underrated about Fab is the emotional relationship Fab has with our customers. You can see this in social media where Fab customers express their excitement for the designs we offer," Goldberg told us.
The alternative was for Goldberg to stick with the flash sales model, and run the company into the ground. "Many companies would have continued to try and make that work and run out of money," Morgan says.
"Jason did a lot of things that cause pain because it causes pain to fire people." But he may have saved the company, Morgan believes.
'Did Jason make the right decision? He absolutely did.'
Surprisingly, Goldberg, Ferreira, Morgan, and Rutledge-Parisi all told us that currently, morale at Fab is on the upswing and improving all the time.
A big part of that: It's the holiday season, Fab's busiest time of the year, and the company believes it will have some bullish numbers to report in early 2014. And, Morgan, says, when teams go through stressful times, it often knits them together better.
Staff have been decorating the office and sharing emails from customers. "There's a real buzz emerging, and that's nice," Rutledge-Parisi says. "When you walk around in here, people are talking, planning in the various open spaces ... people are laughing and joking and spending time together."
Goldberg wrote in an email, "There is real and genuine energy around the Fab offices right now, fueled by solid numbers on a smaller expense base and an exciting and achievable vision and plan for 2014-2017."
The reason Goldberg is talking about 2017 when the media is talking about a death spiral is that the media often forgets that Fab currently has $120 million in the bank. That's more than most startups get in their entire lifetime. The company simply isn't going to burn out and die any time soon. "'It's all gonna end!'" Parisi-Rutledge says, in a parody of the news stories she's read. "It's ridiculous."
The board, like Goldberg, is looking to the long term. Fab's short-term image problem is annoying, but it isn't what will make or break the company.
"It's rare that history shows up at your door with a set of cue cards telling you what to do," Morgan says. "Did Jason make the right decision? He absolutely did."