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Why do startups fail? Some fall into ‘the speed trap’ – Source fastcompany.com

How fast is too fast? Fab.com cofounder and CEO Jason Goldberg learned the hard way. When it launched in 2011, Fab was a flash-sale site that curated distinctively designed consumer products and sold them at deeply discounted prices. It was an instant hit. Fab’s featured offers spread like wildfire through social media, so Fab didn’t have to spend any money on marketing—initially. The products were shipped directly to consumers by their designers, so Fab didn’t hold any inventory—initially. As a result, the fledgling venture had positive cash flow—temporarily.

To prepare for further growth, Fab raised $320 million in venture capital. It sold an impressive $115 million of merchandise during 2012—but its business model was starting to unravel. To sustain its growth, Fab spent $40 million on marketing that year, and lost $90 million. Shoppers attracted through ads were less obsessed with design than Fab’s early customers, and as a result were much less likely to…

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Source : fastcompany.com

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