Jason Del Rey

Recent Posts by Jason Del Rey

The Real Reason for Fab’s Layoffs: A Big, Bad Bet on Flash Sales

fab broken heart layoffs

The Path to Profitability @Fab.”

That’s the title of a blog post published yesterday by Fab CEO Jason Goldberg, in which he explains his rationale for the company’s most recent round of layoffs, which totaled 101 people, bringing total cuts at the e-commerce company over the last two months to more than 250 employees, or 37 percent of the staff.

“The impetus behind this decision is our plan to accelerate Fab’s path to profitability,” Goldberg’s post read. “We are certain that driving towards a profitable Fab in the near-term is the way to build the best Fab for the long-term benefit of our customers.”

So, in short, Goldberg’s explanation is that Fab had to cut people, because it has decided — seemingly out of nowhere — that now is the time to focus on profitability over growth.

That push for profitability may indeed be a big factor in these moves.

But it’s not the only reason.

What Goldberg didn’t admit in the public explanation is that the company has had to drastically cut its headcount because it made a giant bet on being able to build a big, sustainable business over the long term around flash sales — the selling of a limited amount of product inventory that’s available only for short periods of time, designed to spur impulse buying.

Fab pumped a ton of venture capital into this fad, pushing staff counts ever higher while acquiring companies overseas.

And that bet failed.

Fab recognized this, and has pivoted to a more traditional retail model where it sells products over a long period of time and holds that inventory itself so it can get it in the hands of its customers quicker. Goldberg has convinced enough investors to give Fab another chance — perhaps for the last time — raising more than $160 million in a Series D round to fund the transition. And it so happens that the new business model requires a smaller staff than the former model.

In acknowledging all of this, Goldberg could have also acknowledged that he, his exec team and board messed up; they made the wrong bet. But he didn’t.

Asked for comment on Goldberg’s layoffs explanation and what it left out, a Fab spokesperson said in an email to AllThingsD: “We acknowledge that flash sales is a flawed business model.”

Jeff Jordan, a partner at Andreessen Horowitz and a member of Fab’s board, agreed with that assessment.

“In a perfect world, we probably could have gotten here in a straighter line,” he said.

But the company, he said, possesses a bunch of valuable assets it wouldn’t have if not for the original flash-sales iteration of Fab: A large customer base, pretty good brand awareness and strong relationships with suppliers.

The one asset it has a lot less of today, though, as a result: Employees.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik