On this episode of TWiST Jason sits down with fab.com founder Jason Goldberg. They discuss what caused the pivot from social to e-commerce, the importance of design, and why Jason is kicking himself for passing on the opportunity to invest. Jason Calacanis on this show: “Listen to this episode twice, it was one of the best we’ve ever done!”
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Hey everybody, it’s Jason Calacanis, today on the program, Jason Goldberg is with me, of Fab.com, the most successful e-commerce startup of the last couple of years, and one of the highest growth companies. But it also has another distinction, which is, it’s my biggest regret as an angel investor.
Today on the show, we’re not only going to learn about Fab’s tremendous growth, to $500,000 a day in sales–it’s about 200 million a year if my math is correct–but also, how I as an angel investor missed this tremendous opportunity, and lost, at least 2 million dollars and counting. Stick with us, I’m going to eat Humble Pie on today’s This Week in Startups.
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It’s Jason Calacanis here, as you know, the show, This Week in Startups… What’s it about? Startup companies. One of the best startup companies of the last couple of years is Fab.com, and I’m lucky enough to have gotten a little time with Jason Goldberg, the founder of Fab, welcome to the program.
Jason Goldberg: Thanks Jason, great to be with you.
Jason Calacanis: So, you’re a serial entrepreneur, we meet a couple of years ago–we have to get this out of the way at the top of the show. And, you pitched me on this incredible idea of a social network for gay guys. It was, I guess, also straight people too?
Jason Goldberg: It was mostly gay community.
Jason Calacanis: Mostly gay community.
Jason Goldberg: Gay people and their friends, we called it.
Jason Calacanis: Right, the friends of the gays, which I count myself amongst.
Jason Goldberg: The fogs.
Jason Calacanis: Is that what I am? The Friends Of the Gays… FOGs, yeah. So I go into this site and I’m like, this is the most beautiful site I’ve ever seen, like, absolutely tremendous design. And I fell in love with the concept, and I looked at the community, and I’m like, “This is going to be a huge win.” Planet Out had so much potential, this is actually going to get there. And so, I agree to invest, I’m totally stoked on it, and then, you pivot to e-commerce, and I don’t know anything about e-commerce so I pass on investing.
Jason Goldberg: (chuckles)
Jason Calacanis: A move that–I don’t know the exact math and I’m not at liberty to say–but, most angel rounds occur at about 10 million, and I’ve heard that the company is now worth half a billion. Suffice it to say, I’ve lost millions of dollars on this angel investment. How big of an idiot am I? What did I get wrong?
Jason Goldberg: Well, you should have invested. That was the first thing. But, you know, it’s very hard to pick investments. I get asked to be an angel investor all the time, and my own personal scrub is really tough because I’m so busy running a company, that I say, unless I’ve used the product, I’m not gonna invest in it.
Jason Calacanis: Right.
Jason Goldberg: And, since, you probably hadn’t used fabulous much before, I can understand you not investing in it.
Jason Calacanis: Yeah, and, the pivot. Why pivot? It seemed like that business, at least from my perspective, was a brilliant business. And you made this brave pivot into commerce–just to put it in context–at a time when Facebook was surging and people were questioning Groupon. I mean, that takes balls.
Jason Goldberg: You know, it really came down to, my co-founder Bradford Shellhammer and I, we’re old friends, we’ve been friends for like 14 years now, and we had started Fabulous–it was a social network targeted to the gay community. It was basically, I saw a gap in the market. There really was no social-network-meets-review-guide for the gay community… So kind of a gay guide to where to go, what to do… Saw that there was great potential to this market in terms of discretionary spend, but we never really understood what the product was gonna be. And I took the approach of, you know, I’m a serial entrepreneur, I’m a product guy, I can build a beautiful user-experience, I’ll build a beautiful user-experience for this market.
And the challenge we got to is, you know, everyone who looked at the old Fabulous said “Great technology, great functionality, and a gorgeous user experience.” And we were like, you know, we’ve got a great product that we couldn’t get anybody to use.
Jason Calacanis: Ahh, so people weren’t using it, that was the problem.
Jason Goldberg: We got up to 150,000 users, we have about 30,000 loyal users every single week, and you know for some people that’s a measure of success. But for someone who’s been around startups for a long time, who counsels and advises a lot of startups, I always tell entrepreneurs, “If you can’t figure out something in a year, pivot and work on something else.” There’s lots of interesting problems out there worth solving, and it kinda comes from my experience that, first of all, you can’t pivot your way to a business model. You can iterate on product features, but I think too many companies, they keep iterating and keep iterating and they say, “If we only add this feature, this feature, this feature we’ll kind of crack that bit of traction and start to take off.” And I think it’s very hard to do that for too long.
Jason Calacanis: Why is it hard? It’s just exhausting?
Jason Goldberg: I think you’re constantly adding something on to a foundation, and what you often have to do is just revisit the entire thing.
Jason Calacanis: Got it, fresh eyes.
Jason Goldberg: Exactly, right, and just say, “Maybe we should be working on a different problem.” “Maybe we built a beautiful product, but maybe it’s just not solving the customer need.”
Jason Calacanis: Yeah.
Jason Goldberg: So we did the old Fabulous for a year, and Bradford and I went out for dinner, it was January of 2011…
Jason Calacanis: I remember this timeframe, yeah.
Jason Goldberg: About the third bottle of wine I said… It was clear this wasn’t working… We were just kinda like going through like, alright, where do we go, it’s been a year, what do we do? And I said, “Bradford, look, we’ve got two million bucks in the bank. I’ve invested a half million dollars of my own money in this company. The last thing I want to do is spend another minute or another dollar on something we don’t believe in.”
Jason Calacanis: Right.
Jason Goldberg: “And so, we can do anything. Lets figure out what we should be doing.”
Jason Calacanis: And most young entrepreneurs don’t believe they can do that. I think it takes a seasoned entrepreneur to make that bold pivot, decisively. A lot of young entrepreneurs are afraid of being wrong perhaps?
Jason Goldberg: Yeah, look, I’ve made my share of mistakes as an entrepreneur. I started a company called Jobster, and we made every mistake in the book. But I also learned a ton from that. And you kind of say, a smart entrepreneur–hopefully someday people will say that I’m a smart entrepreneur–but the smart entrepreneur doesn’t…
Jason Calacanis: Oh, they’re saying it now, Jason.
Jason Goldberg: …Doesn’t make the same mistake twice. And so, you kind of build this library of learning through being an entrepreneur. And when I started my second company, Social Median, I kind of started with the notion that I’m gonna try to solve a problem–which, in this case it was social news. Before the Facebook news feed, what we tried doing with Social Median was to help people discover news through their social networks.
Jason Calacanis: Great idea, brilliant. Flipboard.
Jason Goldberg: It worked, exactly, this was 2008…
Jason Calacanis: Way ahead of its time.
Jason Goldberg: And what we did was, what I said to myself and to my team was look, “I have no idea if this is going to work.” And I told people who were investing in the company, “The most amount of money I want from you is $50,000”, because I didn’t want to take a lot of money from anyone, “And, I promise you that if it’s not working in a year I’m gonna shut it down.”
Jason Calacanis: So you’re just gonna go out on a little expedition.
Jason Goldberg: Exactly.
Jason Calacanis: See if there’s anything over the hill.
Jason Goldberg: Yep.
Jason Calacanis: Defined. You defined it.
Jason Goldberg: And in SocialMedian what happened is we hit it. It took off really quick, we sold the company in 11 months, and so going into Fabulous I kind of had that in the back of my head. Where it was like, “Alright, I’ve been through an experience before where we were fortunate enough just to hit it really fast.” But also, know that you have to have the courage to kind of say, “This isn’t working.”
And I find too many entrepreneurs, they just kind of just keep beating their head against the wall, beating their head against the wall, just trying to kinda make it work. Whereas in some cases you have to rethink the premise in the first place.
Jason Calacanis: You hear over and over again, “Persistence, keep trying.” But there is something to… “Hey, there’s no need to bang your head that 7th, 8th, 9th time.”
Jason Goldberg: Look, I think a good entrepreneur has this kind of “never give up, never give in” philosophy… mentality…
Jason Calacanis: Right.
Jason Goldberg: But at the same time you also have to have a dose of realism blended with that saying, “Maybe you don’t give up on your dream of being an entrepreneur, but you give up on this faulty idea of what your product was.” And so, when Bradford and I had this fateful dinner, I drew on a napkin that night, and I said, “The first thing we’re gonna do is we’re gonna pick one thing, and we’re gonna do that one thing better than anybody else.”
My problem with the old Fabulous was, we were doing a lot of things, right? We were gay Yelp. We were gay FourSquare. We were gay Groupon. It was like…
Jason Calacanis: It feels like web 1.0, just put internet in front of topic, new company. Demographic, topic, company.
Jason Goldberg: And so I said, “Look, we’re gonna find one thing that we’re gonna do better than anybody else in the world.” And I drew on this napkin, and I basically drew a circle that had three slices to it. And I said, “The intersection of these three slices is what we’re gonna do next.”
The first is, “What is the one thing the two of us are most passionate about?”
The second is, “Is it something we realistically could be the best in the world at?”
And the third is, “Is it a big market that is currently unaddressed?”
And it took us both literally a second to say, “Design”. And the reason was, for Bradford, my co-founder, Bradford’s background is in physical product design. He was the top salesperson at Design Within Reach. He opened up concept stores for them. He did the same thing for BlueDot. He wrote for Dwell magazine, did stuff for the Sundance Channel. And more so, everyone I know wanted Bradford to help them design their life. To help them add color, add–I call it–everyday design into their lives… Whether it’s what to wear… What to buy for their home?
And I looked across the table and I said, “You know, Bradford, my thing is user-experience design. Your thing is physical product design. Why don’t we take this together and build the most beautiful website in the world, selling the most beautiful everyday design objects. And no one else was doing it. We looked around and said… “Before Fab, there was no one place you could turn to find 10s of thousands of the worlds most exciting everyday design objects at affordable prices.”
Jason Calacanis: Certainly not to buy them. I mean, you have a CoolHunting here or there, or derivative sites like that, and they were good at finding some stuff, but you couldn’t buy it. They weren’t closing the loop.
Jason Goldberg: That was the thing… There were a couple of things. We looked at like, what if you took a CoolHunting and ApartmentTherapy and enabled people actually, to click the buy button. And then, the other thing was, we also wanted to demystify design. That for a lot of people… This is a hallmark of Bradford, and it has nothing to do with me… What Bradford was known for amongst our friends and people who kind of admired him was, it wasn’t just like the really expensive design objects. Bradford was good at finding the beauty in the simple, everyday design stuff. And then blending the high and the low and the middle in between. And while, you know I’m a big fan of say a CoolHunting or a WallPaper or ApartmentTherapy or Dwell, most of the stuff in there is more aspirational.
Jason Calacanis: $18000 couches. $7000 Blazers.
Jason Goldberg: Yeah, and what we wanted to do was to bring design to the masses, right?
Jason Calacanis: Lets talk about design for a second. Design has gotten more important in the world. In fact, the first thing I give as advice to Startups is “get your design right”, because if design is not extraordinary–like 9 or 10 level–you’re just not gonna get even a meeting with an angel investor or a venture capitalist. And that was completely different 5 years ago, and certainly 10 years ago, when people said, what’s your business model, what’s your plan, what’s your excel spreadsheet… five years ago… what’s your disruptive technique, your sort of marketplace stuff, you know cleverness, but now it’s design, design, design. What changed in the world in the last decade or two that everything is design led?
Jason Goldberg: Look, I’m a user-experience guy. I create designs every single day, and like, my whole life is around conceptualizing what user-experience might be. And, I think what’s happened as the internet has become not just mass market, but ubiquitous, and people are carrying around computers in their pockets in the forms of iPhones, tablets, iPads, and you have… it’s not just design, it’s things that are easy to use.
Jason Calacanis: Functionality.
Jason Goldberg: Beautiful functionality wins. And I think what we’ve seen is a simplification of design. And obviously, Apple had kind of been at the forefront of this, but it’s kind of saying, you know when I look at something I say, “Does the button need to be there?” “Do the words need to be there?” The best design just helps people get shit done.
Jason Calacanis: Right.
Jason Goldberg: The best design gets out of the way and helps people get done what they want to get done. And I think the consumers are so educated now on how to use so many different–websites, apps, devices–that something has to just really work from the minute they try it in order for them to give it their attention.
Jason Calacanis: Their expectation has gone five-fold, ten-fold in the last two decades.
Jason Goldberg: Technology is… Frankly, there’s not–in the Consumer Internet space–there’s not a lot of companies where technology is the differentiator. In a lot of cases it’s the experience that’s the differentiator.
Jason Calacanis: The brand, the whole experience.
Jason Goldberg: Yeah, and so part of it is figuring out that experience, getting there first, and then figuring out how to stay ahead of everybody else on it. And I think there’s just this level of expectation now amongst consumers… Look, consumers have patience for maybe seven, eight at most, apps or services that they’ll use daily, and if you want to be one of those seven or eight services, you’ve gotta get the experience down right.
Jason Calacanis: And how do you become an expert on design, in your mind? So many people out there listening to the show are startups, and they’re so busy with technology and building it, and writing code and everything–they don’t really think about it. Are there some hacks for like–I like to go to Behance.net and I just look at what’s the best and most appreciated, and I do that every weekend, just to try to see what’s the latest in design. How do you find inspiration in design–aside from looking at your own site Fab.com?
Jason Goldberg: Yeah I mean, I guess I find it from a couple places. One is… Actually I’ll say three things. One is, the apps that I love to use the most. I kindof say, there’s a reason I love to use them, it’s not just their utility, it’s also…
Jason Calacanis: Which ones?
Jason Goldberg: Apps that I think do a really good job of design. Actually I think it’s… So, simple things like Kayak, is like, really good with the experience of a very complicated problem – is how do you filter and sort?
Jason Calacanis: Yeah.
Jason Goldberg: Facebook continues to get better and better in terms of their design elements. And everything’s very carefully tested. It’s done in a way where Facebook’s one of the few sites that can get away just using icons instead of words, and people… They learn how to use it. And it’s because the Facebook design gets out of the way, and it’s the utility that people are focusing on.
Umm, I think Twitter’s gotten better and better at it. As the form-factor becomes smaller–so mobile apps–you’re forced to have a better design, if you want people to use it.
Jason Calacanis: Right.
Jason Goldberg: So one is just apps that I like to… that I use, and I say like, “What is it about the functionality that I…” And I always have something positive or negative to say, and kind of critique.
The other thing is just, really like, with Fab, the sense of clarity we had with the design of our site was, “Look, we’re selling the most beautiful products in the world, and our website has to be on par with them.” So I said, “If we’re gonna have a beautiful site selling beautiful products, our own standard in terms of design has to be as good as the products we’re selling.” If you take these great products and put them on a crappy website, it’s gonna look like crap, right? And so we had to be as good as, and put as much care into the design that the people who make the products do into theirs.
And what I look at is, our website is not about us. It’s about the products.
Jason Calacanis: Right.
Jason Goldberg: And so our job is just to get out of the way and showcase the products.
Jason Calacanis: They do speak for themselves, and so lets talk about how you select them? What’s a Fab product that’s worthy? And what’s not? How do you source this stuff?
Jason Goldberg: So umm…
Jason Calacanis: That is the magic of the business, isn’t it?
Jason Goldberg: Yeah, I would say, there’s a few kind of special sauce ingredients that we have at Fab, and it starts off with the sourcing. It starts off with the products we select. You know, we’ve worked with over 8000 different designers, who’ve sold their products on Fab. We’ve worked with…
Jason Calacanis: Directly with the designers?
Jason Goldberg: Correct. We work directly with the designers.
Jason Calacanis: Is that a key to the success?
Jason Goldberg: So we’ve worked with over 8000 designers, and 90% of the product we’ve sold on Fab, you can’t find on any major internet sites–so products you can’t buy on Amazon is a key differentiator for us. You know, we help uncover a lot of designers, emerging designers, young designers, who before Fab just didn’t have a platform to sell their stuff.
Jason Calacanis: Right.
Jason Goldberg: And what we’ve done is, again, we’ve mixed the high and the low. So, we sell stuff as low as $5 or $10, $20. And we put it right next to a $4000, $5000 chair or sofa.
Jason Calacanis: And when you put those $5000 chairs and sofas up there, do you actually move a bunch of them?
Jason Goldberg: We do, and it’s because that’s how people live. Right? People live with a lot of little stuff, and then every now and then the big stuff.
The approach we’ve taken from the beginning is, we…
So, first of all, today we have a merchandising team of over 80 people. Right, so we have over 80 people, we call design scouts. Their whole job is to just find great product.
Jason Calacanis: How many products are featured a day? On average.
Jason Goldberg: So right now on Fab we have about 11,000 unique products on the site. And we’re adding about 1000 new products everyday, and taking about 1000 products off everyday.
Jason Calacanis: Wow, so each one of them is responsible for 10 a day? Or more.
Jason Goldberg: Yeah, it’s intense.
Jason Calacanis: How on earth would they do… Oh, cause it’s multiple SKUs?
Jason Goldberg: We’re basically launching the equivalent of a new storefront every single day, and we actually do it twice a day now. And we do it in the US and in Europe. So we’re selling now, US, Canada, and then 26 countries in the European Union. And Europe will be about 30% of our sales this year.
Jason Calacanis: How did it feel when those Sanwar brothers–the lowest most despicable people on the planet in my estimation–stole from you to the level of pixel-by-pixel. I mean they didn’t just steal the concept, they really just smacked you in the face and they were like we’re gonna just take every ounce of html from you. I mean, what happens that morning when… Tell me the feeling when somebody says, “Look at this.” And you click on the URL and you see this… the theft.
Jason Goldberg: You know, it was actually… At first, I had this kind of… you know… “What the hell?”
Jason Calacanis: Shock.
Jason Goldberg: Yeah, I was kind of like you know… But then I kind of saw that, “This is never going to work for them.”
Jason Calacanis: Right.
Jason Goldberg: Fab is all about authenticity of design. Right? We don’t sell knock-offs, we focus on showcasing the designer, the maker, and kind of telling their story. And people… So, the consumer is gonna see right through this and the design community is gonna see right through this. Like, if you’re a designer, why in the world would you want to work with someone who has the audacity to knock off someone else’s product pixel-by-pixel?
Jason Calacanis: Wow, if you think about it that way, they’ve essentially precluded themselves from having an authentic, real relationship from the best designers in the world, because they know what it’s like to be stolen from.
Jason Goldberg: So I’ll tell you… So the first thing I did… You know, most people, not most people, but many US-based entrepreneurs, founders, when they’ve been copied by the Sanwars have really kind of done nothing. They’ve just said “Alright, well lets compete the best we can.” The day that they launched their site Bamarang, back in February of this year, I immediately did a blog post where I just called them out on it. I showed, pixel-by-pixel, our screen Vs. theirs, how they’d copied every single element. And then I said, putting these guys on notice, how would any designer want to work with them?
Jason Calacanis: Boom.
Jason Goldberg: And we emailed all our our designers–sent them a note, a letter from me–a physical letter in the mail as well as an email and said, 1) you need to be aware of this–obviously it’s a free market you can work with whoever you want to, but we want to earn your business, we want to show you how we’re gonna be true to your design. The Samwar brothers spent 40 Million Euro on Bamring, and they shut it down. The reason they shut it down was they just couldn’t compete in the design market because the community wouldn’t support them. And I think what they misunderstood was, what we do everyday is very different than doing a daily deals site or kind of a discounters site. We are building relationships and we built a platform. We built a platform that didn’t exist before that brings together thousands and thousands of designers, people that make stuff. And the people who are eager to find and discover their products.
Jason Calacanis: Hey everybody, hey everybody, it’s Jason Calacanis. I’m taking a moment to pause to tell you about a very exciting announcement–I’m so excited about this! Our friends at Sourcebits who are building the app for the Launch Conference, where we’re gonna do crowdfunding live from the audience… that little test, that little insane thing that’s probably gonna get me arrested by the SEC. I could be taken away in handcuffs! Calacanis on the perp walk for trying to help startups raise money. look out! No, it’s not gonna happen, we’re gonna follow the letter of the law. If my friends at the SEC are listening, I’m a good tax-paying citizen. I support startups.
Anyway, back to the point here–what I’m excited about. Sourcebits as you know is a leader in design-led engineering. I’ve had these guys on the program a couple of times, and you see their work. Their work is incredible, and you know that this company works with the top companies in the world… not just Launch, but Hershey’s, Coke, GE, but this is the most amazing thing. You know, I always push my sponsors, my partners, to do something for startups; not just take, take, take. I like them to give, give, give. To support, support, support–as Nival said from AngelList on this very program. It’s a race to see who can support startups the most.
And Sourcebits has thrown their hat into the ring with an amazing, amazing, amazing… This is just demented it’s so amazing. Look at this TechCrunch article here: Mobile App Devs Give Out Black Friday Deals Too: Sourcebits Defers 50% Payment Until You Raise Your Next Round. That’s right. Sequoia backed and IDG backed this company, and now they’re offering a 50/50 deal on apps. If you need to build an app, you could pay 50% now and 50% when you raise your next round of funding. What a genius idea? Why didn’t I think of that? What a great way to support the Startup ecosystem, and hey, you know what? It’s in their best interest. If they do a great job for you, and you only pay them fifty cents on the dollar, maybe they loose a little bit of money, maybe they break-even, I don’t know what the margin is exactly. I’m gonna guess they lose a little bit of money. But that’s ok because they’re building an ecosystem, they’re building goodwill, it’s a race to see who can help startups the most, and Sourcebits is now in the race.
Thank you @sourcebits for doing something just incredible like this, and if you take a meeting with sourcebits–which why wouldn’t you if they’re offering a 50/50 deal–you’ll get a 15 minute meeting with me, and I just did one of these meetings yesterday, and it’s been great. Every week–you know once or twice a week–I meet with a company, they ask me a couple questions, I take fifteen minutes, I give them some free advice, which I’d do anyway. If people stop me at a conference I’m gonna give free advice. So that’s my way of giving back. We’re all trying to help each other here. That’s what the This Week in Startups ecosystem is about. And if you want to be a sponsor of this program and partner with me, guess what, get in line. There’s like a six month waiting list #1, where have you been? But #2, you’ve gotta do good. We’re not just letting people have me read the ad and not do good in the ecosystem.
I had an e-cigarette company that was like, “Hey Jason, e-cigarettes are the greatest thing, we could just back up the Brinks truck.” Of course I’m not gonna do that. And I’m not gonna even do that for a product I don’t use myself. I’m using Sourcebits to help me build an app, therefor you can feel confident in using them to build your app.
And there’s the mockups. You guys saw these on an earlier episode, but if you’re watching the video, you can see these beautiful mockups, and I told them on the phone, I love the idea that they’re putting these nice little, this nice narrative down the side of why they’re doing what they’re doing in the development of the app. You know I see a lot of people send screenshots, then I see a lot of people send PowerPoints, this is the first time I’ve seen like a screenshot with narrative next to it that really led to some great discussions and the evolution of our product.
These guys do a great job. Email email@example.com for more info. firstname.lastname@example.org for more info. Sourcebits@thisweekin.com for more info.
Thank you to my friends at Sourcebits, and if you are a fan of the show, say “Thank you @sourcebits” on Twitter–for sponsoring independent media like This Week In Startups. We’ll see you next time…. Or, stay tuned for the rest of this interview.
Jason Calacanis: As an entrepreneur now, the business has gotten to a certain scale–a tremendous scale. Lets talk about…
Jason Goldberg: Scary.
Jason Calacanis: …the past scary year of your life, when your employee-base tripled, your sales tripled… what is that like? Because, correct me if I’m wrong, you’ve always operated in the fifty, couple of dozen, employee range, right? What’s it like to break through that other side?
Jason Goldberg: Yeah, you know, in the lifecycle of Fab… So we launched on June 9th of last year. So the company is just about a year and a half old now… almost a year and a half old. And, when we launched on June 9th of last year, we kind of knew that we were gonna have some measure of success, because we had 175,000 people sign up before we launched.
Jason Calacanis: Wow.
Jason Goldberg: Just by putting up a splash page that said “Fab’s launching soon” and showing pictures of Bradford’s House. And saying, “We’ll be featuring products like this on the site.”
On the first day of sales we sold $65,000 worth of product.
Jason Calacanis: Wow.
Jason Goldberg: And we did our first million dollars worth of sales within the first twenty days. And, we knew we were onto something. And, we reached a million members after–it was basically–three and a half months. And then a million and a half by the end of last year. And we kinda knew that, we kinda started seeing that, we have a special opportunity here that only comes every now and once again. We started thinking about Fab less as building a company or focusing on a transaction or focusing on sales per day, and more thinking about how do we build a brand. And, the entire mantra of, from December of last year onward has been, “We are going to build a brand for the decades.”
And, that’s an opportunity that a lot of companies don’t have.
We really see that five years from now, ten years from now, when people think about design, when people think about product discovery, we want the first thing for them to think about is Fab. And you get there by–what I call is–playing the long game while other people are playing short. And what I mean by that is, when we say playing long, we don’t make a single product decision based on how much revenue or margin we’re gonna make. Every single product we pick to go on Fab is based on, “Do we think people are gonna love it?” And if they love it they’re gonna share it. They’re gonna talk about it.
Jason Calacanis: Deepening the relationship.
Jason Goldberg: And sales will happen over time.
Jason Calacanis: Yeah.
Jason Goldberg: And we take the same approach with, you know we have… Purposefully we put a lot of products on Fab that are intended just to be almost feeder/entry-level products. Where today you buy a t-shirt from us. Tomorrow you buy a scarf from us. Then you buy, you know, a pair of socks, or a skateboard, or whatever it might be. And then eventually, when it becomes time to buy the bed, or to buy the sofa, Fab is there alongside you.
Jason Calacanis: Got it.
Jason Goldberg: And, that’s very different than most.
Jason Calacanis: You’re seducing them in…
Jason Goldberg: Exactly, and then building the relationship and showing them trust.
Jason Calacanis: Yeah.
Jason Goldberg: We can deliver products really quickly to you. We can deliver a great experience that, if you have a problem, customer service is great with you. And that’s something where I think a lot of e-commerce companies, they focus more on the transaction, and we say, “We care less about the transaction and more about building this lifetime relationship.” And so, the way our company has progressed has been in line with that as well. As we’ve seen our relationship with our customers and our designers grow, we’ve seen users really take to the company.
In January of this year, we started the year with one and a half million members, we’re approaching almost 10 million members now.
Jason Calacanis: Wow. That’s a lot of emails.
Jason Goldberg: In July we were at 5,000,000.
Jason Calacanis: How many emails do you send a day? Millions?
Jason Goldberg: Millions, but you know, it’s interesting. Email is a very small percentage of our traffic source now. We’ve seen this, kind of… mobile and social have completely kind of erased email. I mean, email is like 20% of our site visits, and mobile is 30-40% everyday.
Jason Calacanis: People just pull it out of their pocket and just flip through gorgeous stuff.
Jason Goldberg: On the weekends we’re finding there are certain hours of the day on the weekends where 50% of our sales is coming from mobile.
Jason Calacanis: That’s extraordinary. Is it? Are the tablet users spending more per user?
Jason Goldberg: There’s a few really interesting… Mobile is just fascinating–because I think it’s one of the things we’re… We’re one of the first physical retailers to–you know people selling physical product–to really crack the code on mobile. To the point where we’re having over half of our sales coming–in certain hours–on mobile. What we find is a few things… One is, we really see kind of the day-parting of the user behaviors happening by device. It’s iPhone in the morning. It’s web-browser during the day. It’s tablet at night. And we see…
Jason Calacanis: Curled up on a couch…
Jason Goldberg: Exactly.
Jason Calacanis: On the way to the office, commuting…
Jason Goldberg: It’s exactly the way I do it as well. You wake up, you have one eye closed, you look at your phone, you’re saying, “ok, yeah I’ll get that”… And then at work it’s a little different, in the web-browser experience you’re more distracted, so we see the conversion rate on web browser right now is… right now it’s holidays we’re at about 6% of every visit. But on tablet it’s almost 8%, because you open an app, you want to get something out of it, and you want to buy something, right?
Jason Calacanis: You have 100% of the screen real estate at that point.
Jason Goldberg: Exactly, and the thing about opening an app, it’s really fascinating, is like… When you open an app, you don’t want to close it til you get value out of it.
Jason Calacanis: That’s a very interesting observation. Yeah, you want to like… Wait a second, I took the time to open this, what exactly was I trying to do?
Jason Goldberg: Exactly.
Jason Calacanis: Whereas with a web browser it’s like, “Ah, I’ve got twenty open.”
Jason Goldberg: So what we’ve tried to do with mobile especially is to create an experience where–again we don’t care so much about the transaction–so it’s not… We want to create a mobile experience where you want to come to Fab and open our app several time a day, regardless if you had in your mind something you want to buy. You just want to come and see, what’s on Fab today. Or, what are the latest products? Or, what are the most popular products today? Or, what are my friends buying or favoriting? And so we’ve created that kind of social experience as well.
Of our nearly 10 million members, nearly 50% have come from social sharing. That’s something we’re really proud of. It’s something that’s truly extraordinary in e-commerce. You can’t make that happen if you tried.
Jason Calacanis: Well I mean, who’s gonna share their purchase from Amazon? I buy something on Amazon and they’re like, “Would you like to share it?” And I’m like, “Really, my no-stick frying pan I’m gonna share?” No, I’m not gonna share my…
Jason Goldberg: But you buy this truck, you want to tell your friends!
Jason Calacanis: Yes, you’re gonna tell your friends. In fact, on the wall, you have a spice rack that my wife literally put up two weeks ago and labeled. And she bought it on Fab.
Jason Goldberg: I love it.
Jason Calacanis: Lets talk about the amount of money it takes to do great design, and the funding of designers. Because, KickStarter has now become design central, product central–although there seems to be some growing-pains there. And then you have all these independent designers, I’m sure they would love to pre-sell and… Do you do anything interesting with them in terms of creative financing to help them–emerging designers–and what do you think about the sort of KickStarter model. Would you ever, and have you ever said, here’s the design–the CAD drawings–of these salt shakers, pre-order them.
Jason Goldberg: Well there’s a few things I’ll say there. One is, we’ve discussed many times like doing a designer grant program, and we’re still noodling some ideas around that. The biggest thing we’ve found for designers is there’s… just buying inventory helps them a lot. And so, for instance, during the holidays right now, over 70% of the product we’re selling on Fab is in inventory of Fab. And that’s orders that we placed 3, 6, 8 months ago.
Jason Calacanis: So you’re float tens of millions of dollars.
Jason Goldberg: Exactly, and that’s designers small and large. And that helps them–if they have a good holiday season–then work on the product for next year.
And you know, the place where a lot of designers need help is not financing the design, but financing the manufacturing.
Jason Calacanis: Right.
Jason Goldberg: And one of the other things we’re doing that’s really unique…
Jason Calacanis: What do they call that, “factoring” when they do that?
Jason Goldberg: I have no idea. Sure.
Jason Calacanis: Like some bankers call it factoring or something like that… your receivables or whatever. Yeah, but anyway, you buy a lot of stuff. You’re a good customer to the designer and you pay them on time, and that’s a great thing.
Jason Goldberg: When we started off we did mostly what we called “sell first”, where basically we tell them, “Look, we’re gonna do a sale on Fab of your product. Put aside a certain amount of your product, and we’ll just buy whatever sells.”
And what a lot of designers found is that they would do a sale on Fab for a week, and they’d sell more product in a week than they’d sold in many many months. And they’re like, “Ok, who are these guys? What’s going on here?”
Jason Calacanis: Right.
Jason Goldberg: And then we said, “Alright, now we want to plan three sales with you, or six sales with you, or a calendar of sales with you.” And then we said, “And you know what, and we’ll pay for the inventory up front. So you can now use that working capital to go fund your next set of projects.”
Jason Calacanis: And then you started thinking, again, I think the name of this episode is “relationship-building”, talk about deepening a relationship. I mean, if you have the trust to buy from them, and to take their fighting for scraps, month-to-month existence to a year-to-year existence, that’s gotta help.
Jason Goldberg: Yeah, absolutely, because, you know, a lot of these folks were living month-to-month, and now we’re giving them a year’s worth of visibility.
Now the other really interesting thing we’re doing, we’re debuting this next year is, about 15% of our product next year is products that have been sourced by Fab, so actually we’ve worked with manufacturers to actually make the product. And in a lot of cases it’s going back to designers we worked with this year–and last year–and saying, “You know what, lets make a derivative of this. Or lets make a special version of this.”
Jason Calacanis: Got it.
Jason Goldberg: And so whether it’s Blue Dot for Fab or Gus for Fab, or…
Jason Calacanis: Interesting. Skip Hop, whatever brand is great, saying “Make us an exclusive line.”
Jason Goldberg: Yeah, and, we’ll fund the manufacturing of it.
Jason Calacanis: Wow.
Jason Goldberg: And so we’ll say, “You’re the designer. We’ve got an idea that we want to have salt shakers that have this, or…” There’s a–we sell about 10% of our sales is posters and prints, right? Art. And, we’ve gone back to a lot of people we’ve don’t posters and prints with and said, “You know, lets take this and lets put this on a shower curtain. Or lets put this on a bedspread.”
Jason Calacanis: Right. Because you have insights from the data.
Jason Goldberg: Absolutely. We like to say that Fab is an emotional business that is backed up by data. We always say the first sale that someone (a designer) does with Fab is entirely based on emotion. And then if it works, we then go through the data, and then we plan the future based on the data.
Jason Calacanis: Lets talk about funding. You got Shervin, I guess, got involved. Invested a lot of money from… what’s his firm?
Jason Goldberg: Menlo Ventures.
Jason Calacanis: Menlo! Yeah.
Jason Goldberg: Andreessen Horowitz. Tomoco.
Jason Calacanis: You’ve got the A-list of A-lists. When you start taking that kind of money, it puts you on a certain path. And we talked about the long game, we talked about the short game. A lot of contemporaries–Groupon I guess would come to mind–going public. LivingSocial just getting hundreds–Amazon writing off hundreds of millions of dollars. How does the implosion of the group deals space? And, I guess, some people consider those “flash”, but they’re really different… How does that implosion impact you guys? And how do you block out that, and try to explain it to investors, like, “Hey, this is something fundamentally different going on here.”
Jason Goldberg: To be honest I spend very little time thinking about explaining the business to investors. I show folks our data. I show the repeat buying rate. Two-thirds of our sales comes from repeat buyers. Somebody who buys on Fab has a 65% chance to buy again.
Jason Calacanis: Numbers don’t lie.
Jason Goldberg: Right. Here’s the data. And if you don’t like the business, it’s ok too. Because I’ll find somebody who does with the numbers that look like this.
But what I’ll say is that there’s fundamental differences between what we’re doing and some of the kind of daily deals businesses that came before Fab, and even some of the flash sale businesses that came before Fab.
Jason Calacanis: Gilt Groupe comes to mind, yeah.
Jason Goldberg: And look, they’ve… it’s not to knock their businesses, it’s just we’re doing… we’re playing a different game.
Jason Calacanis: Right. Yeah.
Jason Goldberg: And so, the one is, I think some of these businesses, they try to do just revenue, revenue, revenue at the expense of understanding customer relationship. At the expense of understanding how the complete promise and relationship happens with the customer on both sides–the supplier as well as the consumer. It’s something we’ve taken near and dear from the very beginning, and said, if we’re gonna play the long game we really have to think through, “How do you nurture the supply-side? Make them want to work with you in an ecosystem that supports you, as well as… Really treat the consumer with respect as well.”
The second is, less than 1% of the sales we’ve done on Fab has been inventory liquidation. So, most of the flash-sales sites is really about… it’s like the old, kind of like, outlet mall, just brought online, and the problem with the outlet mall–I think what’s kind of lost in this–is that flash sales started out in 2008 and 2009 when the economy crashed and people had all this excess inventory they needed to offload somewhere, it’s like, “Alright, now we can do it online”. But I think what’s kind of lost in this is most brands don’t want to sell at the outlet mall. That’s like when they’re selling their product for pennies on the dollar.
Jason Calacanis: Right, that was like, they got pulled into that. It was like how to get rid of distressed inventory. When the economy comes back, there’s no more distressed.
Jason Goldberg: Exactly. And so what happened is… And again, I’m a big fan of Gilt, but they got hit hard by this. They had to figure out how do you grow the business when the supply side is trying to keep the product away from you. Because they don’t want the product going to you. I mean, that’s like their last resort.
Jason Calacanis: They haven’t curated that side of the relationship. It’s not like they were working directly with the designers there, in a lot of cases I remember.
Jason Goldberg: Exactly. And so for us it’s like… We always said we want to be, primary channel, the marketplace that the designers want to sell at. And that’s whether it’s a Vicha, a Herman Miller, Cartel at the high end, or someone in the mid-range, or whether it’s someone who’s a mom-and-pop designer.
Jason Calacanis: And… Stores. Lets talk about stores.
Jason Goldberg: I like stores.
Jason Calacanis: I hear rumors about stores. Fab would be, like what a great logo by the way, and a great domain name. How amazing would it be to just walk into a Fab store and see everything–you’re curated. It’s like, the fun of the sharper image, but actually with stuff you would actually put in your home, not just stuff that you would use once and throw away.
Jason Goldberg: Yeah, I’ll tell you my philosophy here, is–it’s very similar to our advertising strategy. So we’re doing online, direct mail, and TV right now for Fab.
Jason Calacanis: The TV commercials, by the way, are great.
Jason Goldberg: Thank you, thank you. And a lot of people say, well why is Fab doing TV commercials.
Jason Calacanis: Yeah, why is Fab doing TV commercials?
Jason Goldberg: The reason is because it’s not a one-size-fits-all for everything, and I think it’s multi-platform wins. And so, you need to have this… People spend a certain amount of time watching television, and TV as effective medium. Sending a direct mail piece, actually works, if you measure it well, and you’re very targeted with it.
Jason Calacanis: Hmm. A direct mail piece might be.
Jason Goldberg: Physical direct mail. Like a catalog.
Jason Calacanis: Like a catalog.
Jason Goldberg: And we’ve had great success with it. As well as online. We do a lot on Facebook, a lot on Google, and it’s that blend of it.
Jason Calacanis: Yeah.
Jason Goldberg: And so, I look at, whether it’s platform devices, whether it’s iOS, Android, tablets Vs phones.
Jason Calacanis: What platforms? Stores, print, direct mail? That’s just another platform?
Jason Goldberg: For me, physical retail is… Right now about 4-5% of the types of products we sell are bought online. Right, so there’s another 95% out there that’s bought in physical retail stores. There’s an opportunity here to be one of the first companies–potentially–who goes the opposite direction–and says, we start by kind of innovating and disrupting online, and then we go and innovate and disrupt offline, and create a whole new way to buy these products online.
I can tell you, if we open up a Fab retail store, it’s not gonna be a retail store the way people walk into retail today. We’re gonna think about an experience that’s more like our website.
Jason Calacanis: Right.
Jason Goldberg: But also takes advantage of the fact that you’re in a physical presence.
Jason Calacanis: Yeah, Apple did that, Steve Jobs built the store in a warehouse somewhere and visited it multiple times–I’m sure you know the stories. Ah, Tesla, I don’t know if you’ve been to a Tesla Showroom, but they’ve also reinvented it. What do you think’s special about those two projects?
Jason Goldberg: I think when I look at it it’s like, rethink from the ground up what the experience is, with innovative products. We sell so much art on Fab. Has anyone really created a great experience to be able to kind of browse and discover art in a physical store? I think we can.
Jason Calacanis: Yeah. The only thing I remember is those god forsaken flap things that you bang…
Jason Goldberg: Exactly. Right? I’m imagining the John King screen where you’re (gestures) pulling this one and down this one, put it in a frame, see how it looks.
Jason Calacanis: A little Minority Report kind of situation. Wow, that would be incredibly inspiring for 2013 to see a Fab… I mean, you guys haven’t done a pop-up store, or anything like that yet? There must be a lot of pressure to do a pop-up store, but you want to think it through.
Jason Goldberg: If it’s gonna be Fab, it’s gotta be done right. And to have our brand on it, we’re gonna put a lot of time towards it. I’ll tell you, it’s not something we’re focused on right now. But it is something I’m very curious about.
Jason Calacanis: And how do you look at the public markets?
Jason Goldberg: I don’t know. I look at it as, if we continue to provide value, there will be all sorts of interesting ways to kind of fund the company. You know, as a serial entrepreneur, who’s… You know, I spent the last 12 years starting companies, the biggest realization that I had over Fab is, I never think about starting another company anymore. Like, so I used to always think about, what company am I starting next? What idea am I gonna do next? And it’s just been this sense of relief, and kind of that, this is it. Like this is what I’m doing.
Jason Calacanis: Describe that, yeah. When did you have that moment? Were you like on the treadmill? Yeah, tell me.
Jason Goldberg: It was October 9th of last year. I wrote it down. I was walking my dog, and I was like, “Wow, for the first time in ten years, I am not thinking about new ideas and what company I want to start next. I’m just thinking about, this is it. This is what I was meant to do.”
Jason Calacanis: This is the second half of your life.
Jason Goldberg: Yeah, exactly. It’s like a liberating thing as a serial entrepreneur to say this is it. And so when you think about, people always say, have you thought about exits? Have you thought about going public? I’m like, you know, all I think about is how do we make Fab a successful brand. And if we do that we’ll figure out how to make money, we’ll figure out how to do all sorts of things.
Jason Calacanis: Scott Heiferman told me a similar thing. He did Meetup and he said, “This is the last company of my life.”
Jason Goldberg: That’s it.
Jason Calacanis: I just, I love doing this. Before I let you go, mistakes. Mistakes, mistakes. All these young entrepreneurs, give me the things that you’ve done particularly bad, that you now look at and say, “What an idiot I was.” That you’ve learned from, yeah. Obviously.
Jason Goldberg: At my first company, Jobster, I was a product guy, and I never worked on the product. You know, I thought that my job as the Founder/CEO was to kind of be the general manager. And the thing I always look back and kick myself about is, I believe that, everyone needs to focus on the one thing they are the best at. And if the one thing that I can contribute is the user experience, then I should be doing that everyday. And as the CEO today with 600 people in the company, I can’t spend 100% of my time on it. But there’s not a pixel on our screen or on our apps that I’ve not personally looked at and had a part of.
And that’s focusing on my one thing. And that was one of the big mistakes that I made, was just to do everything instead of honing in on what I’m good at. And just hire other people who are better at what they do than you ever could be, and when you have that kind of–it’s like this sense of relief that you’re comfortable and mature, and able to do that… It takes you a lot further than trying to just have control of everything.
Jason Calacanis: Yeah, you had to learn to delegate I guess. And learn to know where you add the most value. It’s almost, what’s the best fit for the founder in his own company, or her own company.
Jason Goldberg: Yeah, and you know I think, one of the things that bradford and I, we’re both control freaks, but we’re control freaks in a way where we give people lots and lots of room to go figure things out. We hire people who are smarter and better at what they do than we ever could be. But then where control comes in is making sure it’s done the way we want it to be done in the end.
Jason Calacanis: Trust but verify.
Jason Goldberg: Exactly.
Jason Calacanis: Anything keep you up at night, now?
Jason Goldberg: You know it’s just…
Jason Calacanis: It’s gotta be something.
Jason Goldberg: Culture is a big thing. It’s… You know, how do you keep your company culture, keep the company fun, energized, exciting. We’ve been through a sprint the last 18 months, and when you’re playing the long game it’s a marathon not a sprint.
Jason Calacanis: Right.
Jason Goldberg: And as you… We’re now… We have 230 people in New York, we have another 180 people in Berlin. How do you make both those offices feel like they’re one office? It’s a challenge.
Jason Calacanis: Wow, that is a unique one.
Jason Calacanis: And, you might get the wrong people on the bus.
Jason Goldberg: Yeah, it happens all the time.
Jason Calacanis: And you’re not hiring them. Who do you look to, Tony Hsieh for culture?
Jason Goldberg: Yeah, I think Tony Hsieh’s done a good job. I think Reed Hastings over at Netflix has done some amazing things on culture.
Jason Calacanis: Absolutely. What have you read about him that he does?
Jason Goldberg: There’s a philosophy that I repeat all the time, “Treat people well on the way in, at the company, and on the way out.” And I think a lot of people get this wrong on the “way out” part. That sometimes it just doesn’t fit. Allow people to exit with dignity, and treat them well, and give them a soft landing.
Jason Calacanis: That’s a lesson I’ve learned, man. I was just so angry when people left. If they gave their notice, I would say, “Today’s your last day.” When I was in my twenties. Like, that’s it. Out of the building. You cannot do two… Because I just didn’t like having somebody around who… Doesn’t it make you a little crazy? Having somebody around who’s like, (sings) “Hey, I got a new job. And it’s better than this one.”
Jason Goldberg: I think, you know, as you mature as an entrepreneur, you see a lot of things. And I think the pattern recognition is something that I think young people, they just miss it. They say, “I’m smart, I know I can figure this out.” And I say, pattern recognition, really, it helps. When you say, “I’ve seen situations like this”, and it might not play exactly the way it did last time…
Jason Calacanis: But it almost always does.
Jason Goldberg: And then having the wherewithal to… it’s funny…
Jason Calacanis: What’s one of those situations where the pattern recognition was like ding, ding, ding, ding, ding!
Jason Goldberg: Well it’s funny because I feel inside like a young guy. But I look around at our company, and I’m like one of the older people.
Jason Calacanis: Right, they’re like, “You’re forty!”
Jason Goldberg: Exactly, I kind of have this thing where I kind of feel like, when I see people get so stressed out or worried about what’s gonna happen with this decision they make, I always feel like I’m the one person in the room who’s like, “It’s ok.” Because I kind of got a sense for what’s gonna happen the next two steps down the road. And we’ll figure that out then. And then I’ll always say, in the end, people can do all they want, it doesn’t matter, it’s not getting on the site unless I say it’s ok.
Jason Calacanis: Right.
Jason Goldberg: So, it’s like, don’t get worked-up over the little things. Get worked up over the things you can control.
Jason Calacanis: Wow. On that, we’ll end. Jason Goldberg, congratulations, and, what do I do now? I mean, I missed out on the angel round. Can I buy something in the secondary market? Brandis, bring me two… bring me three bricks… I gotta…
Jason Goldberg: How about a thousand dollar Fab gift card?
Jason Calacanis: Ahh! Ow! It just kills me because… Continued success. The site’s wonderful. I’m a huge fan. Using it regularly. And hey, listen to this episode twice. It’s one of the best episodes we’ve ever done. See you next time.
Jason Goldberg: Thank you.