Lessons from Fab, a failed ecommerce unicorn

Lessons from Fab, a failed ecommerce unicorn

This is part two (part one here) of a three-part series with Catherine Pao, growth product manager at Blue Apron. We chatted with Catherine about what she learned onboard rocketship unicorn Fab, among other topics. You can listen to the entire conversation on the What I Know Best podcast. Be sure to subscribe and learn from other experts across the Quibb network in coming weeks.


In 2011, online flash sales retailer Fab reached one million users just five months after launch. In 2012, one of the company’s big name investors, Marc Andreessen, called Fab an “e-commerce category killer.” But after a whirlwind couple of years, the company raised millions of dollars on a business model that just wouldn’t work. It expanded too fast and wasn’t showing signs of profitability. In 2013, Fab spent $40 million on marketing alone — approximately 35% of total revenue. We chatted with Catherine Pao about the major lessons she learned as a marketing manager at Fab, and the missed red flags along the way.

Lessons learned with a big budget

Fab was known for their aggressive advertising spanning re-marketing campaigns, frequent emails, and leveraging social channels — especially Facebook and their features that allowed for tightly defined user targeting. One of the biggest lessons that Catherine learned in her role at Fab that she’s brought into her work at Blue Apron relates to human psychology. She learned a ton about how to uncover what customers respond to in running all of Fab’s paid Facebook acquisition budget. 

She had full ownership of the channel to experiment with — testing copy, product, and images. She developed her intuition around what appeals to customers. The fact that it was constrained to only Facebook meant that her results were not platform dependent, and she was working with a clean set of variables and inputs, compared to other marketing campaigns that often cross different digital channels. Due to the size of the budget, she was able to cycle through many different campaigns in a very short period of time. At the end of each day she saw what worked and what didn’t work.

“During my first two months at Fab I was basically managing all our paid Facebook acquisitions, which was one of our biggest channels at the time. So back in the day the site had all these morning and evening flash sales. It was always my own little psychology laboratory because the day before, I would look at the upcoming sales, and I would wonder who’s going respond best to these animals, art-styles jewelry, men’s underwear and jellyfish tanks. There was some really interesting stuff sold on there.”

This ability to understand the levers of what people respond to has been highly valuable in her new role, as Catherine drives to understand how to grow Blue Apron’s subscriber base. The aggressive, growth-focused mindset instilled across Fab has been big impact on how she approaches her work, and how she thinks about generating customer desire.

Without subscription, retention matters

Startups often talk about acquisition as an important part of growth. Back in 2012/2013 when Catherine worked at Fab, the focus was all about acquisition but there wasn’t a lot of talk about retention. Case in point — Fab was acquisition-focused and didn’t really understand retention. This early understanding meant that a lot of revenue-generating startups that were not subscription products had a lot of trouble creating repeat customers. This was a big piece in the downfall of Fab — an LTV that was very high — too high.

So why didn’t it work? Looking back, Catherine now recognizes one big red flag — Fab’s brand didn’t do well on its own. While customers would purchase from Fab, they wouldn’t actually give any credence to the brand name, and didn’t think of it when they needed to purchase something else in the future.

“I think we had a lot of dashboards and metrics we were looking at and one of the key red flags in retrospect was the ads that were around the branding of Fab never did so well. If we were just trying to say we were just trying to improve design in the world and being that design store, that never really resonated with customers and all of acquisition was so product-driven. You have to put the animal tees front and center. Does that really convey the essence and true nature of Fab?”

This lack of brand recognition led to another problem, a deeper problem. While people would buy a funny gift item from Fab, or a quirky decoration for their home, they didn’t see Fab as a place that they should visit on a recurring basis. Repeat purchases were rare. And when each of those customers was acquired via paid acquisition, it meant that there was a lot of money being spent to acquire customers multiple times, and there was no loyalty discount from hardcore customers. Those types of customers simply didn’t exist, or were too rare to allow the LTVs and CACs to balance out.

“At Fab, we were so focused on acquisition. There was such a high valuation on that. Trying to live up to that and coupled with the belief that if we get customers to make one purchase, they’d have such a great experience and come back again, which in retrospect wasn’t exactly the right mindset. Then having people come back and make repeat purchases wasn’t a free thing either. We had to pay that double. We were almost doubly taxed there — trying to understand our customers and why they weren’t coming back and making repeat purchases and putting a spotlight there — versus focusing so much on acquisition would have been really helpful.”

It’s a powerful lesson that has again helped Catherine in how she thinks about her work at Blue Apron. The chance to have worked in such an environment — a massively funded unicorn with a growth-minded culture and the freedom to experiment — has given Catherine an experience that’s unique and highly valuable in the startup world.

How a dying startup seeds the ecosystem

While the idea of a failed startup doesn’t immediately lend itself to a positive perspective, the failure of Fab did exactly that. People often talk about the value that successful startups create outside their own walls: putting people back into the ecosystem, who then both build new companies and help scale other growing startups. But there’s another aspect that’s often less explored, the death of a startup can help grow the ecosystem, too. Fab, for example, made a big impact on Catherine personally and on many of her colleagues. Six people from Fab are now Catherine’s colleagues at Blue Apron. They occupy new, powerful roles in the company — including VP of Product.

This isn’t a phenomenon that’s exclusive to Blue Apron, they didn’t roll out a welcome mat to ex-Fab employees. The implosion of the NYC-based ecommerce unicorn benefitted many other companies across the east coast startup ecosystem.

“For me, the silver lining of everything that happened was really this amazing diaspora of a lot of Fab employees going to work at other companies all around the city. I actually joined Blue Apron because I was basically brought in by someone I used to work with at Fab. There are six of us from Fab at Blue Apron now. Some of my favorite people including our current head of products (who was the marketing product manager that I worked really close with at Fab). I think that part of Fab’s story is always lost.”

 

Mike Schoonover

REAL robots doing REAL stuff in the REAL world

7y

LTV = life time value (of a customer) CAC = customer acquisition cost (for those not versed in the arts, I looked it up for you)

Like
Reply
Robbie McGinley

Founder Zippittee.com ( Travel More . Often )

7y

I just don't get it. On Catherine's Linkedin profile , she spent 12 months "driving end to end retention marketing" for Microsoft Live Messenger, immediately before joining FAB. Yet, in 2013, with responsibility for FAB's marketing, and burning a jaw-dropping $40m on marketing experiments( there MUST be a misprint there surely), Catherine admits that "at FAB, we were so focused on acquisition". Short memory it seems. Just who can afford a $40m "experiment" like that? If it's Marc (Andreessen) and you're tuning in, Marc, have a look at start-ups here in Ireland. We won't treat your investment like Monopoly money. My own (pre) start-up for example is pre-revenue and its unique digital solution will grow the Leisure travel cake globally, starting in the US with the student travel market. Low CAC and High LTV ( global value of that "niche" in 2015 was $173 BILLION). And all we're chasing in seed funding to take off is around $300k. By my reckoning, that's roughly what FAB spent on Marketing every 3 days of the year in 2013. I'll take your call anytime Marc.;)

Like
Reply
Rudy Chery, MBA

Senior Account Executive at Extend

7y

Great article, I got the podcast for the trip back home.

Like
Reply
Denise Jackson

Entrepreneurs Coach/Accountability Partner

7y

Simon good ideas!

Like
Reply

To view or add a comment, sign in

Insights from the community

Others also viewed

Explore topics