At 9 Million Users Strong, Fab Raises More Money And Is Just Getting Warmed Up

In February 2011, Jason Goldberg and Bradford Shane Shellhammer were faced with one of the most painful experiences an entrepreneur must deal with: to decide whether to shut down their business, Fabulis, which was a social network for the gay community, and return the money back to investors. So to deal with this predicament, what did the two friends and founders do? They got drunk. Goldberg and Shellhammer took a break from the grind and went for a boozy dinner in Manhattan to figure out what to do next. Goldberg asked his friend over drinks, “If we could take this money in the bank ($2 million at the time) and do something else with it, what would you do?”

To illustrate the exercise, Goldberg drew a circle with three slices on a paper napkin. One slice stood for what they were most passionate about, another represented what they could be best in class at, and the final slice focused on what market was out there that still had the potential to be disrupted.

Despite the influence of alcohol, it was clear where the pair’s passion lies—design. For Goldberg, a serial entrepreneur in technology, it was product design. And for Shellhammer, a retail and home design expert, everyday fine design and tastes had become more than just a hobby. The two realized there was no one place where you could find handpicked, well-designed objects for your home, life, closet and more. And thus, Fabulis was reborn as Fab, the fast-growing, design-focused online retail platform that was just valued around $600 million, less than a year after launching. Four products are purchased every minute on Fab. And today, Fab is revealing another $15 million investment from VTB Capital and Phenomen Ventures.

A Friendship As A Foundation

Part of what has made Fab successful is the talent at the top and compatibility of Shellhammer and Goldberg. As Shellhammer tells the story, the duo met each other on the dance floor of the Roxy, a New York nightclub, in 1999 at 2 a.m. They remained friends, and shortly after meeting, Goldberg moved to San Francisco, and Shellhammer joined him at his startup as an assistant. The job was short-lived (only three months), but the friendship lasted.

“We were never best friends or talk-all-the-time friends, but we had a very unique friendship where we respected each other’s skills,” Shellhammer explains.

A decade later, Goldberg approached Shellhammer with the idea of Fabulis. At that point, Goldberg had already founded Jobster and Socialmedian (which he sold to Xing in December 2008). He was ready for his next startup, and when he moved to Germany with Xing in 2008, he realized that there was no online travel reviews resource tailored for gay individuals who were living or traveling abroad. The idea for Fabulis was born, and the first person Goldberg thought of to help him build the “TripAdvisor for gay people,” was Shellhammer. Not only did Shellhammer have a great sense of design (he went to Parsons School of Design and worked at Design Within Reach and Blu Dot), but he had been an editor for gay and lesbian news blog, Queerty, where he would frequently write about similar content Goldberg envisioned for Fabulis.

Although Shellhammer says the last place he wanted to work was in tech company (he finds them boring), he believed in Goldberg’s vision. “Gay people have a different set of needs and requirements in travel and gay-friendly places to visit. Jason was the tech guy and I was more a taste guy,” Shelhammer says. But one thing is clear when talking to both of them: Jason implicitly trusts Bradford when it comes to design, and Bradford implicitly trusts Jason when it comes to all things business and technology.

Fabulis launched in 2010 as a social network for gay men, with an emphasis on helping men discover what’s happened in their cities or locations. The startup had raised a little under $1 million from The Washington Post Company Mayfield Fund’s Allen Morgan, Xing founder Lars Hinrichs, and Burson-Marsteller’s Don Baer. In December 2010, Fab raised $1.75 million more from  First Round CapitalThe Washington Post CompanyBaroda Ventures and Zelkova Ventures.

But despite the user-focused design, and even early mobile technologies, Fabulis didn’t take off. Why? Gay people didn’t need a separate service from Facebook for meeting each other and discovering new things. “We built a beautiful product, but it was frustrating because no one was using it,” Goldberg says.

Shellhammer was at a breaking point after a year of developing and operating Fabulis. “I didn’t see where I was adding value, and was starting to lose belief in what we were really doing.” But despite the devastating realization that Fabulis wasn’t taking off, both founders never fought, or considered parting ways.

And interestingly, the one small feature of the network that did get attention (and helped energize Shellhammer through some of the tough times during Fabulis) was a weekly deals offer that he curated. These ranged from magazine subscriptions and clothing to food and furniture.

The Infamous Pivot

Goldberg has a philosophy in product development — you can’t iterate your way into a business model. Fabulis kept iterating, and adding new features, and nothing was really working besides deals.

At the beginning of 2011, Goldberg and Shellhammer were commiserating over alcoholic beverages about what to do next with the business. As the duo poured their sorrows into their drinks, they realized that the one part of the site that was actually doing well — the deals — could be combined with their love of design.

During the fateful dinner, Goldberg’s a-ha moment was that he wanted to build a business around Shellhammer’s taste and passion for design. And he quickly realized that there was no one doing this, and that they had the opportunity to create the one place where you can find handpicked, well-designed objects that were hard to find.

By February, Goldberg and Shellhammer decided to shut down Fabulis completely to focus on the new Fab. Goldberg had actually already bought the domain name, so the name stuck. On February 28, 2011, Goldberg and Shellhammer called a board meeting and told all of the company’s investors that they would be shifting to an e-commerce, flash sales-like platform. Goldberg recalls being nervous about pitching the idea that there needed to be a design-focused e-commerce site in an Amazon world, but he felt strongly that Shellhammer’s relationships with the design community would help make Fab a brand that would be synonymous with design for years to come.

Shellhammer says he went into the funding meeting at a place of complete confidence about what he and Goldberg were building. “We knew that from the beginning, we would be focusing on building a brand and an emotional relationship with customers.”

>Goldberg and Shellhammer offered to give each investor their money back but the duo happened to be very convincing, investors wanted in, and the board meeting lasted only 20 minutes. “The clincher was that I told them that I was going to invest $250,000 of my own money in the new business because I believed in it so much, and they could take their money back,” Goldberg said.

Howard Morgan, a partner at First Round Capital and early investor in Fabulis and then Fab, believed in Goldberg and Shellhammer for a variety of reasons. Morgan adds that when Jason offered to give First Round’s money back after the pivot, he wanted to stay along for the ride.

First, Goldberg has founded a number of companies, and in Morgan’s experience third companies tend to be very successful. “The third company is where entrepreneurs understand what went wrong in the first and second experiences, and they can really focus on the third, especially if they had some success in the previous ones,” he says.

The duo also had tons of energy and First Round was impressed with what they had done on a shoestring budget when they raised the seed round for Fabulis. And another appeal to the pitch was that Goldberg was using metrics as a benchmark before launching — Goldberg wanted to attain at least 100,000 sign-ups before launching. On March 9, Fabulis officially shut down, and Goldberg set out to get his sign-ups.

A New Business

The startup put up a placeholder page with a sign-up for member emails. Within 30 days, 50,000 people signed up to receive daily emails about Fab sales. Between outreach in the tech, fashion and design communities, Fab has started to create a decent set of potential users. But Goldberg and Shellhammer, along with fellow co-founders Nishith Shah and Deepa Shah, were worriedly trying to develop the e-commerce platform quickly enough so that people wouldn’t lose interest.

To keep people engaged in April and May, Fab would send email surveys every couple of weeks to signed up users about what categories they like, and as an incentive to participate, Fab offered the opportunity to win a product. Fab also created an online pinboard, which allows people to upload their design inspirations to an “inspiration wall.” Additionally, Fab began advertising on Facebook. Within two months, the membership grew to 175,000 users with zero sales.

Fab officially launched on June 9, 2011, with four sales. Sales on the first day included posters with Milton Glaser’s infamous “I Heart NY” logo, and an energy-efficient light bulb. The sales, which were sourced fully through Shellhammer’s relationships, sold $65,000 worth of product, and the next day brought more revenue and so on. Within the first 20 days, Fab has sold $1 million worth of merchandise.

“I gave everything I had inside of me to court the best stuff in the world for launch. I wanted the caliber of product to be sold on day one to be high,” said Shellhammer. When he envisioned what people would want to buy, he thought of himself and what items would get him fired up to actually make a purchase.

What made Fab distinctive off the bat was that the startup didn’t pitch designers on Fab as a liquidation outlet or flash sales site. “Even though we launched as one, we evolved from the flash sales model,” he explains. “We never intended for Fab to be a place where we would be selling deeply discounted items, we were betting that the awesome design of the products would be the motivating factor for purchase, not the price point.” Once designers and manufacturers realized that Fab was designed to simply showcase and sell their hard to find and unique items, it wasn’t hard to convince sellers to offer products on the e-commerce platform.

Jen Murse, the founder and designer behind jewelry brand Plastique, was one of the first merchants to sell on the e-commerce site. “I had actually received an invite from a friend for Fab before it launched, and randomly a week later, Bradford emailed me,” she says. At first, I was skeptical because I had been approached by other flash sales sites, but Fab wasn’t about taking margins, and its designer-focused approach seemed appropriate for my brand and business.”

Her first sale was in July, and because of that sale, Barney’s NY called Murse to design a style of jewelry for its Holiday pop-up shop. Since July, Murse has done four individual sales for Fab, and because of the revenue increase, she’s been able to quit her other job and focus purely on her jewelry business. She adds that she loves using the site as a purchaser, as well.

“We thought people would be excited, but we didn’t anticipate how much passion people have for well-designed products,” Goldberg says.

The next step after launching the site to the public was to have the most beautiful, social site around, he adds, as well as to develop operations and customer service. While Fab had raised $1 million funding from investor/actor Ashton Kutcher, SV Angel, SoftTech VC and previous backers First Round Capital, Baroda Ventures and The Washington Post, to help mitigate growth costs, Fab closed another round of $8 million in July of 2011, led by Menlo Ventures with a number of institutional and angel investors participating, including First Round, Baroda Ventures, The Washington Post, Goldberg himself, SoftTech VC, SV Angel, Kutcher, Guy Oseary and A-Grade Investments, Zelkova Ventures, Kevin Rose, Jon Anderson, Don Baer, Josh Kushner, Dave Morgan, Ben Ling, and David Tisch.

Goldberg says this funding allowed Fab to grow from 15 employees to 100 staffers. The company was able to hire Beth Ferreira, a former Etsy exec and retail consultant, as COO and David Lapter as CFO.

Things You Can’t Find At Amazon

By September, Fab was growing revenue by 40 percent from August. Goldberg realized he was onto something big when Fab hit 1 million members in November. “That’s the point where we started thinking of Fab as a brand, not a business,” says Goldberg. By November, Fab was on a run rate of $50 million for the year. The company projected to double this by 2012 to $100 million, but has exceeded this already. A year later, Fab has 8 million members and now expects to see $150 million in sales in 2012, nearly two years after launching with no revenue.

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