It’s one of the more talked-about and cautionary start-up stories in recent e-commerce history.
In its three short years in business, sleek and urban-styled home furnishings and décor e-retailer Fab.com raised a total of $300 million in venture capital. The merchant launched in June 2011, and at its peak of growth in mid-2012 was bringing in more than $100 million in annual revenue and hiring new employees in droves.
It was an expensive proposition keeping up with the growth, however, and the merchant couldn’t raise money fast enough, CEO Jason Goldberg revealed this week in a talk at the TechCrunch Disrupt show in London. In mid-2012, the merchant employed 750 people in the U.S. and Europe, and was burning through $14 million per month.
The turning point came in July 2013 when Fab.com closed a $150 million funding round, which Goldberg now concedes was a danger signal, not a coup. “What a lot people don’t know is that we set out to raise $300 million,” Goldberg said. “And when you set out to raise $300 million, and you raise $150 million, you have to change your business plan. And that’s what we did.”
At that time, Goldberg shifted the focus of the company to what he considered the most promising area of the business—custom furniture. The merchant built on recent acquisitions of European furniture companies like MassivKonzept and One Nordic Furniture Co. to launch a new online business called Hem, which is Swedish for “home.”
The new e-commerce site launched last month and sells custom, easy-to-assemble furniture. Many of the former Fab.com employees are now working for Hem, while many are new hires. Hem.com has around 150 employees in Berlin, Helsinki, Warsaw and Stockholm. Goldberg recently moved to Berlin to oversee the Hem business from its Berlin headquarters.
What makes Hem different from Fab.com, Goldberg says, is that products are manufactured in-house and the retailer is able to better focus on a curated selection of products. Fab.com, by contrast, was juggling thousands of SKUs each day at its peak, he says.
Plus, expenses are much lower, which makes it easier to sustain the business, Goldberg says. Much of the funds Fab.com raised last year are now being used to run Hem. “We went from burning $14 million a month to now where our entire expense base is about $1 million a month,” he says. “In 15 months’ time to do that, it was excruciatingly hard and difficult, but coming out the other side and long term, we have years and years of cash in the bank to execute on this one strategy.”
It was personally difficult for him to oversee hundreds of layoffs over the last two years, Goldberg told conference attendees. But he said he chose to pivot Fab’s business as opposed to burning through the rest of its cash because Hem has a stronger chance of producing long-term value for Fab’s investors.
He acknowledged the criticism he’s been getting from technology and venture capital executives and analysts. “I’m OK,” he says. “I know that people think that I’m charming, that I’m also brash, but hopefully history will judge me for what I accomplish in the next 20 years as well as some things that I did late in my career.”
Goldberg would not comment on whether he is considering selling the Fab.com business, which is based in New York City. Fab.com has dramatically cut its expenses and is running at about break even, he says.
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