Things Aren’t So Fab At

The startup’s race to a $1 billion valuation has prompted missteps | “If you have time to model, you have time to get fired”

Sarah Frier

Two-year-old New York startup is now selling goods in 27 countries, has a staff of 650 people, and has been spending millions on marketing. A round of funding announced in late June valued the online retailer of hipster home goods at more than $1 billion. Yet Fab is suffering growing pains, according to interviews with current and former employees who supplied internal e-mails regarding personnel and financial matters to Bloomberg News. The startup has lost or fired at least 11 executives in the past year and missed its publicly stated targets for revenue by almost 20 percent. “It is impossible to grow a company as fast as we’ve grown Fab without having mistakes along the way,” says founder and Chief Executive Officer Jason Goldberg, who reviewed the messages and confirmed they were authentic. “Hopefully we’re able to adjust and make changes effectively,” he says.

Investors including Andreessen Horowitz and China’s Tencent Holdings have put more than $310 million in so far (Bloomberg LP, which owns Bloomberg Businessweek, is an investor in Andreessen Horowitz). The venture capital has financed the startup’s international expansion, along with a push into new lines of business, such as Fab-branded tableware, bedding, and other home goods. At the same time, he and cofounder Bradford Shellhammer have acquired a reputation as tough-minded bosses, threatening to fire employees in companywide e-mails and dictating what computer fonts workers can use.

Fab, according to Goldberg, is in the business of “emotional commerce.” The site aims to set itself apart from myriad other flash-sale sites through offerings that are often quirky: a vintage yellow typewriter, tables shaped like U.S. states, or a piggy bank flocked in faux grass. The operation logged global revenues of $113 million in 2012, according to an internal e-mail, short of the $140 million mark Goldberg had publicly aimed for. He confirmed that he sent the e-mail, saying revenue was later revised to $115 million. The company, which is not yet profitable, projects sales of $200 million to $30 million this year.

To expand in Europe, Fab acquired companies in Germany and the U.K., only to discover that it didn’t make sense to have two offices in the region. So it shut down the London operation and asked the employees there to move to Berlin, a decision that irked some workers, according to former employees. Goldberg says Fab is “learning how to be a global company.”

The startup has spent heavily to broadcast its brand of offbeat fun, devoting about $40 million, or 35 percent of revenue, to marketing last year. That included TV ads, an unusual expense for a second-year startup. Goldberg says the company plans to dial back marketing to less than $30 million this year.

The founders’ attention to detail extends to Fab’s Manhattan headquarters. The 47,000-square-foot workspace boasts the standard startup amenities, such as free beer and ice cream, along with some more unusual touches, like a conference room covered in scratch-and-sniff banana wallpaper. Employees are directed to always “be Fab” and refrain from hanging their jackets over their chairs, because it looks too sloppy. The office doubles as a showroom for Fab products, and the idea is to make everything “pixel perfect,” explains Goldberg, who sports an all-black outfit accessorized with a red belt, along with a trim beard and coiffed hair.

Staff who don’t go along face consequences. A Feb. 4 e-mail from Goldberg that carried the subject header “Do you like getting paid?” directed employees to upload their photos to the “team” page on “in order to be eligible for the next company pay period. No exceptions.” An Oct. 11 message from Shellhammer, whose title is chief design officer, barred staff from modeling products in photos that are posted on the company’s website. “If you have time to model, you have time to get fired,” he wrote.

The lack of subtlety has contributed to management turnover, according to six current and former employees who asked not to be named, some because they have signed confidentiality agreements. Executives who have left include Fab’s chief marketing officer and the directors of human resources, communications, buying, and logistics. “This is a little bit of our sass,” says Goldberg, who noted that turnover is natural at a fast-growing startup. “On one hand we’re saying, ‘make mistakes,’ and at the same time we’re saying, ‘get s--- done.’ ”

The bottom line missed its 2012 revenue target by almost 20 percent and has had a string of executive departures.


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