A CEO wrote this brutal memo when he realized his billion-dollar startup was failing
Within its first six months, Fab generated $20 million and Silicon Valley investors valued the company at $400 million. At its peak, the company raised a total of $336 million at a $900 million valuation with a $200 million+ run rate.
But then Fab crashed.This month, the assets of Fab are expected to be acquired by PCH Innovations for $15-50 million in a stock-based deal.
The company and its CEO, Jason Goldberg, made a lot of mistakes during the course of Fab. You can read about them all in detail here.
When Goldberg realized Fab was failing, he wrote a 5-page memo to his executive team. It's dated October 11 2013, a few months after the company raised a $150 million round of financing at a $900 million valuation from Tencent.
Then, Fab was laying off hundreds of staffers and pivoting its business for the fourth or fifth time. The memo provides a transparent look into a troubled company that blew $200 million before figuring out a sustainable business model. It is proof that even the most hyped tech companies with gobs of funding can go sideways very quickly.
Printed copies of the memo were handed to the executives. Business Insider got a copy and typed it all out to protect the source. Here it is in full:
CEO MissiveOctober 11, 2013
We are going to make this work.
- It has to start with brutal honesty
- We have a job to do. That job is to make Fab successful.
- I want your help doing that.
- But it won't be exactly the same as it has been.
- And you might not always be comfortable with everything we have to do. Change is hard.
- And we have to establish a few ground rules:
- I have a full mandate from the board to do whatever it takes to guide this to a good outcome. I am responsible for their/our money. My role is to steer this ship and you have to be 100% ok with that.
- Jason is allowed to ask and question anything. And he will make tough calls that the team may not like, but will need to try to find a way to get behind. We're in full-on preservation mode right now. This is serious.
- There has to be scrutiny and measurement on every aspect of the business, there is no room for blind faith bets.
- I can't do this if the team -- the CPLUS group -- are are [sic] not in a good head space. The broader team takes their emotional cues from you.
- We're better at this together than against each other.
- I have promised the board certain things:
- We will guide this business to being self-sustainable.
- We will narrow our focus to a specific target customer while we figure out a repeatable business plan to service them. Jennifer/Michael.
- We will question everything and apply analytical rigor to our decision process.
- We will do a ruthless assessment of our talent and fill in our gaps.
- The debate about our path is over. At this point it's about deliberate action.
- We are not done righting this ship. It will be a constant, every day effort.
- Step 1: Acknowledge that we have serious problems.
- Step 2: Ground ourselves in reality on what it will take to fix our problems.
- Step 3: Focus on fixing it.
- We have to be brutally honest with ourselves about where we are at.
- We spent $200M in the past 2 years. $200M!
- We spent $200M and we have not proven out our business model
- We spent $200M and we have not proven that we know precisely what customers want to buy.
- This is not an indictment about any person or persons or team.
- It must be a thoughtful discussion about what's best for Fab.
- We have north of $100M and we a) have to make it last b) figure out all the things we should have been figuring out over the last two years.
- This is it.
- It will be super difficult to raise another round, and if we do raise a round some of the consequences (including not controlling our own destiny, potentially nasty down round, etc)
- We are the most heavily funded startup in NYC at 2 years in our life cycle and we have spent 2/3 of the cash - its a privilege and enormous responsibility
- We have to figure all of this out quickly or we will run out of runway
- Holy shit this is a big deal
- Retail businesses are all about the merchandise.
- No amount of marketing or financial engineering can overcome the merchandise.
- Successful retail is a marriage of merchandising and supply chain.
- Successful retail is a marriage of merchandising and operations.
- Selling a lifestyle = ruthlessly executing on a tight creative vision that is married with a deep and proven understanding of what customers will buy.
- Turning around a retail business is a slog. It wont [sic] happen overnight. Planning cycles. We need time.
- The only way we get time is to cut our spend - we need to be creative and brutal about it
- We must, must, must, narrow the focus. Even more than we already have.
- Fab does X better than anyone else for Y. And here's the proof.
- That's not to say we can't come back and do more later and build that lifestyle brand we want to build, but we have to earn the right bit by bit right now.
- Especially because we buy inventory. We can no longer afford to take big chances on stuff that doesn't sell. Everything has to be focused, even the misses.
- We've got a limited shot at this and focus is the only way we are going to get there. Disciplined focus.
- It is not enough to say let's just get back to where we used to be.
- Strict frameworks. Buy what we love, within a strict framework of what our customers want.
- What customers want and will pay for matters more right now than what we want them to want.
- It's not about us. It's about Jennifer and Michael. [Jennifer and Michael are made-up profiles of Fab's target user based on an internal customer survey]
- We won't [sic] have the opportunity to build a business that Jennifer and Michael admire and shop from unless we:
- Focus, focus, focus.
- Slow things down.
- Continue honing in on costs and inefficiencies.
- Instrument and measure everything.
- Clear everything off our plates to do this right.
What do you all need in order to do this?
- We have failed in the past to clearly identify what Fab's core value proposition is to consumers.
- Who we target. Narrow, specific customer target.
- How, Product offering, price point.
We are doing [sic] do that now.
- We have failed in the past to acknowledge the cost-focused, execution-focused, low margin requirements of an e-commerce business. We are doing that now.
I have made mistakes.
- I guided us to go too fast.
- I enabled us to lose our core focus.
- I didn't insist on our honing in on our target customer.
- I didn't build discipline around costs and business metrics enough into our culture.
- I didn't build a retail merchandising / marketing culture.
- I spent too much on marketing before we got the consumer value proposition right.
- I allowed us to over invest in Europe vs. insisting on scaling global teams from teh start.
- I didn't build a culture and discipline that connected supply chain to merchandising to delivery. I allowed silos of teams and thinking, and that has seeded an awful an [sic] cancerous distrust.
- I didn't see the need to course correct fast enough.
And all of you have made mistakes too.
I need you all to do this: Write down the mistakes you made.It's not about blame. It's about healthy introspective dose of realism that is needed by all of us in order to go forward. We can't build a better Fab until we have a clear sense for what we should have done different, better, smarter.
Things you can expect over the next weeks and months.
- Ruthless attention to righting this ship.
- Ruthless attention to focusing the business.
- Ruthless attention to opportunities to shave costs without hampering our future.
- More more more Jennifer and Michael.
- Influx of retail and ecomm experience.